Tod’s To Slow Down Retail Expansion In 2016

Tod's Fall 2016 Shoes On The
Tod's RTW fall '16 runway collection.
Giovanni Giannoni/Fairchild.

Tod’s Group SpA is the latest luxury brand to scale back its store-opening program.

CFO Emilio Macellari said Monday, as the group reported its 2015 results, that Tod’s is “adopting a more cautious approach” toward expanding its retail  network and plans to open between 15 and 20 new locations this year, although the final number could be less because the company is considering closing a few stores, Macellari said. This compares to some 25 net new stores opened in 2015.

Hong Kong may be one location where the company reduces its presence, Macellari said. The city was the only one to report negative performance for the full year, the company said in its earlier 2015 full-year sales release. Despite its performance, rental costs remain high.

Asked if there were any decreases in rents in the city, Macellari said that despite continuous negotiations with landlords, the most positive result is that the company was able to renew some lease agreements without increases. He suggested that broader industry action was needed: “I think that until the brands will be acting together and sharing the same position with landlords, we will not have the possibility to obtain significant results” because landlords are convinced there is abundant demand for their locations. Macellari said this was partially true. Although he said he didn’t see much more demand from tier-one brands, there is an abundance of emerging/affordable luxury brands that are eyeing these locations.

Tod’s on Monday reported a slight decrease in net profit for 2015 as a result of higher operating and financial costs.

In a statement following the close of trading in Milan, where Tod’s is listed, the company said net profit in 2015 was 92.7 million euros, or $101.22 million, down from 97.1 million euros, or $129.9 million the year before.

Revenues reached 1.04 billion euros, or $1.14 billion, up 7.4 percent on the year earlier, on the back of global growth in the company’s retail and wholesale channels, combined with an acceleration in the last quarter of the year. At constant exchange, sales rose 1.8 percent.

Dollar figures were converted from the euro at average exchange for the periods to which they refer.

Commenting on the results, Tod’s chairman and chief executive officer Diego Della Valle said he believed that — along with the company’s having completed its product range — a strong attention to costs, enhancement of the digital presence and “good acceptance” of the summer collections now in store “will allow us to achieve good results also this year.”

The company said earnings before interest, taxes, depreciation and amortization edged up 4.7 percent on 2014, with a 19.5 percent margin on sales — “broadly aligned” with the year earlier. However, Tod’s said: “The annual results confirm what we have already commented on during the quarterly releases: the improvement of the industrial margin was more than offset by the higher incidence on sales of rents and labor cost,” in part due to a higher headcount (4,558 employees at end 2015 compared with 4,297 at the end of 2014).

During a conference call following the release of the results statement, analysts asked Macellari about the company’s order backlog so far in 2016 as Tod’s comes off a year in which like-for-like sales decreased by about 6 percent. Macellari said there were positive signs: “Clients we already met are launching orders that are higher than in the corresponding season of last year,” he said. “Like for like, orders coming from the same clients are in excess of what they were one year ago. This is why we are positive with expectations of our order backlog.”

Answering a question about the group’s performance — in numerical terms — since the beginning of the year, Macellari said: “At the very beginning of 2016 performance like for like was negative double digits and reflecting a worse performance than in the fourth quarter of 2015.” However, things have started to improve, he said. “With the beginning of the spring season we started by having positive performance of like for like….[So] year-to-date 2016 is negative slightly higher than the full year 2015; if 2015 was minus 6 percent, the beginning of 2016 is slightly higher than minus 6 percent.”

Speaking about current market trends, Macellari said there was “some slowdown” in China, the U.S. and Japan, while Europe remained stable. “This is how markets are performing right now.” He said the environment was challenging with visibility low “on what can happen week by week.” He cited a “weaker than expected” Chinese New Year impact — something he said was not exclusive to Tod’s.

As for the U.S., Macellari said: “When I say the U.S. market is challenging, I don’t think I am saying something different from other players on the market. Maybe due to exchange rate or reduction in the number of travelers, I think U.S. market performance has been weaker than it can potentially be. Then when I speak about Europe, that is stable compared to last year, I think if there is a surprise it will be more positive than negative because after the events of Paris last November we could have expected a worse performance in Europe because of less travelers, but performance was not that bad.”

Regarding currencies, Macellari said he expected the effect of exchange rates to be much lower in 2016 than last year, when currency tailwinds boosted the top line by some 43 million euros, or $47 million, and contributed some 110 basis points to EBITDA. He said that in 2016 currencies are likely to boost the top line by some 10 million to 20 million euros and EBITDA by 80 to 90 basis points.

Price point remains a key factor for Tod’s customers. “For the Tod’s brand there is not enough space for a bag priced 3,000 euros [$3,300] while there can be much more appetite for a Tod’s bag if the price is between 1,000 and 1,400 euros [$1,100 and $1,540],” Macellari said. “And in this particular segment is where we are collecting best results in terms of sales.” He said the company could make 10,000 euro [$11,000] handbags — in crocodile, for instance — but that “this is not exactly what the client is looking for…Basically, the lower-medium priced bags are doing much better than the highly priced kind,” he said.