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. For 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 of 2015.
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 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.
Asked about the digital strategy during a conference call with analysts, 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 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 re-assorting 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 2016’s first nine months, sales for the Tod’s brand declined 7.5 percent, to 419.4 million euros, or $465.5 million. The company attributed the decrease to 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 in the third quarter, though 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 leather goods and accessories, Macellari said he was “right” and that the company was “not happy” but saw a “half-full glass” and highlighted improving quarters throughout the year, emphasizing that the fall collections are 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 has not changed and that it drove the consumers’ attention to handbags in the price range of 1,200 to 1,400 euros, or $1,320 to $1,554, while continuing to offer entry-price products of around 800 to 900 euros, or $888 to $999, but “there has to be a relation with quality.” The company also offers bags retailing at from 1,700 to 1,900 euros, or $1,887 to $2,109.
Sales in Italy decreased 4 percent, to 243.9 million euros, or $270.7 million, dented by a slowdown in tourism in comparison with last year, when it was boosted 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 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 revenue growth 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 rate, known as SSSG, 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 in 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 higher 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 5 or 6 million euros [$5.5 million or $6.6 million].”