UBS upgrades Salvatore Ferragamo; shares gain after trading update

Investing.com -- Shares of Salvatore Ferragamo (BIT:SFER )rose on Monday following its trading update. The update came after the Board of Directors confirmed its earlier forecast for operating profit, initially communicated on October 15, 2024. 

Despite some challenges in the luxury sector, with a general slowdown affecting the industry as a whole, the company’s management appears to have maintained a relatively steady view of its operations. 

The company also acknowledged the potential for an impairment in its 2024 consolidated financial statements. 

In a transparent disclosure, Salvatore Ferragamo pointed out that, based on current market conditions and estimates from analysts, there could be write-downs related to specific assets. 

The company outlined a potential range for these impairments, which could amount to between €70 million and €90 million. 

However, these impairments would not result in any immediate cash outflows or significantly impact the overall asset base of the company, which stood at €1.736 million as of June 30, 2024.

The company emphasized that these impairment tests would be finalized by March 2025, once a full review based on established accounting principles, such as IAS 36, is completed. 

UBS, who have raised their rating on Salvatore Ferragamo to "neutral" from "sell," citing that the shares are now reasonably priced after a significant decline in share value this year. 

While the analysts' fundamental view of the company remains largely unchanged, they acknowledged that the stock has fallen by 55% year-to-date, underperforming compared to their luxury sector coverage. 

As a result, the analysts see the shares as fairly valued at the current level, which led to the rating upgrade, with a price target of €6.00 per share.

For 2025, UBS forecasts a modest 3% growth in organic sales for Salvatore Ferragamo, driven by positive contributions from Europe, North America, and Japan, with more modest growth expected in Latin America and the Asia-Pacific region. 

While the company’s Chinese market is expected to contract by 2%, North America is anticipated to contribute to growth, accounting for about 52% of the total sales expansion. 

The analysts forecast a stable EBIT margin of 3% and a slight increase in the gross margin to 72.4%.

UBS analysts expect several key factors to drive the company’s performance in 2025, including any potential inflection in top-line momentum, the performance of specific product categories, and cost-cutting measures aimed at improving profitability. 

Risks to the outlook include potential store closures and the impact of product quality investments on margins. On the upside, successful product innovation, improved marketing efficiency, and a stronger North American market could bolster performance.

Source: Investing.com