MILAN — Italy’s Tod’s Group SpA on Wednesday reported a 17.3 percent drop in profitability on a 1.5 percent rise in sales on the back of a weak performance at the main Tod’s brand and increased investments.
The company doesn’t report net profit figures for the period. However, earnings before interest, taxes, depreciation and amortization were 47 million euros, or $53.11 million, down from 56.8 million euros, or $77.82 million, in the year-ago period. “In this quarter we register a temporary decline in the group’s profitability, due to the strategic decision to continue to invest in distribution network, communication, human resources and production capacity, notwithstanding the temporary lack of revenue growth,” the company said.
In a statement released after the end of trading in Milan, the company said revenues in the period were 257.7 million euros, or $288.62 million, up 1.5 percent at current exchange rates; at constant exchange rates — using the same average exchange as in the first quarter of 2014 — sales would have declined by 3.1 percent.
Chairman and chief executive officer Diego Della Valle said the results reflected the “still challenging economic and monetary environment with persistent weakness of some important markets for luxury goods” as well as poor weather conditions and late deliveries of important products. However, he said that in the last month there was a “significant improvement in the organic growth trend, in all regions.”
Dollar amounts have been converted at average exchange rates for the periods to which they refer.
Della Valle was upbeat about the firm’s prospects: “Given the continued focus on cost control and considering the good results in our stores in recent weeks, with the launch of the spring/summer season and the excellent response of the collections for next autumn/winter, I’m very confident about the quality of the results of the current year.”
The company also expects to benefit from its entrance into fashion shows, a move that has boosted media and consumer interest in leather goods, Tod’s said, and will focus on developing the U.S. market, “which is becoming attractive once again.”
At the flagship Tod’s brand — which makes up about half of total group revenues — sales were flat in the first quarter, at current exchange rates; at constant currencies sales dropped almost 6 percent, to 142.3 million euros, or $160.8 million. Tod’s sales were “positive in Italy, Europe and in the Americas, while the Asian markets remain weak,” the company said.
Hogan and Fay reported sales growth in both current and constant currencies, while Roger Vivier’s sales increased 5.3 percent at current exchange rates but dropped 4.1 percent at constant currencies.
In terms of products, only shoes — which make up more than two-thirds of total group revenues — reported sales growth, up 4.3 percent at current currencies in the first quarter; at constant currencies, shoe sales were down 0.5 percent.
Leather goods sales dropped 10.4 percent in current currencies and apparel revenues were down 1.5 percent. However, Tod’s pointed out that the new family of bags is “having a great response from the customers; therefore we are confident that the results of this category will improve during the year.”
During a conference call after the results were published, chief financial officer Emilio Macellari said same-store sales were down 7.8 percent in the first 19 weeks of 2015, a figure that he said showed a “significant improvement” compared to the 10.6 percent sales drop in the first three months alone.
He said the Japanese market, where the Fay brand is scheduled to debut sometime this year, is showing “solid momentum and continues to grow double digit.” Japan is the company’s fastest growing market, he said, while other Asian markets like mainland China remain negative — “even if with a lower negative rate that last year.”
Answering an analyst’s question on sales and profitability expectations for the current year, Macellari said “current level of consensus of 6 percent topline growth with flat EBITDA margin is achievable even after first-quarter results.” He added that first-quarter results “are not frightening us…it was something we already considered.” He explained that in the second half of the year, the group will benefit — among others — from the positive contribution of cost controls and a comparison base with the second half of last year that “is not at all challenging.”
Asked about the company’s price positioning, Macellari said Tod’s is seeking a “high quality but multifunctional” position with consumers. “We know we have a gap with some of our competitors. With some of our loafers we are at a discount to some Gucci, Prada and Ferragamo shoes. This gap can be filled through a price increase, but this is not yet the time, at least as far as we consider the situation.”
He also discussed the company’s store opening program, pointing out that the target of 15 net new locations for the full year will be maintained. Ten net new locations have already been opened, “so we basically did most of the openings for this year. We do not exclude we can do something more than 15 if there are good opportunities to be caught,” he added.
Speaking of opportunities, Macellari appeared to take issue with Hong Kong, a market where sales have weakened. “Hong Kong was a market, now it is a city,” the company’s cfo said, adding that the rents being asked by landlords for good locations in the city “are not justified.” The company has asked for a decrease in rents, but the requests were denied. Macellari even hinted that landlords are working together to fight downward rent pressures. “I presume — even if I cannot say for sure — that they [landlords] made something like a nonwritten agreement to refuse all requests in this direction because as far as we know, other companies/brands asked the same kinds of reductions and received substantially the same kind of negative answer as we received.
“We are not happy with this situation,” he continued, pointing out that Della Valle himself will raise the issue when he travels to Asia next week for business meetings. “That market is completely different than when we agreed to pay certain rents.”