Salvatore Ferragamo S.p.A.
The Board of Directors approves the Consolidated Interim Report as of 31 March 2020
Salvatore Ferragamo Group Three Months Revenue -30.1%, Operating Profit (EBIT) -36 million Euros, Net Profit -41 million Euros and Positive Net Financial Position adjusted5 of 123 million Euros
  • Revenues: 222 million Euros (-30.1% vs. 317 million Euros at 31 March 2019, -31.5% at constant exchange rates2)
  • Gross Operating Profit (EBITDA[1]): 12 million Euros (-82.2% vs. 65 million Euros at 31 March 2019)
  • Operating Profit (EBIT): -36 million Euros (vs. 21 million Euros at 31 March 2019)
  • Net Profit: -41 million Euros (vs. 11 million Euros at 31 March 2019)
·        Net Financial Position adjusted5 (net of IFRS16 effect): positive for 123 million Euros (vs. 179 million Euros positive at 31 March 2019)
During the same meeting The Board of Directors of Salvatore Ferragamo S.p.A. resolved:
·        to appoint the Supervisory Body
Florence, 12 May 2020 – The Board of Directors of Salvatore Ferragamo S.p.A. (MTA: SFER), parent company of the Salvatore Ferragamo Group, one of the global leaders in the luxury sector, in a meeting chaired by Ferruccio Ferragamo, examined and approved the Consolidated Interim Report as of 31 March 2020, drafted according to IAS/IFRS international accounting principles (“non-audited”).
To note the introduction of the new IFRS 16 accounting principle as of January 1, 2019, relating to the accounting treatment of leasing contracts, according to which all performance indicators have been computed.
Notes to the Income Statement for 1Q 2020
Consolidated Revenue figures
As of 31 March 2020 the Salvatore Ferragamo Group reported Total Revenues of 222 million Euros down by 30.1% at current exchange rates (-31.5% at constant exchange rates2) vs. the 317 million Euros recorded in 1Q 2019.
The Group registered a solid performance in January in all its main markets, that increasingly deteriorated in February and March, first in China and Asia and progressively also in Europe, in America and in the rest of the world, following the rapid diffusion of the pandemic caused by a novel coronavirus, known as Covid-19. The consequent decisions taken by the National governments regarding prohibitions and lock-downs of the commercial activities and of the international traffic, brought to the closure of the majority of the Group’s store network in those countries and to a significant reduction in traffic in the remaining stores.
Revenues by distribution channel3
As of 31 March 2020, the Group’s Retail network counted on a total of 652 points of sales, including 391 Directly Operated Stores (DOS) and 261 Third Party Operated Stores (TPOS) in the Wholesale and Travel Retail channel, as well as the presence in Department Stores and high-level multi-brand Specialty Stores.
In 1Q 2020 the Retail distribution channel, negatively impacted by the progressive closure of the majority of the distribution network in February and March and by the significant lack of traffic in the remaining stores, posted consolidated Revenues down 28.6% (-29.4% at constant exchange rates2), showing a -28.6% at constant exchange rates and perimeter (like-for-like) vs. 1Q 2019.
The Wholesale channel registered a decrease in Revenues of 32.3% (-34.8% at constant exchange rates2) vs. 1Q 2019, also penalized by the cancellation of orders, mainly in the Travel Retail channel, and further disadvantaged by the comparison with 1Q 2019 that had benefitted from the recouped shipments from 4Q 2018.
Revenues by geographical area3
The Asia Pacific area is confirmed as the Group’s top market in terms of Revenues, decreasing by 43.4% (-43.8% at constant exchange rates2) vs. 1Q 2019. In 1Q 2020 the retail channel in China reported Revenues down 39.9% (-39.0% at constant exchange rates2).
EMEA posted a decrease in Revenues of 26.0% (-26.3% at constant exchange rates2) vs. 1Q 2019.
North America in 1Q 2020 recorded Revenues down by 18.5% (-24.7% at constant exchange rates2).
The Japanese in 1Q 2020 market registered a decrease in Revenues of 19.7% (-21.3% at constant rates2).
Revenues in the Central and South America in 1Q 2020 were down 16.3% (-13.8% at constant rates2) vs. 1Q 2019.
Revenues by product category3
Among the product categories, at constant exchange rates2, footwear posted a decrease of 32.4%, handbags and leather accessories were down 29.4% and fragrances registered a 43.4% decrease vs. 1Q 2019.
Gross Profit
In 1Q 2020 the Gross Profit decreased by 35.1% to 130 million Euros. Its incidence on Revenues was down 460 basis points, moving to 58.7%, from 63.3% of 1Q 2019, mainly penalized by the unfavorable geographical mix, due to the COVID-19 pandemic spread initially in China and progressively worldwide, and to higher provisions for obsolescence.
Operating Costs
In 1Q 2020 Operating Costs decreased by 7.1% at current exchange rates (-8.0% at constant exchange rates2), to 167 million Euros, from 179 million Euros in 1Q 2019, mainly due the initial effects of the costs’ containment measures and to lower variable costs.
Gross Operating Profit (EBITDA1)
The Gross Operating Profit (EBITDA1) decreased by 82.2% over the period, to 12 million Euros, from 65 million Euros of 1Q 2019, with an incidence on Revenues of 5.2% from 20.5%.
