News

Nov 08, 2024

Coach parent Tapestry pauses Capri integration plans amid appeal to lift block

By Juveria Tabassum (Reuters) -Tapestry has halted Capri integration plans as the Coach parent appeals a U.S. judge's decision to block its $8.5 billion deal for the Michael Kors owner, the company

By Juveria Tabassum

(Reuters) -Tapestry has halted Capri integration plans as the Coach parent appeals a U.S. judge's decision to block its $8.5 billion deal for the Michael Kors owner, the company said on Thursday.

The merger was blocked last month after the U.S. Federal Trade Commission argued that it would eliminate fierce head-to-head competition between the top two U.S. handbag makers.

"We have contingency plans ready, pending the outcome of the appeal...," Tapestry CFO Scott Roe said on a post-earnings call.

Shares of Tapestry, which beat quarterly estimates and lifted its annual forecasts, climbed 4.5%. Capri's stock rose 2%.

While President-elect Donald Trump is expected to take a more lenient stance on antitrust, analysts reckon it may have come too late for the companies.

"The date at which Tapestry can walk away without penalty is Feb. 10, and I do not expect an appeals decision or changes to the FTC before then," said Mari Shor, senior equities analyst at Columbia Threadneedle Investments.

"So, I would not expect the merger to be completed, which is a good thing in the eyes of investors."

Tapestry will focus on restoring growth in the Kate Spade and Stuart Weitzman brands, and build on robust demand for Coach if the Capri deal does not close, executives said on Thursday.

Coach's Tabby handbags have gained traction among younger customers across variants, helping Tapestry post gross margin growth for eight straight quarters.

In contrast, Capri has reported seven straight quarters of sales decline since the deal was announced in August last year. The company is scheduled to report second-quarter results after markets close.

Tapestry reported a 27% jump in sales in Europe in the first quarter, helping weather a 5% drop in revenue in Greater China.

"Tapestry was able to pick up on pockets of opportunity from Europe and other Asian markets, including a bit of a turnaround for the Stuart Weitzman brand, indicating that their broader merchandising strategy is resonating with aspirational consumers," said Sky Canaves, principal analyst at EMarketer.

Tapestry expects 2025 earnings per share to be between $4.50 and $4.55, compared with the $4.45 to $4.50 forecast earlier.

Revenue of $1.51 billion beat analysts' estimate of $1.47 billion, according to data compiled by LSEG.

Adjusted earnings per share of $1.02 also topped expectations of 95 cents.

(Reporting by Juveria Tabassum; Editing by Shilpi Majumdar and Sriraj Kalluvila)