When Coach parent company Tapestry announced it would buy archrival Capri Holdings for $8.5 billion in the summer of 2023, it touted the move as a union that would give birth to an American luxury powerhouse.
The rationale was that Tapestry’s operational prowess would elevate Capri’s iconic but underperforming brands, including Michael Kors, Jimmy Choo, and Versace. Capri CEO John Idol said at the time that the deal would make the company a global player by giving it “greater resources and capabilities.”
Unfortunately, things haven’t quite turned out that way. Federal antitrust regulators put the kibosh on the merger in November; Tapestry can no longer be Capri’s white knight. And after a brutal earnings report from Capri this week, analysts are faulting the company for relying on the failed merger rather than making alternate plans to save its struggling business.
On Wednesday, Capri announced that company sales declined 11.6% in its most recent quarter, reporting a write-down of $675 million. Michael Kors, which accounts for 70% of company sales, saw revenue fall 25% compared with the same quarter five years ago, an extreme underperformance compared with rivals.
Idol acknowledged the company’s difficulties and fessed up to big mistakes; Kors and Versace raised prices too much in the past two years, and Kors added too much fashion, while Versace failed in its strategy to attract more upscale customers. “We made a number of missteps in our efforts to reposition our brands,” Idol said on the earnings call.
But analysts were quick to fault the company’s management for failing to do more to improve the business since the merger was announced 18 months ago. “With a merger now firmly off the table, Capri’s management needs to stop treading water and start fixing the issues so that they can get back into growth,” GlobalData managing director Neil Saunders wrote in a note. “Generic promises such as [Wednesday’s] pronouncement that brands ‘resonate with consumers’ cut no ice against such a dismal level of performance.”
Capri’s stumbles are especially painful considering the success of its competitors and former would-be rescuer. Tapestry had a knockout quarter, reporting on Thursday that revenue rose 5.3%, lifted entirely by Coach’s stellar performance. Shares for the company rose 12%, their biggest jump in five years, hitting an all-time high. Ralph Lauren, another luxury company with mid and high price points, also reported excellent results on Thursday, sending its shares to an all-time high.