Don’t buy Kors for Versace — ‘BUY KORS FOR KORS,’ Jefferies says (KORS)

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Michael Kors

  • Jefferies reiterated its “buy” rating for Micheal Kors after the acquisition of the Italian designer house Versace.
  • “Nice Playbook For Versace, But BUY KORSFOR KORS,” Jefferies analyst Randal Konik said.
  • Versace could benefit from Kors’ expertise in accessories and omnichannel development.
  • Watch Michael Kors trade in real time here.

After its $2.1 billion deal for the Italian fashion house Versace, Jefferies reiterated its “buy” rating for Michael Kors, with a price target of $93. “Nice Playbook For Versace, But BUY KORS FOR KORS” wrote Randal Konik, an analyst at the firm.

In its press release announcing the deal, Michael Kors said it’s hoping to grow Versace’s revenue to $2 billion globally, up from its current $850 million. And in order to reach its goal, it will expand its retail footprint by opening another 100 stores globally, strengthen its e-commerce business, and grow its accessories and footwear business to 60% of its overall revenue — from 35%. 

This feels achievable and we believe Versace can benefit from Michael Kors’ infrastructure, human capital, and relationships, but will require spending to distinguish the brand in an increasingly competitive landscape, improve its appeal with the millennial demographic, and elevate its distribution,” Konik said.

The note also suggests the purchase of Versace will impact Michael Kors cash flow generation, which was projected to be more than $700 million in fiscal 2019.

“We believe the cash portion and impressive annual cash flow generation could have been put toward a more aggressive stock buyback program or even the initiation of a dividend,” Konik says.

“These methods of capital return would have been successful in enlarging the shareholder base near-term with a more clear path of returns, though acknowledge over-delivering on this acquisition could present upside for Capri shareholders over the long term,” he added. Alongside the deal, Michael Kors announced it would change its name to Capri Holdings when the buyout closes.

Michael Kors shares were up 4.8% this year.

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