A new Moschino design produced by Safilo

MILAN — Safilo Group SpA cut its loss in 2018 and chief executive officer Angelo Trocchia told analysts on Wednesday that he stood by the plan to return to profitability in 2020.

In the 12 months ended Dec. 31, adjusted net losses totaled 26.7 million euros, compared with an adjusted net loss of 47.1 million euros in 2017.

Cost saving helped improve Safilo’s adjusted earnings before interest, taxes, depreciation and amortization, which were up 15.5 percent to 47.5 million euros, compared to 41.1 million euros in 2017.

Confirming preliminary sales, 2018 revenues totaled 962.9 million euros, down 7 percent, compared with 1.03 billion euros in 2017. At constant exchange, sales decreased 4 percent. Revenues accelerated in the fourth quarter, growing 1.8 percent to 249.1 million euros, compared with the same period in 2017.

Trocchia, who joined Safilo in April last year, said the results were in line with expectations, after “quite an intense period.” The executive underscored that the second half of the year was key for the Italian eyewear group as it started to implement the 2020 plan and it secured a capital increase of 150 million euros and a new debt financing. “We are focusing on clear priorities and shaping a new commercial organization in all key markets with experienced managers to improve our go-to market and brand execution and putting customer service at the heart of what we do.” In October, Safilo appointed Connie Lai Sin Ching as senior commercial head of APAC & Greater China. As reported, David Anabitarte joined the company as the firm’s Latin America vice president in October, succeeding Andrea Busato, taking up the role on Oct. 1 and based in Mexico City.

Safilo renewed important licenses with brands such as Banana Republic, Fossil, Havaianas and Tommy Hilfiger. In addition, Trocchia pointed to the agreements with Missoni and, most recently, with Levi’s, which “fit perfectly” with Safilo’s portfolio, he said. The Levi’s license will allow Safilo to “fuel the contemporary segment,” “tap into the Millennial” group and grow in North America and in the Asia-Pacific region, in China in particular, added Trocchia.

“In 2019, we envisage the opportunity to recover top-line growth and above all, a sustainable level of profitability, reflecting the progress of our cost-saving projects,” he said. The company reported approximately 26 million euros of overhead cost savings.

In 2018, the wholesale business declined by 4.9 percent at constant exchange, impacted by the exit of the Celine license, partially counterbalanced by the launch of the Moschino, Love Moschino and Rag & Bone licenses.

The group’s own brands performed well, driven in particular by a strong season of Polaroid in Spain. Licensed brands in the contemporary and premium segment — such as Tommy Hilfiger, Hugo Boss and Kate Spade — performed better than the sunglasses in the fashion luxury segment, said Trocchia, adding, however, that he expected the fashion luxury brands’ performance to improve and Dior to “stabilize.” Dior accounts for between 10 and 12 percent of total Safilo sales, said Trocchia. The contract ends in 2020 and, asked about the future of this license, chief financial officer Gerd Graehsler said Safilo at the moment had “no confirmation at all whether it will be renewed or not.”

Safilo’s own brands accounted for 27 percent of sales, with the three biggest drivers being Smith, Polaroid and Carrera. Trocchia said Safilo will “continue to push on Polaroid,” and expects “some important growth” from Smith and Carrera.

The prescription frames business was also strong.

The e-commerce business grew 7 percent at constant exchange and represented 3.5 percent of total sales.

In the year, Safilo’s net investments amounted to 28.3 million euros, mainly dedicated to its product supply and logistics network and to the rollout of new IT systems.

In 2018, sales in Europe were down 1.2 percent to 452 million euros,  after climbing 23.8 percent in the fourth quarter. Healthy business trends resulted in positive performance, in particular in the Iberian markets, Germany and Central and Eastern European countries. Graehsler touted Polaroid’s “very good season in Spain.”

In North America, sales decreased 12.1 percent to 371.3 million euros, impacted by declining traffic and the closure of 22 Solstice stores in the U.S. Graehsler said he expected the region to “start to turn to growth” in 2019, leveraging the sports channel and the Smith business, both “working very well.”

The group had a challenging second half of the year in Asia-Pacific and in the Rest of the World, two key geographies where Safilo has changed the go-to-market organization and its key leadership. Sales in Asia-Pacific were down 1.5 percent to 63.3 million euros. At constant exchange, they were up 2.1 percent, but declined 19.2 percent in the fourth quarter.

In the Rest of the World area, sales totaled 76.3 million euros, down 16.2 percent. At constant exchange, sales decreased 8.6 percent and they were down 26.1 percent in the fourth quarter. Graehsler pointed to a “most promising” Latin America region, and “good progress” in Mexico and India, which grew 20 percent last year.

Trocchia said the production business with Kering will halve this year, with the bulk of deliveries in the first half.

In 2019, Safilo plans to gradually revive top-line growth, leveraging the implementation of commercial organizations in the group’s key markets and the upgrading of customer service levels. For the current year, Safilo will continue its cost-savings plan, aimed at recovering a sustainable economic profile.

Trocchia said the company was aiming to reach 70 million euros in cost savings and that it is making “very good progress.”

Graeshler said the top-line target is set at between 1 and 1.02 billion euros in 2020.

As of Dec. 31, Safilo’s net debt stood at 32.9 million euros, compared 131.6 million euros at the end of December 2017. The significant decrease in debt reflected the proceeds from the share capital approved by the extraordinary shareholders’ meeting at the end of October and launched on Dec. 3.