Salvatore Ferragamo Resort 2021
Courtesy Photo
MILAN — Some may call it the Michele Norsa effect.
Despite the setback dealt by the effects of the COVID-19 pandemic in the first half, Salvatore Ferragamo shares soared on Wednesday, a day after the company reported a challenging performance in the period.
Shares were up as much as 10 percent in early trading on the Italian Stock Exchange and closed up 8.03 percent at 13.18 euros.
Encouraging signs in Asia, Ferragamo’s main market, and comments made by executive vice chairman Norsa, who spoke on the call Tuesday evening for the first time since his arrival at the end of May, impacted the stock and the opinion of analysts.
Marco Baccaglio, CFA equity research analyst at Kepler Cheuvreux, stated that, although sales fell more than in the first quarter, Ferragamo beat the bank’s expectations. He expressed “more confidence in a stand-alone turnaround in the speech of the vice executive chairman Norsa, even if visibility remains low and Ferragamo now plans again new DOS openings.”
The Florence-based company in the first half posted a net loss of 86 million euros, on revenues that fell 46.6 percent to 377 million euros, but Norsa, together with chief executive officer Micaela Le Divelec Lemmi, said a financing credit line of 250 million euros, the reduction of costs and a more streamlined organization are going to support investments in the company’s retail network, with stores opening in China, for example.
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UBS stated that cost savings in the second quarter exceeded expectations. “We think the stock could react positively to comments from [Norsa] on simplifying the business, which should in turn lead to higher margins. However, for this to happen the top line needs to pick up in our view, and with lack of such evidence currently, we retain our neutral rating.”
In its report, Mediobanca Securities stated that the first-half results were in line with expectations. “Uncertain market conditions reduce visibility on business prospects for the entire luxury goods industry in the months to come and support our cautious stance on the sector. However, we believe that for Ferragamo momentum is bottoming, and a clearer vision to better balance investments in China versus Europe to leverage on domestic demand rebound and a relatively strong brand awareness might pay off and be supportive for a successful turnaround.” The bank kept its neutral rating but stated it was “ready to see room for stock re-rating once announced actions (i.e. organization streamlining, digital transformation, and retail rationalization) result in a visible business recovery.”
Citi’s Thomas Chauvet wrote that Ferragamo’s operating loss was “not as bad as feared on tight cost control,” and cited encouraging trends in July and August.
Chauvet believes that the expected return to profitability in the second half of the year seems plausible in light of the better-than-expected second quarter and continued efforts on costs. On the other hand, consensus expectations for the full year in 2021 of an 18 percent sales growth “look too optimistic in our view given likelihood of continued pressures on travel flows until at least in the first half of 2021, weak local consumer demand in Europe, and macro and geopolitical uncertainty post U.S. elections.”
“Mr. Norsa’s appointment earlier in May adds further global luxury expertise to the board, but could also fuel further M&A speculation once the luxury sector M&A window reopens in 2021,” continued Chauvet. The executive, he wrote, “has a deep knowledge” of the company, having been its ceo for a decade, publicly listing it in 2011 and exiting in 2016.
“Aged 72 today, he brings a lot of experience from the luxury industry to the table. For smaller industry players having already faced challenges in the past few years, such as Ferragamo, we believe that a clear operational and strategic vision is needed to navigate the current industry downturn; in this regard, Mr. Norsa’s appointment makes sense. However, the return of an ex-ceo in an executive role is quite unusual, we think, and could fuel speculation on future management structure and ownership.”
Rumors about a sale of the company have resurfaced over the past few seasons, but this is a development the Ferragamo family has always denied.
Norsa is a partner in FSI, which in 2018 took a 41.2 percent stake in Missoni, and this link is seen as potentially opening up new scenarios. Maurizio Tamagnini, ceo of FSI, has in the past pointed to the fund as a possible aggregator of luxury brands, and analysts see Ferragamo as a good fit with this idea of a fashion conglomerate.
Equita, while highlighting an operating profit in the second quarter that was less weak than expected because of improved cost control, was cautious, given the uncertainties that remain in the short term, requiring more clarity on the strategy.
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