Italian luxury goods group Tod’s is confident it can meet market expectations for a 5 percent rise in revenue this year and improve its core profit margin despite falling comparable store sales so far in 2016.
Tod’s said it would cut the number of new shop openings to 15-20 in the current year from 31 last year to adapt to a “more challenging market which is growing much less.” The luxury industry is grappling with a sharp economic slowdown in China, once its growth engine, an economic recession in Russia amid lower oil prices and global risks hurting tourism.
Chief Financial Officer Emilio Macellari told analysts the situation in mainland China was stabilising but there was no improvement in Hong Kong, a traditional shopping hub where Tod’s has 14 stores. Tod’s has failed so far to negotiate lower shop rents in Hong Kong, he said, managing only to avoid rent increases at two malls and it may close one or two shops there.
Greater China accounted for more than one fifth of Tod’s revenues last year. Sales there shrank 12 percent at constant currencies. Macellari said Europe, where Tod’s saw robust growth, was stable and its biggest market Italy was doing well. The Japanese and U.S. markets, however, were slowing down.
The group’s comparable-store sales continued to fall in 2016 and at a slightly faster pace than last year’s 6 percent drop. The situation was worse at the very beginning but had improved with the arrival in shops of the spring/summer collections.
“The year-to-date performance is still in the negative territory but it’s not a negative performance that can … induce us to have negative expectations for the first-quarter or full-year results,” Macellari said.
He expressed confidence that Tod’s, which has struggled in recent years as it sought to widen its product offer from shoes to handbags and clothes, would meet consensus forecasts on 2016. “It’s feasible we’re okay with the consensus,” Macellari said referring to expectations of a 5 percent rise in revenue and a core profit margin of around 21 percent of sales.
Tod’s reported on Monday a 5 percent rise in 2015 earnings before interest, tax, depreciation and amortisation (EBITDA), in line with expectations. The EBITDA margin was little changed at 19.5 percent.
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