Tod’s Cautious as 2013 Profit Falls

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Fall/winter shoes and handbags at Tod's recent presentation at Milan Fashion Week

Fall/winter shoes and handbags at Tod’s recent presentation at Milan Fashion Week

Milan—Tod’s Group today reported its 2013 net profit fell 8% since sales didn’t make up for costs that were affecting profitability. Price of its shares fell more than 4% in trading earlier today after the announcement.

For the year, Tod’s net profit was 133.8 million euros (about $186 million), that missed analysts’ average estimate for 139 million euros profit. The company noted that like-for-like sales at the start of 2014 were down, too.

Emphasis on Leathergoods

In January, Tod’s reported its 2013 sales edged up 0.5% to 967.5 million euros (about $1.34 billion) compared with 963.1 million in 2012. That was below the 986 million euros that analysts had expected.

The groups’s Roger Vivier brand posted the highest sales increase and was up over 50%. Hogan and Fay saw their revenues decline by 11% and 23%, respectively, due to the two brands’ high penetration into the beleaguered Italian marketplace.

Greater China continued to Tod’s top market where sales were up 21% to 237.5 million euros.

Ebit declined 7.5% to 193.1 million euros, while EBITDA was down 5.5% to 236.3 million euros, since operating profitability was particularly affected by the higher rents and labor costs.

Chief Financial Officer Emilio Macellari said expected sales to grow by 4.5% in 2014, just below the 5% 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 been reducing its wholesale clients in Italy, a process Macellari said is taking longer than expected.

Macellari said he hoped the latest collection by creative director Alessandra Facchinetti, shown during Milan Fashion Week last September, would have an impact results.

“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.

That may be a good direction, some luxury analysts said since leathergoods, such as handbags are generally higher margin that footwear which accounts for 76% of Tod’s sales.

“The real game changer (for Tod’s) could be in the growth of leathergoods,” Bernstein analyst Mario Ortelli said.