Ferragamo defies China fears but warns on Russia

Shares in Italian luxury label Salvatore Ferragamo surged on Friday, after the company reported strong earnings that defied worries about China, but the CEO warned the market still remains volatile.

Ferragamo stock was up 7.3 percent by mid-morning, after the brand reported earnings before interest, tax, depreciation and amortization (EBITDA) of 143 million euros ($188.5 million) in the first half of the year, up 9 percent against the same period last year.

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The luxury retailer defied concerns over a broader slowdown in the China market by posting 15 percent revenue growth in the second quarter for the world's second largest economy. The Asia Pacific region brings in nearly 38 percent of the company's revenue.

China still 'volatile'

But the Ferragamo boss warned that despite an improving picture in China, the market remains uncertain in the short term.

"Regarding China, it's still very volatile. From week to week you see differences but the medium- to long-term perspective is definitely very positive," Michele Norsa, CEO of Ferragamo, told CNBC in a TV interview.

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"We have a slowdown of travellers towards Hong Kong. But it is probably related to (a) temporary situation."

Tide turning?

China has been a concern for luxury retailers over the past year after the government announced a crackdown on gifting and bribing of top officials. This led to warnings from cognac makers and watch makers as well as concerns from the likes of LVMH.

Feng Li | Getty Images

But the tide appears to be turning for luxury brands in China, according to analysts. Strong growth in China for Tiffany's and Estee Lauder, as well as recent data showing the improvement in Swiss watch exports to the country, point towards an improving picture.

"What you have been hearing is how China for the most part they weren't getting any growth out of the major cities. The guys were telling you like-for-like growth was negative. Incrementally now you are seeing a pick-up on a like-for-like basis and it is a whole range of companies. The facts are there," Rahul Sharma, managing director at Neev Capital, told CNBC by phone.

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He added that brands such as Louis Vuitton, Prada and Gucci are still struggling, but companies offering "newness" to the fashion savvy Chinese consumers are being successful.

Russia impact

Norsa also said that the continued tensions between Russia and Ukraine may affect the company. A sharp devaluation in the ruble has led to an 18 percent fall in tax- free spending by Russians, according to Global Blue.

Ferragamo reported a 9 percent rise in revenues in Europe for the first half of 2014, compared with the same time last year, but the falling tourist flows could hit the company in the next six months.

"The last months of this year may be affected by the Ukraine crisis. This is every day on the front page and is impacting one of the strongest consumers and heavy spenders which are the Russians and this is of course impacting somehow Europe," Norsa told CNBC.

- By CNBC's Arjun Kharpal