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Hours after the $8.5 billion deal between the fashion brand’s parent company and Coach’s owner collapsed on Thursday, Michael Kors CEO John Idle put together a last-minute conference call.
Idol sought to reassure investors that the iconic American label, whose sales had been stagnant, could survive on its own.
“We know that the company is not performing at the level it should be,” he said on his first call with analysts in more than 15 months. The company had made a series of “mistakes” while waiting for an acquisition. The company did not focus on long-term planning and raised prices too quickly.
The deal cancellation, which followed a backlash from antitrust regulators, plunges Michael Kors into uncertain territory at a dark time for luxury brands around the world. Consumer spending is down and certain regions are experiencing devastating economic slowdowns.
“Michael Kors was in decent shape when Tapestry announced the acquisition,” said Morningstar analyst David Swartz. “However, its performance has fallen dramatically over the past year. . . . The fact that the luxury goods market is currently in a downturn is not helping, and is adding to the difficulties.”
So-called “aspirational shoppers” — customers who stretch their wallets to buy big-ticket items — are starting to cut back on their spending. China, a market that fashion brands have been cultivating for the past decade, has been particularly hard hit.
The deal between Tapestry, owner of Coach, Kate Spade, and Stuart Weitzman, and Capri, owner of Michael Kors, Versace, and Jimmy Choo, is the latest in a deal between Tapestry, owner of Coach, Kate Spade, and Stuart Weitzman, as both companies spend months in court filing antitrust lawsuits. It collapsed this week after a battle with regulators.
The Federal Trade Commission argued that tying multiple brands together would lead to higher prices and lower quality handbags.
The reversal comes three weeks after a federal judge froze the deal pending further proceedings with the FTC. The FTC first filed suit in April seeking to block the deal. The proposed union had ambitions to create a U.S. rival to European luxury brand giants like LVMH and Kering.
Until recently, there was still a glimmer of hope. Both companies were granted an expedited appeals process and had already scheduled to contest the court’s decision in the coming weeks. But the brand decided to pull out anyway.
“I don’t understand why they didn’t go this far here,” said one hedge fund manager who was betting on the deal going through.
Hours after trading was frozen last month, Capri’s stock price halved to around $21 a share after investors acknowledged that the original all-cash takeover offer of $57 a share fell through. It fell. Capri will not receive any settlement money, but will be reimbursed $45 million in legal fees.
Tapestry is largely seen as a booming business, with Capri struggling to keep up. Sales at Capri’s biggest brand, Michael Kors, have fallen 16% this year. Shares fell in all markets, with a 43% decline in China.
Michael Kors, the chief creative officer of his eponymous brand, himself testified during the New York trial that the company had recently suffered from “brand fatigue.” He added that the company’s attempts to reinvigorate consumers are “sluggish at this point.”
As Capri charts its path as an independent business, Idol candidly responded to investors who say its current strategy isn’t working. Over the next two years, the company plans to close about 75 Michael Kors stores and renovate 150 others in an effort to correct its financial trajectory.
Idol also mentioned what he sees as the biggest hurdle in the coming months. “Our biggest concern is China,” he said. “We don’t know when or how the local economic situation will stabilize.” The company, which has invested heavily in the country, will shift its focus to North America.
Meanwhile, investors and analysts are already speculating that Capri is considering other deals or spinoffs as a way to boost its stock price. And everyone seems to agree that some big deal will eventually happen, although it’s not imminent.
“The most shareholder-friendly outcome would be to separate and sell Versace and Jimmy Choo, two luxury brands, which would maximize the company’s EV,” Bernstein analysts wrote. There is. It would also make sense for Michael Kors to split the group into a “single brand stock.”
Because the main concerns in the Tapestry-Capri deal centered on the companies’ dominance in handbags, analysts said other types of buyers would also escape the same level of antitrust scrutiny. Ta. The incoming administration of President Donald Trump is expected to loosen business regulations, which could help forge a future deal.
Morningstar’s Swartz believes Capri “could eventually be sold in whole or in part to a private equity group.” However, first the company needs to improve its financial situation.
Idol did not dispel these theories during a conference call with investors.
“We have always been, and continue to be, open to dialogue with any company interested in our assets,” he said.
