Safilo Group S.p.A.

Good evening and welcome to the Safilo Group first quarter 2025 trading update. This call may contain forward-looking statements relating to future events and operating economic and financial results for the Safilo Group. Such forecasts, due to their nature, imply a component of risk and uncertainty due to the fact that they depend on the occurrence of certain future events and developments. The actual results may therefore vary depending even significantly to those announced in relation to a multitude of factors. Today's participants are Angelo Trocchia, Chief Executive Officer, Michele Melotti, Chief Financial Officer, Barbara Ferrante, Director of Investor Relations. I will now pass the call over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin.

Thanks. Good evening, good evening everyone, and thank you for joining us today to discuss Safilo's Q1 2025 trading updates. The start of the year has confirmed our group's ability to perform with resilience and focus, despite a market environment that remains uncertain and complex. We will see over the next few slides how our brands and regions contribute to an increase in sales growth and to a solid financial performance built on a combination of disciplined commercial execution and the ability to adapt to the rest, to the environment. We entered 2025 with encouraging momentum. January in particular started on a solid note. with North America showing signs of renewed traction after a promising end of last year, as we discussed back in March. This momentum, however, was gradually tested as the quarter progressed. Geopolitical tensions and, above all, the escalating trading dynamics started to weigh on client sentiment. We operate in an environment that remains highly uncertain, but even with this complexity, I believe our first quarter performance speaks to the resilience of our portfolio and the strength of the relationships we continue to build with our clients across our key markets. Let me now give you the highlights of how we perform, providing some of the key drivers. we closed the first quarter with net sales of 285.8 million euros, representing a 2.2% increase at constant exchange rates, plus 3.1% at current exchange rates compared to quarter one, 2024. Europe once again proved to be our most balanced and resilient growth engine. the region where our innovation and customer focus align most effectively, helping us to drive broad-based growth across markets and brands. In North America, while the picture remained uneven, we recorded a recovery supported by the strong performance of the winter sport categories across all channels and by the reliable growth of our wholesale prescription frames business. Growth was driven in particular by the progress posted by Smith, which further strengthened his leadership in North America market for ski goggles helmet with positive results also on the eyewear. And, but not only that, also by Carrera and David Beckham, which consolidate the strong momentum already seen throughout 2024. In the quarter, we have also seen a positive contribution from Polaroid, building on the recovery record in the fourth quarter of last year. And by our key license, most notably Tommy Figer, Carolina Herrera, both Hugo and Matt Jacobs. Behind top line growth, we also delivered a nice improvement in both growth and operating margins. And most importantly, we generated stronger free cash flow and a further reduction in the net debt. These results prove and reinforce our ability to navigate short-term pressures while continuing to invest in the long-term development of our brand. With that, I will hand it over to Michele.

