Michael Kors Holdings Ltd (NYSE:KORS) announced it was planning on holding a secondary offering to let the company’s biggest shareholder sell a stake valued at about $930 million.
According to the statement released September 5th, Michael Kors Holdings won’t receive any proceeds from the stock sale, which will be managed by JPMorgan Chase & Co. (NYSE:JPM). The 11.6 million shares will be priced at $76.75 apiece. The shares represent the total investment of Sportswear Holdings Ltd., a founding shareholder who still holds a 5.7% stake in the firm. As a part of the deal, Sportswear Holdings’ representatives on the board, Lawrence Stroll and Silas Chou, will resign their positions.
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Michael Kors had been on a roll
Michael Kors Holdings Ltd (NYSE:KORS) had been on a more than three year roll of positive corporate developments until recently. Shareholders have enjoyed an almost fourfold gain in the stock since the initial public offering back in 2011.
The firm has built a loyal following over the past decade or so by offering consumers more affordable luxury. High-end fashion purses and handbags typically cost only a few hundred dollars, instead of the $800 to $1,000 or even more you pay for iconic fashion names such as Louis Vuitton and Gucci. Kors redoubled his fame and public reach by serving as a judge on the reality TV hit “Project Runway.” The firm’s namesake designer has a net worth of around $1 billion, based on the the Bloomberg Billionaires Index.
Analysts see potential problems ahead
Joan Payson, an analyst at Barclays, notes that a savvy investor like Sportswear Holdings’ decision to exit the investment backs up the premise the idea that Michael Kors Holdings Ltd (NYSE:KORS) may be slowing down.
“The business is approaching a near-term slowdown, on both the top and bottom line, and potentially indicative that there could be risk to earnings going forward,” said Payson, who dropped price target to $74 from $78 on the news. Barclay’s rates the stock as Underweight.
Michael Kors dropped over 5% today to a low of $75.64 in New York. Shares had slipped by 1.5% for the year through Thursday.
The firm announced at its earnings last month that gross margins will be about 60.4 percent in the 2014, compared to 60.9% in 2013.
Sportswear Holdings is keeping some ties with Michael Kors through its ownership in Michael Kors Far East Holdings Ltd. The two departures will leave the firm with just seven directors.