A new Moschino design produced by Safilo

MILAN — Safilo Group SpA is on track with its 2020 plan to recover top-line growth and posted a profit of 8.7 million euros in the first six months of the year compared with a loss of 4.3 million euros in the same period last year. The figure is net of the new IFRS 16 accounting rule.

In the six months ended June 30, revenues at the Italian eyewear group rose 6.5 percent to 495.9 million euros, compared with 465.7 million euros in the same period last year.

Chief executive officer Angelo Trocchia said during a conference call with analysts on Friday at the end of trading in Milan, where Safilo is publicly listed, that the performance of the second quarter was “solid,” with the top line up 9.7 percent thanks to the double-digit growth of Safilo’s own core brands driven by Carrera, Polaroid and Smith. Safilo produces eyewear collections under licensing agreements for brands ranging from Fendi and Marc Jacobs to Moschino.

On a pre-IFRS 16 basis, adjusted earnings before interest, taxes, depreciation and amortization climbed 12.9 percent to 34.2 million euros.

Adjusted operating profit was up 42.7 percent to 12.9 million euros

Sales in Europe were up 2.6 percent to 246.3 million euros, accounting for 49.7 percent of total.

Sales in North America grew 7.8 percent to 169.5 million euros, representing 34.2 percent of total. The region showed the first signs of a turnaround, with a strong performance of the Smith brand and business in Canada boosted by Hugo Boss and Kate Spade. Positive underlying sales trends in the U.S.  were supported by more business in chains and improving trading in department stores and the independent opticians’ channel. Carrera and Tommy Hilfiger outperformed in the contemporary segment, and Rag & Bone is picking up, said Trocchia.

Responding to a question about the potential consequences of a new wave of tariffs proposed by President Trump, chief financial officer Gerd Graehsler said “Let’s see what will really happen. It’s on our radar and we have contingency plans. We will be able to react within a month.”

Sales in Asia Pacific rose 33.7 percent to 43.5 million euros, accounting for 8.8 percent of total, driven in particular by the travel retail channel and China. Trocchia said that the company has seen a slowdown in Hong Kong and China, compared with a positive trend in Europe and the U.S. “The main area of concern is APAC,” he said, while he was upbeat about Europe and the U.S.

The Rest of the World area grew 2 percent to 36.7 million euros, accounting for 7.4 percent of the total and showing a recovery in the second quarter.

On the licensed brands portfolio, Dior, Hugo Boss, Tommy Hilfiger and Max Mara continued to stand out as key positive drivers. In July, after 23 years, Safilo revealed that the licensing agreement for the Dior and Dior Men collections of sunglasses and optical frames will end at its expiry date of Dec. 31, 2020. During the more than two decades of the license, Safilo sold more than 30 million pieces of Dior eyewear and, in the fiscal year 2018, the Dior license accounted for roughly 13 percent of the Italian eyewear company’s total sales. Trocchia reiterated to analysts that Safilo will show “no different level of investments, focus or attention on Dior until the last day of the license.”

Earlier in the week, EssilorLuxottica announced the acquisition of GrandVision, which counts 7,200 stores worldwide, and asked to comment on this development, Trocchia said the deal “will impact the industry overall, it’s a new reality and we will take it into account. With other changes, it’s an additional disruptive force for the market and we will find different solutions and different options.” After a long period of stability “now there is an industry acceleration of structural changes,” he said. In May, Safilo said it had signed an agreement to sell its U.S. retail chain Solstice to Fairway LLC.

Graehsler cited higher plant efficiencies and a favorable sales mix effect in the first half, and that Safilo recovered also at the operating expenses level mainly thanks to the overheads cost savings totaling 9 million euros. He pointed to positive sales dynamics together with the industrial and operational improvements achieved in the first six months of 2019 that overbalanced the income of 19.5 million euros booked in the first half of 2018 for the early termination of the Gucci license.

On a pre-IFRS 16 basis, the management touted a record level of net debt, which at the end of June decreased to 3.9 million euros compared with 32.9 million euros at the end of December 2018, benefitting of the remaining proceeds, received on Jan. 2 this year and equal to 17.7 million euros, from the share capital increase executed in 2018, and of the free cash flow generation of the period.

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