Salvatore Ferragamo 2020 Performance Hurt by Pandemic, Sees Improvements in 2021

MILAN The impact of the COVID-19 pandemic hurt Salvatore Ferragamo’s bottom line and revenues in 2020, but the Florence-based company is seeing improvements, reporting a positive performance of the brand’s stores in the first nine weeks of 2021, topped by solid growth in China and Korea and an 85.6 percent gain in the digital channel.

Despite the measures taken to contain costs and the effects of the lockdowns around the world, Ferragamo posted a net loss of 72 million euros in 2020, compared with a profit of 87 million euros in the previous year.

In the 12 months ended Dec. 31, revenues fell 33.5 percent to 916 million euros, compared with 1.37 billion euros in 2020. Ferragamo reported a progressive improvement in the second half.

In 2020, earnings before interest, taxes, depreciation and amortization tumbled 52.6 percent to 159 million euros, compared with 336 million euros a year earlier.

During a call with analysts on Tuesday at the end of trading in Milan, where the company is publicly listed, executive vice chairman Michele Norsa admitted 2020 had “not been an easy year,” having joined the company at the end of May. He said he had been “working very hard” with chief executive officer Micaela le Divelec Lemmi and chief financial officer Alessandro Corsi, who were both also on the call, and the team, focusing on selective cost reductions, the streamlining of the organization and securing long-term financing. “We have been reasonably successful, seeing in the second part of the year relevant deleverage and a positive EBIT [earnings before interest and taxes],” said Norsa.

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In 2020, adjusted operating loss, net of the negative cost component of the impairment test, amounted to 27 million euros, compared with an operating profit of 150 million euros in 2019. In the last quarter, the adjusted operating profit totaled 34 million euros, compared with 44 million euros in the last quarter of 2019.

The executive pointed to a leaner organization; efforts including requalifying revenues in the markets with the highest potential, pushing on channels and products and the importance of China and Asia, which are “driving” business; focusing on bags and leather goods, and “regaining our shoes leadership.”

The online business recorded high double-digit growth and he said it was “reasonable to expect a similar growth rate for the rest of the year,” as Norsa also sees a “more robust recovery in the U.S than expected,” with improved foot traffic and a return to New York and Florida, which is “doing nicely.”

He also expressed confidence in the Chinese market, where he expects continued double-digit growth.

Norsa was more “prudent” on the performance in Europe, saying he could not forecast a full recovery in light of the uncertain evolution of the pandemic.

“I used to be an expert of international travel,” he said, adding with a small laugh that he was now doing his research from his home. But he expects brisk travel to resume in the second half, beginning in Asia, where the “desire to fly remains very high and domestic flights in China are now at about 90 percent of the same levels as in 2019.”

Asked about the rumors surrounding the future governance of the company, Norsa said he was “not in a position to comment on press reports.”

As reported, Ferragamo Finanziaria SpA, which controls Salvatore Ferragamo, revealed in January it was cutting back the number of family members on the board of Salvatore Ferragamo and increasing the number of independent directors, giving a mandate to an executive search firm to complete the process.

WWD reported that market sources believeNorsa, whose contract is said to expire at the time of the annual meeting, will exit Ferragamo, as will le Divelec Lemmi, who was appointed CEO at the end of July  2018. Rumors have also been swirling around the future of creative director Paul Andrew.

Ferragamo’s general shareholders meeting will approve a new board on April 22, selecting the chairman and CEO, Norsa observed. “This is the normal process, going on in continuity and harmony, that is what we can say now,” he added. He also pointed to “a positive mood,” expressing his hope the evolution of the board will reinforce the company.

Le Divelec Lemmi touted the “relevant measures put in place for more efficiency” last year, as well as a hiring freeze, temporary furloughs, rent negotiations, blocking travel globally, the elimination of nonessential expenses, and the reduction of marketing and communication investments.

She pointed to a performance “below market average” because of the strong impact of the travel retail channel, which has been accounting for more than 10 percent of revenues for Ferragamo, and of the fragrance business. “Both had benefited the brand in the past,” she said.

As of Dec. 31, the group’s retail network comprised 644 points of sale, including 395 directly operated stores and 249 third-party operated units.

In the year, retail sales were down 29.2 percent to 637 million euros, accounting for almost 70 percent of revenues. Like-for-like sales decreased 29.9 percent. Ferragamo reported a gradual improvement in the retail channel in the fourth quarter, as revenues dropped 20.4 percent compared with the same period in 2019.

The wholesale channel saw sales decrease 41.7 percent to 269.1 million euros, representing 29.4 percent of total revenues, mainly penalized by the performance of the travel retail channel and of fragrances. In the last quarter, wholesale revenues were down 33.8 percent.

Norsa said he expects more opportunities to open stores in China, given the development of real estate and new locations, also in second- and third-tier cities.

Le Divelec Lemmi said Ferragamo is finalizing and testing a new store concept to be unveiled in the second half of the year.

The Asia-Pacific area was the group’s main market, reporting a 25.5 percent decrease to 381 million euros, and accounting for 41.6 percent of total sales compared with 2019.

Sales in the region in the last quarter were down 11.2 percent at constant exchange rates, negatively impacted by the performance of the wholesale channel, in particular travel retail.

The retail channel in China in the last quarter was up 33.9 percent at constant exchange rates, boosting the full-year performance by 11.3 percent at constant exchange rates compared with 2019.

Sales in Japan were down 24.5 percent to 89.4 million euros. In the last quarter, revenues decreased 6.7 percent benefiting from the positive performance of the retail channel, up 2.9 percent.

Corsi said Macao and Hong Kong were “progressively recovering” and that he saw “a strong acceleration in Taiwan in January and February, as well as a very solid performance in Korea.”

Overall, the Asian continent represents more than 50 percent of sales.

Sales in the Europe, Middle East and Africa region were down 42.5 percent to 199.7 million euros, representing 21.8 percent of total sales. The last quarter continued to be negatively impacted by store closures and the lack of tourists, posting a 41.9 percent decrease at constant exchange rates.

Revenues in North America decreased 39.4 percent in the year to 192.6 million euros, representing 21 percent of the total. In the last quarter, they were down 26.6 percent.

In 2020, revenues in Central and South America fell 35.6 percent to 53 million euros.

By category, sales of footwear decreased 34.9 percent to 374.7 million euros, accounting for 40.9 percent of the total. However, le Divelec Lemmi said the company was seeing “signs of recovery” in the footwear category as well as in leather goods. She also cited a younger clientele and an increase in women purchasing the brand.

Leather goods were down 28.1 percent to 388.6 million euros, representing 42.4 percent of the total. Apparel fell 32.3 percent to 50.2 million euros.

Sales of fragrances dropped 52.4 percent to 41.8 million euros.

Corsi said it was “complicated to provide a forecast for the full year,” but admitted it would be “difficult to return to the gross margin of 2019 in one year.”

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