Coach may be ready to buy Kate Spade & Co. in weeks or even days for an unknown amount, sources told Business of Fashion. Both companies declined to comment, according to the report, but analysts have speculated the price tag could top $2 billion.
Earlier this year, the luxury retailer, as well as rivals Michael Kors and other unnamed overseas companies, was said to be mulling bids on the handbag and accessories maker. Cowen & Company last week raised its target price of the Kate Spade brand in light of its assessment that there’s an 80% chance it will be sold.
Kate Spade last month said it is exploring “strategic alternatives,” following pressure in November from activist firm Caerus Investors, which penned a letter to the company urging it to consider a sale.
Coach has worked its way out of considerable doldrums to reclaim its place as a more upscale accessories retailer after heavy discounts and outlets sales damaged its margins as well as its brand. It’s been an uphill climb for the company, though it is seeing some traction and may now be better-positioned to take on more brands.
Despite its pullback from department stores and discounts, Coach reported in January that second quarter fiscal 2017 net sales rose 3.8% to $1.32 billion from $1.27 billion in the year-ago period. Coach's total North American brick-and-mortar same-store store sales rose approximately 4%, while aggregate North American same-store sales increased approximately 3%, including the negative impact of e-commerce. Sales at North American department stores declined some 30% on both a POS and net sales basis.
But the company’s 2015 purchase of women's shoemaker Stuart Weitzman for $574 million has paid off handsomely, lifting results in the last quarter with a 26% increase in sales. Coach CEO Victor Luis has said the company is looking to diversify its brand further in light of that success. The retailer is also working to attract more young shoppers, most notably with its $10 million deal last year with pop singer and actress Selena Gomez to design her own product line and become the face of its brand.
Meanwhile, Kate Spade has attracted interest from at least six potential bidders in recent weeks, after Caerus Investors’ letter in November noting that the brand’s margins “are well below peers with material opportunity for expansion as licensing revenues grow and the business scales over time. A potential buyer would be able to realize material cost and revenue synergies over time," the firm wrote.
The tie-up could be a boon to both companies, but it's far from final. Michael Kors is apparently still interested and may swoop in with its own offer in the coming days or weeks, according to Business of Fashion.