Salvatore Ferragamo Posts $154M Nine-Month Profit

MILAN — Salvatore Ferragamo SpA reported solid growth in the first nine months of 2014, although its bottom line was dented by a capital gain last year.

The Florence-based group said net profits in the first nine months of the year dropped 5 percent to 114 million euros, or $154 million, including a minority interest of 4 million euros, or $5.4 million, compared with 120 million euros, or $157.2 million, in the same period last year. However, the latter figure included a capital gain of 13 million euros, or $17 million, derived from last year’s sale of the firm’s stake in ZeFer to the Ermenegildo Zegna group. If that capital gain were excluded, profits would have increased 6 percent.

Buoyed by the performance of its handbags, leather goods and footwear collections as well as its solid growth in the Americas, Europe and the Asia-Pacific region, revenues rose 5 percent to 957 million euros, or $1.29 billion, compared with 915 million euros, or $1.19 billion, last year. In the third quarter, revenues rose 3 percent to 298 million euros, or $402.3 million.

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“The market is still challenging and very volatile, with all geographies facing unusual events,” chief executive officer Michele Norsa told analysts during a conference call on Thursday. “The upside is that our shoes and leather goods categories are showing growth. They are resilient and adaptable to travelers, [who] are more and more important.”

He conceded, “Terrorism, the risk [felt] in shopping malls and concerns about health problems created an inconsistent flow in the nine months, but we reported a solid growth and can see confidence in consumers.” Citing travel retail as an example, he noted that international traffic was up 5 percent in September. “The exchange rate is improving in the second part of the third quarter, and we expect the momentum to last,” said Norsa.

In the nine months ended Sept. 30, sales of handbags and leather goods were up 11.8 percent to 335.8 million euros, or $453.3 million. Norsa noted that belts were best-selling items “for offer, pricing and quality.” Small leather goods were bestsellers within the bags category. The company has increased the prices of bags to 2,200 or 2,400 euros from 1,200 or 1,500 euros, but it added opening prices. It also fine-tuned bags “more oriented to Asians in terms of shapes and colors,” adding potential to the category.

Footwear was up 3 percent to 411.2 million euros, or $555.1 million. Together, the two categories represented over 78 percent of total revenues. Apparel dropped 8.1 percent to 67 million euros, or $90.4 million. Fragrances rose 1.1 percent to 64.7 million euros, or $87.3 million. Chief financial officer Ernesto Greco said, “The ruble devaluation affected fragrances, and wholesalers are waiting for the new fragrance, Emozione — out in 15 days.” In the full year, he said he expected “high-single-digit growth” for fragrances.

Dollar amounts are converted at the average exchange rate for the periods to which they refer.

Despite the general market uncertainties, Norsa said reasonable projections justify “a fourth quarter in line with the nine months and up 5 percent.”

In the first nine months, the Asia-Pacific region continued to be the group’s main market, growing 4.6 percent to 353 million euros, or $476.5 million. This growth was driven by China’s retail channel, which was up 16 percent in the period. “China is still a major booster,” said Norsa, observing that the region shows the most potential. “Beijing and Shanghai are still suffering, but we continue to see a very strong growth in second- and third-tier cities — in some cases, [with an increase rate in the] very high double digits.”

Protests in Hong Kong, which accounts for about 6 or 7 percent of sales, impacted both local and traveling customers, but Norsa was confident the city could be “very positive for the end of the year. Things are easing. From what I hear, it may be a matter of the next few days or hours.” Macau is “always positive,” while Thailand and Malaysia are “tough,” he offered.

Europe was up 7 percent to 264 million euros, or $356.4 million, penalized by both the ongoing geopolitical tensions — global tourist flows were negatively impacted, as evidenced by, especially, a diminished number of Russians, Norsa pointed out — and the ongoing lackluster economy, which has been a drag on local spending. However, the executive said tourism from Asia is growing, and shoppers from Russia and Ukraine “are coming back — apparently more recently, not in the third quarter.”

Sales in North America climbed 4.4 percent to 213.5 million euros, or $288.2 million. At constant exchange rates, they were up 6.7 percent in the region. Norsa cited increased spending on the West Coast from Asia and Canada, in particular.

The Japanese market was down 3.6 percent to 83.5 million euros, or $112.7 million, but up 3 percent at constant exchange. “The recovery in Japan was less than expected,” said Norsa, eyeing a positive fourth quarter.

Revenues in Central and South America were up 7.8 percent to 42.5 million euros, or $57.3 million, but would have risen 11.9 percent at constant exchange. Norsa characterized Mexico as “volatile, but with a positive outlook,” Brazil is “not as brilliant from the World Cup but has potential,” while Argentina is “negative, but still small numbers.”

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