Tod's continues to disappoint after posting third-quarter results largely below market expectations. The group also sent out contradictory signals regarding the future shareholder structure of its brands. It had to clarify its position regarding the possible spin-off and listing of its Hogan brand and said that any decision regarding the future of the Roger Vivier license will only be made after mid-2015.

Third-quarter sales came in at €263.3 million, roughly in line with analysts' predictions, but operating margins were lower than expected. The gross operating profit (Ebitda) of €66.4 million was nearly 20 percent lower than they had anticipated. At €42.8 million, operating earnings after amortization (Ebit) were more than 23 percent below the analysts' forecasts.

After telling financial analysts in September that Hogan had the potential to become big enough to be a stand-alone company, the management had to tell them that there are no such plans for the near future. The group's chairman, Diego della Valle, who was the first to suggest the possibility of separating Hogan from the Tod's group, said he wanted the group to focus on developing the brand, adding that a spin-off could only be considered in a “few years time.”

In a conference call with financial analysts, Emilio Macellari, the group's chief financial officer, went into more details saying that all of the group's four brands – Tod's, Hogan, Fay and Roger Vivier – are managed separately with their own design and marketing teams and distribution networks. The existing structure would make it very easy to divest them. Regarding Roger Vivier, he added that there are no immediate plans either to spin off the brand, which has belonged to the family of Della Valle since 2000. He noted that the Vivier license terminates at the end of 2016 and that Tod's will discuss with the licensor the renewal or purchase of the brand before then. Macellari said that a decision regarding the future of Roger Vivier would be known from the second half of 2015.

For the first nine months of the year, the Tod's group posted sales of €741.0 million, down by 1.5 percent in euros and by 0.1 percent at constant exchange rates. Revenue stability was achieved only thanks to new store openings as the group's comparable store sales were down by 7.5 percent in the first nine months. By the end of September, the number of directly-operated stores (DOS) had increased by a net 22 locations from a year earlier and by 11 units since Jan. 1.

The trend in the group's same-store sales worsened in the 45 weeks to Nov. 9, with a drop of 7.8 percent that was attributed to the disruption caused by pro-democracy protests held in Hong Kong, a market that represents about 10 percent of the group's overall sales. Tod's said that during the Chinese “golden week” of public holidays, which lasted from Oct. 1 to Oct. 7, sales in the former British colony fell at a high single-digit rate, compared with growth rates in the high teens in the past couple of years. Macellari said that Hong Kong sales would significantly improve if protests were to end immediately but he could not predict the impact of a drawn-out standoff.

Among the group's brands, only Roger Vivier showed an improvement during the nine-month period, rising by 12.2 percent to  €93.3 million. Revenues decreased by 3.9 percent to €431.2 million for Tod's, by 1.8 percent to €171.5 million for Hogan, and by 2.4 percent to €44.3 million for Fay. At constant currencies, Tod's' sales were down by 2.1 percent and those of Hogan by 1.6 percent, while Roger Vivier's was up by 15.1 percent.

The management reiterated its satisfaction about the decision to hire Alessandra Facchinetti as creative director for the Tod's brand in February 2013, in an effort to give the label a more contemporary image and turn it into a lifestyle brand. Facchinetti has already designed two collections and Macellari estimates that the group will have to wait for four or five more collections before seeing its strategy pay off in terms of enhanced sales. He said that the first two collections obtained more media attention than expected, but the group has to fine-tune its commercial strategy to translate the additional visibility into sales at store level. The brand has also completed the positioning of its handbags collection by widening the price range to the entry-level segment.

In the third quarter, Roger Vivier raised sales by nearly 40 percent, compared with a 1.4 percent increase in the first half of the year. The company pinned down the acceleration to an increase in the number of single-brand stores, especially in China, rather than organic growth. Roger Vivier had 21 DOS at the end of September, against 17 a year earlier, plus four franchises against three. Macellari confirmed the group's strategy to rein in the label's growth to maintain its exclusivity. He said that the management would be satisfied with double-digit growth for Roger Vivier but not at the heady levels seen in the past two years. The brand boosted its sales by 104.2 percent in 2012 and by 52.5 percent in 2013.

