Ferragamo sales fall 7.2% on Asia, North American declines
CEO Marco Gobbetti said the brand is in the process of putting Maximilian Davis’s collections into stores and clearing up distribution networks.
August 3, 2023
Ferragamo’s revenue dropped 7.2 per cent year-on-year to €600 million in the first half of 2023, ended 30 June 2023, the company said Thursday, caused by slow recovery in travel retail and double-digit sales declines in North America and Asia Pacific.
Net sales in APAC were down 10.4 per cent in the first half, weakened by slower travel retail recovery and performance in Korea and Southeast Asia. Sales in China were up, the brand said, but it doesn’t break out the country’s performance. While other luxury brands reported strong performances in China — enough to offset declines elsewhere — CEO Marco Gobbetti noted a slight market-wide dip in performance in China in the past few weeks. In North America, the company saw an 18.6 per cent decline in net sales due to challenges caused by its planned changes to its distribution channel strategy, in line with performance trends across luxury. Sales in Latin America were down 7.3 per cent. In EMEA, sales increased 10.9 per cent.
“In the EU, we haven’t seen a major change, we’ve seen a normalisation. In terms of other nationalities, they’re very much reflecting the state of the markets. For Chinese [consumers] spending domestically, they’ve not significantly started to travel, while Americans have been continuing to travel to Europe, so we see a good portion of their spend happening abroad,” Gobbetti said.
Gross profit increased to 72.2 per cent of revenues as the company has been focusing on its quality of sales, channel optimisation, and new product assortment. But ramped-up marketing spend ate at net profits, which fell 65.4 per cent to €21 million.
Gobbetti joined in January 2022 from Burberry, appointing Fashion East graduate Maximilian Davis to lead as creative director in March 2022. Gobbetti told analysts that Davis’s collections so far have been received well throughout the first half of this year, but just 10 per cent of the collections are made up of Davis’s new designs, meaning the full effect of his creative leadership won’t be seen until the end of the year.
“We are pleased by the early results of the products designed by our creative director, Maximilian Davis. These new products still represent a very small portion of the total offer and are yet to contribute meaningfully to the overall sales performance, which reflects, at this stage, the acceleration of the transition from the previous creative course, as well as our ongoing focus on quality of sales and distribution,” said Gobbetti.
In the meantime, Ferragamo has been clearing up its retail and wholesale networks to optimise the distribution strategy and make space for new products. Net sales from retail channels decreased by 4.5 per cent due to weakened consumer demand in the US in addition to around 13 planned store closures, while performance in EMEA and China were positive. Meanwhile, net sales from wholesale channels dipped 14.3 per cent due to its planned wholesale network optimisation in the US and due to slow progress in the recovery of travel retail.
“This is an optimisation that we’re doing; it’s not a restructuring of the network,” Gobbetti told analysts. “We’re gradually closing stores that we feel are not strategic in terms of the customers, the locations, the contribution they gave to the margins of the company. We don’t expect there will be more closures going forward, but overall I think between 35 and 40 stores was the optimisation we envisioned.”
Gobbetti added that Q3 is likely to be similar to Q2 and that he expects the revenues to stabilise toward the end of this year once a higher share of new products has been introduced. Despite the performance, Gobbetti is confident that investors will start to see the positive effect of his transition strategy in 2024. “It’s not only a creative transition, it’s also a focus on the quality of sales that we’re implementing, and this focus on quality is not just in terms of optimisation of the network and reduction of markdowns, it’s about policies, it’s about quality of product that we’re transitioning to,” says Gobbetti.
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