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Salvatore Ferragamo Profits Up 22.5%

Luxury house lifted by growth in all markets, in particular China, and a spike in its footwear, handbags and leather accessories, and fragrance divisions.

MILAN — Lifted by growth in all markets, particularly China, and a spike in its footwear, handbags and leather accessories and fragrance divisions, the Salvatore Ferragamo Group reported strong gains in profits and sales for the first six months of the year. In the period ended June 30, net profits at the Florence-based luxury house rose 22.5 percent to 55.9 million euros, or $72.1 million, compared with 45.7 million euros, or $66.2 million, in the same period last year.

Sales climbed 22.9 percent to 565.1 million euros, or $729 million, compared with 459.7 million euros, or $666.5 million, last year.

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

In light of the euro zone crisis, weak global economy, a changing consumer and “challenging” comparable results, chief executive officer Michele Norsa described the first-half numbers as “remarkable” during a conference call with analysts. Norsa pointed to Ferragamo’s constant 20 percent growth in revenues for the last nine consecutive quarters. “The luxury industry is still proving to be resilient and still strongly influenced by Asian consumers across different regions, as they increasingly travel to Europe, the West Coast, Australia or Southeast Asia,” said Norsa, defining the latter as “a long-term phenomenon.”

In the first half, the Asia-Pacific region remained the group’s main market, showing a 25.8 percent rise in sales, which reached 212.4 million euros, or $274 million, and accounting for 37.6 percent of total revenues.

Growth in Asia was bolstered by Ferragamo’s retail operations, which in China recorded a 38 percent increase. While continuing to see signs of growth in the region in first- to third-tier cities, and “substantial” gains in July, Norsa conceded a “slowdown in investments in commercial real estate” had taken place during the quarter in China, with projects merely “postponed and not canceled.” He anticipated the Chinese would be spending more outside of China.

Sales in Europe rose 26.4 percent and 20.6 percent in the U.S. Sales in Japan rose 9 percent, thanks to a favorable exchange rate, while Central and South America posted a 34.1 percent increase.

Earnings before interest, taxes, depreciation and amortization rose 25 percent to 104.7 million euros, or $135 million.

Operating profit grew 24.7 percent to 88.4 million euros, or $114 million.

In light of the performance in the first half, the company said it expected “significant growth also throughout 2012, in the absence of severely unfavorable market conditions.”

In the first six months of 2012, by product category, footwear sales gained 24.3 percent; handbags and leather accessories rose 25.1 percent, all together accounting for over 75 percent of total sales. The fragrance division saw a 29.4 percent increase through the  launch of Ferragamo’s new women’s fragrance, Signorina. Responding to an analyst’s question on smaller growth in apparel, which was up 8.8 percent, Norsa said the category was “strongly influenced by Japan,” historically a strong ready-to-wear customer for Ferragamo, and now “not the best performing market.” The executive explained that “ready-to-wear remains an extremely important division in rejuvenating the brand, for its image and celebrities, and it is more expensive and more sophisticated than in the past. On the other hand, leather goods is our core business, and I see its growth as positive.”

As of June 30, the group had 327 directly operated stores, up from 323 at the end of December 2011, while the wholesale and travel retail channel included 267 third-party operated stores, versus 270 at the end of last year.

Norsa said the company had “almost completed” its store renovations in key cities such as New York and London, on Bond Street, while they were in progress on London’s Sloane Street and in Vancouver, and listed 18 openings in the first half, mainly in emerging markets and key airports.

In the first six months, sales in the retail channel grew 17.3 percent to 353.9 million euros, or $456.5 million, and the wholesale and travel retail channel showed a 34.9 percent growth to 202.4 million euros, or $261 million.

Operating costs grew 22.5 percent to 271.1 million euros, or $350 million. This includes communication expenses, which grew 52.9 percent compared with last year, as the company sponsored  the exhibition “Saint Anne — Leonardo Da Vinci’s Ultimate Masterpiece” at the Louvre in Paris, where it also held its resort collection fashion show. Investments grew 96.3 percent to 25.2 million euros, or $32.5 million.

As of June 30, net debt stood at 99.9 million euros, or $128.8 million, compared with 71.6 million euros, or $103.8 million, at the end of June, This takes into account Ferragamo’s acquisition of shares in Imaginex Group, controlled by Hong Kong businessman Peter Woo — a financial debt of 44.8 million euros, or $57.8 million, although it will not be effective before 2013.

Ferragamo shares closed down 1.3 percent at 17.1 euros, or $21.42 at current exchange.

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