Donna Karan Label Sold To U.S. Apparel Firm G-III -- WSJ
26 July 2016 - 5:04PM
Dow Jones News
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.
The Donna Karan and DKNY lines delivered lackluster growth for
years amid stiff competition and capped investment from LVMH, which
focused more on its eponymous brand, Céline and other labels it saw
as being higher potential.
About two years ago LVMH decided to restructure Donna Karan,
cutting costs and simplifying the branding. During its latest
effort at the end 2015, the French company pulled lines like DK
Jeans and DKNYC in a bid to focus on the brand's core collections.
The Donna Karan line has remained suspended since last summer when
the brand's eponymous founder resigned.
In an interview, LVMH Fashion Group Chairman Pierre-Yves Roussel
said the moves had begun to pay off, but that energizing the DKNY
brand was a journey that would have taken time.
When G-III Chief Executive Morris Goldfarb expressed interest in
buying Donna Karan about six weeks ago, LVMH decided to sell, its
first divestiture of a big brand since 2005. LVMH and New
York-based G-III didn't break out details of the price tag, giving
only the $650 million "enterprise value."
"We knew the potential for reenergizing the brand would be
around a business model that is probably more suited for G-III than
for us," said Mr. Roussel. He said DKNY was slated for broader,
wholesale distribution at a more accessible price point, while LVMH
tends to sell its brands at higher prices through its own
stores.
The deal is expected to close in late 2016 or early 2017.
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 on the grounds that it was one of the world's
best-known brands.
Monday's sale is a stark departure for LVMH, where Mr. Arnault
has built a reputation for sticking with the brands he has
purchased 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, a U.S. duty-free-store
operator. 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.
Citigroup analyst Thomas Chauvet said Monday's sale could
indicate LVMH is open to selling other brands, like Marc Jacobs,
which he has highlighted as an underperformer. LVMH declined to
comment. Mr. Arnault has previously suggested LVMH could spin off
and publicly list the brand -- 80% of which is owned by LVMH, 10%
by designer Marc Jacobs and 10% by Mr. Jacobs's business partner
Robert Duffy -- once it begins growing more strongly.
Mr. Roussel said Marc Jacobs is "a very different story" to
Donna Karan since LVMH has long been in control of the brand and
Marc Jacobs has "always done well." Still, he said "we think it
could be doing much better."
The company is working to subsume the Marc by Marc Jacobs brand
into the Marc Jacobs brand -- combing shows, stores and marketing
campaigns. Mr. Roussel said directing spending toward one brand
rather than two, would allow Marc Jacobs to grow more quickly.
Mr. Chauvet, of Citigroup, 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." He 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.
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 Mr. Goldfarb.
The U.S.-based company 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 26, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Lvmh Moet Hennessy Louis... (EU:MC)
Historical Stock Chart
From Sep 2024 to Oct 2024
Lvmh Moet Hennessy Louis... (EU:MC)
Historical Stock Chart
From Oct 2023 to Oct 2024