Ferragamo’s 2017 Agenda Includes Store Revamps, Digital Focus

The year 2016 closed with a 17 percent rise in net profits at Salvatore Ferragamo SpA, but CEO Eraldo Poletto was focused on 2017 during a conference call Tuesday with analysts, ticking off a number of new initiatives and strategies mapped out for the rest of the year.

Poletto touted “a new global and local, or glocal approach for buying; up to 50 percent of products should be tailored locally within a uniform brand identity, reinforced by marketing, visual and customer care.”

He also pointed to a seasonal merchandising mix, with buy-now, wear-now products. Poletto is masterminding changes in the group’s store concept, hinging more on “cross merchandising,” with products “not organized by compartment, and with more fun, visual compositions.”

Physically, the stores will have less furniture, new visual merchandising displays , touches of color and be more flexible. Changes have already been made to stores in London, Paris, Milan and Florence, Italy, while New York and Ginza are currently being renovated.

The executive also highlighted Ferragamo’s “digital mindset,” and a “strong push on content to create excitement.” The company has redesigned a new, user-friendly e-commerce platform to be first launched in the U.S. in May and then be rolled out to other countries in the next 12 months.

In 2016, net profits climbed to 202 million euros, or $222.2 million, compared with 173 million euros, or $192 million, in 2015, lifted by the cumulated 2015-16 benefits of the agreement reached for the “Patent Box,” a tax break related to intellectual property rights. Taxes in the year totaled 47 million euros, or $51.7 million, compared with 77 million euros, or $85.4 million in 2015, with a tax rate of 19.3 percent compared with 30.6 percent in 2015.

As reported at the end of January, revenues were up 1 percent to 1.44 billion euros, or $1.58 billion. Sales in the last quarter accelerated, gaining 4 percent.

This acceleration continued in 2017, with like-for-like sales in the first 11 weeks of the year, showing positive signs. “We expect a low, single-digit growth in like-for-like in 2017,” said Poletto.

Asked about 2017, Poletto said the U.S. was “softer after the holiday season,” while China was “positive, with Mainland China very good and encouraging. Hong Kong was on the soft side, though there are signs that the Chinese are going back and Macao was not so bad.” Poletto was also pleased with like-for-like business in Japan and Europe and said that Latin America was performing “very well.”

Salvatore Ferragamo Paris Store Avenue Montaigne Reopening
The Salvatore Ferragamo store on Avenue Montaigne in Paris.
CREDIT: Franck Mura/Fairchild.

Responding to analysts, CFO Ernesto Greco said that the impact of foreign exchange rates in 2017 would be “negligible” and that the company was not looking at increases in pricing. “Rather, a different price range within the collection,” said Poletto.

In 2016, earnings before interest, taxes, depreciation and amortization were stable at 324 million euros, or $ 356.4 million, with an incidence on revenues of 22.5 percent

Operating profit decreased 1 percent to 261 million euros, or $287.1 million.

As of Dec. 31, the group counted 683 points of sale, and 402 directly operated stores, while the wholesale and travel retail channel included 281 third-party operated stores as well as the presence in department stores and high-level multi-brand specialty stores. Poletto said the company planned the opening of around 16 stores in 2017.

In the year, the retail channel was up 2.3 percent to 912.3 million euros, or $1 billion.

The wholesale channel decreased 2.1 percent to 552.8 million, mainly dented by the negative performance of the U.S. market. However, the last quarter showed a 3 percent gain.

Sales of footwear grew 1.7 percent to 611.1 million euros, or $672.2 million, while leather goods were flat, totaling 529 million euros, or $582 million. Poletto emphasized a focus on the two categories going forward, with a “recognizable, very strong brand identity.” He reiterated that a designer in charge of leather goods will join the company “very soon.”

Shoes designed by Paul Andrew, design director of women’s footwear, will hit stores in April. Sales of apparel increased 0.6 percent to 93.5 million euros, or $102.8 million. Former creative director Massimiliano Giornetti exited the firm in March and was succeeded by a trio of designers: Andrew; Fulvio Rigoni, women’s ready-to-wear design director and Guillaume Meilland, men’s ready-to-wear design director.

Salvatore Ferragamo ready to wear fall 2017
Salvatore Ferragamo fall ’17 collection.
CREDIT: REX Shutterstock

Fragrances grew 0.5 percent to 88 million euros, or $ 96.8 million, with an 11 percent rise in the last quarter.

The Asia Pacific area once again was confirmed as the group’s main market, representing 36 percent of total and gaining 1.1 percent to 521. 7 million euros, or $573.8 million.

Europe was down 4.3 percent penalized by lower tourist flows in the wake of the terrorist attacks and represented 25.2 percent of total sales.

North America was also impacted by a slowdown in tourists, caused by the strong currency, but showed a 4 percent increase in the year. In the last quarter, sales climbed 7 percent lifted by the good performance of the retail business, which was up by 10 percent. Sales in the region in 2016 totaled 348.3 million euros, or $383.1 million.

Sales in Japan decreased 0.5 percent but were up 3 percent in the last quarter. The country accounted for 8.8 percent of total. A new CEO for the region, Carlo Gariglio, joined on March 1. “This is a very important market for us,” said Poletto.

Revenues in Central and South America grew 6 percent in the year, representing 5.4 percent of total and showing a 12 percent acceleration in the last quarter.

Capital expenditures totaled 74 million euros, or $81.4 million, compared with 80 million euros, or $88.8 million, mainly attributable to investments in the group’s retail network, in addition to logistics enhancements and digital projects.

For 2017, capital expenditures are expected to total 90 million euros, or $99 million, said Greco.

As of Dec. 31, net debt stood at 8 million euros, or $ 8.8 million, compared with 10 million euros, or $11.1 million at the end of December 2015.

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