Since Capri Holdings put Versace on the market in December, the questions have been all about what happens to the always flashy yet beleaguered Italian luxury mainstay.
Who buys the brand? Will Donatella Versace stay? And so on.
Now that that’s been cleared up — Donatella shifted into a chief brand ambassador role in March and Prada swooped in with a $1.38 billion deal to buy Versace on Thursday — the more pressing question is: What happens to Capri?
Like seemingly everything else in the market today, the answer is a complicated one.
First, Capri has to figure out what to do with Jimmy Choo. And then it comes down to the fate of its first, largest and core business: Michael Kors.
Jimmy Choo was put on the market alongside of Versace and sources said Capri pushed bidders to make offers on both as a package deal, wanting to clean house all at once. (Capri didn’t acknowledge a sale process even existed until the deal with Prada was announced.)
While bids came in and Prada won an exclusive negotiating period, when the deal finally came together it was in the midst of a trade war crisis and Versace was the only business to find a new home.
Sources said at least two parties were interested in buying Jimmy Choo, including cofounder Tamara Mellon. Now that Versace has been sorted out, that part of the process might well spring back to life even though it is a high-heeled brand in a sneaker world.
If Jimmy Choo is sold, that still leaves Kors, which was the starting point for John Idol, chief executive officer and chairman of Capri.
David Swartz, a stock analyst at Morningstar Research, said: “Clearly they’re kind of giving up here by selling Versace for [approximately $745 million] less than what they paid for it. It’s basically an admission that they could not — or would not — make the investments necessary to get Versace up to a real basic level of what you’d expect from a luxury brand in terms of sales and profits. And it’s probably the same with Jimmy Choo.
“Then I think there’s a good possibility that Michael Kors will be taken private by a private equity buyer or somebody in the future as well,” Swartz said. “It needs a lot of work. Clearly investors have basically given up on this company based on where the stock price is, and Michael Kors has significant problems.”
Shares of Capri fell 10.6 percent to $14.63 in a down market on Thursday, leaving it with a market capitalization of just $1.7 billion.
But Michael Kors logged $3.5 billion in sales for the fiscal year ended in March 2024 and Idol pulled off a trick that few have replicated, taking a struggling designer business and turning it into a powerhouse in accessible luxury.
“It is also a cash generating brand,” Swartz said. “It does have value. In fact, I think that the stock is way undervalued and it’s not going to change just because of this Versace sale. I do think that the market is undervaluing the ability of Michael Kors to generate consistent cash flow as it has done in the past. But I don’t know if that will happen as a public company or not. My feeling is that when there’s an apparel and accessories company that does generate cash flow, there’s always somebody somewhere that will want to buy it.”