Tapestry Pauses Capri Merger Plans Amid Appeal to US Court Decision

Tapestry Inc., the parent company of Coach, has announced a temporary halt to its planned merger with Capri Holdings, the owner of Michael Kors, as it prepares an appeal against a U.S. court decision blocking the $8.5 billion deal, according to a statement from the company on Thursday.

Last month, the U.S. Federal Trade Commission (FTC) moved to block the merger, citing potential harm to competition in the handbag industry. According to Reuters, the FTC argued that the merger would effectively eliminate head-to-head competition between the two largest U.S. handbag brands, resulting in less choice for consumers and potentially driving up prices.

“We have contingency plans ready, pending the outcome of the appeal,” said Scott Roe, Tapestry’s Chief Financial Officer, on an earnings call. While there has been speculation that the incoming administration might take a more lenient stance on antitrust, analysts believe that any changes to federal regulatory positions may come too late to affect the case. “The election has no bearing on where we are at. We’re in the judicial process, and the elections would have no impact on that,” Roe told Reuters in a follow-up interview.

On Thursday, Tapestry’s stock rose 4.5% after the company reported quarterly results that exceeded market expectations, with Capri’s shares also gaining 2%. Reflecting on the broader financial implications, Mari Shor, a senior equities analyst at Columbia Threadneedle Investments, noted that the legal process is unlikely to conclude before the termination date for the deal. “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,” Shor stated, adding that this outcome may actually be favorable for investors.

Related: Judge Blocks Tapestry’s $8.5 Billion Acquisition of Capri, Shaking Up Luxury Fashion Market

Tapestry has already outlined a fallback strategy in the event that the merger is ultimately blocked. Executives indicated that the company will prioritize efforts to revitalize its Kate Spade and Stuart Weitzman brands, building on the strong demand for its flagship Coach products. The popular Coach Tabby handbag line, a favorite among younger customers, has contributed to eight consecutive quarters of gross margin growth for Tapestry.

In contrast, Capri has struggled with declining sales, posting seven consecutive quarters of revenue drops since the deal was first proposed in August of last year. The company is expected to release its latest earnings results later today.

Despite challenges in the Greater China market, where revenue fell by 5%, Tapestry posted a strong performance in Europe, reporting a 27% rise in sales in the first quarter. Sky Canaves, principal analyst at eMarketer, pointed to Tapestry’s gains in the European market as evidence of its adaptability. “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,” Canaves said.

For fiscal 2025, Tapestry has raised its earnings per share forecast to between $4.50 and $4.55, up from a previous estimate of $4.45 to $4.50, according to the company’s Thursday statement. Revenue for the quarter came in at $1.51 billion, exceeding analyst predictions of $1.47 billion, per LSEG data, while adjusted earnings per share reached $1.02, above the anticipated 95 cents.

Source: Reuters