Salvatore Ferragamo (SFRGF, Financial) is an Italian high-end leather and clothing company. The stock is not badly priced given its growth and strong brand name. It could even get cheaper with the turmoil in Italy.
The company has 168.79 million shares, the stock trades at 21.21 euros ($22.82) and the market cap is 3.58 billion euros. The trailing dividend is 0.46 euros and the dividend yield is 2.17%. Trailing 12-month earnings per share are 1.02 euros. The price-earnings ratio is 20.8.
Sales growth is textbook. Sales were 1.153 billion euros in 2012 and grew to 1.43 billion euros in 2015--very good growth. Free cash flow has been in the 80 million euros to 100 million euros a year over the last few years. So we will say the free cash flow yield is about 2.8%.
The balance sheet is bulletproof. There are 186 million euros in cash and 157 million euros in accounts receivables to 189 million euros in payables. They have 162 million euros in short-term debt and 23 million euros in long-term debt. I have a question. Why is not the management of Ferragamo running the banks in Italy?
Cristiano Bellavitis wrote about the Italian referendum and mentioned Ferragamo on GuruFocus. The stock was also mentioned last December on GuruFocus as a purchase of Wasatch International. Sales were down 6.2% in the latest quarter in constant currencies.
Let’s discuss the business. Ferragamo manufacturers high-end clothing: shoes that cost $1,000, belts that cost $700, ties that cost $190. The company has a museum in Italy that would be interesting to visit. Shoes make up 43.2% of revenues and handbags and leather items make up 36.5%. I never thought of Ferragamo as a leather goods company but that is essentially what it is. The fact that I have a few ties skews my judgement. Silk goods only make up 6.3% of sales.
A recent investor presentation gives a breakdown of global operations. China has been positively affected by RMD devaluation. The rest of Asia has been soft. Consumer confidence is down in Japan. Latin America is mixed because of currencies and economic performance. Europe accounts for 26.4% of revenues, North America 23.9%, Japan 9.2%, Asia 35.5% and Latin America 5%. I am surprised what a larger percentage Asia makes of Ferragamo’s sales. Retail makes up 63.1% and wholesale 35.2%. The company has its own stores and also sells to department stores.
In the 2015 Annual Report, the company owned 391 standalone stores and had 271 stores, operated by third parties, that were inside of larger stores. I assume the latter would also take in airports that I have visited. Ferragamo Finanziaria controls 57.78% of the company, 5.99% is controlled by Majestic Honour, 10.69% by the family and 25.55% is free float. You can see that there are not a lot of shares in circulation. Majestic Honour is controlled by Peter Woo, the only non-Italian that I see on the board of directors. It appears that the family and Woo receive more voting privileges than the common stockholder. We do not like privileges and dual-voting shares.
So is Ferragamo a buy? Maybe. I would like to see it drop even more. It is a great brand. The problems in Italy, its home, and Asia, its largest market, give me pause. I would buy at the right price.
Disclosure: We do not own shares.
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