MILAN — The early termination of the Gucci license combined with the problematic implementation of a new IT system that limited the group’s ability to deliver frames to customers at the beginning of the year continued to weigh on Safilo Group SpA’s performance in the third quarter.
In a statement released on Wednesday at the close of trading in Milan, where Safilo is listed, the Padua-based group reported net revenues of 245.1 million euros, down 14.9 percent at current exchange rates (off 12.3 percent at constant currencies) on the year-earlier period. Over the first nine months of the year, net sales were 797.7 million euros, down 15.1 percent.
However, during a conference call Wednesday evening, executives pointed to the normalization of operations and to the company’s “Going Forward Brand Portfolio” — which excludes the Gucci license — to show there was light at the end of the tunnel. Although the portfolio’s performance was negative over the first nine months of the year (sales down 4 percent, at constant exchange rates), this was largely due to the production and delivery delays caused by the new IT system implementation at the beginning of 2017. In the third quarter, the going-forward portfolio grew revenues by 1.3 percent over the comparable year-earlier period, thanks in particular to strong sales performance in Asia, which offset continued weakness in the United States and Europe, Safilo’s two biggest geographic markets, making up over 80 percent of total net sales. In these two markets revenues continued to slide, but at a slower rate in the third quarter than over the nine-month period as a whole.
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During the conference call, Safilo chief executive officer Luisa Delgado said the going-forward brands portfolio’s performance was strong in India, the Middle East, Africa, Eastern Europe and also Asia, “where we are starting to grow both in China and Asia-Pacific.”
Both retail and wholesale saw revenues drop in the nine-month and three-month periods, although by less in the going-forward brands portfolio. In the July-August period, going-forward brands revenues grew 1.6 percent in wholesale, which makes up just over 90 percent of group sales, compared to a 3.5 decrease in the nine months to end-September; in retail, going-forward brand sales dropped 2.5 percent in the third quarter, compared to a 10.4 percent drop in the January-September period.
Gerd Graehsler, group chief financial officer, pointed out that in North America the drivers of improving performance in the third quarter were the company’s core brands, including Smith, and also licensed brands Kate Spade, Hugo Boss and Tommy Hilfiger, which were “growing nicely.” Both executives pointed out that the U.S. market remains “challenging,” especially in high-end department stores; severe weather conditions in the third quarter also impacted performance — but not as much as could have been expected, according to Graehsler — in the company’s Solstice retail network.
In terms of profitability, Safilo — which produces frames under its own brands Safilo, Carrera, Polaroid and Smith, as well as under license for Céline, Fendi and Givenchy, among others — reported adjusted earnings before interest, taxes, depreciation and amortization of 43.2 million euros in January-September, down 44.2 percent in the year-earlier period, and 15.4 million euros, down 19.6 percent on the third quarter of 2016.
While own brands like Polaroid, Smith and Carrera and licenses like Kate Spade, Hugo Boss and Tommy Hilfiger continued to grow, Delgado pointed to continued weakness in both Dior and Marc Jacobs. The former, Delgado explained, suffered from especially strong comparables with the year-earlier period, something Delgado reminded was the case also with first-half results. The Marc Jacobs collection was impacted by the termination of the contemporary Marc by Marc line, she said.
Asked by an analyst to provide some light on the going forward brands portfolio’s prospects through the rest of the year, Graehsler said that all five core brands have been growing in the quarter, “at different speeds” but all in high single-digits compared to a year ago. Reflecting on the just-ended quarter he said: “If we exclude Dior and Marc Jacobs we would have had high single digit performance in the quarter and optical frames recorded double-digit growth.”
Looking ahead, Delgado also pointed to new collections she believes will drive sales, like the newly signed Rebecca Minkoff license, “the largest label lead by a Millennial woman” with “unique relevance among female tech Millennials.” The first sunglass collection will hit stores in the fourth quarter of 2018, Delgado said, with optical frames following in the first quarter of 2019. The chief executive also pointed to other new licenses expected to perform well, including Moschino (which is to hit markets in January) and rag & bone, also in the U.S. market in January 2018. Of Rag & Bone, she said it “redefines fashion luxury” and is “Millennial-oriented.” She pointed out that, although originally meant for the U.S. and U.K. markets, it is “seeing traction beyond those markets as we show it to customers.”