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CAPRI HOLDINGS LTD (NYSE: CPRI) POSITION UPDATE
As a small business owner, I have to make decisions often about what is an optimal outcome for my clients, staff, and me. I get heckled for my consistent response of "What is the risk"? If we don't know the risk, then we should not be doing it. I then get a look of surprise when I share teachable moments to people by applying and concepts from business, cybersecurity, finance, marriage, and raising children. I believe in the 'Circle of Life' and how complex systems share similar principles. I ironically ask my business team to consider the risk of what they are doing and how it impacts our business and then I come how and discuss with my kids (all under the age of 10) about the risks of their actions. The goal is to create accountability for one's own actions. I stay consistent because instead of accountability I often hear the opposite when things go awry. With my kids, I might hear "well I didn't know" and in the corporate world I see two things: 1) analysis paralysis - the inability for departments to make a decision without escalating to the highest levels of the organization and 2) 'call a guy' mentality - let me outsource my task or decision to another person by adding them to an email or meeting even when they don't add value. This article is to hold me accountable for my investment in CAPRI HOLDINGS.
Human nature is to only write about our investments when they go up. When people ask for financial advice, I joke they should find the podcaster, blogger, influencer, or coach that will be honest about their investments that aren't working. That is someone I want to talk with because there is integrity there. For CAPRI, the buck stops with me and my current investment is not working out and currently has me down or under water by 5 figures! My job is to keep it real, I haven't log into my account recently but I'm sure my investment is down roughly $10K or so. The amount is significant because CPRI represents my largest investment in my personal account. I made a series of trades to amass this position and I have to reflect on whether I miscalculated the risks. Let's revisit the details:
Details by Capri
In the 3rd Quarter of last year, my spidey senses tuned into an announcement from a stock I used to have a decent position in called Tapestry, Inc. In August 2023, Tapestry slid into the DMs of Capri. I saw this hook up of high fashion as a investment that made sense for my portfolio.
Tapestry, owner of Coach, was approaching the house of Versace. So, what were the risks I weighed:
1. Risk of Capri Saying No: I didn't think this was a high risk because on August 10, 2023, Capri made the announcement that they wanted to hook up with Tapestry as the terms of engagement were favorable. I personally think it makes sense because as a connoisseur of hip-hop I hear in songs that the fashion trends are constantly changing. I presume to compete with fast, every day, and high fashion, these brands will acquire each other to keep the marketing efforts in your face, costs down, and prices premium.
2. Risk of Government Regulators Blocking the Acquisition: I didn't think was a high risk because my assumption is fashion is global. One would believe the various countries where these fashion brands live would be on board with supporting their local brands. I have no knowledge of high fashion but image France not supporting Louis Vuitton or Italy and their iconic brands. Heck, I've read that even if these two brands combined, they would only be the 4th largest luxury company in the world.
But why isn't the investment working:
I thought I was correct on all fronts. Capri accepted the terms of marriage and agreed to the hookup. Next, I read that Japan and the European Union regulators even signed off on the marriage and regulators are like parents who approve of marriage. All that was left were US regulators known as the Federal Trade Commission (FTC). I joke someone must have known something because this investment has not done well since I made it. Or I should have calculated a higher probability or rejection by the FTC because I got burned on my Tegna investment last year. The FTC has been very aggressive in looking into these deals and just about a week ago they voted to block the marriage. This is bad news for an investor like me but I would agree if I thought communities and companies would be harmed. What is the harm to my community when high fashion brands link up??
Per the FTC, Coach, Kors, and Kate Spade all participate in the handbag and compete and monitor each other to make strategic decisions pricing. Also, every large acquisition could result in the reduction of employees to save costs (and often do).
My response would be: I assume all of these products are out of the common persons reach. I love my spouse and have never attempted to purchase any of these products. Heck, I thought Birkin was the sought after bag according to Cardi B and other celebrities. So whether prices stay high, doesn't impact the average American. Maybe if outlet prices go up it would but again these are vanity purchases...or so I thought.
What I didn't calculate was the FTC's comment on the potential for harm via job reductions. I never even factored that into my equation because that is a normal action or outcome of acquisitions. Looking at this scenario now, I'm not sure Tapestry is all of a sudden going to have all of these products being sold out of super stores, therefore cutting tons of employees. That type of action could water down the experience of these high end brands. So in my opinion the logical loss of employees is limited to the administration functions: marketing, finance, legal, purchasing, etc.
What's Next - Well, Tapestry has sued the FTC's blocking of the merger. If this heads to court, my assumption is that fashion is a competitive contact sport for the luxury brands. I can't keep up with the name dropping in hip-hop songs of new brands every day. Next, a judge may ask why the FTC is the only regulator to block the hook up when Japan and the EU had no problem with it. Finally, I assume the rationale for the merger is it is getting hard to compete in this space and these companies want synergies, or to benefit from best practices, of the combined organization to compete against the onslaught of competition I assume comes from all ends.
For me I will hold, now that I've had a chance to spit out all my thoughts here on paper. I truly struggle with seeing how high fashion impacts the "average" consumer. My assumption is most of these brands are a bit out of reach of the average consumer so the harm is limited to the occasional premium outlet purchase for the consumer (her) feeling good, date night, and influencing on Instagram. I missed the jobs angle and will log that away for the future but if that is critical -- the world would never let any companies merge. I'll watch closely and hold because I think I've learned 2 things - where Capri is valued from here on out based on the terms of the deal and my current assumption that 2/3 approvals may sway a judge to get this across the finish line.
Drop a comment if you agree or disagree
#tapestry #capri #coach #versace #katespade #hookup alert #federal trade commission
