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Tapestry’s dream of building a US “accessible luxury” powerhouse is in tatters. The company behind Coach, Kate Spade and Stuart Weitzman this month called off its plans to acquire Capri Holdings, home to Versace, Jimmy Choo and Michael Kors, after a judge froze the deal.
For Tapestry, the deal’s demise is a blessing in disguise. The jump of more than 30 per cent in the company’s share price since the ruling suggests as much. The New York-based fashion house is the stronger of the two companies thanks to its successful turnaround of its Coach brand. It will move on.
The same cannot be said for Capri. Its shares are now trading at $22.84 or about 40 per cent of Tapestry’s $57 a share offer. Its problem is Michael Kors. The struggling and not particularly prestigious brand makes up about 70 per cent of group revenue. It was once an investor favourite thanks to soaring demand for its $300 handbags. But it ran into difficulties after its aggressive expansion and hefty discounting. Sales have also been dented in recent quarters as both mass-market US shoppers and aspirational consumers pull back on their spending.
In the time since Tapestry unveiled its takeover approach in August 2023, demand for luxury goods has slowed, especially in Asia. In its most recent quarter, sales at Michael Kors were down 16 per cent. Sales at Capri’s other brands — Jimmy Choo and Versace — also fell during the period. Overall, Capri booked an operating loss of $38mn compared to an operating profit of $100mn in the prior year period.
Tapestry had hoped to apply its playbook for turning around Coach to Michael Kors. It would have been in over its head. The Michael Kors brand needed a lot of work. Capri boss John Idol said the brand was getting “squeezed from the top and from the bottom” in a competitive market. Even Versace, the only true high-end brand in its portfolio, has issues. It accounts for a fifth of group revenue but has generally been less profitable than Michael Kors.
Adding more struggling brands would have detracted from Tapestry’s ability to build on the continued success of Coach. Following the collapse of the deal for Capri, it has announced plans for a $2bn stock buyback.
Capri on the other hand could still be a target for private equity groups given the sharp drop in its valuation. Selling Versace or Jimmy Choo is another possibility. But in its current form, it looks increasingly out of style.
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