Safilo's new management has already announced that it will reposition Carrera, and the company unveiled the broad lines of the program for this house brand while commenting on its results for the first quarter of 2014. The company said that Carrera's prescription frames are enjoying an “excellent” reception by clients and good sales growth, but the positioning of its sunglass collection has to be reviewed.

Safilo aims to shift the image of Carrera from a “racing sports brand” to a “lifestyle brand” that will also attract female clients to the label. The result of the overhaul is due to be disclosed to clients in the autumn in view of the introduction of the new collection in the stores in January 2015. While focusing on markets where Carrera already has a strong presence, Safilo will be investing in new markets to guarantee a global expansion of the label, said the company's newchief executive, Luisa Delgado.

Meanwhile, sales of another house brand, Polaroid, continue to be driven by the label's “special” value for money proposition and its introduction in Latin America. The brand's momentum is strengthening in core and new markets, according to Delgado. She noted that Polaroid is fast gaining market share in Spain and Portugal and performing well in new markets like China and Brazil.

The first quarter of this year was also marked by the global launch of Safilo's new Fendi license and of the Bobbi Brown collection in the U.S. and Canada. Delgado spoke of a satisfactory first year and sustainable growth for both lines. She rejected the assumption that Fendi might cannabilize other lines of the group. Delgado pointed out that Fendi and Bobbi Brown would help the group enter new distribution channels such as department stores. The company added that Bobbi Brown is currently a marginal business because it is the brand's first foray into eyewear.

In the first quarter end March 31, Safilo posted a 1.3 percent decline in sales to €293.2 million, but at constant currency rates, the top line was up by 1.9 percent. European sales rose by 2.4 percent to €131.3 million, or by 3.1 percent at constant currencies, led by the U.K. and Germany, while the company's businesses in Italy, Spain and Portugal continued to recover. European key accounts were the group's best-performing distribution channel for top-end brands as well as for fashion and value-for-money collections.

 
 

Safilo Consolidated Income Statement

(Million Euros, Three months ended March 31)

 

2014

2013

%
Change

Prescription Frames

110.1

109.2

0.8

Sunglasses

165.3

170.2

-2.9

Sport Products

16.1

15.9

1.3

Other

1.8

1.7

5.9

Total

293.2

297.0

-1.3

Cost of Sales

109.2

117.3

-6.9

Selling & Marketing

119.5

118.4

0.9

G & A

37.7

35.4

6.5

Other Operating Income (Expense)

0.0

(0.2)

-

Net interest

(2.3)

(5.5)

-58.2

Tax

7.9

6.6

19.7

Minority Interest

0.1

0.2

-50.0

NET

16.5

13.4

23.1

Euro/share (Diluted)

0.26

0.22

21.3

In the Americas, the company's revenues dropped by 4.8 percent to  €112.9 million, but were up by 0.3 percent on a currency-neutral basis. The polar weather that hit the U.S. in February affected Safilo's retail chain, Solstice, as well as the reorders of wholesale clients. During the quarter, the group created a new business unit for Latin America that produced strong results and demonstrated the “untapped potential” that the Safilo group has in the region, according to Delgado.

Sales fell by 2.2 percent to  €45.0 million in Asia, but were up 1.9 percent at constant currencies, led by China and South Korea, especially in the sunglass segment. In China, Polaroid experienced strong growth in the number of doors and in revenues. In the rest of the world, sales were down by 3.9 percent to €4.0 million, but up by 11.0 percent at similar exchange rates.

The group's sales of prescription frames went up by 0.8 percent to €110.1 million in the quarter, or by 4.3 percent at constant currency rates. Sales of sunglasses fell by 2.9 percent, down to €165.3 million, but were up by 0.1 percent at constant currencies. Sales of sport products rose by 0.9 percent, to €16.1 million, with a 4.3 percent increase on a currency-neutral basis.

Overall wholesale revenues declined by 1.0 percent to  €276.7 million, but were up by 2.1 percent at constant currency rates. Retail sales were down by 5.2 percent , to  €16.5 million, or by 1.6 percent in constant currencies.

The gross margin went up to 62.8 percent from 60.5 percent a year earlier thanks to an improved product and channel mix as well as a higher utilization of the group's manufacturing capacity resulting from the repatriation of some production that was previously outsourced. The company indicated that about two-thirds of the gross margin improvement stemmed from the better sales mix and a third from higher capacity utilization.

The quarterly operating margin before amortization (Ebitda) widened to 12.1 percent from 11.7 percent and the net profit rose by 22.9 percent to  €16.5 million, largely because financial expenses were halved following the repayment of a high-yield bond in May 2013 and a reduction in debt. Net financial expenses totalled  €2.3 million against €5.5 million a year earlier and net debt dropped by 12.9 percent to €207.5 million.

The free cash flow was still negative at €24.6 million, compared with a cash burn of €5.5 million a year earlier, due to an increase in investments to €7.6 million from €4.7 million and an increase in inventories stemming from the launch of new brands and the expansion of Polaroid.

Safilo confirmed its target of a full-year Ebitda margin of 13.5 percent in 2015 but gave two caveats: reaching an Ebitda margin of 11.5-12.0 percent this year and raising its top line. In 2013, the group booked a full-year Ebitda margin adjusted for one-off items of 10.9 percent.

To achieve an Ebitda margin of 13.5 percent, Safilo estimates that it needs to reach full-year sales of €1.25-1.30 billion. Delgado pointed out, however, that sales levels may not be so important if the sales mix continues to improve.

Financial analysts currently believe that the company will miss its Ebitda margin objective, forecasting sales of €1.2 billion and an Ebitda margin of 11.5 percent in 2014 and sales of nearly €1.3 billion with an Ebitda margin of 12.6 percent in 2015.

Delgado said that the management will present toward the end of this year a new strategic plan running until 2020.