Tod's announced disappointing third-quarter results and warned that it is unlikely to meet the financial analysts' expectations for the full year. The comments prompted many analysts to cut their estimates.  Their current consensus calls for the company to post full-year sales of about €1,010 million, down from a forecast of €1,024 billion before the release of the results on Nov. 13. The gross operating profit (Ebitda) is now expected to reach slightly more than €260 million against a previous forecast of €267 million.

The group suffered a 2.1 percent year-on-year decline in third-quarter sales to  €261.4 million, while operating earnings before amortization (Ebitda) dropped by 7.9 percent to €70.0 million. Analysts were expecting quarterly sales of around €278 million and Ebitda of some €78 million.

Tod's management said it was reluctant to comment on the quarterly figures because they can be significantly impacted by timing issues such a change in the programming of an advertising campaign or a shift in deliveries.

For the first nine months of the year, Tod's posted a 0.4 percent increase in sales to €752.6 million. At constant currency rates, sales rose by 0.9 percent. The topline was bolstered by Greater China - which includes Hong Kong, Macao and Taiwan – and the Americas thanks to the good performance of the Tod's and Roger Vivier brands in those markets.

On the downside, sales were affected by the group's policy of trimming its wholesale portfolio, especially in Italy. Since the autumn/winter collection of 2012, the group has reduced the number of wholesale accounts by about a third to preserve the exclusivity of its brands and the quality of its credit portfolio. The number of wholesale customers will be reduced to slightly below 600 for the forthcoming spring/summer collection.

By brand, revenues increased by 3.1 percent in the nine-month period to €448.6 million for Tod's. Hogan was down by 13.7 percent to €174.7 million, Fay fell by 26.3 percent to €45.3 million, but Roger Vivier continued its momentum, surging by 65.7 percent to  €83.2 million.

Sales were up by 4.2 percent at constant currency rates for the Tod's brand. The downsizing of the wholesale channel concerned all the group's brands but Hogan and Fay were the most affected because of their exposure to third-party clients and the Italian market. The decline in Hogan's sales was limited to the Italian market, and in fact the brand booked double-digit growth in Asia and Europe, excluding Italy.

All the product categories were affected by the group's more selective policies but the move mainly hit leathergoods, accessories and apparel. Footwear sales were up by 4.5 percent to €580.1 million, whereas leathergoods and accessories fell by 2.7 percent to €120.6 million and apparel sales slipped by 27.0 percent to €51.1 million.  Revenues from leathergoods were down by 0.8 percent at constant exchange rates for the nine-month period.

Group sales rose in all geographic areas except Italy, where revenues fell by 18.5 percent to €260.8 million. Sales in the directly-operated stores (DOS) were positive in Italy during the third quarter, largely thanks to purchases by tourists. The country represented 34.7 percent of the group's sales, down from 42.7 percent a year earlier.

Sales in the rest of Europe were up by 4.6 percent to €163.4 million, but rose at a double-digit rate in the third quarter.  The U.K. was the group's best performing market in the region in the first nine months with solid double-digit growth. The company posted positive growth in France and Russia and registered slightly negative trends in Germany and Switzerland.

In the Americas, revenues were up by 13.6 percent to €66.2 million, with a 15.1 percent increase at constant exchange rates.  Greater China, which represented 24.0 percent of the group's sales in the nine months, was up by 27.9 percent to €180.8 million, with 26.1 percent higher sales on a currency-neutral basis.

The group's chief financial officer, Emilio Macellari, told analysts during a conference call last week that sales are slowing down in mainland China but the group's performance continues to be “very good” in Hong Kong, Macao Macau and Taiwan. He noted that anti-corruption measures launched by the Chinese government, which also target excessive hedonism and extravagance, are influencing sales of luxury goods. But, he added, it is difficult to estimate the impact of the measures and whether this is prompting mainland Chinese to buy in Hong Kong and abroad.

Sales in the rest of the world were up by 9.8 percent to €81.4 million. They grew by 17.3 percent in local currencies, led by South Korea and the Middle East. Japan, which represented 3.5 percent of the group's revenues, grew at a double-digit rate in terms of yen but was down slightly in euros.

By channel, revenues generated by sales to wholesale clients and franchisees went down by 12.2 percent to €295.1 million, while sales generated by DOS rose instead by 10.5 percent to €457.5 million in euros and by  11.6 percent in constant currencies. Same-store sales were up 3.2 percent in the 45 weeks to Nov. 10, a significant slowdown compared with the 5.3 percent rise in the 31 weeks to Aug. 4.

Comparable-store sales were highest in Asia, led by Hong Kong. Japanese same-store sales were up at a double-digit rate but the performance was negative when converted into euros. Same-store sales were positive in the U.S. In Europe, a strong performance in the U.K. offset weakness in other countries. Macellari pointed that that comparable-store sales were not particularly good in France, Germany and Switzerland.

Macellari said that the group would be “happy” to maintain the 3.2 percent same-store growth rate booked in the first 45 weeks for the rest of the year, but the trends are difficult to predict. The manager pointed out that it's sufficient if the group's DOS each earn about €100,000 more to modify the top line by €20 million. At the end of September, the group had 208 DOS and 82 franchisees compared with 192 DOS and 74 franchisees a year earlier.

The group's Ebitda and Ebit margin reached 26.5 percent and 22.4 percent, respectively, in the first nine months of 2013, both roughly in line with the previous year. Margins were lifted by a more favorable channel mix, thanks to the growing share of DOS in total revenues, and the geographic mix, as sales rose faster in markets with higher markups.

The expansion of the DOS network increased the impact of rents, which represented 9.9 percent of revenues compared with 8.3 percent a year earlier. Personnel expenses rose to 15.0 percent of sales from 14.1 percent as the number of employees rose to 4,085 from 3,861 a year earlier. The company allocated €36.2 million to capital expenditure, down from €41.5 million a year earlier, to finance the expansion and refurbishing of the DOS network and to update its manufacturing and software platforms.

Working capital rose to €314.7 million at the end of September. The net cash position was €132.0 million as of Sept 30 against €118.2 million at the end of June.

Macellari said that the group has opened 24 new stores since Jan. 1 and plans at least a couple more openings before the end of the year, followed by about 15 new stores in 2014. The group has brought forward to 2013 some openings scheduled for next year because it had secured some new leases sooner than expected.

The Tod's group finished its spring/summer collection sales campaign with a drop of about 5 percent in forward wholesale orders. The decline should be offset by an increase in DOS turnover, which should lead to “flattish” revenues for the season.

Financial analysts nevertheless expect sales and Ebitda to pick up speed at the company next year following an end to the rationalization of the wholesale portfolio, the expansion of the DOS network and an improvement in the European business environment. Their consensus for 2014 sales indicates a rise of more than 8 percent to nearly €1.10 billion, compared with forecast growth of nearly 5 percent for 2013, while Ebitda is seen rising by more than 10 percent next year to nearly €290 million, doubling the growth pace expected for this year.