Tod's released a relatively reassuring forecast for the current financial year, although its results for the first quarter came in below market expectations, showing a drop in the gross operating margin (Ebitda) to 18.2 percent from 22.4 percent a year earlier. At constant exchange rates, the Ebitda margin would have decreased even further, down to 17.1 percent.
In a conference call, the chief financial officer of the group, Emilio Macellari, said that he was slightly more prudent than before in view of the first-quarter results but added his continued belief that Tod's will eventually meet market expectations by reaching a stable Ebitda margin of around 20 percent on an increase of about 6 percent in full-year sales from last year's level of €965.5 million.
Macellari noted that same-store sales had become positive again in April, after falling by 10.6 percent at constant currency rates in the first quarter. In the 19 weeks from Jan. 1 to May 10, comparable store sales were down by 7.8 percent on a currency-neutral basis and were positive in terms of euros. He put down the April recovery to an improvement in weather conditions and the contribution of the spring/summer collections.
The manager is also expecting that cost saving measures launched at the end of 2014 will positively impact results in the second half of the year. The company does not plan to reduce its advertising and promotion budget, which will remain at around 9 percent of sales.
Macellari anticipates that the results will also benefit from a softer comparison base in the second half of the year. From September 2014, the group suffered greatly from the civil unrest in Hong Kong, a market that represents 10-12 percent of its total sales.
In the first quarter ended March 31, Tod's booked group sales of €257.7 million, up by 1.5 percent in euros and down by 3.1 percent at constant rates. The group reiterated that it failed to significantly benefit from the weakening of the euro because of its conservative hedging policy. Overall, Tod's does not expect favorable currency fluctuations to add more than €50 million to its top line in 2015.
By brand, revenues fell in the quarter by a reported 0.3 percent to €142.3 million for Tod's. Hogan was up by 3.7 percent to €68.1 million, Fay grew by 1.6 percent to €14.2 million and Roger Vivier rose by 5.3 percent to €32.9 million.
At constant currency rates, Tod's was down by 5.9 percent, with weak sales in Asia offsetting positive scores in Italy, the rest of Europe and the Americas. Hogan grew by 2.5 percent, booking positive results in all the regions. Roger Vivier fell by 4.1 percent, but posted positive results in all the markets except Greater China.
By product category, the group's total sales of shoes increased by 4.3 percent to €204.4 million, leathergoods and accessories fell by 10.4 percent to €37.0 million and apparel sales slipped by 1.5 percent to €16.1 million. In local currencies, footwear revenues were down by 0.5 percent, while leathergoods and accessories fell by 15.7 percent.
The group expects footwear to continue outperforming leathergoods for the balance of the year, but the growth pace between the two categories is due to narrow. The company said that sales of leathergoods were in line with expectations when ignoring the effect of a shift in the timing of deliveries.
Macellari said that the new line of Tod's handbags has been well received by the market and sales are expected to improve during the rest of the year. Noting that the demand for the collection is generating “something like a waiting list,” the executive described this as the first positive response by the market to the group's expensive and time-consuming strategy to enter the world of fashion. In February 2013, the group hired Alessandra Facchinetti as creative director for Tod's in an effort to give the label a more contemporary image and turn it into a lifestyle brand.
Quarterly revenues rose in Italy by 0.8 percent to €89.7 million, but the country's share in the group's sales continued to shrink and represented 34.8 percent of total sales in the first quarter against 35.0 percent a year earlier. Sales in the rest of Europe were up by 4.6 percent to €58.7 million, or by 2.2 percent at constant currency rates, partly underpinned by Asian tourists.
In the Americas, revenues rose by 10.6 percent to €20.9 million at actual currency rates but fell by 2.5 percent in local currencies due to very bad weather on the East Coast and lower purchases by Asian tourists.
Sales in Greater China fell by 3.9 percent to €53.9 million, and plummeted by 15.0 percent in local currencies. Mainland China, which represents about half the group's turnover in the region, posted a significant improvement while sales in Hong Kong and Macau were weak due to a general decline in store traffic and consumer spending. Tod's, like other tenants, is seeking a rebate on rents in Hong Kong because the market is now “completely different” to when the group accepted its leases. Macellari said that so far landlords have been united in refusing requests made by Tod's and other tenants.
Sales in the rest of the world were up by 2.3 percent to €34.5 million, but they fell by 2.9 percent in local currencies.
By channel, revenues generated by sales to wholesale clients and franchisees were up by a reported 1.4 percent at €120.1 million, or by 0.6 percent in local currencies. Revenues generated by DOS grew by 1.7 percent to €137.6 million in euros, but fell by 6.3 percent at constant exchange rates.
At the end of March, the group had a total of 242 DOS and 94 franchises compared with 223 DOS and 85 franchises a year earlier. The group noted that it added 10 stores to its network in the first quarter of 2015, thus almost completing its roadmap for the whole of 2015. The company has planned for a total of about 15 new store openings for the year, even though it does not rule out exceeding the figure if opportunities arise.
Operating profits were affected by the group's policy to continue investing in its retail network. The Ebitda margin was weighed down by higher costs due to the expansion of the DOS network, including rent expenses, which represented 11.7 percent of sales against 10.2 percent the prior year, and labor costs, 17.1 percent compared with 15.4 percent. The Ebit margin dropped to 13.6 percent from 18.3 percent.
Capital expenditures fell to €15.9 million from €18.3million. The cash pile slipped to €94.1 million at the end of March from €130.0 million at the end of December as the group's net operating working capital rose to €329.4 million in the quarter from €288.3 million a year earlier due to higher inventories stemming from the expansion of the DOS network.
Regarding the future of the Roger Vivier license, which expires in 2016, Macellari said that talks will take place in the second half of the year. More information should be available during the quarterly conference call with analysts scheduled for Nov.11. He said that the management of Tod's and financial investors agree that the best option for the company would be the outright purchase of the brand. It is owned by the Della Valle family, who are also the main shareholders of Tod's.