Italy's Tod's ready to make short-term sacrifices for medium-term growth

Italian luxury group Tod's said on Thursday it was ready to make short-term sacrifices in margins and revenues in pursuit of medium-term growth as it turns away from fashion to focus on higher-end products.

The brand, known for its traditional Gommino loafers, has struggled in recent years to broaden its product range and diversify from its best-selling but more classic items.

Chief Financial Officer Emilio Macellari told analysts on Thursday the group did not want to compete with fashion brands but would turn to "a more reliable, regular and stable kind of market, in more iconic and traditional products," closer to the brand's heritage.

These would include high-end bags, shoes and clothing.

Macellari said the change in strategy would provide Tod's with a regular growth trend in the years to come.

"If to do this in the short-term we need (to make)sacrifices... then we will... but we want to collect the results in the medium (term)," Macellari said, after the company posted a 3.2 percent drop in first-half sales.

He added that the goal was to reach "mid-to-high single digit" growth in the mid-term.

Chairman and CEO Diego Della Valle said in a statement he was confident Tod's would register "significant improvement in sales and margins in the future".

Analysts polled by Thomson Reuters expect full-year sales of just over 1 billion euros and a core profit (EBITDA) of just under 180 million euros, in line with last year's results.

Macellari said that the market's expectation for this year's core profit was "reasonable and can be done."

Tod's sales in the first six months came in at 483 million euros, down 3.2 percent at constant exchange rates compared with the same period last year and in line with a Thomson Reuters estimate.

Same-store sales in the period were down 2.7 percent at constant exchange rates, after falling 12 percent in 2016.

Macellari said that, although not he was not happy with same-store sales performance in the second quarter, he could see moderate improvements in growth.

"I cannot say for sure that it will be positive tomorrow, but we see all the positive signals that we would like to see in the market," he said.

Tod's sells under four separate lines: Tod's, Hogan, Fay and Roger Vivier, the latter being the strongest performer in the first half with an 11 percent rise in revenues.

Clothing, which represents just 6 percent of total revenues, grew the most, up 2.7 percent year-on-year, while shoes, 80 percent of total sales, were down 3.7 percent at constant exchange rates.