Tod’s’ Cloudy China Outlook Spooks Investors

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By Joshua Kirby

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Investors in Italian luxury shoe maker Tod’s SpA appear concerned by the worse sales prospects in China, where sanitary lockdowns are squeezing consumer demand, with shares dropping Thursday following the company’s first-quarter update.

At 0900GMT, shares were traded 6.5% lower at EUR31.46.

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Tod’s late Wednesday posted consensus-beating 20% ​​organic growth in the January-March period, with retail driving growth and Americas sales posting the fastest rise by geography, at 59%.

Greater China sales, however, were close to flat on year. Tod’s noted the “significant slowdown” in growth in the last weeks of the quarter as a result of strict restrictions implemented amid rising cases of coronavirus in the country, entailing the closure of around 30% of the group’s stores in the region currently.

“We are waiting for the complete reopening of the stores to return to the growth levels of January and February,” the company said. It didn’t set financial targets for the full year.

Tod’s has above-average exposure to Greater China at around 35%, which could entail cuts to consensus estimates for the full year as lockdowns persist, analysts at UBS warned in a note following the print. “Until there is more visibility on the timing of recovery in China, we believe it is unlikely that the shares can outperform,” UBS said.

The first-quarter results reflect China disruption but also weakness in the company’s home market in Italy, Citi’s Thomas Chauvet and Silky Agarwal said in a research report, noting that quarterly sales decelerated to a flat level versus the prepandemic period.

Tod’s is continuing a long process aimed at rejuvenating its brand after years of decreasing top lines and margin contraction, Chauvet and Agarwal said. But the journey is a tough one, they added, for a small company in an industry increasingly dominated by luxury mega-brands.

Write to Joshua Kirby at [email protected]; @joshualeokirby

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Credit: www.marketwatch.com /

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