MILAN — Safilo Group shares tumbled on Friday, declining as much as 7 percent and closing down 5.33 percent to 4 euros following the release of the firm’s first-half figures a day earlier that showed a steeper loss and a fall in revenues.
In the six months ended June 30, the adjusted net loss totaled 10.4 million euros, compared with a net loss of 6.6 million euros in the first half of 2017, and a 10 percent decrease in sales to 492.2 million euros, as reported. The conference call with analysts held Friday morning to present the update on the 2020 plan did not help ease concerns about the Italian eyewear-maker as chief executive officer Angelo Trocchia said the company was looking at streamlining the organization and cutting costs and that a meeting with the unions was planned for later in the day.
Business trends are expected to improve in the second half, with the foreign exchange impact expected to ease, but a full recovery was not expected this year, said Trocchia, who defined 2018 as “a year of transition, as we put the house in order.”
He touted Safilo’s 140 years of experience, and its position as the second biggest player in the industry, while admitting “the distance from the first,” the Luxottica Group; trumpeted its reach into 40 countries and 100,000 points of sale, and a multisegment brand portfolio, as well as four owned brands, including Carrera, Smith, Polaroid and Safilo, which account for 25 percent of the business. Safilo produces and distributes eyewear collections for the likes of Fendi, Dior, Max Mara and Givenchy.
Trocchia emphasized the renewal of the licenses with Fossil and Kate Spade, and the recent arrival of brands Moschino and Rag & Bone. Chief financial officer Gerd Graehsler during the call cited Tommy Hilfiger, Hugo Boss, Kate Spade and Givenchy as growing, while Marc Jacobs was weak. The executives were also asked about the Dior license, which expires at the end of December 2020. There is speculation that Thélios, the new joint venture created between LVMH Moët Hennessy Louis Vuitton and Marcolin, could eventually pick up the Dior license.
“We live in a licensing industry and we are working to have [new] potential licenses,” Trocchia said. “There are no changes with Dior until the end of December 2020, our relations are very good and we are working very well. We are preparing for a different scenario, to get more efficient, like an athlete, to get in shape and be more prepared, then we’ll see.”
Safilo targets sales of 1 billion euros by 2020 with a compound average growth rate of 2 percent, or 4 percent stripping out the sales of Gucci, now produced by Kering Eyewear.
Graehsler said the company was banking on a “steady recovery of economic performance mainly driven by gross margin improvement and overhead savings for an EBITDA [earnings before interest, taxes, depreciation and amortization] margin expansion to reach 8 to 10 percent of sales.”
The ceo emphasized the context of “an attractive eyewear industry,” a business of 18 billion euros that is assumed will grow between 3 and 4 percent in 2020. “It’s a healthy market, with an increasing aging population in need of eye-care solutions,” he said, pointing to the potential of emerging markets and the health and wellness trends continuing to generate interest in eye care. “Millennials will have an impact also in this category and consumers will want to pay for brands that have a distinguishing value,” he said. Digital is also a priority, as Safilo is aiming at growing this channel.
Other 2020 targets are:
• Midsingle-digit growth of licensed brands as well as of owned ones.
• Emerging markets are expected to grow in the high-single digits through developing “glocal” strategies, increasing an Asian model product offering, and leveraging the optical strategy.
• Developed markets are expected to grow in the low- to mid-single digits and the firm plans to step up service and customer care, with management citing in particular the reorganization of North America.
• Omnichannel and the e-commerce business are expected to grow high-double digits in the next two years, doubling their shares of total sales from 3 to 6 percent in 2020.
• The optical business is expected to grow mid-single digits and increase its share of total sales from 35 to 40 percent in 2020.
Cumulated investments will total around 80 million euros in 2020. Safilo expects positive cash flow by 2019.
Responding to a question on the Luxottica-Essilor merger, Trocchia said he did “not think it will increase the level of service, it’s the opposite.”