PADUA, Italy—The board of directors of Safilo Group SpA (SFLG.MI) has reviewed and approved the main economic and financial indicators for the third quarter and first nine months of 2023. In these nine months, Safilo’s performance in Europe recovered most of the sales decline in the former Grand Vision chains, while trends in North America remained soft. Thanks to the Group’s sports businesses, Q3 sales performance was better than Q2. Safilo Group also experienced a marked increase in gross margin, while higher digital and marketing investments weighed on adjusted EBITDA margin. The Group experienced a positive free cash flow and lower net debt.

In addition, Safilo Group announces that it has executed an agreement with Multibrands Italy B.V., the reference shareholder of the company, and Angelo Trocchia, chief executive officer, which regulates the renewal of the office of the same as CEO of the company for a further three years. Pursuant to the agreement, Multibrands Italy B.V. has confirmed Trocchia as director and, subsequently, chief executive officer of Safilo Group S.p.A. Trocchia will also be confirmed as sole director of Safilo S.p.A. and Safilo Industrial S.r.l., subsidiaries of Safilo Group.

Of the group's financial performance for Q1 and the first nine months, Trocchia, said, “In the third quarter, sales performance remained soft, but improving compared to the previous quarter, thanks to the return to growth of our sports business in North America, where, however, weakness persisted in the eyewear market, particularly in the contemporary segment.

 
 Angelo Trocchia.
“As expected, the decline of business in the former GrandVision chains continued to weigh on Europe, net of which sales in the area were slightly up compared to the same quarter last year, a period that had been marked by the strength of the sun season.

“In this quarter, we achieved another significant expansion of the gross margin, while the operating performance was temporarily limited by the higher incidence of operating costs, reflecting, in particular, the continuation of our IT investments to accelerate the Group's digital transformation and marketing activities to support the future development of our home brands.

“Even in a weak and uncertain market environment, our actions continue to focus on the implementation of those projects that will allow us to achieve our medium-term targets. It was particularly important for us to keep the positive cash generation initiated in the first half of the year, a goal that we achieved thanks to good working capital management,” Trocchia said.

In Q3 2023, Safilo's net sales amounted to €235.0 million, recording a decline of 9.8 percent at current exchange rates, which was significantly affected by the strengthening of the Euro against the Dollar and a other currencies. At constant exchange rates, the contraction of the quarter was -3.9 percent, improving from the -6.6 percent recorded in Q2, mainly due to the return to growth of Smith's sports business in North America.

The performance of the period was largely explained by the sales decline in the former GrandVision chains, which accounted for the total contraction recorded in Europe and for most of the Group’s total performance, as well as by the persisting weakness of the North American market, particularly in the contemporary segment. The contribution from emerging markets was again positive.

Safilo closed the 9 months of 2023 with net sales of €785.1 million, down 5.6 percent at current exchange rates and 3.6 percent at constant exchange rates compared to €831.3 million recorded in the first 9 months of 2022. In the 9 months, the performance of the organic business was negative by 2.3 percent, while it was slightly positive, net of the sales decline in the former GrandVision chains, thanks to the good progress of home brands, namely Smith, Carrera and Polaroid, and among the licensed brands, Carolina Herrera, Boss, David Beckham and Tommy Hilfiger.

During the period, online channels represented 14.4 percent of sales, characterized by the continued very positive performance of the DTC (Direct to Consumer) sales of sports products, contrasting with the still weak performance of IPPs (Internet Pure Players).

In Q3 2023, sales in North America amounted to €109.6 million compared to €124.7 million in the same quarter of 2022, recording a decline of 12.2 percent at current exchange rates, which was heavily impacted by the strengthening of the Euro against the Dollar.

At constant exchange rates, sales in the region declined by 4.9 percent, marking a significant improvement compared to the -11.3 percent recorded in the first half of the year, thanks to the return to growth of the Smith’s sports business in physical stores, which added to the already positive development of the brand in the DTC (Direct to Consumer) channel. However, the performance of the area remained soft in the eyewear market, especially of the sunglass product category, which continued to be affected by a subdued demand, particularly in the contemporary segment where the Group's offer is more concentrated.

In the 9 months of 2023, Safilo's sales in North America amounted to €341.1 million, down 11.0 percent at current exchange rates and 9.2 percent at constant exchange rates compared to €383.5 million recorded in the 9 months 2022 (-5.7 percent at the organic level).

In Europe, Q3 sales totaled €85.4 million, down 10.7 percent at current exchange rates compared to €95.7 million in Q3 2022. At constant exchange rates, the decline equaled -6.1 percent and was fully driven by the sales decline in the former GrandVision chains, the net of which sales in the area recorded an increase of around 1 percent compared to the same period last year.

A positive performance that was more moderate than in the first half of the year following the normalization of trends in markets such as Italy, France and Spain, which benefitted from a strong sun season last year. In all countries, the independent optician BTB channel (Business to Business) continued to outperform the rest of the channels. In the quarter, the German market remained negatively affected by the weakness of the IPP (Internet Pure Players) channel, while the growth of the new markets in Eastern Europe, in particular Turkey, continued.

