Kors shares open 25% higher

Shares of Michael Kors, an upmarket fashion and accessories brand, jumped 25 per cent on their debut on the New York Stock Exchange.

On Wednesday night, Kors launched the biggest-ever public offering in US fashion, selling more shares than expected in a deal that will value the company at nearly $4bn.

The New York flotation surpassed the $882m offering of Ralph Lauren in 1997, according to Dealogic, despite growing concern over the resilience of luxury spending.

The deal was heavily oversubscribed and priced at $20 a share, above the projected range of $17 to $19. Investors in the company sold 47.2m shares, more than the 41m initially offered and raising $944m. The sale valued the company at $3.8bn.

In trading, the shares opened at $25, and as of midday are at $24.25, a rise of 21.3 per cent. That is better than the average US IPO this year, which saw a first-day gain of 10 per cent, but well below the biggest “pops” of the year, such as the 109 per cent jump for LinkedIn.

Michael Kors is a high-profile brand in the US, where it earned 89 per cent of its $758m revenue in its past fiscal year, but it wants to expand its presence in Europe and Asia, where it lags behind rivals such as Coach, Burberry, Hermès, Louis Vuitton and Marc Jacobs.

At the IPO price, Michael Kors’ valuation is equal to 44 times its net earnings in the past four quarters, compared with Burberry’s valuation of 24 times trailing earnings and a multiple of 19 at Coach.

Stacey Widlitz, an independent retail analyst, said: “It’s coming to the market at a time where we’re questioning the rate of growth in luxury, so the valuation ... is quite expensive compared to peers.”

Luxury has been one of the most resilient parts of retail since the global financial crisis, thanks to the continued spending of well-off consumers but in recent months stock market volatility and the eurozone crisis have raised concerns over whether they will retrench. “The idea is to get this IPO in before we see any downturn in luxury,” said Ms Widlitz.

The company was founded 30 years ago by Michael Kors and continues to make clothes that are classic rather than trendy. However, the majority of its wholesale and retail sales now come from accessories such as handbags, leather goods, jewellery and watches.

The company is registered in the British Virgin Islands and has its headquarters in Hong Kong.

Since 2004, awareness of the company in the US has been boosted by the role of founder Mr Kors as a judge on Project Runway, a reality television show about fashion designers.

Mr Kors is the company’s chief creative officer and the IPO will reduce his stake in the business from 11.7 per cent to less than 9 per cent.

Unlike many companies that take months to build investor demand, Michael Kors filed to go public just two weeks ago.

Scott Sweet, senior managing partner at IPO Boutique, an investor advisory, said the deal came together quickly thanks to the company’s established brand and its strong following among international financiers.

“Investors consider them a comparable name to Burberry and Prada in the high-end market,” he said. “They also have free advertising on the television show.”

Despite its Hong Kong base, Michael Kors decided to go public in the US after companies such as Prada debuted poorly in Hong Kong. Prada’s $2.1bn IPO in June priced at the bottom of its projected range and the shares fell in first-day trading.

Michael Kors’ biggest shareholder is Sportswear Holdings, a private equity group led by Silas Chou and Lawrence Stroll that also owns stakes in Tommy Hilfiger Asia and Hackett.

It acquired a majority stake in Michael Kors in 2003, which will be diluted to 37.7 per cent from 51.9 per cent by the share offering.