Safilo reports a 6.4 percent increase in consolidated turnover to €260 million for the first quarter ended last March 31, with a 13.2 percent increase in local currencies, driven by major sales gains in North America and the Far East. The gross operating margin (Ebitda) reached 15.5 percent, Safilo says, indicating that it confirms a continuing recovery that began in the 2nd half of 2002, in spite of the weak dollar in which 45 percent of its sales are denominated.
The improving margins are probably a reflection of recent drastic cost-cutting measures including the shutdown of Carrera's factory in Austria late last year. According to Safilo's recently published annual report, 13.4 million out of the 26.3 million units distributed by the group worldwide were outsourced in 2003 to 30 manufacturers in Italy and 6 in the Far East as production in the company's 7 factories declined to 13.5 million units from 13.9 million in 2002, including the Smith sports goggles made a third-party facility in Utah. On the other hand, the growing portfolio of brands led the group to raise its advertising and promotion expenses last year to €80.7 million from €73.3 million.
Last year Safilo suffered a net loss of €10.9 million, as compared to a profit of €10.3 million in 2002, as consolidated sales increased by only 0.7 percent to €900.1 million. The total volume of eyewear sold last year rose by 13.4 percent to 26.3 million, but it was mostly due to its acquisition of Outlook Eyewear in the USA, whose average prices are lower. The group's gross margin declined from 58.3 to 61.1 percent and gross operating income (Ebitda) fell to €131.6 million, or 14.7 percent of sales, from €175.8 million, and the operating margin (Ebit) fell to 11.2 percent from 16.0 percent. Safilo would have been largely profitable without exceptional charges related to the factory shutdown in Austria and without high finance charges due to the company's large net debt, which stood at €836 million. The recently rescheduled debt was reduced to €816 million in the first three months of this year and is expected to decline further in the course of 2004.
The global sunglass market declined by about 15 percent in 2002 and 2003, according to the group, with particularly sharp drops in the high-end and luxury segments. Safilo says its sales of sunglasses dropped by 2.7 percent in value because of the dollar, but in terms of volume they rose from 10.4 to 12.3 million units last year in spite of the negative effect of the war in Iraq, the SARS epidemic and poor weather conditions in the USA. Volume sales of prescription frames increased to 11.7 million units from 10.6 million. The acquisition of the Giorgio Armani and Emporio Armani licenses played a small role in this increases.
Safilo sold a total of 11.0 million units in Italy and the rest of Europe last year worth €450.8 million, representing half of its total sales and a growth of 9.2 percent in value. Of those, 51 percent were sunglasses. Sales in Italy declined by 3.6 percent, accounting for 15.6 percent of the total turnover, with an increase in prescription frames offset by lower sales of sunglasses. In the rest of Europe they rose by 10.9 percent in volume and by 16.2 percent in value. The strongest increases were recorded in France, Spain, Germany and the UK.
In dollar terms, sales were stable in the USA, which remained the company's biggest market, accounting for 95 percent of North American sales. Sales in North America grew in volume from 9.4 to 11.6 million units, but in terms of euros their value dropped by 8.5 percent to $323.2 million, with prescription frames taking the lead with 56 percent of the total. Sales in the Far East rose by 1.0 percent in volume but declined by 8.9 percent in value.
The group paid royalties of €74.4 million in 2003, up from €70.9 million the previous year. Safilo has established a unified European sales team for key accounts and is setting up a European call center. The company says it wants to continue to strengthen its portfolio of company-owned and licensed brands, which numbered 36 at the end of last year. The latest addition was Marc Jacobs, for which Safilo has obtained a 7-year license, with an option for an additional 4. The first optical and sunwear models will be developed for the Spring/Summer 2005 season. It takes its name from the successful creative director of Louis Vuitton, who has just signed a new contract with LVMH for another 10 years. Products carrying his own name already generate annual sales of about $80 million.