Angelo Trocchia, Safilo CEO.
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PADUA, Italy—The board of directors of Safilo Group S.p.A. has reviewed and approved a five-year business plan which includes an update to its previous 2020 Plan and has released its first half of 2018 financial results for the group. The update of the 2020 Plan includes moderate sales growth compared to 2018 and strong recovery of profitability, mainly through adjusting the group’s cost structure. According to the company, net sales are expected to grow by 2 percent in 2019 and 2020 while EBITDA margin should increase at a higher rate, reaching 8 percent to 10 percent of sales in 2020. Free cash flow is expected to turn positive in 2019.

“Our objective is to improve the performance of our Company, focusing on few, very clear, priorities,” stated Angelo Trocchia, Safilo CEO. “First and foremost, we need to return to grow our top line, exploiting more and better the core strengths of the Group: our product creation and development capabilities, our 140 years of eyewear manufacturing experience, and our deep worldwide distribution network. We need to focus on our go to market execution, combining commercial capabilities, brand execution and customer service and leveraging our strong portfolio of brands, with regards to which I am glad to announce the renewal of the Fossil license (until 2023) and the extension of the Kate Spade license (until 2020).”

He continued, “We have revised our overall expectations for 2018 and in the second half of the year we will work on making the required adjustments and changes to reignite the engines of growth, while executing our cost saving initiatives. In the last couple of months, our action plan included the appointment of a new leader in North America, with deep industry knowledge to drive and develop our business in this strategic region.” (Steve Wright was named chief commercial officer, Safilo North America, in May, as VMAIL reported.)

Trocchia added, “We are in the process of creating a leaner organization and therefore an agile, performance-based and customer-centric culture, able to respond more effectively to key opportunities and risks, and as a consequence significantly align our cost structure to the scale of the Group, to restore an adequate and sustainable level of profitability.”

Safilo Group’s H1 2018 results reflected the decline of the European sunglass sales in Q2 and the continuing weakness of the business in North America. However, growth in emerging markets and in the prescription eyewear business were positive. Progress on cost savings in line with plans and partially offsetting negative operational leverage.

The financial results showed net sales of €492.2 million which is down 4.3 percent at cost exchange rates compared to H1 2017. The adjusted EBITDA margin was at 5.1 percent of sales which is in line with the H1 2017 margin.

Additionally, the adjusted group net loss of €10.4 million compared to a net loss of €6.6 million in H1 2017 and Group net debt of €171.1 million as compared to €166 million in Q1 2018 and €112.7 million in H1 2017.

The company reported that its first half net sales in North America equaled €183.8 million, down 7.7 percent at constant exchange rates and 17.2 percent at current exchange rates compared to first half 2017. Q2 2018 net sales were €89.0 million, down 10.9 percent at constant exchange rates and 17.1 percent at current exchange rates compared to Q2 2017. At constant exchange rates, wholesale revenues in North America declined by 6.9 percent and 8.6 percent, respectively in the first half and second quarter 2018, reflecting the persisting weakness in department stores and the ongoing reorganization of the company sales force. Sales of the 82 Solstice stores in the United States (103 stores at the end of June 2017) were €26.5 million in first half 2018 and €14.7 million in Q2. This, in part, was caused by the closing of 21 stores since June 2017. Same store sales performance was negative by 4.9 percent in first half and by 9.9 percent in Q2 2018.

The Group’s strategy for 2019-2020 remains focused on the achievement of a balanced business across different consumer and product segments. In the next couple of years, leveraging on its leading product and manufacturing skills and on its distribution capabilities, Safilo expects to be able to capture increasing business opportunities in the premium, contemporary and lifestyle segments, reflecting the continued focus of the company in the growth of its core licenses, own brands, as well as the most recently signed new license partnerships.

In terms of geographies, Safilo plans to grow the share of the business in Emerging Markets, envisaging year on year high single-digit growth rates, with a particular emphasis on China.

In the Group’s developed markets of North America and Europe, sales are expected to grow low-single digit, reflecting an improvement of the company go-to-market execution strategies, through new sales force capacity and capability, improving customer service levels and more focused investments by brand and channel.

According to the company, overall business trends are expected to improve in H2, but seasonality prevents a full recovery. The 2018 outlook now anticipates a decline in overall group net sales of approximately 3 percent at constant exchange rates compared to that of 2017 and an adjusted EBITDA margin of 4 to 5 percent of net sales compared to 4.0 percent in 2017.