While I am looking at luxury companies which I could short, one should not forget that Piquadro, which I would call also a “Tier 2″ brand, has issued its quarterly report just yesterday.
Unfortunately, Piquadro matches my “short thesis” quite well, with sales down significantly in its indirect channels and only relatively limited grwoth in the direct channel. Working capital increased which is a result of the increasing direct operated stores. In general, invested capital increased significantly, financed by additional debt.
So the change in the distribution model seems to be not a swift one as the Italian indirect sales really seem to melt away.
Time to go back to my initial investment thesis and valuation exercise.
My conservative case implied a 16% EBITDA margin. In the current quarter, we are at 1.77/11.3 = 15,67%, so optimistically we are within the conservative case regarding EBITDA Margin.
However if we look at the valuation grid that I used, we can clearly see that 2% growth was my worst case scenario for the conservative case:
| Growth | 2% | 3% | 4% | 5% | 6% | |
|---|---|---|---|---|---|---|
| Discount | ||||||
| 7% | 2.06 | 2.57 | 3.43 | 5.14 | 10.28 | |
| 8% | 1.71 | 2.06 | 2.57 | 3.43 | 5.14 | |
| 9% | 1.47 | 1.71 | 2.06 | 2.57 | 3.43 | |
| 10% | 1.29 | 1.47 | 1.71 | 2.06 | 2.57 | |
| 11% | 1.14 | 1.29 | 1.47 | 1.71 | 2.06 | |
| 12% | 1.03 | 1.14 | 1.29 | 1.47 | 1.71 |
In reality, EBITDA decreased by -29% vs. Q1 2011 and operating CF became negative. I have to admit, that looking back I kind of ignored that running own stores worldwide is a very different business model than selling wholesale in Italy.
As a consequence, I will sell down Piquadro from tomorrow on, as my initial thesis (international sales compensate domestic sales) clearly doesn’t play out.
There might be some takeover / going private speculation (the Samsonite CEO mentioned that they might be interested in Italian luggage makers after TUMI has become too expensive), but I am not willing to speculate on this.
