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Salvatore Ferragamo Profits Up 2%

Company's earnings were driven by growth in all main markets and in leather accessories and footwear.

MILAN — Salvatore Ferragamo SpA said net profits rose 2 percent to 27 million euros, or $37 million, in the first three months of the year, driven by growth in all main markets and in leather accessories and footwear.

Profits also were boosted by a 1 million euro, or $1.37 million, minority interest.

Sales in the quarter ended March 31 gained 6 percent to 299 million euros, or $409.6 million, compared with 282 million euros, or $372.2 million, in the same period last year.

Operating profit rose 7 percent to 42 million euros, or $57.5 million.

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

The Asia-Pacific region was once again the group’s main market, increasing 5.3 percent in the period and accounting for 36.4 percent of total sales. There was a significant contribution from the retail channel in China, which recorded more than 10 percent growth. “Mainland China continues its double-digit gains and is over-performing at retail,” said chief executive officer Michele Norsa during a conference call with analysts.

Europe, despite the geopolitical tensions which negatively impacted global tourist flows, was up 9.2 percent.

“Europe was penalized at the end of the quarter by the strong euro currency and the deterioration of the Ukraine and Russian crisis,” said Norsa. Russians accounted for 15 to 20 percent of sales in most European cities, he said, and “if there is a decrease it will probably impact a few percentage points in specific cities,” with  London faring “better than Italy or the French Riviera.”

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The performance in North America was dented by the harsh winter weather and inched up 1.2 percent.

“The U.S. market is expected to be strong in the rest of the year. We maintain positive expectations for the rest of the year,” said Norsa.

“The U.S. comparison is challenging with last year but we expect a nice performance, a solid high-single-digit growth given a double-digit growth in April and May,” echoed chief financial officer Ernesto Greco.

Japan was up 8.7 percent, but would have risen 18.1 percent at constant exchange. “Japan continues to be a two-speed market, with a very strong March, up 30 percent, ahead of the planned tax increase, with April reacting the opposite way, slowing down double-digits and May close to normal with things easing in the next weeks,” noted Norsa.

Addressing the currency headwinds, Greco said the company had “balanced with hedging,” but that it expects “to increase prices with the summer collection in Japan, a 4 percent increase, and with the next collection. We slowly absorb the negative forex.”

Revenues in Central and South America gained 9.3 percent but would have grown 18.7 percent at constant exchange. “Mexico is a driving force and Brazil is improving close to the sport event [FIFA World Cup], and is another contributor in the region,” said Norsa.

The company said that the business trends seen in the first quarter “justify expectations for growth also throughout 2014, in the absence of severely unfavorable market conditions.”

At the end of March, the group had 356 directly operated stores. Revenues at the retail distribution channel in the first quarter were up 3.9 percent, while the wholesale channel gained 9.3 percent.

Handbags and leather accessories gained 15.3 percent and footwear was up 4.6 percent, together accounting for 77 percent of the total. “Leather products are the star, including bags, one of the winning categories for the year,” said Norsa. He also pointed to men’s shoes, which he defined as “very strong.”

Apparel was down 9.6 percent and fragrances dropped  2.2 percent. The decrease in the latter was “justified by a strong comp basis and shipping problems in East Europe and China, bureaucratic problems that were solved in April,” said the executive, adding that he expected “very solid single-digit growth from this quarter; we are optimistic about fragrances.”

He added that “the exceptional trend of the euro hopefully will be limited in coming months.”