MILAN — Net profit at Safilo Group SpA in the first quarter of the year was hurt by the development of key capabilities in commercial and product, negative exchange rate differences and the effects of the fair value valuation of the equity-linked bonds due to the increase in the company’s share price in the period.
In the three months ended March 31, adjusted net profit dropped 86.3 percent to 2.3 million euros, or $2.5 million, compared with 16.5 million euros, or $22.6 million, in the same period last year. This figure does not include nonrecurring items related to commercial restructuring costs in the EMEA region for 1.2 million euros, or $1.3 million. Including those items, net profit dropped 91.2 percent to 1.4 million euros, or $1.5 million.
Revenues rose 10.6 percent to 324.3 million euros, or $363.2 million, compared with 293.2 million euros, or $401.6 million, in the same quarter last year, benefiting from the strength of the dollar. At constant exchange rates, sales grew 0.8 percent. North America continued to grow, and Latin America saw an acceleration of business. Europe showed positive trends, while Asia declined, with soft trading in particular in China and Hong Kong.
Dollar figures were converted from the euro at average exchange rates for the periods they refer to.
“This has been another quarter of investment, on track with our plans for the year,” said chief executive officer Luisa Delgado. “As we progress further with the commercial reinvention to enable worldwide quality sales growth, and the supply network reinvention to enhance gross margins and reducing the level of cash tied up in inventory, we plan to see increasing benefit as we move through 2015.”
Adjusted earnings before interest, taxes, depreciation and amortization totaled 32.6 million euros, or $ 36.5 million, and were down 8.2 percent compared with the same period last year.
Adjusted operating profit decreased 13.1 percent to 23.3 million euros, or $26 million.
In the first quarter, free cash flow improved to 32.1 million euros, or $36 million, compared with a negative flow of 24.6 million euros, or $33.7 million, and an outflow of 12.4 million euros, or $ 17 million, at the end of 2014. This result included the first of three compensation payments of 30 million euros, or $ 33.6 million, received in January from Kering. The conversion of the current Gucci license business into a four-year strategic product partnership agreement, signed with Kering in January, will take place in 2017. Kering in September said it would terminate the current license with Safilo for the Gucci brand at the end of 2016, two years earlier than planned, in exchange for compensation of 90 million euros, or $94.4 million, to be paid in three installments.
Sales in North America rose 26.9 percent at current exchange rates and 5.3 percent at constant exchange rates, reaching 132.9 million euros, or $148.8 million.
In Latin America, sales rose 30.1 percent, standing at 12.5 million euros, or $ 14 million. Business in Mexico and Brazil were especially strong.
Sales in Europe were up 2.6 percent to 132.9 million euros, or $148.8 million .
The Iberian countries, Germany and the Nordic markets performed well, and Italy saw a positive start of the year, while Russia remained weak, reflecting domestic economic conditions.
In Asia-Pacific, revenues dropped 9.8 percent to 39.2 million euros, or $44 million, affected by a requalification of regional distributors. However, Australia led with excellent growth, and Japan started to show an early positive impact of a more brand-driven commercial approach. Hong Kong was dented by a general market softness, also felt in China.
Founded in 1878, the company owns brands Carrera, Polaroid, Smith, Safilo and Oxydo. Safilo’s stable of licensed brands includes Dior, Fendi, Bottega Veneta, Céline, Marc Jacobs, Boss and Max Mara, among others.
At the end of March 2015, net debt stood at 128.3 million euros, or $143.7 million, compared with 207.5 million euros, or $284.2 million, at the end of March 2014.