Jim Cramer explains what's driving the stock of Tapestry

Tapestry's stock has surged over 69% year-to-date, reaching a new 52-week high, following its decision to abandon the acquisition of Capri Holdings. This strategic pivot, praised by Jim Cramer, allowed Tapestry to focus on strengthening its core Coach brand, which now drives strong financial performance and raised guidance, while also divesting Stuart Weitzman and implementing share buybacks. The market's positive reaction reflects confidence in Tapestry's management and the potential for further upside from the Kate Spade turnaround, despite high expectations for upcoming earnings.

Analysis

Tapestry's strategic decision to abandon its acquisition of Capri Holdings has been a significant positive catalyst, driving the stock up over 69% year-to-date to a new 52-week high. The market has rewarded management's subsequent pivot to a more focused strategy, which involved divesting the Stuart Weitzman business, committing to the turnaround of Kate Spade before pursuing further M&A, and executing shareholder-friendly capital returns through debt redemption and an increased share buyback program. This strategic clarity is translating into strong financial performance, with the company beating recent earnings estimates and raising guidance. Growth is currently underpinned by the powerhouse Coach brand, which benefits from a strong value proposition and increasing popularity with Gen Z consumers. While the Kate Spade brand continues to struggle, its potential turnaround is now viewed as a source of pure upside for a company that is already performing well on the strength of its core operations.

Key Decisions for Investors

• Investors should view management's successful strategic pivot and disciplined capital allocation as a strong validation of the current long-term thesis for the company.
• Monitor progress on the Kate Spade brand turnaround, as any material improvement represents a significant upside catalyst not currently priced into the stock's performance.
• Given the stock's substantial appreciation and elevated expectations ahead of the August earnings, it may be prudent for new investors to initiate a smaller position or wait for a potential post-earnings pullback to find a more attractive entry point.