MILAN — Safilo shares tanked on the Italian Stock Exchange on Wednesday, closing down 25.47 percent to 1.19 euros, following the presentation a day earlier of its 2020-24 business plan, which includes laying off 700 employees and a revision of its sales and margins forecasts.
“It’s not an easy decision to take, but it’s my responsibility to make sure Safilo will be here for another 150 years, to ensure its future,” said chief executive officer Angelo Trocchia during a press conference earlier in the day, and referring to the year the Italian eyewear company was founded, in 1878. “We must face the reality, the LVMH licenses that are exiting had an enormous weight on sales.” As reported, the business plan includes the exit of the Dior brand from Jan. 1, 2021, and that of the Fendi label from July 1 that same year. LVMH Moët Hennessy Louis Vuitton in 2017 signed a joint venture with Marcolin, called Thélios, for the production and distribution of eyewear collections.
Chief financial officer Gerd Graehsler said the decline from these licenses, in addition to that of Givenchy, is mainly expected in 2021 for around 200 million euros.
“We must realign the industrial footprint to the new production scenario Safilo will be facing and our production volumes in Italy will approximately halve over the next two years,” Trocchia said.
As per the restructuring, the Martignacco factory will close starting from January 2020, with 250 people to be let go. The Longarone plant and the Padova headquarters will see the exit of 400 and 50 employees, respectively. Safilo employs 6,500 people globally, including 2,600 in Italy.
“The exit of Dior and Fendi are not connected to the performance,” underscored Trocchia, touting continued growth at the brands and Safilo’s innovative techniques, including Made in Italy metal employed for the designs. “This unfortunately overshadows the work done for years and the relations built with the brands.”
The LVMH and Kering choices “change the strategic context,” said Trocchia and Safilo is working on a more stable balance of labels, resizing the luxury division and investing in its own proprietary brands.
Safilo will continue to produce 1.8 million pieces per year for Kering until 2023 and this points to the group’s “recognition of our value and skills,” the executive said.
By 2024, licensed and owned brands are expected to be more balanced, each accounting for 50 percent of business. Sun is expected to account for 55 percent of sales and prescription for the remaining 45 percent. “We are too exposed to sun, we must gradually shift to optical,” observed Trocchia. Safilo will also work on developing business in emerging markets, with Asia expected to account for at least 20 percent of sales by 2024. Online is expected to account for 15 percent of sales and the company is focusing on a digital transformation. The acquisition earlier this week of digitally native Blenders Eyewear is in sync with this strategy. Safilo expects capital expenditures to total 120 million euros in the 2020-24 period, and, of this figure, 25 percent is aimed at the digital channel.
“We are extremely carefully looking at M&As in line with our strategy, they must be consistent,” Trocchia said when asked about possible additional deals. Similarly, new licenses “must be the right fit and bring value.” Graehsler pointed to the power of Levi’s and Under Armour in strengthening “the biggest part of the market,” with a lower presence in luxury. The new David Beckham license is “not only fashion, it revolves around the person, who has an Instagram following [of almost 60 million people].”
“Small, interesting fashion houses are coming to us for our design, global commercial footprint, know-how and brand management,” Trocchia said.
The company will also continue on its cost productivity plan to increase cost of goods sold and operating expenses efficiencies saving 45 million euros in the 2020-24 period. “We need to be leaner and faster,” the ceo said.
Responding to a question about Safilo’s controlling shareholder, Hal Holding N.V., Trocchia said it “has supported us with a capital increase and with the loan to acquire Blenders, it’s a family fund that has a long-term horizon, they are committed to Safilo and its growth, and is supporting our strategies. Today there is no sign pointing to an exit.”
As reported, Safilo expects to close the 2019 fiscal year with sales substantially stable compared to 2018, while the wholesale business is estimated to grow by approximately 3 percent at constant exchange, reflecting a positive performance by owned brands Carrera, Polaroid and Smith in their key markets.
Adjusted earnings before interest, taxes, depreciation and amortization margin is expected to be around 5.5 percent of sales.
In 2020, revenues are forecast to reach between 960 million euros and 1 billion euros, compared with the 1 billion to 1.02 billion target provided in August 2018, and an adjusted EBITDA margin (before the impact of the IFRS 16 accounting system) at around 6 percent of sales. This compares with the previous objective of an 8 to 10 percent EBITDA margin. The plan reflects the expected decline of the Dior business in the phase-out period.
In the 2020-24 period, sales are expected to reach around 1 billion euros, with a five-year compound annual growth rate of around 1 to 2 percent. In particular, Safilo expects wholesale revenues, including all new licenses signed during 2019, of around 4 percent, to be able to offset the exit of the LVMH luxury licenses. Safilo expects to achieve this goal through a mid-single-digit growth in North America and low-single-digit gains in its main European markets.
Safilo foresees its core own brands, Carrera, Polaroid and Smith, to grow faster than the group average.
Adjusted EBITDA margin is expected to reach 9 to 11 percent of sales in 2024. It also sees a positive net cash position by the end of the period.