Business news : Smith Optics Parent Shrugs Off Armani Impact to Post Solid Q3 Results

Safilo Group S.p.A. reported its U.S. wholesale revenues, which includes sales of Smith Optics, inched up 0.8 percent in currency-neutral (c-n) terms in the third quarter, while sales at its 133 Solstice Sunglass Boutique stores rose 6.1 percent.

Wholesale revenues reached €88.8 million ($118mm) for the quarter ended Sept. 30, compared to €94.8 million in the same period of 2012, marking at 6.3 percent decline after accounting to the effect of exchange rates. Sales at Solstice reached €20.9 million ($28 mm).

In the first nine months of 2013, the American wholesale business saw sales of €287.7 million, down 4.7 percent compared to €302.2 million of the same period of 2012, or down 1.3 percent c-n. In the same period Solstice stores registered sales of €61.8 million, up 3.3 percent at constant exchange rates. The like-for-like performance, based on the same number of stores, improved 1.5 percent (+3.5 percent in the third quarter).

Worldwide sales up 2.9 percent c-n

Safilo Group reported total net sales for the third quarter totaled €243.4 million up 2.9 percent in currency-neutral terms, or very close to the €249.1 million ($323mm) reached in the same quarter of 2012. The company returned to a profit for the first time since 2007.

In currency-neutral (c-n) terms, organic sales more than offset the negative impact of the absence of the Armani brands, which were phased out at the end of 2012.

Sales for the wholesale business were €222.5 million ($295mm), down 2.5 percent from the €228.2 million of the third quarter of 2012 (+2.6 percent c-n). Organic sales growth in the core sunglass and prescription frame segments was approximately 17 percent, showing the Group’s continued ability to manage effectively the relationships with its customers in leveraging its wide portfolio to replace the brands terminated in 2012.

Europe

Geographically, Europe with France, Germany and the UK in the lead was the continued main driver of Safilo’s growth in the third quarter. Spain and Portugal also made up ground, whilst the independent opticians channel in Italy showed continued softness.

Group sales in Europe during the quarter amount to €96.8 million, up 6.3 percent (+7.7 percent c-n) compared to €91.1 million in the third quarter of 2012.

The Americas

The Americas performance was affected by the strengthening of the Euro against the US dollar and the local currencies of Latin American countries.

Safilo’s North American business continued to experience organic growth, both in terms of sales of prescription frames through independent opticians, the Group’s principal distribution channel in the US, and in terms of sunglasses through the most important department stores, where Safilo registered an improvement with respect to the second quarter of the year.

Safilo’s sales in the main Latin American market, Brazil, continued to record a very positive performance despite the recent slowdown of growth in the local economy.

Asia

The performance in Asia was affected by the significant depreciation of the Yen versus the euro and by the reduction in sales resulting from the termination of the Armani brands, that were of over proportional significance for this region. The organic sales growth was driven by the positive performance of the leading brands in the licensed portfolio, chiefly Gucci and Dior. The third quarter also saw continued focus on Asia with a number of locally relevant product placements, special initiatives and advertising campaigns, and products in Safilo’s portfolio with Asian and Chinese fittings.

Safilo’s revenues in the region amounted to €34.1 million, down 11.7 percent (-3.5 percent c-n) compared to €38.6 million in the third quarter of 2012.

Global growth of the organic sales volumes, combined with improved price/mix effects and lower levels of obsolescence enabled the Group to achieve a sizeable recovery in gross profit and an improvement in EBIT and EBITDA.

The quarterly operating performance – seasonally the least significant period of the year – has thus met the Group’s growth targets, with Safilo on track to deliver growth also for the full year.

Higher margins

Gross profit for the third quarter totaled €144.8 million ($192 mm), slightly up in absolute terms compared to €143.8 million of the third quarter of 2012 and marking a more significant upturn, equal to 180 basis points, in terms of gross profit margin, which moved from 57.7 percent to 59.5 percent.

As occurred in previous periods, selling and marketing expenses and general and administrative expenses have risen as a proportion of sales, whilst remaining substantially stable in absolute terms.

EBITDA for the third quarter of 2013 amounted to €16.3 million ($22mm), up 6.5 percent compared to €15.2 million of the third quarter of 2012, representing an EBITDA margin of 6.7 percent, compared to 6.1 percent. EBIT of €6.8 million for the third quarter was up 20.9 percent compared to €5.7 million of the third quarter of 2012, with the EBIT margin improving to 2.8 percent from 2.3 percent.

Below the EBIT line, net interest expenses for the quarter were down 62.0 percent to €1.8 million from €4.6 million of the third quarter of 2012, thanks to the Group’s repayment of High Yield Bond on 15 May of this year. In the period, net exchange rate differences resulting from the currency exposure of the Group also had a positive impact. The Group adjusted tax rate for the first nine months of 2013 was 36.3 percent, compared to 39.2 percent for the same period of 2012. Net profit for the third quarter of 2013 was €1.7 million, which compared to the loss of €600,000 for the same quarter of 2012.

By press release