Safilo booked a net profit of €1.7 million in the first quarter, in line with the same quarter a year ago, in spite of a slight decline in sales. The bottom line was lower than the €4 million profit forecast by financial analysts but the group opted for a prudent accounting policy and did not accrue deferred taxes. The decision to do so boosted income taxes to €8.7 million from €2.6 million a year earlier, offsetting an improvement in financial charges.
First-quarter sales dropped by 0.7 percent to €286.0 million due to the sale of its Australian and Spanish retail activities, which had generated €9 million in sales in the first three months of 2009, with an operating loss before amortization (Ebitda) of €0.8 million. On a comparable basis ? at constant currencies and with the same scale of the business ? sales rose by 3.9 percent.
In Europe, turnover declined by 2.7 percent to €128.2 million, but was up by 0.1 percent on a comparable basis, due to a weak sunglass business and a decline in the price mix. In America, sales rose by 1.6 percent to €111.8 million, up by 5.1 percent on a currency-neutral basis, supported by a strong performance at department stores and at the company's Solstice chain. Asian revenues soared by 10.5 percent to €41.0 million, up by 14.1 percent on a homogeneous basis, lifted by China, Hong Kong and India. Sales in the rest of the world dropped by 45.1 percent to €5.0 million.
Sunglass sales retreated by 2.5 percent to €158.3 million, down by 0.3 percent like-for-like, hit by a drop in prices, while prescription frames rose by 3.1 percent to €112.6 million, up by 5.6 percent like-for-like, underpinned by volume growth and a reinforced product range. Revenues from sport products dipped by 7.4 percent to €15.1 million.
Wholesale revenues increased by 1.9 percent, up by 3.0 percent at constant exchange rates, to €267.5 million. The house brand Carrera bolstered sales by more than 25 percent, as the brand is being rolled out in Europe. High-end licensed brands also benefited from a recovery in sales.
Retail sales shrank by 27.2 percent to €18.5 million. But on a comparable basis, the retail business increased turnover by 17.9 percent thanks to a more than 20 percent increase at Solstice and double-digit growth of the group's Mexican stores. Safilo had 219 stores at the end of March compared with 324 a year earlier.
In a conference call, the company's chief executive, Roberto Vedovotto, emphasized that the business environment remains challenging and volatile and that the green shots observed in the first quarter are not sufficient to indicate a clear upswing.
The gross margin improved the margin to 60.7 percent of sales in the quarter from 60.6 percent a year earlier. The company warned that the margin usually drops in the course of the year but could end up being slightly higher for the full year compared with 2009.
Consolidated Ebitda rose by 14.6 percent to €34.6 million thanks to the sale of the loss-making retail businesses and improved efficiency at European production plants. The Ebitda margin increased to 12.1 percent of sales from 10.5 percent.
The wholesale division increased its Ebitda by 5.1 percent to €34.7 million and the retail operations narrowed the Ebitda loss to €0.1 million from €2.8 million. Group operating profits soared by 26.2 percent to €24.1 million.
Net debt improved to €315.4 million at the end of March from €588.0 million at the end of 2009 thanks to the recapitalization carried out at the beginning of the year with the help of Hal Trust, which is now the company's major shareholder. Based on an agreement with creditor banks, Safilo can raise its net debt to €400 million. Vedovotto said he does not expect any significant increase in debt levels.
During the first quarter, Safilo booked a free cash flow of €3.1 million, against a €44.7 million cash burn a year earlier, thanks to the containment of its working capital and capital expenditures. The group spent €6.1 million in the quarter, mainly on its European production facilities.
Safilo's shareholders approved a reversed share split, under which one new share will be offered for every 20 existing shares.