MILAN — Safilo Group SpA on Wednesday said that it made a “significant recovery” in the first quarter of the year — a period of transition that saw former chief executive officer Luisa Delgado leave the company and new ceo Angelo Trocchia take the reins — as the company recovered from problems with the implementation of a new information system rolled out at the Padua distribution center in the first quarter of 2017.
In a statement released after the close of trading in Milan, where the company is listed, Safilo said first-quarter net sales were up 6.9 percent at current exchange rates to 250.9 million euros. At constant exchange rates, sales rose 15.4 percent.
The company — which produces frames under license for brands including Dior, Givenchy and Marc Jacobs as well as own brands Safilo, Carrera and Smith — reported a 9.1 percent increase in gross profit to 127.5 million euros as the gross margin edged up to 50.8 percent of net sales, compared to 49.8 percent in the first quarter of 2017. Adjusted earnings before interest, taxes, depreciation and amortization were positive to the tune of 13.1 million euros, compared to a loss of 6.2 million euros in 2017. The company explained that the adjusted result excluded a one-off, 1.7 million euro non-recurring cost related to the ceo succession plan that was enacted when Delgado left the company on February 28 and includes a 9.8 million euro pro-rata payment for the early termination of the Gucci license. For the full year the compensation to be paid to Gucci will be 39 million euros.
During a conference call with analysts, chief financial officer Gerd Graehsler pointed to the improved results, but cautioned that stripping out the impact of the first quarter 2017 distribution problems, “the underlying performance [so far in 2018] is quite flattish in Europe, impacted by the slow start to the sun season. We are in a much better position than we were a year ago,” Graehsler said, “but with flattish underlying performance it’s clear we are not in the place we want to be.”
Asked for impressions on the company’s performance in the coming months, Graehsler said it was too early to read into the first-quarter figures to make any forecasts. “April was quite uneven,” the executive said, pointing out that while in North America the trend was continuing along the lines of the first quarter and emerging markets were showing “positive continuation of upside,” Europe revenues were soft because of weakness in sun sales. “Now our key focus is to see May and June, which are the most important months of the quarter, and see how they play out in terms of order collection.”
Overall, its Brand Portfolio — which excludes Gucci but now includes new licenses Moschino, Love Moschino and Rag & Bone — saw revenues climb 16.9 percent at constant currencies versus the year-ago period. Graehsler also pointed to a “promising start” for Dior.
In geographic terms, sales in the first quarter rose in Europe, up 25.5 percent to 123.5 million euros, as the company overcame delivery problems in those markets that had been impacted by the information system implementation in the first quarter of 2017. Revenues at the Brand Portfolio – excluding Gucci – jumped by 31 percent.
Sales in North America, on the other hand, remained “soft,” Graehsler said, following the sharp depreciation of the U.S. dollar against the euro and continued weakness especially in department stores. Revenues in the region dropped 17.2 percent to 94.8 million euros. Asked by an analyst for a forecast of the performance of U.S. brand Smith, Graehsler said that he saw the business on track to reach 190 million euros in turnover in 2018 and said it was a brand whose trajectory of the past three to four years “has performed in line with what we foresaw and foresee going forward.”
Graehsler also pointed out that Solstice was making progress in its turnaround, saying the retailer had a “good first quarter” even as it was “not yet EBITDA positive.” He said the focus on Solstice “remains that we want to see by mid-year how the turnaround plan started 15 months ago pans out.” He said Safilo would continue to evaluate closing loss-making stores and would focus on stabilizing sales levels.
In Asia-Pacific, which had also been affected by the information system upgrade at the start of 2017, revenues jumped 29.3 percent to 14.3 million euros while in what the company calls “Rest of World,” revenues jumped 72.1 percent to 18.2 million euros. Brazil, Mexico, India and Saudi Arabia, together with other countries where Safilo has entered through local distribution partnerships, represented the most dynamic markets, Graehsler said.
New ceo Trocchia took one question, towards the end of the call, about what he saw as Safilo’s top priorities. He said the company was “working full speed” on a long-term plan and that “shortly we will come back to the market” with more information. “Clearly we need to keep building the topline, recover the topline,” he said, adding that the company would focus on improving the service level and marginality, “also via any cost and any area in terms of efficiencies.”