MILAN — Global growth, led by gains in China and the Americas, and a strong performance of its handbag and leather accessories division, lifted Salvatore Ferragamo SpA’s profitability and revenues in the first quarter.
In the three months ended March 31, net profits at the Florence-based firm rose 17 percent to 32 million euros, or $36.1 million, including a minority interest of 1 million euros, or $1.1 million. This compares with profits of 27 million euros, or $37 million, in the same period last year.
Revenues climbed 10 percent to 327 million euros, or $369.5 million, compared with 299 million euros, or $409.6 million, in the previous period.
During a conference call with analysts, chief executive officer Michele Norsa remarked on how “volatility is an almost normal situation in the luxury industry.” He cited a slowdown in Russia in the first quarter, the uncertainties connected to the Greek debt situation, unfavorable weather and political unrest as variables affecting the sector. “China’s domestic market is still complicated to read,” said Norsa, noting that the brand is available in around 40 cities in the region and that differences between large cities and second- and third-tier ones are increasingly significant. The Chinese are traveling less to Macau and Hong Kong and more to other countries such as Japan, Korea, and Australia, for example.
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“We cannot expect major changes in Macau and Hong Kong,” said Norsa, although the company is opening a store in Macau in the next 10 to 15 days.
In the first quarter, the Asia-Pacific area was confirmed as the group’s top market in terms of revenues, up 11 percent, and accounting for 36.6 percent of total sales. In particular, the retail channel in China posted a 22 percent gain.
Europe edged up 2 percent, with a double-digit growth of the retail channel, while the wholesale business was negatively impacted by geopolitical tensions. The area represented 26.1 percent of total sales.
Norsa characterized the economy in Europe as “not brilliant,” but said that tourist flows have increased in the period, excluding Russians and Ukrainians, who are “still missing,” as well as tourists from certain regions in Africa such as Nigeria, due to the low price of oil.
The U.S. was affected by “very severe weather” in the first quarter , not balanced completely by travelers and the different timing of the Chinese New Year and Norsa said that he expected a better performance in the rest of the year.
Despite the unfavorable weather conditions, North America registered a 16.2 percent increase in sales in the period, representing 22.6 percent of the total. “The U.S. can only improve in the next few months,” said Norsa.
Japan was up 4.8 percent despite the challenging comparison base and accounted for 9.7 percent of total sales.
The executive said he believed there is “much better consumer confidence and more propensity to spend” in Japan and underscored an increasing number of Chinese consumers in Tokyo’s Ginza area, expecting “good projections for the year” with “a dramatic change of investments in the Japanese market.” He noted double-digit growth in the beginning of the second quarter and expressed his confidence in tourist traffic in Tokyo’s Ginza, Osaka and Kyoto districts.
Revenues in Central and South America posted 27.6 percent growth, representing 5 percent of total sales. “Brazil and Argentina returned positive after many years and Mexico showed a double-digit growth,” said Norsa.
Among openings this year, the ceo cited new units in Shanghai in January, Copenhagen and Brooksfield Place in New York in April, which he defined as “a very exciting location.” As for renovations, he cited the reopening of a unit in Los Angeles in early June and the renovation of a boutique in Paris.
Norsa touted travel retail, with a double-digit growth “that is still the fastest-growing. What we see, we quite like.”
As of March 31, the group’s retail network counted 375 directly operated stores, while the wholesale and travel retail channel included 262 third-party operated stores as well as a presence in department and specialty stores.
The retail channel was up 11.5 percent. The wholesale channel, despite the hard comparison base, grew 6 percent, penalized by the ongoing geopolitical tensions in Eastern Europe and in Greece.
In the first quarter, earnings before interest, taxes, depreciation and amortization grew 16 percent to 61 million euros, or $69 million.
Operating profit rose 12 percent to 47 million euros, or $53.1 million.
Dollar amounts are converted at average exchange for the periods to which they refer.
All product categories, with the exception of fragrances, showed an increase in revenues in the period. Handbags and leather accessories posted an increase of 16 percent and accounted for 37 percent of revenues. Apparel rose 3.4 percent, representing 7 percent of the total, and footwear gained 8.6 percent, accounting for 41.5 percent of total sales. Fragrances were down 11 percent, accounting for 6 percent of revenues, as they were penalized by the unstable situation in Eastern Europe and by a different delivery calendar.
Asked by one analyst about potential price increases, Norsa said a hike has already taken place in Brazil, and the company is “working on prices in Europe for next season,” adding, however, that it “is fundamental to wait until the exchange rate is stabilized,” and the brand “positioning is quite balanced globally and correctly priced.”
Chief financial officer Ernesto Greco said top-line consensus of midsingle-digit growth “can be achieved.”
Capital expenditure reached 12 million euros, or $13.5 million, up 26 percent compared with the same period last year, mainly for investments in the group’s retail network.
As of March 31, net debt stood at 34 million euros, or $38.4 million, compared with 49 million euros at the end of Dec. 2014, or $65.1 million, due to a significant operating cash generation.