MILAN — Salvatore Ferragamo SpA on Thursday said net profits in the first quarter climbed 10.7 percent, despite a slight contraction in revenues, and confirmed that Eraldo Poletto will be the new chief executive officer.
This confirms several reports in WWD last week.
Poletto will join the Ferragamo board on Aug. 2 when the company will hold its first-half directors meeting, which will mark the official end of current ceo Michele Norsa’s tenure at the luxury goods-maker. Poletto will then be nominated the new ceo.
In opening remarks during a conference call with analysts Thursday evening, Ferruccio Ferragamo, president of the company, said: “I especially want to thank Norsa for the 10 wonderful years he has been with the company, helped it grow, and to state what a wonderful job he has done in his tenure.”
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For the first quarter of the year, sales at Ferragamo dropped 1.8 percent to 321.5 million euros, or $353.1 million, from 327.3 million euros, or $366.6 million at average exchange, as a result of a continued weak economic climate, geopolitical instability and lower tourism flows, Norsa explained during the call. The first quarter was also up against strong comparisons in the year-earlier period, when revenues jumped 9.5 percent.
Despite the soft top-line performance, Ferragamo managed to increase profitability, with net profits climbing to 34.4 million euros, or $37.8 million, from 31.2 million euros, or $34.9 million, partially thanks to a lower tax rate but also due to better cost controls.
The performance in net profit growth “confirms the trend that net profits are always growing faster than revenues — in this case, much faster,” Norsa remarked.
Weighing down on Ferragamo’s top-line were disappointing sales in Asia-Pacific — especially in key markets like China and Hong Kong — which accounts for 36 percent of group turnover and where revenues contracted by 3 percent at current exchange rates — down 2.3 percent at constant currencies. While China and Hong Kong were not positive in the first quarter, Norsa said the Mainland experienced “strong improvement in the past 45 days.”
Barring Japan, where sales expanded slightly in both current and constant currencies — the result of a strengthening yen, mostly, and some more Chinese tourism — revenues in all other major geographic markets either contracted or were essentially flat. Only Latin America put in a strong performance, at constant currencies (up 8.4 percent), on the back of strengthening currencies, but it is Ferragamo’s smallest market, representing only a percent of total turnover.
Talking about the U.S., where sales fell 3.8 percent, Norsa said because of the strong dollar, less tourists were going to the country in favor of Canada and Mexico and even destinations favored by many Latin Americans — such as Miami and Los Angeles — have suffered somewhat. Looking ahead, Norsa said that in the U.S. “we expect to have probably a strong mood in consumers. We see, unexpectedly, some of the large cities underperforming and — like in China — some secondary cities overperforming. Directly operated stores are doing better than department stores, perhaps because [department stores] are not investing as much as expected from consumers.” He added that for the second part of the year “we could expect retail in U.S. to improve.”
In Europe, economic prospects “remain uncertain” with tourist flows negatively impacted by the terrorist attacks in France and Belgium, while Korea, Australia and Mexico were “preferred destinations” for tourists, helped by favorable exchange rates. He also cited Thailand as a potential rising star and said all those markets were worth watching.
Gross profit in the period reached 67.2 percent of sales, one of the highest ever for Ferragamo, and this number will be difficult to improve upon, Greco said. The company has various aces up its sleeve to maintain its profitability, Greco said, including its strong position with suppliers, from whom it can get better conditions, and its ability to squeeze out more manufacturing efficiencies. Other areas where the company will focus on are the product mix and rental costs.
In terms of products, Greco said the company wants to have “additional ever-green products, because by having a better offer in this category we can have less discounts and protoyping costs.”
Increased control over sales activities and reduced discount levels will also contribute.