By  on August 28, 2014

MILAN — Salvatore Ferragamo SpA’s net profit in the first half of the year dropped 3 percent, to 78 million euros, or $106.8 million, compared with 81 million euros, or $106.1 million, in the same period last year. However, if the capital gain derived from last year’s sale of the Florence-based firm’s stake in ZeFer to the Ermenegildo Zegna Group were excluded, profits would have increased 14 percent.

Net profit in the six months ended June 30 — including a minority interest of 4 million euros, or $5.4 million — reached 82 million euros, or $112.3 million, down 6 percent compared with the first half of last year but, excluding the capital gain, up 10 percent.

Buoyed by the performance of its handbags, leather goods and footwear collections as well as its solid growth in the Americas, Europe and the Asia-Pacific region, revenues rose 6 percent, to 659 million euros, or $902.8 million, compared with 625 million euros, or $818.7 million, last year. At constant exchange, revenues would have grown 8 percent.

Chief executive officer Michele Norsa addressed the “unstable, volatile and unclear geopolitical picture” in a conference call with analysts on Thursday, citing Russia, Ukraine and the Middle East as “major areas of concern.”

The Asia-Pacific region was once again the group’s main market, showing a 3.6 percent gain; that market was lifted by the company’s Greater China retail channel, which accelerated in the second quarter and accounted for 37.8 percent of sales. “China has a different speed for different cities,” said Norsa. Hong Kong and Macau are “still growing,” he said. While acknowledging a slowdown there, he said Hong Kong had a “very strong” first half of August and expressed a positive outlook in the medium to long term. Greater China is “overperforming,” said Norsa, who was “still very positive” on China, especially in second- and third-tier cities. Two new stores are expected to open in China in the second half. He said Taiwan was very positive after two years of not being so, and South Korea “performed well and extremely well at duty-free, driven by Chinese travelers.”

Europe, despite the geo-political tensions that negatively impacted global tourist flows, posted a 9 percent sales rise and represented 27.6 percent of the total. Norsa said tourism is growing while “domestic consumption is stagnating” and lamented the fact that Russian tourism had been affected in the second quarter.

North America was up 5 percent, accelerating in the second quarter after a first quarter that was strongly impacted by unfavorable weather conditions. “There are good opportunities for the second part of the year,” said Norsa, citing a significant number of Asian travelers to the West Coast.

The Japanese market edged down 0.4 percent but would have risen 6.4 percent at constant exchange rates. The region was penalized by a 4 percent decrease in the second quarter due to an expected slowdown following the consumer tax increase. Norsa expects low-single-digit growth for the year in the country.

Revenues in Central and South America climbed 16.7 percent, thanks to the area’s distribution reorganization and representing 4.4 percent of the total. The region is “built on a strong Mexico base,” and Brazil is growing with a new store, opened in the period, said Norsa.

During the call, chief financial officer Ernesto Greco described as “reasonable” the consensus of year-end revenues of between 1.33 and 1.35 billion euros, or $1.82 billion and $1.84 billion. He also said the gross margin forecast for the full year was “very similar” to that of 2013 and that the earnings before interest, taxes, depreciation and amortization margin could be expected to be slightly above 21 percent, although it is “very difficult to read and predict the geopolitical future.”

Dollar amounts are converted at average exchange for the periods to which they refer.

Sales of handbags and leather accessories climbed 13.3 percent and footwear was up 3.5 percent, together representing more than 78 percent of the group’s total revenue. Norsa cited an improvement in leather goods as women’s bags were positioned at a higher price range. The performance of fragrances, which was penalized in the first quarter by shipping issues in Russia, Ukraine and China, recovered and accelerated in the second quarter, resulting in a 5 percent increase in the first half, said Greco. Sales of apparel dropped 8.1 percent.


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