MILAN — It will be a dour Christmas for 700 Safilo employees.
The Italian eyewear group revealed its 2020-24 business plan on Tuesday evening, which identified approximately 700 redundancies next year in Italy, to “safeguard the Group’s competitiveness in favor of the workers who will remain in force.” Chief executive officer Angelo Trocchia said Safilo needs to reorganize its manufacturing footprint “by realigning its current capacity to our future production needs, thus safeguarding the group’s competitiveness and financial solidity for the long term. Despite the call for the emergence of alternative solutions, the new industrial plan ultimately impacts a significant number of people, for whom we will activate all the best possible and most responsible solutions, working closely with trade unions and workers’ representatives. With our economic and financial targets, we aim for Safilo to become a modern leader of the eyewear industry, a more balanced and profitable player across its markets, brands and product segments.” This follows another round of rationalization, as Safilo entered a layoff procedure for some 80 employees at its headquarters located in Padova, in the Veneto region, in September, and let go 80 employees at its plants in Longarone and Santa Maria di Sala last August.
As per its business plan, announced at the end of trading in Milan where the company is publicly listed, Safilo is revising its revenues and margins expectations, based on recent business developments, which include the exit of the Dior brand from Jan. 1, 2021 and that of the Fendi label from July 1 that same year. “The exit of the LVMH luxury licenses makes it necessary for Safilo to initiate an industrial reorganization and restructuring plan, promptly responding to the new production scenario that the company will be facing, by realigning its manufacturing footprint,” said Safilo. This is seen as delivering “margin expansion, through an efficient cost structure,” to achieve overhead efficiencies, “guaranteeing the group’s economic and financial solidity and the pursuit, during the plan’s timeline, of a recovery of the levels of profitability to which Safilo aspires.” LVMH Moët Hennessy Louis Vuitton in 2017 signed a joint venture with Marcolin, called Thélios, for the production and distribution of eyewear collections.
Safilo expects to close the 2019 fiscal year with sales substantially stable compared to 2018, while the wholesale business is estimated to grow by approximately 3 percent at constant exchange, reflecting a positive performance by owned brands Carrera, Polaroid and Smith in their key markets.
Adjusted earnings before interest, taxes, depreciation and amortization margin is expected to be around 5.5 percent of sales.
In 2020, revenues are forecast to reach between 960 million euros and 1 billion euros, compared with the 1 billion to 1.02 billion target provided in August 2018, and an adjusted EBITDA margin (before the impact of the IFRS 16 accounting system) at around 6 percent of sales. This compares with the previous objective of an 8 to 10 percent EBITDA margin. The plan reflects the expected decline of the Dior business in the phase-out period.
In the 2020-24 period, sales are expected to reach around 1 billion euros, with a five-year compound annual growth rate of around 1 to 2 percent. In particular, Safilo expects wholesale revenues, including all new licenses signed during 2019, of around 4 percent, to be able to offset a significant part of the business decline, mainly expected in 2021 for around 200 million euros, due to the exit of the LVMH luxury licenses. Safilo expects to achieve this goal through a midsingle-digit growth in North America and low-single-digit gains in its main European markets. A higher contribution is expected from the main emerging markets, in which some new brands in the license portfolio will play a significant role.
As per the plan, Safilo is eyeing growth through a customer-centric business model, powered by a digital transformation strategy.
“We are today updating and extending our Group Business Plan, confirming the strategic objective to deliver business growth, leveraging the significant progress achieved in the last 18 months thanks to a tight action plan to recover top-line growth and operating margins,” said Trocchia. “There are clear challenges and opportunities posed by the evolutions of the market context, from the internalization of luxury eyewear by the two key industry players, to the ongoing industry consolidation and digitalization. Today, at Safilo, we are facing them all, with a pragmatic approach, updating and upgrading our business model with clear, new and necessary choices. We will continue preserving and enhancing our undisputed leadership in design, product development and innovation, our global commercial footprint and our strong know-how in brand management to continue pursuing a high-potential multisegment brand portfolio strategy.”
This year, Safilo inked new licenses with Missoni and M Missoni, Levi’s, David Beckham and Under Armour. On Tuesday, the company revealed the extension of the license with Marc Jacobs until Dec. 31, 2026. Other recent renewals included the licenses with Tommy Hilfiger, Hugo Boss and Kate Spade and the supply agreement with Kering Eyewear. The business plans also takes into account the sale of the Solstice retail business on July 1, as reported.
Trocchia underscored that Safilo is upgrading its business model “through a more decisive shift toward a digital transformation strategy, which will support and enable significant improvements of our customer-centric activities through the adoption of innovative, state-of-the-art digital contents and services, as well as allow a more significant growth of our direct-to-consumer e-commerce activities through an increasing mix of internal and external capabilities and investments.” The acquisition of Blenders Eyewear, a fast-growing California digitally native brand, revealed on Monday, is seen as enriching the group’s proprietary portfolio and direct-to-consumer business and helping to grow Safilo’s top line. For Blenders Eyewear, Safilo targets a double-digit sales CAGR over the period. This acquisition, together with the foreseen development of Smith, Carrera and Polaroid’s direct-to-consumer platforms, is expected to boost the share of the group’s business made through the direct-to-consumer e-commerce channel, to represent around 15 percent of sales by 2024, and the share of own brands to reach approximately 50 percent of the group’s wholesale business.
Safilo foresees its core own brands, Carrera, Polaroid and Smith, to grow faster than the group average, further building on the positive achievements of the most recent execution plans in terms of product, distribution and communication strategies.
The development of optical frames is confirmed as a strategic lever to support the growth plans of the group’s main brands, including all its core licenses for which Safilo also expects to foster product development projects which place an increasing focus on sustainability.
Adjusted EBITDA margin is expected to reach 9 to 11 percent of sales in 2024. Safilo expects significant progress to be made by its wholesale business, leveraging positive top-line growth coupled with the implementation of a further cost productivity plan to allow additional savings for around 45 million euros. It also sees a positive net cash position by the end of the period. Safilo expects extraordinary restructuring costs of around 50 million euros globally and the incidence of capital expenditure investments on sales to decrease to around 2 percent from around 3 percent at the end of the plan, a period in which the mix of capital expenditure, for an expected cumulated amount of around 120 million euros, will also change in favor of the projects to digitally innovate the group business model.
The targets are expressed at constant 2019 exchange rates, and for 2020 exclude the impacts deriving from the application of IFRS 16 accounting system and for 2024 include the impacts deriving from the application of the IFRS 16.
The business plan will be presented to the financial community in Milan on Wednesday morning.