Tod’s

Stock price: €54.7
Conclusion: Q1 confirms a relatively slow start. We reiterate that Tod’s looks fairly priced based on our valuation range of €56-€58 per share.

Q1 results: Sales up 3.4% to €208m (+3% organic). EBITDA +9%.EBIT +11%. Guidance 2010: Tod’s “confident to post further growth of sales and profits”.

A slow start, as expected
Tod’s posted only 3% growth in Q1 vs mid single digit to double digit growth reported by peers. However, the good news came from margins, up vs last year.
-First, comps are much easier for peers in H1, as Tod’s has been remarkably resilient last year.
-Second, Tod’s is less present than peers in Asia and in the US and still heavily exposed to Italy (57% of sales) and Europe (21%) which should be under pressure this year.
-Third, visibility is weaker in wholesale which still account for almost 2/3 of the business.
-Fourth, Tod’s performs well in shoes (+7% in Q1), but is still looking for the right formula in leather goods and accessories (-10% Q1), where it lacks pricing power.
-Last, Tod’s retail network was stable at the end of March, reflecting a more prudent investment strategy. Net cash position achieved €180m end of March.

Comparable store growth is accelerating to +4% (January-March) implying +8% in Q2, which is encouraging . We look for €760m sales (+6.4%) and €95m earnings (+11%) in 2010.

Tod’s trades at 17.8xP/E and 8.4xEV/EBITDA based on 2010 estimates. Tod’s slight discount to peers seems justified by a slower growth momentum. In the absence of acquisition, we expect management to increase pay out this year. We think the stock is fairly priced.

Tod’s

Stock price: €53.3
Conclusion: Tod’s looks close to its fair price based on our valuation range of €55-€57 per share. Unlike last year, top line growth visibility for 2010 compares poorly with peers. As a result, we find the current discount to the luxury sector justified.

2009 results: Sales up 0.8% to €713m (stable organic). EPS up 2.7% to €2.7. Guidance 2010: “further growth in sales and profits”.

Lack of top line growth visibility
Same store sales growth is up 0.7% for the first 10 weeTks of 2010, which is a weak start compared with peers.
- Tod’s brand, which still account for almost half of sales needs to return to growth following a decline last year.
-Hogan which has been driving sales in 2009 is slowing down. The partnership with Karl Lagerfeld who will create a collection for Spring 2011 should not impact sales this year.
-Tod’s diversification into leather bags is not taking off following two consecutive years of decline. Tod’s has been obliged to reposition its offer at the low end of the market, which has negatively impacted revenues. Apparel sales resisted better, but they account for a smaller proportion of sales.
-Geographically, Tod’s remains overexposed to Italy and underexposed to Asia , which does not bode well for 2010.
Consequently, we look for single digit increase in sales (+5%) and profits (+9%) this year (€2.9 EPS).

Tod’s trades at 18xP/E based on 2010 estimates, a 10% discount justified by a lower sales growth momentum compared with peers. We think that Tod’s will have to resume investments in its retail network (149 DOS and 78 franchised stores) in order to expand its geographic footprint. As a result, our DCF based valuation suggests little upside (€57 per share).

Tod’s

Stock price: €52,8
Conclusion: Notwithstanding a weaker than expected Q4, Tod’s has shown a very good resistance last year, with sales flat like for like. However, the slowdown of Hogan in Q4, Tod’s key engine of growth reduces the visibility for 2010. Tod’s trades at 18.4xP/E based on 2010, in line with the avage of the luxury sector. Our valuation range confirms our view that the stock looks fully priced (€53-54 per share). We continue to prefer cheaper stocks in the sector such as PPR.

Sales 2009: up 0.8% to €713m, flat like for like. Earnings will be released on March 24. Management looking for “outstanding profitability and stronger financial structure and net cash position”.

Q4, down 1.4% like for like, looks clearly disappointing in light of the return to growth reported by Tod’s peers in the luxury sector. However, it is fair to remind that Tod’s has been much more resilient in the fist nine months of the year than its competitors and one should also look at the comparison base in Q4 2008, which was easier for the other players in the luxury field.
Nevertheless, the slowdown of Hogan in Q4 which has been the key growth driver, is worrying at a time when the Tod’s brand continues to lag behind.
Productwise, the diversification ouside shoes (71% of sales) into leather continues to be disappointing with sales down 12% in 2009.
Last, Tod’s remains heavily dependant on Italy (57% of sales) and seems to struggle to compete against bigger brands in Asia where the growth is. Sales in Asia declined by almost 4% in Q4 and accounted for only 15% of the total.
As a result, we remain cautious for 2010 and forecast only 5% growth in sales. We see limited upside on the margin front, as we think Tod’s will have to invest to expand its distribution network and also increase marketing support behind its brands outside Italy.

Tods trades at 18.4xP/E based on 2010 estimates, in line with peers in the luxury setor. DCF suggests a valuation closer to €54 per share, which offers limited upside. We reiterate that the stock looks fully priced.

Tod’s

Stock price:€50
Conclusion: We expect the stock to consolidate as it trades at 19.5xP/E at a time when sales growth continues to decline.

9 months results: Sales up 1.8% reported to €559m (+0.4% like for like), EBIT down 1.8% to €106m.

Quaterly trends do not bode well for Q4: Tod’s started the year with a surprisingly strong first quarter (up 5%), followed by a deceleration to -2% in Q2 and -3% on Q3.
Italy which used to resist very well is now slowing down while the rest of Europe and North America continue to decline. Asia is up double digit but this not enough to drive sales growth.
Growth is driven by Hogan while Tod’s, Fay and Roger Vivier brands sales continue to decline.

EBIT was broadly flat in the first nine months, which implies that management is keeping cost under control. Tod’s performance looks good considering the negative mix impact, notably weak leather goods sales.
In the absence of guidance, we forecast a 30bp decrease in margin this year and a 2% fall in EPS.

Tod’s can rely on a solid balance sheet with a net cash position of €106m compared to €73m (end of December), helped by lower capex and tighter working capital.

The stock looks fully priced based on our valuation range estimated between €50-52 per share.

Tod’s

Following FY08 release, we expect Tod’s stock price to go further down in the coming weeks.

• Q4 has been marked by a sharp slowdown in sales growth from 12% (first 9 months) to 0% in the last quarter. The risk exists to see a further deterioration in Italy (54% of Tod’s sales) while the rest of europe and the US might continue to decline in line with the end of last year’s trend (-8% and -21% respectively, adjusted for exchange rate). Product wise, the leather goods division continues to struggle (sales down 7% last year) and could further impact 2009 sales. As a result, sales could go down by almost 4% this year, despite a higher dollar.
   
• Net earnings could go down by 10% from €83m to €75m in 2009, impacted by lower gross margin coupled with higher personnel costs related to the extension of the retail network, +25 owned stores in 2008 (150 DOS in total) in addition to 71 franchised stores.
   
• Tod’s (€32 per share ) trades at more than 13x PE against 11x average for the luxury good sector, based on 2009 estimates. DCF points to €30 value per share, which leads to further downside risk.