Can the Michael Kors Deal for Jimmy Choo Boost the Bottom Line?

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Michael Kors, which styles itself as affordable luxury, is slipping on a new shoe. The company said Tuesday it agreed to buy luxury footwear brand Jimmy Choo, a go-to name for style-hungry celebrities, for about $1.4 billion.

Michael Kors Holdings Ltd. (NYSE: KORS) is betting the transaction will create a new revenue stream and bolster a brand that has been hit by a decline in foot traffic and a drop in profits as shoppers eschew brick-and-mortar stores and do more shopping online. Michael Kors competes in the very competitive affordable luxury retail segment.

The company said Tuesday it is hoping the proposed acquisition will grow Jimmy Choo sales to $1 billion, create a more balanced portfolio with greater product diversification, expand into the men’s luxury footwear category and gain greater exposure to global markets, particularly in Asia.

“Jimmy Choo is an iconic premier luxury brand that offers distinctive footwear, handbags and other accessories,” said Michael Kors, honorary chairman and chief creative officer, in a statement. “We admire the glamorous style and trend-setting nature of Jimmy Choo designs.”

The transaction has been approved by the boards of directors of both Michael Kors and London-based Jimmy Choo.

Shares of Michael Kors are down 19% so far this year, and the retailer said in late May that it planned to shutter 100 to 125 full-price stores. Michael Kors had 827 retail sites as of April 1.

In its most recent quarter, Michael Kors recorded a loss of  $26.8 million, or $0.17 a share, compared with net income of $177 million, or $0.98 a share, in the same period a year ago. Management said earnings were reduced by $193.8 million in noncash impairment charges related to underperforming stores.

John D. Idol, chairman and chief executive officer of Michael Kors, said Pierre Denis will continue in his role as chief executive officer of Jimmy Choo. He has led the company since 2012.

Jimmy Choo was founded in 1996 and has about 150 company-operated retail stores, 560 multibrand doors and more than 60 franchise stores worldwide.

Goldman Sachs and JPMorgan acted for Michael Kors on the deal, while Merrill Lynch, Citigroup, Liberum and RBC Europe represented Jimmy Choo.