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In the retail business, living and dying by the health of a single brand or by the mood of a season is a dangerous proposition. Established companies compete not only with
Amazon.com
but also with a stream of venture-backed startups offering consumers lower prices and eroding the pricing power of incumbent operators. To survive, retailers need flexibility or size.
Michael Kors
has now joined some American companies opting for the latter solution, turning into luxury homes in the spirit of
LVMH
The French conglomerate that owns the Louis Vuitton brands in Dom Pérignon. Having multiple brands outweighs the risks, but diversification can also create challenges.
Take Coach, renamed "Tapestry" last year after acquiring Stuart Weitzman in 2015 and Kate Spade in 2017. The new company has surpbaded last week's earnings quarterly estimates, with the strength of its Coach brands and Kate Spade offsetting the losses and the problems of execution at Stuart Weitzman.
Having multiple brands under one roof means that it's not necessary to do everything right, says Simeon Siegel, a retail badyst at Nomura Securities. "You mitigate and moderate the versatility of fashion, and as you grow, you can evolve."
This approach is clearly appealing to Michael Kors. He acquired Jimmy Choo last year and announced this fall that he would buy Versace for $ 2.4 billion. But absorbing brands is never as simple as the model suggests, says Siegel. Michael Kors has been widely criticized for paying too much for Versace. The Italian fashion brand is barely profitable. Shares have fallen, reflecting fears that the new acquisition will destroy shareholder value.
Investors did not find much comfort in the company's second-quarter earnings report. On Wednesday, Michael Kors announced earnings per share of 91 cents, up from $ 1.32 a year ago, and a turnover of $ 1.25 billion, or $ 1.26 billion. Shares fell 15% in the morning of trading to reach a new low in a year.
Even at Michael Kors', where incomes were stable compared to last year, the company has imputed inventory problems. He had reduced the surplus of products, but did not have enough in some styles that were selling. Jimmy Choo's sales made up for it somewhat, with stronger than expected growth. This prompted the company to increase its guidance for the 5-cent year from $ 4.95 to $ 5.05 per share.
The acquisition of Versace, announced this quarter, was not taken into account in the report. The company announced the synergies of the deal: Jimmy Choo and Versace occupy a similar niche, rarefied, while Michael Kors tends to be ranked in the "affordable luxury" category, a lower notch on the spectrum of opulence . It plans to increase Versace's turnover from 700 million euros (2017) to 2 billion dollars in 2017, adding a hundred stores. Investors remain skeptical.
The sale since the announcement of the transaction is now roughly equivalent to what Michael Kors paid for the acquisition. At this price, investors are isolated from the risk that Versace is a disastrous gesture and that he can enjoy it, even if it is not the case. The stock market's judgment was swift, but it gave buyers an increasingly rare luxury: a margin of safety.
Write to Elizabeth Winkler at the address [email protected]
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