Safilo plans to eliminate up to 1,000 jobs, representing nearly a third of its workforce in the northeastern part of Italy, justifying the move with the recent decision by Giorgio Armani's fashion house to transfer its licenses to Luxottica. Safilo holds the A/X Armani Exchange, Emporio Armani and Giorgio Armani licenses until the end of the year but is already phasing out the brands.

The company has started talks with trade unions to jointly define its future industrial organization and minimize the social impact of the redundancies. But the announcement has already triggered strikes and protests.

The group's activities are mainly located in the region of Veneto. The region's governor, Luca Zaia, is putting pressure on the government to obtain welfare support for the workers who are at risk of losing their jobs. Trade union sources indicated that the company may be ready to consider job-sharing programs and repatriating work currently made outside Italy to limit the number of layoffs. It could also divert to Italy investments initially scheduled to be made abroad, they said.

Safilo Consolidated Income Statement

('000 Euros, Three months ended March 31)

 

2012

2011

%
Change

Prescription Frames

109.4XX

113.2XX

-3.4

Sunglasses

165.5XX

168.7XX

-1.9

Sport Products

11.7XX

15.2XX

-23.0

Other

2.1XX

3.6XX

-41.7

Total

288,722

300,664

-4.0

Cost of Sales

114,533

117,634

-2.6

Selling & Marketing

116,332

119,259

-2.5

G & A

35,085

32,376

8.4

Other Operating Income

323

(12)

-

Share of Income of Associates

-

(384)

-

Net interest

4,533

(3,036)

-249.3

Tax

6,072

8,500

-28.6

Non-controlling Interest

543

1,104

-50.8

NET

11,947

18,359

-34.9

Euro/share (Diluted)

0.210

0.322

-34.8

For the first quarter of 2012, Safilo booked a 4.0 percent drop in sales to €288.7 million due to the termination last year of the Valentino and Nine West brands, the phasing out of the Armani labels, and the weakness of some southern European markets. On a constant currency basis, revenues fell by 6.3 percent. The group estimates that, excluding the impact of the two discontinued labels and the Armani brands, global sales were slightly higher than in the year-ago period.

The company said that, excluding Armani, sales rose by 10 percent in France, by 9 percent in Germany and by 14 percent in Russia. Meanwhile, sales were weak in Italy, especially among independent retailers, as well as in Spain, Portugal and Greece.

European sales dropped by 9.0 percent to €118.4 million, partly due to a sharp fall in ski goggles and helmets because of unfavorable weather conditions during the winter season. On a currency-neutral basis, the decline reached 9.2 percent. Sales were supported by solid growth in France and Germany, especially with key accounts.

In Russia, the company booked double-digit growth. The country is targeted for being one of Safilo's main European markets. Safilo claims that it is the strongest eyewear player in Russia and that Polaroid is the most popular brand in the country.

On April 3, Safilo completed the acquisition of Polaroid for €59.8 million, of which €44.3 million was financed Multibrands Italy, a unit of Hal Holding, through a reserved capital increase. Following the deal, Multibrands' stake in Safilo rose to 42.2 percent from 37.2 percent. Safilo estimates that Polaroid will contribute €25-30 million in revenues this year.

In the Americas, revenues fell by 1.1 percent to €117.4 million, and the rate of the decrease reached 4.8 percent on a constant currency basis. The company stressed that it booked a very satisfactory performance among independent opticians in the U.S., a retail segment where it consolidated its leadership. Safilo also noted that the Kate Spade, Boss Orange and Fossil Lady collections enjoyed double-digit growth rates there and that its house brand Carrera performed well.

In Asia, Safilo's sales were up by 3.5 percent to €48.9 million, but were down by 1.3 percent at constant exchange rates. Sales were driven by the South Korean market, up by nearly 10 percent, and the travel retail business, up by 20 percent, while sales were extremely weak in Japan. The group said that it was satisfied with the orders collected at collective and prive shows held in Shanghai and Seoul in February. Safilo's chief executive, Roberto Vedovotto, said that the trend is “extremely encouraging” and underscores the sound economic fundamentals of the region and the expansion of the group's labels. He stressed that the launch of Carrera in China has been “extremely successful.”

In the rest of the world, sales dropped by 12.7 percent to €4.0 million. The decrease reached 15.6 percent at constant currency rates.

Global revenues were lower for all product lines, with prescription frames down by 3.4 percent to €109.4 million, sunglasses by 1.9 percent to €165.5 million, sports products by 23.3 percent to €11.7 million and other goods by 39.6 percent to €2.1 million.

Wholesale revenues dropped by 4.6 percent to €271.5 million and retail rose by 6.6 percent to €17.2 million. On a constant-currency basis, wholesale was down by 6.8 percent and retail up by 2.2 percent. Comparable store sales at the group's American Solstice chain rose by 3.7 percent. The chain had 143 stores at the end of March after having closed eight locations during the quarter.

The group's gross margin narrowed to 60.3 percent from 60.9 percent a year earlier. The Ebitda margin slipped to 11.2 percent from 13.5 percent and the Ebit margin dropped to 8.0 percent from 10.4 percent. The net profit fell to €12.0 million from €18.4 million.

The Ebitda margin fell to 11.5 percent from 13.9 percent for the wholesale division and to 5.6 percent from 7.1 percent for retail.

Safilo had net debt of €243.2 million at the end of March, representing 2.1 times Ebitda.