Tapestry CEO: Capri acquisition unites 'iconic fashion brands'

Tapestry (TPR) announced it will spend $8.5 billion to buy its long-time rival Capri Holdings (CPRI), adding luxury brands Versace, Michael Kors, and Jimmy Choo to its portfolio that already includes Coach, Kate Spade, and Stuart Weitzman. Yahoo Finance's Brian Sozzi is joined by Tapestry CEO Joanne Crevoiserat to discuss the strategy of the deal, what it means for investors, and the outlook for Tapestry.

Crevoiserat said, "We're establishing a powerful global house of iconic fashion brands ... and we're excited about bringing these brands together because of the compelling financial opportunity. There's excellent strategic fit.

Crevoiserat added, "We're confident that investors will see this compelling opportunity. This is a story to watch."

Video Transcript

BRIAN SOZZI: We're watching another fashion industry blockbuster unfold. Tapestry is betting big on Capri Holdings. Tapestry announced it will spend $8.5 billion to buy its long-time rival. Transaction will add new brands to its portfolio like Versace, Michael Kors, and Jimmy Choo. So what does this all mean for Tapestry? And how does it fit into the larger M&A action we've been seeing this year, of course, in retail.

Joanne Crevoiserat joins us now, Tapestry CEO. Joanne, great to see you here. Congrats on this deal. I know things like this do not happen overnight. Now, the market reaction was tough. I mean, shares of Tapestry went down 16% on the deal. What did the market not get, Joanne? What did they miss?

JOANNE CREVOISERAT: Well, I'll start by saying first, it's great to see you, Brian. And I know you love brands, so this is a very attractive combination. We're establishing a powerful global house of iconic fashion brands, uniting, as you said, Coach, Kate Spade, and Stuart Weitzman with Versace, Jimmy Choo, and Michael Kors.

And we're excited about bringing these brands together because of the compelling financial opportunity. There's excellent strategic fit. It's immediately accretive, and we see significant runway beyond just the initial combination. And I think we're confident that investors will see this compelling opportunity. This is a story to watch, Brian.

BRIAN SOZZI: What makes the transaction so compelling?

JOANNE CREVOISERAT: Well, again, you know, it is about the strategic fit. We're thinking long term about our business. And the strategic fit of this transaction, it builds our portfolio in a great category. We play in a resilient $200 billion luxury market that includes handbags, footwear, and apparel. And these brands are incredibly-- they're distinctive in that market, but they're also complementary.

If you think about our two businesses, this deepens our access to a higher-end luxury consumer that is quite resilient. There's geographic diversification here where the Capri business has a relatively higher penetration in Europe. Our business has relatively higher penetration in Asia, and it broadens our product offering because the product categories are also complementary, where the Capri business has a higher penetration in lifestyle categories like footwear and apparel. And we see opportunity to grow those categories across our portfolio.

So on a number of different levels these businesses are complementary. And then we believe that we have an opportunity to leverage the Tapestry platform to drive a direct to consumer opportunity. We've built this strong consumer engagement platform and elevated our direct business. And we think that applies as well to the Capri businesses.

BRIAN SOZZI: I've been covering your company for a while, Joanne, going back to when it was just called Coach. And I remember that 2017 acquisition of Kate Spade. This was before you. There were challenges integrating that business, again, before you. What is the institutional knowledge inside of Tapestry to better integrate a company like a Capri which is a lot bigger than Capri-- I mean, Capri, which is a lot bigger than what you bought a couple of years ago in Kate Spade.

JOANNE CREVOISERAT: Exactly. Well, we have experience in integrating. And I would say that we've learned a lot over those years, right? And the importance-- and the things that are important that we've learned, the importance of clarifying the brand positioning, not walking away from the unique and distinctive aspects of each of these brands.

These brands are iconic, and they have-- we fielded a lot of research in the process. They are strong brands. They're well positioned in attractive markets and market segments. So our first learning has been clarifying the brand positioning. And in our transformation over the last three years, we've done exactly that across our brands, clarifying that brand positioning and crystallizing the target consumer to make sure that we're strengthening our execution behind the product offering and the experiences for that target consumer.

