MILAN — Tod’s SpA is stressing the long term.
This story first appeared in the November 13, 2014 issue of WWD. Subscribe Today.
As the group reported a 26.2 percent dive in operating profits for the nine months ended Sept. 30, Tod’s executives said they remained focused on longer-term growth and expansion, rather than a quarter-by-quarter approach.
“We didn’t stop investing in stores, the structure and resources, and we are not worried about the quarter or the year,” said chief financial officer Emilio Macellari. “If we are compared to other companies that have performed better, who cares? Cost and expenses are under control; there are no unjustified structures. If for one year profitability is lower, it’s not the end of the world.”
That approach is perhaps a good thing, given the year Tod’s is having. An unfavorable product mix, a decrease in its leather goods division, weakness in China and the group’s strategy to cut back its wholesale distribution in Italy dented the company’s margins and sales in the nine-month period. Operating profits dropped to 123.9 million euros, or $167.2 million, equal to 16.7 percent of sales, from 168 million euros, or $220 million, in the same period last year. At constant exchange, operating profit would have totaled 130.3 million euros, or $176 million.
Earnings before interest, taxes, depreciation and amortization amounted to 156.4 million euros, or $211.1 million, dropping from 199.5 million euros, or $261.3 million, last year. At constant exchange rates, they would have totaled 163.1 million euros, or $220.2 million.
Revenues were down 1.5 percent to 741 million euros, or $1 billion, from 752.6 million euros, or $986 million. In the third quarter, sales rose 0.7 percent to 263.3 million euros, or $ 355.4 million, compared with the third quarter last year.
The Italian luxury group does not provide a net-profit figure for the period. Dollar amounts are converted at average exchange for the periods to which they refer.
Diego Della Valle, Tod’s chairman and ceo, said the results were in line with expectations and pointed to the group’s strategy of focusing on growth by investing in its production capacity and distribution network. “We are starting to collect the first results of our entrance in the world of the fashion shows, which will support the performance of all our product categories and, in particular, of leather goods by strengthening our brands’ visibility,” he added. “Also, the feedback from the 2015 spring-summer collections is encouraging and confirms the strong appeal of our brands.”
The core Tod’s brand saw sales decrease 3.9 percent to 431.2 million euros, or $582.1 million, affected by weakness in China. Since September, the brand’s performance has improved in the Americas, after the reopening of the New York Madison Avenue flagship, which remained closed until the end of August for enlarging. Macellari recalled the first four months of the year and the “terrible weather” in the U.S. “We have a good feeling about the U.S. It can represent a real opportunity. A market that is underpenetrated is an opportunity, not a difficulty,” he said.
Hogan revenues rose 5.7 percent in the third quarter, driven by a double-digit growth outside Italy but, in the nine months, dipped 1.8 percent to 171.5 million euros, or $231.5 million. Responding to an analyst’s question about a rumored separate public listing for the Hogan brand, Macellari said he could “absolutely confirm there is no plan to do an IPO — not now, not next year, not in the [foreseeable] future.” Referring to a remark made by Della Valle during an investors’ day on the topic that triggered the speculation, he clarified that the entrepreneur meant that “Hogan has the potential to increase in sales and become as big as necessary to be listed as a stand-alone label,” said Macellari.
Fay also returned to growth in the third quarter, thanks to the end of the rationalization of Italian wholesale distribution; but in the nine months, sales were down 2.4 percent to 44.3 million euros, or $59.8 million.
Roger Vivier, lifted by the opening of new stores in China, saw sales rise 12.2 percent to 93.3 million euros, or $126 million. Macellari said that, by the end of 2015, Tod’s will have to decide on either the renewal of the license, which expires at the end of 2016 under an agreement with another holding held by Della Valle, or the purchase of the label. “It’s too early to predict. We will have a definite visibility during the second half of next year,” said Macellari.
Sales of shoes, the group’s leading business, edged down 0.9 percent to 574.9 million euros, or $776.1 million.
Affected by a different timing of wholesale shipments, sales of leather goods and accessories dropped 4.4 percent to 115.3 million euros, or $155.6 million. Macellari explained how the company has entered “the world of fashion shows,” thanks to the Alessandra Facchinetti-designed apparel collections, to achieve “a more lifestyle” image and increased visibility. “The attention is higher than before, and we are no longer seen for only our shoes,” he said, noting that, to judge the full impact, “we need four or five seasons of shows.”
Sales of apparel were down 2 percent to 50.1 million euros, or $67.6 million, reflecting the Fay brand’s dynamics.
Sales rose 4 percent in Europe but were down in most other major regions, including the Americas and China. The Chinese market is showing some signs of improvement, although consumer spending remains weak. Macellari said Hong Kong accounted for 10 percent of the group’s sales, though the city was affected by the ongoing protests. He added that, during the so-called Golden Week in Hong Kong over the past two years, sales were growing at a double-digit rate, while this year, they were in the “high-single-digit negative.”
Macellari pointed to a “particular low visibility” and said it was “difficult to predict fourth quarter. If the fourth quarter can be equivalent to the fourth quarter in the previous year, we would not be surprised and not worried or disappointed.
It’s a tough situation, but it’s not the end of the world. We think the company can have good results, and we do not expect in the full year the same dilution as in the nine months. It will be lower.”
Orders for spring 2015 are higher than those for the same collection in 2014, he said, adding that he expected “a stable 2015.”