Coach buys luxury footwear brand Stuart Weitzman
The luxury handbag and accessories company is buying Stuart Weitzman Holdings LLC from private equity firm Sycamore Partners for about $530-million (U.S.).
Coach Inc. will also make up to $44-million in contingent payments to Sycamore Partners if certain revenue targets are hit over the three years after the deal closes.
The deal is expected to bolster Coach’s image while creating growth opportunities as it struggles to turn around its brand under new CEO Victor Luis, who took the post in January, 2014. For Stuart Weitzman, the deal will expand its business overseas.
It’s a rare acquisition for Coach, which has long grown internally. While analysts praised the deal, some worry that it could be a distraction to its core business, especially when efforts so far to rework the designs haven’t seen much traction.
“[Coach] may have been better served keeping its sole focus on its own transformation, of which we are seeing some progress, but believe still has many legs to unfold,” wrote Randal Konik, equities analyst at Jefferies, in a report published Tuesday.
Coach has been suffering as shoppers have defected to brands such as Michael Kors and Kate Spade for handbags that are edgier but are priced similarly. Coach has had five straight quarters of sales declines including the last quarter ended Sept. 27, when total sales were down nearly 10 per cent. North American sales fell 19 per cent for the quarter.
But this past holiday shopping season, the intensity of promotions of handbags increased, according to a Credit Suisse report.
Coach previously announced it plans to close about 70 underperforming stores in fiscal 2015. Last year, the company hired British designer Stuart Vevers to inject new life into the brand. His debut handbag collection for Coach hit stores last September.
Coach has been trying to diversify, but handbags still account for the bulk of its business. For the year ended June 28, 2014, women’s handbags accounted for 55 per cent of total annual sales of $4.8-billion.
Stuart Weitzman had approximately $300-million in revenue for the 12 months ended Sept. 30, 2014. The brand is currently available in 70 countries.
The deal is expected to close by May.