Safilo has reported improved results for the 3rd quarter ended Sept. 30. In particular, its operating margin before amortization and depreciation (Ebitda) increased to 12.8 percent of sales from 12.0 percent in the year-ago period, thanks to reduced production costs and improved efficiencies, and it reached 15.4 percent for the first nine months of the year.

Net debt has declined by €16.3 million from a year ago but it's still high at over €1.1 billion. The operating profit has increased to $86,134,000 for the first nine months of this year as compared to €70,958,000 in the year-ago period, and pre-tax income has doubled to €13,695,000 from €6,518,000, but the net loss has widened slightly to €6,718,000 from €6,350,000.

Total sales inched up by 1.6 percent to €199.9 million during the latest quarter, but they increased more in local currencies and in volume, and while sunglasses and sports goggles posted gains of 4.9 and 2.0 percent, respectively, revenues from prescription frames declined by 0.4 percent.

For the first nine months of the year, total sales were up by 5.8 percent to €713.2 million, with an increase of about 10 percent in local currencies, and sunglasses and goggles were up by 12.0 and 21.7 percent, respectively.

Prescription frames were down also in volume, due to difficulties in specific markets such as Italy. Volume increases of 53 percent in sunglasses and 28 percent in goggles led to an overall 25.4 percent boost in the number of units sold during the first nine months of 2004. Safilo attributes these scores mainly to the introduction of its Giorgio Armani and Emporio Armani collections and to very positive results in the Far East.

The Armani, Dior, Burberry and Gucci lines performed very well in Far Eastern markets, where the group's sales went up by 35.1 percent in the nine months and by 17.9 percent in the latest quarter, in spite of negative currency effects. In North America, the turnover in local currencies increased by 14 percent during the first nine months, but it was basically flat in the 3rd quarter, despite a 5.2 percent increase in volume. Safilo mentions the Armani lines, Burberry, Diesel, Kate Spade and Valentino as the best-sellers in the region.

Armani, Dior and Valentino fared well in Italy during the latest quarter, contributing to a 12.8 percent sales recovery in Safilo's domestic market during the latest quarter. However, for the first nine months, Italian sales were still down by 2.0 percent, mainly due to weakness in the prescription frame business. Sales of sunglasses were up by about 7 percent in volume during the 9-month period.

In the rest of Europe, Safilo booked sales increases of 8.4 percent for the nine months and 5.1 percent for the quarter, with prescription frames beginning to recover in the latest period. The strongest growth rates were recorded in Spain, Greece, France and Switzerland.

The gross profit increased by 9.3 percent during the first nine months, reaching 41.8 percent of sales, but the operating results were impacted by charges of €4.2 million, mainly related to the payment of termination fees for the employees of the Austrian production facility closed late last year.

On the other hand, the recently expanded European distribution center in Padua has increased its productivity by 6 percent as compared to last year, with the capability of handling smaller orders quickly and of adding new lines like those of Armani.

While the number of employees at Safilo's headquarters in Padua has increased to 693 from 637 a year ago, the total number of its production workers has declined from 4,954 to 4,584. Wages have decreased by 2.1 percent, but subcontracting costs have fallen by 21.6 percent as Safilo resorted heavily to contractors in the 1st half of 2003 to launch its new collections.

Safilo's sunglass business is reaping the fruits of strong advertising and promotion efforts deployed lately on its various lines, particularly its own Carrera brand. At Smith Optics, the management is again being reshuffled following the retirement of Kerry Marumoto, the company's senior vice president of marketing, who has been replaced by Blair Clark. Tag Kleiner will handle direct marketing and promotion. A new product department has been set up under the management of Eric Carlson, who becomes director of product and merchandising. A former marketing coordinator, Ben Flandro, is promoted as product manager for goggles, replacing Daryl Price.