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Tapestry Q3 Earnings Hit By Challenging Consumer, Capri Deal Costs

Adjusted EPS topped estimates, but the company also signaled some consumer weakness and was weighed down by Capri deal costs.

Tapestry Q3 Earnings Hit By Challenging Consumer, Capri Deal Costs

Joanne C. Crevoiserat

Tapestry Inc. is already paying up for its deal to buy Capri Holdings — even though the transaction hasn’t closed and is being contested by the Federal Trade Commission. 

Tapestry’s third-quarter net income slipped 25.3 percent to $139.4 million, or 60 cents a share, from $186.7 million, or 78 cents, a year earlier. 

That decline was driven by financing and other costs associated with the company’s $8.5 billion deal to buy Capri, which owns Michael Kors, Versace and Jimmy Choo. The quarter included $51 million in primarily professional fees and financing charges related to the deal. 

But Tapestry said adjusted earnings of 81 cents a share came in well ahead of the 68 cents analysts projected, according to FactSet. 

Revenues for the three months ended March 30 decreased 1.8 percent to $1.48 billion from $1.51 billion amid what the company described as “a challenging consumer backdrop” in North America. The topline forecast for the year was also trimmed. 

Third-quarter sales in North America fell 3 percent and were partially offset by a 3 percent increase abroad, in constant currencies. Revenues in Europe rose 19 percent while Japan was up 2 percent and China was down 2 percent. 

Tapestry’s digital sales made up more than a quarter of the company’s overall sales and have more than tripled since before the pandemic. 

“Our third quarter earnings results outperformed expectations, reflecting our unwavering commitment to disciplined brand building and operational excellence,” said Joanne Crevoiserat, chief executive officer of Tapestry. “Moving forward, we are confident in our vision for the future and the significant runway to drive sustainable growth and shareholder value.”

Tapestry Q3 Earnings Hit By Challenging Consumer, Capri Deal Costs

Coach in New York.

Tapestry said it brought 1.2 million new customers onboard in North America during the quarter and that half of them were Gen Zers and Millennials. The firm also worked to keep its inventories tight with a decline of 12 percent from a year earlier. 

For the full fiscal year, Tapestry expects its net revenues to be flat with 2023 at $6.6 billion — below the $6.7 billion the company forecast in February. Earnings per share are seen rising 8 percent to 9 percent to a range of $4.20 to $4.25. 

Shares of Tapestry fell 2.1 percent to $38.16 in premarket trading on Thursday. 

But longer term, investors are likely focused less on the ins and outs of the quarter than on the fate of the potentially transformative deal to buy Capri.

Tapestry Q3 Earnings Hit By Challenging Consumer, Capri Deal Costs

A spring look from Kate Spade.

In its case against the acquisition, the FTC has argued that the buyout would make Tapestry a “colossus” in the accessible luxury handbag space with undue influence over the prices for consumers and employment in the sector. 

“With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry,” said Henry Liu, director of the FTC’s Bureau of Competition, when the case was launched last month.

Tapestry, which already owns Coach, Kate Spade and Stuart Weitzman, has clamped back hard, saying in recent court filings that the case against the acquisition “makes no sense.”

The company has pushed regulators to identify exactly how they are defining the accessible luxury handbag market and argued FTC is fundamentally misunderstanding how the fashion market works.  

“There is no definable captive consumer of fashion handbags who cannot readily switch from brand to brand, across price ranges,” Tapestry said in court filings.