Tod's women Gommino shoe

MILAN The Tod’s group is distancing itself from fashion.

“Tod’s stands for quality and Italian lifestyle, not fashion,” said chief financial officer Emilio Macellari during a conference call with analysts, after reporting decreases in profitability and revenues for the first half of 2017. “There is fashion from many players and we don’t want to be part of this competitive group. We tried to do fashion with [Alessandra] Facchinetti, but according to market response, fashion is not what a client coming to a Tod’s store is looking for. We are less interested in the single-quarter performance, but rather to collect the full results in a midterm time horizon.”

He touted a “quick response” to the spring-summer products that were sold out in two weeks. “I am relaxed that the market is there and it is in our reach. We can get a portion of it,” the cfo said.

Macellari made his comments after one analyst asked about price cuts. The Tod’s executive said this was a consequence of “less complicated products” now than those designed by Facchinetti. “Since we discontinued these to focus on more iconic items, the kind related to Tod’s heritage, the average price was lowered as a consequence. The volumes are growing and more than offset the difference. The spring-summer collection is positive and this is the result. Our idea is to keep these kinds of more iconic products inside the collection with less exposure to fashion,” he said.

After three years, Facchinetti left her role as creative director of Tod’s women’s collections in May 2016. She was proceeded in that role by Derek Lam, who left the brand in 2012 after six years as its creative director. However, as with many fashion houses, much of what Facchinetti and Lam showed to buyers and press as their collections was never actually put into widespread distribution. Andrea Incontri is currently creative director of the brand’s men’s collection.

In the six months ended June 30, Tod’s net profit fell 7.2 percent to 34.7 million euros, or $41.2 million, from 37.4 million euros, or $44.4 million in the same period last year.

Revenues dropped 2.9 percent to 483 million euros, compared with 497.6 million euros last year. In the second quarter, revenues were down 1.4 percent to 244.5 million euros.

“The results presented today are in line with our expectations. The excellent market feedback received for our product confirms that we are on the right path, even though we need to speed up our execution plan,” said Diego Della Valle, chairman and chief executive officer of the group. “Our primary goal is to keep our products in the highest range of craftsmanship and as expression of the best Italian lifestyle in the world. That’s the reason why we are aiming at having more and more exclusive and expensive products, although this forces us to be more selective in distribution. We are doing a great job on the visibility and innovation of our collections and on an aggressive product delivery model, based on a production capacity fitting the new market demands.”

Expressing his confidence in registering “significant improvement in sales and margins in the future,” Della Valle added that “the managers who will guide the future company’s development are partially in place and the team will be completed soon,” which led analysts to ask for more details.

The group, responded Macellari, has “hired some of the people we needed to and is finalizing the addition of others.” He cited the likes of brand or area managers and said the entire team will be presented during an investors’ day to be scheduled around the end of October or early November.

In the first half, revenues at the core Tod’s brand were down 6.1 percent to 265.3 million euros, mainly due to the performance of shoes, which is the category with the highest exposure to the wholesale channel. “We prefer not to sell rather than not collect the money from the sale,” said Macellari.

The Hogan label decreased 6.9 percent to 98.7 million euros, mainly due to the weakness of the Italian market.

Revenues of the Fay brand increased 4.1 percent to 25.9 million euros, lifted by all regions.

Roger Vivier was up 11 percent to 92.6 million euros, with strong results in all markets, except for the U.S., which continued to be impacted by a lack of shoppers at brick-and-mortar retailers.

The group’s core footwear category saw a 3.5 percent decrease to 386.3 million euros, hurt by its high exposure to the wholesale channel. “In the last couple of seasons, a lot of brands that were in other categories discovered the appeal and interest of shoes,” said Macellari. “There has been an invasion by brands doing sneakers.”

He cited competition on both ends, from sports labels such as Puma and Adidas to “Her Majesty Hermès and down. We are facing competition of fashion brands, we don’t want to fight fashion with fashion but with quality, Italian lifestyle and optimize our history.”

Challenged by Exane BNP Paribas’ Luca Solca to clarify his strategy, Macellari said that “due to the attack from many brands, we want to have our position of high quality products in good taste, [reflecting] Italian lifestyle, with value for money and lower volatility. An explosion of sales is more difficult, but we prefer a more reliable trend of growth. This does not mean a product should be boring or not interesting.”

Sales of leather goods and accessories were down 1.7 percent to 68.1 million euros, partially due to a different timing of deliveries.

Apparel was up 2.8 percent to 28.1 million euros, broadly reflecting that of the Fay brand. As reported in July, Fay and creative duo Tommaso Aquilano and Roberto Rimondi parted ways after six years, ending the collaboration with the brand with the spring 2018 pre-collection hitting stores in January. The designers will focus on the development of their own Aquilano.Rimondi line.

In the first half of the year, sales in Italy were down 2.2 percent to 145.4 million euros, due to a different timing of deliveries and a result of weakness in the country’s secondary cities.

In the rest of Europe, sales edged down 0.6 percent to 119.3 million euros, dented by the wholesale channel.

In the Americas, revenues dropped 16.9 percent to 40.5 million euros, confirming the first-quarter trend, with retail suffering from lower store traffic and wholesale affected by the difficulties facing major department stores.

Sales in Greater China were up 1.4 percent to 108.5 million euros, lifted by Mainland China and Hong Kong showing timid signs of improvement.

In the Rest of the World area, revenues dropped 5.1 percent to 69.3 million euros. Japan posted positive results, while the sales performance in Korea was negatively affected by international political tensions.

In the first half, the group’s earnings before interest, taxes, depreciation and amortization were down 12.3 percent to 75.7 million euros from 86.3 million euros last year, affected by the increase of labor costs and of costs for the use of assets by third parties, due to the ongoing expansion of the group’s retail network. The consensus of 175 million euros in EBITDA for the year is “challenging but feasible,” said Macellari. The group’s headcount grew to 4,606 employees, compared to 4,531 at the end of June last year.

Operating profit was down 15.6 percent to 52.3 million euros from 62 million euros in the same period last year.

The performance of directly operated stores was in line with the same period last year, edging down 0.2 percent to 310.6 million euros.

Same-store sales growth was down 2.7 percent, showing a slight improvement as compared to the first quarter of this year. “We are not happy with the 2.7 percent decrease, but after a minus-14, minus-12, minus-8 and minus-3.2 percent, like-for-like is improving,” said Macellari. “We are seeing a trend that is going to become positive with all positive signals from the market. It may be late compared to our hopes, but we are not worried .”

As of June 30, the group had 270 directly operated stores and 108 franchised units, compared with 261 and 103, respectively, at the end of June last year.

Revenues to third parties were down 7.5 percent to 172.4 million euros.

In the first six months of 2017, the group invested 16.4 million euros in tangible and intangible fixed assets, compared with 18.6 million euros in the first half of last year, net of the price to acquire the Roger Vivier brand revealed in November 2015 for 415 million euros. The majority of these investments were aimed at the group’s retail network and updating the industrial and production structures. This includes the first steps for the Arquata del Tronto plant, which the group is building  as a symbol of tangible support to the Marche region, hit by the earthquake last year. Investments were also channeled into the development of the company’s software.

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