Safilo Group Provides Q1 2020 Trading Update

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PADUA, Italy—Safilo Group's (Reuters SFLG.MI) board of directors has reviewed and approved the company's Q1 2020 economic and financial key performance indicators. As was anticipated, Safilo's Q1 2020 economic and financial results were affected by the COVID-19 pandemic, mobility restrictions and manufacturing shutdowns. In the first two months of 2020, Safilo reported a mid-single digit increase in net sales driven by the double-digit growths recorded by its core brands Carrera, Polaroid and Smith, as well as by its core licensed brands. In March, Safilo’s business was heavily hit by the escalation of COVID-19 in Italy and, from the second half of the month, also in the other European countries and the U.S.

Angelo Trocchia, Safilo's CEO said, “In a period that will probably remain unprecedented for the extraordinary challenges we are facing, our thoughts and actions have been primarily focused on the health and safety of all our people, for whom we have immediately and rigorously implemented the safety and prevention regulations provided by government protocols. From the outset, it was for us important to focus on maintaining business continuity that would allow us to be ready to support our clients and customers, getting ready to start again together, in new ways.

"Our production and logistics sites in Italy and elsewhere in the world are today partially operative to ensure production and service levels which are fine-tuned on new consumption scenarios, while in our headquarters we are alternating smart working to temporary layoffs and holidays. Today we are also working on reconverting some of our production lines for the manufacturing of protective masks and visors that go to support the medical and health operators today in the frontline in the fight against Covid-19. I want to thank again each and every one of our people for the efforts they are making, the commitment and dedication they are constantly demonstrating."

"In these extraordinary circumstances, we set up a global crisis team, meeting every morning and talking every day to our leaders around the world to assess how things evolve and modulate accordingly our contingency and recovery plans. We are strictly focusing on minimizing discretionary expenditures and capex, adjusting marketing plans and implementing an effective working capital and cash protection management.
In the context of the measures to contain costs, the members of the Board of Directors have renounced to part of their annual directors’ compensation, and the extended global management team have renounced part of their annual compensation and vacations," Trocchiasaid.

In the first quarter of 2020, Safilo posted net sales of €221.1 million, which is down 10.6 percent at current exchange rates and 11.5 percent at constant exchange rates (-10.8 percent the wholesale business) compared to €247.3 million posted in the first quarter of 2019. Safilo's net sales in Europe came to €107.7 million, declining by 13.5 percent at current and constant exchange rates (-12.2 percent the wholesale business), mainly, the company said, "due to the significant contraction recorded in March by the business in Italy and the other South European markets, the first and more heavily hit by the outbreak of Covid-19 and by the sudden lockdowns implemented by governments. Business performance in Germany, Northern and Eastern European countries remained instead more sustained, driven by the positive performance of Hugo Boss, Polaroid and Tommy Hilfiger."

In North America, Safilo Group's net sales equaled €84.4 million, a contraction of 7.8 percent at constant exchange rates. Again, the company said, this "reflected the significant deterioration of the business environment suffered by the market starting from the second week of March when an increasing number of independent optical stores, chains and department stores shut down."

Safilo’s revenues in North America were supported in Q1 by the Group's acquisition of Privé Revaux, which was completed on Feb. 10, 2020. This contributed €5.5 million to the quarterly sales of the region. Revenue was also supported by the mid-single digit growth of Smith's online business.

Net sales in Asia Pacific reached €14.9 million in the first quarter of 2020, down 17.5 percent at constant exchange rates. In the rest of the world, net sales equaled €14.1 million, down 10.5 percent at constant exchange rates. The Group said this is "mainly as a result of the significant business deterioration experienced in Brazil, while sales trends were positive in Mexico and in the IMEA markets." Meanwhile, total online sales grew by almost 25 percent at constant exchange rates, representing 6 percent of the Group’s net sales of the period, up from 4 percent in the same quarter of 2019.

In Q1 2020, Safilo’s adjusted EBITDA (post-IFRS 16) equaled €5.8 million and a margin on sales of 2.6 percent, declining by 70.8 percent compared to the adjusted EBITDA of €20.0 million recorded in Q1 2019 (8.1 percent on sales). 2020 gross profit declined by 16.0 percent, to €109.4 million compared to €130.2 million in the first quarter of 2019, with the margin on sales moving from 52.7 percent to 49.5 percent. Below the gross margin, Safilo recorded a 230 basis point margin dilution due to the operating deleverage resulting from the significant drop in revenues suffered in March.

At the end of March 2020, the Group Net Debt (post IFRS 16) stood at €135.5 million compared to €105.7 million at the end of March 2019 and €74.8 million at the end of December 2019. The Group Net Debt at the end of March 2020 included an IFRS 16 impact of €45.5 million (€79.3 and €47.0 million respectively at the end of March and December 2019) and €61.6 million for the acquisition of the 61.34 percent controlling interest in Privé Revaux (of which €30 million was financed through a subordinated loan provided by Safilo’s reference shareholder, Multibrands Italy B.V., controlled by HAL Holding N.V., and for the remaining portion through available resources).

Excluding the acquisition, Safilo’s Net Debt at the end of March 2020 was "substantially in line with the position recorded at the end of December 2019," the company said.

Moving forward, the company said, "Safilo expects... a restart to be very gradual and patchy between May and June, with the Group’s second-quarter net sales now forecasted to decline more heavily than in the first quarter of the year and the operating result to be negative. Given the high level of uncertainty still surrounding the Covid-19 pandemic and the future recovery of the global economy, Safilo is still unable to provide a new outlook for the full year 2020, remaining committed to continue to promptly update the market and all its stakeholders on the developments that the health emergency will have on the Group's economic and financial results."