LONDON — Costs and investments linked to a big turnaround program ate into Tod’s Group’s first-half bottom line, with the company notching a 6 million euro loss, while sales were down 4.7 percent to 454.6 million euros.
The first half was difficult for the Tod’s and Hogan brands in particular with ferocious competition from luxury brands that are ramping up their footwear offers and putting the focus on sneakers and lifestyle shoes, the Italian group’s specialty.
Tod’s group has also been struggling to appeal to a younger, fashion-forward clientele, in emerging markets in particular, as it endeavors to retain its older and more conservative core customers.
Diego Della Valle, Tod’s group chairman and shareholder of reference, has been rising to the challenge by focusing on capsules, limited-edition collections and creative collaborations, such as one that landed last month by Alber Elbaz. The aim is to appeal to new audiences and to generate some much-needed buzz.
As reported in June, Andrea Incontri left his role as men’s wear creative director of Tod’s after five years at the company. A successor has not been appointed.
Sales in the wholesale channel showed continued weakness, partly because the group is bringing its e-commerce platform Italiantouch Srl into its stable. Retail performed strongly in the period. First-half results were also impacted by new accounting rules, which hit earnings before interest, taxes, depreciation and amortization; earnings before interest and taxes; and operating cash flow.
Della Valle said the latest results reflected “the temporary effect of higher than expected investments” made to support the brands’ visibility, “in a fiercely competitive landscape, where the leading global brands are increasingly prioritizing leather goods and, even more, footwear.”
He touted his products’ “high quality and Italian style,” and said the group’s loyal customers “follow us and are fond of our brands. The real challenge for us is now to become even more attractive for the young customers who live in the new markets, which are currently the major spenders on fashion and luxury goods.
“To do this quickly, we need to increase our investments to be more attractive and visible. This will bring us the turnover that we need to have an adequate and more than satisfactory profitability.”
Della Valle argued that his family’s group was “properly structured” and led by a strong management team. “Now is the time to invest to get the necessary turnover.” He said that any short-term margin sacrifice would favor medium-term profitability and capitalization of the group and its brands.
“My family and I are confident in the effectiveness of our strategy and we will continue to be buyers of Tod’s shares, as we were in the past.” The Della Valle family, which owns nearly 70 percent of the company’s shares, is in the process of buying back five percent of the capital. The process will be completed in October.
All brands, with the exception of Roger Vivier, saw sales declines at reported exchange in the first half, with Tod’s down 9.7 percent to 231.2 million euros.
Hogan fell 4.5 percent to 100.5 million euros due to weakness in the Italian market, although it notched double-digit growth in China. The sporty, outdoorsy clothing brand Fay fell by 12.8 percent to 21.5 million euros due to the weakness in the wholesale channel, the company said.
Sales at Roger Vivier climbed 11.6 percent to 101 million euros, with all regions performing well except for the U.S.
All major geographic regions saw a slowdown, with Italy dropping 9.6 percent to 125.2 million euros due to weakness in the wholesale channel; Europe, excluding Italy, falling 7.7 percent to 115.3 million euros, and the Americas region declining by 7 percent to 34 million euros.
Greater China was the only major region to see growth, albeit at modest levels. Sales were up 2.3 percent to 111.6 million euros.
The wholesale channel was hit hard not only by Tod’s acquisition of Italiantouch, meaning that sales were banked as retail rather than wholesale, but also by an overall decline in demand from franchises and independent retailers. Many luxury brands have witnessed a similar trend as they cull non-core wholesale accounts, and absorb the impact of the decline in the power of the U.S. department store.
Wholesale sales were down 23.6 percent to 135.4 million euros, while retail, which includes online and directly-operated stores, advanced 6.5 percent to 319.2 million euros.
EBITDA climbed 17.2 percent in the six months to 80.4 million euros, while EBIT plummeted to 5.8 million euros from 46.7 million euros, hit by the new accounting rules, as well as asset depreciations and write-downs. It also incurred costs such as opening and operating the via Montenapoleone store in Milan while still paying rent on the nearby via della Spiga unit.
The company also saw its operating costs rocket in the period, which it attributed to its efforts to keep up with the competition.
Tod’s spent on developing its distribution network, on communication and external production services, and on hiring new employees in the corporate and retail divisions.
The group registered a loss of 6 million euros for the half year compared with a positive result of 33.2 million euros in the first six months of 2018.
During the conference call that followed the results’ publication late Wednesday, Emilio Macellari, the group’s chief financial officer, and Umberto Macchi di Cellere both put on a brave face as they fielded questions from analysts about the disappointing numbers and the expectations for the full year.
Macellari said the like-for-like sales trends for July were broadly in line with the first six months, adding that the group may not start seeing the results of its sacrifices, investments and turnaround strategies for another year.
“We don’t feel under pressure to see results tomorrow or next week, and we’ll be OK if we start seeing them a year from now — I think that’s a reasonable period to have to wait,” he told analysts, who peppered him with questions about the health of the group and the wisdom of the turnaround that Della Valle initiated last year.
“Our sector is witnessing a historic change in terms of consumer behavior and activity, and we are implementing our own changes to address this day after day,” he added. “We have to have patience — and encourage customers to go into our stores and buy.”
He said the first-half trends would continue into the second half, with the group anticipating full-year turnover between 935 million euros and 937 million euros and an EBITDA margin of 10.7 percent.
Asked about the reaction to the new Alber Elbaz collaboration, Macchi di Cellere said it was too early to tell as the goods only landed in store at the end of July.
“We are very focused on that collection and it resonated well with the press, but we haven’t seen an impact yet from a sales point of view,” he said. “The Alber Elbaz collaboration was our most important project of the second quarter.”
As reported, Della Valle has been revamping the company’s business model and launching a project called Tod’s Factory, in a reference to Andy Warhol.
He wants to mirror the streetwear drop schedule, releasing a mix of capsules and limited editions in collaboration with designers and friends of the house, such as Alessandro Dell’Acqua and Elbaz.
Last October, Tod’s named Michele Lupi, a former editor in chief of GQ, Rolling Stone and most recently Icon, as men’s collections visionary and part of a new team dedicated to the development of the Tod’s Factory.