Head Over Heels

Jimmy Choo Walks All Over Michael Kors

Carrie Bradshaw's favorite fetches a well-heeled price.
Photographer: Christian Vierig via Getty
At Closing, June 15th
67.52 USD
At Closing, June 15th
301.45 EUR

Jimmy Choo Plc is walking over Michael Kors in its $1.4 billion sale to the U.S. luxury house. To justify the price, Michael Kors Holdings Ltd. is going to have to achieve a step-change in the icon shoe brand's financial performance. If that means chasing higher volumes, it risks damaging the cachet of its new addition.

London-based Jimmy Choo put itself up for sale in April after barely three years as a public company. Selling to Kors gives its 68 percent owners, privately-held JAB Investments BV, and their stock market co-investors a very respectable exit. The annualized return since IPO is about 20 percent. The deal was struck at a 37 percent premium to a strong share price. 


Shares in Jimmy Choo rose 82 percent before the Michael Kors deal announcement

Source: Bloomberg

The all-in price including assumed net debt equates to 1 billion pounds ($1.35 billion), or 15 times prospective Ebitda. That's in line with where luxury powerhouse and Gucci-owner Kering trades, and a premium to LVMH Moet Hennessy SE and Cie Financiere Richemont SA. Ok, those are trading multiples whereas the deal price includes a premium for change of control. Even so, the starting return on invested capital looks to be an inadequate 4 percent.

Doubtless Jimmy Choo might have preferred to find a home in an LVMH or a Richemont. Such an owner might help it regain the luxury prestige it commanded in the early 2000s, thanks in part to it featuring prominently in U.S. television show Sex and The City.

But Kors almost certainly needed a deal more. It is suffering a slowdown, the consequence of a strategy that has prioritized revenue growth even though overexposure is the enemy of luxury. Kors doubled the number of its stores over three years and has counted on ever-deeper discounts to keep its bags and shoes selling. That boosted sales after its 2011 IPO, but growth peaked in 2013 and revenue declined last year.

Out of Fashion

Sales at Michael Kors jumped as it built hundreds of new stores and lured customers with discounts, but the strategy backfired as the brand became over-exposed

Source: Bloomberg

Kors looks like it wants to give Jimmy Choo similar treatment. Chief among its stated benefits for this deal is the opportunity to double the target's yearly sales to $1 billion. There are to be more Jimmy Choos for men, and more accessories.

In fact, it sounds like it's going to be Jimmy Choos for everyone. There will be plenty to keep renowned designer Sandra Choi busy. The risk for Kors is that it devalues the legacy it has acquired.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the authors of this story:
    Chris Hughes in London at chughes89@bloomberg.net
    Shelly Banjo in Hong Kong at sbanjo@bloomberg.net

    To contact the editor responsible for this story:
    James Boxell at jboxell@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.