Safilo plans a dramatic acceleration of its retail business with the expansion of its up-market sunglass chain Solstice and the possible roll-out of a new retail banner. The group has earmarked investment of about €20 million to increase its retail network to about 200 doors by the end of the year from over 160 currently.
Solstice, which sells sunglasses at an average price of about $220 each, currently has 89 stores and has opened its first shop outside the USA in the Virgin Islands. The chain has 30 more store openings underway and is scheduled to open its 100th shop by the summer solstice of this year. Solstice is due to continue its international expansion by focusing on the Caribbean and on Australia.
However, the company is also fathoming the Chinese market and scouting other new emerging markets, especially Russia and India. Safilo hopes to start opening stores in China, mainly for optical frames, this year. The business will be built from scratch, because the group has not found any adequate acquisition targets in the country. It has started looking for locations and hiring people. The group is open to making acquisitions to build up its retail footprint, but has ruled out taking over a large player.
The expansion of the retail business could be accompanied by the roll-lout of another chain that would be operated under the Optifashion banner, a name which is being registered worldwide. However, a shroud of mystery is surrounding the Optifashion project. Company sources would only say that this chain could sell prescription frames and sunglasses, as does its recently acquired Spanish retail unit Loop Vision, but the development of the project is at an early stage.
Much like Luxottica, which went into the retail business in the USA first because of Safilo's higher market share in that country, Safilo is only aiming to develop retail operations in markets where it is not satisfied with the performance of its wholesale business. It has no plans to enter the Italian retail market, for example.
Meanwhile, the company has signed a license agreement with the Paris-based Balenciaga fashion house. Balenciaga, which did not have an eyewear license before, is part of the Gucci Group, with which Safilo already has a successful license agreement for the Gucci brand since 1988. It also licenses many other brands in Gucci Group's portfolio such as Alexander McQueen, Bottega Veneta, Boucheron, Stella McCartney and Yves Saint Laurent. Safilo has been developing styles for Balenciaga that have been featured in its fashion shows.
Safilo had been seeking to add another top-end license to its own extensive portfolio. The contract with Balenciaga, which runs until the end of 2012, fulfills this goal. The first collection of Balenciaga sunglasses is scheduled for launch in October-November, and will be followed by a line of optical frames. The company does not expect the collection to generate significant sales in the short term. It will be positioned as an exclusive brand, with entry retail prices expected to start above $200.
Company officials have apparently been talking about a possible new eyewear license with Jimmy Choo, the elegant British brand of women's shoes, but Safilo's chairman, Vittorio Tabacchi, has reportedly said that the company is not looking for any further licenses for the moment. It is already scheduled to launch in North America this summer an eyewear collection for Banana Republic, the luxury brand of the American apparel group GAP, under a 5-year licensing deal signed last November.
For his part, Claudio Gottardi, joint chief executive, has dismissed the possibility of buying Cébé, the sports eyewear brand that Marcolin is expected to sell. Safilo already owns Smith Sports Optics, a big American sports eyewear company, and the Austrian company Carrera Optyl, which specializes in sports sunglasses and ski goggles. The addition of yet another brand would weaken Safilo's focus on its existing brands without adding any sales.
Meanwhile, the group has released first-quarter results which showed that it has overcome the loss last year of the Polo Ralph Lauren brands as well as the effects of a weakening dollar. Net sales rose by 13.0 percent to €341.395 million in the first quarter of this year from €302.125 million a year earlier, and the rate of increase would have been 16.8 percent at constant exchange rates.
The gross profit increased by 10.5 percent, but fell to 59.9 percent of sales from 61.3 percent because of higher costs and the sale of remaining Polo Ralph Lauren inventories, which were sold at cost value. First-quarter net profits rose to €20.848 million from €16.958 million.
In the latest quarter, sales of Polo Ralph Lauren totaled €5-10 million, and are expected to reach about €2 million in the second quarter and a maximum of €10 million for the whole of 2007. In the first quarter of 2006, Polo Ralph Lauren was still representing 10 percent of Safilo's total sales.
The group has managed to compensate for the loss of the brand, which was snatched away by Luxottica, thanks to double-digit growth for its house brands and key licenses. The consolidation of Loop Vision in Spain contributed to boost sales by €6 million in the latest quarter. Newly acquired licenses represented 5-7 percent of total sales in the quarter, with Hugo Boss already ranking as the fourth best selling brand for the group. That license was obtained at the end of 2005 but was only launched in the fourth quarter of last year, along with the A/X Armani Exchange and Marc by Marc Jacobs collections.
Safilo reiterated its guidance of an EBITDA of €190 million for the full year based on an exchange rate of $1.30 per euro. However, the company noted that every $0.01 decline against the euro knocks €1 million off its EBITDA results.