In the 9 months of 2023, Safilo's sales in Europe reached €321.1 million compared to €332.7 million in the 9 months 2022, down 3.5 percent at current exchange rates and 1.5 percent at constant exchange rates (-2.3 percent at the organic level).

In Asia and the Pacific, Q3 sales amounted to €15.2 million, down 5.9 percent at current exchange rates and up 2.3 percent at constant exchange rates compared to €16.2 million in Q3 2022. The performance was driven by the positive progress of the business in China and some of the other key markets of the region, and by the sports business, which, with Smith, is one of Safilo's main growth drivers in the area.

In the 9 months of 2023, Safilo’s sales in Asia and Pacific reached €43.8 million, up 6.0 percent at current exchange rates and 11.2 percent at constant exchange rates, compared to €41.3 million recorded in the 9 months 2022.

In the rest of the world, Q3 sales reached €24.8 million, up 3.9 percent at current exchange rates and 5.9 percent at constant exchange rates compared to €23.9 million recorded in Q3 2022. This growth was mainly led by the further development of Carrera in India and the Middle East, while business trends in Latin America was positive in Mexico, but softer in Brazil.

In the 9 months 2023, Safilo’s sales in the Rest of the World reached €79.2 million, up 7.3 percent at current exchange rates and 7.1 percent at constant exchange rates compared to €73.8 million recorded in the first 9 months of 2022.

In Q3 2023, the Group's gross margin made another significant improvement compared to the same quarter of 2022, mainly due to lower transport costs, higher efficiencies in procurement and to the positive contribution of the price/mix effect on sales. However, the operating performance of the quarter was still negatively affected by the operating leverage, particularly by the impact of wage inflation, together with higher IT and marketing investments to support the Group’s development.

In the quarter, Safilo’s operating performance was also impacted by non-recurring costs, equal to €3.1 million at the gross profit level and €4.7 million at the EBITDA level, mainly related to the transfer of the Longarone plant.

In Q3 2023, the adjusted gross profit equaled €135.5 million, down 3.2 percent compared to Q3 2022, while the adjusted gross margin improved by 390 basis points, from 53.8 percent to 57.7 percent. The adjusted EBITDA equaled €18.1 million and a margin on sales of 7.7 percent, down respectively 20.0 percent and 100 basis points compared to Q3 2022. Finally, operating expenses were stable compared to last year, while their incidence on sales increased due to wage inflation and higher investments in IT and marketing.

In the 9 months of 2023, Safilo's economic performance confirmed the strong recovery achieved by the Group in terms of gross margin, thanks to the gradual and significant easing of transport costs, the improvement in the price/mix effect on sales, and to higher efficiencies in procurement. In the period, EBITDA margin was still weighed by higher personnel costs, due to inflationary pressures, as well as by higher IT investments to accelerate the Group's digital transformation, and marketing activities mainly to develop the Group’s home brands.

In the 9 months, Safilo’s economic performance was also impacted by non-recurring costs equal to €8.2 million at the gross profit level and €17.4 million at the EBITDA level, mainly related to the transfer of the Longarone plant.

In the 9 months of 2023, Safilo Group’s adjusted gross profit equaled €459.1 million, substantially flat compared to the 9 months 2022, while the adjusted gross margin improved by 340 basis points, from 55.1 percent to 58.5 percent. The adjusted EBITDA equaled €75.4 million and a margin on sales of 9.6 percent, down respectively 11.5 percent and 70 basis points compared to €85.3 million and the margin of 10.3 percent recorded in the 9 months 2022.

Finally, the adjusted EBITDA equaled €75.4 million and a margin on sales of 9.6 percent, down respectively 11.5 percent and 70 basis points compared to €85.3 million and the margin of 10.3 percent recorded in the same 9 months of 2022.

As of the Sept. 30, 2023, the Group's net debt amounted to €96.0 million (€55.5 million pre-IFRS 16, corresponding to a financial leverage, also pre-IFRIC SaaS, of 0.6x), down from €103.0 million reported at the end of June 2023, and €113.4 million as of Dec. 31, 2022.

In Q3, Safilo recorded a positive free cash flow of €5.9 million, equal to €11.9 million before the payment of €5.9 million to exercise the first option on an additional 10 percent of Blenders non-controlling interests. The cash generation of the period reflected the improvement in cash flow from operating activities thanks to good working capital management. As in the first part of the year, the third quarter recorded a decrease in inventory and a healthy cash collection in all its main geographical areas.

In the 9 months of 2023, Safilo's free cash flow stood at €15.8 million, equal to €21.7 million net of the exercise of the first option, compared to an absorption of €17.8 million in the 9 months 2022.

Trocchia's new contract, approved with the favorable opinion of the relevant internal committees, will be effective upon the expiry of the existing contract (which was entered into on Feb. 15, 2018 and subsequently supplemented) and therefore after the expiry of the current term of office. The new contract will be effective subject to the renewal of the relevant office, which will take place with the Company's Shareholders' Meeting that will be called to approve the financial statements for the year ended Dec. 31, 2023, and will have a duration of 3 years until the approval of the financial statements as of Dec. 31, 2026. As of today, Angelo Trocchia holds no. 422,500 ordinary shares of the company.