Thank you, Angelo, and good evening to all of you. As usual, I will take you through our regional performance, starting with sales in Europe, where we posted an increase of 2.8% at constant exchange rates. Growth was broad-based across all our brands and key licenses. Carrera delivered yet another standout performance, while David Beckham sustained impressive double-digit growth trend recorded in recent years. Fueled by both expanded distribution and rising productivity per door, as the brand continued to attract a broad and growing consumer base with its stylish offering and unmatched value for money. Among our licensed brands, Thomil, Fieger, Marc Jacobs and BOTS stood out, all posting double-digit growth. Trading remained particularly dynamic in France and Eastern Europe, where we continued to expand our customer base and increase productivity with existing accounts. When we looked at the different channels, independent opticians kept leading the way, and we saw that clearly in areas like Italy, Spain and Germany. In North America, sales were up 1% at cost exchange rates. Forex was a positive contributor in the quarter as the dollar strengthened, so at current exchange rate, the region was up 3.8%. Smiths kicked off the quarter strong, building on the solid momentum from Q4. Thanks to a great snow season, we saw double-digit growth both in sports store and it is direct to consumer channel with solid results across all product categories. During the PDO, we gained more ground in GALBOR, reinforced its leadership position, and also made some nice progress in our leveraging its ChromaPop Glacier Photochromic Lens stack, the launch of the 80s Archive ultralight model, and the first way of Pulse Virtual Brand Campaign going live. In the rest of the business, results were a bit more mixed. As we already referred to during our latest conversation in March, blenders had a difficult quarter, still impacted by a more promotional and competitive market environment in the entry price level. On a brighter note, our wholesale channel was positive, thanks to the steady demand for prescription frames. When it comes to brands, Tom Hilfiger, Carrera, David Beckham, Caroline Herrera, and Marc Jacobs continue to stand out as key growth drivers in North America. Asia-Pacific maintains solid momentum, slightly accelerating the exit pace of 2024. Sale will up 18.5% at cost and exchange rates, thanks to two specific drivers. On one side, growth was led by career in Australia, supported by successful co-branding initiatives like the one with Pat Cummings, the Australian international cricketer, and the rollout of his woman collection. On the other hand, the quarter... In Asia, it was also supported by a favorable phasing effect on a number of orders of key accounts and distributors. Finally, sales in the rest of the world declined low single-digit at constant exchange rates, down 2.9%, mainly due to the continued weakness in India and the soft trading also in Mexico. On the other hand, positive sales momentum remained both in the Middle Eastern markets and in Brazil. From an economic perspective, we deliver a strong and balanced performance at both the gross profit and EBITDA levels. Gross profit increased by 4.1% year-on-year, with gross margin improving by 50 basis points to 60.5%, up from 60% in the same period last year. This was largely driven by a favorable price-mix effect, supported by the absence of dilutive phase-out sales, unlike Q1 of last year when we were still phasing out Jimmy Choo. Our pricing strategy remained effective and helped offset a slightly negative channel mix, which reflected a higher proportion of sport products in the sales mix. Thanks to the improved operating leverage which helped us to sustain the increase in market investment to support our brand development, we were able to carry the gross margin gains directly through to adjusted BDAs which rose to 12% from 11.5% in the prior year. To wrap up with our free cash flow and net debt, we are very pleased to see a strong acceleration in cash generation, reaching 14.4 million euros, compared to 1.7 million euros in Q1 2024. This improvement was largely driven by our solid operating performance and disciplined work in capital management, particularly through inventory normalization. As a result, net debt declined to 68.4 million euros at the end of March, down from 82.7 million euros at the end of December. On a pre-FRS 16 base, net debt improved from 40.3 to 27.1 million euros. With that, I lend back it to Angelo for his final remarks.

In the current environment, visibility on the business remains limited, and particularly in North America, uncertainty continues to represent the key hurdle to market recovery. In response to the ongoing uncertainties surrounding U.S. trade policies, we are implementing target measures to protect margins, ensure supply continuity, and accelerate long-term strategic initiatives. A major shift already underway is the acceleration of our supply chain diversification. To give you an update, as of the start of the second half, our sourcing from Southeast Asia will increase substantially, reducing the company's reliance on China. The goal is to bring China-sourced production below 40% within the next 12 months. Additionally, we are actually evaluating an expansion of our U.S. manufacturing footprint with the potential increase in capacity at our facility in Utah. This move will support the growing demand for Smith goggles while further strengthening domestic production capabilities. In parallel, we are implementing a selective pricing strategy in U.S. market with targeted price adjustment helping to offset rising import costs without compromising competitiveness. Let me finally add that, given the increasing uncertainty of the context, we are maintaining a cautious approach on inventory levels, trying to rely as much as possible on existing stock to cover demand in the upcoming months. This concludes our presentation. and we can now open the Q&A session.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receive and asking questions. Anyone who has a question may press star and one at this time. We will pause momentarily while the participants join the queue. The first question is from Oriana Cardani in Tilo, Sao Paulo. Please go ahead.

Yes, good evening. Thank you for taking my questions. The first one is about current trade. Can you give an update on the trend that you see in April? My second question is on the impact of US tariff. Are you considering a potential price increase in other regions besides America? And the third question is about the outlook for the sun season. What is your feeling for this sun season in America and Europe? Thank you.

