MILAN — Investments last year dented the Versace Group’s profitability, pushing it into the red on the back of increasing revenues — but the Milan-based fashion house expressed confidence in its strategy and growth potential.
In the 12 months ended Dec. 31, Versace registered a loss of 7.4 million euros, or $8.1 million, compared with a profit of 17.2 million euros, or $19 million, in 2015.
However, last year sales rose 3.7 percent to 668.7 million euros, or $735.5 million, compared with 645 million euros, or $709.5 million, in 2015.
“In a market context that is picking up, although with significant regional exceptions, the group has continued in the first months of 2017 to improve its organization to develop the brand and the company’s sales while rationally controlling costs,” Versace said in its annual balance sheet deposited at Milan’s Chamber of Commerce, adding that flexibility, being proactive and reacting quickly, as well as careful management, allowed the company to optimize its resources. “In 2017, sales are expected to grow with a progressive increase in margins in the wake of focused actions on the industrial, commercial and logistics fronts and a rational management of operative costs,” the company said.
All product categories and channels performed well.
Versace’s own stores have for some time been the engine behind the brand’s growth. Last year, retail sales totaled 418.1 million euros, or $460 million, up 4.4 percent compared with 2015, representing 62.5 percent of total revenues. At the end of 2015, the company had 242 directly operated stores and in 2016 Versace continued to expand its network with the opening of 38 units, of which 29 were full price. Nine of the full-price venues were dedicated to Versus. Nine outlets also opened last year.
Eighteen stores opened in Asia Pacific, six in Europe, two in North America and three in Japan, in cities ranging from Lisbon, Brussels, Shanghai and Hong Kong to Macao, Boston and Chicago. Four new stores opened in the first quarter of 2017.
Wholesale sales rose 2.1 percent to 199.1 million euros, or $219 million, representing almost 30 percent of revenues.
Royalties and the interior design division grew 4.2 percent to 51.5 million euros, or $56.6 million. Versace brought production of its home collection in-house last year.
In 2016, the company completed the repositioning of the Versus brand. In April last year, Anthony Vaccarello, who had been nominated creative director of the brand, parted ways with the company to join Saint Laurent. In September, the collection was designed by Donatella Versace and her team and presented in London.
The company noted it had also invested in e-commerce, a channel that grew “very positively” last year, it stated.
By geographic markets, the Asia-Pacific area helped boost Versace’s performance last year, with sales growing 8.8 percent to 253.6 million euros, or $279 million.
The Europe, non-EU countries, Russia, Middle East and Africa region was stable, edging down 0.3 percent to 297.9 million euros, or $327.7 million.
Revenues in North America were up 2.5 percent to 105.1 million euros, or $115.6 million.
Sales in Japan, a country Versace reentered in 2015 after pulling out in 2009, doubled to 6.2 million euros, or $6.8 million, from 3.1 million euros, or $3.4 million, in 2015.
In the year, earnings before interest, taxes, depreciation and amortization were almost halved to 44.3 million euros, or $48.7 million, compared with 81 million euros, or $89.1 million, in 2015.
“Despite the ongoing search for synergies on the industrial front and a rational containment of operating costs in view of growth, a limited commercial development following a general slowdown of the sector combined with some non-recurring costs connected to some changes in the organization determined the decrease in EBITDA,” explained the company.
Operating profit shrank to 3.6 million euros, or $4 million, compared with 42.6 million euros, or $47.3 million, in the previous year.
At retail, the apparel division saw a 5.3 percent uptick in sales to 221.7 million euros, or $243.8 million, while at wholesale the category grew 0.7 percent to 126.6 million euros, or $140 million. At retail, accessories increased 3.3 percent to 179.7 million euros, or $197.6 million, while at wholesale they grew 11 percent to 61.4 million euros, or $67.5 million.
“Accessories are an opportunity the group is pursuing with a precise development strategy based on all of the marketing mix levers (product, price, communication and distribution).” The company said it expected to see results “in the near future,” based on the investments in resources, organization and know-how.
Operating costs totaled 629.9 million euros, or $693 million, compared with 569.2 million euros, or $631.8 million, in 2015.
In the report, the company said the growth in revenues was “not enough to entirely absorb the increase of operating costs connected to the development of the network and to the non-recurring costs linked to the changes in the organization.”
Dollar figures were converted from the euro at average exchange rates for the periods in question.
Investments were mainly channeled into the retail division and totaled 45 million euros, or $49.5 million, largely funded by internally generated resources. “To position the business for robust growth in the years ahead, the company undertook extensive management changes,” the firm said. “With a new management team and a clear strategy, Versace continues to invest in the brand, product, distribution and communication. We are confident that we are well-positioned to leverage the immense opportunity of this iconic brand.”
In May 2016, Versace went through a management shake-up, bringing in former Alexander McQueen chief executive officer Jonathan Akeroyd to lead the company, succeeding Gian Giacomo Ferraris.
At that time, Donatella Versace said Akeroyd was “a strong and savvy brand-builder with deep roots in retail, men’s wear and licensing, which will be important to the company as we increase our global reach.”
That wasn’t the only major change mooted at the house, however: Versace had been in talks since early this year with Riccardo Tisci about joining the company. However, as reported last month, sources say the deal hit a snag and talks between the former Givenchy designer and Donatella Versace have broken down.
Versace is also said to be edging toward an initial public offering, with Ferraris saying in 2015 that its process had started, although there was no time frame set, except for the three- to five-year range first cited in 2014.
In 2014, Blackstone Group bought a 20 percent stake in Versace through a capital increase of 150 million euros, or $205.8 million, and acquired shares for 60 million euros, or $82.3 million, in stock from GiVI Holding SpA. The deal valued the company at 1 billion euros, or $1.38 billion, to accelerate its development with the goal to publicly list the firm in three to five years. The Versace family holds the remaining 80 percent.
In 2016, employees totaled 2,532 compared with 2,351 in 2015.
The company reported a negative financial position of 8.5 million euros, or $9.3 million, compared with a positive 6.5 million euros, or $7.2 million, in 2015.