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Jimmy Choo seen pricing London float at bottom of range

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Reuters
Published
today Oct 16, 2014
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LONDON/PARIS - Luxury shoemaker Jimmy Choo is expected to set its London flotation price at 140 pence a share, the bottom of its indicative range, two sources familiar with the matter said on Thursday, amid declining enthusiasm for new issues.

The price values the company at 546 million pounds ($874 million), well below the initially hoped for top market value of 702 million pounds. The firm had first set a price range of 140-180 pence before narrowing it to 140-160 pence earlier this week. Trading is due to begin on Friday.


From the Pre-Fall 2014 collection | Source: Jimmy Choo



Weaker equities markets have hit demand for new issues in Europe, with British bank Aldermore cancelling plans to float in London. French energy services firm Spie and Italian cosmetics firm Intercos both pulled IPOs last week.

Fund managers have also expressed concern that Jimmy Choo had around 100 million pounds of debt and was spending more than the industry average on opening new shops.

Jimmy Choo operates in one of the strongest segments of the luxury goods industry. But its growth potential has been presented to investors as hinging partly on expansion in China, where demand has weakened in recent months, according to rivals such as Prada, Cartier-owner Richemont and industry leader LVMH.

Jimmy Choo's head, Pierre Denis, however believes newcomers will have an easier time in China and there will be demand for quality footwear.

Consultancy Bain & Co says China's luxury spending slumped 1 per cent in 2014, down from 30 per cent growth in 2011.

Big brands such as Gucci, Prada and LVMH's Louis Vuitton have suffered from having opened too many shops in China, which experts say damaged the perceived exclusivity of their brands.

The Chinese government's crackdown on conspicuous spending and corrupt gift-giving has added to their woes, with consumers now more interested in niche, understated brands.

It is not clear how Chinese buyers will regard Jimmy Choo nor how they will react to the brand's ambitious expansion plans. Jimmy Choo has 120 stores and plans to open 10-15 a year until 2016, of which around five in China where it has 11 shops.


FIERCE COMPETITION

Jimmy Choo was founded by a Malaysian bespoke shoe maker in east London and grew in the 1990s thanks to fashionista Tamara Mellon and financial support from her father.

In 2001, Choo sold his 50 percent stake to a private equity firm in a deal that valued the business at 18 million pounds.

The brand was subsequently acquired several times by private equity firms. Three years ago it was bought for more than 500 million pounds by JAB Holdings, the investment company of Germany's Reimann billionaire family, associated with soaps and detergent maker Reckitt Benckiser and cosmetics group Coty.

Shortly after the deal was signed, Mellon left the company.

"Jimmy Choo has suffered from Tamara's departure and I feel they are no longer as hot as they used to be but there is also more competition today than there was 10 years ago," said Caroline Stanbury, a London-based trend spotter.

While still a strong name, Stanbury said Jimmy Choo was being attacked by younger brands such as Gianvito Rossi - son of Kering's loss making shoe brand Sergio Rossi - Charlotte Olympia and Aquazzura.


From The Evening Edit collection | Source: Jimmy Choo



Christian Louboutin, which is in the same league as Jimmy Choo in terms of size and prestige, recently introduced a nail polish, a diversification industry experts suggested could be a sign the brand's global sales growth was slowing down. Christian Louboutin declined to comment.

Louboutin has 92 shops, of which 13 are in mainland China.

Jimmy Choo has seen like-for-like sales growth of 6-7 percent in the past two years and makes around 300 million pounds in annual sales.

But if Louboutin and Jimmy Choo are still perceived as solid brands today, the market is full of shoe brands that have fallen by the wayside and are struggling to find buyers.

These include Italy's Fratelli Rossetti, Rene Caovilla and Kering's Sergio Rossi. All three declined to comment on industry suggestions that they had been for sale for a long time, at least two years for Sergio Rossi.

At the end of 2012, according to its annual report, Kering took an impairment loss on Sergio Rossi of 50 million euros, that came on top of the historic goodwill written down in 2010. The brand's chief executive left in September.


INDUSTRY BEATING GROWTH

The 14-billion-euro luxury shoe industry overall has been buoyant, however. This year it saw sales growth of 8 percent, beating the industry average of 5 percent, according to Bain.

"Shoes have become a more relevant category in the past few years as they are regarded as a status symbol and the fact that you can buy several shoes for the price of a bag helps," said Bain partner and luxury expert Claudia d'Arpizio.

One of the biggest women's luxury shoe brands, Jimmy Choo is known for perilously high heels and a glitzy look. They cost 300 to 600 pounds a pair.

Money has been flowing into high-end shoes but to smaller brands than Jimmy Choo. Last year, LVMH acquired budding British shoe designer Nicholas Kirkwood and in April, L Capital, the LVMH-backed private equity firm, bought 30 percent of Giuseppe Zanotti, famous for its luxury sneakers.

According to a source close to the company, the deal priced Zanotti at 13.5 times earnings before interest, tax, depreciation and amortization (Ebitda) of 25 million against the luxury industry average on around 10 times Ebitda.

The multiple would imply a price of 337 million euros or just under three times Zanotti's annual sales of 115 million euros. L Capital declined to comment.

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