Salvatore Ferragamo Announces Major Strategy Changes, Sees Drop in Shares
MILAN — It was a rough day for Salvatore Ferragamo’s shares on the Milan Bourse on Friday. A warning on medium-term targets issued by the Florence-based firm drove shares down 6.3 percent to close at 21.15 euros. At their lowest, shares reached 20.42 euros in intra-day trading.
The company said that evaluating its development plans and “significant IT and marketing investments, presented by the management, in order to relaunch the brand and to optimize the group’s commercial, production and logistic processes,” the board, headed by chairman Ferruccio Ferragamo, “recognized an extension into the financial year 2018 of the transition phase, that characterized 2017, and its related reflections on the medium-term ambitions.” These were presented to the market on Feb. 3. On Thursday, the board said it could no longer confirm these and they would be “more difficult to be achieved.”
Analysts reacted to the warning by downgrading the stock and suggesting a sale of the company might lie ahead. In a report, Giuseppe Marsella and Luca Solca at Exane BNP Paribas said they believed that, strategically, “an incrementalist approach is too little too late for Ferragamo — in a crowded market, where winners innovate and draw attention to them with bold, loud statements. Ferragamo today seems to lack a ‘grand plan’ for the brand, and a stratagem for attracting attention. Doing more of the same a bit better will not cut the mustard.”
BNP continued by saying that “if the new management fails with the relaunch of the group, the family could be forced to think about disposing of the group — although this option has been ruled out several times.” It confirmed its Neutral rating and downgraded the stock, cutting the Take/Profit Order by 13 percent to 20 euros.
Bernstein also reflected on the “negative tone” and “vagueness” of the warning, which is expected to scare investors. While conceding that the company has “an enormous potential to improve,” Bernstein added that if current management doesn’t succeed in a relaunch, it too sees an increased possibility of a potential sale “to an operator that can succeed in a turnaround.”
“While believing in the strength of the brand,” said analysts at Banca Akros, more work is needed to “recover credibility.” The bank also cut its rating to Neutral from Accumulate.
In the last six months, Ferragamo shares have dropped 13.2 percent.
The profit warning comes on the heels of lackluster results presented last month. As reported, chief executive officer Eraldo Poletto said the year 2017 was one of transition and that 2018 would be one of “hard work.”
“We have to be stronger, do what’s right, there are a lot of things happening — big changes — and we have to be in sync with the changes,” Poletto said at the time, reporting a 28.3 percent decrease in net profit, including a negative minority interest of three million euros, to 79 million euros in the first nine months of the year. This compares with 110 million euros in the same period last year.
In the nine months, revenues decreased 0.9 percent to one billion euros, including a hedging effect, compared with 1.01 billion euros last year. At constant exchange rates, sales grew 0.2 percent. In the third quarter, sales were down 5.5 percent to 287 million euros, due to the negative impact of currencies. At constant exchange rates, sales were up 0.5 percent.
Poletto spoke about making changes in the product offer, which follows the decision to appoint Paul Andrew, previously women’s footwear director, as women’s creative director in October, with Fulvio Rigoni leaving the company as a consequence.
