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Tod's earnings drop in first nine months

By FashionUnited

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Business

REPORT_ The first nine months of this fiscal year were challenging for Tod's. The Italian fashion and accessories group reported earnings before interest, tax, depreciation and amortisation (EBITDA) of 168.8 million euros, a dip of 21.6 percent and lower than an analyst's consensus by Thomson Reuters. Shares dropped almost 8 percent after the markets opened on Thursday morning.

Earnings were adversely affected by unfavourable exchange rates, a drop in sales of its leather goods division, instability in China and a poor product mix. The group's decision to cut back on wholesale distribution in Italy as part of its new strategy also affected margins, with operating profits falling to 123.9 million euros from 168 million euros during the same period last year.

Meanwhile revenues slid 1.5 percent to 741 million euros. Sales were up 0.7 percent in the third quarter, compensating for a 2.7 percent drop in the first half of the year.

Focus on the long-term

The group insists that it is focusing on long-term growth and said the results were in line with expectations. "We didn't stop investing in stores, the structure and resources, and we are not wooded about the quarter or the year," chief financial officer Emilio Macellari told analysts. "If we are compared to other companies that have performed better, who cares? Cost and expenses are under control; there are no unjustified structures."

The group's chairman and CEO, Diego Della Valle, said that Tod's is investing in its production capacity and distribution network, and that the first reactions to its first foray into the world of fashion shows were coming in and 'will support the performance of all our product categories and, in particular, of leather goods by strengthening our brands' visibility." He added that feedback from the spring-summer 2015 collections had been 'encouraging'.

The main Tod's brand reported a decrease in sales of 3.9 percent to 431.2 million euros due to weakness in China, although it did witness recovery in North and South America. Macellari said the group 'has a good feeling about the US', calling it an opportunity.

Hogan sales climbed 5,7 percent in the third quarter, thanks to double-digit growth outside Italy. In the nine months, sales slipped 1.8 percent to 171.5 million euros. Macellari reiterated that the group believes the brand can become big enough to be listed as a stand-alone label, but emphasized there were no intentions to actually float Hogan as a separate entity.

Fay, meanwhile, reported a drop in sales of 2.4 percent in the nine month period, despite growth in the third quarter. Luxury shoe brand Roger Vivier, the group's top performer, saw sales jump 12.2 percent to 93.3 million euros. Whether Tod's will acquire the brand, whose license is up for renewal in 2016 is still subject to discussion, said Macellari.

Sales of leather goods and accessories were down 4.4 percent as the group focused more on fashion. Shoe sales, which has always been the group's main source of revenue, dipped 0.9 percent. According to Macellari, Tod's is no longer known only for its shoes, and with Alessandra Facchinetti at the creative helm, he estimates that 'four or five shows' are necessary to gauge the success of the fashion line.

In Europe, sales increased by 4 percent, but were down in the Americas and China. The latter is showing signs of recovery, although consumer spending was still below par. The political unrest in Hongkong, which accounts for 10 percent of group sales, had a notably negative effect on results.

Macellari concluded that he expects 'a stable 2015', thanks to higher orders for the spring-summer 2015 collection.

Tod's