MILAN — The coronavirus pandemic curbed Safilo Group SpA’s growth in the first two months of the year, impacting the Italian eyewear company’s performance in the first quarter, dragging its adjusted earnings before interest, taxes, depreciation and amortization down 70.8 percent to 5.8 million euros. This compares with 20 million euros in the same period last year.
The group’s operating performance was hurt by overall supply chain inefficiencies caused by temporary production interruption, halting of sourcing activities in China and by higher provisions for obsolescence. As a result, in the three months ended March 31, gross profit declined by 16 percent to 109.4 million euros, compared with 130.2 million euros in the first quarter of 2019.
The lockdowns in Safilo’s markets drove sales down 10.6 percent to 221.1 million euros.
Revenues in Europe declined 13.5 percent to 107.7 million euros, accounting for 48.7 percent of the total. Italy and other South European markets were the first and more heavily hit by the COVID-19 outbreak, while the performance in Germany and other Northern and Eastern European countries was more sustained, driven by the positive performances of Hugo Boss, Safilo’s own Polaroid brand and Tommy Hilfiger.
Sales in North America contracted 5.1 percent to 84.4 million euros, representing 38.2 percent of the total. In the period, Safilo’s revenues in North America were supported by the acquisition of Privé Revaux, completed on
Feb. 10, which contributed 5.5 million euros to the quarterly sales of the region, but also by Smith’s positive
trends, thanks to the mid-single digit growth of its online business.
Sales in Asia Pacific decreased 15.9 percent to 14.9 million euros, representing 6.7 percent of the total. Chief executive officer Angelo Trocchia said in a conference call with analysts on Wednesday evening that the company had seen “a meaningful improvement in China in April, and more encouraging signs every day.”
In the Rest of the World, revenues were down 12.5 percent to 14.1 million euros, mainly as a result of the significant business deterioration experienced in Brazil, while sales trends were positive in Mexico and in the India, Middle East and Africa markets.
While retail suffered through the lockdowns, in the first quarter online sales grew by almost 25 percent at constant exchange rates, representing 6 percent of total revenues in the period, up from 4 percent in the same quarter of 2019.
In the first two months of 2020, the group recorded a mid-single-digit increase in net sales driven by the double-digit growths recorded by all its own core brands, Carrera, Polaroid and Smith, as well as by the core licensed brands in its portfolio, which range from Marc Jacobs, David Beckham and Max Mara to Givenchy and Missoni.
“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,” said Trocchia. “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.”
Safilo 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,” said Trocchia.
Chief financial officer Gerd Graehsler said Safilo is “strictly focusing on minimizing discretionary expenditures and capex, adjusting marketing plans and implementing an effective working capital and cash protection management.”
Accordingly, the members of the board of directors have renounced part of their annual compensation, and the extended global management team has renounced part of their annual compensation and vacations.
Graehsler said Safilo is “utilizing its credit facilities in order to maximize cash management flexibility and responsiveness, actively assessing current and future financing opportunities, including the possibility for our group to access the financing provided for by the so-called Italian ‘Liquidity Decree.’”
Trocchia said that, despite the complexity of the current situation, it is offering Safilo an additional opportunity to accelerate the digital transformation the company outlined in its 2020-2024 Business Plan last December. As part of this plan, Safilo bought a majority stake in digitally native company Blenders Eyewear, as reported.
The ceo also said that the company is working on the new business-to-business platform for clients and “on new programs and initiatives to drive traffic in stores when they will reopen, on digital communication campaigns which will restart with gradual investments when the markets will be ready. And clearly an ever greater focus on e-commerce — particularly for Smith and the newly acquired brands.”
In April, business further decelerated compared to March, said Trocchia, reflecting the almost complete shutdown of the various distribution channels in which Safilo operates, except for China and its online channel, as mentioned above.
Given the high level of uncertainty still surrounding the COVID-19 pandemic Trocchia and Graehsler said they were unable to provide a new outlook for the full year 2020, given the uncertainties and how the lockdowns will be eased around the world.
Trocchia said the retail reopening process is patchy and the group’s second-quarter sales are expected to decline more heavily than in the first quarter of the year and the operating result to be negative. In Asia, Safilo has seen positive feedback from Hong Kong and China, with “clear signs of a positive mood” and a return of traffic. In Europe some and not all of stores have reopened in the Northern part of the continent, from Denmark and Austria to Germany and Norway, but Safilo still sees a 50 percent drop in traffic, while the lockdown was lifted only Monday in Italy. Spain and France have not reopened yet, and the U.K. is likely to be the last, he added.
“It’s difficult to understand what will happen. Time is crucial. The U.S. is slowly reopening but not at the speed that was expected and it’s difficult to understand if President Donald Trump will push [the openings]. If Europe and the U.S. accelerate [the end of lockdowns] by mid-May, there is room to stretch the sunglass season and it can be saved. The next two weeks will be crucial.”