Safoli Group S.P.A., the parent of the Smith Optics brand, reported sales in 2019 grew 3.1 percent on a reported basis and gained 0.9 percent at constant exchange rates.
Net sales were €939.0 million in the year.
Safoli said that in the second half of the year, the performance of net sales in Europe was influenced by the expected decline of the supply business related to the agreement with Kering, a contraction which mainly materialized in the 4th quarter.
In 2019, the wholesale revenues increased by 5.2 percent at current exchange rates and by 2.8 percent at constant exchange rates, with the latter performance driven by the positive trends recorded in Europe, up 3.2 percent while North America remained slightly negative, by 0.6 percent, despite the business recovery achieved in the 4th quarter.
The year marked significant business progress in Asia, up 19.2 percent at constant exchange rates, while sales in the Rest of the World recorded an improvement of 1.1 percent, driven by mid-single-digit growth in Latin America.
2019 wholesale performance was driven by the good results achieved by the Group’s own core brands Carrera, Polaroid and Smith, overall growing by 5.7 percent at constant exchange rates, and by the positive performance of the main licensed brands.
Adjusted EBITDA reached €51.8 million and a margin on net sales of 5.5 percent, recording a decline of 9.6 percent compared to the €57.3 million booked in 2018 (6.3 percent on sales).
The adjusted net result equaled a loss of €4.0 million and a margin on sales of -0.4 percent, recording an improvement of 71.8 percent compared to a loss of €14.0 million booked in 2018 (-1.5 percent on sales).
CEO Comments
Angelo Trocchia, Safilo CEO, said in a statement, “In 2019 we continued the work started in 2018, consolidating the business foundations to develop our medium-term strategies and ambitions. Our efforts and projects focused on strengthening the customers’ trust in Safilo, strenuously improving customer care and service levels while reshaping the commercial organization around relevant eyewear competences and strong local accountability.
“Our economic results for the year were supportive, in line with the targets we had given ourselves and shared with the market, thanks to a strong execution plan to recover top-line growth in our wholesale2 business and restore a mid-single-digit adjusted3 EBITDA margin through a strict cost optimization plan.
“In 2019, our wholesale2 revenues grew by 2.8 percent at constant exchange rates, also thanks to the positive contribution of all our core own brands Carrera, Polaroid and Smith, together posting a sales growth of 5.7 percent at constant exchange rates. This result is for us particularly encouraging and supportive of the strategic choice to sharpen commercial execution, focusing skills and investments in fewer, more brand-relevant markets.
“2019 was a meaningful year also for our licensed portfolio, a year rich of important renewals, from Tommy Hilfiger and Kate Spade to Hugo Boss and Marc Jacobs, and the signing of four exciting new partnerships, namely Missoni, Levis, David Beckham and Under Armour. We consider all that we achieved last year a significant statement and confirmation of Safilo’s relevance in the eyewear licensing business, where we remain strongly committed to playing a leading role.
“At the profit level, we landed where we wanted to be, with an adjusted EBITDA margin of our Continuing Operations at 5.5 percent thanks to the savings in the costs of goods sold and to our actions to reduce overhead expenses. Our balance sheet remained strong as we closed 2019 with a net debt position of Euro 27.8 million at the end of December and adjusted financial leverage of 0.5x.
“2019 can be considered a transformational year for Safilo, in which we decided to exit the retail business, selling the Solstice chain in the USA on July 1, 2019, a year in which we were confronted with the LVMH decision to internalize its eyewear business, and in which we took the decision to pursue more decisively a digital transformation strategy, initiating the acquisition of new, relevant brands and capabilities.
“December 2019 was a turning point for our Group when we announced the acquisition of Blenders, a fast-growing digitally native California brand, which will become part of our own core brand portfolio and the most important building block to support the development of our Direct-to-Consumer capabilities and business.
“The latter is a key pillar of the new Group Business Plan 2020-2024 we presented in the same month of December, which also had to give a new course to our manufacturing footprint, rescaling its Italian capacity to the future production needs of the Company, safeguarding our competitiveness and financial solidity for the long term.
“2020 has started under the banner of our new strategic direction, with the acquisition in February of a new brand, Privé Revaux, another enrichment of our proprietary brand portfolio and a strong fit with our millennial-focused digital strategy aimed at strengthening a marketing model strongly focused on the consumer.
“After a very promising start to the new year for all our own core brands and key licenses, we are now facing the challenges posed by the outbreak and spread of coronavirus, the impacts of which we are closely monitoring while planning for mitigation actions.”
Fourth-quarter results
In the fourth quarter of 2019, Safilo’s net sales equaled €230.4 million, down 2.8 percent at current exchange rates and 4.3 percent at constant exchange rates due to the above mentioned, expected decline of the business related to the supply agreement with Kering (renewed until the end of 2023).
In the quarter, the wholesale revenues were up 1.8 percent at current exchange rates and +0.1 percent at constant exchange rates, reflecting on one side the recovery of the North American business, up 4.2 percent at constant exchange rates, and the ongoing strength of Asia-Pacific, up 8.9 percent, on the other a decrease of 4.0 percent in Europe, mainly due to the strong sales recovery posted in the region in the comparative quarter of 2018. Sales in the Rest of the World declined by 3.4 percent at constant exchange rates, driven by some business deceleration in Mexico after the strong performance posted in the first nine months of the year.
Q4 2019 gross profit included a write-down of fixed assets, for an amount of €6.6 million, in relation to the announced restructuring plan in Italy, which explains the 5.8 percent decline recorded in the period. Excluding this non-recurring item, Q4 2019 gross profit slightly increased, by 0.3 percent, compared to the same quarter of 2018, with the gross margin improving by 140 basis points.
Q4 adjusted EBITDA equaled €7.9 million, with the margin on sales at 3.4 percent. This result compared to €13.3 million reported in the fourth quarter of 2018, which however included the income of €9.8 million for the early termination of the Gucci license. Excluding such income from the comparative period, Q4 2019 adjusted EBITDA margin improved by 190 basis points compared to Q4 2018.
2020 Outlook
On December 10, 2019, in the context of the release of its Group Business Plan 2020-2024, Safilo communicated its forecasts for 2020: net revenues of €960 to 1,000 million, adjusted EBITDA margin (before the impact of IFRS 16) at around 6 percent of sales and financial leverage of 1-1.5x.
The Group’s estimates include the acquisition of Blenders, signed and communicated on December 8, 2019, and still to be closed at the present date, while they do not include the acquisition of Privé Revaux, signed and simultaneously closed on February 10, 2020. 2020 estimates furthermore do not include any potential impact deriving from the current COVID-19 (coronavirus) outbreak and spread. This latter situation, extraordinary in nature and extent, has direct and indirect repercussions on economic activities and has created a context of general uncertainty, whose evolution and related effects are not currently foreseeable. The Group is actively working to address the current challenges and is closely monitoring potential impacts while implementing mitigation actions.
Safilo’s own core brands include Carrera, Polaroid, Smith, Safilo and Privé Revaux. Licensed brands include Dior, Dior Homme, Fendi, Banana Republic, BOSS, David Beckham, Elie Saab, Fossil, Givenchy, Havaianas, HUGO, Jimmy Choo, Juicy Couture, kate spade new york, Levi’s, Liz Claiborne, Love Moschino, Marc Jacobs, Max Mara., Missoni, M Missoni, Moschino, Pierre Cardin, rag&bone, Rebecca Minkoff, Saks Fifth Avenue, Swatch, and Tommy Hilfiger.
Photo courtesy Smith Optics
