MILAN — Safilo Group SpA is starting to reap the rewards of its cost-savings strategy, brand-building investments and reorganization, and its third-quarter results reflected the Italian eyewear company’s robust business in Europe, North America and the Middle East, offset by a weaker market environment in Asia and Brazil.
“We continue on the path set out as part of our strategic plan, we see the first signals in very good cash flow in the third quarter and the impact of trade receivables and inventory as operating leverage improves,” chief executive officer Luisa Delgado told WWD. “We are not celebrating yet, but in a marathon every step is important and there are big changes [taking place].”
In the three months ended Sept. 30, net profit totaled 2.4 million euros, or $2.6 million, in line with the same period last year. In the first nine months, adjusted net profit decreased 63.5 percent to 12.4 million euros, or $13.7 million, compared with 33.9 million euros, or $45.7 million, in the same period of 2014. The adjusted figures do not include non-recurring items related to commercial restructuring costs in the Europe, Middle East and Africa region for 1.2 million euros, or $1.3 million; other non-recurring costs for 1.2 million euros, or $1.3 million, mainly related to the consolidation of the Group’s North American distribution network into its Denver facility, and non-recurring expenses for 3 million euros, or $3.3 million, related to the voluntary exit incentives recently signed with employees and trade unions, as the solidarity contracts come to an end, and to some reorganization costs.
In the quarter, revenues were up 9 percent to 284.8 million euros, or $316.1 million, compared with 261.2 million euros, or $344.7 million, in the same period last year. At constant exchange rates, sales edged up 0.9 percent. In the nine months, sales rose 10.6 percent to 959.7 million euros, or $1.06 billion, compared with 867.5 million euros, or $1.17 billion, in the same period of 2014. At constant exchange, revenues were up 1 percent.
Dollar figures are converted from the euro at average exchange for the period to which they refer.
“The rebalance of our license portfolio continues and faster,” said Delgado, who has been studying the brands to see “if each has reached its potential or if they need more focus.” She cited Boss Hugo Boss, Max Mara, Tommy Hilfiger, Kate Spade and Marc Jacobs as brands that, in light of the strength of their licensors, “could be bigger. We started calling them ‘future core’ as we can still build them to become even more relevant.”
Delgado defined others, such as Jimmy Choo, Fendi and Givenchy, as “rockets — so hot that they should fly.” In addition, the decision was made to view Dior as Safilo’s “flagship brand for its excellence, its product, quality and selective distribution.”
“We realized there were steps that had not been taken, that each brand should be bigger and have long-term plans in terms of ads and consistency and we are seeing an immediate response,” continued the executive.
Max Mara is one example, she noted. “We looked at the product in terms of design and asked ourselves, is it at the same level of the brand? What should it represent, how can it be equivalent to the coats?” She described the efforts to build the image of the brand and improve the technical design as part of a global “superpartnership” and that the response is “superior to expectations.” For example, earlier this week, Max Mara presented a limited edition of glasses in a link with artist Maya Hayuk.
In addition to the above mentioned licenses, Safilo has its own brands Carrera, Polaroid, Smith and Safilo. As reported, Kering is adjusting its 20-year partnership with Safilo, terminating the current license for the cash-cow Gucci brand at the end of 2016 — two years earlier than planned — in exchange for compensation of 90 million euros, or $99 million, to be paid in three installments. Kering will initiate a product partnership with Safilo for four years starting in 2017, with options to renew. In September, the eyewear group signed a licensing agreement with Brazilian footwear, clothing and accessories manufacturer Alpargatas for the design, production and worldwide distribution of a line under the Havaianas label.
“The strategic plan is very different from the past, we see that trends are diversifying. Customers’ needs are not monolithic, it’s no longer only about luxury but it’s also about mixing and matching,” said Delgado. She defined Havaianas as being part of the “mass-cool” segment, which is “big and growing.” Polaroid is another line that belongs to this category and it’s “becoming cooler,” she said. “It’s easier to win with two or three brands, so we needed a complementary one and Havaianas is a dream creatively speaking — it’s a symbol of the joy of life, simple and attractive and it allows us to enter Brazil.”
The company has progressively implemented Eye-Way, Safilo’s project to modernize, simplify and standardize work processes through the latest and most advanced IT systems.
In a breakdown of its financial results, Safilo said strong performances in France and Italy in particular, and continuing robust performance of Germany and Iberian countries, helped boost revenues in Europe by 5.6 percent to 101.7 million euros, or $112.8 million.
In North America, revenues climbed 19.2 percent to 133.1 million euros, or $147.7 million. At constant exchange, sales rose 1.5 percent. Wholesale business accelerated in the quarter, but retail sales at Solstice stores were dented by a reduced tourism flow. Business in Latin America declined 21.6 percent to 10.8 million euros, or $11.9 million, hurt by an unfavorable business environment in Brazil, while sales in Mexico were up double-digits. Revenues in the rest of the world, mainly in the Middle East and African region, rose 32.1 percent to 7.8 million euros, or $8.6 million.
Sales in Asia decreased 6.5 percent to 31.4 million euros, or $34.8 million, as Safilo continues to reorganize its business in the region. While accounting for less than 1 percent of total sales, China is high on the agenda at Safilo.
“About a year ago we started to analyze the business in Asia, in China, Hong Kong and Korea, and we realized we had to transform and reinvent it, cleaning it up, making it more selective and raising the quality of distribution,” said Delgado. “We had to set the foundations — you can’t just sell deals to consumers in China, Korea and Japan.”
The change in leadership and execution in the region should be completed by the end of the year, she said. Asked about the potential in the area, Delgado said the Chinese “are very interested in eyewear,” but that there is an emerging middle class that has to be taken into account, who wants “contemporary, mass-cool, sporty designs” without focusing only on the “superluxury” category. “They are very informed, and interested, and they must feel respected, engaged, relevant.”
While a specific, “perfect fit that a global collection should have” is required, Delgado noted that “the consumer is global and present everywhere in the world, without differentiating between racial characteristics. I would rather speak of local flavor and style; for example, in Germany, metal and rectangular shapes are more popular, while acetate is stronger in Italy, Mexicans prefer less color, and Japan favors a more intellectual design.”
Delgado said Safilo is looking at understanding China more. “Flexibility” in adapting to markets is key, she observed.