Safilo could not provide an outlook for November and the holiday season due to growing uncertainty resulting from a resurgence of Covid-19 cases in many countries after posting a strong improvement in sales in the third quarter and seeing a continued positive development of its business in October.
In the third quarter, sales amounted to €219.1 million, up by 3.0 percent at current exchange rates and 6.0 percentage points higher at constant exchange rates, driven by the strong performance of the wholesale market in North America and the full-quarter contribution from the recent acquisition of Blenders Eyewear and Privé Revaux, which added €26.5 million to its North American topline in the period.
On an organic basis, overall sales were down by 6.7 percent compared to the year earlier, with a 5.5 percent decline for the wholesale business. That compared to a 32.7 percent overall decline and a 33.2 percent fall for its wholesale business in the first half.
Safilo also highlighted the strong performance of online sales, which grew to represent 16 percent of total sales in the third quarter compared to 3 percent the year earlier, sustained by Blenders, Privé Revaux and the other house brand Smith. Organic online sales growth in the quarter was 94 percent.
Online sales continued to remain a driver of growth in both the U.S. and Europe in October, when the company also pointed to continued “solid business developments” in mainland China and Asia and organic sales growth in North America.
Despite its improved third quarter showing, Safilo’s sales in the first nine months amounted to €554.7 million, down a reported 21.7 percent and 21.1 percent lower at constant exchange rates. The company said it was “prudent” about the remainder of the year and pledged to provide investors with timely updates on the impact of the Covid-19 pandemic on its results.
In the third quarter, sales in North America jumped by 45.9 percent at constant exchange rates to €113.1 million and represented 51.6 percent of total sales. Aside from the contribution from Blenders and Privé Revaux, Safilo highlighted a 12.1 rise in organic sales in the region.
Organic sales growth was driven by a strong performance in the independent optical stores and in particular to that of core licensed brands like Kate Spade, Tommy Hilfinger and Jimmy Choo. “In the U.S., the quarter was also strong confirmation for Smith’s products, which saw double-digit growth in the sports channel and more than doubled online sales,” said Gerd Graehsler, the chief financial office, in a conference call with analysts.
In Europe, sales decreased by 16.4 percent at constant exchange rates to €79.3 million, with a 15.2 percent decline for the wholesale channel. One bright spot was provided by sales to independent optician stores, which grew in the different markets from mid-single digits to double digits compared to the same quarter of 2019. At the same time, the recovery in order-taking in specialty channels such as boutiques, in travel retail and in big chains improved compared to the second quarter but remained subdued.
Among own brands, while Smith’s sales rose, those of Polaroid and Carrera were down in the third quarter, as the brands were negatively impacted by a weak market for sunglasses in reference markets like Italy, France and Spain.
Business improved significantly in Asia-Pacific in the third quarter, with sales totaling €15.9 million, down by 6.4 percentage points at constant exchange rates compared to a year earlier. Travel retail sales were down by 63 percent in the region, but this was more than compensated by a 83 percent increase in constant currency sales to mainland China, supported by a rise in domestic demand and the contribution of Safilo’s new brands, especially Levi’s and Ports.
While travel retail plays a greater role for Safilo in Asia-Pacific, Graehsler said it has never been a dominant sales channel for the company and has seen its weight shrivel with the health emergency. This year, travel retail sales are now accounting for about 1 percent of total sales, down from 4 percent last year.
In the rest of the world, third-quarter sales fell by 35.6 percent at constant exchange rates, due to the impact of the pandemic and economic downturns still affecting Brazil, India and Middle East markets
Safilo returned to a positive adjusted Ebitda in the third quarter, equal to €14.3 million and up by 9.3 percent on the year earlier. Gross profit increased by 3.3 percent to €112.6 million and the gross margin inched up to 51.4 percent of sales from 51.2 percent. While production volumes remained “subdued,” Safilo said provisions for obsolescence decreased due to its tight control on inventories and the accretive impact of its growing online business.
Net debt rose to €201.7 million at the end of September from €188.5 million at end June, but the company stressed that it was in line with expectations and “well under control.”
The broker Equita noted that Safilo’s third-quarter results were better than expected. It expects the company to post a 9 percent drop in revenues in the fourth quarter, with organic sales down by 11 percent, and an Ebitda of about €6 million. It warned that with the loss of the Dior license at the end of 2020, Safilo’s profitability could be low, with an Ebitda margin around 2 percent, especially in the light of its very high debt levels. Equita forecast a debt to Ebitda ratio of 18.3 times for next year against 7.8 times in 2020.