Burberry shares fall on CEO news, worries over Tisci's intentions
Burberry lost almost £1 billion off its market capitalisation on Monday, following the announcement that CEO Marco Gobbetti is to leave, as worries over who will continue to lead its strategic transformation surfaced.
There were also worries over whether creative head Riccardo Tisci might be inclined to follow him and also how much more likely this makes Burberry a takeover target for one of the very acquisitive giant luxury groups or a deep-pocketed sovereign wealth fund.
The news that Gobbetti is leaving to head Ferragamo in Italy so that he can be closer to his family came as a huge shock and a share price plunge of almost 10% at one point showed how worried some investors were, leading to widespread press speculation.
But analysts at Jefferies, who remain cautious, didn’t seem any more worried than they had been before the announcement, given that they had already seen the firm’s recovery as fragile.
They think a CEO change is “probably the last thing [Burberry] needed, raising many questions with few answers at this time”. But in a note seen by Fashionnetwork.com, they said that “the issue now is, yet again, one of credibility and maintaining market confidence that its current targets are achievable after mixed results so far”.
The emphasis was on the importance of continuity and “assuming no further high-profile names are set to abandon ship, the group has to continue to pursue its new strategy under the stewardship of the exiting CEO for six more months and at the same time hone in on a replacement that would be available relatively soon, and able and willing to take on what remains one of the sector's most challenging jobs”.
Jefferies thinks Burberry’s results “are unlikely to be impacted in a tangible manner” by the news in the short term, with the issue being “more one of credibility and the threat of internal turmoil that may affect the success of an already demanding strategy”.
With Ferragamo being “half the size of [Burberry and] also in need of significant overhaul” and that Gobbetti will leave by year-end, the news “was a surprise”, not just to investors, but to Burberry itself. Jefferies sees “the CEO walking away at a time when the latest new strategy is being implemented [as] a little odd especially given he is off to a smaller company”.
What’s important now is that the firm appoints a successor “that broadly approves and agrees with the ongoing strategy”. Despite its mixed results so far, they believe “a further shift in direction would be unhelpful at this time”.
And, as mentioned, the key is to retain Riccardo Tisci at the creative helm as "too much of the brand image is associated with him”.
But they don’t think the change makes the company any more exposed to a takeover and no deals are imminent. The reason for this is that it “can be approached at any moment and we would suggest the outgoing CEO would perhaps not walk away from his share awards if a discussion was ongoing”.
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