Safilo Sales Flat as U. S. Logistics Issue Weighs

● The eyewear firm is eyeing launches to boost U.S. business.

MILAN — Safilo Group SpA on Tuesday reported flat sales in the third quarter, influenced by what it said was the “expected decrease, starting in the second part of the year, of the business relating to the production agreement with Kering” and a drop in its U.S. business caused by the consolidation of North American logistics activities in the new Denver warehouse.

Overall, reported revenues for the three-month period ending in September were 212.8 million euros, up 0.1 percent at constant exchange rates (up 2.2 percent at current exchange). Strong growth in Asia and Europe — especially of the company’s own brands Smith, Carrera and Polaroid — helped boost overall numbers.

During a conference call with analysts after results were published Tuesday evening, Angelo Trocchia, Safilo’s chief executive officer, remarked: “We think the quarter was an additional confirmation of the quality of the work so far undertaken.”

In the first nine months of the year,

Safilo sales from continuing operations edged up 2.7 percent (at constant exchange rates; up 5.2 percent at current exchange) to 708.7 million euros.

Adjusted earnings before interest, taxes, depreciation and amortization from continuing operations in the three months to end September were 9.7 million euros, compared to 13.7 million in the comparable year- earlier period, which included 9.8 million euros of income for the early termination of the Gucci license. The adjusted earnings excluded non-recurring costs of 10.4 million euros due to restructuring expenses related to the company’s “ongoing cost-saving program,” Safilo said in a statement. For the first three quarters of the year, adjusted EBITDA was 43.9 million euros, in line with the previous comparable period, which included 29.3 million euros in income from the Gucci license termination.

In terms of geographic markets,

Safilo put in a positive sales growth performance in all regions in the quarter — except North America, where revenues declined by 7.7 percent (at constant exchange rates), to 79.9 million euros, as the Denver logistics operation affected distribution. During a conference call with analysts after results were posted, Safilo finance chief Gerd Graehsler also pointed to a “volatile business environment” in the United States as a factor in pressure on revenue growth. In terms of brand performance, Graehsler singled out licenses with Hugo, Boss, Tommy Hilfiger and Rag & Bone, saying they “continued to grow across the different channels.” Meanwhile, Trocchia reassured that, as concerns the logistics issue, “there is a clear action plan and…I think by year-end it will be up and running.”

In Europe, revenues were up 3.9 percent (at constant currencies), to 95.5 million euros, thanks in part to appreciation of the British pound.

In the Asia Pacific region — which includes China and Hong Kong — revenues jumped 11 percent on the year-ago period, to 17.5 million euros, boosted by what Graehsler said was “positive momentum” in China, “especially in the major chains.” He also singled out the popularity of the Boss and Hugo licenses and pointed to new leadership that is driving business in key accounts, “which we have gone online with, so we have increasing presence with key accounts and on online channels.” He said the Dior license was was doing “very well” in the region, and was the main driver in China.

In the “Rest of World,” sales expanded 7.4 percent, to 19.8 million euros, with a recovery “driven by Brazil and Mexico along with improving trends in Middle East.” In these markets, Carrera, Polaroid, Hugo and Boss performed particularly well, Graehsler said.

The company saw improving performance in the wholesale channel in the third quarter — and over the ninemonth period — with turnover up 12 percent in the July-September period. Graehsler said the wholesale performance was “very broad-based in geography and channel” and pointed to the strength of the Safilo brands, which reported sales growth of 11 percent in the period.

Discussing with analysts prospects for the North American market, Trocchia focused on the three new licenses — Missoni, Levi’s and David Beckham — starting in next year’s first quarter. Trocchia said he expects the licenses to appeal to different types of consumers, with Missoni being “well-positioned toward women and Millennials.” Then there is Levi’s, whose target is

“definitely Millennial,” Trocchia commented. He said the brand’s equity is “very strong” and added he expects it should work especially well in Asia and Europe. As for the Beckham license, Trocchia said it “is a different brand — it has to be treated differently, it is not a typical fashion brand.”