MILAN — “Opportunity” was one of the recurring words Marco Gobbetti, chief executive officer and general manager of Salvatore Ferragamo, used Tuesday evening during a conference call with analysts to comment on the luxury company’s first-quarter results.
So much opportunity does he see for the brand that Gobbetti laid out an ambitious plan that sees Ferragamo aiming to double revenues in four to five years and to double marketing and communication spending as a percentage of revenues beginning in 2023. This will lead to a cumulative investment of 400 million euros in the 2023-to-2026 period focused on store renovations, technology and supply chain.
Marketing is seen to represent 10 percent of sales by the end of the plan. The investments will all be self-financed through the existing cash position and cash flow generation.
“The company has under-invested in the past few years, and it will be key to massively step up our investments,” said Gobbetti. “The boldness of the plan [lies in the fact that] we don’t have to rebuild the brand but accelerate its growth.”
Product is at the heart of Gobbetti’s strategy, as is reaching out to a younger consumer.
Responding to an analyst who pointed out that rejuvenating the brand has been in the works for a while, Gobbetti touted the strength of its new creative director, Maximilian Davis, who joined in March. His appointment was a key element in the brand’s turnaround for Gobbetti, who tapped the Trinidadian British fashion designer shortly after the CEO’s arrival in January from Burberry.
“He is very bright, and, while young, more mature than his age,” said Gobbetti of Davis. “He has the remarkable capacity to define a very specific style and visual identity in a very short time, as he has done for his own brand [which has been put on hold]. He is very elegant, starting from tailoring, but at the same time his designs are grounded and for daily use and more casual, more fashion. He has, on his own and with very little means, stirred interest in celebrities. And he has a great human approach, everyone has been really enchanted to work with him. He is full of ideas and super excited.”
Does this mean the product will be more radical, wondered one analyst?
”Our main objective is to reach a younger customer with a product that adapts to their style, so if that means being more radical yes,” said Gobbetti, adding that women customers will also be a strong focus. Davis’ first show for the brand will be staged in September.
The designer has made “good progress on structuring the collection and by end of the year you will see the results,” continued the executive. Davis “has a new strong team in place. I am honestly very confident the brand will be more relevant to respond to trends. In terms of casualization not much has been done before.”
Davis has the tools to communicate with a younger consumer, “create an emotional connection, which has been lacking. We may have been a little distant in the past. Emotions are very important and Maximilian plays an important role in this.”
An upscale digital presence, “creating heat and visibility” and improving customer experience, are also priorities for the brand, believes Gobbetti.
Despite the impact of the COVID-19 pandemic, the war in Ukraine and the inflationary pressure, Gobbetti touted the performance of the Florence-based company in the first three months of the year, as Ferragamo posted a net profit, including a minority interest, of 14 million euros compared with a loss of 600,000 euros in the same period last year.
In the first quarter ended March 31, revenues rose 23.2 percent to 289 million euros, compared with 235 million euros in the same period last year.
Earnings before interest, taxes, depreciation and amortization amounted to 66 million euros, up 40.4 percent from 47 million euros last year with an incidence on revenues of 22.7 percent from 19.9 percent.
Operating profit totaled 24 million euros, compared with 7 million euros last year.
“Notwithstanding the rising geopolitical and economic volatility, we expect to increase our revenues for the current year, and today we are laying out the drivers to accelerate growth and realize the potential of Ferragamo,” said Gobbetti.
In the first quarter, retail sales grew 15.8 percent to 193.1 million euros representing 66.7 percent of the total.
The wholesale channel grew 40.2 percent to 92.8 million euros.
The company will launch a new concept store, and prioritize direct-to-consumer, but Gobbetti said “there will be no major clean-up of wholesale.”
While not expecting travel retail to return to pre-COVID-19 levels “anytime soon,” Ferragamo is elevating distribution in the U.S. as Gobbetti sees the channel as important in targeting a new audience and a fashion customer, and traffic offers “plenty of opportunity.”
Ferragamo will increase the focus on expanding its key categories — shoes and bags. Footwear sales in the first quarter rose 24.7 percent to 123.7 million euros, while leather goods and handbags were up 16.8 percent to 124.8 million euros. “We are quite competitive in pricing and shoes and leather goods are an opportunity to amortize the inflationary pressure,” contended Gobbetti.
Ready-to-wear was up 42 percent to 17.7 million euros, with plans to “elevate and drive” the category, said Gobbetti.
The U.S. and China are seen as the main growth engines in terms of geographies. In the first quarter, sales in the Asia Pacific region edged up 0.9 percent to 103.4 million euros, mainly impacted by the lockdowns in China.
Japan registered a 17.7 percent increase in revenues to 25.5 million euros.
The Europe, Middle East and Africa region posted an increase in revenues of 41.3 percent to 60.4 million euros.
North America was up 46.1 percent to 83 million euros.
“We’ve seen very good progress in Europe and the U.S., rebalancing a dependency on China,” said Gobbetti. “There are huge opportunities ahead of us, there is a lot going on, the brand has been resilient, we have the resources to [redirect] them to drive performance and our return on investment.”
Revenues in Central and South America gained 52.3 percent to 17.1 million euros.
“Speed is an important element, and there is a lot of value that we can extract in a relatively short time,” said the executive, who cited Ferragamo’s unique heritage, high quality and Italian style and craftsmanship, which will be blended with “casual, fun fashion that fits with a younger customer’s lifestyle.”
Chief financial officer Alessandro Corsi said the company will see a progressive acceleration of top-line growth rate and a meaningful operating profit expansion by the end of the plan, which has a horizon of four to five years. He underscored that he did not expect a negative EBIT next year, despite the increased investments.
To achieve the goals set, the company will also leverage “supply chain excellence.”
Gobbetti highlighted a strong focus on ESG and the human capital enhancement and evolution of the organization.
In the quarter, capital expenditures amounted to 6 million euros, up by 8.5 percent, mainly due to renovations of the retail network and investments in the digital channel.
As of March 31, the adjusted net financial position amounted to 359 million euros, compared with 169 million euros positive at the end of March last year.