MILAN — A slowdown in tourism and weak consumer spending in the luxury market, along with lackluster performance in its leather goods category dented Tod’s SpA revenues in the first nine months of the year. In the period ended Sept. 30, consolidated sales were down 3.7 percent to 757.7 million euros, or $841 million, compared with 786.9 million euros, or $873.4 million, in first nine months last year.
At constant exchange rates and including the related effects of hedging contracts, sales would have decreased 4.4 percent to 751.9 million euros, or $834.6 million.
“As expected, the sales figures for the nine months reflect a volatile and uncertain economic and financial environment, characterized by the persistent weakness of consumption in many important markets for luxury goods,” said Diego Della Valle, chairman and chief executive officer. “The fall season started only in the second half of September; the collections now in stores are registering positive feedback. Customers appreciate the focus on high-quality products, shoes, handbags and small leather goods in the first place, all of them well reflecting the craftsmanship, the Italian way of life and the strong innovation that characterize our brands. We think to be in the right direction in our strategic growth plan for the coming years and we are continuing with determination on this road. We remain focused on organic growth of the stores, accompanied by a selective and prudent strategy of network development, limiting ourselves to few openings and to special projects. We attribute also great importance to the wholesale channel, which is evolving continuously and which we carefully monitor in order to react to its dynamics. We continue to invest in communication and in marketing, with the same investments as in the past years, giving particular emphasis to digital. To implement our plan, we are hiring, as we did in the past, people with the necessary characteristics, in particular from a stylistic and marketing perspective. We are also maintaining a strong attention to operating cost control. We are therefore confident on the performance of the last part of the year and on the group’s future results.”
The company, which is publicly listed on the Milan Stock Exchange, is no longer expected to release earnings in the quarter, as per a recently introduced regulation.
In a conference call with analysts, asked about the digital strategy, chief financial officer Emilio Macellari said the comments were made “more about digital as a channel of communication rather than of distribution. We are growing and improving it as a distribution, but it represents a very limited part of our turnover. Online is below 2 percent even if it is growing.” He said the group is “learning to communicate with clients,” and setting up “different initiatives, fine-tuning a different approach.” He pointed out that stores are reassorting collections every two months. “The Internet is making things old very soon. Today, according to expectations, we should change collections in stores every week. That is not possible, but we can do so every couple of months, adapting distribution and offer to the market.”
In the nine months, sales of the Tod’s brand declined 7.5 percent to 419.4 million euros, or $465.5 million. The company attributed the decrease to the weakness in consumption in major markets for luxury goods, mainly due to the sharp decline of tourist flows. Hogan sales were down 2.8 percent to 171.9 million euros, or $190.8 million, hurt by the weakness of the Italian market, also accentuated by the sharp decline in tourist flows, driven in 2015 by the holding of the Expo in Milan. Revenues of the Fay brand were up 4.1 percent to 45.5 million euros, or $50.5 million, lifted by strong results in the Asian markets, which grew in the double-digits. Roger Vivier revenues grew 6.9 percent to 119.8 million euros, or $133 million, accelerating the third quarter, although its performance was dented by a slowdown in the U.S.
Dollar figures were converted from the euro at average exchange for the periods to which they refer.
The group’s core footwear category saw a 2.9 percent decrease to 603.3 million euros, or $669.6 million. Sales of leather goods and accessories dropped 10.3 percent to 103.8 million euros, or $115.2 million, showing a slight improvement in the third quarter. Sales of apparel inched up 0.9 percent to 49.5 million euros, or $55 million. When one analyst pointed to the “poor performance” of the leather goods and accessories, Macellari said he was “right,” and that the company was “not happy” but looked at the “half full glass” and highlighted improving quarters throughout the year and emphasized that the fall collections were still being delivered. “The fourth quarter should be even better in our expectations, and much better than the first quarter.”
Responding to one analyst asking about best-selling footwear styles, Macellari said casual and “sporty” shoes and sneakers in line with the current trend were “liked the most.” He said that even a Roger Vivier sneaker at the “crazy price” of 1,000 euros, or $1,110, “but coherent” with the brand’s positioning, was “very successful and sold out in some stores.”
Discussing price positioning, Macellari said the group’s strategy had not changed and that it drove the consumers’ attention to handbags in the price range between 1,200 and 1,400 euros, or $1,320 and $1,554, while continuing to offer entry price products at around 800 to 900 euros, or $888 and $999, but “there has to be a relation with quality.” The company also offers bags retailing at between 1,700 and 1,900 euros, or $1,887 and $2,109.
Sales in Italy decreased 4 percent to 243.9 million euros, or $270.7 million, dented by a slowdown in tourism, also in comparison with last year, driven by the Milan Expo. In the rest of Europe, revenues were flat, down 0.7 percent to 188.3 million euros, or $209 million, hurt by a decline in tourist traffic in France and the U.K. In the Americas sales decreased 6 percent to 69.5 million euros, or $77.1 million, dented by weak tourism. Revenues in Greater China were down 8.9 percent to 152.9 million euros, or $169.7 million, almost entirely due to the weakness in Hong Kong and Taiwan, while mainland China, which represents slightly more than half of this region, is showing some signs of improvement. The “Rest of the World” area saw sales gain 1.6 percent to 103.1 million euros, or $114.4 million. In particular, the company highlighted a solid double-digit growth of revenues in Korea.
In the first nine months of 2016, sales through directly operated stores were down 6.1 percent to 453.6 million euros, or $503.5 million. The Same-Store Sales Growth, known as SSSG, rate, calculated as the worldwide average of sales growth rates at constant exchange rates was down 14.6 percent, entirely attributable to the months of July and August and linked to weakness of consumption of luxury goods. Starting from September, the figure is better; the positive trend is continuing in the current month of October.
Macellari said the company had seen an improvement in like-for-like sales in three areas in the last quarter: in the U.K., after the Brexit vote, with the pound “more attractive, not immediately after the vote,” but beginning in August and September; in mainland China, “much better from September, with the Chinese spending more at home,” and in the U.S., with more domestic consumer spending.
As of Sept. 30, the group counted 266 directly operated stores and 103 franchised stores, compared with 255 and 95 at the end of September last year. Revenues to third parties were stable, totaling 304.1 million euros, or $337.5 million.
Macellari said that “provided the more recent trend remains as today, I can confirm the consensus figure for our top line, down 1.7 percent. This implies that the fourth quarter should be positive at around 4 percent.” He also said the earnings before interest, taxes, depreciation and amortization margin consensus of 18 percent is “challenging but if the last quarter is as strong as expected it is doable and achievable.”
Asked about foreign exchange rates going forward, Macellari said they will “positively contribute to the top line by around five or six million euros [$5.5 or $6.6 million].”