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Tod’s Profits Fall 8% in 2013

The Italian luxury good maker said net profits were affected by weakness in its largest market, Italy, and by unfavorable exchange rates.

MILAN — Italian luxury goods maker Tod’s SpA on Tuesday said net profits in 2013 decreased by 8 percent to 133.8 million euros, or $176.9 million, affected by weakness in its largest market, Italy, and by unfavorable exchange rates.

This story first appeared in the March 12, 2014 issue of WWD.  Subscribe Today.

Tod’s confirmed its previously published preliminary sales figures for the full year: 967.5 million euros, or $1.27 billion, up 0.5 percent on 2012, as the group’s strategy to rationalize Italian wholesale distribution countered gains in international markets and the growth of the Tod’s and Roger Vivier brands.

The firm was also hurt by currency headwinds, as sales would have grown 1.7 percent in the year at constant exchange.

The company said earnings before interest, taxes, depreciation and amortization, or EBITDA, was 236.3 million euros, or $307.2 million, compared with 250.2 million euros, or $332.8 million a year ago, equal to a 24.4 percent margin on sales.

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

Chairman and chief executive officer Diego Della Valle, whose group controls the Tod’s, Hogan, Fay and Roger Vivier labels, said the past year’s results “confirm the positive path of international growth, driven by Tod’s and Roger Vivier.”

Discussing developments since the beginning of the year on a conference call with analysts after the results were published, chief financial officer Emilio Macellari said there were some signs of improvement in the Italian market, which represents about one-third of total group revenues. He also said the Tod’s brand is growing faster than the group’s average.

Macellari pointed to some headwinds, saying that same-store sales in the first 10 weeks of 2014 — at constant exchange rates — were 5.4 percent lower than the year-ago level, with weekly results that “show a lot of volatility.” However, he said the company remained “confident on the future trend.”

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Providing further detail on like-for-like sales in the Jan. 1 to March 9 period, Macellari said “in China, the trend remains negative, in particular in Mainland China, while the situation in Hong Kong is much better, more flattish than negative, while in Mainland it’s negative.”

Macellari said the U.S. is “very slightly negative,” which he said was mostly due to the “terrible weather conditions of that market. In a small number of weeks, most of them influenced by snow and cold weather conditions, it’s normal that trade can be suffering a bit.”

In Europe, Macellari pointed to “mixed performance among countries. We have good performance in Switzerland with the U.K. immediately after.” He added that France and Germany were “slightly negative” and said in Italy — which remains the group’s largest market and where the economy is struggling — “some of the positive signals we commented on at the end of last year are confirmed in the very beginning of 2014, so the performance in Italy is demonstrating some sign of recovery,” with like-for-like trends “improving.” He said this was “very good news,” but also pointed out that Italy is starting to be “less important than other markets.”

Pointing to what may become a broader issue in the months ahead for others — both in and outside the luxury goods industry — Macellari commented on the impact of the recent Russia-Ukraine crisis: “In Russia, we were experiencing a particularly good and exciting market,” the cfo said. But since the escalation of the situation, “I don’t want to say that everything is reduced, but what was positive before is less positive than before.”

Responding to a request for guidance in terms of first-half 2014 sales, Macellari said, “For sure what we saw in the first 10 weeks of the year is not inducing us to be particularly optimistic on the possibility to have a spectacular performance in the first half.” He pointed out, however, that much would depend on second-quarter performance, adding that the first quarter, traditionally more focused on wholesale, is weaker than the second, which is more dependent on retail sales.

“We’re still missing three weeks [in the first quarter] and unless something really good happens, expectation for the first quarter is really cautious,” Macellari said, adding that for the first half, “it really depends on April and May when weather conditions can be better and volumes can he higher than in the first quarter….For sure, we are not unreasonably optimistic [about the first half], but at the same time we cannot say that the first half will be more difficult than expected because we’re still missing the most important part of sales, which will come in the second quarter.”

Separately, speaking about the group’s profitability targets, Macellari said he could confirm that an EBITDA margin in the 26 to 28 percent range was “among our goals.” He said this was something the company could expect by being more successful in leather goods and accessories, which he said is “something that can be done.” However, he said this goal would follow from implementing the company’s long-term oriented strategy — a strategy that needs to be financed by “growth in the top line. We’ve explained in the past that top-line growth rate in the mid- to high-single digits is what we need to stay stable with our profitability.” Reaching the 26 to 28 percent target is “not something that will happen in 2014” but depends on successful implementation of the group’s long-term strategy, he explained.