Burberry’s CEO exit points to Talent War, not Takeovers

The British raincoat brand’s boss Marco Gobbetti is leaving to join Salvatore Ferragamo

By guest author Carol Ryan from the Wall Street Journal

Captions courtesy by the Wall Street Journal

Monday brought disappointment for designer label Burberry, BURBY -8.29% and for deal makers in the world of European luxury goods. A top-level poaching incident may strike two of the most commonly cited listed takeover targets off the industry shopping list for a while.

Burberry said Chief Executive Marco Gobbetti will leave in December to join Italian shoemaker Salvatore Ferragamo. He has been in the job less than five years and is stepping down while the British brand’s turnaround is still only half complete. During Mr. Gobbetti’s tenure, Burberry’s shares have returned 9 % annually, lagging bigger brands such as Hermès and Prada.

Burberry’s board, which only heard about Mr. Gobbetti’s plans over the weekend, must now hunt for a new boss as well as reassure investors that lead designer Riccardo Tisci won’t follow him out the door. The company’s shares fell 8% in morning trading in London.

Both Salvatore Ferragamo and Burberry have long been considered takeover targets, although the former is family-controlled. Some shareholders are betting that the pandemic will compel weaker brands to sell up to one of the large, cash-rich European luxury houses, such as Gucci-owner Kering. The hiring of one of the top CEOs in the business suggests that the Ferragamo family is serious about turning the brand around by themselves. The company’s shares fell 2% despite the positive hire.

The timing is bad for Burberry, which is most famous for its checked trench coats. Several years into a makeover, the brand was beginning to show signs of improvement. Sales fell 10 % over the pandemic-struck 12 months through March, but the label has been selling more items at full price—a sign that its image is improving among shoppers. Now, investors must wait for a new boss to be found and see whether he or she changes direction.

The uncertainty will likely weigh on Burberry’s share price, in theory making it a more appealing takeover target. But the stock still trades at 24 times projected earnings and would be a mouthful. Add a 30 % takeover premium to the value of its equity and Burberry comes with an £11 billion price tag, or USD 15.3 billion at current exchange rates—a risky bet considering its still-unsettled outlook. An opportunistic buyer could have picked it up for a lot less last year.

Meanwhile, Salvatore Ferragamo’s move to hire Mr. Gobbetti suggests that the pandemic has caused a rethink among some independent luxury brands. To attract a boss of Mr. Gobbetti’s calibre, the controlling family would have had to give him assurances that they wouldn’t meddle with his strategy. Underperforming names now recognize that they need to change to compete against giants such as LVMH Moët Hennessy Louis Vuitton, the world’s biggest luxury company, whose hand has been strengthened by the crisis.

Investors may still hope that Salvatore Ferragamo will be polished up and sold in a few years’ time at a higher valuation. For now, though, the tougher outlook for smaller luxury brands points to a fight for the best executives rather than major deals.

www.burberryplc.com

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Here is the official press release in addition:

Burberry on June 28, 2021 announces that Marco Gobbetti has notified the Board of his intention to step down as Chief Executive Officer and leave the Company at the end of 2021.

Marco, who has led the transformation of Burberry’s brand and business, will be stepping down after nearly five years with the Company to take up another opportunity that will enable him to return to Italy and be closer to his family.

The Board will now begin the search for a successor. We anticipate Marco will remain with Burberry until the end of the calendar year. In that time, he will work with Chairman Gerry Murphy to provide full support to the executive leadership team on an orderly transition. Further updates will be provided in due course.

Gerry Murphy, Chairman, commented: “I would like to thank Marco for his partnership and the immense contribution he has made to Burberry. He has had a transformative impact and established a clearly-defined purpose and strategy, an outstanding team and strong brand momentum. The Board and I are naturally disappointed by Marco’s decision but we understand and fully respect his desire to return to Italy after nearly 20 years abroad. With the execution of our strategy on track and our outlook unchanged, we are determined to build on Burberry’s strong foundations to accelerate growth and deliver further value for our shareholders.”

Marco Gobbetti, CEO, commented: “It has been an incredible privilege to serve as Burberry’s CEO and lead such a hugely talented team. As a group, we have elevated and strengthened the brand and the business, while continuing to be a force for good. With Burberry re-energised and firmly set on a path to strong growth, I feel that now is the right time for me to step down. I would like to thank my colleagues as well as Gerry and the Board for their partnership. I am fully committed to supporting them through the transition and I have every confidence that the creativity and strong values that define Burberry will continue to drive the Company’s future success.”

Remuneration information:

Marco Gobbetti will be treated in accordance with Burberry’s approved remuneration policy and his service contract for the remaining term of his employment. All share awards which are unvested at the point that Marco Gobbetti leaves Burberry will lapse in full. No further share awards will be granted.

Full details will be disclosed on Burberry’s website in compliance with Section 430(2B) of the Companies Act 2006 and in the Directors’ Remuneration Report within the Company’s Annual Report and Accounts for the year ended 2 April 2022.

This announcement contains inside information and is made on behalf of the Company by Gemma Parsons, Company Secretary.