<\/p>\n
\n\tCapri Holdings might be back in the dealmaking game.<\/p>\n
\n\tThe company \u2014 which sold Versace last year, but still owns Michael Kors and Jimmy Choo \u2014 is said to have connected with investors potentially interested in buying the business. <\/p>\n
\n\tWhile the process is still informal and one banker cautioned it was not a deal that would happen in the \u201cnear term,\u201d sources said it\u2019s gone far enough that at least some would-be acquirers have taken a close look at the company\u2019s books.<\/p>\n
\n\tWhile private equity companies have become semi-allergic to fashion in recent years, there could be a value-play to be made given Capri\u2019s relatively low standing in the stock market. The brand management companies are also always looking for well-known names that aren\u2019t necessarily getting credit for their scale on Wall Street.<\/p>\n
\n\tA spokeswoman for the company declined to comment on \u201crumors or speculation.\u201d<\/p>\n
\n\tBut Capri is well known in the deal market.<\/p>\n
\n\tJohn 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.<\/p>\n
\n\tIn 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.<\/p>\n
\n\tAt the time, the bankers said there were only a \u201climited number\u201d of potential buyers for the business.<\/p>\n
\n\tOne 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.<\/p>\n
\n\tMeanwhile, Idol & Co. have been working on a turnaround.<\/p>\n
\n\t\u201cYou can look across the landscape of luxury brands and they go through moments,\u201d the CEO told investors at a conference last week. \u201cTheir 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.\u201d<\/p>\n
\n\tNow the company is cutting back on price promotions, amping up its marketing, refreshing its stores and, as Idol said, \u201claying the foundation for what is going to be future growth.\u201d<\/p>\n
\n\tBut it\u2019s 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.<\/p>\n
\n\tOne hurdle to a deal could be the $809 million in derivative liabilities that sources said would come due immediately in a change of control.<\/p>\n
\n\tThe company said that figure \u201crepresents the market-to-market fair value of our net investment hedge contracts\u201d as of June and should not be viewed as \u201ca fixed liability.\u201d The contracts have maturity dates that start in March and run through 2045.<\/p>\n
\n\tThose liabilities are tied to Capri\u2019s unusually large currency hedging operation, which includes \u201c$3.5 billion of fixed-to-fixed cross-currency hedges\u201d 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\u2019s 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.\u2019s books.<\/p>\n
\n\tCurrency hedges can also create some benefits, like the $352 million of interest income they produced for Capri over the past three fiscal years combined.<\/p>\n
\n\tWhile 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.<\/p>\n
\n\t\u201cI\u2019m sure a smart banker could put a financial deal together that nullifies it and I don\u2019t believe it\u2019s the end of the deal,\u201d said fashion-savvy attorney Jonathan Lazarow, who previously ran an investment fund.<\/p>\n
\n\tBut, first, the company\u2019s leadership has to do some soul searching \u2014 if it hasn\u2019t already \u2014 about where it\u2019s headed in a rapidly changing fashion landscape.<\/p>\n
\n\t\u201cCapri\u2019s going to have to figure out, \u2018Is it a go-it-alone business?\u2019\u201d Lazarow said. \u201cAmerica and American investors \u2014 LVMH, Kering and Richemont aside \u2014 we\u2019re just not interested in these holding companies. Having multiple brands is not conducive to the American investor platform.<\/p>\n
\n\t\u201cMichael Kors could sell itself, Jimmy Choo could sell itself, these are very real options,\u201d he said. \u201cWhat they\u2019ve got to figure out is, \u2018How do you maximize shareholder value?\u2019\u201d<\/p>\n
\n\tThe answer to that question is always changing and relies heavily on market sentiment and industry trends.<\/p>\n
\n\t\u201cBankers get together and say, \u2018Let\u2019s consolidate this and this,\u2019 and say XYZ and the reality is, 10 years later, they say, \u2018Well, it didn\u2019t work, so let\u2019s split it all up again,\u2019\u201d Lazarow said. \u201cIt\u2019s circular in nature.\u201d<\/p>\n
\n\tThat leaves Capri \u2014 and the rest of the big fashion companies, really \u2014 having to navigate the whims of consumers on one side and the ever-changing benchmarks of corporate structure on the other.<\/p>\n
\n\t\u201cMichael Kors has now become a legacy brand,\u201d said Simeon Siegel, a stock analyst who follows Capri for Guggenheim Securities. \u201cIt carries brand cache \u2014 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.\u201d<\/p>\n
\n\tCapri\u2019s market capitalization is down about 40 percent this year to around $1.7 billion \u2014 well below the $10 billion it garnered in 2022 or $20 billion it topped out at in 2014.<\/p>\n
\n\t\u201cThe company has not inspired investors to view the brand\u2019s potential power and think about how far its reach extends,\u201d Siegel said. \u201cInstead 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.\u201d<\/p>\n
\n\tMichael Kors\u2019 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.<\/p>\n
\n\tBalancing 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.<\/p>\n
\n\tIdol, stock market investors and would-be acquirers are all looking at the business as it is today and where it\u2019s headed and deciding just what those numbers actually mean.<\/p>\n
\n\tAnd their calculations will determine what happens next at Capri.<\/p>\n
#Capri #Holdings #Faces #Sale #Talks #Luxury #Brand #Challenges<\/p>\n","protected":false},"excerpt":{"rendered":"
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