De Rigo still has time until June 3 to decide whether it's worth for it to invest e113.5 million to buy back the Italian chain it had sold two years ago, after only a few days of ownership, for e50 million to a pool of financial investors, exercising a right of first refusal on Dino Tabacchi's original offer for the same amount. According to observers, it's not sure that De Rigo will go ahead with the purchase because of the high price tag and the fact that it already enjoys an estimated 17 percent market share in Italy, with a share of about 25 percent in the medium-high segment covered by Salmoiraghi & Vigano, which in turn covers only about 4.2 percent of the entire Italian market.

De Rigo has other priorities, such as the need to broaden its distribution in the USA through an acquisition at the retail or wholesale level, or through a joint venture. Luxottica, whose share of the Italian market is higher than 35 percent, as compared to 11.5 percent in the USA and 10-12 percent worldwide, has no interest in Salmoiraghi. The world's largest eyewear group is interested in acquiring only retail operations whose domestic market share is higher than the share that Luxottica already enjoys in the country, and that can provide a meaningful return on investment after synergy effects. Its own products now represent about 65 percent of LensCrafters' sales and 50 percent of those of Sunglass Hut.

Should De Rigo decide to acquire Salmoiraghi, it will probably want to speed up further its store development program. Tabacchi is endorsing Salmoiraghi's present business plan, which involves the addition of 30 stores annually to reach a turnover of e139.4 million by 2004, or a domestic market share of about 8 percent. Salmoiraghi also has started up a buying group to which 20 other optical retailers are now affiliated.

For De Rigo, Salmoiraghi's acquisition would help pool together purchasing and other central services being developed for its two other retail chains, General Optica in Spain and Dollond & Aitchison in the UK, building up again a former European retail trust among the three. Tabacchi plans to do the same with Sight Resource, his optical retail chain in the USA, which would conduct some joint purchases in the Far East together with Salmoiraghi. Sight Resource had a net loss of $5.5 million last year on sales of $58.9 million. On a comparable store basis, sales dropped by 2.9 percent, but they improved by 1 percent in the 2nd half.

De Rigo will have to match the relatively high amount offered by Tabacchi, a minority shareholder of Safilo, which values Salmoiraghi at about 14 times earnings before depreciation and interest charges (Ebitda). It comprises e68.5 million in cash and e44-45 million in debt. Its longterm debt has swollen in the past couple of years, due in part to a e30 million loan used for its leveraged management buyout. Since then, Salmoiraghi has also invested some e25 million for the acquisition of numerous stores, of which 7 are in Germany, and a diversification into refractive surgery.

Anyhow, in the last few days De Rigo has been looking closely at Salmoiraghi's accounts, which show a consolidated Ebitda margin of 12.4 percent for the year ended last Sept. 30, as compared to 12 percent in the previous year. The Ebitda rose to e8.51 million in the past year, and it should grow further to more than e10.3 million in the present one. The operating margin before interest, tax and goodwill (Ebit) remained a satisfactory level of 6 percent. Thanks in part to lower extraordinary charges, the net loss was cut in half to e1.8 million from e3.6 million in the previous year, but the group would have been profitable without e6 million in annual goodwill amortization charges.

Salmoiraghi's core business, which is represented by itsfully owned Italian stores, enjoyed a 29.7 percent sales increase to e63 million in the past year. Including acquisitions, diversification and sales to franchised stores, Salmoiraghi's aggregate revenues grew by 31.6 percent to e65.4 million in the last year, and they increased by a further 26 percent in the 1st half ended last March 31. On a comparable store basis, the chain had a brilliant sales gain of 10 percent last year, thanks in part to the institution of new methods after a memorable sales convention at the end of 2000 and the appointment of a sales director, Giuseppe Soggia, who came from Heineken. Sales have been weaker than expected lately, with a growth of only about 2 percent on a comparable basis in a flat market during the first few months of this year, and the trend should continue over the balance of this year.

Salmoiraghi had a total of 193 stores as of last Sept. 30. The number should grow to 200 by this summer, including 32 franchises, placing the chain way ahead of Italy's second-largest players, Ottica Romani and Eurottica, which have annual sales estimated at about e17 million each.

The group invests 5 percent of sales on advertising and spends a lot on staff training, but 20 percent of the personnel works on a part-time basis over the weekend. Including advertising, but excluding administration, logistics and other central charges, Salmoiraghi's Italian stores boasted an average Ebitda margin of 25.6 percent in the past year, which further improved to 27.5 percent in the latest 6-month period. Riccardo Perdomi, the group's long-time CEO, attributes this performance mainly to a good selection of suppliers and a stock replenishment program that allows them to carry only 18 weeks worth of inventories, as compared to two years for the average independent Italian optician.