Okay, so thanks for the free question. Current trading, I mean, I think that what we can say is that we exit the first quarter with trends broadly in line with what we've been saying in February. As March, on the other side, we see an increase in certain level of uncertainty trading. and volatility, and this is mainly in North America. Where on the other side, we see Europe, where we keep seeing positive trend in Europe. Overall, we can say that the start of the second quarter has been a decent start. Obviously here, we need to remember that April is the smallest month out of the quarter. And I think this is something that is also related to your last question in the sense that, obviously, I think in the rest of the quarter we have two fundamental question marks. On one side is what's going to happen in terms of consumer demand, how it's going to react the consumer to this level of uncertainty and to a certain level of inflation. And on the other side, obviously, that the sun season the last year was not fantastic, but obviously the sun season has to be linked to how is the consumer behavior or how is the consumer sentiment. For what we see today, we see a European consumer more relaxed, if you like, or more positive, where obviously we see some tension in the consumer behavior in North America. So still, we remain positive out of the potential sun season effect, more looking to Europe than North America, considering the current uncertainty. As you know, uncertainty is always the worst thing for the consumer.

On the pricing, I mean, as Angelo mentioned in the call, we are planning to make some targeted price adjustment. We are currently foreseeing the adjustment only in the U.S. market, so we are not planning any intervention in the other geographies.

Thank you very much.

The next question is from Cedric Le Cable. Stifel, please go ahead.

Yes, good evening, Angelo, Michele and Barbara. I have a few questions. So first one, very short, very technical. In Q1, did you have any negative Jimmy Choo impact? It should be the end now going forward. That's the first one. The second one, your supply chain diversification, it was very useful. You said 40% in China. I think it was 70, at least 70%. Can you confirm this? And just a question on your tariff conditions in the other regions. Are they as competitive as they are in China or maybe less or more competitive? Maybe you can help us a little bit on that. And the last question would be the split in Q1 between marketing and overhead.

Thank you very much.

Starting from the Jimmy Choo impact in Q1, roughly the impact is, let's say, 3% on sales in this year. So that we have been getting is roughly 4%. Sorry, in the base of last year.

3% negative versus Q1-24.

3% negative. So, of course, on a comparable base, we have been posting roughly a 5% to 6% growth.

Understood. And from Q2, it should be much, much smaller than that and disappearing progressively now.

Correct.

It would be material, yeah. Okay. Thank you.

I think your second question on supply chain, the work on differentiation of supply chain has started some years ago. So we start always in mapping the supply and mapping the capabilities. And obviously now we are building and accelerating. But just to give you again two points of reference, at the beginning of the year, the volume coming from China were around 70%, 10%. North America, 10% Italy, 10% Southeast Asia. By H2, we will go, we will take China below 50% with the aim to go on the 12-month base below 40%. In terms of competitiveness of the supplier outside of China, they are definitely competitive. So there is no disadvantage here. to go out of China.

On the last question, between marketing and overhead, let's say that the positive operating leverage post in the quarter has been roughly represented 50 basis point improvement. This has been almost fully invested in additional marketing to support our own brand, mostly behind Carrera, Polaroid, Smith, and David Beckham.

Very clear. Thank you.

The next question is from Nicolo Storer-Kepler. Please go ahead.

Good afternoon and thanks for taking my two questions. The first one, a clarification on tariffs, just to understand better which is the current situation. Is it fair to say that as of today you are not receiving any goods from China and you are working with inventories. If this is true, how long before they get depleted and you will be forced to restart imports? The second question is actually another clarification on Oriana's question on US momentum. Basically, you said that April looks similar to February. Does this mean that basically it's something in between January strong and March weak or is February weaker than March, and so we are seeing deterioration. Thank you.

I take the first one on tariffs. Let's say we are currently limiting the import as much as possible, relying on existing stock. As we also commented before, we have between four and five months of stock In the U.S., they took over U.S. demand. So we'll still be sufficient on a large portion until mid-2023. And, of course, the more we progress, the more we will need to selectively inbound additional products. But we don't expect a major impact in Q2 while we start to see some impact eventually from Q3 onwards.

Going back on answering to your second question, I would say that North America, April, is something between Jan and March, where Europe, April, still is more positive than North America.

Perfect. Thank you.

The next question is from Domenico Ghilotti, Equita. Please go ahead.

