Decline in revenue at Safilo in Q3 cushioned by Smith's rebound

The Safilo Group has reported a second consecutive quarter of topline decline as total Q3 revenue dropped by 9.8 percent year-on-year to €260.4 million, with sales declining both in North America and Europe that together account for over 80 percent of sales. Aside from strong currency headwinds, the company attributed the decline to the persisting weakness of the eyewear market and the expected drop in sales to the former GrandVision chains.

On a comparable basis, quarterly sales were down by 3.9 percent versus Q3 2022, thanks mostly to a rebound in Smith’s sports business in the U.S. This however marked an improvement from the previous quarter when they declined by 6.6 percent year-on-year. Carolina Herrera and David Beckham were the best-performing brands in the eyewear category, the group said.

By region, and as shown in our table below, sales in North America were down for the sixth consecutive quarter, declining by 4.9 percent at constant rates or significantly slower than in the previous quarter (-15.3 percent). Smith sales went up double-digits in the quarter, with the brand’s sports business growing both in physical stores and online but could not offset the underlying weakness of the eyewear segment, notably in the sunglasses category.

In 2020, the share of e-commerce in the group’s total revenue jumped to 13 percent from 4 percent in 2019, but that ratio has not grown much since. For the first nine months of this year, Safilo said that online revenue accounted for 14.4 percent of its business and that they were, in fact, driven by the continued very positive performance of its sports products – DTC online sales account for 20 percent of Smith’s business – while internet pure players were still performing weakly.

In the call with investors, the company’s management stressed that Blenders’ business was picking up, thanks in part to commercial partnerships with Red Bull Racing and Coach Prime, a Prime Video documentary series on college American football. Both partnerships were said to be raising Blenders’ overall brand awareness and bringing a halo effect on the rest of the website’s collections. 

For the nine months, sales in North America declined by 9.2 percent year-on-year at constant rates and by 5.7 percent on an organic basis. The company said that Carolina Herrera, Boss, Carrera and David Beckham all saw their sales increase in the U.S., both in Q3 and in the nine-month period.

Group revenue in Europe in Q3 went down by 6.1 percent at constant rates versus Q3 2022, worsening from the previous quarter (-3.1 percent) as the loss of sales to former GrandVision chains accelerated. Safilo stressed that, excluding GrandVision, sales inched up by 1.0 percent year-on-year in Q3. This was, however, a more moderate growth than in the first six months of the year due to the normalization of some key markets like France, Italy or Spain that had a strong sun season in 2022, the group explained. Other groups like EssilorLuxottica and Kering Eyewear have also reported a significant deceleration in sunglasses sales in Q3, notably in Europe.

Safilo noted that the independent optical retail circuit continued to outperform the rest of the market throughout the region in the quarter. In other remarks, the company said that the German market remained negatively impacted by the weakness of e-commerce sales, while Eastern Europe and Turkey kept growing.

For the nine months, sales in Europe were down by 1.5 percent in constant currencies versus 2022 and by 2.3 percent organically. Net of GrandVision sales, revenue in the region was up by approximately 7 percent at constant rates, the company stressed.

Sales in Asia-Pacific went up by 2.3 percent at constant rates versus Q3 2022, stabilizing after the sharp rebound in the previous quarter (+36.0 percent). Safilo said that Smith has become its main growth driver in the region. For the nine months, Asia-Pacific revenue increased by 6.0 percent year-on-year.

At constant rates, sales in the rest of the world were up by 5.9 percent in Q3 and by 7.1 percent for the nine months.

In terms of profitability and as shown in our chart below, the group has reported another quarter of significant gross margin improvement, which was attributed to lower transport costs, higher efficiencies in procurement and price-mix improvements, probably related to Smith’s growth. However, the adjusted operating margin slightly declined year-on-year, which Safilo attributed to wage inflation, higher IT and marketing investments and a €4.7 million one-off cost related to the transfer of its Longarone plant to Thélios and Innovatek.

As of Sept. 30, the group’s net debt amounted to €96.0 million, down by €7 million since June 30 and by 17.4 million since the start of the year.