Finally, Kate Spade Chose Coach

Coach of New York Inc, one of the leading luxury fashion and accessory firms in the US announced lst week  the sign of a definitive agreement for the acquisition of Kate Spade & Company.

About Kate Spade & Company
Kate Spade & Company is a fashion multinational company founded in 1993, as well as The Coach in New York and operates under the Kate Spade & Jack Spade brands along with the Adelington Design line of jewelry and accessories. The four pillars of the company – female, male, child and home – encompass a wide demographic and geographical diversity. Known for the use of crisp colors, and use of graphic prints of original sophistication, try to inspire an exciting way of life. There are iconic shops in downtown New York such as the one on Madison Avenue or Broome Street. The Jack Spade New York line offers a timeless and versatile assortment of bags, sportswear and tailor made clothing based on the aesthetics of simple and decisive design.

A value of USD 2.4 billion
Under the terms of the transaction, Kate Spade shareholders will receive $ 18.50 per share for a total transaction value of $ 2.4 billion. The transaction (a 50% payable in cash) represents a 27.5% premium over Unaffected closing price of the shares of Kate Spade, that is, as of December 27, 2016, which was the last day of its trading before speculation by the media of a possible stock transaction of the company. The sale has been unanimously approved by the boards of directors of Kate Spade & Company and Coach, Inc.

Victor Luis, CEO of Coach, Inc., stated that «Kate Spade has a unique and differentiated brand positioning with a wide variety of lifestyle and strong awareness among consumers, especially millenianns. , We will create in New York a boutique based on modern luxury lifestyle brands, defined by authentic distinctive products and fashion innovation. In addition, we believe that Coach’s extensive experience in opening and As a result of the acquisition of Kate Spade, we are pleased to announce that the acquisition of Kate Spade is one of the world’s leading retailers. An important step in the evolution of Coach as a multi-brand customer-centric organization.»

Craig A. Leavitt, CEO of Kate Spade & Company, said: «After a thorough review of the strategic alternatives, we are delighted to have reached an agreement to join Coach Inc’s global brand portfolio, which will Maximize value for our shareholders and position Kate Spade for long-term success as we continue our evolution with an unmatched global lifestyle brand that operates across multiple channels”.

Another of the objectives of any merger between such companies is cost savings and the formation of synergies, which in this case amount to «approximately $ 50 million within three years of the closing of the agreement. These cost synergies will be realized through operational efficiency, scaling and inventory management and optimization of the Kate Spade supply network,» according to sources at the company’s financial department acquired by Coach. Managers will focus on preserving the independence of Kate Spade’s brand as well as retaining key talent, which will ensure a quiet transition period with Coach, its new owner.

First quarter results
Kate Spade Group’s net sales for the first quarter of 2017 were $ 271 million, a decrease of $ 3 million, or 1.2%, compared to the first quarter of 2016. The first quarter of 2017 comparable direct consumer sales Decreased by 2.4%, or 8.1% if e-commerce data were excluded. Comparable sales per square foot for Kate Spade stores were $ 1,516 for the last twelve months, compared to $ 1,557 for the twelve month period as of December 31, 2016. The gross margin as a percentage of sales was 63.2% for the first quarter of 2017, compared to 61.8% for the first quarter of 2016.

Selling and administrative expenses were $ 165 million in the first quarter of 2017 and $ 152 million in the first quarter of 2016, or 60.7% and 55.3% of net sales, respectively, including $ 7 million impairment store charges and $ 2 million fees and expenses related to the company’s ongoing audit as well as in the search for alternatives to find a buyer for the company.

Segment highlights
Kate Spade’s net sales in North America in the first quarter of 2017 were $ 217 million, a decrease of $ 1 million, or 0.6%, compared to the first quarter of 2016, Obtaining EBITDA of $ 23 million (10.5% of net sales) for the first quarter of 2017, compared to $ 25 million (11.2% of net sales) for the first quarter of net sales in 2016. Sales of Kate Spade International in the first quarter of 2017 were $ 49 million, with little variation from the first quarter of 2016. Kate Spade International posted adjusted EBITDA of $ 8 million (15.9% of net sales) for The first quarter of 2017, compared to $ 9 (17.5% of net sales) for the first quarter of 2016. Sales of its jewelery section with Adelington Design suffered a severe fall of 30% from 2016, ($ 5 million in 2017), a decrease of $ 2 million, or 29.3%, compared to the first quarter of 2016. Adelington Design Group saw its EBITDA decrease by 50% and was only USD 1 million (10.5% of net sales) In the first quarter of 2017.

We will soon see if the union of these two New York´s colossus of fashion is strong, and create the so much expected value to  its shareholders.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.