Safilo Group S.p.A., which owns the Smith sports optics and helmet brand, reported net sales grew 11.3 percent on a reported basis and 1.0 percent at currency-neutral (c-n) basis in the first half of the year after accelerating to 12.0 percent (1.2 percent c-n) in the second quarter.
In the first half of 2015, gross profit grew by 6.9 percent, having increased by 7 percent in the second quarter.
Gross margin equaled 60.7 percent of sales in the first six months and 60.9 percent in the second quarter. The contraction compared to the comparable periods last year (63.3 percent and 63.7 percent respectively in H1 and Q2 2014), continued to be mainly driven by cost inflation increases not yet recovered through industrial efficiencies, as the Group continues to ramp up its cost savings initiatives.
At the operating level, adjusted EBITDA was down 12.6 percent in the first half and 16.9 percent in the second quarter, with profitability reflecting the margin performance recorded at the gross profit level. In the second quarter, the adjusted EBITDA margin also reflected the Group’s continuing investments in the new global advertising, product campaigns and strengthening of managerial capabilities, all of which will benefit the Group going forward.
Safilo’s Group’s adjusted net result in the first six months of 2015 declined by 68.5 percent, impacted by financial charges behind the net negative exchange rate differences recorded in the first quarter and the effects of the fair value valuation of the equity-linked bonds. In the second quarter, the Group’s adjusted net result mainly reflected the operating dynamics described above.
Safilo generated Free Cash Flow of €51.6 million helped on the one hand by the first of three compensation payments of €30 million received in January from Kering for early termination of a licensing agreement, and on the other hand by the ongoing improvement of net working capital management driven by a reduction in inventory days on hand and accounts receivable DSO (days of sales outstanding). At the end of June 2015, Group net debt further declined to €110.1 million, improving the adjusted1 financial leverage at 1.0x.
- Europe: H1 2015 net sales in Europe were up 4.4 percent (+4.1 percent c-n) to €276.7 million compared to €265.0 million in H1 2014. Sales momentum accelerated in Q2 with key markets like Italy, Iberian countries, Germany and France proving increasingly solid. In the second quarter, net sales reached €143.8 million, up 6.1 percent compared to €135.4 million in Q2 2014 (+5.4 percent c-n). Reflecting domestic economic conditions, Russia remained weak, excluding which second quarter European constant currency growth amounted to 6.4 percent.
- North America: H1 2015 net sales in North America reached €270.5 million compared to €216.1 million in H1 2014, growing by 25.1 percent on a reported basis (2.9 percent c-n), thanks to broad based positive trends across the different market segments and channels in which Safilo plays. In the second quarter, the region showed a solid and resilient performance against a more challenging comparable period last year, with the wholesale business growing by 25.2 percent (2.4 percent c-n)
- Latin America: H1 2015 net sales in Latin America were €25.6 million, up 8.2 percent compared to €23.7 million in H1 2014 (+ 5.9 percent c-n). The regional business experienced some softness in the second quarter, with net sales at €13.1 million, down 6.9 percent compared to €14.1 million in Q2 2014 (-6.0 percent c-n), mainly driven by phasing of deliveries between the two quarters.
- Asia: H1 2015 net sales in Asia were €86.7 million compared to €89.6 million in the same period of last year (-3.2 percent at current exchange rates, -18.0 percent c-n). Net sales in the second quarter equaled €47.5 million compared to €46.1 million in the quarter of last year (+3.0 percent at current exchange rates, -13.4 percent c-n), marking a deceleration of the decline vs. the first quarter as the Group continued its interventions to create sustainable business models in every Asian market. The capability re-set of Greater China and Asia Pacific, and the continued subdued trading environment in Greater China, Hong Kong and Korea, continued to weigh on the regional performance, while growth momentum continued in Australia and South East Asian distributor markets posted a growth in the quarter.
- Rest of the world: Net sales in the rest of the world were €15.4 million in the first six months of 2015 and €8.6 million in the second quarter, up 28.9 percent and 41.3 percent respectively on a currency-neutral basis. The marked improvements compared to the same periods last year are driven by Safilo’s strengthened presence in the Middle East markets where investments were made in 2014 with the opening of a fully owned subsidiary in Dubai.
“We continue on our path of investment as we reinvent ourselves to deliver sustainable growth and higher margins,” said Luisa Delgado, CEO. “The lower gross margin result achieved in the first half, impacted by cost inflation, is a key focus area for our cost savings and efficiency interventions going forward. On balance, we are satisfied with the progress of the strategic initiatives that we are implementing in line with our 2020 strategic plan.”
Delgado added that Safilo's core markets of North America, key Western European countries, as well as the new regions of LA and MEA established last year recorded good growth, while a decline in sales in Asia, where the company reorganized its business last year, slowed in the second quarter.
“Our licensed brand portfolio is developing positively following the brand re-balancing road map of 2020,” Delgado said, referencing in part the company's decision to absorb Smith into its North American operations and relocate its design and marketing team to Portland, OR to anchor a new global design studio for sports eyewear. “Our marketing and product interventions on Carrera, Polaroid and Smith including its further integration into Safilo, are showing early results in countries where we have executed with excellence such as Carrera in North America and Polaroid in Spain, and our focus is on now accelerating the roll out.”
Safilo continues to take costs out of its distribution network by reducing inventory and consolidating logistics.
“Reductions of inventory days-on hand are starting to be visible, while the overall savings program is ramping up for the second half of the year, and we have announced the first regional distribution centers' consolidation in the US,” said Delgado. “Finally, we are progressing well on the capability front and are adding expert knowledge in key business areas including Product, Supply Chain, Brand and Commercial to drive and sustain our strategic transformation.”