While outlining its new 5-year business plan, Safilo released preliminary results showing improved profit margins and a 6.1 percent sales increase to €1.190 billion in 2007, with most of the growth recorded in the retail sector. The gross profit rose increased by only 5.2 percent to €698 million, but operating earnings before depreciation and amortization (EBITDA) were up by 7.9 percent to €175 million, equal to 14.7 percent of sales. Operating profit before interest and tax (EBIT) rose by 9.3 percent to €137 million, giving a margin of 11.5 percent, and net profit jumped by 36.2 percent to €51 million.

At constant currency rates, sales rose by 10.2 percent. The results beat the estimates of financial analysts who were anticipating sales of €1.189 billion, EBITDA of €173.3 million, EBIT of €134.5 million and net profits of €49.1 million. This and the presentation last Monday of the new business plan to the financial community led to a 10.14 percent appreciation of Safilo’s battered stock market quotation on that day last Monday, closing at €2.215, but the price has subsequently eased down to around €2.12.

The company said the weak dollar had a negative impact of 4 percentage points on sales growth and of 5 percentage points on EBITDA. Full-year sales rose by 9.5 percent in Europe, by 1.2 percent in the Americas and by 15.7 percent in Asia. On a currency-neutral basis, sales were up by 9.9 percent in the Americas and by 24.1 percent in Asia. Sales of prescription frames rose by 8.8 percent, whereas sunglasses went up by only 3.9 percent.
Wholesale sales, which still represented 94 percent of total revenues, were up by 3.8 percent, or 7.7 percent at constant currency rates, with the new Hugo Boss, A/X Armani Exchange and Marc by Marc Jacobs licenses contributing about €60 million. Top licensed brands enjoyed high single-digit growth, while the group’s major house brands achieved double-digit growth.

Retail sales increased by 64.4 percent to €70 million. At constant currency rates, the increase was 74.5 percent. The Solstice chain raised its sales by 19.4 percent to €46 million thanks to 31 store openings, bringing the total door count up to 114. The growth was negative on a comparable store basis. The newly acquired Loop Vision chain in Spain garnered €24 million in sales.

In outlining its outlook for 2008, Safilo said it expects sales to rise by 4-5 percent based on a €/USD rate of 1.47, or by 7-8 percent in constant currencies. The wholesale segment is forecast to book double-digit growth in Asia and low single-digit growth in Europe, but U.S. sales will be impacted by the dollar’s weakness against the euro. The company sees little room to increase prices to make up for this.

On the other hand, the group’s retail operations will have double-digit growth as part of the new strategy laid out earlier on in this issue. They will benefit from the acquisitions in Mexico and Australia as well as the opening of 30 Solstice stores in the USA, five Loop Visions in Spain and the debut of a new chain.

The EBITDA margin on sales is forecast to rise to about 15 percent from 14.7 percent in 2007. Net profits are should rise by 4.5-5.0 percent, partly helped by a lower tax rate of 36-38 percent following a fiscal reform in Italy. The estimate does not take into account the potential benefits from any refinancing of Safilo’s high-yield bond.

Safilo pledged to significantly increase its dividend payment when the board approves full-year results on March 28.