Safilo has reached an agreement to sell its loss-making U.S. retail chain, Solstice, to Fairway LLC, a U.S. company formed by a group of undisclosed investors who are said to be active in optical retailing with about 10 stores in the U.S. and Europe.
The price tag is $9 million, on a cash and debt-free basis, and the deal is scheduled to close by the end of September. The transaction will result in a capital loss of €18 million for Safilo. Equita, the brokerage firm that is following the company closely, had estimated a selling price of €5-10 million and a write-off of €25-30 million.
On a positive note, the deal includes a multi-year supply agreement for Safilo products to the American chain of sunglass stores. Solstice sells many of Safilo's styles, including the Gucci sunglasses which are now directly marketed by Kering Eyewear, in addition to highly demanded external brands like Maui Jim and Oakley.
Solstice has 80 stores, all in the U.S., specializing in the sale of high-end sunglasses. In the first quarter of this year, Solstice posted sales of €10.9 million, down by 7.8 percent in euros and by 14.8 percent in dollars. The chain reported a quarterly Ebitda loss of €0.6 million for the period compared with a €3.1 million loss a year earlier. When adjusted for the IFRS 16 accounting standards introduced this year, the Ebitda loss widened to €3.5 million in the quarter.
Although it already had a pretty strong position in the U.S. at the wholesale level before it bought Solstice in 2002, Safilo obviously wanted to have a presence at retail in the U.S. like Luxottica with Sunglass Hut when it made the move. It did not work out, however, perhaps because of insufficient economies of scale.
Equita noted that the disposal of Solstice will allow Safilo to plug a cash drain, while refocusing its business on the wholesale channel and exiting a segment where it has a marginal presence. It expects that the volumes of the supply agreement will be limited.
The Safilo group echoed the broker's comments by saying that the disposal confirms its “efforts to focus on its core wholesale business” and “marks a further key step in Safilo's strategy of recovering a sustainable economic profile.”
In its business plan to the end of 2020, Safilo was expecting Solstice to reach breakeven results at Ebit level. The group's management said that the disposal enhances its potential of achieving its objectives in terms of profitability. Safilo is projecting an Ebitda margin of 8-10 percent of sales at group level in 2020.