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By
Reuters
Published
Mar 12, 2014
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Tod's says cautious for 2014 as net profit and sales

By
Reuters
Published
Mar 12, 2014

MILAN, Italy - Italian luxury shoemaker Tod's said it was cautious about prospects for 2014 as it posted a drop in 2013 net profit on Tuesday and said like-for-like sales had fallen at the beginning of this year.

Luxury companies saw sales growth slow in 2013 as once red-hot demand in China cooled, but Tod's has been hit harder than its peers partly because of higher exposure to its main market Italy, which is struggling to emerge from its longest recession since World War II.

The firm, whose leather loafers cost 300 to 400 euros, said net profit dropped 8 percent to 133.8 million euros ($185.5 million) and comparable sales slumped 5.4 percent in the first 10 weeks of this year after turning negative late last year.

Analysts had expected Tod's to post 2013 net profit of 139.15 million euros, according to a Thomson Reuters SmartEstimate, down from 145.5 million euros in 2012.

Tod's Chief Financial Officer Emilio Macellari said on a conference call the company expected sales to grow by 4.5 percent in 2014, just below the 5 percent rate analysts say is necessary for luxury companies to keep margins stable.

"Considering the current environment, I can consider this (sales growth rate) absolutely feasible but a bit challenging," Macellari said. "I prefer to remain a bit cautious."

Tod's has cut the number of its wholesale clients in Italy, its largest market where it makes around a third of sales, to protect against counterparty credit risk if recession-hit clients default and to allow more control over the brand.

Macellari said the process, which analysts say has taken longer than expected, was mostly complete, although the company would be ready to make more cuts if the financial situation of its wholesale clients deteriorated.

Tod's is pushing a new range of handbags, shoes and clothing, designed by ex-Gucci creative director Alessandra Facchinetti, to revive its main Tod's brand, which accounts for around 60 percent of sales.

Tod's "Gommino" driving shoe is iconic in Italy, but analysts say the company must offer other leather goods such as handbags, which typically generate higher margins than the shoe category, which makes up around 76 percent of Tod's sales.

"The real game changer (for Tod's) could be in the growth of leather goods," Bernstein analyst Mario Ortelli said.

Macellari said he hoped the Facchinetti collections, first shown during Milan Fashion Week last September, would have a material impact on the firm, without citing a time frame.

"In order to improve our legitimacy in ... leather goods ... we enhanced the strength of the brand by following a strategy of higher visibility," Macellari said.

Tod's shares rose in 2013, partly due to speculation that it could be an acquisition target, to peak at 145.50 euros on Aug. 14. As that speculation has subsided and its sales growth rate has slowed, its shares have fallen to 99.25 euros at Tuesday's close, before it posted results.

Italian leather group Salvatore Ferragamo, which makes 37 percent of its sales in the Asia Pacific area, also saw like-for-like sales growth slow in the fourth quarter but posted a 43 percent rise in 2013 group net profit.

$1 = 0.7212 euros

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