MILAN — Revenues at Tod’s Group SpA increased in the first half on the back of accelerating sales in key markets like Europe and the Americas and thanks to exchange rate tailwinds. But net income decreased due to a “significantly higher” tax rate, the company’s chief financial officer Emilio Macellari said on a conference call Thursday evening shortly after the results were posted.
In the six months through June, Tod’s reported revenues of 515.3 million euros, or $566.8 million, up 7.9 percent on the same period of 2014, with a “visible acceleration” in the second quarter, across all geographic markets and product categories, Macellari said. Sales in the April-June period jumped 15 percent compared to the first quarter, the finance chief said.
At constant exchange rates, sales in the first half would have increased 1.8 percent, to 486.1 million euros, or $534.7 million.
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Net income decreased slightly from the year-ago period to 50.4 million euros, or $55.4 million, compared with 56.2 million euros, or $78.7 million, as the tax rate rose to 32.6 percent, compared with 29.1 percent. This, Macellari explained, was due to “a different, and less favorable, mix of markets of generation of the result,” with a greater part of the profits obtained in countries with higher taxation.
The flagship Tod’s brand had sales of 304.4 million euros, or $334.8 million, up 4.9 percent in the period, but down 2.1 percent at constant currencies, and registered a significant acceleration in the second quarter (up 9.9 percent). The brand reported “positive results in all markets where [it] is distributed, with the exception of China, which continues to be affected by the overall weakness in consumer spending,” the company said after the close of trading in Milan, where Tod’s is listed.
Hogan revenues also increased with sales increases in all regions and with double-digit growth in Europe and in Asia. Meanwhile Roger Vivier’s revenues jumped 31.3 percent (or 19.2 percent at constant currencies) to 78.6 million euros, or $86.5 million, in part following the opening of new retail outlets and partially due to the brand’s continued appeal to Chinese and international consumers, Macellari explained.
Regarding the renewal of the Roger Vivier license, Macellari said he wouldn’t comment on the topic because “we are exactly in the period when these discussions can happen. These discussions can lead to positive results or not. I am not currently in a position to make statements on these activities.”
Speaking of the overall economic context, Macellari pointed to an improvement in the Italian market, still Tod’s single largest, where group turnover increased by 3 percent. Macellari said that since the beginning of the year, Italy “was in recovery, not quite an inflection point, but a bit more of spending, more consumer confidence and the results and performance of Italian stores are confirming our anticipations. This year all the Italian stores are giving a positive contribution.”
Looking at another key market, mainland China, Macellari said that the slowdown there is “much less visible and is going to become flat. In other words, it is still negative if still considered at constant exchange rates, but starting to be positive at reported rates,” which means demand in that market is starting to improve compared with the situation three to six months ago, he explained.
In Hong Kong and Macau, once strong markets for luxury goods, Macellari said that Chinese policies combating corruption and money laundering have reduced the flow of mainlanders and impacted sales in those two cities. “If one year ago we continued to think Hong Kong could be a region of the world, today we are considering Hong Kong a city of the world — a big city, an important city with a good, interesting market… [but one with] much less influence on any single brand in the luxury goods market.”
Macellari echoed other luxury industry executives in criticizing the rents situation in the city. Answering an analyst’s question, he said that rents remain high and attempts to lower them — despite the deteriorating economic situation for luxury brands in the city – continue to fail. He had made similar remarks during the first quarter conference call, even hinting there was a cartel situation there. While in some mainland locations rents have been renegotiated, in Hong Kong the situation was “incredible.” He said that “basically four companies…control this market” and that the only positive result Tod’s obtained were in two malls “where we obtained that the rent not be increased upon renewal of the contracts.”
Always in terms of geographic markets, Macellari said the Americas —where group sales increased 22.7 percent, or 6.1 percent at constant exchange rates — were boosted by favorable weather conditions and, clearly, exchange rates.
The first-half results showed how shoes remain the group’s strength, while leather goods and apparel were still lagging. Shoe sales grew almost 10 percent at current exchange, or 3.5 percent at constant currencies, while leather goods trailed with 0.7 percent growth and apparel sales decreased 0.6 percent in the period.
Asked about the company’s expectations for full year margins, Macellari said that he remained “comfortable” with the current consensus of revenues increasing by 5.4 percent, to some 1.08 billion euros, or $1.47 billion at current exchange, and earnings before interest, taxes, depreciation and amortization “in the range of 200 million euros [$218 million, at current exchange],” or about 19.8 percent of sales. “If the second part of the year is in line with our current expectations I think that these results can be met,” he said.