Safilo Group S.p.A.

Good evening and welcome to the SAFILO Group first half 2025 results presentation. This call may contain forward-looking statements related 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 even significantly to those announced in relation to a multitude of factors. Today's participants are Mr. Angelo Trocchia, Chief Executive Officer, Mr. Michele Milotti, Chief Financial Officer, and Ms. 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, sir.

Thanks so much. Good evening, everyone, and thank you for joining us today to discuss SAFILO H1 2025 results, including a training update on the second quarter. Let me begin by framing the broader context of our performance. Throughout the second quarter, we continue to show our ability to adapt to the multiple layers of uncertainty streaming from geopolitical tension and shifting macroeconomic pressures, particularly those related to tariffs. Despite this challenge and a landscape that continues to change, Our sales performance at concert exchange rates remain solid across key regions, reflecting the strengths of our brand portfolio, our operational agility, and the execution discipline of our teams across markets. Supported by our long-term customer focus, this momentum translated into consistent economic and financial progress, allowing us to deliver one of the strongest semesters in our history. At the same time, we advanced on our strategic agenda, further strengthening our licensed portfolio and our commitment to long-term shareholder value. Turning to the key highlights of the period, in the second quarter, our sales at constant exchange rate continued to grow, in line with the performance we recorded in the first quarter, driven by positive momentum in North America, where the recovery was more marked, and by the resilience of the European market, despite increased market uncertainty, weighing on consumer confidence. Once again, France stood out as one of our leading markets, underscoring its role as a strategic priority. Second quarter trends were substantially a continuation of Q1, also in emerging markets, where Asia remained largely positive, while sales in the EMEA region remained weak. Our results were again underpinned by the strengths of our contemporary and lifestyle brands across our core wholesale channels. From an economic and financial standpoint, we deliver another quarter of significant profits and margin expansion, supported by a series of effective measures which mitigate the negative impact of the U.S. tariffs. Gross margins reached a new high, and we were able to convert much of this improvement into a higher operating performance. Combined with strict working capital management, these results also drove strong cash generation and a significant reduction in net debt. In short, I would say that the balance of our geographic exposure, the quality of our brand portfolio, and our operational discipline continue to sustain our performance through a complex and evolving cycle. With that, I will hand it over to Michele, who will walk you through our results in more detail.

