MILAN — A strategic reorganization helped drive Aeffe SpA into the black in the first half.

This story first appeared in the July 29, 2014 issue of WWD. Subscribe Today.

In the six months ended June 30, the Italian fashion group posted a net profit of 150,000 euros, or $205,500, compared with a loss of 3.7 million euros, or $4.84 million, in the same period last year.

Dented by the end of the Jean Paul Gaultier and Cacharel licenses, and a reorganization of the company’s Japanese distribution network, now managed exclusively through the wholesale channel, revenues declined 1.5 percent to 121.1 million euros, or $166 million, compared with 122.9 million euros, or $161 million, in the first half of 2013. The company noted that, net of these effects, sales would have grown 7.1 percent at constant exchange rates.

The ready-to-wear division showed a 3 percent drop in sales to 94.8 million euros, or $130 million, while sales of the footwear and leather goods division increased by 12 percent to 37.7 million euros, or $51.6 million.

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Executive chairman Massimo Ferretti touted the “effectiveness of the strategic actions implemented, both with regard to style and to distribution.” He said he felt “confident of the potential of the business development,” also in the light of the orders backlog for fall 2014, which registered a 10 percent increase compared with last year.

Aeffe controls the Alberta Ferretti, Moschino and Pollini brands, and produces and distributes collections for labels including Emanuel Ungaro, designed by Fausto Puglisi, and Cédric Charlier.

Managing director and chief financial officer Marcello Tassinari told WWD that 2014 is a year of “transition,” and that a “concrete change” will be evident in 2015. He cited Alberta Ferretti’s renewed focus on her own line and the positive performance of Moschino and Emanuel Ungaro revitalized by Jeremy Scott and Puglisi, respectively. These are indicators of the fulfillment of the group’s ambitious projects between 2014 and 2016, he said.

Asked if a design team will continue to design the Philosophy brand following creative director Natalie Ratabesi’s departure in June, Tassinari said “there will be changes” after the spring show in September in Milan. “We strongly believe in Philosophy and we are looking for a designer with a strong identity that will be able to share the brand’s views,” he said. A decision will be made in the short-term. The executive said Milan is “an excellent platform” for the label, after several seasons of shows in New York, which was closer to Ratabesi’s identity, he explained.

Questioned about a possible expansion of the group’s portfolio of licensed brands, Tassinari said the goal now is to consolidate the existing ones, as there are “no interesting dossiers” on his table now and that the group is focusing on its own labels.

Consolidated earnings before interest, taxes, depreciation and amortization climbed 71 percent to 12.5 million euros, or $17.1 million, compared with 7.3 million euros, or $9.5 million, last year.

In the first half, operating profit jumped to 6.2 million euros, or $8.5 million, from 1 million euros, or $1.3 million, in the same period last year.

Tassinari underscored that the process of rationalization began in 2009 and was “methodically and assiduously” advanced.

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

Geographically, in the first half, sales in Italy grew 0.3 percent to 52.9 million euros, or $72.4 million, representing 44 percent of the total. Revenues in Europe (Italy and Russia excluded) rose 17.9 percent to 28.4 million euros, or $39 million, accounting for 23 percent of sales, lifted by a recovery across the group’s main markets. Russia eased 0.6 percent to 9.4 million euros, or $12.8 million. While admitting there is “attention” towards Russia given the crisis in the Ukraine, accounting for 8 percent of the group’s sales, Tassinari said it is not an especially significant area for Aeffe and that he expected softness with the spring collection. This, however, is manageable given the weight of the region for the group. “If there is a contraction, we imagine other countries, such as China, will help balance,” said Tassinari, noting a 16 percent gain in that market in the first half.

 Sales in the U.S. dropped 8.1 percent to 7.1 million euros, or $9.7 million.

Tassinari said a new Alberta Ferretti boutique was opened on Wednesday in Paris on Rue du Faubourg-Saint Honoré and a new 5,400-square-foot Moschino unit will open between September and October in Los Angeles. Also, five to 10 franchised stores will open in China by the end of the year.

The reorganization of the Japanese market affected sales in the region, which showed a 68.2 percent drop to 3.2 million euros, or $4.3 million. In accordance with a distribution and franchise agreement with Woollen Co. Ltd. and Mitsubishi Corp. Fashion Co. Ltd., since the beginning of the year, sales of the collections under the brands Alberta Ferretti, Philosophy, Moschino, Moschino Cheap & Chic and Love Moschino are exclusively realized through the wholesale channel. Explaining the reasons behind this decision, Tassinari said Japan is a country where “operators with a strong presence and knowledge of the market is fundamental,” and that Aeffe had laid out an “aggressive business plan” with its partners.

In the Rest of the World, sales totaled 19.9 million euros, or $27.2 million, up 6.8 percent, lifted in particular by “a good trend” in Greater China.

As of June 30, net debt stood at 89.9 million euros, or $123.1 million, compared with 97 million euros, or $127 million, at the end of June last year.

Capital expenditure in the first half totaled 5.3 million euros, or $7.2 million, mainly related to the maintenance and refurbishment of stores and to key money paid for new shops.

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