Can Versace Take Michael Kors Where It Wants to Go?

Can Versace Take Michael Kors Where It Wants to Go?

Michael Kors is said to be negotiating to buy Versace for an estimated $2.4 billion.  Versace has sales of around $800 million.  Kors had $4.7 billion in sales in the year ended in March.

While the Versace acquistion will help to boost top line sales, will make enough of a contribution to the bottom line?

Analysts are seriously questioning the risk versus reward of this deal.

Strategy

  • To build a portfolio of luxury brands to compete with other luxury groups (LVMH, Kering, Tapestry).
  • Drive growth - since sales of Michael Kors have stagnated.
  • Move past its position as “aspirational” or “middle luxury”, and a dependence discounting.

Market Reaction

  • Michael Kors shares fell about 8.2% $66.71 on the Versace rumors.
  • Analysts believe Kors could be taking on more than it can handle - especially after the Jimmy Choo acquisition last year.
  • Versace financial performance has been weak - will teaming up with Michael Kors make both stronger - or will it create a bigger but weaker entity?
  • Michael Kors is still recovering from a two-year sales slump.


Luxury Market
Not like the ‘good old days’…facing big challenges as consumer preferences change…looking to Asian markets for growth.


Recent Kors Acquisitions
Jimmy Choo for approximately $1.2 billion (last year)

Recent Luxury Brand Acquisitions

  • Thom Browne sold an 85% stake to Ermengildo Zegna for $500 million (August)
  • Puig acquired a major stake in Dries Van Noten (June)
  • Richemont bought Net-a-Porter for around $3.3 billion (May).
  • Kate Spade acquired by Tapestry for around $2.4 billion (last year)

Who Owns Versace

  • 80% Versace family
  • 20% Blackstone (US private equity firm)

(Blackstone is rumored to be looking for an exit due to the brand’s weak performance)

Versace Financial

  • Versace’s earnings were roughly $18 million (2.25%) on about $800 million in revenue in 2017.
  • The brand has struggled in recent years to grow sales.
  • It relies on Chinese consumers and other emerging markets but consumers there are changing.

Luxury Group Revenue

  • LVMH - US$50 billion
  • Kering - $18 billion
  • Tapestry - $6 billion
  • Michael Kors Holdings - $4.7 billion

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