MILAN — Safilo Group SpA will focus on its core business and explore alternative ways to ease its debts after private equity investors walked away from sale talks last month, the Italian eyewear maker said Tuesday.
This story first appeared in the August 5, 2009 issue of WWD. Subscribe Today.
The company will need to act fast after restructuring costs led to losses of 137.7 million euros, or $187.6 million, in the second quarter, compared with net earnings of 7.9 million euros, or $12.4 million, in the same period last year. Sales for the three months through June 30 fell 11.8 percent to 274.2 million euros, or $373.5 million.
Dollar figures were converted at average exchange rates for the periods to which they refer.
But, in a conference call with analysts, chief executive officer Roberto Vedovotto stressed Safilo will be able to work through the restructuring with no need to file for bankruptcy. Vedovotto told analysts that lenders have supported Safilo’s plans “and that we will be able to restructure and reschedule debt.”
Meanwhile, the company said, “Safilo’s board…has mandated chief executive officer Roberto Vedovotto to continue to implement all the initiatives to strengthen the group’s capital structure in line with the group’s industrial strategy and with the support of all the stakeholders of the group.
“As discussions with financial investors have been terminated, the group will continue to focus on its core business, carrying out all the actions necessary to further improve its operating performance, fully supported by its lending banks.”
The eyewear maker, which has licenses with Armani, Dior, Gucci and Valentino, among others, said at the beginning of July its banks had agreed to postpone until the end of the year a loan payment due June 30 and waive the respective debt covenants, while sale talks with potential investors continued. However, private equity firms Bain Capital and PAI Partners walked away from negotiations to take a stake in the group toward the end of last month, leaving Safilo to reconsider its options. Vedovotto said on the conference call that the talks fell through because some investors wanted to squeeze out bondholders. Safilo said it will be more careful in future in evaluating offers, and that it is interested only in tieing up with companies already in the sector.
As of June 30, Safilo’s net financial position improved to 592.1 million euros, or $847.2 million, from 617.7 million euros, or $883.9 million at the end of the first quarter. According to analysts, the company needs a cash injection of at least 250 million euros, or $357.7 million.
Vedovotto said Tuesday the second-quarter results met Safilo’s expectations and confirmed consumers’ move toward more “accessible” products.
“In this context, the slight improvement in the operating performance and the limited decline in sales compared with the first half of 2008 must represent a stimulus to reach the goals that we have set ourselves,” Vedovotto stated.
Safilo said the contraction in sales of high-end sunglasses persisted through the quarter, although sales of prescription frames, which shrank 7.2 percent, were proving to be more resilient to the difficult trading conditions.
The company also highlighted the performance of house label Carrera, which achieved results “beyond even the best expectations.” Safilo did not break down revenues by brand.
Greater exposure to prescription frames, a more accessibly priced product mix and favorable currency fluctuations helped buoy the American market, where sales were relatively stable, falling just 0.2 percent, Safilo said. However, Europe, the group’s biggest market, and Asia bore the brunt of declines, where revenues declined 17.8 percent and 16.8 percent, respectively.
The quarterly results were impacted by 128.1 million euros, or $174.5 million, of nonrecurring items related to the group’s industrial reorganization and to the write-down of goodwill related to single cash-generating units, Safilo said. The group said in March it would rationalize its production facilities in Italy and Slovenia, leading to 750 job losses.
Safilo released the figures after the close of the Milan Bourse on Tuesday, where the company’s share price fell 7 percent to 0.43 euros, or 62 cents at current exchange.