MILAN — Tod’s SpA on Thursday reported a steep drop in full-year net profit as revenues remained flat, tax rates increased slightly and the company continued to invest heavily in initiatives aimed at accelerating top-line growth.
In a statement released after the close of trading in Milan, where Tod’s is listed, the company — which produces Tod’s, Roger Vivier, Fay and Hogan branded shoes, apparel and accessories — said net profit in 2014 was 97.1 million euros, or $129.1 million, compared with 133.8 million euros, or $178 million, the year before.
The company on Jan. 22 reported flat revenue growth of 965.6 million euros, or $1.8 billion, for 2014.
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Dollar amounts have been converted at average exchange for the periods to which they refer.
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In the statement, Tod’s chairman and chief executive Diego Della Valle said: “As already noted and commented in previous quarters, in the fiscal year 2014 our group recorded a temporary slowdown in operating profits, due to our strategic decision to continue to invest in production capacity, communication, research and, especially, in the retail distribution network, despite a particularly challenging environment, characterized by weak consumer spending in major markets for luxury goods.”
Della Valle added he is “confident that in the current year, our group’s revenue and profits will start to grow again, despite the still uncertain and challenging context.”
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Pre-tax profits were 144.4 million euros, or $192 million, and while in absolute terms the tax take for the year — at 47.6 million euros, or $63.3 million — was lower than in 2013 (57.2 million euros, or $76.1 million), the effective rate increased to 33 percent, compared with 29.9 percent in 2013. Chief financial officer Emilio Macellari explained that the increase was due to “a different, and less favorable, mix of markets,” with a higher part of the profits generated in countries with higher tax rates.
Macellari also pointed to the challenging consumer environment — especially in Asia — as an important factor that affected the company’s performance last year and which continues to be a drag this year.
Same-store sales in the first 10 weeks of 2015 were down 10.6 percent, at constant exchange rates, on the same period last year (when they were down 3.6 percent at current exchange), he said. Macellari explained that the consumer environment in China and Hong Kong remains “tough” while very cold weather conditions in the U.S. in January and February impacted demand for the spring-summer collections. Macellari added that, as far as the collections go, “the most sellable, interesting parts of the collection was not already into the stores at the beginning of the year and is starting to contribute to the performance only starting from the very end of February and the beginning of March.”
The executive was upbeat about the current climate, saying he felt the company could recover from its slow start to the year already starting from the second quarter. “As far as guidance for 2015, and in particular like-for-like…we are confident that we can very soon be back to a positive like-for-like, at least at the reported (current) exchange rate. This is not to say that we foresee like-for-like being positive only at the reported rate.” He added that he was “quite confident” that analyst consensus full-year sales growth of 5.5 percent “can be achievable….I am not worried about this as a potential target.”
He also said he felt confident that the consensus earnings before interest, taxes, depreciation and amortization margin of 20.3 percent — up from reported 20 percent in 2014 — is “a fair assumption of a result we can achieve in 2015.”
Macellari also offered some new details on the company’s retail development strategy, saying Tod’s would open some 25 locations this year — “slightly above our cruise speed as far as store openings are concerned.” Not all will be flagships; some will be shops-in-shop in department stores. “Good focus will be put on the U.S., where we’ll open four stores by year-end,” Macellari said. In China, the company will open “a bit more” than in the U.S., while Europe is also slated for a “high single-digit” number of new locations. “As of today we have already opened eight locations and we are in first part of first quarter of the year,” he said.
More retail locations invariably translate into higher operating costs. Responding to an analyst who pointed out that some of Tod’s competitors have highlighted increasing location rents, Macellari seemed to confirm this, saying the company was adding more stores in markets — like the U.S. and China — that require higher payments on revenues and “this will push higher the incidence of rents on sales.” He added that for this year the company wanted to enter into “not easy but possible discussion” with landlords in Asian markets, because due to reduced consumer spending and lower traffic in malls, “we have arguments to discuss possible reductions in rent. We are not considering as highly probable savings from this, but we have to try.”
Speaking about the group’s brands, Macellari pointed out that Roger Vivier “is reputed to remain the fastest growing brand we have in our portfolio,” adding that he expected it to have the highest revenue growth of all the group’s brands by year-end. “Despite this, we are not changing our strategy of keeping this brand the most exclusive as possible. We don’t want to inflate the distribution and water down the brand by making it available just around the corner everywhere.”
Asked whether there was any news regarding the expected renewal of the Roger Vivier license — which terminates at the end of 2016 — Macellari said that a decision will be made by the end of this year, with discussions expected to begin in July. “The solution can be, first, a simple renewal of agreement; second, not a renewal and not a purchase — and we can ‘lose’ the brand; third, an acquisition. I am confident the second is less probable; I don’t consider likely that we lose the business of Roger Vivier.”