We've also strengthened our teams in ways of working, embedding data and analytics. We've spent a lot of time, I know, over the years talking about that, Brian, embedding those analytics in the hands of decision makers to make our business better, move faster, and more responsive to consumer data that we have.

And we've invested in brand building activities over the past few years. We've more than doubled our marketing spend. So as we work to engage consumers and integrate these brands, it will be with that focus on continuing to build the brands.

We're also going to be quite choiceful about where we decide to integrate and where we don't, knowing that there are some places that it makes sense to have a lighter touch. And businesses like Versace that's playing in a different space with a higher-end consumer where we don't have the experience or scale, the integration will be a lighter touch. And the places where we have experience in scale, we'll bring that scale to benefit the acquired brands.

BRIAN SOZZI: One thing that I think the street is realizing today, and I don't think they realized it yesterday, Joanne, is the international play here. It seems like there's going to be a new unlock or new areas of growth, notably in Asia where Tapestry and Coach have really had a strong position. Does this better allow you to compete with the Louis Vuitton in those high growth emerging markets?

JOANNE CREVOISERAT: We think there are opportunities around the world with this combination. They have a relatively stronger business in Europe, where we are also relatively under-penetrated. So we think there are opportunities on both sides. We can learn from the Capri brands, and they can learn from us in Asia, to your point, where we've had more success and we have higher penetration.

Overall, this combination provides more balance and diversification around the world, which is great for our business. We have seen the importance of global diversification over the last three years. We've seen different parts and regions of the company accelerate at different rates and face challenges at different rates. And that's been really the underpinning of our ability to deliver consistent, strong results quarter after quarter through a very tumultuous time because we have this global footprint and diversification. And this combination only adds to that.

BRIAN SOZZI: I think one of the other reactions here, Joanne is that Capri was struggling. Its shares were underperforming yours the past year ahead of this deal. What do you have to fix there?

JOANNE CREVOISERAT: If I take a step back and talk about our overall vision, it's taking iconic brands, brands with true heritage, and design, and craftsmanship. And there aren't a lot of those kinds of brands in the market. So I do think it's important to take a minute and just appreciate the quality of the brands that we're bringing on.

But when you combine those high quality iconic brands and put them on this modern consumer engagement platform, that's where we can deliver more innovation, more connectivity with consumers, and more relevance, which we see that as luxury at its best. And that is really the power of this combination and I think why we're so excited about the acquisition.

BRIAN SOZZI: Before I let you go, Joanne, on a personal note, what does doing a deal like this mean to you? I go back, I originally met you when you were at Abercrombie & Fitch. You helped turn the finances around there. You came here really under a tough situation initially as the CFO, quickly rose the ranks to CEO. You've turned around this company. What is it like to pull a trigger on probably one of the biggest transformational deals in retail in the past five years?

JOANNE CREVOISERAT: I see incredible potential. And the thing that gives me most energy and most gratification is seeing our teams win. We have such quality teams around the world that have-- it's harnessing the power of our teams that has really been the underpinning of our success.

It's very clear in the market. I've been in this business, Brian, even before those experiences since I graduated from college, 35 years. It's moved and changed a lot. The focus on the consumer and the agility that is needed to really engage consumers today, those are the capabilities that we're building.

And I get a lot of gratification from harnessing the energy and the passion of now we'll have 33,000 team members across the globe. And I think that's a powerful. It's a powerful opportunity, one that we don't take lightly. But I think it will solidify our growth going forward.

BRIAN SOZZI: Well, good luck on this integration. Thanks for giving Yahoo Finance some time. We look forward to following this journey. Joanne Crevoiserat, good to see you. Have a good weekend. We'll talk to you soon.

JOANNE CREVOISERAT: Thanks, Brian.

BRIAN SOZZI: Appreciate it.