US luxury handbag maker Coach buys shoe brand Stuart Weitzman for $574 mn

07 Jan 2015

US fashion accessories company Coach Inc is buying high-end footwear maker Stuart Weitzman Holdings LLC, aiming to expand its luxury offerings to better compete with rivals.

Coach will buy Stuart Weitzman from New York-based private equity firm Sycamore Partners for approximately $574 million.

Under the terms, Coach will make an initial cash payment of about $530 million and pay additionally up to $44 million on achievement of certain revenue targets over the next three years.

New York-based Coach is a maker of accessories and gifts for women and men, offering a range of modern, fashionable handbags and accessories as well as footwear, wearables, jewelry, travel bags, sunwear, watches and fragrance.

The handbag specialist is looking to expand the business to other areas, particularly footwear, through the acquisition.

''We look forward to benefiting from the Stuart Weitzman team's expertise in footwear development where they're proven leaders in fashion and fit,'' Victor Luis, the company's chief executive, said.

Coach has approximately 1,000 stores in North America besides boutiques located within select department stores. Internationally, the company sells its products through its own stores and through wholesale customers, in 25 countries.

The company has been struggling in recent years due to declining sales in North America and in Asia. Victor Luis, who took the reins of the company a year ago scaled back discounts and closed loss making outlets to improve the company's profitability.

For the quarter ended September 2014, Coach reported a 45-per cent fall in net income at $119 million compared to a year ago. Revenue dropped 10 per cent to $1.04 billion for the period. Revenue for the whole year ended June 2014 was $4.8 billion.

The company's share price has nosedived 34 per cent in the past one year. Further to the news, shares in Coach were down 1.3 per cent to close at $36.25 yesterday in New York.

Sycamore, a $3.5-billion fund that specialises in consumer and retail investments, inherited Stuart Weitzman a year ago as part of its $1.2 billion acquisition of fashion company Jones Group Inc that owns retail chains Nine West and Jones New York and Easy Spirit.

Stuart Weitzman posted revenue of $300 million for the year ended September 2014.

Coach plans to fund the purchase through cash on hand and from other sources.

The company expects the transaction to be immediately accretive to its earnings.

The deal is expected to close by May subject to necessary approvals and closing conditions.