Salvatore Ferragamo's European sales were up by 11.5 percent at actual and constant currency rates in the first nine months of this year to €246.7 million. The European turnover grew by only 6.0 percent to €80.0 million in the third quarter, indicating a major slowdown from the 13.9 percent increase posted in the first half of the year.
The company said that the shortfall partially stemmed from the fact that foreign tourists have been buying less, especially in the economically depressed economies of Southern Europe. The management said that the flow of Chinese tourists should pick up again in Europe and in the U.S. toward the end of the year, but added that it is becoming more difficult to predict the travel periods and the destinations of Chinese visitors. “I would expect the Chinese will probably go to different areas than the ones they are visiting now,” said Michele Norsa, chief executive of Ferragamo, during a conference call with financial analysts.
North American sales also slowed down in the third quarter, rising by only 11.0 percent year-on-year. Retail outpaced wholesale during the period as a result of the group's strategy to reinforce its retail presence in North America. Overall revenues in the region grew by 13.8 percent to €204.5 million for the first nine months of 2013, or by 13.0 percent in local currencies.
In other geographic areas, the group's nine-month sales enjoyed similar or higher growth rates than in the first half in constant currencies. Latin America was up by 14.1 percent to €39.4 million, with growth of 15.8 percent on a currency-neutral basis, lifted by a 35.0 percent increase in the third quarter.
Japanese sales dropped by 13.3 percent to €86.7 million due to the depreciation of the yen, but were up by 1.7 percent at constant currency rates. Ferragamo intends to increase prices by nearly 10 percent to offset the foreign exchange impact. This compares with increases of around 5 percent in Europe, in the U.S. and in economies whose currencies are pegged to the U.S. dollar. The increases are being introduced with the spring/summer collection.
In the rest of the Asia-Pacific region, revenues went up by 13.6 percent to €337.5 million in the nine-month period, with an increase of 12.1 percent in local currencies, driven by China, Hong Kong and Macau. In China, sales continued to grow at double-digit rates, with an increase of more than 20 percent at retail, thanks to stronger buying in second- and third-tier cities, where the group has increased its presence. Hong Kong, Macau and Singapore benefited from higher purchases by residents of mainland China.
Globally, the group's sales advanced by 9.9 percent to €914.8 million in the first nine months. At constant currencies, the growth rate reached 11.2 percent. Ferragamo booked a 9.6 percent rise in footwear sales to €399.2 million during the period, slightly down from the 10.9 percent rise posted in the first half due to a deceleration in the latest quarter. They were up by 10.0 percent on a currency-neutral basis.
Shoes remained Ferragamo's largest product category with a 43.6 percent share of overall revenues, but the ratio was down from 43.8 percent a year earlier. Sales of leathergoods and handbags, the group's second-largest product line, rose at a higher rate of 16.2 percent to €300.3 million during the first nine months of this year.
By channel, retail sales rose by 8.2 percent to €576.1 million, or by 10.2 percent in local currencies. Same-store sales grew by 6.2 percent in the nine months, slowing slightly from the first half. At the end of September, Ferragamo had 355 directly-operated stores (DOS).
Wholesale and travel retail revenues rose by 12.7 percent to €322.9 million, up by 12.8 percent at constant currency rates. The division's sales include those of mono-brand stores managed by third parties, of which there were 257 at the end of September. The group said that wholesale growth continued to be strong in Russia, the Middle East and some Asian markets like Vietnam and Indonesia, as well as in duty-free stores.
Ferragamo's gross margin fell to 63.2 percent from 63.8 percent a year earlier. The dilution partly comes from the outperformance of the wholesale business and adverse currency rates. The group expects retail and wholesale revenues to grow at a very similar pace in the fourth quarter. Retail sales will be lifted by new openings and the relaunch of stores that have been temporarily closed for refurbishment.
The gross operating profit (Ebitda) margin rose to 21.0 percent from 18.9 percent as operating expenses went up by only 4.4 percent to €416.2 million. Norsa declined to provide any guidance but commented favorably on the consensus of analysts' estimates, which points to Ebitda of €265 million for the full financial year. He added that the company performed well in October, posting results that are “consistent or better” than in the previous months.
Attributable net profit rose by 61.4 percent to €112.4 million following the acquisition by the group of shareholdings in distribution companies in Greater China, Korea and Southeast Asia, thus reducing the share of income handed out to minorities, and booked a capital gain from the sale of its 50-percent stake in the Zefer joint venture with Ermenegildo Zegna, the Italian menswear group.
Net debt fell to €35 million from €78 million at the end of June, despite a 94 percent year-on-year increase in investments in the third quarter to €22 million, largely due to the opening and restyling of stores as well as improvements in logistics and the development of e-commerce.