Shoes, Asia Seen as Key Assets for Salvatore Ferragamo’s Growth
MILAN — “We need to have a vision and a mission, and Salvatore Ferragamo is the ideal candidate to be a leader in women’s and men’s shoes.” So believes Michele Norsa, who returned to the Florence-based company in June as executive vice chairman, as he discussed Ferragamo’s performance in the first half with analysts on Tuesday, expressing his confidence in the brand’s core and storied category.
Norsa also pointed to another winning asset in his eyes: the brand’s “special place in the heart of consumers, especially in Asia,” which he sees as “a big advantage” over some competitors.
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To be sure, Asia Pacific has long been Ferragamo’s main market, representing 44.3 percent of total sales in the first half, even though it saw a 39.9 percent decrease in sales in the period, which amounted to 166.7 million euros. In the second quarter, the retail channel in China recovered, recording revenue growth of 11.6 percent at constant exchange rates, as it did in South Korea.
These were silver linings for Ferragamo, as it reported a six-month period ended June 30 impacted by the lockdown enforced in the wake of the COVID-19 pandemic, which dragged down its top and bottom lines. The company posted a net loss of 86 million euros, including a minority interest, which compares with a profit of 60 million euros in the same period last year.
Revenues fell 46.6 percent to 377 million euros, compared with 705 million euros at the end of June last year.
Sales in the retail channel were down 41 percent to 260.6 million euros, accounting for 69.2 percent of the total, while the wholesale channel reported a 56.4 percent decrease to 110.9 million euros, mainly penalized by the performance of the travel-retail channel in the second quarter and by the fragrance division.
As of June 30, the group counted 643 points of sales, including 389 directly operated stores.
Norsa said he was “very pleased” to be back at the company he exited in 2016 after helming it for 10 years and responded candidly to an analyst about his return.
“Leaving was mainly a personal reason as my wife was sick, but work is the best antidote, and I have had serious experiences consulting on boards, it’s very useful, I have a lot of information, I traveled a lot and I think I have more experience now. [Chairman] Ferruccio Ferragamo’s call was unexpected but I said yes right away, I find a balance with my other roles and I came with enthusiasm and joy. I found a wonderful team and I can be an important outside voice.”
Norsa shared the call with chief executive officer Micaela Le Divelec Lemmi and chief financial officer Alessandro Corsi, saying he had been working “in full harmony” with the ceo, the board shareholders and the management.
He admitted to the pressure felt, given the volatility and the uncertainties, but he had set out a series of priorities, such as a long-term financing credit line for a maximum amount of 250 million euros, which, as reported, is linked to the luxury brand hitting certain sustainability targets, and that will allow breathing room and investments over the next five years.
“We have put in place a significant process of streamlining the organization and reducing costs, and we need people to take on more responsibilities [according to the] double hatting principle.”
He was already pleased with “very satisfactory results that will drive us in 2021 with significant savings. We are facing an extremely volatile market and unpredictable events but we have opportunities in front of us to build future growth and transform our distribution.”
For example, Norsa sees opportunities for investments and to increase the brand’s presence in key cities in Mainland China and cited as “most interesting” the opening of Chinese borders to Macao, Hong Kong, Thailand and Cambodia after the pandemic.
“Nonstop flights have restarted to countries such as Canada and Denmark,” for example, he added on a positive note.
At the same time, he said he was looking carefully at markets such as Mexico and Taiwan, where the brand has a strong brand awareness and is well-positioned, he noted, as well as Russia and the Middle East.
Le Divelec Lemmi highlighted the actions taken so far, which despite the uncertainties, will help minimize the effects the pandemic had on 2020, in addition to the cash credit. “We have mitigated the stock in excess to protect the brand and keep our wholesale clean, and there has been a voluntary cut of management compensation,” she said.
The executive also pointed to a rationalization of the group’s store network, citing as an example the relocation of a banner in Canton Road in Hong Hong in early 2021, potential closures in Europe and in travel retail. “There is solid ground for growth, we plan five openings in China in second and third-tier cities, and to leverage pop-ups to engage customers.”
She also emphasized Ferragamo’s investments in its digital platform and communication and its omnichannel service. “We are not changing our priorities,” she added.
In the first half, the Japanese market registered a 37.4 percent decrease in sales, which fell to 36.9 million euros, hurt by a 56.1 percent decrease in the second quarter.
The Europe, Middle East and Africa region posted a 51.7 percent decrease to 85.8 million euros.
Revenues in North America fell 54.4 percent to 69.7 million euros, tumbling 81.1 percent in the second quarter. Norsa said he had been following the U.S. very closely, “with major changes in wholesale, which is now improving with solutions for department stores that will become more selective,” and offer better opportunities. He said the performance in the region was “mixed,” with cities such as New York being “abandoned,” but other areas such as Manhasset, Miami or Beverly Hills performing very well, although he did not deny the effects of “social turbulence.”
Sales in Central and South America dropped 54.6 percent to 17.4 million euros.
Earnings before interest, taxes, depreciation and amortization decreased by 83.9 percent to 30 million euros from 184 million euros.
The operating loss stood at 74 million euros compared with an operating profit of 94 million euros in the same period last year.
By product category, sales of shoes fell 46.4 percent to 159.5 million euros, representing 42.4 percent of the total.
Leather goods and handbags fell 43.6 percent to 158.6 million euros, accounting for 42.1 percent of the total.
Ready-to-wear dropped 47.3 percent to 19.1 million euros, representing 5.1 percent of the total.
Fragrances were down 66.3 percent to 14.1 million euros, accounting for 3.7 percent of the total, also due to the postponement of the launch of products caused by the lockdown measures in the global markets.
Operating costs decreased 17.2 percent to 300 million euros, a consequence of the cost containment, the renegotiation of rents and the streamlining of the organization. Similarly, capital expenditures decreased 56.7 percent to 11 million euros.
As of June 30, the adjusted net financial position amounted to 58 million euros, net of the IFRS16 accounting effect, compared with 141 million euros at the end of June last year. Including the IFRS16 effect, the net financial position was negative for 562 million euros.
