Michael Kors buys Jimmy Choo for $1.2 Billion

Published on: 26 Jul, 2017

According to Reuters, U.S. retailer Michael Kors Holding Ltd (NYSE: KORS) agreed to buy luxury shoemaker Jimmy Choo PLC for $1.2 billion, snapping up a British company whose towering stilettos have been made famous by celebrity customers from Princess Diana to Kendall Jenner.

Two months ago, rival handbag maker Coach Inc. (NYSE: COH) struck a deal to buy quirky fashion brand Kate Spade & Co (NYSE: KATE), as so-called affordable luxury companies look at new markets and customer bases to boost flagging sales.

Jimmy Choo makes three quarters of its revenue from selling shoes and has about 150 company-operated retail stores around the world.

Their strong performance stands in contrast to Kors, which has lost 65 percent of its market value since 2014 due to fierce competition and a drop in customers at department stores.

Jimmy Choo’s shares went up 17 percent at 228.00 pence at 1510GMT. Michael Kors’ shares fell 1.2 percent this morning at the New York Stock Exchange.

Kors said on a conference call that Jimmy Choo will help Kors expand its footwear portfolio to 17 percent of total sales form 11 percent.

John Idol, the Chief Executive at Michael Kors said that the shoemaker has the potential of raking in $1 billon in sales annually as it opens more stores in Asia, especially China. He also said that the pace of the store expansion will be measured.

The company was expanding too fast, making the brand too ubiquitous, leading to a falling demand for Kors bags.

In May, Michael Kors said that sales at stores established for more than a year fell 14 percent in its fiscal fourth quarter.

Jefferies analysts wrote in a broker note “We like the target given its solid financial footing, premium luxury positioning, and footwear leadership.”

According to Reuters, Kors will pay a premium of 36.5 percent to Jimmy Choo’s closing price before it was put up for sale.

Zuzanna Pusz, an analyst from Berenberg said that the Kors and Coach deals showed U.S. accessible luxury companies were pursuing the multi-brand strategy found in Europe, where cash flows from one large brand are reinvested into smaller but faster growing ones.

After its majority-owner JAB, the investment vehicle of Germany’s billionaire Reimann family signaled its intention to focus on consumer goods instead, Jimmy Choo put itself up for sale in April.

Goldman Sachs and JP Morgan acted for Michael Kors on the deal, while Merrill Lynch, Citigroup, Liberium and RBC Europe acted for Jimmy Choo.

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