Milan—Tod’s disappointed on Thursday with a larger-than-expected fall in first-half core profit on lower revenue, as negative currency effects added to a weak performance in China and the United States.
First-half earnings before interest, tax, depreciation and amortization (EBITDA) were down 20% to 103 million euros (about $138 million), below an average estimate of 115 million euros in a consensus of analysts/
Revenue was down 3% to 477.7 million euros, hit by dwindling demand in China, the company said.
Increase Leathergoods, Accessories
U.S. sales suffered as Tod’s renovated its flagship store on Madison Avenue in New York, set to reopen at the end of August, and relocated a boutique in Honolulu.
In the three months ended June 14, net profit fell to 56.1 million euros (about $75.1 million) from 75.7 million euros a year earlier.
The drop reflects Tod’s decision to invest in its distribution network, communication, and human resources, which it says are necessary to support the mid-term growth potential of the group.
Domestic sales fell 7.8% to 148.5 million euros, while in the rest of Europe, revenues were up around 7% to 108 million euros.
The performance of Greater China, however, confirmed the weakness of the previous few months, with sales down 7.6% to 117.8 million euros.
The group saw the sharpest drop in sales in its home market, where it has just completed a streamlining of its wholesale distribution network in a push to make the brand more exclusive. Sales in Italy, which accounted for nearly one-third of the total, fell 8.7% in January to June.
Chief Financial Officer Emilio Macellari said an improvement in coming months should allow Tod’s to roughly halve in the full year a comp store sales drop of 8.3% percent recorded in the first 31 weeks of this year.
“We are very confident on the second half of the year,” CEO Diego Della Valle said in a statement citing positive feedback on the winter collection.
Tod’s is trying to broaden its product offering after relying primarily on low-margin footwear for too long, a narrow focus which analysts say is to blame for a sharper fall in sales and profit than other peers have seen as growth in the luxury sector eased.
Macellari said Tod’s craved to increase its exposure to leathergoods and accessories.
“Bags and accessories is where we want to be,” he said, adding however that slowing momentum in the sector did not help Tod’s transition.
Della Valle added: “Within this challenging environment, we continue to pursue our mid-term development plan, making all the investments necessary to support a solid growth of sales and EBITDA, also thanks to a careful cost control.”