Ferragamo Quarterly Sales Down Slightly

Ferragamo revenue fell 1.2 percent in the first quarter as a steep fall in sales to third party retailers wiped out growth in the Italian fashion company’s larger direct-to-consumer business, weighing on its long running bid for a turnaround.

The drop in revenue comes on the heels of three-straight years of declines.

Revenue at constant exchange rates for the three months ended March 31 fell to €209 million ($244 million), compared with €221 million in the same quarter of last year, the company reported on Thursday. The result was in line with analysts’ expectations.

The results show that Ferragamo is still struggling to get its turnaround efforts in motion as it tries to stabilise the business after a prolonged slump. The Italian luxury house has been reducing its number of products, tightening distribution and dialling back discounting as management bets on a more focused offer and disciplined execution to revive momentum.

Florence-based Ferragamo has had trouble finding its footing for more than a decade. Revenue fell 3.8 percent last year and is a third below its 2015 level.

But the fashion house is showing signs of promise as it benefits from the luxury market’s renewed interest in classics, Luca Solca and Maria Meita of Bernstein wrote before the results were released. Recent efforts to align brand positioning, merchandising and communication as well as a reduced assortment of products have made stores more engaging, the analysts said.

“We see the makings of a possible turnaround as Ferragamo tackles shortcomings and benefits from market shifts,” the analysts wrote, adding that the relaunch recalls similar moves some years ago at Prada and Tod’s.

Ferragamo has been operating without a chief executive since the beginning of last year and hasn’t given an indication of when a new one will be appointed. Current management in place at the century-old company has said the focus is on financial recovery and that it isn’t in a rush to name a new CEO.

Ferragamo is closing more stores than it is opening, a trend followed by several of its peers, as it invests in improving the customer experience in the stores that remain.

Ernesto Greco, an executive board member, told analysts that the trend is continuing, as is the move to reduce the number of products on offer. The company is also working to reduce its bloated inventory, which will take “a long period of time,” the executive said.

Direct-to-consumer sales, which account for three-fourths of the total, rose 5.5 percent while wholesale revenue plunged 19 percent. Direct-to-consumer sales rose in all regions - including double-digit growth in North America - except Japan.

Greco said part of the drop in wholesale revenue was due to increased control over distribution and an increased focus on the most important wholesale partners.

The first-quarter performance suggests progress remains elusive for Ferragamo, underscoring both the scale of the reset and the pressure on management to show clearer signs that the turnaround is taking hold.

The company cited global instability, and in particular the conflict in the Middle East, as a potential short- to medium-term hurdle.

“With the current situation we cannot rule out the possibility that the current geopolitical situation could cause a slowdown in business...but we are not seeing that today,” Greco told the analysts.

Ferragamo shares have risen by almost a third in the past year, but they are still down 60 percent from five years ago and trade below their 2011 initial share sale price.

Learn more:

Is Ferragamo’s Turnaround Finally on Track?

After more than 10 years of turnaround efforts, recent results and conversations with management suggest Salvatore Ferragamo is moving in the right direction, write Luca Solca and Maria Meita.