New CEO looking to fashion a turnaround for Ferragamo
Style was a word that could have been invented for the last generation of Italian business people. For half a century, we saw it on the catwalks, on the motor racing circuits, in restaurants and even in football stadiums.
Hopefully, the style will continue, even if it’s too much to expect a whole lot more from the generation of entrepreneurs that included Giorgio Armani, who is 84, or Leonardo Del Vecchios (of eyewear group Luxottica) at 83, or Rosita Missoni of knitwear fame who is in her 87th year.
Along with ageing tycoons, Italian business faces the same difficulties as the rest of us, namely globalisation and a dramatically changing landscape. The company we are looking at this week is a good example of what happens when a leader is not around anymore. It is the Florentine shoemaker Salvatore Ferragamo SPA.
Ferragamo has a peerless pedigree, founded by Salvatore Ferragamo, who had migrated to America and shod Hollywood’s legends of the silent silver screen but returned to set up his footwear label in Florence in 1928. He’d established a decent client base because he continued to make shoes for the stars like Greta Garbo and Gloria Swanson and later Audrey Hepburn and Sophia Loren.
The business prospered after WWII but when Salvatore died in 1960, his wife Wanda, then aged 38, was left with six young children and a near bankrupt company.
Wanda was undeterred and she became a hero of Italian capitalism. She was part of a group of female entrepreneurs such as the Fendi sisters, Miuccia Prada, and Donatella Versace that were the post-war engines of the Italian economy and also transformed global fashion.
Over the years, ‘Signora’ Wanda turned Ferragamo into an iconic global footwear group based on Italian craftsmanship, later adding handbags, apparel, accessories and perfumes to the portfolio.
Today the company operates in 90 countries mainly through its own stores, specialty, department stores and its internet operations.
The Asia-Pacific region is a particularly good market for Ferragamo and it currently contributes over one-third to group revenues. Europe and the US both account for one-quarter each of group revenues, but last year both markets struggled. The remaining sales came from Japan and South America. The company’s retail channel is responsible for almost two-thirds of Ferragamo’s revenues but its wholesale channel is under pressure. As might be expected given its history, the footwear divisions at 42pc and leather goods at 37pc are the largest contributor to sales and profits.
Wanda died recently and her loss has prompted speculation that her heirs may sell their 40pc shareholding. The company is an attractive target with a high-end branding position and exposure to lucrative categories such as shoes, leather goods and fragrances. There are plenty of possible suitors, such as the cash rich French luxury groups LVMH, Kering and Hermes. The Swiss-based Richemont is also a candidate, as are a number of Chinese groups who are actively seeking European brands.
In addition, speculation as to mid-size luxury goods companies has heightened since Michael Korrs purchased Milan-base Versace. However Ferrucio Ferragamo, the chairman, has vetoed any proposed sale.
In recent times, Ferragamo has struggled to maintain its sales and profitability, with returns on investment and sales both falling.
While its revenues, at €1.4bn, were down 3pc on the year, net profits plunged a whopping 40pc due to the negative impact of foreign exchange movements, revenue declines in the wholesale channel, and the rise in operating costs and taxes.
To arrest its faltering position, the group recently hired a former Gucci executive, Micaela Le Divelec, as CEO to implement a turnaround plan with the objective of transforming the company.
Ferragamo shares, which trade at €20.61, are on a lofty price earnings multiple of 36, and investors will be rewarded if the new CEO is successful or if the family agrees to a takeover.
If I owned the stock (I don’t), I’d sit still.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.