Having restored a certain profitability with the migration of production to less costly locations and other measures, Jeremy Bishop, president and CEO of Sola International, is now embarking on a new strategy intended to restore top-line growth, particularly in North America. Some of the fruits will probably appear only in the 2nd half of the present fiscal year, which began last Apr. 1. Bishop is in fact predicting flat sales in the 1st half. The net income should improve by between 36 and 49 percent for the full year, with 60 percent of the growth in the 2nd half.
Capitalizing on new products such as polycarbonate lenses and Teflon anti-reflective and anti-scratch coatings, for which the company is enjoying strong demand worldwide, Sola has earmarked a $5-7 million increase in depreciation, sales and marketing costs for this year.
Investments will be made this year and next in a planned doubling of Sola's polycarbonate manufacturing capacity, with a goal to reduce costs further and to reach a 30 percent world maket share in this growing sector. In the past year, the company managed to reduce by 20-25 percent its production costs per polycarbonate lens, and in the 4th quarter ended last March 31 their sales were up 29.4 percent in volume and 38.3 percent in value from the same period a year ago.
Other investments will go to improve logistics and to upgrade the group's information systems. The goal is to enhance the sophistication of global financial analysis and the efficiency of the supply chain, which hit some bottlenecks recently in the course of the reorganization of the production apparatus. The management admits that it will take several more months for the group's new European distribution center to reach optimal performance.
Sola plans to develop further its laboratory business, considering that more than half of the 160 million lenses it sells require now some sort of processing or finishing. This business, which is already highly developed in Europe, grew by 22 percent last year to $127 million, and it's going to increase further. There are no specific new plans yet in the USA, where the group opened its first lab in Kentucky last November.
Besides other leading-edge projects, such as the supply of corrective sun lenses for Marchon's newest line of Nike eyewear, the Kentucky lab has started to process polycarbonate lenses with Teflon coating for initial test marketing under Sola's new co-branding agreement with DuPont, but the real marketing introduction in the USA will start only on Oct. 1.
The Teflon coating program was first introduced by Sola in Italy 7 weeks ago with strong success, despite a 15 percent price surcharge, and it will be rolled out gradually in other European countries over the next 3 months as additional capacities are put into place.
The group's total sales declined slightly to $137.8 million in the 4th quarter ended March 31, but they increased by 0.5 percent on a currency-neutral basis, with a drop of 3.7 percent in North America offset by increases of 2.5 percent in Europe and 6.7 percent in the rest of the world. For the full financial year, sales of $529.5 million marked a growth of 0.2 percent in local currency, with North America down 3.6 percent, Europe up 4.1 percent, and the rest of the world up 2 percent. On the other hand, sales to the group's top 10 retail customers worldwide increased by about 25 percent.
Sola turned around to a net profit of $9,171,000 in the 4th quarter from a loss of $2,430,000 in the year-earlier period. For the full year, the group posted net income of $19.1 million against a loss of $66.5 million in the previous year, where it was loaded with exceptional restructuring costs. The gross margin improved to 41.1 percent in the 4th quarter from 37.7 percent in the year-ago period, but excluding transition costs, it actually declined slightly to 41.9 percent from 42.9 percent as Sola decided to lower production in order to reduce inventories. With operating expenses down from 35.6 to 28.9 percent of sales in the quarter, operating income improved to $17,002,000 from $2,904,000 in the quarter, but remained virtually stable at $187,958,000 after taking out transition costs.