Capri Holdings Stock Surges 6% on Potential Sale of Versace, Jimmy Choo

Capri Holdings Ltd (CPRI) shares have climbed 6% following reports that the company is exploring the sale of two of its upscale accessories and apparel brands, Versace and Jimmy Choo. The potential divestment of these luxury brands could provide Capri with the time and resources needed to focus on the turnaround of its largest business, Michael Kors.

According to Women's Wear Daily, Capri is working with Barclays to find buyers for Versace and Jimmy Choo. The process is in its early stages, and it's unclear whether the brands will be sold together or separately. A data room with confidential information on the businesses has been set up for potential buyers, with indications of interest expected before the holidays.

The potential sale of Versace and Jimmy Choo could generate significant capital for Capri, which could be used to invest in Michael Kors' growth and expansion. The luxury goods sector has been facing challenges, including a softening demand for luxury goods, particularly in China. By divesting these luxury brands, Capri can redirect its attention and financial resources towards Michael Kors, enabling it to implement strategic plans and improve its performance.

Capri's stock price has been volatile in recent months, with shares dropping nearly 50% in October after a U.S. judge blocked the company's planned merger with Tapestry Inc (TPR). The merger was ruled to hurt competition in the U.S. handbag space, as Capri and Tapestry are the largest handbag makers in the country.

The potential sale of Versace and Jimmy Choo could have a significant impact on Capri's revenue streams and earnings growth. As of Q2 2024, these two brands contributed $733 million in revenue, representing 36% of Capri's total revenue. The sale could lead to a substantial reduction in revenue, but it also frees up resources to focus on the turnaround of Michael Kors.

Potential buyers for Versace and Jimmy Choo could include luxury conglomerates like LVMH or Kering, which have shown interest in expanding their portfolios. Alternatively, private equity firms or high-net-worth individuals could be drawn to the brands' strong heritage and growth potential. The involvement of new owners could bring fresh strategies, investments, and synergies, potentially reshaping the luxury market landscape.

In conclusion, the potential sale of Versace and Jimmy Choo could provide Capri Holdings with the necessary time and resources to focus on the turnaround of its Michael Kors brand. While the sale could lead to a substantial reduction in revenue, it also frees up resources to invest in growth opportunities or reduce debt. The involvement of new owners for these luxury brands could bring fresh strategies and investments, potentially reshaping the luxury market landscape.