Roger Vivier Paris Fashion week Fall winter 2018/2019

MILAN Tod’s SpA is banking on a new strategy and business model.

On Tuesday, reporting decreasing profitability and revenues in 2017, which were in line with expectations, chairman and chief executive officer Diego Della Valle said the focus was on a new industrial plan in the “hope [it] will give results in the near future.”

In the 12 months ended Dec. 31, net profits decreased 17.7 percent to 71 million euros, compared with 86.3 million euros in the previous year.

Confirming preliminary figures first reported in January, revenues decreased 4.1 percent to 963.3 million euros, compared with one billion euros the previous year, but Tod’s said it registered an uptick in the last quarter of last year. At constant exchange rates, sales were down 3.1 percent.

The company is home to the Tod’s, Hogan, Fay and Roger Vivier brands.

Della Valle emphasized that “very good is the feedback gathered by all the brands during the presentation of the collections of the next autumn; particularly appreciated is the strong creative evolution in interpreting the iconic products of the group. Each brand is following its own strategy, focusing on all future development and the investments necessary to achieve the planned results.”

He also underscored the new business model the group has set in motion to drop more than two collections a year as well as capsule collections and limited editions, as reported in February. He noted that at the end of the year, the group returned to a positive net financial position, “thanks to a good cash generation, deriving from effective working capital and cost management. Therefore, we have proposed to reconfirm last year’s dividend payout, which ranks among the highest in the industry. The management team is almost complete and has already been working for several months.”

During a conference call with analysts, chief financial officer Emilio Macellari, asked for a 2018 outlook, said the first two months of the year were not meaningful yet. However, referring to a top-line consensus of 979 million euros, he said: “I can tell you that I don’t see any reason to have a particularly cautious approach and I confirm it is feasible.” He admitted the first half of the year would be tougher compared to the second half because “the initiatives started last year need time to generate results. We need our own time.”

Foreign exchange rates will have a negative impact on revenues and profitability for the year, he said, of about 200 basis points on revenues and 100 basis points on profitability. “We have adopted a cautious policy of hedging,” he observed. Generally speaking about strategies, he said there was no hesitation in choosing future growth of the company over a good quarter. Responding to questions about pricing, he said the plan was not to change prices, but to offer a different mix of products.

About the new business model Della Valle is endorsing, Macellari said “now everything is faster, and the needs of consumers are faster, they would want to see a new collection once a week, but we are not printing photos. However, we have new products in stores, more than twice a year, for fresher stores, and more reasons for customers to come back. Every month or two there will be a new part of the collection, we are not innovating completely, but we are rapidly adapting our strategy to what the market demands.”

In 2017, earnings before interest, taxes, depreciation and amortization decreased 11.3 percent to 160.5 million euros, with a 16.7 percent margin on sales.

Operating profit was down 13 percent to 111.7 million euros.

Asked by analysts about profitability, he said that, rather than looking at figures by brand, one should consider each product category, noting that, for the group, apparel was the category with the lowest margin, “shoes are in the middle and leather goods are the most profitable, so depending on how exposed the brand is in the category you can understand its profitability.”

Tod’s was the best contributor compared with Fay, for example, but he highlighted that Roger Vivier was in “a particular position, as it can be considered a generator of extraordinary profitability and is more profitable than the other two brands, with the highest growth rate, at a very high single-digit” pace. As reported earlier this month, Roger Vivier has appointed Gherardo Felloni creative director, with his first official collection to be presented in September, and succeeding Bruno Frisoni.

Hogan’s core sneaker business, said Macellari, is “under attack” by sports and performance companies, such as Nike Inc., Puma SE and Adidas AG, which “are more technical and less luxury,” but it is also pressured by popular brands such as Gucci, Balenciaga, Chanel and Dior. “There is no brand that is not considering doing sneakers. Hogan has a reputation and high quality of product, but sometimes it means nothing because if consumers want the brand, that product, they buy it. We are value for money, niche and we have credibility. We think we can leverage that and defend the position.” The executive said China and the Far East are outperforming Italy and Europe for Hogan. “We are really confident we have tremendous potential,” said Macellari.

In 2017, retail sales were down 1.5 percent to 621.1 million euros, representing about two-thirds of revenues. As of Dec. 31, the group counted 275 directly operated stores and 112 franchised stores compared with 272 directly operated stores and 107 franchised stores at the end of December 2016.

Wholesale sales decreased 8.4 percent to 342.2 million euros due to a weakness of the channel in Italy and the U.S.

Same-store sales growth was down 2.8 percent in 2017.

Macellari said online sales were offsetting the poor performance of the wholesale channel, with a more than 20 percent growth. Della Valle said “the e-commerce sales channel, top priority of our investment strategy, is giving excellent results, growing at double-digit figures. The DOS development model follows the changes taking place in the group, creating both special flagship stores, made by different artists and architects, and pop-up stores, which are brought around the world to increase brand awareness and sales.”

In 2017 the group invested 36.6 million euros in tangible and intangible fixed assets, compared to 34.91 million euros in the previous year, mainly channeled in the widening and refurbishment of the DOS network and including the building of the new industrial plant in Arquata del Tronto, following the deadly earthquake that hit the area in 2016.

Macellari said the company would continue to invest in its store network in 2018, earmarking between 40 million euros and 50 million euros in capital expenditure, with more than two-thirds devoted to retail openings and renovations. “We are not putting the brakes on investments, on the contrary.” He added that 50 percent of store openings are scheduled in China, one-third in Europe and the rest in the rest of the world.

As of Dec. 31, the group’s net financial position was positive and equal to 9.3 million euros, compared to a negative balance of 35.4 million euros at the end of 2016. The acquisition of the Roger Vivier brand for 415 million euros in 2016 was completely absorbed.

The board approved the distribution of a dividend of 1.40 euros per share. On April 19, the board will also be called to approve the proposal to allocate 1 percent of net profit, corresponding to 693,615 euros, to pursue solidarity projects.

Chief executive officer Stefano Sincini, who exited the company after 33 years, is to receive 3.7 million euros in severance also in consideration for a two-year noncompetition agreement. As reported, he was succeeded by Umberto Macchi di Cellere, previously managing director of worldwide sales for all product categories for the Bulgari brand.


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