Tod’s Banks on New Strategy to Drive Revenues as It Reports Stalling Q1 Results

Tod’s Diego Della Valle is banking on the new strategy he has recently set in motion to “achieve excellent results in a reasonable time frame.”

While revenues in the first quarter were affected by bad weather, currency fluctuations and a weak Italian market, the chairman and CEO of the Italian luxury group said Wednesday that the results in the period were in line with expectations “since the new business model’s effects cannot be visible yet. We are in the process of implementing the new plan, and all the people involved are working hard. We are consistently pursuing our goal of keeping the quality of our products at the highest possible levels, with an increasingly strong creative component. Regarding our distribution, we are transitioning to a new omnichannel model, aimed at connecting seamlessly both our stores and our fast-growing e-commerce. We are strengthening the marketing and communication teams to effectively seize all the new opportunities arising from the digital arena.”

In February, Della Valle said he was reinventing his company’s business model and launching a new project called Tod’s Factory — a reference to Andy Warhol. It will drop collections throughout the year in the form of capsules and limited editions in collaboration with individuals and friends of the house — in line with other luxury brands, from Givenchy to Moncler. The executive at the time declined to provide additional details about the designers but said the first such collection would launch in June or July.

“Our manufacturing sites are best-in-class for quality and flexibility: They can be efficient in product customization and capsule collections production, both required processes to effectively satisfy new consumers’ needs all over the world,” said Della Valle in commenting on the first-quarter results.

In the three months ended March 31, the group’s sales decreased 5.2 percent to 226 million euros ($270 million), compared with 239 million euros in the same period last year. At constant exchange rates, revenues were down 1.8 percent to 234 million euros, including the related effects of hedging. The impact of currencies hurt the Tod’s and Roger Vivier brands in particular in light of their international presence.

During a conference call with analysts on Wednesday, chief financial officer Emilio Macellari emphasized that the first-quarter results were “not meaningful”  and that the effects of the spring collection could be more visible in the second quarter, which is more skewed to retail, compared with the first one.

“Most of the effects of what we are doing will be visible in the second part of the year,” said Macellari, echoing Della Valle. “We are building the company of the future. We are less interested in the quarter; we are focused on the midterm, longer time period. Obviously, we are not expecting the effects of the plan to be visible after three or six months. This kind of change is historical. We changed the organization of production, from seasonal to monthly or once every two months at least, for new products to be injected in stores. It cannot be done all at once or deliver results in a short time frame.”

Macellari also said that communication with customers has changed, from traditional magazines to digital, with the addition of new jobs and the reinforcement of the team. “We are confident we are in the right direction, and we are happy with the indications and results that we see,” he said.

Tod’s has seen changes and a shakeup in its management ranks, too. Umberto Macchi di Cellere, previously managing director of worldwide sales for all product categories for the Bulgari brand, joined the group as managing director, succeeding CEO Stefano Sincini, who left after 33 years with the company. Responding to a question about Macchi, Macellari said that he is still “learning and understanding what the company is, how we make things, the organization. He visited the Asian branches twice and the U.S. and European offices at least once. He is also starting with a clever approach to express his point of view, suggesting new initiatives and building a very good team spirit, motivating the entire structure, demonstrating a good attitude, giving opinions on how to improve sales, [leveraging his] previous experiences in distribution. He can be good to the company in our situation. I have no hesitation in saying that the very first comments are really positive. He is elaborating distribution strategies, actively working on omnichannel, with new ideas and procedures to achieve, in a completely different organization.”

In the quarter, by brand, sales of Tod’s decreased 2.8 percent to 119.6 million euros. Shoes showed a growth in the quarter and performed well except in Italy, which continues to be affected by the weakness of the wholesale channel.

Hogan revenues were down 6.1 percent to 55.7 million euros, hurt by the Italian market, while it grew by double digits in Europe and in China, the focus of its expansion.

Sales of Roger Vivier decreased 8.7 percent to 37.8 million euros. The results of leather goods were positive, while shoes were affected by a very challenging comparison base and a very “summer” type of product, which is expected to register much better results in the second quarter with the real sales start of the summer season, explained Macellari. In March, former Prada Group and Dior alum Gherardo Felloni was appointed new creative director of Roger Vivier, with his first official collection to be presented in September. He succeeded Bruno Frisoni, who held the position for 16 years.

Fay reported a 12.2 percent drop to 12.8 million euros due to the weakness of the domestic market, mainly in the wholesale channel. In February, Fay debuted its first collection under new creative director Arthur Arbesser, who succeeded Tommaso Aquilano and Roberto Rimondi, who left the company in July 2017.

By category, revenues from shoes declined 4.2 percent to 182.2 million euros. Sales of leather goods and accessories were down 8.5 percent to 29.6 million euros due to a different merchandising mix, with smaller bags at lower prices. “This was part of the headwind, and it’s difficult to say how long it will last, very likely into the second half, as I am told not huge bags are a market trend. Possibly, volumes could offset the negative impact of the price mix,” said Macellari.

Sales of apparel decreased 10.2 percent to 14.1 million euros reflecting the trend registered by the Fay brand.

In the period, domestic sales were down 11.6 percent to 70.2 million euros, hurt by the weakness experienced by the wholesale channel, mainly in provincial cities with a lower presence of tourists in directly operated stores, said Macellari. “We have decided to adopt a particularly cautious approach to wholesale to protect our account receivables.” Directly operated stores also had a single-digit decline due to a decrease of tourists and the weather conditions. “Italy is very tough,” remarked Macellari, noting the double-digit decrease at wholesale.

In the rest of Europe, the group’s revenues were up 0.5 percent to 57.6 million euros.

Sales in the Americas dropped 8.5 percent to 15.4 million euros. At constant exchange rates, they were up 2.3 percent. The performance in the area “was better than expected,” but it was penalized by the exchange rate. Retail, wholesale and e-commerce are all improving, said Macellari.

Sales in Greater China were down 3.2 percent to 48.7 million euros. At constant exchange, they rose 4.4. percent. Positive results were seen in mainland China, Hong Kong and Macao. “If we consider domestic sales to Chinese in China, they were particularly good and positive, and it was similar for Chinese tourists in Asia,” said Macellari. “On the contrary, we’ve seen some lack of flows in Chinese tourists in Italy, Europe and the U.S.”

The “Rest of the World” area was down 1.4 percent to 34.2 million euros.

Sales through directly operated stores totaled 127 million euros, down 7.1 percent. Like-for-like sales dropped 4.4 percent, also affected by a different merchandising mix of the collections. Macellari said he expected a positive like-for-like in the second half and a visible improvement in the second quarter. “The trend is becoming favorable.”

As of March 31, the group counted 276 directly operated stores and 118 franchised stores.

Revenues to third parties were down 2.6 percent to 99.1 million euros. “Wholesale is less important than in the past [for the group]. Retail accounts for two-thirds of sales, and with a different timing and number of collections, this will be deducting some importance in order books,” said Macellari. As for the online business, he said that “the only bad news is that the volume is still not as big as we’d like it to be. We’ve seen a double-digit growth — it’s very strong, and it’s increasing our confidence in this sector.” In response to one analyst who pegged the growth at 30 percent, Macellari hinted the increase was “more” than that.

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