LVMH Sells Donna Karan to G-III for $650 Million
July 25 2016 - 7:50AM
Dow Jones News
LVMH Moë t 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 Moë t & 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 €116 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 07:35 ET (11:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Citigroup (NYSE:C)
Historical Stock Chart
From Aug 2024 to Sep 2024
Citigroup (NYSE:C)
Historical Stock Chart
From Sep 2023 to Sep 2024