Safilo managed to offset the loss of the Armani brands in the first quarter of 2013 thanks to organic growth of its remaining brands and the addition of Polaroid Eyewear. Sales rose by 2.9 percent to €297.0 million in the period from €288.7 million a year earlier. The top line was up by 3.7% at constant exchange rates, while organic sales, excluding the Armani brands and Polaroid, were up by 11 percent.

The achievement is remarkable considering that the Armani brands - Giorgio Armani, Emporio Armani and A/X Armani Exchange - had performed particularly well in the first quarter of 2012, thanks to the launch of a well-received collection at the beginning of the year. Safilo managed the phase-out of the Armani brands and did not launch the August collection, and the license agreement was transferred to Luxottica from Dec. 31, 2012. So far, Safilo has not disclosed the revenues generated by the Armani brands in 2012, but indicated that they had represented about €170 million in sales in 2011.

Safilo Consolidated Income Statement

('000 Euros, Three months ended March 31)

 

2013

2012

% Change

Prescription Frames

109.2XX

109.4XX

-0.2

Sunglasses

170.2XX

165.5XX

-2.8

Sport Products

15.9XX

11.7XX

35.9

Other

1.7XX

2.1XX

-19.0

Total

297,018

288,722

2.9

Cost of Sales

117,323

114,533

2.4

Selling & Marketing

118,375

116,332

1.8

G & A

35,401

35,085

0.9

Other Operating Income (Expense)

(196)

323

-

Net interest

5,567

4,533

22.8

Tax

6,564

6,072

8.1

Non-controlling Interest

198

543

-63.5

NET

13,394

11,947

12.1

Euro/share (Diluted)

0.216

0.210

2.9

In a conference call, Safilo's chief executive, Roberto Vedovotto, explained that Safilo managed to boost its organic sales by focusing on its top brands, especially Gucci. He described the label as its “champion in the high-end category,” enjoying great success in the marketplace thanks to its strong appeal and wide product and price range. Gucci had significant growth in all regions.

The group also focused more on the Hugo Boss brands. The Boss Orange label has become a “category killer” in the second-tier segment, the so-called diffusion category, according to the executive. Vedovotto also highlighted the “incredible” success of the Tommy Hilfiger label, formerly licensed by Viva International, which he said has beaten all sales expectations and has become Safilo's fourth largest licensed brand.

Safilo also pushed the Marc Jacobs and Marc by Marc Jacobs collections, which it launched from scratch in 2005. They have grown at double-digit rates year after year, according to Vedovotto. During the quarter, Christian Dior's sales were underpinned by the launch in January of Dior Homme, a limited edition of ultra-flat and ultra-light acetate glasses made in Japan.

The new Polaroid house brand, which has been consolidated in Safilo's accounts since April 3, 2012, performed better than expected in the first quarter but its sales were largely confined to Europe. In January, Polaroid was launched in the group's Solstice stores in the U.S. During the preview period, the brand became the second-best seller in volume in those stores, helping to boost conversion rates for customers' purchases.

The U.S. launch at wholesale officially started with a big presentation in Safilo's large and animated booth at the Vision Expo East fair in New York on March 15-17.  Vedovotto claims that the brand received an excellent welcome, especially from independent opticians, who focused on a premium segment of Polaroid's collection that retails at $98 a pair. The Polaroid Plus line, which retails at $137-140 a pair, was “well accepted” by department stores such as Bloomingdale's. The core collection, which has a retail price of $60-65 a pair, is mainly sold in the sports channel.

Vedovotto admitted that there is not enough distinction between the Polaroid and Carrera brands in some markets. The positioning for Polaroid is clear but Carrera's positioning has to be improved, he said, adding that the group needs to clarify the differences between the two labels at the international and regional levels.

Safilo's European sales rose by 8.3 percent year-on-year at actual and constant currency rates in the first quarter to €128.2 million, lifted by double-digit growth for its core brands. The situation in Southern Europe continued to be difficult, especially in Italy and, to a lesser extent, in Spain.  Sales in the region were driven by travel retail and key accounts, as well as double-digit growth rates in emerging European markets. In Russia, organic sales were up by about 18 percent.

In the Americas, sales rose by 1.0 percent to €118.6 million. At constant currency rates, they were up 2.4 percent with satisfactory results in both North and South America. Safilo said that sales in Brazil were “amazing” and that they grew strongly in Mexico.

In Asia, which is mainly a sunglass market for Safilo, revenues fell by 5.9 percent to €46.0 million, or 4.3 percent on a currency-neutral basis.  The region was affected by the loss of the Armani brands, which had performed well in the first quarter of 2012, with “extremely high” average prices. Excluding Armani, Safilo's core brands registered double-digit sales growth in the quarter. The strongest markets in terms of sales and orders were China, Hong Kong, Japan, Singapore and Malaysia as well as travel retail.

The loss of Armani has prompted the group to aggressively promote second-tier brands, the so-called diffusion and fashion lines, in Asia. The management noted that it received positive feedback on Polaroid in China. Nevertheless, Gucci remains the group's top performer in Asia, registering positive results in all key markets. Safilo is pushing for a more selective distribution policy for Dior in the region, focusing on high-end shops and department stores. The group is also promoting niche luxury brands such as Bottega Veneta, Céline and Alexander McQueen in the region.

Vedovotto sees significant growth potential in Thailand, Indonesia, Taiwan and Vietnam. The group is not present in those markets but is ready to partner with quality distributors in those countries. Sales in the rest of the world grew by 5.0 percent, by 7.2 percent at constant foreign exchange rates, to €4.2 million.

The group's total sales of prescription frames dropped by 0.2 percent to €109.2 million, but were up by 0.9 percent at constant currency rates, supported by positive organic sales in all core markets. The group said it has intensified its efforts to market the Safilo brand, while Carrera is progressing in the prescription sector in Europe, the U.S. and Latin America.

Sales of sunglasses rose by 2.8 percent, or by 3.5 percent in constant currencies, to €170.2 million. Sport products, including snow and cycling helmets, increased by 35.9 percent to €15.9 million, with a 37.0 percent increase on a currency-neutral basis.

Overall, the group's wholesale revenues went up by 3.9 percent at constant currency rates and reached €279.6 million, while retail was up by 1.7 percent to €17.4 million.

The group's quarterly gross margin widened to 60.5 percent from 60.3 percent a year earlier. The gross operating margin (Ebitda) rose to 11.7 percent from 11.2 percent, thanks to an increase in the wholesale margin to 11.8 percent from 11.5 percent and a surge in the retail margin to 10.2 percent from 5.6 percent, following a restructuring of the store network.

Safilo ended the first quarter with a net profit of €13.4 million, up from €12.0 million a year earlier, and its net debt declined by 9.4 percent to €220.4 million. Vedovotto said that 2013 will be a challenging year but he expressed optimism that the group will seize new opportunities and grow further organically.  Analysts predict that the company will book full-year sales of about €1.15 billion, Ebitda of €117 million and a net profit of €32 million.