The company reports resilient first half of 2024 with improved profit margins and strategic brand investments
The European market held up despite the slowdown due to adverse weather conditions in the second quarter. In North America, eyewear performance improved compared to the first quarter, while Smith sports business in physical stores was still subdued, Carrera and David Beckham top performing brands.
H1 net sales at €532.0 M, -2.4% at constant exchange rates. Continued improvement of Gross margin and adjusted EBITDA (H1 Gross margin to 60.0% from 58.8%). Positive Operating Cash Flow reinvested in the perpetual license of the Eyewear by David Beckham to further strengthen the brands portfolio.
Angelo Trocchia, Safilo Chief Executive Officer, commented:
“This first semester ended by confirming the main market dynamics and trends by brand recorded in the first quarter. In Europe, the market was positive despite a second quarter slowed down by poor weather conditions. In North America, the eyewear business showed an improvement, while Smith sports business remained subdued in physical stores.
In the second quarter, total sales performance was more negatively impacted by the Jimmy Choo exit, while benefitting from the strong momentum of Carrera and David Beckham, which continued to win consumers’ appreciation and new space in stores.
Notwithstanding a business environment which remained challenging, the quarter was satisfactory for us at the economic level, with the gross margin confirming its 60% level and the adjusted EBITDA margin improving to a larger extent than in the first quarter.
We approached this first half of the year focused on our medium and long-term goals, reinvesting the positive operating cash flow in the continuous strengthening and development of our brand portfolio. By transforming David Beckham’s partnership into a perpetual license, we have permanently secured one of the most promising and profitable brands of our portfolio. Today, our home brands, together with the Eyewear by David Beckham, already account for around 50% of sales, another important milestone that allows us to face with clarity and pragmatism both the challenges and opportunities of our industry.”
NET SALES PERFORMANCE:
In Q2 2024, Safilo's net sales amounted to Euro 254.8 million, down 3.1% both at constant and current exchange rates compared to Euro 263.0 million recorded in Q2 2023.
The performance of the period reflected, on one side, the reduction in sales of Jimmy Choo, which had a stronger impact than in Q1 on the performance of North America and Europe. On the other, the business benefitted from the double-digit growth delivered by Carrera and David Beckham, and the ongoing momentum of Carolina Herrera and Marc Jacobs. The quarter was instead challenging for Smith, due to a still subdued business environment in stores, and for Polaroid, which was affected by the poor weather conditions in Europe.
Safilo closed the first half of 2024 with net sales of Euro 532.0 million, down 2.4% at constant exchange rates and 3.3% at current exchange rates compared to Euro 550.1 million recorded in H1 2023.
The performance of the period reflected a sales reduction resulting from the exit of Jimmy Choo, which offset a slight growth by the rest of the portfolio, driven by the brand dynamics described above. By channel, the semester was supported by the solid performance of the business at the independent European opticians, also thanks to the benefits of the You&Safilo business-to-business (BTB) platform, and by the good progress of the online business, both DTC and through internet pure players in Europe. Sport shops and the travel retail channel instead represented the main hurdles to growth during the period.
ECONOMIC PERFORMANCE:
In Q2 2024, Safilo made further progress in margins expansion, continuing to post an improvement both at the industrial and operating level. As seen in the first quarter, the main positive drivers of the period were the higher supply chain efficiency and the lower depreciation resulting from the industrial restructuring that took place in Italy in 2023, coupled with a positive price/mix effect on sales. In addition, in Q2 the dilution effect of phase-out sales became less impactful than in Q1.
Despite the still unfavourable operating leverage, Q2 operating performance recorded a more significant year-on-year margin recovery than Q1, benefitting in particular from the ongoing normalization of IT investments and marketing and advertising expenses.
In H1 2024, despite the unfavourable sales trend, Safilo delivered a solid set of economic results, bringing gross margin to its new high and delivering a good improvement of the adjusted operating performance.
In H1 2024:
- the gross profit amounted to Euro 319.2 million, slightly declining by 1.4%, compared to the adjusted1 gross profit recorded in H1 2023, while the gross margin improved by 120 basis points, reaching 60.0% from the adjusted1 level of 58.8% in H1 2023.
- Selling and marketing, general and administrative expenses declined by around 2.5% compared to H1 2023, while their incidence on sales increased due to an unfavourable operating leverage.
- the adjusted EBITDA amounted to Euro 57.6 million, up 0.5% compared to H1 2023, while the adjusted EBITDA margin improved by 40 basis points, to 10.8% of sales from 10.4% recorded in H1 2023.
- the adjusted operating result amounted to Euro 37.6 million, up 7.2% compared to H1 2023, while the adjusted operating margin improved by 70 basis points, to 7.1% of sales from 6.4% recorded in H1 2023.
- the Group's adjusted net result equalled Euro 24.2 million compared to Euro 6.9 million recorded in H1 2023, a result that was last year affected by a charge of Euro 8.6 million, due to the revaluation of the liability for options on the interest in Blenders. In H1 2024, net financial charges decreased to Euro 6.9 million from Euro 9.4 million in H1 2023, mainly due to a lower average Group net debt.
FINANCIAL PERFORMANCE:
In the first half of 2024, Safilo’s Free Cash Flow was negative for Euro 19.0 million, reflecting, on one side, the higher cash flow from operating activities and, on the other, the higher investments made by the Group during the period.
In the first semester, the cash flow from operating activities reached Euro 27.3 million, posting an improvement compared to Euro 21.1 million recorded in the same period of 2023. In the second quarter, the cash generation of around Euro 21 million, was driven by the positive economic performance of the period, also including the settlement of a non-recurring cost related to a terminated license agreement, and by a cash generation from working capital also due to a reduction of inventories.
The cash flow for investing activities grew to Euro 41.1 million, mainly explained by the investment made by the Group for the perpetual license of the Eyewear by David Beckham.
As at 30 June 2024, the Group's net debt stood at Euro 100.4 million (Euro 62.6 million pre-IFRS 16, corresponding to a financial leverage, also pre-IFRIC SaaS, of 0.7x), from Euro 82.7 million (Euro 43.7 million pre-IFRS 16) recorded as of December 31, 2023, and Euro 103.0 million (Euro 61.7 million pre-IFRS 16) at the end of June 2023.
The key components of the Group’s net debt at the end of June 2024 were the following:
- a long-term debt position of Euro 102.5 million, made of bank loans for Euro 73.7 million, related to the Credit Facility signed in September 2022, and an IFRS-16 effect for Euro 28.8 million;
- a short-term debt position of Euro 39.5 million, made of bank loans for Euro 30.5 million, related to the Credit Facility, and an IFRS-16 effect for Euro 9.0 million;
- a cash position of Euro 41.6 million.