Salvatore Ferragamo posted a slowdown in sales and a worsening in operating margins in the third quarter, largely due to a negative trend in North America and a collapse in sales in Hong Kong stemming from the protests in the former British colony. But, operating earnings were higher than the financial community had expected, and some analysts felt that this was an encouraging step toward the company's relaunch.
In the first nine months of the year, the Italian company's revenues grew by 2.3 percent to €944.4 million, with currency-neutral sales up by 1.9 percent. This compares with rises of 4.6 percent on a reported basis and by 4.4 percent at constant currency rates in the first half, indicating that the third quarter was not as good as the first half of the year.
Retail sales grew by 2.6 percent year-on-year to €643.3 million, or by 2.0 percent at constant-currency rates. In the third quarter alone, retail sales were down by 0.5 percent in local currencies. For the first nine months, comparable store sales were up by 1.4 percent, down from the 2.3 percent increase posted in the first half. According to an investment broker, Equita, same-store sales fell by 0.7 percent in the third quarter.
At the end of September, Ferragamo had a network of 656 mono-brand stores, down from 672 at the end of 2018. The number of directly operated stores (DOS) was 394, down from 409 at the end of December. A further 262 points of sale were run by third parties (TPOS), roughly equal to the 263 units that were in operation nine months earlier.
Wholesale revenues increased by 3.0 percent to €338.7 million in the first nine months, or by 3.1 percent in local currencies, but third-quarter sales were down by 8.7 percent at constant-currency rates. The management justified the decline with a shift in the timing of fragrance deliveries and a slowdown in the travel retail channel.
By region, Ferragamo's overall revenues in Europe, the Middle East and Africa (EMEA) grew by 3.9 percent to €258.7 million in the first nine months, thanks to positive trends both in retail and wholesale, also in the third quarter. At constant-currency rates, the topline was up by 3.7 percent.
In North America, revenues decreased by 1.3 percent to €219.7 million, and they fell by 1.8 percent on a currency-neutral basis. The company experienced a deterioration in the wholesale channel during the third quarter. In Latin America, sales surged by 9.7 percent to €55.7 million, with an 8.4 percent increase on a currency-neutral basis.
In Asia-Pacific, excluding Japan, revenues rose by 2.7 percent, both on a reported basis and in local currencies, reaching €373.1 million. At constant exchange rates, retail sales were up by 15 percent in mainland China, but they fell by 45.0 percent in Hong Kong.
Global sales of footwear were up by 3.5 percent to €420.0 million, with constant-currency sales up by 3.4 percent. Handbags and other leathergoods grew by 4.7 percent at current exchange rates to €392.3 million, and advanced by 4.4 percent in local currencies. Shoes and leathergooods increased their combined share of total sales to 81.7 percent from 80.2 percent a year earlier.
Excluding the new IFRS 16 accounting standards on store leases, the gross margin widened to 64.8 percent in the first nine months from 63.6 percent a year earlier, while the Ebitda margin slipped to 14.8 percent from 15.3 percent and the Ebit margin narrowed to 9.7 percent from 10.5 percent. But at €146.8 million, Ebitda came in about €6 million higher than market expectations. Net profit after minority interests was down by 1.5 percent to €63.1 million.
Ferragamo warned that the slowdown in revenue and operating margins seen in the third quarter may persist in the final quarter of the year. The management added that market expectations of full-year sales of €1,370 million and an adjusted Ebitda of some €200 million were reasonable. It expects same-store sales in the fourth quarter to be in line with the trends registered in the first three quarters.