Ferragamo Freezes Investments Amid Coronavirus’s Spread

(Bloomberg) -- Salvatore Ferragamo SpA is delaying or canceling capital investments not considered “fundamental” as the coronavirus outbreak hammers demand, though the company sees green shoots of recovery in China, the biggest market for luxury goods.

“Visibility on the impact of Covid-19 is still very low for both turnover and earnings,” Chief Executive Officer Micaela Le Divelec Lemmi said on a call for investors. “The situation is unprecedented.”

The virus outbreak first hurt sales in China in late January, before the impact spread to European destinations prized by Chinese customers for shopping trips during the Lunar New Year holiday. Ferragamo is responding to the fallout by renegotiating leases, delaying investments and reevaluating how many products to make.

The shares fell as much as 4.6% early Wednesday in Milan.

“A weaker brand will struggle to catch up for some time,” Jefferies analysts led by Flavio Cereda said in a note. Ferragamo “is in the middle of a gradual relaunch under new management, but this setback will likely prove costly.”

The Ferragamo CEO spoke to analysts and investors after the company reported a 1.3% gain in 2019 sales excluding currency shifts. Full-year revenue of 1.4 billion euros ($1.6 billion) matched analysts’ estimates.

Ferragamo is starting to see slow improvement in China, the CEO said. The company still expects single-digit growth in that key market this year, depending on how long the impact from the coronavirus lasts.

“The mood of the Chinese customers will also be relevant,” she said. “After a month and a half of closures and restrictions, there is a will to come back and have a real life.”

Ferragamo is among luxury brands most exposed to airports, according to Morgan Stanley. International travel trends will probably get worse in the coming months before they improve, analyst Edouard Aubin wrote in a note last week.

To contact the reporter on this story: Robert Williams in Paris at rwilliams323@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Anne Pollak

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