Business Breakdowns
· Matt Reustle
[00:00:00] S0: Yeah, Arnault's got his crop of the next generation of Arnault getting prepared in the wings, but I don't see him leaving anytime soon. So can you get into that? We've covered some of the backstory, we've covered the interesting history about how it's evolved. What does it look like today? Just from a numbers perspective, if you can paint the picture about size and any relative data points, I think that would be really helpful.
· Chris Davies
[00:00:00] S1: Sure. So last year, if you look at the whole Moncler group, it made 3.1 billion euros of revenue. So that's quite a substantial growth rate from that $45 million I told you about at the outset of Ruffini's involvement. Now, the lion's share of that is the Moncler brand I mentioned earlier. They did that Stone Island acquisition, which I know we're going to talk about because it's so important for thinking about the future and capital allocation generally. But the lion's share of the revenues really go to Moncler. That's about 2.7 billion euros. Stone Island is the rest. So just over 400 million, about 13% of group revenue. So to kind of put Moncler in context as a group, it's now bigger than Burberry and fast catching up to Gucci, which I think did just under 8 billion euros last year. And if you look at the sort of longer-term performance over the decade to the end of last year, the top line compounded at just over 16%, roughly the same for operating profit and earnings per share. For the five years to the end of last year is about 14% top line. And that is pretty incredible when you think about the fact that the pandemic happened in the middle of that. So you basically had two ski seasons kind of wiped out. And China, which is a really important market for Moncler, went through this horrible period of really extended lockdown. So I think that's pretty impressive from a revenue growth standpoint as far as margins are concerned, I mean, the operating margin of the business, the EBIT margin, is really hovering around 30%. And it's been there thereabouts for the last four years. But actually, if you go back to 2012, since then, they've been above 28% every year since 2020, which obviously was a tough year for reasons we all know. And they did just under 26% in that year, which was actually pretty decent. So, actually, when I look back at our internal meeting notes, minutes from discussing this company, which we've been following for the best part of a decade, one of the big doubts was really about margins. How do you maintain margins that are this high? You guys have interviewed one of my colleagues, Mark Urquhart, talking about Hermès, and actually, if you look at Hermès financial outputs, the operating margins have been in the low 40s. LVMH. If you look at their fashion, leather goods business, that's where Louis Vuitton sits.
· Chris Davies, Matt Reustle
I mean, they've been in the sort of high 30s, low 40s. So Moncler's in pretty good company, I would say. [00:00:00] S0: Yeah, it's interesting. Another episode we did was on Gucci, where you've seen the volatility of the margins and at one point being at 40%, getting as low as into the teens. But it's interesting to see that type of durability. Specifically, before we move on too much further, I do want to touch on the Stone Island acquisition and the brand I mentioned before we recorded in one of our previous conversations. I did not appreciate that they owned Stone Island. It's a brand that I've always had some affinity for and wondered if one day it will make this revival to the masses. And I'm just curious: what went into that deal? How does it fit into the broader Moncler strategy? And anything else you think is relevant to that piece, albeit small as a percentage of the whole, but to your point, is a potential growth engine?
· Chris Davies
[00:00:00] S1: It's a much younger brand than Moncler. If you go back to 1982, that's when it's founded by a guy called Massimo Osti. He was based in Ravarino, just north of Bologna, and made a name for himself as an experimentalist. He experimented with lots of different types of dye, different fabrics, and he sells the business to an Italian businessman called Carlo Rovetti. This is in the early 1990s. Rovetti's family roots actually are very much in the textile industry in Italy. We trace back to the second half of the 19th century. He's got deep expertise, knows the industry, he knows the business. So he owned the business really since then. And to get to your question, which is how this all came about, it was actually their sons—Carlo Rovetti and Remo Ruffini's sons—who struck up a conversation and suggested that their fathers get together and start talking about the possibility of an acquisition at some point. So Ruffini had known Rovetti for 40 years or something. He'd been an admirer of Stone Island, he knew the business well. They get together and eventually agree that it would make sense for Moncler to buy Stone Island. So there's this two-stage process which begins in December of 2020. It's finished by February or March in 2021. So Moncler announces it's going to buy Sportswear Company, and this is the parent company of Stone Island, valued at 1.15 billion euros. So that's roughly just under five times sales, just under 14 times expected EBITDA for 2021. 70% is basically bought from Carlo Rovetti and his family holding company. Moncler pays 50% cash, 50% stock for that, and then the other 30% is bought from Temasek, which is Singapore's sovereign wealth fund, and they're bought out for 345 million euros in cash. So now Moncler owns the whole thing. Rovetti sticks around for a few years. He's on the board, he has since departed the company. He's no longer involved, although he did actually appear in a recent Stone Island advertising campaign. So he hasn't gone very far. To maybe put some context to Stone Island, as I mentioned earlier, it's around 400 million euros of revenue, which is a big increase from the 240 million it did in 2020. And around that sort of time, Ruffini said he was aiming to really double sales within five years. So they're getting there.
· Chris Davies
And just to revisit this point I made earlier about Stone Island being a bit of a diamond in the rough, the average selling prices are probably 30 to 35% below Moncler. It's got a big exposure to wholesale, so I think maybe 80% of the business at the time. So this is where you basically have an intermediary that's buying the stuff from you. You have to sacrifice some of your margin for that. So the retail exposure, the direct-to-consumer exposure is pretty low. And Moncler had been there, by the way. They'd been there when Ruffini took over. He went on this long journey, really tilting the business away from wholesale and towards retail, towards that direct-to-consumer channel. The other main differences with Stone Island are, first of all, its demographic is quite different, so it really skews towards the male demographic. It is also younger, slightly younger demographic. So Ruffini sees this as a way to speak to a different segment of the population, maybe a younger segment of the population, but it's also really massively exposed to Europe. So Ruffini sees this really as a huge opportunity because it under-indexes to Asia and it under-indexes to the US. So he sees opportunities there. So he's basically bought this thinking, you know what? I have turned Moncler into this incredible brand, but I can see some things in Stone Island that might actually mean I can do the same thing again.
· Matt Reustle, Chris Davies
[00:00:00] S0: Yeah. It's interesting when you see a playbook emerge for Moncler, that wholesale versus direct-consumer split, has that shifted over time? And just if you compare it to the 80% wholesale for Stone Island, what does that look like for the Moncler brand specifically? [00:00:00] S1: Yeah, so today they're almost the opposite, which is interesting. So Moncler has been on a bit of a journey here. So if you look last year, so this is 2024, at the group revenues, basically 80% of the group revenues were direct-to-consumer. But if you look at the Moncler brand itself, that's more advanced, that's 86%. Stone Island is 52%. So it's way behind where Moncler is, but it is moving in the right direction. So if you look at where it was at the end of 2021, for example, Stone Island's direct-to-consumer was only really 29%, so it's moved quite materially. The geographic exposures moved as well. So again, going back to 2021, that's the first year that they probably got their hands on this asset. You had at that point, 77% of revenues coming from EMEA. A third of that region was Italy. Asia was just 13% last year, EMEA was down to 67% and Asia was up at 26%. So he's already making these pretty serious moves in the business.