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Tapestry Gains as Quarterly Profit Beats Wall Street’s View

A Coach store in Los Angeles, California, US, on Thursday, April 18, 2024. US antitrust enforcers are preparing a lawsuit seeking to block handbag maker Tapestry Inc.'s $8.5 billion planned takeover of rival Capri Holdings Ltd. (Eric Thayer/Bloomberg)

(Bloomberg) -- Tapestry Inc.’s shares rose as the maker of handbags and clothing’s quarterly results beat Wall Street expectations despite continued weak consumer confidence and inflation concerns.

Adjusted earnings per share were 92 cents a share in the fourth fiscal quarter, New York-based Tapestry said Thursday in a statement, while analysts surveyed by Bloomberg had expected 88 cents. Revenue of $1.59 billion narrowly beat projections. 

The shares jumped at the market open in New York, but gave back gains and were up 1.3% at 10:19 a.m. in New York. They had risen 3.1% this year through Wednesday’s close. 

“Tapestry’s strengths in management, design and data helped it tread water at its biggest brand Coach in the fourth quarter,” Bloomberg Intelligence analyst Deborah Aitken wrote in a research note. This came “at a time when softer China and US markets have haunted aspirational luxury brands.” 

Like many other high-end brands, Tapestry’s Coach brand raised prices during the pandemic amid high demand and surging inflation. Investors had worried that Coach would give up some of those gains when the pace of sales began to flag. Instead, it has continued to increase the average price of its handbags and other accessories in recent quarters, improving profitability.  

Tapestry’s Kate Spade has been more of a laggard for the company and, earlier this month, it appointed Eva Erdmann to lead the brand. A veteran of L’Oréal SA and Christian Dior Beauty, Erdmann is a “seasoned brand builder,” Telsey Advisory Group analyst Dana Telsey wrote in a research note. 

Tapestry on Thursday reiterated its commitment to buying rival handbag and apparel retailer Capri Holdings Ltd. The US Federal Trade Commission sued to block the deal in April and a trial is set for September. Earlier this month, Capri reported its seventh straight decline in annual sales, raising questions as to whether Tapestry would rethink its $8.5 billion takeover offer for the owner of the Michael Kors, Jimmy Choo and Versace brands.

In an interview, Chief Executive Officer Joanne Crevoiserat said she expects a two-week trial and will work to close the transaction this year. 

Crevoiserat said that while Capri’s poor results were “disappointing and surprising,” she has become even more convinced that the deal makes financial sense. 

Capri is reducing its brands’ reliance on selling at department stores, which is “probably a good thing for brand health over time,” Tapestry Chief Financial Officer Scott Roe said in the interview, but the company hasn’t been agile in also cutting costs to drive profitability. 

“That’s an opportunity for us going forward,” Roe added. 

(Updates with shares, analyst comments and interview with CEO and CFO.)

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