Salvatore Ferragamo RTW Fall 2020

MILAN As was to be expected, while reporting an uptick in net profits and revenues last year, the main topic of the Salvatore Ferragamo Group conference call with analysts on Tuesday was the coronavirus crisis, made even more poignant since it followed Italy’s lockdown until April 3 announced a day earlier, and news of a possible closure of all stores, except food shops and pharmacies, for two weeks.

“This truly is an unprecedented situation and it’s hard to make any prediction,” said chief executive officer Micaela Le Divelec Lemmi. “Some compared [the coronavirus] to the SARS [outbreak] but in reality it’s proved to be a totally different situation. We live on a 24-hour basis just like our competitors, waiting to see what the restrictions of stores will be. It’s a perfect storm and it has a magnitude that can potentially affect all markets.”

Chief financial officer Alessandro Corsi concurred. “Unlike what industry experts and some journalists say, there’s never been anything like this, and it’s not possible to make any comparison with previous situations. It’s so unbelievable and hitting everybody potentially.”

They both resisted analysts’ requests for some guidance. “Any simulation is based on hypothesis,” said Le Divelec Lemmi. “We can focus on defining best practices mutualized by China, mirroring and anticipating” what happened in that region before the coronavirus began to spread to other countries.

“The evolving nature and uncertainties of the duration of the virus make it impossible to [provide forecasts] for 2020,” said the ceo. “There will be an impact on 2020, and we are putting measures to mitigate the effects, and to strengthen our long-term strategies, re-evaluating orders, monitoring costs that are not strategic and renegotiating contracts.”

Corsi said that landlords have reacted positively, “supporting the business,” and he also touted the suppliers’ flexibility. “If there are no changes, we could see in the first quarter a drop of one fourth, one third of last year’s sales, but everything is extremely volatile not only in business but in life, too.”  While working to guarantee business continuity, a top priority remains the health of employees, their families and of customers, they both underscored.

Both executives pointed to a “slight” recovery in China in recent days. “It’s a recovery, it’s not back to normal in China, there are positive signs, and slowly but surely traffic is growing but it will take some time to get back to what it was before. On top of traffic, the mood will be relevant,” said Le Divelec Lemmi.

“The first three weeks of January started in a very positive way,” before the COVID-19 hit China and thwarted the Chinese New Year festivities, shopping and travels, said Corsi.

Last year, all channels and markets helped Salvatore Ferragamo see an uptick in profits and revenues.

In the 12 months ended Dec. 31, net profit, excluding the IFRS 162 accounting standard, was up 1.7 percent to 92 million euros, compared with 90 million euros in the previous year.

Revenues rose 2.3 percent to 1.37 billion euros, compared with 1.34 billion euros in 2018.

Earnings before interest, taxes, depreciation and amortization were down 4.3 percent to 205 million euros, compared with 214 million euros at the end of December 2018.

Operating profit excluding IFRS 162 was down 8.2 percent to 138 million euros.

In 2019, the retail distribution channel was up 2.4 percent to 899.4 million euros, representing 65.3 percent of total sales.

At the end of December, the group counted 654 points of sales, including 393 directly operated stores and 261 third-party-operated stores.

In 2019, the wholesale channel grew 3.1 percent to 461.3 million euros, accounting for 33.5 percent of total revenues, mainly thanks to the good performance of the travel retail channel.

The Asia-Pacific area, the group’s main market, grew by 1.1 percent to 511.3 million euros, representing 37.1 percent of sales. In particular, the retail channel in China climbed 13.8 percent. The last quarter was impacted by the protests in Hong Kong, where retail sales were down more than 50 percent compared to the last quarter in 2018.

The Europe, Middle East and Africa region was up 5.3 percent to 347.2 million euros, accounting for 25.2 percent of the total, with a further acceleration in the last quarter mainly thanks to the double‐digit performance of the retail channel.

North America grew 0.7 percent in the year to 317.8 million euros, representing 23.1 percent of total. Le Divelec Lemmi touted the performance of the U.S. in February, but was cautious about a possible spread of the coronavirus in the region.

The Japanese market registered a 0.5 percent decrease to 118.4 million euros, penalized in the last quarter by the consumption tax hike in October 2019.

Revenues in Central and South America in 2019 were up 7.1 percent to 82.3 million euros.

By category, footwear was up 3.8 percent to 575.5 million euros, accounting for 41.8 percent of the total.

“We saw a very good receipt of the spring/summer collection, and in particular of our ladies’ shoes,” said Le Divelec Lemmi, touting the Viva model and the new Judy line. “We had not seen this for a few years, but now customers are interested in buying the same model in different materials and colors.”

Handbags and leather accessories grew 3.7 percent to 540.8 million euros, representing 39.3 percent of total. Apparel was down 2.9 percent to 74.2 million euros. Fragrances decreased 6.7 percent to 87.7 million euros.

Capital expenditures totaled 60 million euros compared with 71 million euros in 2018, channeled mainly in the store network renovations and the IT projects, while last year investments were still high in the logistic center.


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