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Versace IPO Set For Success In 2016

|About: Michael Kors Holdings (KORS)


Revenue and profit both rise for the second consecutive year while rivals fall.

Versace sells 20% stake to Blackstone Group to help work on its organizational structure.

Future strategy for growth exploits the unique traits about Versace and proves to be well suited for its IPO.

The Italian luxury fashion house, Versace, recently saw its 2014 revenue and profit rise by double digits with its net profit increasing by a incredible 27 percent to €26.3 million, while revenues rose by 17 percent to €548.7 million. This is the second consecutive year that net profits have increased by double digits. The increase in profits has been attributed to increased efforts to reach a wider customers base in both emerging and developed markets around the world. However, I believe the growth at Versace is only going to increase furthermore due to the weakening euro against the dollar, which favors exporting and the large market share still available for capture

The 2014 announcement on profits is even more appealing given the terminated growth at rival luxury companies such as Gucci and Prada, with sales in Gucci tumbling 1.9 percent (€851 million) in the third quarter of 2014 and 2.4 percent in the previous quarter. Both companies saw 2014 profit fall or remain stagnant due to the slow economic growth in China and a series of wrong store location openings. Chinese luxury sales fell by 1% compared to 2013 at ¥115 billion, and therefore a slowing Chinese economy and a government campaign against lavish gift giving as contributed to the revenue fall.

Versace also has the benefit of a €210 million deal with New York private equity firm, Blackstone Group giving Blackstone a minority 20% stake in the Italian company. The importance of this deal is reflected in the ability of Versace to now enter untapped markets by opening more than 30 stores around the world especially in exclusive locations such as Fifth Avenue in New York. Specific plans for 2015 include opening stores in Vancouver and Madrid, in addition to entering the Japanese market again by opening a flagship store in the heart of Japan, Tokyo.

I believe one of the key moats about Versace is the unique ability to select simple, toned down overt sex appeal collections rather than the creative and rather flamboyant assortments from its rival. This allows Versace to reach a wider customer base and also allows the Italian company to be more consistent with its collections. This is clearly evident with Bergdorf Goodman, a luxury goods department store, storing Versace clothing and accessories.

The future for Versace seems extremely promising as the company could sell shares in an initial public offering as soon as 2016 and is reported to be on track to reach revenue of around €800 million by 2017, a 46% increases from last years income. It is also reassuring knowing that big brands such as Michael Kors (NYSE:KORS) and Burberry (LSE:BRBY) have seen their market value since their debut increase by almost 150 and 920 percent, respectively. Coupled with the funding and restructuring from Blackstone, I strongly believe investors should be closely anticipating the IPO price for Versace in early 2016.

Disclosure: The author is long KORS.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.