MILAN — Salvatore Ferragamo SpA on Tuesday said double-digit growth in all markets, except for Japan, and gains in its core footwear and leather goods categories helped drive a 43 percent jump in net profits in 2013.
This story first appeared in the March 12, 2014 issue of WWD. Subscribe Today.
In the 12 months ended Dec. 31, the Florence-based luxury firm saw its bottom line climb to 150 million euros, or $198 million, compared with 106 million euros, or $135.7 million, in the previous year.
Confirming preliminary figures reported in January, revenues rose 9 percent to 1.25 billion euros, or $1.65 billion, in the year ended Dec. 31. This compares with revenues of 1.15 billion euros, or $1.47 billion, in 2012.
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In a conference call with analysts, chief executive officer Michele Norsa said luxury “outperformed markets with a better half followed by a more controversial economy in the second half and structural consumption changes in China.”
Norsa pointed to a “Christmas season below expectations” and, responding to an analyst, said “retail in some areas was slightly disappointing.” In 2014, he said, January was a “good month, February not as good, followed by a reasonably good March,” confident in a “weather improvement,” also in the U.S.
In 2013, earnings before interest, taxes, depreciation and amortization increased 14 percent to 260 million euros, or $343.2 million, compared with 228 million euros, or $292 million, in the previous year, with a margin of 20.7 percent, up from 19.8 percent in 2012. Chief financial officer Ernesto Greco said a margin of 25 percent was “achievable,” but, hindered by “adverse currencies, we need more time. We will grow, but at a slower speed than the last couple of years.”
Referring to a potential hike in prices, the company is “modifying quite rapidly where there is an immediate impact on the exchange rate,” as in Argentina, India or Australia, said Greco. “We will probably consider increasing prices after May with new products,” he said, underscoring the “reasonably selected price increases on new products rather than permanent ones.”
Operating profit grew 13 percent to 219 million euros, or $289 million.
The Asia-Pacific area was Ferragamo’s main market in terms of revenue, accounting for 37.1 percent of the total. Sales in the region were up 11 percent and reached 466.5 million euros, or $615.7 million. The retail channel in China provided a major contribution, showing 20 percent growth.
Boosted by tourist flows, revenues in Europe gained 12.8 percent to 326.3 million euros, or $430.7 million, accounting for 26 percent of the total. The U.S. was up 13 percent to 290.3 million euros, or $383.2 million. “Expectations remain strong for the U.S.,” said Norsa.
The Japanese market would have shown an increase of 0.7 percent at constant exchange to 116.1 million euros, or $153.2 million, but at current exchange, sales dropped 13.5 percent due to the weak yen. Norsa underscored a devaluation of local currency “in excess of 20 percent.”
Revenues in Central and South America rose 12.5 percent, accounting for 4.7 percent of the total.
As of Dec. 31, the group had 360 directly operated stores, while the wholesale and travel retail channel included 264 third-party-operated stores, as well as a presence in major department stores and high-end multibrand specialty stores.
In 2013, the retail distribution channel posted a 6.6 percent growth.
Norsa pointed at “higher rentals” in China and a slowdown in the opening of boutiques there compared with two or three years ago. The company has more than 75 points of sale in China, said Norsa, who believes the “coverage of territory there is quite well distributed.” He said there are plans to open three or four stores in a year, seeing “opportunities in airports” in light of the opening of new terminals.
The wholesale and travel retail channel grew 14 percent.
Norsa said he “still” sees China progressing at “two speeds,” as Beijing and Shanghai are “impacted more by problems of pollution and traffic, even more than by anticorruption regulations, while second- and third-tier cities are still healthy and with potential to increase.” He also cited good signs of recovery in Taiwan and South Korea.
By category, in 2013 footwear sales rose 7.5 percent and handbags and leather accessories climbed 16.4 percent. Together, they represented more than 76 percent of total sales. “In 2014, our focus will be stronger on handbags than on shoes,” said Norsa. “There is more potential in bags,” he said, pointing to special dedicated campaigns, communication, also on the Web, and “new testimonials.” Fragrances were up 13.7 percent, while apparel decreased 4.5 percent.
Capital expenditures grew 39 percent to 82 million euros, or $108.2 million, mainly driven by the enlargement and refurbishment of some key locations, store openings, logistics enhancements and digital projects. Norsa cited the new openings in Chicago, San Francisco and Vienna.
As of Dec. 31, net debt stood at 33 million euros, or $43.5 million, compared with 58 million euros, or $74.2 million, at the end of December 2012.