Thank you, Angelo, and good evening to everyone. Let me start with an overview of our total sales performance in the second quarter and over the first half of the year. At constant exchange rate, total net sales rose by 2.3%, substantially in line with the plus 2.2% recorded in the first quarter. Differently from Q1, foreign exchange rates were a significant add-in for our reported revenues, given the approximately 5% depreciation of the U.S. dollar against the euro, which impacted on our top-line translation. So Q2 sales were down 1.1% at current exchange rates. We closed the first six months with net sales of 537.6 million euros, up 2.3% at cost and exchange rate, and in positive territory also at current exchange rate, up 1.1%. From a brand perspective, in the second quarter, momentum remained strong across our core portfolio. David Beckham, Boss, Tommy Seeger, and Marc Jacobs delivered another quarter of WGD growth, while Carrera and Carolina Herrera recorded solid high single-digit increases. Across product categories, prescription frame remained the main positive driver, supported by resilient demand across all key markets. This helped us offset the softer performance in sunglasses, which were influenced by a more prudent consumer spending and persistently promotional environment, especially in the United States. The quarter was overall flat for our store products, largely due to a different phasing of delivery of winter products. We'll come back on this later. Looking at our distribution channels, on half-year basis, momentum remained solid among our independent opticians and retail chains at high single digits, while online sales were moderately positive, stable at around 16% of revenues. What we saw here was continuous strong performance with meet direct-to-consumer channels and sales growth towards inter-nature players, offsetting a subdued performance in Blender's e-commerce business. Turning to our regional performance starting with Europe, second quarter sales were moderately positive by 0.5% at cost and change rates. Sunglass sales remained broadly stable, sustained by solid momentum through inter-nature players, while performance in physical stores, particularly in Italy and Spain, was more uncertain and volatile. Prescription frames fostered resilient low single-digit growth fueled by the increasing adoption of U.N.' 's Afilo B2B platform among independent opticians and retail chains, further strengthening our commercial execution. As highlighted, France confirmed its role as the region's main growth driver, supported by robust demand for optical products both prescription cream and sunglasses and further boosted by our in-store communication initiative. And we saw continued solid results also in Northern and Eastern Europe markets. As a quick note, our sales performance in Europe was also marginally impacted by the consolidation effect from the disposal of Lenti in June. In the first half, our sales in Europe increased by 1.7% in cost of exchange rates, supported by double-digit growth from David Beckham, Tommy Fieger, Boss, and Marc Jacobs, which showed a continued performance across both prescription frame and sunglass collection. Carrera closed the first semester with a very healthy high single-digit growth, while Poroi posted a low single-digit upside, supported by the NAS brand visibility as the official partner of the ATP Tour, particularly during the Madrid and Rome tennis tournaments. Turning to North America, Q2 sales at top of exchange rate rose by 4.8% reflecting the continued recovery of the U.S. market. This performance was led by the double-digit growth in Carrera, David Beckham, Boss, Marc Jacobs, and Carolina Herrera collections, which significantly boosted total prescription frame sales and helped sustain the sunglass category in what remained a challenging market environment. In direct-to-consumer channels, notwithstanding the fact that blenders continue to be impacted by promotion-driven demand, particularly evident in the entry-level price segment, its performance showed some improvement compared to the first quarter. In the second quarter, sales of missed products were held back by our decision to temporarily limit the import of new winter helmets from China following tariff announcements. This move resulted in the deferral of some deliveries to the second half of the year. Zooming out to the first six months, our sales in North America increased by 2.8% at cost and change rate, driven by Smith's high single-digit growth across its core channel and product categories. Notably, Smith closed the winter season 24-25 in North America, further solidifying its market leadership in snow goggles and snow helmets. These combined with solid results from our leading hybrid brand in all sales helped us sustain the region's positive trajectory. Turning to emerging markets, the second quarter presented a mixed picture across regions, shaped by a combination of microeconomic and geopolitical factors. The Pacific continued to make a positive contribution to our performance, with second quarter sales up 11.5% at cost of exchange rates. Momentum remained healthy, especially in China and across distributor-led markets, which continue to show solid demand and engagement across our portfolio. In the first semester, our sales in Asia-Pacific were up 14.7% at cost of exchange rates, so far confirming the region as a steady contributor despite some local volatility. In the period, Tommy Feger, Smith, Margecos, and Levi's were up our top-performing brand in the area. Turning to the rest of the world, in the second quarter, sales were down 5.2% at cost of exchange rate, while in the first half, business was down 3.8%. AMEA market and Latin America showed contrasting dynamics with challenging conditions in the former and more positive trends in the latter. In the Middle East, the region continued to face a combination of political tension and operational restrictions in certain key markets. This disruption affected distributor selling and weighted on overall business visibility, making the operating environment more complex. In contrast, Latin America posted a positive performance in the second quarter, led by a business recovery in Mexico, thanks to a strong performance by Carrera and Carolina Herrera.

Let me now turn to our economic performance, starting with our gross margin.

