Safilo's sales to GrandVision rose by 41 percent during the second quarter, as the parties are generating more Luxottica-like synergies among the supply chain in an increasingly verticalized market context. GrandVision is owned by the Dutch conglomerate Hal, which is also Safilo's main shareholder. At the end of 2011, GrandVision had 4,477 stores trading under different banners in 39 countries. The Hal group is also Safilo's main client.

The growth in Safilo's business with the retail group marked a further acceleration compared with the first quarter and brought the total growth for the first half to 39 percent compared with a year earlier. Safilo's chief executive, Roberto Vedovotto, said that the relationship is gaining momentum and that he believes Safilo “can do better than this.”

In the second quarter, Safilo booked a 7.3 percent increase in its total sales to €324.6 million thanks to the consolidation of Polaroid Eyewear, bought on April 3. At constant exchange rates and based on comparable structures, sales were down by 1.8 percent as the group suffered from the phase-out of the Armani licenses.

But organic sales – which exclude currency variations, the termination last year of the Valentino and Nine West brands, the phasing out of the Armani and Balenciaga labels, and the purchase of Polaroid Eyewear – were up by 6.1 percent. Vedovotto said that second-quarter results were in line with expectations.

In Europe, sales were up by 0.6 percent to €132.5 million. At constant currency rates and excluding Polaroid, sales were down by 6.6 percent. Europe is the region that benefited most from the consolidation of Polaroid. Organic sales were up by 1.6 percent in the region.

Sales remained difficult in southern Europe during the second quarter but sales in the three main markets – Italy, Spain and Portugal – improved compared with the first. Meanwhile the sales trend in France and Germany as well as with key accounts, including GrandVision, was positive. Safilo reinforced its management team in the region by appointing Massimo Renon head of business for Europe, the Middle East and Africa, as reported in the last issue.

In the Americas, revenues rose by 14.3 percent to €130.6 million. Currency-neutral sales were up by 4.0 percent and organic sales grew by 16.0 percent. The company stressed that it booked a very positive performance in prescription frames among independent opticians, while sunglasses grew at specialty and department stores. Safilo highlighted the performance of its American license brands and of some of its luxury brands - Hugo Boss, Gucci, Céline and Jimmy Choo.

In Latin America, the group was satisfied with its sales growth, especially regarding the house brand Carrera, which has become Safilo's best-selling label in Brazil.

In Asia, sales were up by 8.7 percent to €57.2 million, but dropped by 2.2 percent on a constant-currency basis. Sales were driven by Gucci, Tommy Hilfiger, Boss Orange and Carrera, but suffered a 25 percent decline, at constant currency rates, in Japan.

In the rest of the world, sales were up by 7.5 percent to €4.3 million, but down by 5.5 percent in terms of local currencies.

Vedovotto rejected speculation that the early renewal of the Hugo Boss licenses was a desperate move to compensate for the loss of Armani. He said that the renegotiation started before news of the Armani loss, and that the early renewal led to improved financial conditions with Hugo Boss in terms of minimum guarantees.

Safilo Consolidated Income Statement

('000 Euros, Second Quarter ended June 30)

 

2012

2011

% Change

Prescription Frames

112,7xx

109,4xx

3.0

Sunglasses

196,5xx

183,3xx

7.2

Sport Products

12,9xx

8,5xx

51.8

Other

2,5xx

1,4xx

78.6

NET SALES

324,564

302,592

7.3

Cost of Sales

133,418

121,327

10.0

Selling & Marketing

125,910

116,391

8.2

G. & A.

38,410

34,261

12.1

Other Operating Income (Loss)

1,265

(133)

-

Share of Income (Loss) of Associates

95

(35)

-

Net Interest Expense

10,692

8,104

31.9

Pre-Tax

17,494

22,341

-21.7

Tax

7,605

8,389

-9.3

Minority Interest

312

1,032

-69.8

NET

9,889

13,952

-29.1

Diluted EPS (Euros)

0.153

0.226

-32.3

Global revenues were higher for all product lines in the quarter, with sunglasses up by 7.2 percent to €196.5 million, prescription frames by 3.0 percent to €112.7 million, sports products by 51.8 percent to €12.9 million, and other items by 78.6 percent to €2.5 million. The picture was mixed on a comparable basis: sunglasses were down by 3.3 percent, prescription frames fell by 3.0 percent, sports products rose by 36.7 percent and other goods rose by 51.0 percent.

Wholesale revenues rose by 6.7 percent to €301.2 million and retail rose by 15.3 percent to €23.4 million. On a currency-neutral basis, wholesale revenues were down by 2.2 percent and retail up by 3.3 percent. Comparable store sales at the group's American Solstice chain were up by 6.3 percent. The chain had 137 stores at the end of June, down from 143 stores three months earlier.

Safilo noted that since the launch of the Carrera 6000 model three months ago, it has sold 100,000 pairs. It added that it is “working hard” on developing Carrera as a global brand. It also aims to boost its Smith Optics brand, which is currently too focused on winter sports and the North American market. It sees a big opportunity to expand the brand in the optical channel. It also plans to relaunch the Polaroid brand in the U.S.

The group's second-quarter gross margin narrowed to 58.9 percent from 59.9 percent a year earlier. The Ebitda margin slipped to 11.8 percent from 13.1 percent and the Ebit margin dropped to 8.7 percent from 10.1 percent. The net profit fell to €9.6 million from €12.9 million.

The Ebitda margin fell to 11.0 percent from 12.7 percent for the wholesale division but rose to 22.4 percent from 17.4 percent for retail.

Safilo had a net debt of €231.0 million at the end of June, representing 2.0 times Ebitda.

For the first six months of the year, the group's net profit was off by 31.2 percent to €21.5 million on 4.1 percent lower net revenues of €613.3 million. The gross margin, the Ebitda margin and the Ebit margin declined to 59.6 percent, 11.5 percent and 8.3 percent, respectively.

Vedovotto said that the improving trend for the group's activities was confirmed in July but warned that the top line will be further affected by the phase-out of the Armani brands, for which Safilo has not created fall/winter collections.

Analysts expect Safilo to book full-year sales approaching the €1.1 billion posted in 2011, while Ebitda is seen falling to around €97 million from €122.6 million.