What Happens to Desigual?

Desigual had a bad year in 2015. After two consecutive decades of growth, the company presented the first annual drop in revenues, by 3%, bringing its turnover to €930 million. The Catalan firm breached its goal of closing 2015 with €1 billion in sales. Its profitability fell much more, over 20%, bringing its pre-tax profit to € 200 million.

2016 not only has not started better, but we can say that there has been a lot more disappointing start. Revenues have declined more than 10% to €245 million. To further complicate, the French fund Eurazeo, which owns a 10% stake, has decided to reduce the value of its stake, to the point that today its valuation is less than half the estimated ago only two years, when it acquired its stake for €285 million euros. Today valued at only €134 million, representing a total valuation of Desigual of less than €1.4 billion. 

There are two main reasons for this negative trend. First, the obvious drop in sales. The company has grown considerably in recent years with an aggressive expansion policy, although some markets are not delivering the expected results and others are moderating their previous growth rates. It is this last reason, the slowdown in sales in its main markets, the most worrying. This effect is compounded by the impact of the restructuring plan launched by the company. This 5-year plan aims to rationalize distribution network and optimize distribution channels and product lines.

It has also drastically changed the top management, including CEO Manel Jadraque, replaced by the controlling shareholder, Thomas Meyer, who owns 90% of the group. If the plans of the company are met, the first results of this plan will come in 2017, implying that 2016 will be a year of transition. For this to be true, Desigual should be able to overcome tough competition, led by Inditex, which is able to sell at much more competitive prices.

Disclosure: The Luxonomist not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.