Details at Salvatore Ferragamo RTW Spring 2018

MILAN Salvatore Ferragamo SpA shares tumbled on Wednesday, closing down 8.44 percent to 22.46 euros, hit by the news that parent company Ferragamo Finanziaria SpA had trimmed its stake, and after failing to open in early trade.

The holding sold around 5.9 million ordinary shares, or 3.5 percent of the Florence-based luxury fashion house, at a price of 23.25 euros a share, for about 137.1 million euros. The price was at a discount compared to Tuesday’s close at 24.53 euros.

The offer was made through an accelerated book building with Goldman Sachs International aimed at institutional investors and it will be settled on June 22. Following the operation, Ferragamo Finanziaria will hold around 54.3 percent of the company, down from 57.8 percent, and has agreed to a lock-up period of 180 days.

Analysts were puzzled at the timing of the sale, as the company is in the midst of a reorganization of its structure, after a profit warning in December, recent disappointing sales and profits, and a weak performance of its core footwear category.

The sale at such a delicate time could indicate the family’s lack of confidence in the turnaround, but one market source believed this isn’t the case and that someone in the family may have needed liquidity.

One luxury goods analyst noted that the sale “would not be significant if Ferragamo didn’t have the management problems it has now. In this situation, it’s only normal for analysts, investors and the banks to wonder what is happening. My belief is that the family just needs financial liquidity to buy shares from a member of the family that wants to sell. In any case, this does not look like an operation to strengthen the company.”

Analysts at Fidentiis, which confirmed a hold rating, also believe that “the placement is associated to internal family issues. Fulvia [Visconti] Ferragamo, daughter of the founder and shareholder of Ferragamo Finanziaria, died in April. We suppose the funds will be used to reevaluate the family members’ shares within the holding, for example a buyback of part of [Fulvia Visconti] Ferragamo’s shares from her heirs.”

In March, executive chairman Ferruccio Ferragamo reiterated that the family has no intention of selling the firm founded by his late father, responding to ongoing rumors about a divestiture. “To sell is out of the question. We love the company too much,” he said at the time.

Another Milan-based analyst believes the family felt it was necessary to increase the level of free-floating shares to attract investors.

According to Equita, the placement “deflects any potential M&A in the short-term,” which the broker in any case believed to be unlikely. “The timing of the sale appears in line with our idea that the second quarter numbers will not yet provide a clear evidence of a turnaround, with a slowdown of the top line and a worsening of profitability.”

The placement on Wednesday partly shuts down expectations of a potential offer at higher prices.

Banca Akros said the company is “still looking for a successful turnaround. The price of shares has been supported by a speculative appeal and by the optimism on the timing of the recovery.” With a neutral rating, it set the target price at 21.60 euros.

Mediobanca Securities confirmed its underperform rating at a share price of 17.45 euros.

In addition to Ferragamo Finanziaria, other shareholders include Majestic Honour Ltd. with a 5.99 percent stake. Wanda Miletti, the wife of the late founder Salvatore Ferragamo, has a right of first refusal on almost 10.7 percent of the share capital owned by other shareholders. Other members of the Ferragamo family have a 10.69 percent stake. The company was listed on the Milan Stock Exchange in 2011, an operation spearheaded by former chief executive officer Michele Norsa.

As reported, his successor Eraldo Poletto, now at Stuart Weitzman, exited the company in March, on the heels of an unusually difficult and turmoil-filled 2017 for Ferragamo, which saw net earnings, including a negative minority interest of more than four million euros, drop to 114 million euros, marking a 42.4 percent decrease. Net profits were negatively impacted in the fourth quarter by about 13 million euros as a result of the new U.S. tax law. Revenues declined 3.1 percent to 1.39 billion euros, compared with 1.43 billion euros in 2016.

In April, the group’s board appointed Gucci veteran Micaela Le Divelec as its new chief corporate officer — although in Italian her role was described as general director.

In the three months ended March 31, net profit, including minority interest, decreased 18.8 percent to 9 million euros, compared with 11 million euros in the same period in 2017, attributed to a tax-rate increase due to the lower deferred tax assets charge in the U.S. Revenues decreased 1.7 percent to 304 million euros, compared with 309 million euros in 2017. At constant exchange, they gained 1.7 percent.

In February, during Milan Fashion Week, Ferragamo held a coed runway show to unveil its men’s and women’s fall 2018 collections, designed by Guillaume Meilland and Paul Andrew, respectively. The show marked the ready-to-wear debut of Andrew, who was previously women’s footwear creative director and was appointed creative director of the women’s line in October. He succeeded Fulvio Rigoni.