Fashion & Luxury Insight

FY 2010 Results October 17, 2011 Armando Branchini - Paola Varacca Capello
G. Brandazza, E. Merlotti, B. Rovetta

SAMPLE AND METHODOLOGY

Companies in the sample (67) have been identified according to four criteria: 1. Listed in a financial market and owners of internationally renowned brands, 2. Consolidated sales higher than 200 million,

SAMPLE AND METHODOLOGY

3. Full financial and economic results available to the public, 4. Must operate in one or more of the following businesses: Active, Apparel, Beauty, Department Store, Eyewear, Jewellery & Watches, Fashion Retail, Leather Goods.
3

AGENDA

1. 2. 3. 4. 5. 6.

Performance (FY2010) - Total sample Top performers Performance by cluster Highlights on selected clusters A snapshot of S1 2011 (sub-sample analysis) Key Findings

1. Performance - Total sample (FY2010)

KEY FINDINGS: GROWTH AND PROFITABILITY

x x x x x

Return to a positive trend in SALES (up to 10.9%) Improvement in Assets Profitability (ROI up to 12.4%) Significant improvement in ROE (up to 16.5%) Increase of EBITDA and EBIT Margin (up to 13.6% and 10.0%)

1. Performance - Total sample (FY2010)

KEY FINDINGS: FINANCIALS

x

x x

NET CASH FLOW back to 2008 level (down to 8.1%) Stable WORKING CAPITAL to SALES (down to 18.2%) Strong growth in CORE INVESTMENT on DEPRECIATION (from 83.0% to 105.2%)

1. Performance - Total sample (FY2010)

INVESTMENTS TAKE OFF

Strong turn up of Core (tangible and intangible assets) and Total Investments

1. Performance - Total sample (FY2010)

FEW RETAIL OPENINGS

Limited number of new stores (1,304: +2%) Few new stores generate just limited additional sales
8

1. Performance - Total sample (FY2010)

RETAIL EXPOSURE BOOSTS SALES GROWTH CAGR sales by channel shows: Retail sales confirm a limited but positive growth in 2009; registers a remarkable growth in 2010 Wholesale sales underperform in both years
9

1. Performance - Total sample (FY2010)

SIZE EFFECT STILL ON

Profitability (ROI and EBIT Margin) and cash flow performance are strongly correlated to company size Growth rate becomes significantly positive in all segments, in particular in the Medium one (sales > 1 B and < 5 B) Small companies show a bigger volatility in results

10

2. Top performers (FY2010)

TOP PERFORMERS: WHO?*

*Phillips Van Heusen has been removed as an outlier. It achieved an increase in sales of 104% thanks to the acquisition of Tommy Hilfiger

11

2. Top performers (FY2010)

TOP PERFORMERS: WHO?

Double digit growth in sales ROI high and stable Leather Goods are the most represented cluster High End players back in the hit list

12

3. Performance by cluster (FY2010)

BACK TO GROWTH!

All clusters show a substantial growth in sales Apparel, Leather Goods and Jewels & Watches perform significantly over the average
13

3. Performance by cluster (FY2010)

AND BACK TO MARGINS!

Growth of ROI in all clusters Leather Goods still best performing cluster EBIT Margin is the key driver for ROI
14

4. Highlights on selected clusters Apparel

APPAREL: SUMMARY OF PERFORMANCE

15

Better EBITDA in line with Sales Growth performance A boom in Investments An increase in Working Capital

4. Highlights on selected clusters Leather Goods

LEATHER GOODS: SUMMARY OF PERFORMANCE

16

The best performing cluster Better EBITDA in line with strong Sales Growth

4. Highlights on selected clusters Apparel

APPAREL: RETAIL EXPOSURE DOES NOT GRANT HIGHER PROFIT

17

Great variety in distribution structure Great dispersion in results

4. Highlights on selected clusters Leather Goods

LEATHER GOODS: RETAIL ORIENTED COMPANIES PERFORM BETTER

Higher profitability due to higher margins Better sales growth Wholesale oriented companies invest in new stores

18

4. Highlights on selected clusters Apparel

APPAREL: PERFORMANCES IN DIFFERENT SEGMENTS

Strong improvement in sales growth for all segments After a bad 2009, High End companies are again the leaders in profitability 19

4. Highlights on selected clusters Leather Goods

LEATHER GOODS: PERFORMANCES IN DIFFERENT SEGMENTS

20

High end and Medium companies are back to good results after 2009 High end companies show lower Asset turnover Mass market lags behind in profitability

4. Highlights on selected clusters Fashion Retailers

FASHION RETAILERS: SUMMARY OF PERFORMANCE

Negative trend since FY 2006 until 2009 Working capital slightly improving

21

4. Highlights on selected clusters Fashion Retailers

FASHION RETAILERS: TURNAROUND IN PERFORMANCE Back to Sales growth Growth drives improvement in EBIT Focus on WC allows improvement in WC/Sales Strong improvement in ROI, from 9.8% to 13.5%
22

5. A snapshot of S1 2011 (48 players)

S1 2011 PERFORMANCE: IMPROVING SCENARIO?

