MILAN – Salvatore Ferragamo SpA’s newly minted chief executive officer Micaela Le Divelec Lemmi held her own during her first call with analysts on Tuesday, as the Florence-based fashion house reported falls in both profits and revenues in the first half of the year.
Asked to give an idea of her first steps as ceo, Le Divelec Lemmi said it was “too early to discuss priorities or key initiatives.” Pressed by analysts to express her opinion on the design front, given the slowdown at the company, she said she saw “clarity in brand vision, identity and positioning” and that she was “comfortable leveraging the existing talent to achieve targets.”
Asked why the footwear category in particular, which is the brand’s core business, showed such a poor performance, decreasing 8.6 percent in the first half, she cited “an evident comparison base” with the first half and quarter last year and she also spoke of a slowdown in end-of-season sales. “We see positive results coming from the collections currently in stores. I don’t want to hide the fact that there is work to be done, but there are some positive signs.”
Chairman Ferruccio Ferragamo expressed his “great pleasure” in announcing the appointment of Le Divelec Lemmi, and that he was “personally very happy,” after observing her work as managing director for the past three months, saying that he was “very confident” in the executive and that she “very much deserved” this role.
Le Divelec Lemmi joined Ferragamo in April as general manager. She worked for 20 years within the Kering Group with growing responsibilities. After working in the finance department, she was appointed chief financial officer of Gucci in 2008 and executive vice president and chief operations officer in 2013. In 2014 she was also appointed ceo of Richard Ginori, also controlled by Kering, until 2015, when she was named executive vice president and chief consumer officer of Gucci.
WWD first reported in April that Ferragamo was eyeing Le Divelec Lemmi to succeed Eraldo Poletto, who exited the company in March and is now ceo at Stuart Weitzman. In March, Ferruccio Ferragamo was named interim ceo.
Ferruccio Ferragamo was asked to discuss the future, but he said that presenting forecasts was “not [his] favorite task,” banking however on Le Divelec Lemmi’s “great experience” and also pointing to “the potential and improvement” in terms of product. “We are working very well on strategy, we are stimulated, there is a new challenge, a new way to do business, including the digital work. There is a great desire from all members of management to achieve results. Let’s talk again after next quarter and see how the evolution is going,” he said.
“Proud and honored,” Le Divelec Lemmi said that the past three months had been “very helpful to analyze the brand and evaluate all the priorities to work on. I acknowledge there is work to be done, but it is not a concern, but a push to look forward. I think this brand deserves respect and this is animating me. The assets are there and we will work to flourish them.”
At the end of trading in Milan, where the company is publicly listed, Ferragamo said net profit in the first half dropped 23.1 percent to 59 million euros, compared with 76 million euros in the same period last year, including a negative minority interest of 2 million euros. The company highlighted the tax rate increase, due to the lower deferred tax assets charge in the U.S. following the change in the tax rate.
Revenues decreased 6.2 percent to 674 million euros, compared with 718 million euros at the end of June 2017.
In the first half, the retail channel posted a 5.2 percent decrease in revenues to 426.2 million euros, representing 63.3 percent of the total, affected by lower end-of-season sales. As of June 30, the group comprised 677 points of sales, including 407 directly operated stores.
The wholesale channel was down 7.6 percent to 236.8 million euros.
During the call, chief financial officer Ugo Giorcelli said the new collections showed “a number of positive signs,” noting that the pre-fall 2018 collection had been well received. “We are seeing double-digit increases on some products, including the new collection of shoes, we sold out our limited edition bag and men’s is strong. The core of the business is moving in the right direction.”
Giorcelli reiterated throughout the call that lower end-of-season sales dented the top line and that the new collection at full price in primary channels was showing a good performance. “We are more mindful of protecting the brand, and more selective. Evergreen products are not put on sale, we make room for newness and cleared items from past seasons,” he said. “The lower end-of-season sales were in our plans, part of our willingness to improve and better position the brand. We were not caught off-guard and we are thinking of the full-year.”
In the first half, earnings before interest, taxes, depreciation and amortization dropped 14.5 percent to 117 million euros.
Operating profit decreased 18.5 percent to 85 million euros.
The Asia Pacific area, the group’s main market, showed a 5.5 percent drop in sales to 256.4 million euros, representing 38.1 percent of the total. The retail channel in China, after a very strong first half last year when it was up 15.5 percent at constant exchange rates, was down 1 percent.
The trend in Hong Kong continued to be very strong, said Giorcelli, up 32 percent at constant exchange rates, while South Korea continued to be weak, mostly due to the significant decrease of Chinese tourists and the rationalization of the store network.
Europe was down 6.5 percent to 172.3 million euros, accounting for 25.6 percent of the total.
North America decreased 7.1 percent to 152.2 million euros, accounting for 22.6 percent of the total, penalized by the currency trend and the weakness of department stores, said Giorcelli. At constant exchange rates, sales were down 1.4 percent.
The Japanese market was down 4.2 percent to 58.8 million euros, mainly due to the strategic rationalization of the wholesale channel.
Revenues in Central and South America decreased 8.6 percent to 33.8 million euros, penalized by the currencies trend. At constant exchange, they rose 0.5 percent.
Sales of footwear dropped 8.6 percent to 285.6 million euros, accounting for 42.4 percent of the total.
Handbags and leather accessories decreased 0.9 percent to 262.7 million euros, representing 39 percent of the total and showed a 1.6 percent increase at constant exchange rates.
Apparel decreased 9.9 percent to 37.5 million euros. Fragrances registered an 11.1 percent decrease to 38.7 million euros.
Capital expenditures were 32 million euros compared with 29 million euros in the first half last year, mainly channeled into the distribution center, the store network and IT projects.
As of June 30, the net financial position was positive, standing at 101 million euros, compared with 25 million euros at the end of June 2017.
The company said that sales, margins and results for the full year 2018 “are expected to be negatively impacted by the current currencies trends, by the enduring unfavorable retail channel mix and by the difficult wholesale environment,” although Giorcelli said the currency fluctuations “would not be as penalizing” in the second half. “Our products are 100 percent made in Italy, so we are exposed to the euro in good and bad,” he said.
Last month, parent company Ferragamo Finanziaria SpA trimmed its stake, selling 3.5 percent of the fashion house, causing shares to tumble, and one analyst on Tuesday asked Ferruccio Ferragamo to elaborate. “It’s business, but we are in love with the company that my father started more than 90 years ago. The family is very much committed, the holding had 57 percent; we decided to sell 3.5 percent because we had often received complaints that the floating was too small,” he explained.
Ferragamo Finanziaria now holds 54.3 percent of the company and the chairman said: “We are still in control but it’s more liquid and we needed to reorganize family aspects, nothing has changed within the family, it was very natural to do that.” (The sale came two months after the death of his sister Fulvia Visconti Ferragamo.)
In February, during Milan Fashion Week, Ferragamo held a coed runway show to unveil its men’s and women’s fall 2018 collections, designed by Guillaume Meilland and Paul Andrew, respectively. The show marked the ready-to-wear debut of Andrew, who was previously women’s footwear creative director and was appointed creative director of the women’s line in October. He succeeded Fulvio Rigoni.