Soft North American Market Dents Safilo in H1
MILAN — The resilience of the European market and a rebound of sales in Asia countered soft business in North America, as Safilo Group closed the first six months of the year with revenues of 550.1 million euros, down 3.6 percent compared with 570.9 million euros in the same period last year.
In the second quarter, sales amounted to 263 million euros, decreasing 8.8 percent compared with 288.3 million euros in the same period of 2022. This reflected an “expected significant drop of sales in the former Grand Vision chains in Europe, which negatively impacted growth by about 4 percent, and the ongoing weakness of the North American market,” chief executive officer Angelo Trocchia said during a conference call with analysts on Wednesday at the end of trading in Milan, where the eyewear company is publicly listed. “The performance was further impacted by poor weather conditions holding back the sales of sunglasses and bike products in the U.S.”
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Chief financial officer Gerd Graehsler said that, in the U.S., “April was negative, but we saw an improvement after that, and department stores rebounded in the second quarter compared with the first quarter,” adding that he expected a positive performance of wholesale in the third quarter.
In addition to proprietary brands including Smith, Carrera and Polaroid, Safilo produces eyewear collections under licensing agreements for brands from David Beckham, Carolina Herrera and Chiara Ferragni to Isabel Marant, Jimmy Choo, Marc Jacobs, Missoni and Moschino, among some.
Trocchia highlighted how Safilo in the second quarter “achieved very important results in solidifying our brand portfolio for the long term” through the early renewal of the Kate Spade and Tommy Hilfiger licenses until 2031; the extension of longstanding partnerships such as those with Juicy Couture, Fossil and Havaianas, and the signing of a new 10-year agreement with Etro.
The Carolina Herrera license was the top performer in the second quarter, and Polaroid, David Beckham and Hugo Boss outperformed, he observed.
He also touted Safilo’s adjusted gross margin, up 260 basis points at 59.1 percent of sales and a positive free cash flow generation of 9.9 million euros.
While “the short-term external market context remains characterized by uncertainties and low visibility on the business outlook, we remain confident that with the ongoing execution of our group strategies Safilo remains on track to achieve its medium-term goals,” Trocchia said.
In the first half, online sales remained 15 percent of the total, thanks to the very positive performance of sports products in direct-to-consumer sales, countering the soft trends recorded by online channels in eyewear, Graehsler noted.
In the first half, adjusted gross profit amounted to 323.6 million euros, inching up 1.7 percent compared to last year.
Adjusted earnings before interest, taxes, depreciation and amortization totaled 57.3 million euros, down 8.4 percent, and with a margin on sales of 10.4 percent.
Adjusted operating profit fell 10.7 percent to 35.1 million euros.
Adjusted net profit amounted to 6.9 million euros compared to 33.7 million euros recorded in the first half last year. The bottom line was affected by a charge of 8.6 million euros, due to the revaluation of the liability for options on the interests in Blenders, in relation to the extension of the second and third tranche of the related put and call options, explained Graehsler.
In the first half last year, Safilo’s adjusted net profit had instead benefited from an income of 8.7 million euros, mainly following the increase in the value of the company’s controlling stake in Privé Revaux. Furthermore, in the period, net financial charges increased to 9.4 million euros from 2.7 million euros in the first half last year, mainly due to slightly negative exchange rate differences compared to a positive difference last year and to an increase in interest rates.
In the period, gross and operating performance was impacted by non-recurring costs of 5 million euros at the gross profit level and 12.7 million and 16.2 million euros at the EBITDA and EBIT level, respectively, mainly related to the announced project for the disposal of the Longarone plant.
Asked about the future of the industrial plant in Longarone, Graehsler said Safilo is “in deep negotiations and conclusive phase, with discussions in place with two potential buyers.”
While he did not name the parties, the speculation is that LVMH Moët Hennessy Louis Vuitton through its Thélios eyewear manufacturing plant and Marcolin are in advanced discussions with Safilo to take over the plant and its employees.
Last January, Safilo said it was seeking alternative solutions for the plant given the evolution of Safilo’s product portfolio and a production overcapacity. A total of 468 employees are based at the storied Longarone site, in Italy’s Veneto region, one of the country’s key eyewear manufacturing hubs.
In the first half, Safilo’s sales in North America amounted to 231.5 million euros, down 10.5 percent. The second quarter weighed on the performance, as the group’s sales in the region fell 17.6 percent to 106.8 million euros, reflecting the continuation of the subdued trends in the independent optician channel. Trocchia said that in addition to a soft sun season in the U.S., customers were “cash-conscious,” which affected the numbers in April and May, “the worst, while June showed signs of recovery.”
In the first half, revenues in Europe were stable, reaching 235.7 million euros, edging down 0.6 percent. In the period, sales in Europe, excluding the former Grand Vision chains, grew by 10 percent at constant exchange rates, with Italy, Spain and the Eastern European markets being the main positive contributors.
Sales in Asia Pacific climbed 29.9 percent to 16.5 million euros in the second quarter, mainly driven by the reopening of China, where sales soared by more than 60 percent year-over-year, coupled with the Hong Kong domestic market returning to normal. Ports, Hugo Boss and Polaroid were the key growth drivers in these markets, while Smith led in the period the positive performance of Australia. This led to a 13.7 percent gain in first half sales in the region, reaching 28.6 million euros.
In the first half, sales rose 8.9 percent to 54.4 million euros in the Rest of the World area, reporting strong growth in India and the Middle East and a normalization in Latin America.
As of June 30, net debt stood at 103 million euros compared with 113.4 million euros reported at the end of December 2022.
As reported, earlier this month Michele Melotti was promoted to the role of the group’s chief financial officer and manager responsible for the preparation of the company’s financial documents, effective Aug. 28, succeeding Graehsler. Melotti joined Safilo in 2012 and in 2019 he was named to his current role of senior director, group controlling.
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