Coach Inc is buying Stuart Weitzman Holdings LLC from private equity firm Sycamore Partners for about US$530 million. Coach is also set to make up to US$44 million in contingent payments to Sycamore Partners if revenue targets are reached over the three years after the deal closes.
The deal is expected to bolster Coach’s image, while creating growth opportunities as it struggles to turn around its brand under Coach chief executive officer Victor Luis, who took the post in January last year. For Stuart Weitzman, the deal is set to expand its business overseas.
It is a rare acquisition for Coach, which has long grown internally. While analysts praised the deal, some worry that it could be a distraction to its core business, especially when efforts so far to rework its new designs have not seen much traction.
“[Coach] may have been better served keeping its sole focus on its own transformation, of which we are seeing some progress, but believe still has many legs to unfold,” Jefferies equities analyst Randal Konik wrote in a report published on Tuesday.
Coach has been suffering as shoppers defected to brands like Michael Kors and Kate Spade to buy handbags that are edgier, but are priced similarly. Coach has had five straight quarters of sales declines including the quarter ended Sept. 27 in which total sales were down nearly 10 percent. North American sales fell 19 percent for the quarter.
However this past holiday shopping season the intensity of handbags promotions increased, according to a Credit Suisse report. In fact, Michael Kors’ shares fell more than 8 percent on Tuesday after Credit Suisse’s Christian Buss reduced the company’s stock rating, citing an increase in discounting at the brand this holiday season.
Coach previously announced it plans to close about 70 underperforming stores this fiscal year. Last year, the company hired British designer Stuart Vevers to inject new life into the brand. His debut handbag collection for Coach hit stores last September.
Coach has been trying to diversify, but handbags still account for the bulk of its business. For the year ended June 28, women’s handbags accounted for 55 percent of total annual sales of US$4.8 billion, while other products like footwear and jewelry made up 9 percent of total sales.
Women’s accessories, which include cosmetic bags, made up 22 percent of its total business, while men’s products accounted for 14 percent, according to its regulatory filings.
Stuart Weitzman posted about US$300 million in revenue for the 12 months ended Sept. 30 last year. The brand is available in 70 countries. Its products are sold in fine specialty and department stores globally and in its own retail stores in the US and Europe.
“We are excited to be working with the Coach team and leveraging its strong infrastructure to help us drive efficiency and expand our product mix to an even broader consumer base worldwide,” Stuart Weitzman Holdings creative director and executive chairman Stuart Weitzman said in a statement.
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