Safilo Group reported overall sales in North America increased 5.3 percent in currency-neutral (c-n) terms in the first quarter, as a strong performance by its Wholesale business, including Smith Optics, easily offset a dip in sales at its Solstice Sunglasses retail chain in the United States.

The Italian eyewear company reported sales reached €132.9 million ($150 mm) in the United States and Canada, a 26.9 percent increase compared with €104.7 million in the first quarter of 2014. While sales performed solidly across all core channels and brands, major department stores performed best.

Luisa Delgado, who was named Safilo Group CEO in 2014, said first quarter results were broadly consistent with expectations. Total revenues reached €324.3 million, up 10.6 percent (0.8 percent c-n). Sunglasses accounted for 37 percent of revenues,  or  €120.0 million, during the quarter.

Safilo Group's Wholesale revenues increased 10.1 percent to €304.6 million in the first quarter, while adjusted Wholesale EBITDA margins reached 10.7 percent, down from 12.5 percent in the first quarter of 2014. Safilo's adjusted results for the quarter exclude €1.2 million in non-recurring items related to restructuring in the EMEA region.

Retail sales, which consist entirely of the 132 Solstice Sunglasses locations in the United States, reached €19.7 million, up 19.8 percent in euro terms, but down 1.5 percent c-n after accounting for the nearly 18 percent decline in the euro to dollar exchange rate during the year ended March 31. The chain broke even on an adjusted EBITDA basis for the period, compared with a  €900,000 gain a year earlier.

In addition to selling Safilo-owned brands Carrera, Polaroid, Safilo, Smith and Oxydo, Solstice sells more than two dozen Safilo licensed fashion brands and the Oakley and Ray Ban and Costa del Mar brands, which are owned by competitors Luxottica Group and Essilor International respectively. 

Safilo Group claims to be the third largest maker of sports eyewear in the world, but Delgado is targeting the category for rapid expansion. Last fall she announced that after 16 years of allowing Smith Optics to operate autonomously, Safilo would begin integrating the mountain lifestyle company into its North American operations with the goal of turning it into a global brand. Safilo has since relocated key sales and marketing managers from Smith's home in Ketchum, ID to a new global sports eyewear design center in Portland, OR, while absorbing back office functions into Safilo's North America headquarters in Parsippany, NJ. 

Write downs, exchange rates ravage profits
Gross profit grew 6.8 percent to €196.6 million, but gross margin slid 220 basis points to 60.6 percent due primarily to a higher write down of aging inventory, the impact of exchange rates on cost of goods, and  a slower start to the year compared with a year earlier. Safilo expects savings from cost of goods and other inventory actions to be more skewed to the second half of the year.

Selling and marketing expenses rose to 41.1 percent of sales, or €133.3 million, up 30 basis points as a percentage of sales. General and administrative expenses declined 40 basis points to 12.5 percent of sales.

Adjusted EBITDA declined 7.9 percent to €32.6 million, or 10.0 percent of revenues, compared to 12.1 percent in the first quarter of 2014. Adjusted EBIT declined 13.1 percent to €23.3 million, or 7.2 percent of revenue, down 190 basis points.

Net profit, however, plunged 91.5 percent to €1.4 million, or €0.023 per diluted share, as the negative effect of exchange rates sent financial charges up nearly nine fold. On an adjusted basis, net profit declined 81 percent to €2.3 million.

Safilo Group ended the period with net inventory valued at €259.1 million, up 21.2 percent from March 31, 2014. Its cash balance as of March 31 was €77.0 million compared with €88.6 million a year earlier.

 

 

 

 

(Euro/000)

 

 

 

Notes

First three months 2015

 

of which related parties

First three months 2014

 

of which related parties

 

 

 

 

 

 

Net sales

3.1

324,303

24,890

293,203

19,759

Cost of sales

3.2

(127,744)

(1,138)

(109,154)

(1,844)

 

Gross profit

 

 

196,559

 

 

184,049

 

 

 

 

 

 

 

Selling and marketing expenses

3.3

(133,381)

(58)

(119,530)

(231)

General and administrative expenses