Safilo reports 8.5 percent rise in FY15 net sales

Safilo total net sales for the year equalled 1,279 million euros (1,420 million dollars), recording an increase of 8.5 percent owing to foreign exchange tailwind. At constant currencies, 2015 net sales were flat compared to 2014, reflecting differing business and market dynamics. The performance of the Group’s going forward brands portfolio showed growth of 13 percent at current exchange rates and 4.3 percent at constant exchange rates.

“2015, the first year of the 2020 Strategic Plan laid out during our investor day in March, was a period of intense activity for Safilo. The year saw capex investments of 47.9 million euros and encouraging progress in the transformation of the business through the rebalancing of the Group’s brand strategy, development of its go to market strategy, supply network reinvention and IT transformation. We are committed to our 2020 strategies and goals,” said Luisa Delgado, CEO of Safilo.

Economic and financial highlights

2015 gross profit grew by 5.3 percent to 757 million euros (840 million dollars), with the gross margin moving to 59.2 percent of sales from 61 percent. Foreign exchange drove a margin dilution of 80bps in the year. 2015 adjusted EBITDA was down 13.5 percent and adjusted EBITDA margin equalled 8 percent of net sales in 2015, compared to 10 percent in 2014. 2015 adjusted EBIT was down 26.1 percent. Adjusted EBIT margin was 4.8 percent of net sales in 2015, compared to 7 percent in 2014.

In the fourth quarter, Safilo reported total net sales of 319.2 million euros (354 million dollars), up 2.6 percent. At constant exchange rates, net sales decreased by 2.7 percent in the period, reflecting the decline of all brands that Safilo stopped and will stop servicing. The Group’s going forward brands portfolio showed growth of 7.4 percent at current exchange rates and 2 percent at constant exchange rates. Gross profit was up 0.9 percent but gross margin decreased to 56.2 percent of net sales from 57.2 percent in Q4 2014. Adjusted EBITDA was down 22.3 percent and adjusted EBIT was down 39.7 percent.

Europe emerges strong growth driver

Throughout 2015, Europe was Safilo's main driver of growth. Net sales increased by 6.3 percent or 6 percent at constant exchange rates. In the fourth quarter, European net sales growth accelerated further, up 11.1 percent or 10.8 percent at constant exchange rates. The Group gained market share in the key markets France, Italy, Spain and Germany, driven by good performance of the license brand portfolio, Dior, Celine, Jimmy Choo, Max Mara and Hugo Boss in particular.

On the own core brands front, Polaroid sales increased by low single digits, influenced by the strong deceleration of Russia where the Group converted the previous distributor model into a directly managed business. Excluding this negative effect, Polaroid was up high-single digit in the year. Carrera’s sales performance in Europe was soft in 2015. Smith saw a satisfactory initiation of its expansion strategy in the sport channel in Europe.

In North America, Safilo’s sales performance was positive in 2015 in spite of the shortfall recorded by the Group in its 125 Solstice stores in the US. Net sales were up 19.4 percent at current exchange rates and 0.8 percent at constant exchange rates. In Q4, the North America business was up 8.9 percent at current exchange rates but declined by 3.8 percent at constant exchange rates.

The core wholesale business grew by 21.9 percent at current exchange rates and 3.2 percent at constant exchange rates. Dior, Celine, Max Mara and Jimmy Choo grew significantly while Kate Spade became Safilo’s second largest brand in North America after Smith. The latter delivered low single digit sales growth in 2015 behind market share gains in its Snow portfolio but suffering from a soft winter sport season at the end of the year.

On the other Own core brands, Carrera’s North America wholesale business was up almost double digit in 2015, driven by the strong performance on prescription frames and a stable trend in sunglasses, while Polaroid’s sales were up mid-single digit reflecting the commencement of its door expansion strategy. In Q4 2015, the North America wholesale business was up 11.4 percent at current exchange rates but down 1.5 percent at constant exchange rates.

In 2015, sales at Solstice stores in the US were up 8.1 percent at current exchange rates but down 9.8 percent at constant exchange rates. In Q4 2015, Solstice’s sales were down 3.1 percent at current exchange rates and 14.7 percent at constant exchange rates.

In 2015, Safilo’s operations in Asia were affected by the re-setting of the Group’s business fundamentals. Sales in Asia were down 9.4 percent at current exchange rates and 20.5 percent at constant exchange rates, with China, Hong Kong and Korea particularly hit also by the challenging market environment. Australia remained the bright spot of the region. In Q4 2015, sales in Asia were down 23 percent at current exchange rates and 28.7 percent at constant exchange rates.

2015 net sales in Latin America were down 6.7 percent at current exchange rates and 1.1 percent at constant exchange rates, reflecting two distinct trends. On one hand the very positive sales performance in Mexico and in the majority of the other Latin America countries, on the other the persisting weakness of the Brazilian market. This business scenario persisted in the fourth quarter, when net sales were down 15 percent at current exchange rates and 5.3 percent at constant exchange rates.

2015 net sales in the Rest of the World were up 12.6 percent at current exchange rates and 11.6 percent at constant exchange rates, benefitting from Safilo’s new direct presence in Middle East and the positive performance of the business in South Africa. In Q4 2015, net sales in the rest of the world were down 16.1 percent at current exchange rates and 17.1 percent at constant exchange rates.

Outlook for 2016

Safilo expects 2016 to be characterized by two main distinct business dynamics - the final year of Gucci as a license in the Safilo portfolio and positive organic sales performance by the going forward brands portfolio. From a brand standpoint, licensed brands and own core brands are both expected to contribute to growth, bolstered by the 2016 launch of the new partnerships with Givenchy and Swatch.