Tod’s Group To Scale Back Store Openings, Focus on Digital in 2017

MILAN — Tod’s Group SpA said it will continue to scale back on store openings in 2017.

As the group reported its 2016 results Tuesday, chief financial officer Emilio Macellari said that Tod’s plans to reduce the number of store openings to between nine and 13 new stores in 2017, versus a net number of 15 openings in 2016 and 25 in 2015. The group said it will close about four to six existing stores in 2017.

“Mainland China is finally rebounding compared to a very bad situation in the last couple of years,” Macellari said. Earlier this year, the group said Hong Kong sales pulled down the rest of the Chinese market.

The Sant’Elpidio A Mare-based group, which is home to the Roger Vivier, Fay and Hogan brands, reported a decrease in net profit and margins for 2016 as a result of the purchase of the Roger Vivier brand in 2016 and a rise in labor costs, as the average number of employees rose to 4,514 in 2016, compared to 4,464 of 2015.

In a statement following the close of trading in Milan, where Tod’s is listed, the company said net profit in 2016 was 86.3 million euros, or $96.1 million versus 92.7 million euros, or $101.22 million the year before.

The company said earnings before interest, taxes, depreciation and amortization also dipped, with an 18 percent margin on sales in 2016, compared to 19.5 percent margin on sales in 2015.

In terms of revenues, Tod’s SpA confirmed preliminary sales figures.

In the 12 months ended Dec. 31, sales fell 3.2 percent to one billion euros, or $1.1 billion, compared with 1.03 billion euros, or $1.14 billion, in the previous year due to a slowdown in tourism traffic.

At constant exchange rates, including hedging, sales were down 3.8 percent.

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

By market, Italy showed a 3.5 percent drop to 311.5 million euros, or $342.6 million.

In the rest of Europe revenues edged up 0.6 percent to 250 million euros, or $275 million.

The performance in the Americas was hurt by a drop in tourism and sales were down 8.4 percent to 96.7 million euros, or $106.3 million. Greater China sales fell 6.8 percent to 210.3 million euros, or $231.3 million.

In the “Rest of the World” area, sales inched up 0.9 percent to 135.5 million euros, or $149 million. South Korea registered a solid double-digit revenues growth and Japan was broadly flat compared to last year, despite a very challenging comparison basis.

Commenting on the results, Tod’s chairman and chief executive officer Diego Della Valle said the group is highly focused on organic growth of the existing stores and on the opening of some “new generation stores,” which he said would offer a “new shopping experience.”

“The style department has undertaken some changes, necessary to implement the new strategic plan,” Della Valle added.

Tod’s has been working on enhancing the in-store experience.

During Paris Fashion Week, for example, the group celebrated Tod’s Tattoo, a collaboration between the Italian leather-goods brand and well-known tattoo artist Saira Hunjan on a capsule collection of handbags and shoes.

First unveiled in London last September, the tie-up was celebrated with a pop-up space in the brand’s Paris flagship, complete with the U.K.-based artist’s designs on the walls, in time for fashion week.

During a conference call following the release of the results statement, analysts asked about forex headwinds in 2017. Macellari said forex had a positive impact in 2016 while in 2017 the impact is expect to be only slightly positive on revenue and neutral or slightly negative on margins.

Answering a question about the group’s performance — in the first few months of 2017, Macellari said: “We are very happy with the performance of leather goods this year.  In the first quarter of the year, a positive trend was confirmed … a bit improved compared to the fourth quarter of last year.” Macellari added that the Mainland China market is finally beginning to show signs of improvement.

The group echoed its message regarding the effect of its commerce business.

Della Valle emphasized the development of the group’s digital division, which he said will be more and more, “a key factor of success.”

E-commerce represents 3 to 4 percent of sales for Tod’s Group, which compares to 4 to 5 percent on average for the luxury goods sector as a whole.

“As far as e-commerce is concerned, our structure will become even more efficient, ready to catch all the opportunities that the market will offer,” Della Valle said.

Looking ahead, Macellari said he is confident that the group will not disappoint analysts in 2017 due to improved sales performance and cost efficiencies. Consensus sees of 3.5 percent in 23017, which is in line with Tod’s forecast.

Tod’s Group proposed a dividend of 1.70 euro on 2016 earnings, down from 2 euro that it paid on 2015 earnings.

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