Tod's started 2014 with negative same-store sales, following the trend seen in the last two months of 2013, and gave a cautious guidance for the whole financial year. In the first 10 weeks to March 9, Tod's comparable store sales were down by 5.4 percent. The weekly readings showed a lot of volatility but the group remained confident about future trends. For the whole of 2013, same-store sales registered by the group's directly-operated stores (DOS) were up by 2.3 percent.

In a conference call with analysts, Emilio Macellari, the group's chief financial officer, said that the drop in same-store sales was due to a challenging environment and a tough comparison base, as in the same period last year comparable store sales had gone up by 8.2 percent. He dismissed suggestions that the decline was company-specific and stressed the lower customer traffic in the stores was partly due to bad weather conditions.

Same-store sales were down in mainland China, which has suffered from a slowdown since the second half of 2013. Comparable sales were “flattish” in Hong Kong, to use Macellari's words. In the U.S., they were slightly negative, largely due to the polar cold that hit the country. Europe was mixed, with Switzerland and the U.K. positive and France and Germany slightly negative. The situation in Italy continued to recover but comparable store were still down by a “very low” single-digit rate there. Macellari said the tourists represented more than 30 percent of total sales overall throughout the DOS network, but the percentage was slightly higher in Italy.

Before the conference call, analysts were expecting a 4.5 percent increase in 2014 sales and a roughly unchanged gross operating margin before amortization (Ebitda). Macellari said that this forecast is achievable but challenging considering the current market conditions. Analysts now see 2014 sales going up by less than 4.0 percent to slightly over €1.0 billion and an Ebitda margin of 24.3 percent.

In 2013, revenues totaled €967.5 million, up by 0.5 percent at actual exchange rates and up by 1.7 percent at constant current rates. The Ebitda margin narrowed to 24.4 percent last year from 26.0 percent in 2012 despite an improvement in the gross margin, stemming from a more favorable sales mix by region and distribution channel. The Ebitda margin was weighed down by higher rental costs, which represented 10.5 percent of sales against 8.9 percent in 2012, as well as higher personnel costs, which took up 15.7 percent of the turnover compared with 14.8 percent. The operating margin before interest (Ebit) dropped to 20.0 percent from 21.7 percent.

Macellari indicated that the group needed to generate new topline growth of around five percent to maintain its margins. Last year, the group did not cut down investments despite weak sales growth, but boosted instead capital expenditures to €51.4 million from €49.9 million in 2012. The bulk was used to the expand and refurbish the DOS network and to upgrade manufacturing operations and the information technology platform.

Tod's wants to continue investing as it pursues its strategy of product diversification, Macellari said. In February, it held the second fashion show for the Tod's brand, with the autumn/winter collection designed by Alessandra Facchinetti. The executive reiterated his belief that the group could further increase its Ebitda margin and indicated that it has the potential to raise it above 28 percent.

Turning to the order backlog, the company confirmed a slight drop for the spring/summer collection due to a decline in orders from the wholesale channel, which it continued to streamline in Italy to maintain the exclusivity of its brands. The number of wholesale accounts retained in Italy is currently slightly below 600 and is due to stabilize at that level unless the financial situation of the remaining clients deteriorates. Macellari said it is premature to give details about the autumn/winter sales campaign but he did not see signs for concern.

Tod's finished 2013 with a net profit of €133.8 million, down 8.0 percent from the previous year. The group is proposing payment of an unchanged dividend of €2.7 per share for the year.

The company's cash flow turned to a positive level €65.8 million from a negative €16.7 million and the cash pile rose to €181.1 million at the end of 2013 from €103.7 million a year earlier.

The solid balance sheet rekindled questions about the group's acquisition of the Roger Vivier licence. The brand was bought in 2003 by Tod's chairman, Diego Della Valle. Macellari said that the license is secured until the end of 2016. The group has a pre-emption right to renew the license or to buy it if the owners wish to sell. The current agreement also contains a provision guaranteeing that Tod's will recoup investments made and the goodwill for developing the brand if it were to lose it. The option includes the right to get back the Roger Vivier stores if it loses the license. Macellari said that Roger Vivier has been profitable from inception and that even after the payment of royalties has an Ebitda margin that is higher than the group's average. He specified that the royalties amount to 12 percent of the wholesale price of the goods, even when the products are sold through a DOS.