The group's total footwear sales were down by 0.9 percent to €574.9 million in the nine-month period, while leathergoods and accessories fell by 4.4 percent to €115.3 million and apparel sales slipped by 2.0 percent to €50.1 million. At constant exchange rates, revenues were up by 0.5 percent for footwear, while leathergoods and accessories decreased by 2.0 percent.  The company stressed that leathergoods sales were affected by a different timing in wholesale shipments.

By geography, nine-month revenues were off by 4.4 percent to €249.4 million in Italy, where they were hit as before by the restructuring of the wholesale channel. The reorganization was over in the first half of the year and domestic sales returned to grow in the third quarter, underpinned by positive retail sales. The country still remains the group's largest market but its share in total sales continues to shrink and represented 33.7 percent of revenues in the first nine months of the year compared with 34.7 percent a year earlier.

Sales in the rest of Europe were up by 4.0 percent at actual and constant currency rates to €169.9 million. All the group's markets enjoyed growth except France, where the sales trend was slightly negative.

In the Americas, revenues were down by 6.3 percent to €62.0 million, but the decline was halved to 3.1 percent at constant exchange rate. Sales were impacted by the temporary closure of two stores, including the New York flagship on Madison Avenue, which reopened at the end of August. Excluding the impact of the two stores, American sales were higher at constant currency rates. The management wants to open new stores in the next year in the U.S., where the group is under-represented with only a dozen DOS throughout the Americas at the end of September.

Sales were down in Greater China by 6.0 percent to €169.9 million, and they fell by 3.3 percent at constant currencies, partly due to a drop in store traffic after the government's clampdown on extravagance. The company said that the Chinese market is showing signs of improvement even though store traffic is stabilizing at much lower levels than in the past few years.

Sales in the rest of the world were up by 10.3 percent to €89.8 million, thanks to positive trends in all Far Eastern countries. At constant currency rates, they increased by 14.9 percent.

By channel, revenues generated by sales to wholesale clients and franchisees were down by 1.2 percent to €291.7 million in the first nine month, decreasing by 0.5 percent in constant currencies. The turnover generated by DOS dropped by 1.8 percent to €449.3 million, but rose by 0.2 percent in constant currencies. At the end of September, the group had 230 DOS and 91 franchisees compared with 208 DOS and 82 franchisees a year earlier.

The Ebitda margin narrowed to 21.1 percent in the first nine months from 26.5 percent a year earlier. The Ebitda margin was weighed down by higher costs due to the expansion of the DOS network including rent expenses, which represented 10.9 percent of sales against 9.9 percent the prior year, and labor costs, 16.0 percent compared with 15.0 percent. The Ebit margin dropped to 16.7 percent from 22.4 percent.

Capital expenditure increased to €49.5 million from €36.2 million due to the purchase of a new plant and the construction of a new footwear factory. The group had a cash pile of €107.6 million at the end of September.

The company noted that during the nine-month period there were fewer Russians and Chinese among tourists shopping at its stores but this did not materially affect sales. It added that sales to tourists totaled more than 33 percent of total revenues in the first nine months of the year, up from 30 percent in the first half of the year, thus indicating that the tourist flow increased during the third quarter.

Tod's said that the business environment remains tough and difficult to predict but it believes that it can obtain higher operating margins in the fourth quarter. Macellari acknowledged that Ebitda could come in below €200 million in the full year, compared with a market consensus of €210 million before the release of third-quarter results. The current consensus of financial analysts' estimates is for 2014 sales of nearly €970 million and Ebitda of about €200 million, representing an Ebitda margin slightly below 21 percent. Macellari pointed out that the group's top line has to grow by 5 to 7 percent to maintain stable operating margins, with half of the growth being organic.

He said that orders for the spring/summer collection were up at a mid single-digit rate with profit margins in line with 2014. He added that the group would find it “acceptable” if 2015 sales were “flattish” but that it is hoping that they will be higher than in 2014. Financial analysts currently see 2015 sales above €1.0 billion and Ebitda approaching €220 million, indicating an Ebitda margin exceeding 21 percent.

Macellari emphasized that the group is containing costs but does not want to sacrifice its long-term development and will continue expanding its retail network. The company plans to open about 15 stores next year. Because of the lack of visibility regarding the luxury goods market, openings could be skewed toward the end of 2015 rather than the beginning of the year. The group believes that the cost-cutting efforts will be sufficient to stabilize operating margins, even in the case of flat sales. It may consider postponing some of its development projects if necessary.