MILAN — Safilo Group recovered most of the sales decline in the former GrandVision chains in the first nine months of the year but trends in North America remained soft even as emerging markets continued to grow.
Chief executive officer Angelo Trocchia said during a call with analysts on Friday evening at the end of trading that Safilo had seen a return to growth of its sports business in North America, which showed a persistent weakness in the eyewear market, particularly in the contemporary segment.
In the nine months ended Sept. 30, Safilo revenues were down 5.6 percent to 785.1 million euros, compared with 831.3 million euros in the same period last year. Trocchia pointed to the solid performance of home brands, namely Smith, Carrera and Polaroid, and among the licensed brands, Carolina Herrera, Boss, David Beckham and Tommy Hilfiger.
During the period, online channels represented 14.4 percent of sales, marked by a continued very positive performance of the direct-to-consumer sales of sports products, contrasting with the still weak performance of internet pure players.
In the third quarter, group sales declined 9.8 percent to 235 million euros.
“As expected, the decline of business in the former GrandVision chains continued to weigh on Europe, net of which sales in the area were slightly up compared to the same quarter last year, a period that had been marked by the strength of the sun season,” said Trocchia, whose contract was renewed for another three years, it was reported on Friday.
Trocchia also expressed satisfaction in the agreement signed in September with Stuart Weitzman for a multiyear global licensing agreement for eyewear, which will be unveiled in 2024 for fall.
At the same time, he also spoke with pride of the agreement inked in September with Amazon to produce the new Carrera Smart Glasses with Alexa.
“This is an important first step into the future with an innovative approach,” said Trocchia. He shined a light on the fact that “Amazon has chosen Safilo to launch this product, putting technology and Italian design together. Will this change sales? Revolutionize [business] in one or two years? No, but it’s very important; in five to six years, eyewear will be different from today and we are getting on the train of this business model, which will help our image and reinforce the brand.”
In the nine months, Safilo’s adjusted gross profit amounted to 459.1 million euros, essentially flat compared to the same period last year.
Adjusted earnings before interest, taxes, depreciation and amortization totaled 75.4 million, down 11.5 percent from 85.3 million euros in the same period last year.
Safilo’s economic performance was also impacted by non-recurring costs equal to 8.2 million euros at the gross profit level and 17.4 million euros at the EBITDA level, mainly related to the transfer of the Longarone plant.
As reported last Tuesday, Safilo finalized the sale of its storied manufacturing complex in Longarone, in the Veneto region, one of the country’s key eyewear manufacturing districts, to Thélios, the LVMH Moët Hennessy Louis Vuitton-owned eyewear manufacturer, and Innovatek, owned by entrepreneur Carlo Fulchir.
In the nine months 2023, Safilo’s free cash flow stood at 15.8 million euros, compared to an absorption of 17.8 million euros last year.
“In this quarter, we achieved another significant expansion of the gross margin, while the operating performance was temporarily limited by the higher incidence of operating costs, reflecting, in particular, the continuation of our IT investments to accelerate the group’s digital transformation and marketing activities to support the future development of our home brands,” said Trocchia.
However, “even in a weak and uncertain market environment, our actions continue to focus on the implementation of those projects that will allow us to achieve our medium-term targets,” he continued. “It was particularly important for us to keep the positive cash generation initiated in the first half of the year, a goal that we achieved thanks to good working capital management.”
Asked about Safilo’s performance in October, Trocchia said it was “a small month” for the group, that continued to show softness in wholesale in the U.S., with Europe “still slightly positive” and Asia growing. “November is crucial to understand the direct-to-consumer business for Blenders and Smith,” he said.
In the third quarter, sales in North America fell 12.2 percent to 109.6 million euros, heavily impacted by the strengthening of the euro against the dollar. In the nine months, Safilo’s sales in North America were down 11 percent to 341.1 million euros.
The wholesale channel “remains nervous in North America; they are very conscious of cash and prudent now,” said Trocchia.
In Europe in the third quarter sales were down 10.7 percent to 85.4 million euros. Chief financial officer Michele Melotti spoke of a normalization of trends in markets such as Italy, France and Spain, which, more than others, benefited from a strong sun season last year, while the German market remained negatively affected by the weakness of the IPP (internet pure players) channel.
In the nine months, Safilo’s sales in Europe were down 3.5 percent to 321.1 million euros. In the period, sales in Europe, net of the business in the former GrandVision chains, grew by about 7 percent at constant exchange rates.
In Asia and Pacific, sales in the third quarter amounted to 15.2 million euros, down 5.9 percent driven by the positive progress of the business in China and other key markets in the region, and by the sports business, which, with Smith, is now one of Safilo’s main growth drivers in the area.
In the nine months, sales in Asia and Pacific were up 6 percent to 43.8 million euros.
In the rest of the world, sales in the third quarter reached 24.8 million euros, up 3.9 percent, mainly led by the further development of Carrera in India and the Middle East, while business trends in Latin America was positive in Mexico, but softer in Brazil. In the nine months, sales reached 79.2 million euros, up 7.3 percent.
Asked about market rumors surrounding a potential sale of Marcolin by Pai Partners and whether Safilo could be interested in an acquisition, Trocchia demurred, saying the “asset has value, we will see the developments over the next few months.”
The executive touted Blenders’ partnerships with Coach Prime and with Formula 1, with the Red Bull team, which are expanding the customer base of the eyewear brand and were surprisingly effective in terms of brand awareness, he admitted. “This is not a one-off and we are in open discussions with Coach Prime to make [the deal] even bigger,” said Trocchia.
As of Sept. 30, net debt amounted to 96 million euros compared with 113.4 million euros at the end of 2022.
