MILAN — Italian eyewear company Safilo Group on Tuesday reported a near 37 percent drop in first-quarter earnings, after the spiraling dollar bit into sales.
However, the company, which has licenses with Giorgio Armani, Dior, Gucci and Valentino, among others, confirmed its objectives for 2008.
Net profits for the three months through March 31 fell to 13.2 million euros, or $19.8 million at average exchange — results that Safilo said were "substantially in line with expectations for the first part of the year."
"We knew that the first quarter was going to be the most challenging of the year due to the difficult economic climate," Safilo chairman Vittorio Tabacchi said.
Sales slipped 4.5 percent to 326 million euros, or $488.3 million — although, at constant exchange, they grew by 0.9 percent. In North America, revenues increased 2.4 percent.
Safilo has forecast sales growth of between 4 and 5 percent this year, assuming an average euro-dollar exchange rate of 1.47. The company expects net profits to hover around 4.5 to 5 percent of sales, thanks in part to an improvement in the tax rate.
Last month, Goldman Sachs downgraded Safilo to "neutral" from "buy" after the eyewear company lost Gucci Group's Stella McCartney license to rival Luxottica and on a more cautious view of margins and a weaker dollar assumption.
The McCartney contract contributed less than 1.5 million euros, or $2.1 million at average exchange, to Safilo's total revenues in 2007. However, Goldman believes the loss "may increase market perception of the group later losing the Gucci contract," which expires in 2010 and represents around 20 percent of turnover.
In real terms, Safilo's U.S. sales in the quarter increased 14.9 percent, boosted by the "good performance" of prescription frame collections in independent channels and "the strong progress" of the retail channel, following the February acquisition of the Sunglass Island store chain in Mexico. Safilo also reported "double-digit" growth at constant exchange at the Solstice chain.
Currency fluctuations affected revenues in Asia as they dipped 3 percent, compared with a 4.5 percent gain at constant exchange. Safilo reported "good results in Chinese and Korean markets," but "persisting difficulty" in Japan.After growing 28.5 percent in the same period last year, sales in Europe fell 3.2 percent.
By channel, retail sales increased 56.9 percent, following the acquisition of Sunglass Island in Mexico and Just Spectacles in Australia. Together, the chains added 77 stores to Safilo's directly operated network, which, at the end of March totaled 268 units. Safilo also operates the Loop Vision chain in Spain and Solstice in the U.S.
Wholesale revenues decreased 7.5 percent, following a slowdown in sunglass sales, the company said.
Safilo's stock closed down 2.5 percent to 1.81 euros, or $2.80, in Milan on Tuesday.
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