By Saabira Chaudhuri 

LVMH Moët Hennessy Louis Vuitton SE agreed to sell Donna Karan International Inc. to apparel company G-III Apparel Group Ltd. for $650 million including debt--an unusual retreat for the French luxury giant from a major brand it tried for years to revive.

After struggling to grow the loss-making Donna Karan and DKNY lines amid increased competition, it tried repeatedly to restructure the brand, cutting costs and simplifying the branding.

During its latest effort at the end of last year, it pulled lines like DK Jeans and DKNYC in a bid to focus on the brand's core collections. Last summer, LVMH suspended the Donna Karan line after the brand's eponymous founder resigned. A spokesman confirmed the line remains suspended.

In the end, LVMH decided to sell, its first divestiture of a big brand since 2005. The two companies didn't break out details of the price tag, giving only the $650 million "enterprise value" of the deal, which includes the price paid by G-III and debt it assumed in the purchase. The move sent LVMH shares up 1.4% in morning trading in Paris.

LVMH--which owns a bevy of brands including flagship fashion label Louis Vuitton, champagne house Moët & Chandon and cognac label Hennessy--bought Donna Karan in 2002 for about $243 million.

Founded in 1984 by American designer Donna Karan, the brand's clothes, shoes and bags quickly gained in popularity. The company went public 12 years later.

Donna Karan was the first major American designer label for LVMH. It was also the biggest foray into the ready-to-wear apparel business by the company's founder, French fashion mogul Bernard Arnault. The brand's ubiquitous presence in department stores didn't square perfectly with LVMH's ultraluxury image, but Mr. Arnault snapped it up anyway. The company said at the time that it was one of the best-known brand names in the world.

Monday's sale is a stark departure for LVMH, where Mr. Arnault has built up a reputation for sticking with the brands he has bought over the firm's nearly 30 years. The last time Mr. Arnault parted ways with a major brand was in 2005, when LVMH sold Christian Lacroix to the Falic group.

The U.S. duty-free-store operator pledged to take the brand upmarket. Christian Lacroix eventually filed for bankruptcy after Falic failed to find a buyer for it and was unable to stem mounting losses at the brand.

LVMH Group Managing Director Toni Belloni said G-III approached it about acquiring the DKNY brand and that the luxury house "concluded that the time was right and that G-III was the right steward going forward." The deal is expected to close in late 2016 or early 2017.

The sale raises the prospect of further disposals at LVMH. The company has struggled in particular to turn around the performance of another big brand, Marc Jacobs. Analysts have suggested it could spin off and publicly list Marc Jacobs--80% of which is owned by LVMH, 10% by Marc Jacobs and 10% by Mr. Jacobs' business partner Robert Duffy--once it returns to profit. LVMH declined to comment on possible further divestitures.

Citigroup analyst Thomas Chauvet said the Donna Karan sale aligns with his view "that the brand no longer fits within LVMH's portfolio owing to their difficult positioning in the market and high capital requirements." The firm estimated that LVMH's efforts to reposition and invest in Donna Karan and Marc Jacobs had cost the company EUR116 million ($127 million) in operating losses in fiscal 2015.

New York-based G-III, which makes licensed apparel for brands such as Calvin Klein, said it saw a significant market opportunity for Donna Karan. "Donna Karan brings increased scale and diversification, while providing incremental growth on top of our portfolio of some of the best fashion brands in the world," said G-III Chief Executive Morris Goldfarb.

G-III expects the deal to be dilutive to earnings in fiscal 2018 and to add to earnings thereafter. Citigroup said the divestiture is "largely immaterial" to LVMH's group earnings.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

 

(END) Dow Jones Newswires

July 25, 2016 07:28 ET (11:28 GMT)

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