Ferragamo Earnings: Lagging Industry, Chances of Successful Turnaround Diminished, in Our View

We are reducing our fair value estimate for no-moat Salvatore Ferragamo to EUR 10.60 per share from EUR 13.60 as we incorporate weak 2023 results and a more cautious stance on future sales and earnings development into our models. We now believe it will be increasingly expensive and difficult to put the brand back on a growth path, given its lack of scale, only minor market share in the highly competitive leather goods and footwear segment, and modest resources compared with the big luxury groups. A succession of management and creative talent over the past five years has not been able to improve the brand’s fortunes; revenue and margins are lower than 2019 levels, despite the industry’s strong post-covid recovery. Hence, we are seeing a substantial turnaround as increasingly unlikely. We now model long-term revenue growth of just under 4% (a bit below the industry’s mid-single-digit growth) and operating margin in the low to mid-teens (it was increasing to high teens in our prior forecast). We believe the cost base should still benefit from store base rationalization and some leverage on modestly growing revenue. We believe the shares are fairly valued.