Salvatore Ferragamo First-half Sales, Profitability Decrease
MILAN — Salvatore Ferragamo is “in the central phase of transition,” underscored chief executive officer and general manager Marco Gobbetti as he reported declines in first-half revenues and earnings.
In the six months ended June 30, sales were down 4.8 percent to 600 million euros compared with 630 million euros in the same period last year. At constant exchange rates, they dropped 7.2 percent.
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During a call with analysts on Thursday at the end of trading in Milan, where the Florence-based company is publicly listed, Gobbetti emphasized the “good progress in the execution” of strategic priorities, in line with plans. “We kept the focus on the operating improvements and brand initiatives to support a new offering that is relevant for our customer aspirations, while continuing the optimization of our retail and wholesale networks.”
Gobbetti said a new store concept will be unveiled in Ferragamo’s women’s boutique in Via Montenapoleone in Milan in the first quarter of 2024, while the company has so far focused on touch-ups and refreshments, introducing the new logo and the dégradé red color.
The executive highlighted throughout the call that the first delivery of products by creative director Maximilian Davis started at the end of the first quarter and that around 10 percent of the fall offer was in stores, but that he was “pleased and encouraged by the reception by new and existing customers.”
At the same time, he pointed out that improving the “quality of sales and distribution” was ongoing and will bring fruits “further into the year, with a higher share of new products, continued marketing investments, together with compelling store and online execution.” By the end of 2023, the company will have closed 35 nonstrategic and underperforming stores in the past two years.
He said he imagined a third quarter similar to the second, but that he expected a recovery with a higher share of products in stores in the fourth quarter.
Gobbetti expressed confidence in adhering to the strategy he laid out last year and his medium-term ambition “while conscious of an increasingly uncertain market trend that is not ideal.” In May last year, he said he was aiming to double Ferragamo’s sales in four to five years.
Net profit, including a minority interest, amounted to 21 million euros, a decrease of 65.4 percent compared with 62 million euros in the first half last year.
Earnings before interest, taxes, depreciation and amortization totaled 134 million euros, down 25.6 percent compared with 180 million euros in the first half last year, with an incidence on revenues of 22.3 percent from 28.5 percent last year.
Operating profit halved to 47 million euros, compared with 95 million euros last year, reflecting the planned higher investments, mainly in communication.
In the first half of 2023, retail sales were down 5.9 percent to 415.1 million euros, representing 69.2 percent of the total, mainly penalized by a softening American market and selected closures planned in sync with the company’s strategic plan. The performances in Europe, Middle East and Africa region and Greater China were positive.
The wholesale channel registered a decrease of 13.3 percent to 166.7 million euros due to the planned rationalization of Ferragamo’s third-party network, mainly in the U.S., and the delayed recovery of the travel retail channel, while the EMEA region reported a positive performance. “We have streamlined and optimized the channel and should be broadly done by the end of the year,” Gobbetti said.
Sales in Asia Pacific dropped 12.9 percent to 189.8 million euros, representing 32.6 percent of the total, hurt by the weak performance in Korea and in the travel retail channel, while the performance of retail in Greater China was positive, boosted in China by local spending.
Revenues in Japan fell 11.4 percent to 45.4 million euros, representing 7.8 percent of the total.
Responding to an analyst who pointed out that Japan and China showed a weaker performance compared to Ferragamo’s peers, Gobbetti once again pointed to the “creative transition and focus on quality of sales” as a priority for the company he leads. “We have been going through a tremendous effort; in Japan we’ve been doing a lot of work elevating distribution and the same in China — 2023 is the year we lay the foundations. Quality will help margins and fuel communication and marketing investments.”
EMEA posted an increase of 10.8 percent in sales to 150.6 million euros, representing 25.9 percent of the total and delivering a positive performance in both channels.
Sales in North America were down 17.3 percent to 155.6 million euros, accounting for 26.8 percent of the total, with the wholesale channel underperforming more than proportionally, mainly as a consequence of the network rationalization. Echoing his peers, Gobbetti said Americans have been traveling to Europe to shop but that local demand has been softening in the past few weeks.
Sales in Central and South America inched up 0.4 percent to 40.3 million euros.
By category, sales of footwear decreased 4.6 percent to 266.8 million euros, representing 45.9 percent of the total.
Leather goods fell 13.6 percent to 234.7 million euros, accounting for 40.3 percent of the total. Sales of apparel were down 3.1 percent to 38.8 million euros. Fragrances decreased 5 percent to 1.8 million euros.
Gross profit amounted to 433.5 million euros, with an incidence on revenues of 72.2 percent from 71.8 percent driven by the ongoing focus on the quality of sales.
Operating costs amounted to 387 million euros, up 8.2 percent, mainly driven by the planned investments in marketing and communication costs, which reached a 10.3 percent incidence on revenues in the first half from 4.9 percent in the first half last year.
Capital expenditures totaled 17 million euros, compared with 18 million euros mainly focusing on the renovations of the retail network and investments in digital.
As of June 30, the adjusted net financial position was positive, standing at 278 million euros, compared with 309 million euros at the end of June last year.
As reported, chief financial officer Alessandro Corsi resigned at the end of June and will exit the Florence-based company on Sept. 30.
Corsi was named CFO in December 2018, effective Jan. 11 the following year.
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