Sales increased by 5.3 percent on a currency-neutral basis in the 1st quarter ended June 30, as compared to the same period a year ago, with gains of 11.1 percent in North America and 4.4 percent in Europe partly offset by a 5.8 percent drop in the rest of the world. In US dollars, the group's worldwide revenues jumped by 13.9 percent to $154.0 million, and the translation of European earnings into dollars helped to lift the overall operating margin to 12.9 percent of sales from 11.1 percent. The company recorded net income of $518,000 for the period, against a loss of $5,352,000, and adjusted to eliminate the translation of euro-denominated debt into dollars, it grew by 39.5 percent to $7,483,000 from $5,366,000.

These excellent results, which were better than what analysts expected, have led Jeremy Bishop, president and CEO of SOLA International, to revise his target for the full year's adjusted net income up from $33.5 million to $35.0 million, with sales up 5-6 percent in local currencies and the operating margin projected at between 13 and 14 percent. Cash flow should reach a similar level and will likely be used for selective acquisitions of additional prescription laboratories rather than for the reduction in the company's debt, including bonds maturing in March of 2005, as this strategy seems to be providing a better return on investment.

Globally, sales conducted through in-house labs were up 20 percent in the quarter. The company's increased lab presence in the USA has been a major factor of its growth in North America, where the market probably increased by only 2-3 percent in the latest quarter, but SOLA's growth rate in the region has probably peaked. Improved service levels in North America and Europe are another growth factor along with the positive acceptance of new progressive lens designs, polycarbonate offerings and the new line of Teflon EasyCare coatings, which is expected to make a significant contribution to sales and earnings as of next year. Excluding the relatively marginal sun lens business, value-added products now represent 78.8 percent of total revenues.

Sun lenses were the only weak point in the quarter, with revenues down both in Europe and in North America. In Europe, the drop in the sun lens business and lower overall demand in Germany partly offset strong results for the group's laboratories, leading to strong growth in France, Italy, Portugal and Spain. However, SOLA Sunlens attributes the slowdown to a temporary oversupply in the market and expects orders to start picking up again in September or October.

In the UK, where the group is getting new business from an unnamed chain retailer, SOLA regards itself as catalyst in the market's recent strong growth in the use of anti-reflection coatings. The group's overall inventories have increased to support the introduction of new products such as Teflon coatings and AO Pro Easy, a new progressive lens being launched by the American Optical subsidiary, and to sustain the ongoing improvement in service levels. Another new progressive lens will be launched later this year under the SOLA brand name but no details are available yet for competitive reasons.