All clusters 1S2011
25,0% 9,0% 8,0% 20,0% 5,6% 15,0% 12,1% 8,3% 3,2% 7,8% 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% 1S2010 EBITDA margin EBIT margin 1S2011 Investment to sales 0,0% 11,5%

G Sales* 1S2010 FY2010 1S2011

All clusters 8.9% 9.5% 12.4%

10,0%

5,0%

Positive trend of Sales growth Slight worsening in Profitability Strong cut of Investments

* In CAGR 2010 Salvatore Ferragamo is missing

23

5. A snapshot of S1 2011 Apparel

(7 players*)

S1 2010 PERFORMANCE: APPAREL

Apparel 1S2011
8,0% 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% 1S2010 EBITDA margin EBIT margin 1S2011 Investment to sales 3,1% 3,9% 3,8% 4,0% 3,9% 3,8% 3,7% 6,6% 4,3% 6,9% 4,2% 4,1% 4,4% 4,3%

G Sales 1S2010 FY2010 1S2011

Apparel 5.4% 9.1% 14.7%

Positive trend in Sales growth Slight increase in Profitability Strong cut of Investments

*In the main sample Apparel companies are 11

24

5. A snapshot of S1 2011 Leather Goods

(11 players*)

S1 2011 PERFORMANCE: LEATHER GOODS

Leather Goods 1S2011
25,0% 8,1% 9,0% 8,0% 20,0% 7,0% 6,0% 15,0% 4,7% 14,3% 10,0% 11,2% 11,2% 8,5% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% 1S2010 EBITDA margin EBIT margin 1S2011 Investment to sales 0,0%

G Sales 1S2010 FY2010 1S2011

Leather G. 13.0% 16.7% 14.2%

5,0%

* In the main sample Leather Goods companies are 13

Starting drop of Sales growth Sensible decrease in Profitability Significant increase on Investment

25

5. A snapshot of S1 2011 Fashion Retailers

(14 players*)

S1 2011 PERFORMANCE: FASHION RETAILERS

Fashion Retail 1S2011
14,0% 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% 1S2010 EBITDA margin EBIT margin 1S2011 Investment to sales -3,0% 7,9% 6,9% 3,9% 12,6% 11,7% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% -1,0% -2,0% -3,0% -4,0%

G Sales 1S2010 FY2010 1S2011

Fashion R. 5.8% 3.9% 6.7%

Positive trend of Sales growth Slight worsening in Profitability Strong cut of Investments

*In the main sample Fashion Retailers companies are 17

26

6. Key Findings

KEY FINDINGS - 1

The Industry experienced a new phase of growth in FY2010. Sales grew 10.9% on average in our sample, with 56 companies out of 67 showing an increase in revenues. Sales growth was especially strong for Apparel (17.7%), Jewels & Watches (18.9%) and Leather Goods (16.7%), while Fashion Retail (3.9%) and Financial Conglomerates (3.7%) had the lowest growth rates.

27

6. Key Findings

KEY FINDINGS - 2
The Average ROI was 12.4%, up from 8.3% in FY2009. Companies achieved such a result by combining sales growth and a reduction of operating costs, as shown by EBITDA margin, which reached 13.6% in 2010 vs 11.1% in the previous year. Working capital was also kept under control (18.2% on sales in FY2010, vs. 18.6% in FY2009) The ROI of Beauty (13.2%), Fashion Retail (13.5%), Jewels and Watches (12.6%), and Leather Goods (17.7%) was above average; the worst economic performance was obtained by Active (5.1%) and Eyewear (6.7%). As a whole, Leather goods sector emerges as the best performer of FY2010, excelling both in sales growth and in profitability.
28

6. Key Findings

KEY FINDINGS - 3 Company size was crucial in explaining different level of profitability. The largest companies (sales above 5 billion ) outperformed the rest of the sample in terms of ROI (15.6% vs 13.6% for companies with sales between 1 and 5 billion and 8.0% for companies with sales lower than 1 billion ) and EBIT margin (13.3% vs 11.7% and 5.0%), even though the largest companies lagged behind medium companies in terms of sales growth (9.9% vs 15.0% for companies with sales between 1 and 5 billion )
29

6. Key Findings

KEY FINDINGS - 4
Rates of investment went significantly up, reaching 6.1% in sales (the same rate as in FY2007, the year before the crisis). Net cash flows were consequently impacted (8.1% on sales, down from 11.5% in FY2009 Retail presence remains a strong determinant of profitability in the Apparel and Leather Good businesses. Companies that focused on directly owned stores (Retail sales above 50% of total sales) registered a 22.1% average ROI in Apparel and a 22.0% in Leather Goods, while companies focused on the wholesale channel achieved only a 13.8% ROI in Apparel and a 15.15 in Leather Goods. The growth of sales for the two groups were different (17.3% and 11.3% in Apparel and 21.7% and 13.7% in Leather Goods.
30