March 10, 2020 / 7:14 PM / a month ago

UPDATE 1-Ferragamo faces 'perfect storm' as coronavirus spreads

(Adds details, quotes from executives)

By Silvia Aloisi and Claudia Cristoferi

MILAN, March 10 (Reuters) - Italian luxury group Salvatore Ferragamo said first-quarter revenues could fall by up to one third due to the spreading coronavirus outbreak, and said it was impossible at this stage to evaluate the full impact of the health crisis.

Ferragamo said it was postponing some product launches, limiting investments to essential projects, cancelling some orders from suppliers and keeping a lid on costs to deal with what its executives called an “unbelievable” situation.

“This is a perfect storm, it’s very hard to make any kind of predictions in terms of duration, magnitude and impact,” Chief Executive Micaela Le Divelec Lemmi told analysts after the group reported a 4.3% drop in core profits for 2019.

She said that the virus emergency was affecting “all markets, all geographies, all sectors,” adding that all luxury groups were grappling with the uncertainty.

Chief Financial Officer Alessandro Corsi said that as things stood the company expected sales in the first three months of 2020 to have fallen by between one fourth and one third when compared with last year’s revenues.

The luxury industry worldwide is facing a major sales hit due to the epidemic which first emerged in China, home to more than a third of global luxury shoppers. It has now spread to multiple countries, with key manufacturing hub Italy the worst affected country in Europe.

Le Divelec said that like other brands Ferragamo was starting to see a recovery in store traffic in China as shops gradually reopened, although things had not yet returned to normal. Corsi said fewer than 15 of the group’s stores there were still closed.

But the emergency has now moved squarely to Ferragamo’s home turf in Italy, where the government on Monday extended a virtual lockdown that had been imposed on much of the wealthy north to the rest of the country.

“We are working at this stage to ensure the continuity of business operations and don’t have any evidence of issues so far,” said Le Divelec. She added that the company was keeping “an open dialogue” with its suppliers to ensure manufacturing flexibility.

Ferragamo had already announced that revenues returned to growth last year, despite protests in Hong Kong where retail sales plunged more than 50% in the fourth quarter.

The 1.3% yearly rise in overall sales at constant exchange rates marked the first annual revenue increase for the Florentine brand since 2015.

On Tuesday the company said that 2019 adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 4.3% to 205 million euros, while net profit rose by 1.7% to 92 million euros.

Analysts had expected EBITDA to come in at 206 million euros and net profit at 89 million euros, according to a Reuters poll.

Editing by Jane Merriman

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