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In the retail business, living and dying because of the health of a single brand or 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
,
LVMUY 1.21%
the French conglomerate which owns Louis Vuitton brands at Dom Pérignon. Having multiple brands offsets risks, but diversification can also be a challenge.
Take Coach, which was renamed "Tapestry" last year after acquiring Stuart Weitzman in 2015 and Kate Spade in 2017. The new company beat last week's estimates by presenting its fourth-quarter results, the strength Coach and Kate Spade brands offsetting losses and problems with Stuart Weitzman.
Simeon Siegel, a retail analyst at Nomura Securities, has several solutions. "You disable 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 solace 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. Stocks dropped 15% in the morning to their lowest level in a year.
At Michael Kors itself, where revenues were stable compared to last year, the company has been experiencing 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 led the company to increase its guidance for the year from 5 cents to $ 4.95 to $ 5.05 a share.
The acquisition of Versace, which was only announced this quarter, was not reflected 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 has 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 [email protected]
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