A Max Mara model produced and distributed by Safilo

MILAN – Shares of Safilo Group SpA plunged over 6 percent on Thursday morning, underperforming the
 Milan Stock Exchange, and remained down almost 4 percent after noon on news that the 
eyewear maker’s first quarter 2017 sales will be impacted by delivery
 complications out of its Padova, Italy, distribution center.

Sales of its Going Forward Brand portfolio, which no longer includes Gucci, are likely to
 drop 15 percent to 20 percent in the first quarter compared with the same period 
last year, Safilo chief executive officer Luisa Delgado said in a conference call on Thursday morning.

Safilo revamped its delivery operations and is now operating an 
automated system to cater to its clients worldwide. Delgado noted
 that there were “bottlenecks” and that the company is committed to
 recovering warehouse deliveries and remedying complications in the
 second quarter.

In its full-year results statement, Safilo said its 2016 net profit,
 adjusted for nonrecurring items, more than doubled to 15.4 million 
euros, or $17 million, from $6.9 million euros, or $7.58 million, 
in 2015.

However, on a non-adjusted basis, Safilo reported a net loss of 142.1
 million euros in 2016, or $157.3 million, compared to a loss of 52.7 million 
euros, or $58.5 million, in 2015. Dollar amounts have been converted at average exchange for the periods 
to which they refer.

Non-recurring items included an impairment loss on goodwill of 150 
million euros, or $166.12 million, which reflected the writedown of the
 goodwill allocated to its Far East cash-generating unit, as well as 
9.8 million euros, or $10.8 million, in restructuring costs related to 
its Polaroid brand.

Until the last quarter of 2016, Safilo continued to suffer from
 Gucci’s exit as a top licensed brand. The Gucci license, which represented some 18 percent of the group’s revenues in 2016, ended in December, two years earlier than planned.

Safilo will still benefit from compensation payments into 2017 as a result of
 early termination from Kering.

Safilo said the second of the three compensation payments of 30 
million euros, or $33.2 million, from Kering was received in December 
2016 and the third tranche will be settled in September 2018.

Safilo’s profits suffered significantly in the fourth quarter due to a 
lackluster sales performance worldwide. The Asian market declined 30.8
 percent in the last quarter of 2016, North American sales fell 5.1
 percent and Europe rose 8.4 percent.

Gross profit fell 15.5 percent to 151.7 million euros, or $167.9
 million. Sales fell 1.7 percent to 313.9 million, or $347.5 million, 
while EBITDA or earnings before interest, taxes, depreciation and 
amortisation plunged 54.4 percent to 11.4 million euros, or $12.6
million, as the eyewear maker continued to focus on 
cost-efficiencies, as well as machinery and logistic upgrades across 
the board.

Looking ahead, Safilo said it is focused on projects like developing 
the Safilo brand’s identity, as well as the Havaianas launch in Brazil
 and propelling Polaroid as a streetwear brand.

Delgado said that Dior, which Safilo produces under license, is 
performing well and that they are “committed to the partnership with 
the brand.”

When asked if Safilo had any intention to merge with LVMH Moët Hennessy Louis Vuitton, Delgado
 said that the Italian-based eyewear company is committed to staying 
independent. As reported in February, starting in 2018, competitor Marcolin will design and manufacture eyewear for the Céline and Louis Vuitton brands, with the goal of “becoming, in the future, the preferred partner” of the LVMH group in the eyewear business. LVMH and Marcolin are to set up a joint venture with the first controlling 51 percent and the latter holding the remaining 49 percent.

“I cannot speak for LVMH but we have been very clear. Safilo’s plan 
and strategy is focused on wholesale and staying independent,” Delgado 

Safilo produces and distributes eyewear under license for LVMH brands
 including Fendi, Dior and Marc Jacobs. This year it will focus on
 launching Givenchy. However, Céline will exit by the end of 2017.

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