Salvatore Ferragamo reported higher profit margins on a 9.5 percent increase in first-quarter sales to €327.3 million, as the euro's depreciation against major currencies offset a volatile business environment due to geopolitical tensions in Russia, Ukraine and Greece. At constant currency rates, the top line rose by 2.1 percent. The company confirmed that it expects comparable sales growth close to 5 percent this year as its sales continue to be fueled by Chinese consumers' purchases and retail travel.
In mainland China, the company's retail revenues surged by 22 percent in euros and by 9 percent at constant currency rates. Growth was fueled by progress in second- and third-tier cities. Chinese tourist flows varied, with Hong Kong and Macau falling out of favor and Japan, South Korea and Australia on the rise. Total sales in the Asia-Pacific territory excluding Japan rose by 11.0 percent in the quarter to €119.9 million. In local currencies, they were up by 0.2 percent.
In Japan, sales rose by 4.8 percent to €31.8 million, with a rise of 5.7 percent in yen. They were lifted by a pickup in local demand and the inflow of Chinese tourists. There were more than three million of them in 2014. The Ferragamo store in Tokyo's Ginza district moved up to become one of the top five locations for the brand globally after finishing in 10th position last year.
European sales rose by 1.5 percent in the quarter to €85.3 million, growing by 0.6 percent on a currency-neutral basis. The weak euro spurred growing tourist flows. The company said that business conditions are good now in Italy, Spain, Germany and France. The U.K. has shown signs of improvement in the past weeks.
Sales rose in North America by 16.2 percent to €74.0 million for the company, but they only grew by 2.6 percent at constant rates. The region was affected by bad weather, and the company believes that sales growth could accelerate during the rest of the year thanks to a positive economic situation.
Latin America was up by 27.6 percent to €16.3 million. Constant-currency revenues were up by 18.7 percent, underpinned by double-digit growth in Mexico and improvements in Brazil and Argentina.
Overall, Ferragamo's sales of shoes booked an 8.6 percent rise to €135.8 million in the first quarter, but on a currency-neutral basis they were flat. Footwear remained Ferragamo's largest product category, but it slipped to 41.5 percent of overall revenues in the quarter from 41.9 percent a year earlier, as sales of leathergoods and bags grew at a faster pace of 15.7 percent, reaching €120.9 million, 8.0 percent up at constant rates.
By channel, retail sales went up by 11.5 percent to €198.8 million. The rate of increase in local currencies was 3.2 percent. Same-store sales were flat. At the end of March, Ferragamo had 375 directly-operated stores (DOS) and 262 mono-brand stores run by third parties.
Wholesale and travel retail revenues rose by 6.2 percent to €122.9 million, and they were up by 0.4 percent in local currencies. Expecting “solid' growth in 2015, the company noted that travel retail remains a growth channel with worldwide airport traffic up by 6.1 percent in the first quarter.
The company's gross margin rose to 64.7 percent from 61.3 percent a year earlier thanks to favorable foreign exchange rates as well as a positive channel and product mix. The gross operating margin, or Ebitda, widened to 18.7 percent from 17.7 percent, and the Ebit margin grew to 14.3 percent from 14.0 percent. Attributable net earnings rose by 19.7 percent to €31.2 million.
Investments totaled €12 million, up by 26 percent year-on-year. Net debt fell to €34 million at the end of March from €49 million at the end of 2014, as operating cash flow rose to €45 million in the first quarter from €16 million a year earlier.