Salvatore Ferragamo Top Brass Discusses Independence, Creativity

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MILAN — “Being independent gives you pride and flexibility.”

Just as the M&A scene heats up, this is how Michele Norsa, executive deputy chairman of Salvatore Ferragamo, responded to a question during a conference call with analysts on Tuesday, commenting on the company’s increase in profitability and revenues in the first quarter of the year.

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Speculation about a possible acquisition of Salvatore Ferragamo continues to hover over the brand, despite the Ferragamo family’s repeated assertions that the company is not for sale. But the effects of the pandemic are emphasizing the power of the larger fashion conglomerates, as noted by the analyst.

“It’s clear larger groups benefited from their organization, financial strength and global presence during the pandemic, but a single brand company of medium size can take advantage from [its own] reorganization in such a moment because in a very fragmented women’s shoe market, with companies that are disappearing or losing market shares, I believe there is still interest in the uniqueness of Ferragamo, and the charm of Italy for travelers will give us new opportunities in the short [term], and we will be able to regain the position we had in the past,” Norsa contended.

The executive was also asked about his precise role at the company, to which he returned in May 2020 after leading Ferragamo for a decade. “My role is executive, more about strategies, and not operational. I am not involved in the running of the company. I work with the family shareholders and the younger members, in team with the CEO. It’s an excellent team as we’ve proved in the past 11 months and I hope I can still give added value to the company,” explained Norsa. As reported, last month Norsa and CEO Micaela le Divelec Lemmi were reconfirmed in their roles.

Shoes and leather goods remain a focus for the company, said le Divelec Lemmi, and the two categories, with the performance of China, helped boost Ferragamo’s performance in the first quarter.

In the three months ended March 31, the net loss amounted to 600,000 euros, compared with a net loss of 41 million euros in the first quarter of last year.

Revenues rose 10.3 percent to 245 million euros compared with 222 million euros in the same period last year, despite the ongoing lockdowns of stores in some countries, impacted by the pandemic

In the quarter, retail sales were up 17.2 percent to 166.7 million euros, representing 68.2 percent of the total. Like-for-like sales grew 14.7 percent.

Wholesale sales were flat, inching down 0.7 percent to 75.9 million euros, accounting for 31 percent of the total, despite the persistent negative trend of the travel retail channel. Norsa said he believes “travel retail in two or three years will come back in full shape, traditional mom-and-pop stores and multibrands are affected by the crisis, but there are opportunities for us to partner with some traditional wholesalers with more concessions. Wholesale is a good challenge to understand the consumer.”

As of March 31, the group had 638 points of sales, including 390 directly operated stores and 248 third-party operated stores.

Le Divelec Lemmi reported an “overall recovery” in the first quarter, but the company is “still feeling the effect of the retail stop-and-go lockdown in Europe and Japan.” She said 55 stores are still closed, of which 29 are in Europe and 23 in Japan. In addition, 129 stores are working at reduced hours, so she estimated that 50 percent of directly operated stores are not working up to speed. However, “sales are growing and retail over-performed wholesale,” said the executive, ticking off initiatives put in place to support local and new customers.

Sales of footwear grew 8 percent to 99.2 million euros, representing 40.5 percent of the total.

Sales of leather goods grew 18.2 percent to 106.7 million euros, accounting for 43.7 percent of the total.

Apparel fell 3.9 percent to 12.4 million euros, and fragrances grew 5.3 percent to 10.4 million euros.

As reported, following the exit of creative director Paul Andrew, Ferragamo said it would rely on its “solid” in-house team and the company’s craftsmanship. Asked about any developments in this regard, le Divelec Lemmi confirmed that the team is working on the next collection to be shown in September. However, she admitted that “we are thinking of the next steps, but we will communicate them when we will be ready.”

In the quarter, the Asia Pacific area was confirmed as the group’s top market in terms of revenues, increasing by 50.6 percent to 104.5 million euros, accounting for 42.8 percent of the total.

The retail channel in Greater China posted revenue growth of more than 105 percent at constant exchange rates and was up 6.1 percent compared with the first quarter of 2019. In particular, the retail channel in China posted an increase in revenues of more than 128 percent compared with the first quarter last year at constant exchange, bringing the performance to a growth of 39.4 percent at constant exchange compared with the first quarter in 2019. “China is a most important driver and has shown great potential and consistency in different regions. It is also open to future developments and retail investments in shopping areas,” said Norsa.

The Far East has the potential to offer more growth, and he expects Japan to improve after the lockdown and with the Olympics, as he is confident traveling will pick up in Asia, the U.S. and the Caribbean. “Travel remains a most important factor for luxury,” he noted.

The retail channel in Korea also posted a solid growth trend in the first quarter, up 33.7 percent compared with last year and up 25.4 percent compared with the first quarter of 2019 at constant exchange.

Sales in Japan decreased 9.3 percent to 22 million euros, penalized by the evolution of the pandemic and the consequent restrictions.

Overall the Asian continent represents more than 51 percent of the group’s total revenues.

The Europe, Middle East and Africa region posted a decrease in revenues of 20.5 percent to 47.3 million euros, representing 19.3 percent of total sales, still strongly penalized by lockdowns of stores and by the lack of tourist flows in the period.

Sales in North America were up 9.9 percent to 58.5 million euros, representing 23.9 percent of the total. At constant exchange, they rose 18.2 percent.

Norsa highlighted the improvement of the U.S. market, which is benefiting from “large liquidity, government [stimulus] and savings,” seeing “signs of revenge shopping” in tourist destinations from Miami and Las Vegas to Los Angeles.

Revenues in Central and South America were down 20.1 percent to 12.1 million euros, with a positive trend in all markets with the exception of Mexico, due to the continued lockdown.

In the quarter, earnings before interest, taxes, depreciation and amortization amounted to 48 million euros, up from 12 million euros, with an incidence on revenues of 19.5 percent from 5.2 percent.

Operating profit totaled 7 million euros, compared with an operating loss of 36 million euros last year.

Le Divelec Lemmi highlighted the efforts to improve profitability, through a “very important plan of internal reorganization, and a leaner structure,” as the company reduced its headcount “in a significant way,” without disclosing a precise number. “We are starting to benefit from the structural savings,” she said.

While declining to provide an outlook, le Divelec Lemmi said the second quarter is “showing an acceleration versus the first quarter and compared with 2019. We are trying to accelerate and close the gap with 2019, but it depends on how travel retail will recover and on Europe’s performance. We want to grow our top line in a clear way, and not inflate it with off-price and promotions.”

“The May scenario is definitely better than March,” said Norsa. “We’ve seen improvements in vaccinating people in more developed economies, improved retail sales in very important market areas, and the dynamics for the luxury sector are still looking positive.”

Ferragamo has raised its prices by 5 percent across markets and product categories. “Over the past three seasons, we’ve raised prices midsingle-digits depending on the currency fluctuations and the geographies,” said the CEO.

Capital expenditure totaled 6 million euros, up 12.6 percent due to more investments in the retail network and in the digital channel.

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