Salvatore Ferragamo Earnings: Revenue Down 6.5%, but We’re Maintaining Fair Value Estimate

We are maintaining our fair value estimate of EUR 16 for no-moat Ferragamo SFER as we update our model following the release of first-quarter earnings. After a solid recovery seen in the first quarter of 2022 following two years of heavily COVID-19-affected revenue, the first quarter of 2023 saw a decline in total revenue once more by 6.5%. We currently view shares as fairly valued.

Wholesale took the brunt of the impact in the first quarter, down 16.1% at constant exchange rates year over year, while retail escaped relatively unscathed (down only 2.4%). Management called out the U.S. as a main driver of the slowdown for both segments, though wholesale was affected by a planned third-party network change too. Additionally, Asia-Pacific was a drag on both segments as travel retail suffered, though China’s reopening has brightened the near-term outlook in the region.

Unsurprisingly, leather goods and footwear were the product categories where Ferragamo saw the largest declines as well, with negative 15.3% and negative 1.7% year-over-year growth, respectively. They are challenging categories to compete in even during strong markets due to Ferragamo’s small market share in leather goods and the fragmented nature of footwear. However, management said that the new products from creative director Maximilian Davis have been positively received since their appearance in stores in February. Our model forecasts a total revenue compound annual growth rate of 5.2% over the next five years despite the muted start to fiscal 2023.