Why Tapestry’s declines underline the importance of Capri acquisition 

Tapestry has registered declines in both sales and profit for the third quarter, with an analyst believing that the acquisition of Capri is much needed to provide a strong push for the company.

Net sales for the quarter ended March 30 fell 2 per cent year on year to US$1.51 billion. On the bottom line, operating income was down 9.7 per cent and net income plunged 25.3 per cent to $139 million.

According to GlobalData MD Neil Saunders, the business is running out of steam after a run of reasonable performance. 

Although the numbers are not terrible amid a wider luxury market slowdown, the sales were the worst in a year, which shows that Tapestry is coming under increasing pressure and that not all its brands are pulling their weight in the more challenging environment, he elaborated.

This underlines why the group is so keen to acquire Capri, Saunders stated. “There is nothing wrong with this approach, even if the price offered for Capri is very toppy, but the intervention of the FTC into the case has thrown something of a wrench into the works.”

At Coach, sales grew by only 0.1 per cent, interrupting a consistent pattern of growth over the last year and substantially worse than last quarter’s 6.4 per cent uplift. Kate Spade and Stuart Weitzman are both in the doldrums with sales declines of 5.6 per cent and 17.9 per cent respectively, reflecting the clear impact of the slowdown.

“Without the merger, the outlook for Tapestry will be, at best, treading water. At worst it will see further declines as the market tightens,” Saunders concluded.

Excluding the deal, the company now expects full-year revenue of more than $6.6 billion, approximately in-line with prior year on a reported basis and up about 1 per cent on a constant currency basis.

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