Aug 27, 2015
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Ferragamo says new stores in China could be smaller

Aug 27, 2015

Italian luxury group Salvatore Ferragamo may opt for smaller new stores in China as local consumers shop more online and abroad, its chief executive said on Thursday.

Ferragamo Autumn/Winter 2015-16 - Pixel Formula

Asia-Pacific is the biggest market for the Florentine shoemaker and sales there declined 4 percent at constant exchange rates in the first half of 2015, even though the brand's own shops in China performed well.

With Chinese consumers spending more in places like Europe and Japan, Ferragamo said trends in Hong Kong and Macao, traditional hubs for Chinese shoppers, continued to deteriorate in the second quarter.

Ferragamo CEO Michele Norsa told an analyst call that the mood in China may have darkened in recent weeks. Conditions could improve if the currency and stock markets stabilised.

"But we're not fortune tellers," he said. "We'll open shops also in 2016 but we'll continue to be selective and where appropriate we'll consider opening smaller shops," he said.

Ferragamo said sales growth had accelerated in the second quarter in Europe, North America and Japan.

"Baked into these numbers is the ... journey of the Chinese consumer," said Brian Buchwald, founder and CEO of consumer intelligence firm Bomoda. "We see the next big challenge for Ferragamo in better predicting this movement from region to region."

Ferragamo has the highest global exposure in the luxury sector to consumers shopping in airports.

Ferragamo's Chief Financial Officer, Ernesto Greco, told analysts the company should be able to meet market estimates for high-single digit growth in global sales and a core profit of around 320 million euros for the full year.

Luxury groups have already felt the impact of cooling consumer spending in China as the government cracked down on corruption and gift-giving and street protests shook Hong Kong.

China's devaluation of its currency this month and a rout in its stock markets amid mounting concerns about slower economic growth in the world's second-largest economy, have further dampened the outlook for retailers.

Ferragamo benefited from a weaker euro in the first half, which boosted foreign sales. The group posted a 15 percent rise in first-half core profit on Thursday, meeting market expectations.

First-half sales rose 10 percent, but growth was just 2 percent at constant exchange rates.


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