While it might seem like many women in Midtown Manhattan are donning Michael Kors bags, investors are tightening their pursestrings on Capri Holdings– Jimmy Choo and Kors’ parent company, in favor of buying shares of other affordable luxury stocks like Tapestry or Ralph Lauren.
Ralph Lauren and Tapestry, who owns sub-brands Kate Spade and Coach, saw explosive growth in the past year with shares shooting up 76.41% and 149% respectively– outperforming both the S&P 500 and their rivals, like Capri, whose shares have dropped 46% over the past year.
Price hikes and deep economic uncertainty from tariff policies have caused many consumers to turn away from traditional luxury labels, opting for affordable upmarket companies in the United States. But investors are pulling back from certain affordable luxury stocks like Capri Holdings due to weak innovation, poor consumer sentiment, and a failed merger with Tapestry. Meanwhile, stocks like Ralph Lauren and Tapestry, whose main growth engine is Coach, have skyrocketed, largely because of mounting success with younger consumers.
“Investors are not going to want to own this [Capri Holdings] stock, because they don’t think Michael is a strong brand, and unfortunately, the recent results suggest that it’s not performing on its own anymore,” said David Swartz, an analyst at Morningstar. He said Ralph Lauren, for instance, has no need to buy brands or sell as it is doing well enough on its own.
The majority of analysts have a “buy” recommendation for Ralph Lauren and Tapestry, and a “hold” recommendation for Capri Holdings.
Fund managers criticize Capri’s leadership for poor strategic decisions and a lack of forward planning, as they believed that the failed merger with Tapestry would pan out, according to Eric Clark, portfolio manager of Rational Dynamic Brands Fund. To Clark, Kors is a “clear activist opportunity. His fund has owned Capri for short periods of time for trades, rather than a long-term investment.
“I just shake my head thinking that any person in any one year of business school could figure out that Capri has just done so many wrong things over the last couple of years that speaks to their inability to understand the consumer or brand value. It just seems like they just need some stability at the C-suite and strategy level, and then go out and execute,” said Clark.
Investor confidence has also been harmed by heavy discounting and lack of control in distribution, diluting the brand image of both Michael Kors and Kate Spade to become less coveted by consumers.
Kate Spade, whose revenue declined by about 10% in the past year, has not aided in Tapestry’s momentum at all, according to Melissa Otto, head of research at Visible Alpha.
“The market is not expecting any growth to come from that [Kate Spade’s] business,” said Otto.
In recognition of its shortcomings, Capri Holdings announced a turnaround strategy in March involving debt reduction and store closures, aided by the $1.4 billion acquired from their sale of Versace to Prada Group.
It’s not the first affordable luxury brand to do so: both Coach and Ralph Lauren shared periods of declining growth in years past, implementing turnaround strategies that took several years to see success, according to Swartz. But the caveat, he said, is that these brands have always had better performing stores, and offered more diversification in product offerings for apparel and accessories.
“Essentially, Kors just copied Coach all along the way, where they were opening stores next to Coach stores, and they were consistently copying Coach’s handbag styles. Eventually, people thought the Coach brand was stronger and said ‘Michael Kors is basically a knockoff Coach brand- I’ll just pay more money for Coach instead,” said Swartz.