The results released by Tod’s for the nine months ended last Sept. 30 have generated concern about its strategy, as its profits grew less rapidly than expected, indicating that the group will likely miss its profit objectives for the full year.

Sales rose by 14.1 percent to €499.9 million during the 9-month period, largely in line with analysts’ predictions, and they were up by 16.0 percent at constant currency rates. However earnings before amortization and depreciation (EBITDA) increased to €113.6 million from €107.4 million. Earnings before interest and tax (EBIT) rose to €95.7 million from €89.7 million and net income went up to €57.3 million from €52.6 million.

Financial analysts were expecting sales of €499.4-502.0 million, EBITDA of €121.7-124.4 million, EBIT of €103.0-105.2 million and a net profit of €62.0-63.2 million.

Sales per brand showed a 6.8 percent increase to €267.9 million for Tod’s, a 23.5 percent increase to €147.1 million for Hogan, a 12.6 percent rise to €69.9 million for Fay, a 155.2 percent rise to €12.2 million for Roger Vivier and a 71.5 percent increase to €2.8 million for other lines. At constant currency rates, all brands booked double-digit growth, with the flagship brand Tod’s rising about 10.0 percent.

Per product, shoe sales rose by 17.4 percent to €325.1 million, leathergoods and accessories by 5.3 percent to €106.0 million, clothing by 13.3 percent to €68.2 million and other products by 23.3 percent to €0.6 million. At stable currency rates, footwear sales rose 19 percent, while leathergoods and accessories, which are particularly important for the American and Asian markets, rose by 9.4 percent.

Per geographic area, sales rose by 18.8 percent in Italy to €252.0 million, by 10.4 percent in rest of Europe to €128.9 million, by 10.3 percent in North America to €47.4 million, and by 7.9 percent in Asia and the rest of the world to €71.6 million. On a currency-neutral basis, North America was up by 19.0 percent and Asia by 15.2 percent.

By sales channel, directly-owned stores (DOS) saw their sales rise by 13.4 percent to €223.9 million, while sales to franchised and independent stores rose by 14.6 percent to €276.0 million. At constant exchange rates, DOS sales rose by 16.6 percent and wholesale sales rose by 15.6 percent. The growth in DOS sales on same-store basis accelerated to 13.5 percent in the 9-month period from 10.8 percent for the first half, and further acceleration was recorded in October.

The retail network at the end of September comprised 126 DOS, 61 franchised shops, against respectively 110 and 63 at the end of 2006.

The management is confident that the Christmas season will provide “great satisfaction” and confirmed that sales and net profits will increase for the full year. Based on an “excellent” order inflow for the Spring/Summer 2008 collection in all markets and for all the product lines, the group also expects “very good results” for next year.

But the reassuring message send out by the company did not calm the market’s concern about the group’s flagging profit margins and the stock dropped to below €50 per share, the level at which it was trading two years ago.

Tod’s has the curious habit of releasing two sets of guidance - one accompanying its press releases, which is usually upbeat and generic, and a more fine-tuned one that is strictly reserved for financial analysts. It is one of the few companies in the industry that restricts access to its conference calls. Unfortunately, for the general public, the equity markets focus on the restricted guidance, which is giving analysts the jitters.

The luxury shoe and apparel company has issued a forecast that its EBITDA margin will increase by 1.0-1.5 percentage points on an increase in revenues of between 10 and 15 percent. The company has being making noises that the actual improvement in EBITDA is likely to be in the lower end of the range, but after the release of the 9-month results there is a growing belief that it will end up way below its guidelines.

For the first nine months, the EBITDA margin was 22.7 percent of sales, only slightly better than the 22.3 percent registered in the first half and largely below market expectations of a margin of 24.4-24.8 percent.

The greatest area of concern is the performance of the leathergoods and accessories collection, which is the group’s most profitable line of products. Tod’s expects leather goods and accessories to increase their share of total shares in the fourth quarter thanks to the Christmas season. However, the percentage is not expected to exceed 25 percent of sales compared with about 21 percent in the first nine months.

Privately, the management told analysts that it has low visibility about its trading performance in last part of the year.

BNP Paribas has calculated that, to achieve a 1.0 percentage point improvement in its 2007 EBITDA margin, Tod’s would have to boost it to 34.0 percent on sales of €150 million in the fourth quarter, largely through a surge in the sales of leather goods and accessories. However, the French bank feels that this is unlikely due to growing competition in that field, and forecasts a fall of 0.5 percentage points in the full-year EBITDA margin from 23.1 percent in 2006.

Analysts are also worried about the group blurring its image of “casual chic” through its recent launch of certain fashion products. BNP Paribas sees competition increasing in the casual chic footwear with the arrival of newcomers.

The share price of Tod’s would have probably declined further if its chairman, Diego Della Valle, had not continued to buy its shares on the market. He purchased €15.24 million worth of shares between Nov. 14 and Nov. 16, just after the release of the 9-month results.