Tod's expressed confidence it would increase its full-year sales by more than 4 percent as well as slightly lifting its operating margin before amortization (Ebitda) despite ongoing volatility in consumer trends. The company did not provide a specific target for 2010 but indicated that the consensus of financial analysts' forecast for this year could be reached and even beaten for both revenues and operating margins.
Financial analysts believe that the group's 2010 turnover will rise by about 4.5 percent to around €745 million from €713.1 million a year earlier, and that Ebitda could rise to €168 million from €158.7 million, lifting the margin on sales to 22.6 percent from 22.3 percent.
The comments were released with the company's first-quarter results, which showed a 3.4 percent sales increase to €208.1 million, beating market expectations of revenues of about €200 million. At constant currency rates, sales rose by 3.1 percent.
The group's sales in the first three months of the year are traditionally skewed toward wholesale, as deliveries of the spring/summer collection to the company's directly operated stores (DOS) generate revenues only in the second quarter.
Shoe sales paced forward by 7.6 percent to €155.7 million, leathergoods and accessories dropped by 9.9 percent to €28.5 million, apparel was down by 4.2 percent to €23.7 million and revenues from other products were unchanged at €0.2 million. The turnover in leathergoods was affected by the introduction in the second half of 2009 of cheaper products that diluted revenues but offered the same profitability levels.
Tod's indicated that its order backlog for the fall/winter 2010 collection is up by a ?high single digit? compared with the previous year and that shoes and leathergoods are experiencing similar growth rates. The increase in orders has been achieved with a similar client base. Last year, the group trimmed its distribution network to about 1,300-1,400 doors to reduce the risk of bad debt.
Sales by brand showed that Tod's rose by 4.2 percent to €101.6 million, Hogan jumped by 7.7 percent to €80.2 million, Fay fell by 13.4 percent to €21.9 million and Roger Vivier advanced by 7.9 percent to €4.2 million. Revenues from other brands were flat at €0.2 million. Hogan found some support from its diversification into apparel but also increased footwear sales as the brand continues to be rolled out in new markets.
By region, group sales increased by 4.4 percent to €121.6 million in Italy, fell by 5.5 percent to €44.0 million in the rest of Europe, rose by 5.5 percent to €11.6 million in North America and were up by 13.3 percent to €30.9 million Asia and the rest of the world.
The group was upbeat about the U.S. market, where turnover enjoyed a double-digit growth in dollars. It plans to focus on developing its presence in the U.S. market but will open stores only if they prove to be profitable. Otherwise, Tod's will continue to work with department stores. The company emphasized that the purchase of a stake of more than 9 percent in the retail chain Saks by the family company of its chairman, Diego Della Valle, is a private investment that could create business opportunities for Tod's but the group is not expecting ?any favors from Saks.?
By channel, first-quarter revenues generated by sales to third parties and franchisees increased by 2.0 percent to €129.7 million and sales generated by directly operated stores rose by 5.8 percent to €78.4 million.
The company continues to improve comparable sales at its directly operated stores, which rose by 4.3 percent in 18 weeks to May 2 compared with a 0.7 percent increase in the first 10 weeks to March 7. For the whole of 2009, same store sales fell by 0.2 percent but were higher during the latter part of the year.
Tod's explained that in January comparable store sales were negative because the group had decided to limit deliveries at its DOS to reduce inventory risks. Limited product available hit revenues in the sales period. Nevertheless, comparable turnover figures picked up in February and started accelerating in March to reach mid- to high-single-digit growth. The group expects the trend seen in the last eight weeks to continue.
At the end of March, Tod's had 149 DOS and 72 shops in franchising, roughly in line with a year earlier when it had 150 DOS and 72 franchisees. Since the end of the quarter, the group has opened an additional store, lifting the DOS tally back to 150. The group could open up to 10 DOS by the end of the year.
Tod's is expected to invest around €27 million in 2010, against €20.1 million in 2009, mainly in its retail network. The group already invested €8.5 million in the first quarter.
In the quarter, the group's Ebitda margin rose to 23.4 percent of sales from 22.2 percent a year earlier and the Ebit margin increased to 19.7 percent from 18.3 percent.
The group generated a positive cash flow in the quarter, largely thanks to the containment of its net operating working capital which fell to €235.4 million from €284.6 million a year earlier. Its net cash pile increased to €180.2 million at the end of March from €177.2 million at the end of 2009.
The company does not rule out using the funds for an acquisition if an opportunity arises, but it is likely that part of the cash will be distributed to shareholders next year through an extraordinary dividend. Tod's sees the equivalent of 20 percent of its turnover as a safe level of cash. Based on forecasts by financial analysts, the company will have more than €200 million in cash on its books at the end of the year, indicating that it could earmark over €50 million for an extraordinary dividend and still have a cash reserve of around €150 million.