MILAN — The coronavirus pandemic and the progressive lockdown of stores globally hurt Aeffe SpA’s bottom line in the first quarter, with the Italian fashion group reporting Wednesday that net profits fell to a mere 4,000 euros, compared with 11.8 million euros in the same period last year.
Earnings before interest, taxes depreciation and amortization totaled 8.6 million euros, down 67.7 percent compared with 26.6 million euros last year, impacted by the decrease in sales at both distribution channels in all markets.
Revenues decreased 25.4 percent to 76.2 million euros, compared with 102.2 million euros in the same period last year.
Executive chairman Massimo Ferretti said the company has “implemented a plan of actions aimed to safeguard the safety and the health of its employees and collaborators, to sustain its customers and to protect the solidity of the business from an economic and financial standpoint, while preserving the growth potential of its owned brands in the main reference markets and their ability to seize the opportunities that will be created in this challenging market scenario.”
In a phone interview, general director Marcello Tassinari underscored that the first quarter “does not yet reflect the positive results that will come from the actions adopted to face the impacts of the spread of the virus on a global scale, which will begin to materialize from the second quarter of the year.”
Tassinari said Aeffe is not only focusing on cost-cutting measures but “accepted [the moment] as a challenge, we question ourselves, who will our target customer be, will collections be more focused, what will the distribution be like.”
Digital is one of the key investments for the future of the group. “We have invested on a virtual showroom and we will sell our pre-collections in June making it a more pleasurable platform for buyers,” Tassinari said. “Customers have in the past forgotten quickly other tragic events,” he said, eyeing the future.
Another measure to protect the economic and financial resilience of the business includes carefully managing relations with the main commercial partners, especially in the Far East area, the executive said.
Aeffe, which controls the Alberta Ferretti, Moschino, Philosophy di Lorenzo Serafini and Pollini, also said it has renewed the design agreement with the designer Alberta Ferretti, who is a shareholder, executive director and creative director of her namesake line. The design contract was renewed for an additional three years. Under the terms of the contract, which was renewed until May 15, 2023, Ferretti will be paid 1 million euros a year.
In the three months ended March 31, Aeffe’s operating profit was dragged down to 1.8 million euros, compared with 19.9 million euros in the same period last year.
Sales of the ready-to-wear division were down 30 percent to 54.4 million euros, while the footwear and leather goods division decreased by 7.9 percent to 30.7 million euros.
Regarding the next fall 2020-21 season, Aeffe’s sales campaign ended with a 6.5 percent decrease compared to the corresponding season of last year. “This shows that our brands are resilient and the result is worthy of satisfaction considering the difficult conditions of the macroeconomic scenario in which it was achieved,” Tassinari said. He cautioned that, “on the basis of the uncertainty and unpredictability of the current market context, there is a possibility that the orders backlog for the fall collections may be subject to potential customers’ returns and cancellations, in absolute contrast to the past, when the orders were written in stone.”
In the period, which was impacted by the lockdown, all geographic areas recorded a decline.
Sales in Italy were down 21 percent to 36.5 million euros, dented in both the wholesale and retail channels starting from the second week of March. The Italian market amounted to 47.8 percent of total sales, which decreased to 36 percent after eliminating sales to foreign tourists visiting Italy.
Sales in Europe, amounting to 20.7 million euros and contributing to 27.2 percent of the total, decreased by 10.6 percent. Russia, the U.K. and Germany outperformed the average of the area.
In Asia and in the Rest of the World, the group’s sales amounted to 15.4 million euros, amounting to 20.3 percent of the total and recording a decrease of 44.5 percent compared to the same period last year.
The Far East area was severely impacted by the restrictions imposed to limit the virus, while the Middle East experienced a less significant drop. The Greater China area reported a 42 percent decrease in the period; in the last few days, the region has recorded positive signs in terms of sales and the traffic in the stores is showing a recovery trend.
“In China, in the first 10 days of May, we saw a 13 percent gain,” Tassinari said. “Now we will have to see what happens in Italy and Europe” when stores reopen.
Sales in America, contributing to 4.7 percent of consolidated sales, posted a decrease of 29.6 percent to 3.6 million euros.
All distribution channels were affected by the effects of the spread of the virus. The wholesale channel was down 26.6 percent to 55.6 million euros, representing 72.9 percent of the total. The decline is far higher than that registered by the order backlog for the spring 2020 collections. The slowing down of shipments caused the percentage of products delivered at the end of the quarter to be about 10 percent lower than in the corresponding period of last year. The impact was compounded by requests from some customers to postpone shipments in view of the difficult international market environment.
Sales at directly operated stores were down 23.1 percent to 18 million euros, accounting for 23.5 percent of the total. A Moschino store closed in Los Angeles as the location was no longer considered strategic. “The contract had expired and we did not renew it. We did not have the return we expected,” Tassinari said.
Capital expenditures in the quarter totaled 1.9 million euros, mostly related to the completion of a new warehouse. On the costs side, the activities are focused on: requests for reduction of rents for stores and offices; use of government retention scheme and accrued holidays to make labor costs more flexible up to the reopening of shops and the complete resumption of production processes; postponement of spending on advertising and public relations that doesn’t impact the strengthening and support of the brands, and a request for all foreseen government grants and subsides in all the countries affected by the pandemic.
As of March 31, debt net of the IFRS 16 effect amounted to 57.6 million euros, compared to 34.5 million euros at the end of March 2019.