Ferragamo posts nine-month profit plunge, 2018 to be "year of hard work"

Italian luxury goods maker Salvatore Ferragamo will have its work cut out in 2018, its CEO said on Tuesday after the company reported a 25 percent drop in nine-month core profits.

Eraldo Poletto, who took over as CEO from longstanding Michele Norsa last year, said in February that revenue would increase at twice the market rate in the years between 2017 and 2020, confident margins would rise too.

But since then, core profit margins at the Florence-based group have been falling year-on-year, company statements show, hit by the group’s planned clearance of inventory products.

“Next year is going be another year of hard work,” Poletto told analysts in a post-results call.

The destocking is aimed at freeing up space for new products as the group is pushing to make the brand more contemporary and appealing, particularly to a rising number of young customers.

Ferragamo, known for its elegant pumps and ballerina shoes, has repeatedly said that 2017 was a “period of transition”.

In the first nine months of the year, earnings before interest, taxes, depreciation and amortisation (EBITDA) were down 25 percent to 162 million euros ($191 million), in line with forecasts, according to data from Thomson Reuters.

Revenues were basically flat at just over 1 billion euros, while same store sales in the period fell 1 percent.

The group almost doubled sales in the six years to 2015, and net profit rose threefold. But last year sales rose just 1 percent and were down 2 percent at constant currencies.

Asked whether sales and gross margins would improve in the second half of next year, once the new collection is expected to be in place, the CEO said he wanted to be cautious and that the group “had to do what is right”.

He also said that earlier this year Ferragamo had taken some “tough decisions for the long-term (growth) of the business”.

Poletto said the process would make the company more efficient and profitable but that it was still “work in progress” and that it would take some time to show results.