MILAN — Safilo Group SpA plans to leverage consumers’ growing appetite for eyewear to boost profitability and revenues in the next six years.
This story first appeared in the March 17, 2015 issue of WWD. Subscribe Today.
After presenting the company’s strategic plan for the years until 2020, chief executive officer Luisa Delgado told WWD that the Italian eyewear group will continue to focus on its licensing division, “our core competency and important core business,” as well as its proprietary labels.
Safilo expects to reach sales in 2020 of between 1.6 billion and 1.7 billion euros, or $1.67 billion and $1.78 billion at current exchange rates, a 40 percent rise compared with 2014, showing 6 percent yearly growth. Safilo also forecast doubling its 2014 earnings before interest, taxes, depreciation and amortization, which totaled 110.7 million euros, or $116.1 million, generating a cumulative free cash flow of between 350 million and 400 million euros, or $367.2 million and $419.7 million, over the six-year period.
Expecting two development phases, Safilo sees organic top-line acceleration on proprietary brands in the 2015 to 2017 period. Founded in 1878, the company owns brands Carrera, Polaroid, Smith, Safilo and Oxydo. The conversion of the current Gucci license business into a four-year Strategic Product Partnership Agreement, signed with Kering in January, will take place in 2017. Kering in September said it would terminate the current license with Safilo for the Gucci brand at the end of 2016, two years earlier than planned, in exchange for compensation of 90 million euros, or $94.4 million, to be paid in three installments.
Continuing organic growth of proprietary and licensed brands, together with the agreement with Kering and its contractual compensation, are expected to help mitigate related top-line and EBITDA impacts. Safilo’s stable of licensed brands includes Dior, Fendi, Bottega Veneta, Céline, Marc Jacobs, Boss and Max Mara, among others.
The exit of Gucci gave Safilo the opportunity to turn other labels with potential into “megabrands,” said Delgado, citing Boss, for example. She also described Céline, Jimmy Choo and Fendi as “hot cakes.”
Speaking of Safilo’s owned brands, Delgado, who joined the firm in October 2013, said “every single one was underdeveloped in the past and we are looking at accelerating their growth. There was no brand-building and no long-term equity view. For example, we bought Smith 18 years ago, yet we didn’t do anything. I was the first ceo to go to Sun Valley [Idaho, where Smith is based], the first they saw face-to-face.” The executive said she was looking for owned and licensed brands to each account for 40 percent of sales. Owned brands last year represented 25 percent of revenues.
To sustain its strategic plan, Safilo expects to invest about 260 million to 280 million euros, or $272.8 million to $293.8 million, mainly dedicated to modernizing its product supply and logistics network and its technology.
The company will focus on the following key strategies: balance proprietary and licensed brands; focus on brand-building, creative design and commercial capabilities, and simplify its product creation, supply chain and logistics and overhead structure. Safilo touted an advanced I.T. system project, called “Eye-Way,” allowing significant modernization, simplification and standardization of work processes, which will allow cost savings. Finally, the group is looking at the differentiation through a market-segment-based business model, sales and customer service and talent development to boost performance.
Working on its distribution, Safilo anticipates that developed countries will achieve year-over-year midsingle-digit sales growth, driven by new business opportunities in the company’s underdeveloped markets such as Germany, the U.K. and Nordic countries. In parallel, the firm sees “stronger channel and customer differentiation strategies” in established markets such as North America, Italy and Iberia. Emerging markets are expected to deliver year-over-year double-digit sales growth, driven by the establishment in 2014 of new dedicated sales regions in China, the Asia-Pacific region, Latin America and the Middle East.
Chief financial officer Gerd Graehsler said in a joint interview with Delgado that Safilo is positioned in “a very attractive industry that has grown 4 percent and is expected to continue to grow until 2020.” He cited “favorable demographics and developing countries with a big disposable income.” Graehsler said the “male segment is catching up, and is more in tune with accessories,” and added that the non-branded category is expanding.
Emerging markets are outperforming, he explained, and pointed to Asia, in particular China and India, and Latin America as key for growth. North America is showing “solid” business, and Europe at a “lower clip,” but it is also growing. Duty-free and travel retail are also performing strongly.
Graehsler said it was a goal to achieve a balance between the five market segments identified last year for better understanding: atelier, fashion luxury, contemporary fashion and lifestyle, mass/cool and sport and outdoor. “Safilo is strong in fashion and lifestyle, but atelier will grow disproportionately, too,” he said.
Asked about the relevance of currency fluctuations, Graehsler said 40 percent of Safilo’s sales are in euros and admitted that the weak euro is “helping” the company.
On Monday, Safilo shares closed up 7.8 percent to 14.41 euros, or $15.12.