Salvatore Ferragamo shares sink 16% amid weak sales and uncertain outlook

Investing.com -- Salvatore Ferragamo (BIT:SFER) shares tumbled over 16% on Friday following its latest financial results, which underscored continued struggles for the Italian luxury brand. 

The sharp decline in stock price reflects investor disappointment over the company’s ongoing margin pressures, inventory challenges, and a cautious outlook for 2025, despite some improvements in cost control.

Citi Research noted that Ferragamo’s fourth-quarter sales showed signs of stabilization, with overall revenue down 4% on a currency-adjusted basis. 

Direct-to-consumer sales saw minimal growth, rising just 1%, which may indicate changing trends within specific product categories and geographic markets.

However, wholesale remained the stronger segment, while performance in Asia—particularly China—continued to lag. 

Ferragamo’s 2H24 EBIT beat projections at €35 million (vs. €30 million guidance), thanks to a 7% drop in operating costs. 

This cost-saving effort helped offset the impact of a weaker-than-expected gross margin, which fell by 200 basis points year-over-year to 70.8%, below the consensus estimate of 71.9%.

Despite the cost-cutting measures, Ferragamo’s overall financial trajectory remains a concern for investors. Full-year sales for 2024 are projected to reach €1.04 billion, down from €1.16 billion in 2023, reflecting the brand’s continued struggle to regain market momentum. 

Citi Research maintains a neutral stance on the stock, pointing to the slow margin recovery and the brand’s premium valuation—Ferragamo is trading at approximately 35 times its estimated 2027 earnings per share, compared to an average of 19 times for the broader luxury sector.

Investor confidence has also been shaken by the lack of clear guidance for 2025 and uncertainty surrounding the company’s leadership.

Ferragamo has yet to announce a new CEO following Marco Gobbetti’s departure, and the company’s management has taken a cautious approach to near-term expectations. 

The luxury market is shifting, with heritage brands like Ferragamo struggling to maintain their relevance against stronger competitors that have been more successful in capturing the interest of younger consumers. 

Without a clear vision for growth, investors fear that Ferragamo may continue to lose ground in an increasingly competitive market.

While the company has attempted to modernize its brand identity and streamline its operations, these efforts have yet to translate into significant financial gains. 

The company’s revenue decline suggests that consumers are not responding as strongly as hoped to its refreshed designs and marketing strategies.

Moreover, Ferragamo’s weak presence in China, a crucial growth market for luxury brands, remains a major hurdle. With Asia sales still underperforming, the company lacks a strong driver for revenue growth, putting further pressure on future earnings.

Salvatore Ferragamo’s stock had previously outperformed the broader luxury sector this year, gaining 11% year-to-date versus the sector’s 9% rise. 

However, the post-earnings selloff suggests that investors remain skeptical about the pace of the company’s turnaround. 

With expectations for full-year 2025 EBIT at €41 million—an 18% increase year-over-year—there is some optimism about gradual improvement.