Tapestry Made The Right Decision To Go It Alone Without Capri Dragging It Down

Tapestry announced it is canceling the acquisition of Capri Holdings , after the two companies lost their fight against the FTC's opposition to the merger.

While the original $8.5 billion deal struck in August 2023 seemed like a good idea at the time, analysts generally viewed Capri Holdings as overvalued at $57 per share.

And since the deal was struck, Capri Holdings' results have tanked, most especially its flagship Michael Kors brand, which accounts for roughly two-thirds of company revenues.

With Tapestry continuing to perform well on its own – just raising fiscal 2025 guidance to over $6.75 billion on solid performance of its flagship Coach brand – it ultimately dodged a bullet by not taking on the problems at Capri.

Per the original acquisition agreement, Tapestry will reimburse Capri some $45 million in expenses incurred through the failed acquisition process.

Tapestry's stock popped 13% Thursday after news broke. According to MarketWatch , Tapestry's stock has gained more than 50% to date this year, while Capri's stock has fallen nearly 60%. Tapestry closed the day just under $60 per share and Capri at $20.52.

Tapestry CEO Joanne Crevoiserat reassured investors in a statement: "We have always had multiple paths to growth and our decision today clarifies the forward strategy. Building on our successful first quarter, we will move with speed and boldness to accelerate growth for our organic business."

Freed from the distractions, Tapestry can turn its attention to its own business, where it is going to be needed. Bain and Company just released its authoritative 2024 luxury goods report that found the global luxury market will decline 2% this year, the first time since 2008 the market has taken a step back, excluding the Covid 2020 year.

More troubling, luxury leather goods will drop between 3% to 5% this year and apparel will be off around 2%, both key segments for Tapestry's Coach and Kate Spade brands. And if history repeats itself, 2025 may be another down year.

Both Tapestry and Capri face the same challenges in the global luxury market, but Tapestry is far better equipped to deal with them than Capri.

Tapestry To Invest In Its Business

In exiting the deal, Tapestry announced it would invest $2 billion in share repurchases through a combination of cash on hand and further issuance of debt.

It also stated the company will not pursue acquisitions in the "near-term" and said it would ensure Coach remains strong and that Kate Spade is returned to "sustainable topline growth" before moving forward with any acquisitions.

"We believe there is no better investment at this time than in our own stock," Crevoiserat said and CFO/COO Scott Roe added, "We are confident in our compelling long-term organic growth agenda," and emphasized the company's commitment to "deliver enhanced value to all stakeholders for years to come."

Coming off its fiscal 2025 first quarter ended September 28, Tapestry was flat against previous year at $1.5 billion constant currency. Results were dragged down by a 6% decline of Kate Spade to $283 million, though Coach advanced 2% to $1.2 billion.

A planned North American distribution shift from wholesale, resulted in a 1% sales decline there, while the company acquired 1.4 million new customers in North America – 930,000 to the Coach brand alone –and more than half were GenZ and Millennials, which is a beacon of future growth as their engagement with its brands grows.

China, its second largest market accounting for about 15% of revenues, was down 5% to $234 million. That turns out to be a relatively strong showing considering Bain sees China declining around 20% this year.

Its Other Asia markets, led by Australia, New Zealand and North Korea advanced 10% to $87 million. It also gained 27% in Europe to $94 million.

Having gotten tangled up with the FTC over the "accessible luxury" phrase, Coach described its positioning as "expressive luxury" and its expressive Brooklyn shoulder bag priced at $495 was called out by the Lyst Index as one of the world's top ten hottest luxury products in the third quarter.

Stuart Weitzman turned positive after ending fiscal 2024 down 13% to $242 million. In the first quarter, it clawed back 2% growth to $54 million. However, Footwear News reports Tapestry is getting ready to sell the brand and brand CEO Giorgio Sarné is also leaving the company.

Kate Spade was the sole trouble spot. In August, the company announced that brand CEO Liz Smith would step aside after joining the company in 2020. Eva Erdmann was named as her successor to get the brand back on track.

Erdmann spent the last 15 years with L'Oréal, rising through the ranks of its luxury division to global president of Urban Decay Cosmetics, a position she held since 2018.

While she has no fashion experience, she certainly understands the concept of "expressive luxury" from her many years in beauty.

In delivering first quarter results in early November, Crevoiserat reiterated that Tapestry remains in a position of strength and financial flexibility to deliver "accelerated organic growth and enhanced value creation in FY 25." And she said the business remains on focus and disciplined "against a dynamic backdrop."

What she didn't – and couldn't say at the time – was that now her teams can get back to their primary business and apply their focus and discipline to the company's core brands with out the distractions of fighting legal battles or the challenges of a merger.

Capri Must Dig Out Of A Deep Hole

It appears Capri was counting on Tapestry to save it from itself. In its second quarter 2025 earnings reported the same day as Tapestry, CEO John Idol said "Overall, we were disappointed with our second quarter results."

I'll say. Revenues declined 16% to $1.1 billion with its first six months through September down 15% to $2.1 billion. The only bright spot in the second quarter was Jimmy Choo, up 6% to $140 million. Versace dropped 28% to $201 million and Michael Kors declined 16% to $738 million.

A "challenging global retail environment" can hardly take all the blame, so the company broadcast an update immediately after the acquisition suspension announcement.

Idol admitted that due to the merger, "We did not place as much of an emphasis on our long term planning," and also confessed to a "number of missteps" in repositioning efforts around the Michael Kors and Versace brands.

Tapestry's 'Lucky Escape'

It's going to take real skill and a healthy share of good luck for Capri to dig itself out of the hole it dug itself. And given that the global luxury market is on a correction course after the boom time since the pandemic, Tapestry can thank the FTC it freed itself from the Capri rope hanging around its neck.

After the court delivered its decision to block the acquisition, GlobalData's managing director Neil Saunders posted on LinkedIn that, "It is probably a lucky escape for Tapestry, which was overpaying for Capri."

And as reported by Bloomberg Thursday , he wrote that "an enormous amount of corrective action is needed to get things back on track" at Capri, which has a "whole host of problems from multiple broken brands."

With the luxury market headed into rough waters, Tapestry certainly doesn't need to add Capri's problems to the challenges it must face on its own.

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