MILAN — Safilo Group SpA reported a net loss of 6.6 million euros in the first half of the year, compared to a net profit of 22.9 million euros in the year-earlier period, as the company was still suffering the effects of the Gucci license termination in 2016 and it recovered from difficulties associated with the implementation of a new IT system that led to a big order backlog in the first months of the year.
In a statement released after the end of trading in Milan on Wednesday, the company said net revenues in the six months to the end of June were down 15.1 percent (16.2 percent at constant exchange rates) to 552.6 million euros.
Adjusted earnings before interest, taxes depreciation and amortization in the first half decreased 53.3 percent to 27.8 million euros, while the adjusted EBITDA margin decreased to 5.0 percent from 8.9 percent a year ago.
The results were more positive for the second quarter, with adjusted EBITDA of 34 million euros, up 2.9 percent on the year-earlier period. The adjusted EBITDA margin in the second quarter increased from 9.5 percent to 10.8 percent “on the back of effective operating cost-saving initiatives, resulting in a significant improvement of the operating expense leverage,” the company said.
During a conference call with analysts, Safilo chief financial officer Gerd Graehsler explained that the adjusted results include a 21.5 million euro payment for accounting compensation for the early termination of the Gucci license (the sum for the full year will be 43 million euros).
In the statement, the company pointed out that adjusted earnings exclude non-recurring costs of 3.7 million euros mainly related to the reorganization of a plant in Slovenia “and other overhead cost savings.”
Revenues were down in all markets in the first half of the year, in part due to the production problems following the IT system implementation, with a more than 40 percent drop in Asia, where the impact of the end of the Gucci license — which accounted for some 50 percent of total Safilo sales in the region — was particularly heavy. However, there was some recovery in the second quarter, with a slight turnaround in Europe, where sales increased 2.9 percent at constant currencies and by 3.3 percent at constant exchange rates.
Other markets remained negative. North America — which recorded double-digit revenue drops in the second quarter and first half — was impacted by what Graehsler described as a “combination of challenging environments in department stores,” by “soft trading” at independent opticians and by Safilo’s focus on improving quality of sales.
In its statement, Safilo — which produces its own brands, including Safilo and Carrera and license brands including Céline, Dior and Marc Jacobs — said it had fulfilled the order backlog from the first quarter and that full operations had been “re-established.”
In terms of product categories, Graehsler and ceo Luisa Delgado both pointed to the success of the sports lines – like Carrera and Smith, which was driven by goggles and helmets. In October Smith will launch wearable tech and Delgado said the company was preparing to roll out the brand in Europe.
Delgado said that current fashion trends were particularly favorable to Carrera’s prospects, “with a move to big, bold eyewear.” She also pointed to “a very significant publishing partnership” with Hearst to support Carrera, which began in the second quarter and which sees dedicated teams creating “engaging stories for consumers.” A big social-media campaign also began in the U.S. for Polaroid, supported by influencer management firm Relatable.
Speaking of licenses, Delgado said that there was some weakness in Dior in the period but that this was largely due to “stellar comps” with a year earlier. Asked by an analyst to elaborate, Delgado that it was a “strong business” with peaks that related to moments of particular creative strength, as was the case over the past two years with ladies’ sun wear. “It is normal and to be expected that such incredible peaks are not sustained endlessly and may be followed by another wave that starts after a moment of relative stagnation, as the new wave emerges, and we are going through that when we talk of the stellar comps with last year,” she said. She added that the “key opportunities in the Dior portfolio are optical,” which she said was “relatively underdeveloped,” and men’s collections, for which she said she was now seeing strong demand.
One analyst also asked about the potential impact of the Essilor-Luxottica combination. Delgado limited herself to remarking: “Clearly this event has an impact on our industry and on the markets that we all need to observe.…We all need to know more deeply what the impact will be.”