Dive Brief:
- Tapestry’s unaudited Q3 net sales were $1.48 billion, down 2% year over year from $1.51 billion, according to a Thursday press release.
- Sales for Tapestry’s largest brand Coach were flat for the quarter. Kate Spade dropped 6% for the period, and Stuart Weitzman fell 18%. Both brands saw low double-digital declines in the fourth quarter of 2023, with that downward trend escalating in Q1 and continuing to drag on both brands in the second quarter.
- In April, the Federal Trade Commission filed a lawsuit to block Tapestry’s proposed acquisition of Capri Holdings, which owns Michael Kors, Jimmy Choo and Versace. In Tapestry’s Q3 release, the company said it’s “confident in the merits and pro-competitive, pro-consumer nature of this transaction and looks forward to presenting its strong legal arguments in court.”
Dive Insight:
If the proposed merger between Tapestry and Capri is completed, it would create the fourth largest luxury house in the world. The FTC argued, however, that the merger would eliminate “direct head-to-head competition” among the two companies’ owned brands and give Tapestry a dominant share of the “accessible luxury” handbag market. In its filing, the FTC said Tapestry had coined that term itself “to describe quality leather and craftsmanship handbags at an affordable price.”
In a call with analysts, CEO Joanne Crevoiserat said the company had been prepared for the FTC challenge, which came following “unconditional approval from the European Commission and regulatory approvals in China and Japan.”
“Our timeline always contemplated the potential for litigation, and we continue to expeditiously work to close the transaction in calendar year 2024,” said Crevoiserat. “In the meantime, and as always, we remain focused on continuing to execute on our current business and strategic growth agenda.”
Despite the decline, Crevoiserat said in the Q3 release that earnings had beat expectations.
“Our talented global teams continued to advance our long-term initiatives, fueling innovation and consumer connections, while successfully harnessing the power of our customer engagement platform to navigate the dynamic backdrop with focus and agility,” Crevoiserat said in the release. “Moving forward, we are confident in our vision for the future and the significant runway to drive sustainable growth and shareholder value.”
On the call, Crevoiserat also discussed the challenges for Tapestry’s two smaller brands.
At Kate Spade, Crevoiserat said that many of the brand strategies that were applied to Coach would be “things we're applying to Kate. Kate’s an earlier inning and…we continue to have confidence in the runway that we see ahead for the brand.”
Meanwhile, Crevoiserat said on the call that Stuart Weitzman’s Q3 results “were pressured, reflecting headwinds in the brands two key markets of North America and Greater China.”
The company revised its 2024 outlook and projected revenue of “over $6.6 billion, approximately in-line with prior year” with a growth “of approximately 1% on a constant currency basis.” In Q2, the company forecasted a slightly more positive outlook of $6.7 billion in revenue for the year.
