Safilo Group Reports Continued Financial Momentum in Q3, First Nine Months

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PADUA, Italy—Safilo Group S.p.A. reported that its third quarter financial performance "continued the Group's positive momentum in sales and cost reduction," according to the company. The board of directors reviewed and approved the third quarter and first nine months of economic and key performance indicators yesterday. Angelo Trocchia, Safilo's CEO, commented, “In the third quarter of the year, we continued the improvement of our results, working with determination on those priorities aimed at enhancing our Group’s assets, in particular strengthening our commercial capabilities and enhancing our digital agenda, two areas in which our strategy is focused on the customer and on a continuous and ever closer connection with the final consumer. Meanwhile, we progressed also with actions to improve the efficiency of our production processes and overhead cost structures. The quarter brought significant results. We renewed two strategic partnerships relating to the Boss and Hugo licenses and the supply agreement with Kering Eyewear, and we prepared for the launch of our new licenses — David Beckham, Levi’s and Missoni."

He added, "While we move into a complex business and industry context in which we plan for the medium and long term to build top and bottom line, the quarter is indeed a further confirmation of the quality of the work we undertook, both in terms of top line, with our core wholesale business improving by 2.8 percent at constant exchange rates, as well on the economic front, achieving an adjusted EBITDA of €9.7 million. We look at the current year as a transition year for building the foundation to face the challenges and opportunities that lie ahead.”

In the third quarter of 2019, the net sales of Safilo's continuing operations equaled €212.8 million, up 2.2 percent at current exchange rates and substantially in line with the same period of last year at constant exchange rates (+0.1 percent), the company reported. The quarterly performance of the top line was influenced by the expected decrease, starting from the second part of the year, of the business relating to the production agreement with Kering, Safilo reported, while the wholesale revenues recorded a growth of 5.2 percent at current exchange rates and of 2.8 percent at constant exchange rates. The latter result was driven by a double-digit revenue growth in Europe, supported by a double-digit growth also of the main distribution channels in Asia and core markets in Latin America.

The North American business, on the other hand, recorded a 7.7 percent drop at constant exchange rates, the company said. It attributed this to "reflecting the consolidation of all the North American logistic activities in the new Denver warehouse, a start-up temporarily affecting the performance of Smith sport products. The quarterly performance also confirmed the good growth of the Carrera and Polaroid brands and the positive trends of the main licensed brands."

On a pre-IFRS 16 basis, in the third quarter of 2019 the adjusted EBITDA of the continuing operations equalled €9.7 million, with a margin on sales of 4.6 percent. This performance compared with €13.7 million in the year-ago period, a result that however included the income of €9.8 million for the early termination of the Gucci license. On an organic basis, the Group’s operating performance recorded significant progress, which reflected some improvement of the gross profit, up 3.7 percent to €109 million and a further recovery in terms of lower overhead costs

Safilo closed the first nine months of 2019 with the net sales of the continuing operations at €708.7 million, up 5.2 percent at current exchange rates and 2.7 percent at constant exchange rates. The performance was positively influenced by a 3.2 percent growth of the European market to €341.8 million and by the recovery of the main emerging markets, particularly significant in Asia Pacific at €61 million which ended up 22.5 percent. Turnover of €249.4 million was down 2.0 percent at constant exchange rates in North America. The wholesale business increased by 6.4 percent at current exchange rates and by 3.7 percent at constant exchange rates, with Europe up 5.6 percent.

On a pre-IFRS 16 basis, Safilo closed the first nine months of 2019 with an adjusted EBITDA of the continuing operations of € 43.9 million, in line with the result recorded in the first nine months of 2018 which however included the income of € 29.3 million for the early termination of the Gucci license. During the period, the gross profit reached € 375.1 million, with a margin on sales of 52.9 percent and an increase of 8.8 percent compared to the same period of the previous year. The industrial margin improved by 170 basis points thanks to higher production efficiencies, while over 200 basis points were recovered at the operating level, the company said, pointing to the expected reduction of overhead costs. In the same period, the Group continued to increase its investments in marketing and sales activities to support the development of its brands.

The Group's net debt at the end of September 2019 equaled €24.3 million compared with €32.9 million at the end of December 2018 and to €3.9 million recorded at the end of June 2019. At the end of September 2019, the financial leverage stood at 0.5x.

Safilo said it aims to present a new Group business plan on Dec. 11 during a presentation to the financial community.