By  on May 2, 2017

When Coach Inc. turns in its fiscal third-quarter results today, analysts will be watching for any indication that it might still be interested in Kate Spade & Co. — or if it is now looking further afield and perhaps to the recently available Bally or Jimmy Choo.And if Coach has indeed moved on after extensive talks with Kate Spade, it might help push the quirky handbag company toward private equity players.Financial sources told WWD that private equity firms are taking a second look at Kate Spade and that a dialogue with the company has begun, furthering the credence that talks between Coach and Kate Spade have stalled. One source said Kate is “committed to selling itself.”A spokeswoman for Kate Spade declined to comment on the firm’s outreach to private equity firms.Earlier this year, sources said private equity companies had looked at the Kate Spade brand, but really couldn’t get any traction in a process focused on finding a strategic buyer that was likely to pay more.But Coach is said to have put in a low offer and Michael Kors Holdings, a competitor in the so-called handbag wars, has had discussions with Kate Spade but has largely sat on the sidelines. Sources said Kors remains “interested” in Kate Spade, but hasn’t put any bid on the table.Sources said the talks between Coach and Kate Spade stalled about two to three weeks ago. And Kate Spade’s lackluster first-quarter earnings report last month showed it had more work to do in its North American business, making it harder for the firm to get a big premium in a deal. Moreover, Coach’s chief executive officer Victor Luis has previously said he wasn't interested in a “turnaround” situation, leading to speculation that maybe the group was no longer interested in Kate Spade.And Coach would seem to have a growing list of options as well as a sizable war chest to do a deal.According to Wolfe Research’s Adrienne Yih, Coach has a net cash position of $1.24 billion, comprised of $1.84 billion in cash and $592 million in debt. She expects the above-$400 price point handbag penetration to be nearly 60 percent for the third quarter. Wall Street’s consensus estimate for the third quarter pegs diluted earnings per share of 44 cents on net sales of $1.02 billion.The options of brands for Coach to acquire also have lengthened following the news last month that JAB Holding Co. is looking to sell Bally and Jimmy Choo.Luis has said Coach is looking at acquisitions to transform itself into a holding company of brands. But whether it wants to go the luxury-aspirational route or remain focused on just high-end luxury remains unclear. An acquisition of Kate Spade would move it in the luxury-aspirational direction, capturing the luxury consumer with Coach's 1941 Collection and building out the aspirational category with its own core mass luxury line and the Kate Spade brand, popular among Millennial women.Should Coach want to be the American counterpart to a LVMH Moët Hennessy Louis Vuitton or Kering, then clearly Bally and Jimmy Choo would make for better “luxury” acquisition targets. Financial sources over the past few days said they believe Coach is aiming for the luxury market. Bally would fit the bill because it does both men’s and women’s, in footwear, accessories and outerwear — Luis has told WWD that Coach would be interested in acquiring brands that do business in these categories. And Coach has the sourcing capability for all three categories, a big consideration for any deal, Luis has said.Choo would represent a footwear brand that is a notch up from Stuart Weitzman, which Coach acquired in May 2015 for $574 million. There’s been much speculation that Coach could bid for Choo given that Josh Schulman, who joined the accessories firm as president and ceo of the Coach brand, was once ceo of Choo.A spokeswoman for Coach declined comment on speculative reports that the company was eyeing targets other than Kate Spade.Cowen & Co.’s Oliver Chen last Wednesday in a research note had an “0utperform” rating on Coach shares, with a price target of $40. He said the sale of Choo “adds another attractive and synergistic target for Coach to pursue.” The analyst noted Choo’s market cap at $952 million.Shares of Coach on Monday fell 1.7 percent to close at $38.74 in Big Board trading.

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