MILAN — Strong sales of footwear and leather goods, accelerating revenue growth in markets like the U.S. and China and favorable exchange rates helped propel Aeffe SpA’s revenues in 2015 while heavy promotional and advertising expenses and investments in its lines depressed profits.
On Thursday, the company — which produces apparel, accessories and footwear under brands including Alberta Ferretti, Philosophy, Moschino and Pollini — said net profits in 2015 decreased 44.5 percent to 1.52 million euros, or $1.66 million, as the group spent more on marketing and advertising activities aimed at further enhancing Moschino, including for events on the launch of its men’s collection, and Alberta Ferretti, as well as on the relaunch of the Philosophy brand.
Aeffe pointed out that the investments carried out in 2015 to strengthen the visibility of the group’s brands “have already produced a 14.3 percent increase of the orders’ backlog of the spring 2016 collections compared to the corresponding season of 2015.”
“These one-off expenses are the tail end of a project begun in 2014, when we began changing our design team for the various brands,” Aeffe chief financial officer Marcello Tassinari told WWD. “The investments made in new styles we tried to reverberate through advertising and promotions, as was the case for Moschino with advertising and men’s wear catwalk shows. We have our first payoff, in the correct choices we made.”
Tassinari said that orders of the spring 2016 Philosophy line designed by Lorenzo Serafini have jumped 40 percent compared to the previous collection — “a trend we are seeing continue with the fall 2016 collection.”
The finance chief said that investors in the company, which also produces and distributes collections for Cédric Charlier and Jeremy Scott, are not surprised with the compression in profits because the company had clearly laid out its plans, and the financial impacts they would entail, in 2014. “When we laid out our plan we already knew what our numbers would be in 2015. We shared this visibility with our main investors and they lived this strategy through with us, sharing it with us.”
Total revenues came in at 268.8 million euros, or $293.53 million, up 7.0 percent at current exchange, or 5.1 percent at constant exchange rates.
Massimo Ferretti, executive chairman of Aeffe SpA, said: “Despite macroeconomic uncertainty, we are…optimistic for the future, in the light of the positive trend registered in the first two months of the year and of the good feedback by the latest collections recently presented during the different fashion weeks.”
While it’s early days to give an outlook for 2016, Tassinari said that the retail sales trend for Alberta Ferretti and Moschino “is positive.” He added that overall Aeffe’s spring 2016 collections have seen sales jump by 14 percent compared to the year-earlier collections.
Aeffe said sales increased in all markets, bar Russia and Japan. In Italy, the company’s largest single market, accounting for almost half of total sales, revenues increased 5.4 percent, outperforming growth in the rest of Europe (up 0.5 percent), although Aeffe pointed out that this weakness was due to a decline in Eastern European countries, which dragged down the “good performance of the main markets” of Europe.
Russia, which represents 3.4 percent of total sales, saw revenues drop by almost 45 percent “solely due to current difficulties of the domestic economic situation,” the company said. Efforts to help the company’s customers in Russia— with “significant discounts” — were another factor which hit profit margins in the period, as did a decrease in income from royalties and commissions attributable to the Moschino licenses “that need progressive adjustments following the change in style of Maison Moschino,” the company said.
In “Rest of the World,” which includes Greater China and the Middle East and accounts for some 20 percent of Aeffe sales, the top line expanded 26.1 percent, at constant currencies, “especially thanks to the excellent performance in Greater China, which posted 72 percent growth,” the company said.
While the U.S. remains a relatively small market for the brand (8.3 percent of total revenues), sales there jumped 18.1 percent, at constant exchange rates. Tassinari said he expects to see sales continuing to grow in the company’s two new U.S. Moschino stores, one opened at the beginning of 2015 in New York, the other in Los Angeles in August. These stores are in a “full start-up phase. It will take two to three years to reach break even,” the finance chief said, adding: “Already in 2016 we expect to see margins improve at these locations.” (The company has a third directly operated U.S. store, opened in 2008 in Los Angeles, which carries Alberta Ferretti.)
Tassinari also said he expects continued strong performance from the company’s wholesale customers, which are its main customers and include department stores like Nieman Marcus and Sachs. “The Moschino first line, the one presented in the shows, is doing very well, as are accessories. Alberta Ferretti is positioned in the highest end of luxury, which is a winning strategy also because in the U.S. there are more occasions for using formalwear than in Europe,” Tassinari said.