Salvatore Ferragamo Braces for Year of ‘Hard Work’ Ahead After 28 Percent Drop in Profits

The year 2017 has been one of transition for Salvatore Ferragamo SpA, and 2018 will be one of “hard work,” Eraldo Poletto, CEO of the Florence-based company, said Tuesday.

“We have to be stronger, do what’s right. There are a lot of things happening — big changes — and we have to be in sync with the changes,” Poletto said addressing analysts in a conference call as the group reported a 28.3 percent decrease in net profit, including a negative minority interest of 3 million euros, to 79 million euros, in the first nine months of the year. This compares with 110 million euros in the same period last year.

In the nine months, revenues decreased 0.9 percent to 1 billion euros, including a hedging effect, compared with 1.01 billion euros last year. At constant exchange rates, sales grew 0.2 percent. In the third quarter, sales were down 5.5 percent to 287 million euros due to the negative impact of currencies. At constant exchange rates, sales were up 0.5 percent.

Poletto spoke about making changes in the product offer, which follows the decision to appoint Paul Andrew, previously women’s footwear director, as women’s creative director in October, with Fulvio Rigoni leaving the company as a consequence. Asked about this reduced team, the executive said, “The idea is to have one aesthetic for women’s. Paul has shown amazing talent in identifying the Salvatore Ferragamotrends, codes, feelings and emotions. Someone is helping him with ready-to-wear, and we are presenting the new collection tomorrow in Florence. We are very pleased. The team has done a miracle in a very short period. There will be no disruption. This is a natural evolution from the shoe to the head of a woman. We are excited about this.”

Guillaume Meilland continues to helm menswear.

Poletto also emphasized the company’s investment in the leather-goods division, with the impact of a new designer, Francesca Murri, who joined in April and the hiring of 20 new employees “to go after the category, which is key” for Ferragamo, he said. “By the first or second quarter of 2018, we’ll be in a very good situation,” he added, speaking of the division. “We want things now, but it takes a bit of time.”

In the nine months, sales of these two categories were lackluster, with footwear posting a 1.2 percent decrease to 432.4 million euros, representing 43 percent of the total. Handbags and leather accessories were down 0.6 percent to 367.4 million euros.

Salvatore Ferragamo Paris Store Avenue Montaigne Reopening
Inside the Salvatore Ferragamo store.
CREDIT: Franck Mura/Fairchild.

Fragrances, boosted by the launch of two new scents, were up 3.2 percent to 64.7 million euros. Ready-to-wear decreased 0.9 percent to 61.8 million euros. Poletto said that after the focus on footwear and leather goods, ready-to-wear and men’s shoes will be next.

Earnings before interest, taxes, depreciation and amortization decreased 25.1 percent to 162 million euros, from 216 million euros, with an incidence on revenues down to 16.1 percent, from 21.3 percent, in the nine months of 2016.

Operating profit was down 32.2 percent to 115 million euros.

Poletto said the U.S. dollar exchange rate with the euro is “a big variable for us,” and emphasized the “cleaning up” strategy, with “full-price business essential to us.”

As of Sept. 30, the group’s retail network counted 687 points of sale, including 407 directly operated stores and 280 third-party-operated stores. The retail distribution channel was up 1.2 percent to 647.6 million euros. The company has been refurbishing some stores, but Poletto characterized this as “a light retouch, and not extensive, to implement visual and add a more homey feel.”

The wholesale channel, penalized by a destocking activity, the political tensions in South Korea and a strategic rationalization in Japan, was down 4.7 percent in the nine months to 340 million euros.

The Asia-Pacific area continued to be the group’s top market in terms of revenues, increasing by 2.8 percent to 370 million euros, despite the soft trend in South Korea, mostly due to the significant decrease of Chinese tourists. Poletto said Hong Kong was “still negative,” although the reopening of a refurbished store in Canton Road earlier this month is “showing good signs.” On the other hand, the retail channel in China climbed 8.1 percent in the first nine months of 2017.

Salvatore Ferragamo CEO Eraldo Poletto
CREDIT: Courtesy Image.

Europe was down 1.6 percent to 263.5 million euros, with a positive performance for the retail channel and a negative trend for the wholesale business, negatively impacted by the destocking activity.

Sales in North America decreased 4.3 percent to 231.8 million euros, negatively impacted by department store sales.

The Japanese market registered a 6.7 percent decrease to 86.6 million euros, due to the strategic rationalization of the wholesale channel, while retail stores recorded a stable performance.

Revenues in Central and South America continued to grow, registering a 3.1 percent increase to 52.7 million euros, decelerating in the third quarter due to the earthquake in Mexico in September.

Poletto also underscored Ferragamo’s online initiatives. A new website debuted in May in the U.S. and was launched on Monday in Europe and China. “This is good news, and by the end of 2018, it will be available in all other countries,” he said.

Investments reached 51 million, compared with 46 million euros in the same period last year, mainly channeled into the distribution center and the store network.

As of Sept. 30, the net financial position was positive at 100 million euros, compared with a debt of 18 million euros at the end of September 2016.

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