Like many other European companies with big operations overseas, Safilo is benefiting from the weakening of the euro against the U.S. dollar. In the first quarter, the group's sales rose by 10.6 percent to €324.3 million. But at constant currency rates, the top line only rose by 0.8 percent, in line with the company's expectations, as revenues were weighed down by a restructuring of its Asian business. Safilo's management anticipates an acceleration in its organic growth during the balance of the year.

Financial analysts expect the group to finish this year with sales of €1.32 billion, gross operating earnings (Ebitda) of €140 million and a net profit of €56 million. Safilo did not comment on the consensus except to say that it anticipates higher revenues and profits than in 2014, when it posted sales of €1,179 million and net profit of €39.1 million. The adjusted net profit reached €44.5 million

Safilo Group Net Sales by Geographical Area

(Million Euros, Quarter ended March 31)

 

2015

2014

Change %

Change % (*)

Europe

132.9

129.6

+2.6

+2.8

North America

132.9

104.7

+26.9

+5.3

Latin America

12.5

9.6

+30.1

+23.4

Asia Pacific

39.2

43.5

-9.8

-22.9

Rest of the World

6.8

2.1

+17.9

+16.0

T O T A L

324.3

293.2

+10.6

+0.8

(*) at constant exchange rate

In Europe, Safilo's sales rose by 2.6 percent in the first quarter to €132.9 million. At constant currency rates, they went up by 2.8 percent, driven by Iberia, Germany, the Nordic countries and key accounts. The region's sales were hamstrung by a decline in Russia. Italy, which is the group's second-largest market after the U.S. globally, started the year in a positive tone.

In North America, sales grew by 26.9 percent to €132.9 million, driven by a good sales performance in all the channels and better than average results in department stores. On a currency-neutral basis, sales were up by 5.3 percent in the region.

Revenues in Latin America totaled €12.5 million, up by 30.1 percent at current exchange rates and by 23.4 percent in local currencies. The growth was broad-based throughout the area, with strong performances in Mexico and Brazil, where the group has affiliates. It serves the rest of the region through distributors.

Asia-Pacific sales fell by 9.8 percent in the quarter to €39.2 million. In local currencies, they plummeted by 22.9 percent. In mainland China and Hong Kong, Safilo suffered from a general slowdown in demand for luxury goods. In China, the group also had to deal with some commercial and management issues. In other Asian markets, especially Southeastern Asia, the group is reviewing its commercial policies to focus on the sell-out.

Safilo Group Consolidated Income Statement

(Million Euros, Quarter ended March 31)

 

2015

2014

% Change

Wholesale

304,6

276,7

10,1

Retail

19,7

16,5

19,4

Net Sales

324,3

293,2

10,6

Cost of Sales

127,74

109,2

17,0

Selling & Marketing

133,4

119,5

11,6

General & Administrative

40,4

37,7

7,2

Other Operating Income

0,7

0

-

Net interest

(18,8)

(2.3)

-

Tax

1,9

7,9

-75,9

Minority Interest

0,1

0,1

0,0

NET

1,5

16,5

-90,9

Euro/Share (Diluted)

0,023

0,262

-91,2

Safilo expects to perform better in South Korea, where it changed its business model last year. It previously operated in the market as a wholesaler, with a peak in orders in the first quarter. Now shipments in that market are more evenly spread out throughout the year to meet changing peaks in the local consumer demand.

In a conference call with financial analysts, Luisa Delgado, the chief executive of Safilo, said that the group is “reversing 15 years of practices” in Asia and expects to see the first positive results from the overhaul in the last quarter of 2015.

In the rest of the world, the group's sales were up by 17.9 percent to €6.8 million, with an increase of 16.0 percent in constant currencies

The global wholesale revenues of the group grew by 10.1 percent to €304.6 million, while retail sales surged by 19.8 percent to €19.7 million. In local currencies, wholesale was up by 0.9 percent and retail down by 1.5 percent.

Safilo did not give a breakdown by product line, departing from previous practice.

As previously reported, Safilo has created a new collection for children, called “Kids by Safilo,” in collaboration with the Italian Society of Pediatric Ophthalmology (SIOP) and the World Society of Paediatric Ophthalmology and Strabismus (WSPOS).  Delgado described the kids' segment as  an “untapped” market, noting that there are 1.6 billion children worldwide, and that one in six needs vision correction.

The group also launched the Bobbi Brown line in the U.K. on April 28 through an exclusive deal with Liberty, the London department store. It will soon launch the brand in Mexico and Asia. Delgado said that the Bobbi Brown license agreement started in a “very small” and experimental way in the U.S. and that the international roll-out of the brand is occurring well ahead of the original timing due to the “extraordinary success” of the collection.

The “Out there” advertising campaign of its repositioned Carrera brand is “hitting the street in big ways” in the group's priority markets, Delgado said, mentioning “exceptional” reception for the line, especially for its new Champion model.

The group's gross margin fell to 60.6 percent in the first quarter from 62.8 percent a year earlier as cost saving projects trailed cost inflation and provisions for inventory obsolescence. The Ebitda margin, adjusted to exclude €1.2 million in restructuring costs, narrowed to 10.0 percent from 12.1 percent a year ago, and the Ebit margin shrank to 7.2 percent from 9.1 percent.

The net profit dropped to €1.4 million from €16.5 million as financial charges increased to €18.8 million from €2.3 million due to a negative impact of €10.6 million stemming from exchange rate variations. The bottom line also suffered from a €4.2 million impact stemming from the rise of its shares on the options component of its equity-linked bonds. Adjusted net profit stood at €2.3 million.

The free cash flow was a positive €32.1 million in the first quarter against a negative €24.6 million a year earlier, as the group obtained the first of three €30 million compensation payments from the Kering group for the early termination of the Gucci license. Free cash flow also benefited from an improvement in working capital and reduced investments, which fell to €5.0 million from €7.6 million. Net debt dropped to €128.3 million at the end of March from €163.3 million at the end of December.

Safilo has received about 200 applications for 10 apprenticeship positions at its new Safilo Product School, scheduled to start in the autumn.