Operating Profit (EBIT)
The Operating Profit (EBIT) was negative for 36 million Euros vs. 21 million Euros positive in 1Q 2019.
Profit before taxes
The Profit before taxes in 1Q 2020 was negative for 48 million Euros vs. 15 million Euros positive in 1Q 2019.
Net Profit for the Period
The Net Profit for the period, including the Minority Interest, was negative for 41 million Euros vs. 11 million Euros positive in 1Q 2019.
The 1Q 2020 the Group Net Profit was negative for 39 million Euros vs. 10 million Euros positive in 1Q 2019.
Notes to the Balance Sheet for 1Q 2020
Net Working Capital4
The Net Working Capital as of 31 March 2020 increased by 11.0% to 334 million Euros, from 301 million Euros as of 31 March 2019. In particular the Inventory was up 2.3% (+5.4% at constant exchange rates).
Investments (CAPEX)
As of 31 March 2020, Investments (CAPEX) was 5 million Euros, down by 48.6% vs. 1Q 2019, due to the revision of the investment plan to maintain only the projects considered essential and priority.
Net Financial Position
The Net Financial Position adjusted5 at 31 March 2020 was positive for 123 million Euros, net of IFRS16 effect, vs. to 179 million Euros positive as of 31 March 2019. Including IFRS16 effect, the Net Financial Position at 31 March 2020 is negative for 531 million Euros.
Covid – 19 Update
At the end of 2019, a new coronavirus, known as Covid-19, was found in Wuhan, China. The Covid-19 Coronavirus has spread from China into South Korea, Italy, Spain, the United States, and then the rest of the world—to the point that on 11 March 2020 the World Health Organization declared a pandemic due to the speed and extent of the epidemic. In order to contain the outbreak and protect public health, several Governments around the world, starting with the Chinese one, have gradually put in place containment and social distancing measures, shutting down non-essential retail and manufacturing operations as well as limiting international and domestic travel. 
These events significantly affected traffic and sales throughout the first quarter of 2020 for the Salvatore Ferragamo Group across the various distribution channels starting from late January.
In the Retail channel, sales were affected by the mandatory closure of directly operated stores. During each month, the Group’s stores that were ordered to close accounted for 5.8% of the total in January, 11.8% in February, and 49.1% in March, respectively. Overall, in March 187 stores were closed.
Third-party operated stores (TPOS) were also ordered to close, resulting in a significant impact also in wholesale channel.
As you know, closure orders were extended or introduced also throughout April across several markets.
In terms of logistics, the Group was forced to shut down the Sesto Fiorentino hub, which supplies markets all around the world and ships e-commerce orders in Europe. As for production operations, there were problems attributable to the mandatory closure of the plants of suppliers of raw materials and finished products as well as contract manufacturers in Italy.
Executive Committee
On 6 April 2020 the Board of Directors, having confirmed all the powers previously granted to the Chairman and Managing Director upon their appointment, established an Executive Committee within the Board, vesting it with the powers to monitor, oversee and support the implementation of the initiatives launched by the Company to address the emergency caused by the Covid-19 pandemic. The Executive Committee will remain in office until the end of this extraordinary situation.
Costs and investments
The Group continues investing in the e-commerce channel and launched the new website at the end of April. The projects and investments considered non-essential or deferrable have been postponed. Investments in communication have also been scaled back—especially in the markets most affected by closure orders. Finally, the Group immediately took action to negotiate temporary or permanent rent reductions for its directly operated stores.
Starting from February, Salvatore Ferragamo has extended the use of smart-working, introduced as an experiment during 2019, to the Italian and international offices of the Group in order to protect the health of employees, allowing operations to continue where possible and in line with regulatory requirements.
To this end, it has provided training to optimize the use of remote work tools and bolstered internal communication by leveraging the Ferragamo Together platform and creating accounts dedicated to answering all health- and business-related questions of the Group’s employees.
It has defined specific safety protocols that include stringent safety measures and, finally, put in place a supplemental health insurance policy for Italian employees covering symptoms associated with Covid-19.
During this period, Salvatore Ferragamo Group began the process to apply for state aid.
In order to support the financial soundness of the Group and mitigate future economic-financial impacts, on 6 April 2020 the Board of Directors resolved to withdraw the proposal for the distribution of dividends out of Salvatore Ferragamo S.p.A.’s profits for the year 2019.
