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Safilo FY17 revenue fall 16.4 percent on Gucci license change

By Prachi Singh

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Management

Safilo Group S.p.A. has said that its total net sales reached 1,047 million euros (1,295 million dollars) in 2017, contracting by 194 million euros (240 million dollars) or 15.5 percent at constant currency and by 16.4 percent at current exchange compared to 2016 driven by the change of the Gucci license into a supply agreement, representing a net decline of 155 million euros (191.7 million dollars) or 12 percent, and by the implementation of the new order-to-cash IT system in the Padua DC early in the year.

Commenting on the company’s performance, Eugenio Razelli, Safilo Group Executive Chairman, said in a statement: “2017 was a complex year for Safilo. On the positive side, emerging markets showed positive trends and our own core brands performed better. We look towards 2018 as a brand new start for Safilo, with the announced appointment of Angelo Trocchia as new CEO to take the company through a new phase of successful business execution and brand portfolio development.”

Review of Safilo’s financial results

In the year, the sales of the ‘Going Forward’ brand portfolio decreased by 3.9 percent at constant exchange rates, with Southern European countries being more affected by the Padua DC issues and the decline experienced by the Dior collections after several years of strong growth. On the other hand, ‘Own Core’ brands and the total of all other licensed brands grew single digits, due to the significant progress recorded by the group in the emerging markets. In the year, wholesales revenues equalled 981.7 million euros (1,214.7 million dollars), down 16.7 percent at current exchange and 15.8 percent at constant exchange.

At the operating level, 2017 adjusted EBITDA stood at 41.1 million euros (50.8 million dollars), with the margin at 3.9 percent of sales against 88.8 million euros (109.8 million dollars) and 7.1 percent of sales in 2016 due to reduction in the gross profit level, following the dilutive effect of the change of the Gucci license into a supply agreement and the sales decline of the ‘Going Forward’ brand portfolio. Safilo closed 2017 with an adjusted group net loss of 47.1 million euros (58.2 million dollars) compared to 15.4 million euros (19 million dollars) recorded in 2016.

2017 gross profit was 519.6 million euros (642.8 million dollars), down 27.4 percent, with the gross margin moving to 49.6 percent of sales from 57.1 percent. Adjusted3 EBIT equalled a loss of 0.8 million euros (0.9 million dollars) compared to the adjusted EBIT of 43.5 million euros (53.8 million dollars) for 2016.

Fourth quarter net sales decline 20.6 percent at Safilo

Total net sales for the fourth quarter equalled 249.2 million euros (308 million dollars), down 20.6 percent at current exchange and 16.9 percent at constant exchange rates compared to 2016. In the period, wholesales revenues equalled 233.8 million euros (289 million dollars), down 21.1 percent at current exchange and 17.7 percent at constant exchange rates. The change of the Gucci license into a supply agreement accounted for 44 million euros (54.4 million dollars) of the total 53 million euros (65.5 million dollars) decrease in sales at constant exchange rates, while the sales of the ‘Going Forward’ brand portfolio declined by 3.7 percent at constant currency and 5.2 percent excl. retail.

Q4 gross profit totalled 112 million euros (138.5 million dollars), down 26.2 percent compared to the same quarter of 2016. In the fourth quarter, gross margin decreased to 44.9 percent of net sales from 48.3 percent in Q4 2016. Adjusted EBITDA equalled a loss of 2.1 million euros (2.6 million dollars) compared to the positive adjusted EBITDA of 11.4 million euros (14.1 million dollars) recorded in the same period of 2016.

Safilo’s performance across core markets

Full year net sales in Europe were 469.3 million euros (580.4 million dollars), down 12.7 percent at current exchange and 12.2 percent at constant exchange rates. The sales of the ‘Going Forward’ brand portfolio in Europe declined in the year by 8.9 percent at constant exchange rates, mainly due to the difficult implementation of the new order-to-cash IT system in the Padua DC, reducing sales up to and including the fourth quarter, and the decline experienced by the Dior collections.

In Q4, net sales in Europe equalled 101.6 million euros (125.6 million dollars), down 26.6 percent at current exchange and 26.3 percent at constant exchange rates. In the quarter, the sales of the ‘Going Forward’ brand portfolio, declined 17.8 percent at constant exchange rates.

Full year total net sales in North America were 422.3 million euros (522.4 million dollars), down 17.1 percent at current exchange and 15.5 percent at constant exchange rates. In the year, the wholesale revenues of the ‘Going Forward’ brand portfolio decreased by 2 percent at constant exchange rates. In Q4, total net sales in North America were 97 million euros (120 million dollars), down 21.3 percent at current exchange and 14 percent at constant exchange rates.

Sales of the 102 Solstice stores in the United States (116 stores at the end of December 2016) were 15.4 million euros (19 million dollars) in Q4 and 65.3 million euros (80.7 million dollars) in full year 2017, declining respectively 3.6 percent and 11.3 percent at constant exchange rates compared to the same periods of 2016. In Q4, the same store sales of Solstice improved 2.7 percent at constant exchange rates.

Full year total net sales in Asia Pacific were 64.3 million euros (79.5 million dollars), down 43.9 percent at current exchange and 42.3 percent at constant exchange rates, strongly impacted by the exit of the Gucci business. The sales of the ‘Going Forward’ brand portfolio, down 3.2 percent at constant exchange rates in the year, showed an improvement in the second half with 11.1 percent rise at constant exchange rates.

In Q4, total net sales in Asia Pacific equalled 18.7 million euros (23 million dollars), down 23.9 percent at current exchange and 18.9 percent at constant exchange rates. In the period, the net sales of the ‘Going Forward’ brand portfolio grew 12.6 percent at constant exchange rates.

Full year total net sales in the rest of the world reached 91 million euros (112.6 million dollars), down 0.2 percent at current exchange and down 1.3 percent at constant exchange rates. In these markets, which include both IMEA and Latin America, the sales of the ‘Going Forward’ brand portfolio grew 14 percent at constant exchange rates. In Q4, net sales in the region were 31.9 million euros (39.4 million dollars), up 15.3 percent at current exchange rates and 18.6 percent at constant exchange rates. In the quarter, sales of the ‘Going Forward’ brand portfolio jumped 29.6 percent at constant exchange rates.

Going Forward brands portfolio to post sales growth in FY18

At constant exchange rates, the group expects the sales of its Going Forward brands portfolio to return to growth in 2018 and to offset the exit of the Celine license. In 2018, the Group plans to increase its adjusted EBITDA margin through the improvement of its gross margin, driven by better price/mix dynamics and further sourcing and logistics efficiencies, and the completion of the announced overhead productivity plan by the end of 2018.

Picture:Safilo Group website

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