Dive Brief:
- Capri Holdings reported first quarter earnings declines Thursday, driven by soft demand for Michael Kors and Versace products. The earnings came in as rival fashion firm Tapestry announced its plan to buy Capri for $8.5 billion.
- Total revenue declined 9.3% to $1.23 billion over last year, while net income fell 76% to $48 million. Michael Kors, Capri’s biggest brand by a large margin, saw its revenue fall 14% to $787 million from $913 year-over-year. Versace revenues fell 5.8 percent to $259 million, and Jimmy Choo rose 6.4 percent to $183 million for the period.
- When the two firms merge, the resulting company will unite Tapestry-owned Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors, creating the fourth largest luxury house in the world, and the second largest luxury firm behind LVMH in the Americas.
Dive Insight:
John Idol, Capri’s chair and CEO, dispensed with any discussion of revenues and focused on the Tapestry news in the earnings statement.
"As announced earlier today, the planned acquisition of Capri Holdings by Tapestry marks a major milestone for our company,” Idola said. “It is a testament to all that our teams have achieved in building Versace, Jimmy Choo and Michael Kors into the iconic and powerful luxury fashion houses they are today. We are confident this combination will deliver immediate value to our shareholders. It will also provide new opportunities for our dedicated employees around the world as Capri Holdings becomes part of a larger and more diversified company. By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while preserving the unique DNA of our brands."
Both boards unanimously approved the merger plan, which is expected to close next year pending a vote by Capri shareholders.
Analyst Simeon Siegel of BMO Capital Markets said in emailed comments that while the acquisition comes as a surprise, his firm understands what Tapestry sees in Capri as a company. “Synergies are always easier said than done, but the two companies share clear overlap,” Siegal said. “Additionally, this brings TPR into the luxury sphere.”
Capri, formerly called Michael Kors Holdings Limited, renamed and rebranded itself as Capri in 2018 after it acquired Versace for approximately $2.1 billion. It previously acquired Jimmy Choo in 2017 for approximately $1.4 billion.
The combined six fashion brands of Capri and Tapestry generated more than $12 billion in sales last year and almost $2 billion in adjusted operating profit, per the release.
