Salvatore Ferragamo continued to record strong growth in footwear in the first quarter, posting a 26.2 percent rise in sales to €110.9 million. Shoes were the fastest-growing segment for the luxury goods group after fragrances, up by 35.7 percent to €20.1 million thanks to the launch of the Signorina perfume. On a currency-neutral basis, shoe sales were up by 21.7 percent.
Sales of leathergoods and handbags, the group's second-largest product line, rose by 24.3 percent to €80.0 million. Shoes and leathergoods increased their combined share of group sales to 73.5 percent from 72.4 percent a year earlier.
Overall group sales increased by 23.4 percent to €259.6 million. At constant currencies, the rise reached 19.1 percent. The company said that because of currency hedging it did not profit from the weakening of the euro against the greenback. But the benefits of its hedging policies are expected to emerge in the forthcoming quarters.
European sales were up by 27.8 percent to €69.8 million. On a currency-neutral basis, sales rose by 26.7 percent. European sales were underpinned by purchases made by travelers and growth of more than 40 percent in Russia. The group did not release a precise figure for the incidence of travelers on its store sales, but the chief executive, Michele Norsa, estimated that they represent more than half the revenues in the main cities, led by Chinese and Russians.
North American sales grew by 17.6 percent to €52.8 million. At constant currency rates, the increase reached 16.6 percent. Norsa said that market conditions were better than expected and noted an improvement of consumer sentiment in the U.S since the end of last year.
Japan rose by 9.9 percent to €30.3 million thanks to the strengthening of the yen. At constant exchange rates, sales dropped by 0.3 percent in the country. Norsa said that the Japanese market is difficult to gauge and offers little growth potential.
Asia-Pacific sales, excluding Japan, were up by 27.3 percent to €96.4 million despite a slowdown in South Korea and in Taiwan. Sales were driven by expansion into secondary cities in China and strong growth in Southeast Asia and Macao. The group expressed confidence in an improvement in Korean sales during the rest of the year.
Revenues in Central and South America increased by 37.1 percent to €10.3 million. On a currency-neutral basis, they rose by 32.6 percent.
Ferragamo is considering reducing the price gap between Europe and Asia. Currently, Asian prices are about 25-30 percent higher than in Europe, but the discrepancy reaches about 40 percent in Japan and 50 percent in China. The stronger yen also gives leeway for price reductions in Japan.
The group did not pass on any significant price increases in the first quarter but intends to boost prices by 3-4 percent in 2012 to offset the impact of higher raw material costs.
By channel, retail sales rose by 16.9 percent to €160.2 million, bolstered by a 36.0 percent increase in China. At constant rates, the increase totaled 11.8 percent. Retail sales were affected by the temporary closure of some key stores, including the flagship on New York's Fifth Avenue, which is the group's biggest money spinner, for renovation and enlargement. Same-store sales grew by nearly 10.0 percent.
At the end of March, Ferragamo had 325 directly operated stores (DOS) compared with 323 at the end of December.
In the meantime, wholesale rose by 36.8 percent to €95.5 million thanks to expansion in China, where the bulk of new stores openings were done by franchisees, as well as the strong performance of travel retail, American department stores, the brand's activities in former Soviet countries and the fragrance business. Ferragamo had 265 mono-brand stores run by third parties at the end of the quarter, down from 270 at the end of 2011. The group is relying on third parties to expand its store network in fast-growing markets such as China, Egypt and Turkey, but its long-term strategy is to control the retail network. Further details about plans to take over part of the mono-brand shops is expected in the group's forthcoming three-year business plan The group is likely to take control of some Brazilian and Chinese stores in the near future.
Ferragamo raised gross margins to 62.8 percent in the quarter from 61.7 percent a year earlier despite growth in wholesale and fragrances. The improvement was achieved thanks to a reduction in price discounts. The company sees further room to sell more products at full price.
The group boosted the Ebitda margin to 14.7 percent from 13.0 percent and indicated that it expects profitability to grow to more than 20 percent in the future. The Ebit margin rose to 11.6 percent from 10.0 percent but the net margin slipped to 6.6 percent from 7.4 percent because of a higher tax rate.
Ferragamo said that the order intake for the fall/winter collection is proceeding at a “reassuring double-digit” growth rate and forecast a significant increase in full-year revenues. Financial analysts anticipate revenues to exceed €1.13 billion this year compared with €986.5 million in 2011.