By Teresa Rivas

In the world of luxury bags, it isn't often that a star quarterback is a trendsetter. Yet when Philadelphia Eagles MVP Jalen Hurts' Super Bowl Sunday kit included a Coach Empire bag, it was the latest triumph for the brand. Its owner, Tapestry, is thriving too.

Last April, the Federal Trade Commission sued to block Tapestry's purchase of Michael Kors owner Capri Holdings, with the deal ultimately falling apart six months later. At the time, Barron's argued that Tapestry would be just fine without the deal, while Capri shares could fall out of fashion. Since then, Tapestry stock has more than doubled, while Capri is down 25%.

This week, the two companies' diverging fortunes were on display again, as Tapestry stock climbed after it announced it would sell its Stuart Weitzman footwear brand, and analysts had a lukewarm reaction to Capri's investor day.

On Wednesday the company said Caleres -- owner of Famous Footwear and Naturalizer -- would buy Stuart Weitzman for $105 million in an all-cash deal set to close this summer. Tapestry CEO Joanne Crevoiserat said the move would allow Tapestry to "maintain a sharp focus on our largest value-creation opportunities." The news comes less than two weeks after Tapestry's beat-and-raise quarter.

"We have a positive view of the transaction, as it leaves Tapestry well - positioned to focus exclusively on the handbag market, where the company has stronger margins and strong global growth prospects," wrote Barclays analyst Adrienne Yih, who argues the shares should trade up to $100 from a recent $86.49.

It makes sense for Tapestry to focus on Coach, which has been a standout in the affordable luxury handbag market.

"Coach's New York bag family, which includes the Empire, the Brooklyn, and Times Square Tabby, highlight's the brand's innovation capabilities, " writes Jefferies analyst Ashley Helgans, who reiterated a Buy rating and $95 target on the shares, noting that if Coach's momentum continues, there could be upside to consensus estimates for the next few quarters. "By leveraging its customer data, innovation platform, and brand management, management is able to provide newness not only through both new products, but also relaunching and modernizing vintage items and building on existing winners."

By contrast, Capri, which tumbled after reporting disappointing earnings earlier this month, failed to impress with its analyst day, where it laid out a plan to turn around its key brands, increase full-price sales, and cut costs.

"Capri set long-term targets that we consider to be aspirational, especially for margins," writes Raymond James analyst Rick Patel. "It's an ambitious plan at an uncertain time as Capri contends with global macro headwinds, heightened competition, and fallout from execution missteps over the last one to two years."

"Aspirational" and "ambitious" aren't compliments -- Patel thinks Capri is setting loftier goals than it can deliver.

Similarly, Telsey Advisory Group CEO Dana Telsey writes that she still thinks "there is significant work to do across the portfolio as management looks to stabilize the business over the next two years."

Nor does Capri look cheap, trading at nearly 20 times anemic forward earnings, roughly double its five-year average. Tapestry trades around 17 times, above its average but bolstered by expected double-digit earnings growth this year and next.

Fashion is notoriously fickle. Coach may not always be trendy, and Capri can make a comeback. For now, however, it still seems like Tapestry has it in the bag.

Write to Teresa Rivas at teresa.rivas@barrons.com

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February 21, 2025 21:30 ET (02:30 GMT)

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