Good afternoon. First, still on the tariff topic. I'm trying to understand if you see any risk on availability of products. For sure you are looking at adding new suppliers. Do you need to qualify the suppliers? Do you have enough production capacity to fulfill the second alpha? And Do you risk having any competitive issue in the sense that maybe you are facing a source that is less competitive compared to other players? So you are trying to raise prices, but this is not something that you are seeing also in the industry. I clearly listened to your competitor mentioning similar price adjustments. So I'm referring to potential other players. And last question on blenders. I'm interested in understanding if entering into the more relevant season, you are seeing some kind of recovery or if you're still seeing some sluggishness in the brand.

Yeah. Okay. So, free question. Availability of product, no. We don't see any problem at all. Just I think it's important to thank for the question because it's important to stress that this journey, I mean, we are not pushing the bottom because we didn't need to push the bottom, but the work is going on for the last three years, and the relationship has been built with the top three, four suppliers with whom we've been working historically. So, honestly, I don't see issues of availability of products in H2. In terms of Also, sourcing, as I said, I mean, we are quite a sizable supplier, so I think that somehow I see a competitive advantage of Safilo. moving faster versus other competitors. So I don't see a disadvantage. I see eventually some advantage as we know that some of the suppliers in the hardware industry are struggling more than us in this moment in getting available capacity outside of China. I don't think price is the only measure to measure, the only element to consider our competitiveness. I think that Luxottica has announced already the price increase. I mean, we are in the market, so we will see what the others are going to do, but I don't think I don't think this is going to be a disadvantage for us. As I said, I think normally COVID has taught us that when the market becomes tougher, we can have also opportunities. So we will really manage very, very carefully the dynamic that we are going to see in the market, both in terms of pricing, both in terms of investment. I think that the way in which we are working is really tight, and very, very flexible in reacting and also playing on different categories. I believe that the dynamic will be very, very different from eyewear, from goggles, from snow, from bikes. So we will see. Also, I think it's going to be important, the speed of reaction. But I don't see a disadvantage there. Last question on blenders. Blenders is not yet where it should be. Let's be transparent. It will be. I think it's a brand which, first of all, as you know, we'll hire a new CEO, which with the maximum respect of the founder, the founder will be more working toward the outside world, toward looking to universities, schools, collaboration, but we have now a full-time CEO, which comes with a great experience. We are hiring a quite some new resources on the e-commerce, on the marketing, but I think we have a combination of internal improvement that we are doing on the website, we are doing on the category we are focusing, but there is also a choice. The choice we have taken on Blender, we will not move out of it, is to don't follow the price war which is happening in that segment. We keep our position, we will keep investing, we will be even more focused on few SKU, on few collections where we see there is traction and we will not follow the wall. So, Blender is not where it should be, but the elements are there that Step by step we will see an improvement of the performance. We are also deciding on top of sport to focus on some more communication platform like country music to be a little bit more mainstream. So on top of Coach Prime, we have Sport, and then we are adding this country music platform. I think that we will be there, we will be okay, but in the short term, we are not where we should be.

If I may follow up, so is it fair to say that today you are more concerned about the consumer environment, consumer reaction, and consumer potential recessionary environment? compared to really the tariff impact itself. So I'm not saying that it's easy to manage it, but you are more concerned about the indirect impact.

Only without all this tariff discussion, we could have been living by far a better time. Obviously, tariff, it's a big topic. But I mean, the concern is that I think there are two killers for the consumer behavior. One is the uncertainty. You know, all the discussion, every day something happens, every day something is going to change. So the uncertainty is something that normally has an impact on the consumer behavior. And the other element, obviously, inflation, which is not strictly related to the eyewear, but there's going to be Or we hope not, but we need to see and understand what is going to happen to the inflation in the U.S. So I would not say that tariff is not our headache. I would not say that. But obviously the consumer behavior is something we need to really understand in the next month what's going to happen and how the consumer is going to react on, I think, some of the inflation which will hit the American market.

Okay. My very last question is... On the share buyback that the AGM approved recently, how do you want to execute? Are you planning to execute considering also the uncertainties going on, but also the current stock price?

Let's see. I mean, the buyback has been approved. I would say we have not yet decided on the timing. I mean, we will evaluate in the coming weeks and months depending on how the overall market will evolve and on the overall visibility for us for the coming months.

Okay. Thank you.

The next question is from Cedric Rossi by Brian Garnier. Please go ahead.

