$2.4B cash deal creating first New York Based Lux lifestyle brand: Coach buys Kate Spade

The New York based, global luxury fashion brand, Coach, Inc (NYSE: COH) announced on Monday that they will follow through with their plans to buy their fashion rival, Kate Spade & Company (NYSE: KATE), who also has their headquarters located in New York.

Coach stocks made gains of over 5% early on this trading day, with news that they will, after extensive negotiations and delays, purchase Kate Spade in an all cash deal for 2.4 billion dollars. The deal will consist of a combination of bridge financing from Bank of America Merrill Lynch and $1.2 billion in excess cash. Coach strategically prepared for their merger and acquisition by reducing their cash to debt ratio by increasing their cash reserves and mitigating their debt. Great news as they also reported in their fiscal Q3 of 2017, released May 2, 2017 resulted in a 7% increase in EPS. As Victor Luis, Chief Executive Officer of Coach, Inc., stated, “Our solid performance this quarter was very much in line with our expectations and our strategic initiatives. In a volatile and complex global environment, we delivered continued positive comparable store sales for the Coach brand in North America and gross margin expansion in each segment, while tightly controlling costs. We continued to drive growth in our directly-operated Europe and Mainland China businesses, which represent the most significant geographic opportunities for our brands. And, despite our deliberate pullback in the North America wholesale channel and the impact of calendar shifts, we delivered earnings growth. Importantly, we announced a new leadership structure and strengthened our Coach Brand team, a critical step in Coach, Inc.’s evolution as a customer-focused, multi-brand organization.”

Kate Spade stocks also made gains in the amount of 8+% when the news of the Coach deal was announced. Kate Spade has a history of fresh modern and graphic styles and prints that attracted women and fashion editors the world over, especially the coveted millennial buyer. Through recent structural changes in department stores as many brands see an increase in online sales trumping that of brick and mortar, the brand needs strengthen, as they have constantly placed their goods to off-priced channels to boost sales in a seemingly faltering luxury retail market. Following suit of many other fashion brands such as the local favorite, Brooklyn based Jewelry brand, Alexis Bittar.

In line to change this trend, Craig A. Leavitt, chief executive officer of Kate Spade, states, “Following a thorough review of strategic alternatives, reaching an agreement to join Coach’s portfolio of global brands will maximize value for our shareholders and positions Kate Spade for long-term success as we continue our evolution into a powerful, global, multi-channel lifestyle brand.” 

Coach’s chief financial officer, Kevin Wills, enlightens us on their plan to change sale strategies for Kate Spade by stating:” Coach plans to reduce sales in Kate Spade’s wholesale business and online flash sales channels – steps Coach has taken for its own core brand – and have the acquisition be accretive in fiscal 2018 on a non-GAAP basis, and reach double-digit accretion by fiscal 2019, also on a non-GAAP basis.” Kevin also eluded to the potential growth of the business by adding “that due to the complementary nature of the two businesses, Coach believes it can realize a run rate of $50 million in synergies within three years of the closing of the deal. The cost synergies will be realized through operational efficiencies, improved scale and inventory management and the optimization of Kate Spade’s supply chain network.”

Victor Luis, chief executive officer of Coach, said, “Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials. Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation.” Luis added that Coach’s extensive experience in opening and operating specialty retail stores globally can help to unlock Kate Spade’s largely untapped global growth potential. “We are confident that this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth.” Mr. Luis ended with “We believe the Kate Spade brand will benefit from our best-in-class supply chain and strong corporate infrastructure."

It almost feels like Coach is becoming the LVMH of Luxury brands of New York after acquiring the global leader of lux shoe brand, Also New York based, Stuart Weitzman in 2015. Coach Brand appears to be working smart with their funds to acquire these multinational brands to fit snuggly under their fashion luxury branding umbrella whilst securing market share.

About Coach

Coach, Inc. is a leading New York design house of modern luxury accessories and lifestyle brands. The Coach brand was established in New York City in 1941, and has a rich heritage of pairing exceptional leathers and materials with innovative design. Coach is sold worldwide through Coach Stores, select department stores and specialty stores, and through Coach's website at www.coach.com. In 2015, Coach acquired Stuart Weitzman, a global leader in designer footwear, sold in more than 70 countries and through its website at www.stuartweitzman.com. Coach, Inc.'s common stock is traded on the New York Stock Exchange under the symbol COH and Coach's Hong Kong Depositary Receipts are traded on The Stock Exchange of Hong Kong Limited under the symbol 6388.

About Kate Spade & Company

 Kate Spade & Company operates principally under two global, multichannel lifestyle brands: kate spade new york and Jack Spade New York™. The Company's four category pillars – women's, men's, children's and home – span demographics, genders and geographies. Known for crisp color, graphic prints and playful sophistication, kate spade new york aims to inspire a more interesting life. The kate spade new york collection includes the Madison Avenue, Broome Street and on purpose labels. Jack Spade New York offers a timeless and versatile assortment of bags, sportswear and tailored clothing founded on the aesthetic of simple, purposeful design. The Company also owns Adelington Design Group, a private brand jewelry design and development group.

Leave a Comment