Jim Cramer explains what's driving the stock of Tapestry

• CNBC's Jim Cramer on Monday explained what he thinks is driving the stock of Tapestry, a company known for brands like Coach and Kate Spade.
• To Cramer, Tapestry has made some savvy business choices after the government blocked its acquisition of a peer company.
• “In the end, giving up on the Capri Holdings acquisition turned out to be a brilliant move for Tapestry,” he said.

CNBC's Jim Cramer on Monday explained what he thinks is driving the stock of Tapestry, a company known for brands like Coach, Kate Spade and Stuart Weitzman. To Cramer, Tapestry has made some savvy business choices after it decided to walk away from an acquisition deal.

“In the end, giving up on the Capri Holdings acquisition turned out to be a brilliant move for Tapestry,” he said. “Rather than buying a bunch of struggling brands, they made a much better investment in their own stock, sold off the unexciting Stuart Weitzman business, and have turned their core Coach brand into a powerhouse.”

After the Federal Trade Commission blocked the deal late last year, Tapestry called off plans to acquire apparel peer Capri, which owns brands including Jimmy Choo, Versace and Michael Kors. But shares have climbed since then, and the stock hit a new 52-week high on Monday, up just over 69% year-to-date.

Wall Street did not like Tapestry's proposed purchase of Capri, in part because some of Capri's brands are not doing well, Cramer said. Investors were concerned that adding Capri's brands would derail Tapestry's business, especially as its own core brands struggled, he continued. They were also worried Tapestry would overstretch its budget by borrowing billions for the deal, Cramer added.

After Tapestry abandoned the deal, it made a few moves Cramer said he liked — it announced it would redeem the deal debt and add to its buyback. The company also said it wouldn't make any more acquisitions until it turned around Kate Spade, which he said is something Wall Street wanted to hear. Tapestry's decision to sell Stuart Weitzman further emphasized the company's plan to focus on Coach and Kate Spade, he continued.

Tapestry beat the estimates during its last quarter and raised its guidance, bolstered by growing sales from its Coach handbag arm, which makes up a large part of business. Cramer suggested that Coach is popular because consumers believe the products are high quality and reasonably priced compared to luxury peers. He was also positive on Tapestry's future because management said Coach is popular with Gen Z. Cramer said Tapestry is still managing to beat the estimates even as Kate Spade continues to struggle, so a turnaround for that brand would be “pure upside.”

There might be an opportunity to buy Tapestry at lower levels after it reports earnings in August, Cramer said, as expectations for the upcoming quarter are high.

“Ideally, I want Tapestry to report a good quarter that doesn't quite satisfy the shareholder base, causing a sell-off that allows you to buy this stock at a lower price,” Cramer said. “But if you like the story, you've got my blessing to put on a small position before the quarter, because from my perspective, Tapestry's management knows exactly what they're doing, and they're doing it well.”