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Safilo Shares Tumble

Fall in profit hits stock.

MILAN — Shares of Italy’s Safilo Group SpA fell to their lowest-ever level on the Milan Bourse Thursday, a day after the company revised down its full-year outlook after the declining dollar and a weak performance in Europe reduced second-quarter earnings by more than a third.

This story first appeared in the August 1, 2008 issue of WWD.  Subscribe Today.

Safilo’s stock dropped 16.1 percent to 97 cents euro, or $1.51 at current exchange.

On Wednesday, the eyewear company, which has licenses with Giorgio Armani, Dior, Gucci and Valentino, among others, cut its revenue growth forecast to 4 percent, from 7 to 8 percent at constant exchange, and adjusted the net income target to 3 to 3.5 percent of sales, from 4.5 to 5 percent.

The group also said it now expects earnings before interest, taxes, depreciation and amortization to reach 13.5 to 14 percent of revenues, compared with a previous estimate of around 15 percent.

Net profits slumped nearly 37 percent — for the second consecutive quarter — to 7.9 million euros, or $12.4 million at average exchange, while sales dipped 4.7 percent to 310.9 million euros, or $486 million. At constant exchange, revenues gained 1.8 percent.

The figures missed analysts’ estimates and led to a swath of downgrades, with investors losing confidence.

“The first half of the year was characterized by strong volatility in consumer patterns, above all in Europe, our reference market,” Safilo vice chairman and chief executive officer Massimiliano Tabacchi said. “We believe that the European market will continue to remain weak, even in the upcoming months, and we are therefore looking to the second half of the year with greater caution.”

Sales in Europe fell 6.9 percent to 152.3 million euros, or $238.1 million, with Spain, the U.K. and Germany again hit by a slowdown in consumer spending. The company noted Italy registered half-yearly results in line with the first six months of the previous year, thanks above all to the strong performance of the Carrera sunglasses collections.
These declines were compensated for, in part, by gains in Asia Pacific — notably China and South Korea — where second-quarter sales gained 14.6 percent to 44 million euros, or $68.7 million, following the opening of two directly operated stores, dedicated principally to prescription eyewear sales.

Revenues in the Americas fell 3.3 percent to 106.4 million euros, or $166.3 million, although Safilo noted sales in dollars — which represent 40 percent of the company’s business — had been penalized by the negative impact of the currency’s 15 percent slide against the euro in the first six months of this year.

“In the American market, we continue instead to achieve significant results,” Tabacchi said.

Tabacchi added he expected Gucci Group to renew its contract with Safilo “as soon as possible,” dampening speculation the eyewear company could lose the deal to Luxottica Group SpA — stemming from the loss of the Stella McCartney license to Luxottica in April.