Good evening, everyone. I have three questions. The first two are on the US market, obviously. The first one is I was curious to know what visibility you have on your customers' inventory levels. In other words, would you expect any growth in Q2 that could come from any inventory build-up from your customers ahead of the pricing actions you announced? So that's my first question. The second one is on the consumer behavior. We have seen some value players in the US doing very well in Q1. So would you benefit from any consumer down trade from the high-end category to contemporary segment, for instance? And my third question is on Europe. How would you split out the growth between existing customers and the new distribution gains you mentioned in Central Europe and Eastern Europe as well? Thank you.

On the first question, I mean, we expect that the inventory level in the trade is very much, let's say, stable, so we don't expect a kind of bounce back in Q2 to build up on inventory. If any, I believe the buildup has already happened already to date.

Yeah. Now, answering on the consumer... in North America. I think, let me say, in North America, what we have seen in Q1, first of all, we've seen Smith performing, which means a brand with a high, strong equity is playing positive. So, Smith has been growing not only in snow, it has been also performing very, very well on ivory. So, let me say, the strength of the brand is a crucial element. Looking to the overall performance in North America, we saw Great results on Tony, on Carrera, on David Beckham, on Carolina Herrera and Marc Jacobs. So this is what I'm trying to say, that our portfolio, I think, fits with some of the elements of the consumer behavior you are referring to. And we see this trend already starting in Q4 last year. I think we were mentioning there where we saw a slowdown of the luxury still growing, but the premium contemporary, which is where we are strong, has been already performing well in Q4. And that trend, I mean, the brands I've been mentioning are really exactly playing there. So we see the effect you are referring in already in Q1. The question is what is going to happen to the overall demand. Within the same demand, I think that our brands are ready to answer to where the consumer is going to shop more. Going back to Europe, I think what I keep saying on Europe, Europe is a combination of changing the way to make business, and and only a sort also of increase of distribution but more with the digital way how to approach it i mean our d2c our sorry our b2b platform in europe has been growing plus nine so and it's both new customers which are approaching and start buying more on on the on our platform and old customers which are buying more. So I would say that in Europe is a combination of the two, if we look to the more, if you like, traditional Europe, where, obviously, we keep growing, and that, in that case, is more distribution, like in Poland or in the sea. So Europe is really a combination of the two dimensions, if you like. In the more Eastern Europe is distribution, But we see that in the more traditional Europe, it's distribution from one side, because on our B2B, we keep adding customers, but it's even more rotation. And again, if you look to the brands, Carrera, David Beckham, Tommy, Marc Jacobs, and Boss have been really growing at very, very interesting rates. And if I look to countries, to give a little bit of substance to what I was saying before, for one side, Eastern Europe, we have a growth. But on the other side, one of the countries where we are going faster is France. So this really explains the two dimensions which are playing the right way in Europe. So the two sides of Europe are growing on different needs, but are growing both.

Very clear. Thank you.

The next question is a follow-up from Nicola Storer from Kepler. Please go ahead.

Thanks again for taking my two questions. The first one, can you please disclose which are going to be the most relevant countries for your sourcing in Southeast Asia once you have moved, let's say, sourcing from China to the target below 40%. And the second one, the clarification on pricing, you talked about price increases. I did not understand if you are rising prices preemptively, so let's say starting from today, or if you are in a wait-and-see situation and will rise just, let's say, once dust settles and you understand better which is going to be the new norm, let's say. Thank you.

On the diversification of our supply footprint in Asia, key countries involved are Vietnam, as we already also mentioned before, it's the key one, And then also relevant Thailand, Philippines, and Cambodia. So those are the four key countries. So still focusing very much on Southeast Asia.

On the second question, I think we've been talking about selective price increase in the sense that on some categories we have already communicated the price increase. On some others, we are ready to do it. But anyhow, we will keep the maximum flexibility to understand what's going to happen on the tariff and then eventually retune what our strategy is going to be. We have quite a differentiated approach.

Thank you.

The next question is a follow-up from Domenico Ghilotti, Equita. Please go ahead.

Yes, thanks. I have a question on your comment about the potential increasing production capacity in the U.S. When do you think, so when are you taking the final investment decision? Is something related to 2026 or even longer? So I'm interested in understanding when do you expect to take the final decision?

