By  on May 14, 2014

MILAN — The rationalization of its wholesale distribution in Italy and currency fluctuations continued to weigh on Tod’s SpA, which in the first three months registered a 13.3 percent drop in operating profits to 46.3 million euros, or $63.4 million, from 53.4 million euros, or $70.5 million, in the same period last year.

In the quarter ended March 31, earnings before interest, taxes, depreciation and amortization totaled 56.8 million euros, or $77.8 million, down from 63.6 million euros, or $84 million, dented by higher rental costs related to the increase in the number of group stores in Asia and higher labor costs as a result of a higher head count.

Sales inched up 0.1 percent to 253.8 million euros, or $347.7 million. At constant exchange, revenues would have grown 2.2 percent.

“The results released today are coherent with our expectations and reflect the high sales volatility and the weakness of some key markets for luxury goods, such as the Chinese one,” said chairman and chief executive officer Diego Della Valle. “Despite this environment, our group continues to invest in the development of the distribution network and in production capacity, adopting, as usual, an industrial midterm perspective, sure to have all the necessary human and financial resources.

“I’m particularly satisfied with the results registered by the Tod’s brand in leather goods and, therefore, I’m more and more convinced that our strategic decision of hiring a creative director for the Tod’s brand [Alessandra Facchinetti] is correct and will enhance the brand prestige also beyond the core business of shoes. Therefore, we will continue to invest according to this strategy, sure to collect further positive results in the midterm.” Della Valle noted that the winter collections received “a positive feedback.”

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

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During a conference call with analysts, chief financial officer Emilio Macellari said that the “bulk of the rationalization” is over with the spring 2015 season and that the second half will be better than the first half.

He said it was “absolutely reasonable, realistic and a fair assumption” to deliver 3.3 percent top-line growth as per the full-year consensus. However, he conceded that an EBITDA margin at around 23.8 percent “at the moment is a bit challenging,” as last year the group leveraged “extraordinary items such as 6.3 million euros [$8.3 million] received from [eyewear manufacturer ] Marcolin for the renewal of the license.”

Macellari lamented “a high level of volatility week by week, a difficult first half of May, worse than April, and a different level of performance week after week in all markets.”

In the first quarter, sales of the Tod’s brand were up 0.8 percent to 142.6 million euros, or $195.3 million, boosted by sales in Europe and in the Rest of the World. Highly exposed to the Italian market, revenues at Hogan dropped 7.2 percent to 65.7 million euros, or $90 million. Conversely, the company reported a “sound double-digit growth on all the international markets, where the brand is currently focusing its international expansion.”

Similarly, Fay was down 6 percent to 14 million euros, or $19.2 million. The Roger Vivier label climbed 20 percent to 31.3 million euros, or $42.8 million.

Macellari touted the strong growth of the brand despite the group’s strategy to implement “a high level of exclusivity. We are putting the brakes on the expansion, most of the growth is coming from the addition of new stores, but is also organic. We are voluntarily limiting sales in some markets. We’ve seen an incredible success in China, but we don’t’ want to have one style in one market, so we are limiting the quantity of product in one market for exclusivity.”

Shoes continued to be the group’s core business, totaling 195.9 million euros, or $268.4 million, falling 1.1 percent in the period.

Sales from leather goods and accessories returned to growth, showing a 9.4 percent rise, driven by the Tod’s brand, and totaling 41.3 million euros, or $56.6 million.

Apparel decreased 5.7 percent to 16.4 million euros, or $22.4 million, reflecting the performance of the Fay brand. Sales in Italy dropped 10.1 percent to 88.9 million euros, or $121.8 million. Macellari said the directly operated stores performed positively in the first quarter in Italy. In the rest of Europe, sales were up 11.4 percent to 56.1 million euros, or $76.8 million.

The U.S. market was affected by unfavorable weather conditions on the East Coast in the first months of the year, and the group’s sales in both North and South America decreased 2.9 percent to 18.9 million euros, or $25.9 million. At constant exchange, revenues would have risen 1.4 percent. However, Macellari defined the U.S. market as “positive,” and said that business is improving and will be “more visible” in the second half. “It is one of the best performers,” he said.

Greater China confirmed last year’s slowdown and reported a 2 percent contraction to 56.1 million euros, or $76.8 million. At constant exchange, sales would have grown 1.5 percent.

“In my opinion, the most important reason for our performance, which was lower than our competitors, is the base of comparison,” said Macellari of the Chinese market. He noted that last year, before the Chinese government’s anticorruption policies, was “particularly good.” He underscored that 60 percent of the around 20 boutiques slated to open in 2014 will be located in Greater China. Macellari noted that this market did not exist for the group five years ago and that now it accounts for one quarter of its sales.

The Rest of the World climbed 22.3 percent to 33.8 million euros, or $46.3 million. 

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