The Management of the Company confirms its medium-long term goals, continuing to pursue the reinforcement of the competitive positioning of the Salvatore Ferragamo Group among the leaders in the luxury market. The enhancement of creativity, glamour, Italian craftmanship excellence and a consolidated tradition in shoes and accessories remain the founding values of the company’s strategy.
Given the uncertainty resulting from the rapid evolution of the Coronavirus, Covid-19, and the difficulties in predicting the resolution times at global level, the Management of the Company does not trust to formulate reliable forecasts regarding the sales performance in the various markets and distribution channels for the current year. In this context, in order to mitigate the negative effects for the Group, which could derive from the crisis generated by the pandemic, the management has begun to implement several concrete actions to contain expenses and investments.
These actions include a continuous and consistent efficiency of all costs, an in-depth and constant control on the opportunity to maintain certain expenses, as well as limiting the investments exclusively to those projects that are considered essential in the actual context.
Notes to the press release
[1] We define EBITDA as operating profit before amortization and depreciation and write-downs of tangible/intangible assets and Right of use assets. EBITDA is an important managerial indicator for measuring the Group’s performance. As EBITDA is not an indicator defined by the accounting principles used by our Group, our method of calculating EBITDA may not be strictly comparable to that used by other companies.
2 Revenues/Operating Costs at “constant exchange rates” are calculated by applying to the Revenue/Operating Costs of 1Q 2019, not including the “hedging effect”, the average exchange rates of 1Q 2020.
3 The variations in Revenues are calculated at current exchange rates including the hedging effect, unless differently indicated.
4 Net working capital is calculated (in accordance with CESR Recommendation 05-054/b of February 10, 2005) as inventories, right of return assets and trade receivables net of trade payables and refund liabilities, excluding other current assets and liabilities and other financial assets and liabilities. As net working capital is not an indicator defined by the accounting principles used by our Group, our method of calculating net working capital may not be strictly comparable to that used by other companies.
5 Adjusted: not including the IFRS16 effect.
During the same meeting the Board of Directors has also confirmed to the Board of Statutory Auditors appointed by the Shareholders’ Meeting held on May 8, 2020 the role of Supervisory Body pursuant to the Italian Legislative Decree No. 231/2001.
The manager charged to prepare the corporate accounting documents, Alessandro Corsi, pursuant to article 154-bis, paragraph 2, of Legislative Decree no. 58/1998 (Consolidated Financial Law), hereby declares that the information contained in this Press Release faithfully represents the content of documents, financial books and accounting records.
Furthermore, in addition to the conventional financial indicators required by IFRS, this Press Release includes some alternative performance indicators (such as EBITDA, for example) in order to allow for a better assessment of the performance of the economic and financial management. These indicators have been calculated according to the usual market practices.
This document may contain forecasts, relating to future events and operating results, which by their very nature are uncertain, in that they depend on future events and developments that cannot be predicted with certainty. Actual results may therefore differ with those forecasted, due to a variety of factors.
The Consolidated Interim Report as of 31 March 2020, approved by the Board of Directors on May 12 2020, will be available to anyone requesting it at the headquarters of the Company in Florence, Via Tornabuoni n. 2, on the authorized web-storage system eMarket STORAGE, and will also be accessible on the Salvatore Ferragamo Group’s website in the section “Investor Relations/Financial Documents”, in compliance with the law.

Salvatore Ferragamo S.p.A.

Salvatore Ferragamo S.p.A. is the parent Company of the Salvatore Ferragamo Group, one of the world’s leaders in the luxury industry and whose origins date back to 1927.  The Group is active in the creation, production and sale of shoes, leather goods, apparel, silk products and other accessories, along with women’s and men’s fragrances. The Group’s product offer also includes eyewear and watches, manufactured by licensees.  The uniqueness and exclusivity of our creations, along with the perfect blend of style, creativity and innovation enriched by the quality and superior craftsmanship of the ‘Made in Italy’ tradition, have always been the hallmarks of the Group’s products. With over 4,000 employees and a network of 654 mono-brand stores as of 31 December 2020, the Ferragamo Group operates in Italy and worldwide through companies that allow it to be a leader in the European, American and Asian markets.

Salvatore Ferragamo S.p.A.

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Group Investor Relations

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