2023-04-05 14:11:47 ET
Summary
- Moncler is a high quality company that has grown quite nicely in the past.
- But they also come with a hefty price tag, which could reduce the future return potential for shareholders.
- So they are dependent on the growth of their business, particularly in China, to deliver the returns that they have posted in the past.
Thesis
Moncler (MONRF) has been a pretty good investment since its IPO almost 10 years ago. It has outperformed the S&P 500 by almost 100% in terms of total return. And the results for FY2022 were again pretty good.
So I think Moncler's share price could grow very nicely in the future because they have 2 good assets and a very strong balance sheet. But I also think that there are some risks that could have a big impact on this luxury company.
Analysis
Revenues for the full year were 2.61 billion euros, an increase of 27.9% over the previous year. The two brands Moncler and Stone Island grew by 19% and 28% respectively.
Moncler Investor Relations
As you can see in the table above, Moncler accounts for about 85% of sales and Stone Island accounts for the remaining 15%. As Stone Island is the faster growing brand, they have increased their share of sales from 10% to 15% in 1 year. But it is risky to base your entire business on the sales of these two brands, especially in the fast-moving fashion industry where trends are constantly changing.
Moncler Investor Relations
The larger of the two brands, Moncler may be relatively unknown to people in the US, as it originated as a ski brand in European ski resorts. In towns such as St. Moritz, Gstaad or Kitzbühel, Moncler is one of the most popular brands, which is why it has become a big winter brand in European cities.
After a while, it became quite popular in destinations such as Aspen, but the majority of non-skiing Americans may not be familiar with this European luxury brand. But in the future, sales in Asia and the US are likely to decide whether the brand continues to grow as it has done in the past, or whether it declines or stays the same.
Moncler Investor Relations
Stone Island is an even more European brand that first got some hype because soccer hooligans in the UK started wearing the brand and as soccer culture is very big in Europe, hooligans from other countries also adopted Stone Island as one of their favorite brands.
In recent years, a younger, more middle-class demographic has taken an interest in Stone Island, helping the brand to become more mainstream, leading to its huge growth in the last few years. Driven by the popularity of soccer clubs, many people saw Stone Island in the stadiums, helping to establish their brand. But because Americans and Asians are in general not as big into soccer as Europeans, I think it will be much harder to establish that brand in those regions.
And much of the future growth opportunity depends on getting Americans and Asians to buy Stone Island.
The revenue growth is quite impressive as they almost tripled their revenue from 2015 to 2022. This shows us that the management knows what they are doing and, as the Moncler and Palms Angels collaboration showed, they are always on the lookout for the next hype.
With a gross margin of 76% and an EBIT margin of almost 30%, they are a highly profitable company. This, combined with their cash balance of 818 million euros and their ability to generate good free cash flow, shows that they are a high quality company.
But, as is often the case with these high quality companies, they also come with a hefty price tag. An EV/EBIT of ~22 is far from cheap. But in the last 10 years there have been very few days when you could buy it at a better multiple.
In fact, they have increased their dividend almost every year, although they did suspend it for a year in 2020. Their dividend CAGR since IPO is still over 20%. They have also done some share buybacks, but the number of shares outstanding is relatively constant at under 270 million, so they are not buying back shares aggressively. But they have still grown their EPS by almost 35% a year since they went public. In total, they returned almost €200m to shareholders through dividends and buybacks in 2022.
Remo Ruffini, through his Double R S.r.L, owns 23.7% of the shares, which should align his interest with that of the other shareholders, as he owns almost 1/4 of the company.
Conclusion
In my opinion, Moncler is an interesting company in the luxury sector, which has some risks because they are so dependent on Moncler. Other companies in the luxury segment are more diversified, which helps to reduce the risks because the fashion market is quite fast with changing trends. Scandals can bring down sales very quickly and some brands never recover.
I am also not so convinced that they can achieve the same success with Stone Island in Asia or America as they have in Europe. This, combined with the higher valuations, makes Moncler not an investment case for me at the moment.
But they are still a very good company that could succeed because they have an excellent track record, but I think relying on China for future growth is quite risky because their preferences appear to be different from the European taste.
For further details see:
Moncler: A Luxury Company Dependent On The Growth Of Its Chinese Business