Yeah, I mean, first of all, let me say that This is quite, I think, important. The factory is already there. We have the factory with the facilities. We have also the capability because the factory is there since quite a while. Why I'm mentioning this is because obviously once we will push for the decision, the time schedule is a reasonable one. But to be honest, there is no urgency. The factory is there. We are preparing ourselves. And we will see according to the events. But the fact that it's not that we need to be the factory. The factory is there. It's not that we need to buy or make a huge investment because the facilities and the equipment are already there. So, again, it's an issue of increasing the capacity and do optimize what we have. There is no rush. We are not talking about a long time schedule because the factory is already there, the workers are there, the setup is there. We are working on the details, but we are not in a rush.

So today you are preparing for a potential future decision?

Yes, but building on the fact that At the end, we have it. I mean, the fraction is there, so it's just the capacity.

And as Angelo mentioned, we are not talking a material amount of investment needed in order to scale capacity there, so it's more an extension.

It's more a matter of understanding on the cost side, what is the trade-off between reducing the tariff but having higher production costs. Yes, exactly.

Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Andrea Bonfa, Bancacros. Please go ahead.

Hello. Good afternoon to everybody. Sorry to bother you again on this issue of the duties, but it's, of course, the top topic of the moment. If you can just remind me, you already mentioned the prospecting evolution of production geographies in your course. But if you look at the snapshot of 24 production, they say, oh, actually 24 sales in U.S. Can you just remind us how much was imported from China, how much was made locally, how much was imported from Italy? This is my third question. And again, on the potential expansion of the U.S. production capacity, Is that only referred to goggles or also standard eyewear? And in that case, are locally manufactured products competitive price-wise, or do you see a specific point? Do you need to increase prices? Thank you. If you can elaborate on that point. Thank you very much.

Okay, so let me try. Maybe I've been not clear. Let's try to repeat the number. If we look to 2024, for U.S., 70% was coming from China, 10% from Italy, 10% already in U.S., and 10% out of China. Now, if we look to Second half of 2025, we are planning to take China below 50% and increase out of China around 30%. If we look to 2026, the plan is to go below 40% in China. And, obviously, the different increase out of China, which means out of China going around 40, 50%. These are the numbers roughly, obviously, no, it's a range, but these are the numbers we are talking. Okay. Second question. Again, we have already the facilities there. We are already producing gargle in Clearfields. The point here is that still we have some model that we took the decision to produce outside of US for many different reasons, differentiation, versatility whatsoever. We can decide to move that gargle in North America. We don't see main cost increase. On the eyewear, already today, but in a very, very selective way, we produce, we assemble eyewear in Caelfield. Here, the question is, there are some parts of the portfolio that we feel we can move to U.S., and also in case the price difference is not going to be significant. because our product can have a little bit of differentiation, not only on the frames, but also on the lenses.

Very clear. Thank you very much.

The next question is a follow-up from Domenico Gilotti, Equita.

Please go ahead.

Yeah, my very last question, and that has been triggered by your comments now on the decreasing sourcing from China for the U.S. market. Do you see the opportunity of getting better sourcing condition from Chinese suppliers because clearly they are now lacking some volumes and you have still a large market to serve outside of the U.S.?

I think I'll answer indirectly to your question when I said that as a software being developed, one of the big buyers, obviously this can be a competitive advantage that we have compared to others.

Okay, thank you. That was my very last question.

Thanks very much.

The next question is a follow-up from Cedric Lecasble of Stifel. Please go ahead.

Yes, thank you. A quick one for me. What is, if any, the price differential of some products in the U.S. and in Europe for Carrera, for instance? And what are the gaps if you mitigate tariffs by working on selective pricing? How do you see the eventual issue of a gap in pricing between the two regions? Thank you.

I mean, structurally, of course, it's very much depend brand by brand, but there is a slight higher pricing in U.S. compared to Europe. Of course, with the selected price increase that we are planning to do only in U.S., this gap will slightly increase further.

Okay, thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. So that was the last question. I turn the conference back to the management for any closing remarks.

So thanks very much again for being with us and for the question, and have a nice rest of the evening.

Thank you. Thanks very much. Thanks.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.