On Thursday, Tapestry, Inc.
Following the termination of the merger agreement, Tapestry said it will redeem $6.1 billion in senior notes tied to the acquisition, paying 101% of their principal amount plus accrued interest, as per the Special Mandatory Redemption clause. Tapestry will also reimburse Capri $45 million for transaction-related expenses.
Here are the analysts' takes on the termination news:
Telsey Advisory Group: Analyst Dana Telsey maintained the Market Perform rating on Capri Holdings, lowering the price forecast to $23 from $26. Considering the string of disappointing results over the past several quarters, the analyst trimmed the price forecast.
Per the analyst, the company saw some initial successes, but the campaigns didn't connect well with its core customers. It raised price points too quickly. Additionally, the brand reduced its signature products and introduced too much fashion, leading to deeper promotions to drive sales.
However, for Tapestry, the analyst raised the price forecast to $67 from $58, with an Outperform rating. Telsey is optimistic about earnings growth from the new buyback authorization and the company's strong balance sheet.
The analyst sees no near-term acquisitions while focusing on improving Kate's performance.
Meanwhile, the Coach brand remains resilient, with a 2% increase in constant currency last quarter, the analyst writes.
Guggenheim: Analyst Robert Drbul maintained a Neutral rating on Capri Holdings, citing the company's deteriorating results over the past few years. The analyst pointed out "multiple missteps" by the company, including focus on younger consumers, rapid price increases, and reduced promotions.
Drbul also criticized the reduction of signature styles and overemphasis on "fashion" at Michael Kors. At Versace, the shift toward luxury/quality alienated the aspirational consumer by removing statement items. The analyst lowered FY25/FY26 EPS estimates to $1.50/$2.00, down from $1.85/$2.10. Per Drbul, Capri's current low valuation could attract offers.
Drbul reiterated the Buy rating on Tapestry, raising the price forecast to $70 from $60. The analyst notes Tapestry will focus on strengthening Coach and Kate Spade, not pursuing acquisitions for now. With the Capri merger behind, Drbul sees value in Tapestry's current portfolio.
The company is expected to benefit from pricing power in FY25 and may reach a 19% operating margin, with long-term potential to return to pre-COVID margins, driven by DTC growth and expansion in Asia, Drbul writes.
JP Morgan: Analyst Matthew R. Boss reiterated the Neutral rating on Capri Holdings, with a price forecast of $15. The analyst projects FY25 EPS of $1.44, 17% below consensus, with a 14% year over year revenue decline and a 45bps gross margin contraction.
For the second half of 2025, the analyst projects revenues to be down 13% (an improvement from the first half's -15%), gross margins to decrease by 10bps year over year (compared to the first half's -80bps).
Capri Holdings' shift to a higher direct-to-consumer sales mix has boosted full-price selling, but also increased operating expenses, Boss writes. The analyst warns that with limited opportunities to cut SG&A costs, this could be challenging amid a slowing top-line growth.
Price Action: CPRI shares are trading higher by 1.80% to $20.89 at last check Friday, while TPR shares are trading lower by 0.98% to $57.26.
