Capri Holdings might be back in the dealmaking game.
The company — which sold Versace last year, but still owns Michael Kors and Jimmy Choo — is said to have connected with investors potentially interested in buying the business.
While the process is still informal and one banker cautioned it was not a deal that would happen in the “near term,” sources said it’s gone far enough that at least some would-be acquirers have taken a close look at the company’s books.
While private equity companies have become semi-allergic to fashion in recent years, there could be a value-play to be made given Capri’s relatively low standing in the stock market. The brand management companies are also always looking for well-known names that aren’t necessarily getting credit for their scale on Wall Street.
A spokeswoman for the company declined to comment on “rumors or speculation.”
But Capri is well known in the deal market.
John Idol, chief executive officer and chairman, built Michael Kors into a giant, and then bought Jimmy Choo and Versace to create a luxury-leaning group.
In late 2022, the company met with investment bankers from Barclays and reviewed a number of options for the business, including a sale of all of Capri, an IPO of just Versace and Jimmy Choo and a sale of the two luxury brands.
At the time, the bankers said there were only a “limited number” of potential buyers for the business.
One of them was Coach-parent Tapestry Inc., which ended up approaching Idol and negotiating an $8.5 billion deal to buy the company. That deal was then tripped up by antitrust concerns in late 2024 and then, last year, Capri sold Versace to Prada for $1.4 billion, using the proceeds to clean up the balance sheet.
Meanwhile, Idol & Co. have been working on a turnaround.
“You can look across the landscape of luxury brands and they go through moments,” the CEO told investors at a conference last week. “Their product gets off trend. And you lose the attention or the zeitgeist of the consumer. I would say very much Michael Kors was in that position some 18-plus months ago.”
Now the company is cutting back on price promotions, amping up its marketing, refreshing its stores and, as Idol said, “laying the foundation for what is going to be future growth.”
But it’s always a question as to how long investors will wait for a turnaround, a dynamic that could make a sale appealing even though such transactions are never simple.
One hurdle to a deal could be the $809 million in derivative liabilities that sources said would come due immediately in a change of control.
The company said that figure “represents the market-to-market fair value of our net investment hedge contracts” as of June and should not be viewed as “a fixed liability.” The contracts have maturity dates that start in March and run through 2045.
Those liabilities are tied to Capri’s unusually large currency hedging operation, which includes “$3.5 billion of fixed-to-fixed cross-currency hedges” on its investment in Swiss francs and another $2.4 billion in hedges for its investment in euros, according to a regulatory filing last month. By comparison, Capri’s derivative liabilities stand about 3.5-times the roughly $230 million carried by Tapestry and well ahead of the $13.7 million on Ralph Lauren Corp.’s books.
Currency hedges can also create some benefits, like the $352 million of interest income they produced for Capri over the past three fiscal years combined.
While at least one would-be acquirer was surprised by the absolute size of the derivative liability, other experts saw more of a hurdle than a roadblock.
“I’m sure a smart banker could put a financial deal together that nullifies it and I don’t believe it’s the end of the deal,” said fashion-savvy attorney Jonathan Lazarow, who previously ran an investment fund.
But, first, the company’s leadership has to do some soul searching — if it hasn’t already — about where it’s headed in a rapidly changing fashion landscape.
“Capri’s going to have to figure out, ‘Is it a go-it-alone business?’” Lazarow said. “America and American investors — LVMH, Kering and Richemont aside — we’re just not interested in these holding companies. Having multiple brands is not conducive to the American investor platform.
“Michael Kors could sell itself, Jimmy Choo could sell itself, these are very real options,” he said. “What they’ve got to figure out is, ‘How do you maximize shareholder value?’”
The answer to that question is always changing and relies heavily on market sentiment and industry trends.
“Bankers get together and say, ‘Let’s consolidate this and this,’ and say XYZ and the reality is, 10 years later, they say, ‘Well, it didn’t work, so let’s split it all up again,’” Lazarow said. “It’s circular in nature.”
That leaves Capri — and the rest of the big fashion companies, really — having to navigate the whims of consumers on one side and the ever-changing benchmarks of corporate structure on the other.
“Michael Kors has now become a legacy brand,” said Simeon Siegel, a stock analyst who follows Capri for Guggenheim Securities. “It carries brand cache — even if it has deteriorated, that drives a tremendous amount of revenues, even if people believe it to be neglected. And yet its market cap looks like a much smaller, newer business.”
Capri’s market capitalization is down about 40 percent this year to around $1.7 billion — well below the $10 billion it garnered in 2022 or $20 billion it topped out at in 2014.
“The company has not inspired investors to view the brand’s potential power and think about how far its reach extends,” Siegel said. “Instead people have been waiting to decide if it is actually under selling and under earning or it is seemingly working its way out of existence. It is very hard to kill a brand and the reality is, Michael Kors revenues, even if declining, continue to show us that people are buying their product.”
Michael Kors’ top-line take fell 7.1 percent to $590 million in the first quarter, producing operating income of $55 million and an operating margin of 9.3 percent.
Balancing that out somewhat was the much smaller Jimmy Choo, which saw first-quarter revenues grow 10.5 percent to $179 million, with operating income of $13 million and an operating margin of 7.3 percent.
Idol, stock market investors and would-be acquirers are all looking at the business as it is today and where it’s headed and deciding just what those numbers actually mean.
And their calculations will determine what happens next at Capri.
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