Fashion & Luxury Insight

FY 2013 Results October 14, 2014

Paola Varacca Capello - Armando Branchini

Emilia Merlotti, Nicola Misani

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Companies in the sample (79) have been identified according to four criteria:

SAMPLE AND METHODOLOGY

1.  Listed in a financial market and owners of internationally renowned brands

2. Consolidated sales higher than € 200 million

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3. Full financial and economic results available to the public

SAMPLE AND METHODOLOGY

4. Must operate in one or more of the following businesses: Active, Apparel, Beauty, Department Store, Eyewear, Jewels & Watches, Fashion Retail, Leather Goods, Online Specialists

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AGENDA 1.  Performance (FY2013) - Total sample 2.  Top performers 3.  Luxury versus other segments 4.  Sustainability 5.  Performance by cluster 6.  A snapshot on H12014 (sub-sample analysis) 7.  Key Findings

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GROWTH AND PROFITABILITY WEAKENING

Ø  Sales Growth is still slowing down (to 7.9% from 8.7%) Ø  Asset Profitability is worsening (ROI from 14.9% down to 13.5%) Ø  Slight increase in ROE (from 15.5% to 16.2%) Ø  Core investments on Depreciation have a peak (168.6%)

1. Performance - Total sample (FY2013)

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FEWER RETAIL OPENINGS

New stores generate limited additional sales on average, but the slope became

steeper. Most companies experience positive increase in sales (61 on 79)

1. Performance - Total sample (FY2013)

Lower growth in the number of stores (+3% = 1,780)

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Ø More companies increased retail sales than wholesale sales

Ø However, exactly half the companies maintained the existing weight between the two channels

1. Performance - Total sample (FY2013)

DISTRIBUTION STRUCTURE: RETAIL VS/ WHOLESALE

The graph shows the percentage of companies that increased the weight of retail sales, of wholesale sales, or stayed the same

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SIZE STILL MATTERS

Ø  Profitability (ROI and EBIT Margin) and cash flow performance are strongly related to company size, but the gap between large and medium-size companies is decreasing

Ø  Growth rate for large companies lags those of medium-size and small companies Ø  The performance of small companies is losing ground

1. Performance - Total sample (FY2013)

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TOP PERFORMERS: WHO?

2. Top performers (FY2013)

Ø  Double digit growth in sales, noticeable dispersion and many new top performers

Ø  Leather Goods are still the most represented cluster, Apparel is second, Jewels and Watches third

Ø  High End players in the top list Ø  Leadership for ROI and EBIT Margin

is resilient

(*) New entries in the top 10 Bold: new entries in the sample

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AS USUAL, LUXURY OUTPERFORMS THE SAMPLE

Ø  Luxury shows better results on any dimension of operating performance Ø  Asset Turnover is lower but, combined with an EBIT Margin that is twice the average

of the non-luxury firms, generates a significantly higher ROA Ø  The growth of stores is also higher for luxury companies

3. Luxury vs other segments (FY2013)

Luxury includes High End companies of the Apparel, Leather Goods, and Jewels and Watches clusters, and the luxury divisions of Kering.

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SUSTAINABILITY: A LONG WAY TO GO

4. Sustainability (FY2013)

Ø  Only 28 companies published a proper sustainability report in the last two years: 21 (26.6%) published a report according to GRI (Global Reporting Initiative), 7 (8.8%) published a report compliant to other established standards

Ø  They were 24 in FY2012 Ø  6 of them are Fashion retailers, 5 are Apparel

companies

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VARIABILITY IN SALES GROWTH

Ø  Sales Growth is not homogeneous, only Online Specialist, Jewel and Watches and Department Stores improve the pace

Ø  Beauty, Department Stores, Eyewear and Fashion Retail are below the average

5. Performance by cluster (FY2013)

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PROFITS ARE STABLE

Ø  ROI improves in Active, Eyewear, Jewels and Watches and Online Specialists Ø  Apparel, Jewels and Watches and Leather Goods are the best performing

clusters

5. Performance by cluster (FY2013)

H1 2014 PERFORMANCE: HEADING DOWN

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6. A snapshot on H1 2014 (54 players)

Ø  Sales growth slower than in the same period in 1S2013

Ø  EBIT margin is stable, EBITDA deteriorates

Ø  Investments to Sales are heading down

KEY FINDINGS – OVERALL COMPANIES SAMPLE - 1

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§  In FY2013 61 out of 79 companies grew their sales (59 out of 76 in FY2012). Sales growth slowed down for the second time in a row to 7.9% (it was 8.7% in FY2012)

§  The average ROE slightly increased to 16.2% (it was 15.8% in FY2012)

§  The average ROI decreased to 13.5% (14.9% in FY2012); this was due to a lower EBIT Margin (11.5%, compared to 12.4% in FY2012). In FY2013 core investments on depreciation were higher than in FY 2012 (168.6% vs. 147.6%)

§  Average cash flows generation was stable (10.4% on sales, vs. 10.7% in FY2012), allowing companies to pay financial debts back and reduce the gearing (financial debts on equity) to a record low (0.40%)

7. Key Findings

KEY FINDINGS - OVERALL COMPANIES SAMPLE - 2

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§  Online Specialists (27.9%), Jewels & Watches (13.6%) and Leather Goods (9.1%) had the highest growth rates, while Eyewear (-0.7%), Fashion Retailers (3.6%) and Department Stores (7.5%) had the lowest

§  The ROI of Jewels & Watches (17.9%), Apparel (15.3%) and Leather Goods (15.2%) was above average; the worst ROI was registered by Eyewear (9.0%) and Department Stores (8.9%)

§  As a whole, Jewels & Watches and Leather Goods emerged as best performers in FY2013, excelling both in sales growth and profitability

§  Company size was crucial in explaining variance in profitability, but in FY2013 the large companies (sales above 5 billion €) were followed closely by medium-size ones

7. Key Findings

KEY FINDINGS - OVERALL COMPANIES SAMPLE - 3

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7. Key Findings

§  ROI was 15.7% for the large companies, vs. 15.6% for companies with sales between 1 and 5 billion € (medium) and 7.6% for companies with sales lower than 1 billion € (small)

§  EBIT margin was 13.5% for large companies, vs. 12.5% and 7.7% for medium-size and small companies respectively

§  Companies invested in new store openings at a slower pace. The total number of stores (DOS and franchising) grew by 3%. The increase in absolute terms was + 1,780

§  Downstream vertical integration remains key. In Apparel, retail-oriented companies had better ROI than the wholesale-oriented ones (16.2% vs 14.8%). In Leather Goods, it was 23.6% vs 7.8%.The same held for sales growth, only for Apparel companies

KEY FINDINGS – LUXURY SEGMENT

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7. Key Findings

§  Luxury was the most profitable segment

§  Luxury companies over-performed both Medium and Mass market companies on most performance variables

§  Luxury Apparel companies had a ROI of 20.8% (against a cluster average of 15.2%) and a Sales growth of 18.1% (vs 8.5%)

§  Luxury Leather Goods companies had a ROI of 22.2% (against a cluster average of 15.1%) but a Sales growth of 5.0% (9.1%)