Ferragamo: independence makes cobbling a turnround harder
Incoming chief needs to shake awake the dormant beauty lying within the luxury goods group
A sleeping beauty was how a recent boss described Ferragamo. But perking up the Italian luxury company is no easy job, as shown by its long flagging share price and rapid turnover at the top.
On Tuesday, chief executive Micaela Le Divelec Lemmi bowed out with a better than expected set of interim results. But even with Tuesday’s near-7 per cent share price jump, the share price remains a few percentage points below its level when she was appointed in July 2018.
Beijing’s planned crackdown on wealth inequalities did not help. Last month’s announcement hit all luxury makers’ shares. Chinese consumers are expected to account for most of the sector’s growth in the next few years. Still, Ferragamo has slightly below average exposure. Its leather goods should be less vulnerable than, say, expensive watches. Those are not pitched at the swankiest end of the market
Even so, Ferragamo has some fundamental problems. Though the “shoemaker to the stars” has a famous brand, it lacks much of a buzz. Ferragamo has trailed peers that invest more in new product launches.
The company is not stretched. It has averaged free cash flow of more than €100m annually since 2016. But luxury brands need to spend. Many family-owned businesses have sold out to get the benefits of scale offered by conglomerates, such as LVMH.
The named family owns two-thirds of Ferragamo. Its reluctance to relinquish control probably explains why plans to sell a minority stake had to be abandoned earlier this year. Its recent success in recruiting a big name boss — Burberry’s Marco Gobbetti — offers another sign the family has no imminent plans to sell out. Hence, there is rightly little speculative, buyout premium in the share price. The enterprise value to forward ebitda multiple sits about a quarter below the biggest luxury groups.
Just attracting Gobbetti was a coup. He has a strong record and should recruit a talented team. Nonetheless, it has proved hard for small luxury companies to turn themselves round. Gobbetti will be Ferragamo’s fourth chief executive in little more than five years. The investment case depends on him shaking awake the dormant beauty lying within Ferragamo.