Salvatore Ferragamo Makes Progress In Q3 but COVID-19 Challenges Remain

Salvatore Ferragamo SpA saw signs of a recovery in the third quarter, lifted by retail gains in China, but these weren’t enough to offset the performance overall in the first nine months of the year.

In the nine months ended Sept. 30, the Florence-based company reported a net loss, including a minority interest, of 96 million euros, compared with profits of 61 million euros in the first nine months of 2019.

Revenues were down 38.5% to 611 million euros, compared with 994 million euros in the same period last year.

The third quarter showed a progressive improvement, with revenues in the period decreasing by 18.9%.

Earnings before interest, taxes, depreciation and amortization fell 67.9% to 78 million euros, compared with 243 million euros last year, with an incidence on revenues of 12.7% from 24.4%.

The company posted an operating loss of 70 million euros, compared with an operating profit of 105 million euros in the first nine months of 2019.

In the third quarter, Ferragamo registered an operating profit of 4 million euros, compared with 11 million euros in the same period last year.

The Asia-Pacific was again confirmed as the group’s main market, representing 42.3% of total revenues, and decreasing by 30.6% to 258.7 million euros in the nine months.

The area showed a solid recovery in the third quarter, decreasing by 4.8% at constant exchange rates, lifted by a positive performance of the retail channel in China, which recorded revenue growth of 38.3% at constant exchange rates, further accelerating in October.

Chief executive officer Micaela Le Divelec Lemmi said during a conference call with analysts on Tuesday that the company will continue to focus on China, planning additional investments in 2021, after the opening of five new directly operated stores in 2020. She said eight stores are expected to open in 2021, including one in Macau.

Chief financial officer Alessandro Corsi said Hong Kong and Macau remained weak in the nine months, but that the latter showed some signs of improvement in October.

Solid growth was recorded by the retail channel in South Korea and in Taiwan, which continued to register a robust revenue increase also in October.

Sales in Japan fell 30.9% in the nine months to 60.2 million euros, with a 17.3% decrease in the third quarter also due to tough comparisons in September versus 2019. The month of October registered an increase in retail sales compared with  the same period last year and encouraging signs of a recovery, but Le Divelec Lemmi said “the mood and spirit” of the Japanese consumer has not returned to the levels of pre-COVID-19 times.

Overall the Asian continent currently represents more than 52% of total revenues.

The Europe, Middle East and Africa region showed a 45% decrease in revenues in the nine months to 142.4 million euros. In the third quarter, sales were down 30.1% at constant exchange rates, still strongly penalized by the limited tourist flows in the period. Le Divelec Lemmi said about 75% of stores are closed in Europe now, impacted by the coronavirus and the lockdowns.

Revenues in North America fell 45.1% in the nine months to 120.6 million euros and were down 24% in the third quarter, recovering from the previous quarter. Le Divelec Lemmi addressed the effects of the pandemic and of the political unrest in the third quarter but said the region had seen positive traction in October.

Revenues in Central and South America in the nine months decreased 47.5% to 29.3 million euros and were down 31.9% in the third quarter.

Le Divelec Lemmi declined to provide projections for the fourth quarter given the ongoing uncertainties in Europe and the U.S.

In the nine months, all product categories saw a decrease. Sales of shoes fell 39.7% to 253.2 million euros, representing 41.4% of the total. Leather goods and handbags were down 33.8% to 259.8 million euros, accounting for 42.5% of the total. Ready-to-wear sales decreased 39.2% to 32.2 million euros.

Revenues from fragrances fell 56.6% to 26 million euros, also due to the postponement of the launch of new products in the wake of the lockdowns. Corsi said he expected the category to improve by the end of the year.

The company on Tuesday also approved the merger by incorporation in Salvatore Ferragamo SpA of the 100% owned Ferragamo Parfums SpA effective Jan. 1. The merger responds to the need to simplify the Italian structure of the Salvatore Ferragamo Group, optimizing the management of its resources and creating a more efficient organization and synergies to support its business development, the company said.

In the nine months, sales in the retail distribution channel were down 35.3% to 415.9 million euros. As of Sept. 30, the group counted 646 points of sales, including 393 directly operated stores and 253 third-party-operated stores.

In the third quarter, retail revenues decreased 23%, with a 22.8% decline in like-for-like performance. But its e-commerce channel registered a strong acceleration. Indeed, Le Divelec Lemmi touted the investments in the company’s digital transformation as it will continue to focus in 2021 on a customer-centric business model, “nurturing the relationship with customers,” seeing this as “a key factor,” bridging the gap between physical and digital.

She said that for the holiday season, the company is working to offer customers “full service of gift-giving by leveraging the online service and the [power] of the sales associates’ relationship with customers.”

The executive said Ferragamo will increasingly invest in creating a “full-fledged experience for Chinese customers, leveraging their attitude to buy in their own market,” expecting the uncertainties connected to traveling to continue in 2021 and more local shopping to take place.

Responding to a question about Farfetch, in the wake of the new initiative coming out of its $1.15 billion deal with Alibaba, Compagnie Financière Richemont and Artemis, Le Divelec Lemmi said Ferragamo has been working on developing virtual concessions in new markets by the end of the year, mainly in Europe and, on a smaller scale, in the U.S. and Latin America.

In October, it further consolidated its e-commerce business in China, adding a new digital store on Tmall Luxury Pavilion to the existing digital store on JD.com.

At the end of October, global online revenues accounted for 8% of revenues, said Le Divelec Lemmi.

In the nine months, the wholesale channel saw a 44.5% fall in revenues to 187.9 million euros mainly penalized by the performance of the travel retail channel and of fragrances. In the third quarter, wholesale revenues were down 8.7%.

As of Sept. 30, investments amounted to 15 million euros, down 62.5% compared with the first nine months of 2019, as the company focused only on projects considered essential and a priority, such as the launch of the new e-commerce site earlier this year and its digital initiatives.

This story was reported by WWD and originally appeared on WWD.com.

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