Michael Kors (KORS) indicated on this morning's earnings call that it will consider big acquisitions as its second priority for driving growth, renewing speculation that it might purchase luxury brand Kate Spade (KATE) .
"We certainly have the capacity to do sizable transactions or smaller transactions, but what we said to you in the past is that we probably won't do anything small," CEO John Idol said on the call. "We think that would be a distraction for us and really not create the kind of value we think the shareholder's looking from us."
"So, again, actively looking and we'll see what transpires," Idol said.
The London-based luxury retailer has previously expressed interest in purchasing Kate Spade, Bloomberg reported in January.
Talk of a potential acquisition was first reported by the Wall Street Journal in December. The report followed a November letter from hedge fund Caerus Investors urging the handbag maker to sell itself.
"Given the market's lack of faith in the current management team, as evidenced by the 63% decline in the shares since the intraday high on August 11th, 2014, we believe the best path for enhancing shareholder value is to pursue a sale of the company," Caerus founder Ward Davis and managing partner Brian Agnew wrote in a letter to Kate Spade's board.
Kate Spade currently trades at 11.4 times enterprise value to Ebitda and Michael Kors trades at 5.6 times EV/Ebitda, according to FactSet data.
Michael Kors stock was down about 13% to $35.75 on heavy trading volume early Tuesday afternoon after posting financial results for the fiscal 2017 third quarter. The retailer reported mixed results for the quarter and issued a downbeat outlook.