Safilo Group S.p.A., the parent of Smith Optics, reported earnings eroded sharply and sales fell 11.5 percent at constant exchange rates in the first quarter in the wake of the coronavirus outbreak.

Highlights of the period:

  • Net sales at €221.1 million, down 11.5 percent at constant exchange rates year-over-year;
  • Gross profit eroded 16.0 percent to €109.4 million from €130.2 million in Q1 2019;
  • EBITDA fell 82.0 percent to €3.4 million from €18.9 million in Q1 2019;
  • Adjusted EBITDA was down 70.8 percent to €5.8 million from €20.0 million in Q1 2019; and
  • Adjusted EBITDA margin at 2.6 percent of sales compared to 8.1 percent in Q1 2019.

As anticipated, Safilo’s Q1 2020 economic and financial results were penalized by the intensifying economic and financial crisis resulting from the outbreak and spread of Covid-19 and the subsequent restrictive measures implemented by the public authorities to contain the pandemic as restrictions to people’s mobility and shutdown of manufacturing and commercial activities were imposed in succession in China first, then Italy, followed by countries elsewhere around the world.

In the first two months of 2020, the Group recorded a mid-single-digit increase in net sales driven by the double-digit growths recorded by all its own core brands, Carrera, Polaroid and Smith, as well as by the core licensed brands in the portfolio. In March, Safilo’s business was heavily hit by the escalation of Covid-19 in Italy and, from the second half of the month, also in the other European countries and the United States.

Net Sales By Geographic Area
In the first quarter of 2020, Safilo posted net sales of €221.1 million, down 10.6 percent at current exchange rates and
11.5 percent at constant exchange rates (-10.8 percent the wholesale business) compared to €247.3 million posted in the first quarter of 2019.

Net sales in Europe equaled €107.7 million, declining by 13.5 percent at current and constant exchange rates (-12.2 percent the
wholesale business), mainly due to the significant contraction recorded in March by the business in Italy and the other
South European markets, the first and more heavily hit by the outbreak of Covid-19 and by the sudden lockdowns
implemented by governments. Business performance in Germany, Northern and Eastern European countries remained
instead more sustained, driven by the positive performance of Hugo Boss, Polaroid and Tommy Hilfiger.

Net sales in North America equaled €84.4 million, recording a contraction of 7.8 percent at constant exchange rates. The performance reflected the significant deterioration of the business environment suffered by the market starting from the second week of March when an increasing number of independent optical stores, chains and department stores shut down. In the period, Safilo’s revenues in North America were supported by the acquisition of Privé Revaux, completed on February 10, 2020, which contributed for €5.5 million to the quarterly sales of the region, but also by Smith’s positive trends, thanks to the mid-single-digit growth of its online business.

Net sales in Asia Pacific were €14.9 million in the first quarter of 2020, down 17.5 percent at constant exchange rates. After a strong start to the year, sales to the travel retail channel and to Safilo’s licensed brand’s boutiques were the first to be hardly hit in February due to APAC store closures and the halt of tourism.

In the Rest of the World, net sales equaled €14.1 million, down 10.5 percent at constant exchange rates mainly as a result of the significant business deterioration experienced in Brazil, while sales trends were positive in Mexico and in the IMEA markets.

CEO Comments
Angelo Trocchia, Safilo Chief Executive Officer, commented: “In a period that will probably remain unprecedented for the extraordinary challenges we are facing, our thoughts and actions have been primarily focused on the health and safety of all our people, for whom we have immediately and rigorously implemented the safety and prevention regulations provided by government protocols.

“From the outset, it was for us important to focus on maintaining business continuity that would allow us to be ready to support our clients and customers, getting ready to start again together, in new ways. Our production and logistics sites in Italy and elsewhere in the world are today partially operative to ensure production and service levels which are finetuned on new consumption scenarios, while in our Headquarters we are alternating smart working to temporary layoffs and holidays. Today we are also working on reconverting some of our production lines for the manufacturing of protective masks and visors that go to support the medical and health operators today in the front line in the fight against Covid-19.

“I want to thank again each and every one of our people for the efforts they are making, the commitment and dedication they are constantly demonstrating. In these extraordinary circumstances, we set up a global crisis team, meeting every morning and talking every day to our leaders around the world to assess how things evolve and modulate accordingly our contingency and recovery plans. We are strictly focusing on minimizing discretionary expenditures and CAPEX, adjusting marketing plans and implementing an effective working capital and cash protection management.

“In the context of the measures to contain costs, the members of the Board of Directors have renounced to part of their annual directors’ compensation, and the extended global management team have renounced part of their annual compensation and vacations.

“This first quarter of 2020 was characterized by a solid and very promising start, particularly positive for our own core brand portfolio, which we enriched at the beginning of February with the acquisition of Privé Revaux.

“The sudden and severe halt of demand in March hit our top line and more meaningfully our profitability as the drop in sales was coupled with temporary production interruptions and supply chain inefficiencies in China, with negative effects on our industrial margin and operating leverage.

“Our cash needs remained under strict control in the first quarter of the year and our Net Financial Position, excluding the acquisition of Prive Revaux, remained substantially in line with December 2019. Today we are actively utilizing our credit facilities in order to maximize cash management flexibility and responsiveness, actively assessing current and future financing opportunities, including the possibility for our Group to access the financing provided for by the so-called Italian “Liquidity Decree”.

“The situation we are experiencing, although one of the most complex we have ever seen is, however, offering us an additional, significant opportunity to accelerate the digital transformation we outlined in our 2020-2024 Business Plan in December last year, by fine-tuning a series of actions and tools which will allow us to effectively address this new context, working better and more effectively with our clients and consumers throughout the world.

“Also in these days, we continue working on several fronts to achieve these goals, in particular on the new business-to-business platform for clients and on new programs and initiatives to drive traffic in stores when they will reopen, on digital communication campaigns which will restart with gradual investments when the markets will be ready. And clearly
an ever-greater focus on e-commerce – particularly for Smith and the newly acquired brands. Last but not least the design
and development of our collections to ensure an excellent product offer to inspire our clients and consumers.”

The full statement is here.

Photo courtesy Safilo Group