As per varied sources, Coach, Inc. (COH) is in talks to acquire high-end shoemaker Stuart Weitzman Holdings LLC. The deal, valued at around $600 million, might be announced this week.
Coach is likely to use its significant cash balance in order to fund the deal. The company ended first-quarter fiscal 2015 with cash, cash equivalents and short-term investments of $907.5 million. Analysts note that this acquisition is an exception for Coach as it has always relied on organic means for expansion.
Stuart Weitzman is now owned by Sycamore Partners after the latter acquired Jones Group last year. Stuart Weitzman, which reported revenues of nearly $300 million in 2014, operates 45 retail stores across the U.S. and has 62 overseas locations.
Rumors of Coach being interested in acquiring the luxury footwear brand first surfaced in December last year. The luxury handbag maker was competing with other potential buyers including Brown Shoe Co. Inc. (BWS) and many private equity firms and financial investors.
Off late, Coach has been facing stiff competition from fast emerging brands such as Kate Spade & Company (KATE) and Michael Kors Holdings Limited (KORS). Financial performance deteriorated on account of falling market share and stock lost much of its value sending panic among the investors.
Moreover, the market speculated that the European fashion powerhouse LVMH Moet Hennessy Louis Vuitton SA was eyeing this iconic American brand.
However, Coach seems to be getting its derailing business back on track. The company has laid out the blue print for overhauling which includes product innovation, compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model, which we believe should help in driving comparable-store sales and operating margins in the long term.
The company remains optimistic about its dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities to counter the soft consumer scenario. The company is also aggressively expanding its e-commerce platform (Coach.com and the factory site).
We believe these initiatives will revive the brand and set the stage for future growth.
Currently, Coach carries a Zacks Rank #3 (Hold).
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