Tod’s Revenues Slip as Company Works Toward Returning to Old DNA

Tod's presentation, fall 2017
Tod's fall '17 collection.
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The fashion route did not pay off and Tod’s SpA has been changing its course, returning to its core accessories category as it aims to improve its business.

This is one of the significant takeaways from the conference call held on Friday, after the Italian luxury group reported a 4.4 percent decline in revenues in the first quarter of 2017.

“It’s not a secret we had to face difficulties on the market, and China has now recovered, as it has for our peers, but we are getting out of a problem with a strategy that started years ago with the fashion component,” chief financial officer Emilio Macellari said candidly after he was challenged by one analyst, who questioned Tod’s failure to see a pickup in the period compared to other luxury groups.

Macellari said that “under the responsibility of [creative director of Tod’s women’s collections Alessandra] Facchinetti, there was too much fashion for our old customer and not enough for our new one. Now we are returning to our strategy of being more consistent with our DNA and heritage, and we see the same old client come back to the stores, as interested as before, with a very strong product. The spring/summer collection was the first to be designed by a factory of talents,” explained Macellari. (Facchinetti exited the company a year ago.) “It’s only a matter of time to convey the right message. We are experiencing a positive trend, and week after week, we see signs of improvement.”

He underscored that the fall/winter collection is even stronger than the spring/summer one, which is already garnering a good consumer reaction. “We need our time to get where the market expects us to be. This means we are not wasting time, not waiting and hoping, but consistently acting, doing our homework and reinforcing our product. The success of our bags is showing that we are in the right direction.”

In the three months ended March 31, the group reported revenues of 238.5 million euros, or $252.8 million, compared with 249.6 million euros, or $274.5 million, in the same period last year. The performance was mainly affected by weakness of the wholesale channel in Europe and the U.S., and also dented by a slowdown in tourism seen in Hong Kong.

“First-quarter sales figures show the improvement in the trend registered in our stores, the strong acceptance of leather goods in the spring/summer collections and the outstanding results of the brand Roger Vivier,” said chairman and CEO Diego Della Valle. “Furthermore, they show some weakness in the wholesale channel, also due to the conservative approach to credit risk management taken in some countries.” Macellari explained that, rather than shipping products to some wholesale accounts that have issues with payments, the company prefers to reassert its own stores or divert them online or to outlets.

“Following our strategic plan, we are in the process of completing the investments needed to face the important changes that are taking place in our industry. In particular, we are strengthening the management team by hiring some new important members, to reinforce our communication and digital areas,” said Della Valle. “We are continuing the strengthening of e-commerce, which we consider more and more strategically important for the future of our group. We are also setting up our organization to produce more collections during the year, and we are adding some ‘new generation stores’ to offer customers totally new shopping experiences. We believe that our fall/winter collections are particularly attractive and innovative, without losing their quality, craftsmanship and Italian lifestyle, and we are expecting a great feedback from our customers. Based on the above considerations, we look to the future of our group with great confidence.”

By brand, in the quarter, Tod’s posted a 6.7 percent decrease in sales, to 123 million euros, or $130.3 million, mainly due to the performance of shoes, but also affected by a different timing of deliveries. Hogan was down 11.5 percent to 59.4 million euros, or $63 million, mainly hurt by the weakness of the Italian market, in particular in the wholesale channel. Revenues for the Fay brand were in line with the same period last year, totaling 14.6 million euros, or $15.4 million.

Asked by an analyst about the intentions for Hogan and Fay, Macellari said the group is working at curbing the exposure of the two brands to the Italian market. Hogan has already started to be more international “but not aggressively, not unreasonably,” he said. “The next step is to strengthen distribution and penetration abroad in new markets. Fay is a step behind compared with Hogan.” Macellari emphasized that Hogan was a pioneer in the popularization of sneakers, “when others didn’t even know what it meant. It can be a starting point to strengthen abroad. Hogan will be first and then Fay, but step-by-step, consolidating gradually.”

On the upside, Roger Vivier sales climbed 15.6 percent, to 41.3 million euros, or $43.7 million.

By product, footwear was down 5.1 percent, to 190.2 million euros, or $201.6 million, hurt mainly by the wholesale channel. Sales of leather goods and accessories decreased 1.5 percent, to 32.4 million euros, or $34.3 million. Apparel dropped 1.6 percent, to 15.7 million euros, or $16.6 million.

Sales in Italy were down 8.7 percent, to 79.4 million euros, or $84.1 million, impacted by the wholesale channel, mainly in provincial cities. In the rest of Europe, revenues decreased 3 percent, to 57.3 million euros, or $60.7 million, also dented by the wholesale channel.

In the Americas, sales were down 15.7 percent, to 16.8 million euros, or $17.8 million. Macellari spoke of “difficulties in U.S. department stores and an unforeseen reduction of wholesale. Years ago, the perception was that we were too casual in the U.S., and a bit expensive for being casual. After a good job of PR and communication, we think the perception is more coherent with the brand, and the same as in other regions of the world. VIPs and testimonials are reinforcing the message, and we have a made in Italy, quality and reliable product, not linked to fashion trends and with a very limited risk of becoming obsolete. In this market, for sure we can do more, but I do not think we have a problem with brand perception.”

Revenues in greater China totaled 50.3 million euros, or $53.3 million, up 3.6 percent. All the countries of this area achieved positive results, except for Hong Kong, which remained negative, even if with a lower decrease than in past years. “Hong Kong is starting to be a bit more attractive, but it is not yet positive for us. We still have a negative like-for-like,” said Macellari.

In the Rest of the World area, the group’s sales were 34.7 million euros, or $36.7 million, down 1 percent. Japan and Korea, which are the main countries for the group in this area, were up positive single digits, while Singapore and some Middle East countries were negative, said the executive.

Sales through directly operated stores edged down 0.2 percent, to 136.8 million euros, or $145 million.

The Same Store Sales Growth (SSSG) rate, calculated as the worldwide average of sales growth rates at constant exchange rates, was down 3.2 percent in the period, which Macellari defined as positive since the last months of 2016. “Like-for-like is still negative, but much lower than last year,” contended Macellari. “I am not allowed to give numbers, but I am even happier after the end of March. By the end of the year, this minus should not be there.”

As of March 31, the group counted 274 directly operated stores and 107 franchised stores, compared with 260 DOS and 100 franchised stores at the end of March last year. Macellari said the company was planning to open between 13 and 15 stores in the year, with three or four closures of units that “are under our investigation.”

Revenues to third parties decreased 9.5 percent, to 101.7 million euros, or $107.8 million.

Macellari admitted that the consensus was “a bit challenging. It’s important to understand that this is in line with our plans. It is less about the semester or the quarter and more about the long-term plan. The increase in casualization and athleisure offers an opportunity to capture market share.” Asked about price positioning, Macellari said there were no changes. “We could be more expensive but due to not an easy environment, we prefer not to upset our consumer. Maybe in a couple of years, this strategy will repay us and we could get extra contribution from a price increase.”