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Tod’s Sees Slight Dip in Profits

Tighter distribution in Italy hits results.

MILAN — Driven by gains in Greater China and the Americas, but dented by a cutback in wholesale distribution in Italy, Tod’s SpA said operating profits for the nine months to Sept. 30 fell 0.7 percent to 168 million euros, or $220 million, on a 0.4 percent increase in sales to 752.6 million euros, or $986 million.

This story first appeared in the November 14, 2013 issue of WWD.  Subscribe Today.

Earnings before interest, taxes, depreciation and amortization totaled 199.5 million euros, or $261.3 million, with a 26.5 percent margin on sales, and were flat compared to the same period the previous year.

The Italian luxury group does not provide a net profit figure for the period. Dollar amounts are converted at average exchange for the periods to which they refer.

“In line with our plans, we achieved outstanding results abroad, mainly on the Asian and U.S. markets,” said Diego Della Valle, chairman and chief executive officer. “The group’s strategy — to pursue an international expansion while rationalizing the Italian wholesale distribution — is producing the expected results, despite the markets’ volatility.”

The group comprises the Tod’s, Hogan, Fay and Roger Vivier brands. In the first nine months, the Tod’s brand remained the group’s core label with sales of 448.6 million euros, or $587.6 million, up 3.1 percent. Hogan sales decreased 13.7 percent to 174.7 million euros, or $228.8 million, a drop entirely attributed to the Italian market, where the brand is heavily exposed. Hogan, however, showed double-digit growth rates in Europe and Asia.

Fay sales dipped 26.3 percent to 45.3 million euros, or $59.3 million, penalized by higher exposure to the domestic market and to the wholesale channel.

Roger Vivier sales climbed 65.7 percent to 83.2 million euros, or $109 million.

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Footwear contributed the lion’s share of sales, totaling 580.1 million euros, or $760 million, up 4.5 percent.

Revenues of leather goods and accessories totaled 120.6 million euros, or $158 million, down 2.7 percent. Sales of apparel dropped 27 percent to 51.1 million euros, or $67 million, reflecting the performance of the Fay brand. Responding to an analyst who asked if the company saw Fay as a nonstrategic brand, chief financial officer Emilio Macellari responded in the negative. “We significantly cleaned up its distribution and positioned it at the highest level in its market segment. From Italy we can only expect a contribution in organic growth and it’s not likely to produce it in the short term,” argued Macellari. “For the second phase, we can consider an internationalization.”

Macellari praised the two designers tapped to revamp the brand, Tommaso Aquilano and Roberto Rimondi, for “establishing its visibility and credibility,” and providing “freshness to the collections and additional appeal. Fay is not nonstrategic but less core, for sure. Our real heritage is shoes and leather, but it is strategic as the other three brands and can represent an opportunity to expand internationally and as Italy recovers.”

In the period, sales in Italy totaled 260.8 million euros, or $341.6 million, down 18.5 percent. In the rest of Europe, revenues totaled 163.4 million euros, or $214 million, up 4.6 percent, mainly driven by positive results in France and the U.K.

The Americas rose 13.6 percent to 66.2 million euros, or $86.7 million, driven by both directly operated stores and the wholesale channel.

Greater China continued to deliver “excellent results,” growing 27.9 percent, despite a slowdown in Mainland China. Revenues in the area totaled 180.8 million euros, or $236.8 million, accounting for 24 percent of the total. “Mainland China is positive for us, although it showed a slowdown in the pace of growth, but this is much less true for Hong Kong, Taiwan and Macau,” said Macellari.

The Rest of the World segment was up 9.8 percent to 81.4 million euros, or $106.6 million.

Sales through directly operated stores rose 10.5 percent to 457.5 million euros, or $599.3 million. As of Sept. 30, the group counted 208 directly operated stores and 82 franchised units, compared with 192 and 74 at the end of September last year.