MILAN — Despite an increase in sales and profitability in the first half and the first signs of a turnaround at the company, Salvatore Ferragamo shares tumbled on Wednesday, a day after the firm reported figures related to the six months ended June 30.
Trading of the Florence, Italy-based company’s shares was briefly halted earlier on Wednesday and finally shares closed down 7.8 percent to 18.97 euros.
Analysts were concerned about the management’s cautious outlook, a second half expected to be in line with the first half, and a lack of significant improvements.
While chief financial officer Alessandro Corsi on Tuesday confirmed a 2019 consensus that sees revenues of 1.39 billion euros and earnings before interest, taxes, depreciation and amortization of 200 million euros, analysts pointed to numbers that were below their expectations. Revenues in the second quarter totaled 387 million euros compared with expectations of 385 million euros, but earnings before interest, taxes, depreciation and amortization of 85.2 million euros were below the forecasted 88.7 million euros. In the second quarter, profits of 46.8 million euros were below the analysts’ expectation of 50.1 million euros.
Analysts at Mediobanca Securities believe Ferragamo’s “current transitional phase still requires caution” and that the company’s retail improvement was “marginal” and driven by “a trend that was mainly less negative in secondary channels without any concrete change in the main channel compared to the first quarter.” Mediobanca confirmed its underperform rating.
As reported, in the six months ended June 30, Ferragamo’s net profit, including a minority interest, increased 2.4 percent to 60 million euros, compared with 59 million euros in the first half last year.
Revenues climbed 4.6 percent to 705 million euros, compared with 674 million euros recorded in the same period last year. Sales accelerated in the second quarter, rising 4.9 percent.
For Citi, the Florence-based company “continues to navigate in a complex phase of transition.” Citi analysts acknowledged the sales growth, but noted revenues had not improved compared with the first quarter conversely to some of its competitors. In addition, “the growth in the high-margin shoes and leather goods divisions had slowed down compared with the previous quarter and also retail sales in July showed a deceleration partly as a consequence of the Hong Kong protests.”
That said, the company’s main categories did show improvements. Sales of footwear in the first half were up 4.1 percent to 297.3 million euros, accounting for 42.2 percent of the total. Handbags and leather accessories rose 6.9 percent to 281 million euros, representing 39.9 percent of the total. Ferragamo’s chief executive officer Micaela Le Divelec Lemmi during a call with analysts a day earlier admitted: “We know we need to continue to work and be fully concentrated on some products.” In particular, she acknowledged “some time” was needed to consolidate and complete the assortment of women’s shoes. “We do not expect a boost with the fall season. We need to create new icons.”
Credit Suisse doubted results could accelerate in the second half, and J.P. Morgan underscored how the first-half results did “not completely support expectations of a turnaround.” In particular, the bank’s analysts believe “the women’s shoes still need further work and rebalancing” and that “it may be hard to see a turnaround in the trend starting with the next fall-winter collection.”
Analysts expressed concern about the Hong Kong protests and, as reported, Le Divelec Lemmi had said it was “hard to predict” their impact on sales in the region and on the year, but added the company had “started to see the initial impact at the end of June and in July” and conceded that “the sentiment of mainland Chinese traveling to Hong Kong is [one of] concern.” She also said it was too early to understand where the Chinese could be redirecting their travels.
The Hong Kong issues and the weak performance of department stores in the U.S. were emphasized by Banca Akros, which left a neutral rating, unchanged. “The results were in line with our expectations.”
Equita analysts said the retail outlook “appeared less supportive with a slowdown in June and more so in July, partly linked to Hong Kong-Taiwan-Macao.” Rating Ferragamo shares as hold, they said “the new management is following a correct strategy with a strong focus on execution but the least sequential improvement in the second quarter and the slowdown in June and July confirm that this is still the beginning of the course.”
Kepler Cheuvreux analysts believe the second quarter was “still weak” and that “the transition continues” as they saw profit 6 percent below their expectations. Their rating was “hold.”
In February, Paul Andrew was promoted to the role of creative director of the brand. Guillaume Meilland maintains his role as men’s ready-to-wear design director, with the additional responsibility of studio director, coordinating the development of all product categories under Andrew’s leadership.