It was one of the allies of the second quarter, reaching 61.6% of sales and taking the first semester to 61.1, among our all-time high. What made the difference here was the combination of several factors. First of all, we were able to maximize the use of existing inventory to serve the U.S. market efficiently. a move that helped us minimize the immediate cost escalation due to the high target level introduced by the U.S. administration in early April. Starting from June, we also implemented target price increase adjustment and engaged in focused supplier negotiation, which further contributed to preserving profitability. In addition to this level, Price mid continued to play a favorable role on gross margin, especially a lower contribution from the product supply business and from store product on top of more favorable dynamics on closeout sales. Gross margin also benefited from the lower obsolescence cost supported by continued improvement in inventory, both in terms of quantity and quality. Finally, we had some 50 basis point support from Forex Exchange Movement, which also contributed to lifting gross margin during the period. Altogether, this factor led to a strong and healthy margin profile with 150 basis point improvement in the second quarter and 110 basis points higher in the first semester. In the second quarter, we continue to deliver strong progress at operating level, effectively converting a significant portion of the gross margin improvement into higher profitability, even if we maintain a sustained level of marketing investment to support the development of our own brands. During the quarter, reported BDA included a gain of €9.7 million due to the disposal of the subsidiary Lenti, which, together with few recurring costs, is clearly excluded from our adjusted results. On this basis, our adjusted BDA grew by 9% in Q2, with the margin improving by 100 basis points from 10.1 to 11.1%. In the first semester, we recorded the strongest operating performance of the past decade. Adjusted BDA was up 8.1% to 62.3 million euro, while the margin reached 11.6%, 80 basis points higher than last year. This result was supported by healthy operating performance as the increase in SG&A expenses, which rose by around 1%, was mostly absorbed by sales growth. This moderate increase in selling market in general administrative expenses was primarily driven by higher market investment and by a greater allowance for doubtful accounts in certain emerging markets. Yet, as a percentage of sales, SG&A remained stable. The improvement in profitability was further supported by lower depreciation and amortization, which helped drive a 15.3% increase in adjusted operating profit with a margin expansion of 100 business points to 8.1%. In summary, this was a milestone period for us from an operational standpoint, one where top-line quality, margin discipline, and focused investment came together to unlock one of the best underlying profit delivery in our recent history. Turning now to the bottom line, our strong operating performance was clearly the main driver behind the significant improvement in our net results over the first six months of the year. Below the operating line, the positive trend was further supported by lower net financial charges, which declined from 6.9 million euros to 2.9 million euros, mainly due to the lower average group net debt during the period and a net positive impact of around 2.4 million euros from exchange rate differences. We also recorded a higher non-operating gain linked with the fair value assessment of the option reliability of minority interest, which is due to blenders lower than expected results. Finally, we chose the first semester with an adjusted net result of 33.7 million euro, recording an increase of 39.4% compared to the 24.2 million euro recorded last year. If we net out the effect of the put and call option, our adjusted net result still showed an healthy year-on-year improvement of 32%. Let me now finish with our cash generation and financial performance. We closed the second quarter with strong free cash flow of 29.1 million euros, bringing the total cash generation for the six months of the year to 43.5 million euros. This result reflects a sharp improvement in cash flow from operating activities, which reached 40.7 million euros in the semester, up significantly from the 27.3 million euros last year. This strong performance was driven by the solid earnings and by continued discipline in working capital management, particularly through tight control of inventory levels. This efficiency was further supported by the strategic decision taken in the second quarter to limit imports from China, a move that helped optimize stock dynamics and preserve cash. Cash flow for investing activity was also a positive flow at 8.4 million euros in the semester due to the disposal of Lenti, which generated net proceeds of €11.9 million. This compared to the cash outflow of €41.1 million in the first six months last year, most related to the strategic investment for the perpetual license of Iowa by David Becker. At the end of June, our net debt was halved to €42.4 million, compared to €82.7 million at the end of December last year. Notably, excluding the IFRS 16 list viability, we're substantially net debt free at the end of June, a significant achievement that confirmed the strength of our financial profile. With that, I'll now hand it back to Angelo to share a few closing words.

Thanks. Thank you, Michele. Before concluding our presentation, I would like to outline three strategic milestones we achieved in the last couple of months. First of all, the early renewal of our licensing agreement with Carolina Herrera, which we have extended for another five years through December 2031, allowing us to complete the path we began in 2023 to secure long-term visibility over all our core licenses. With the renewal of Carolina, we have indeed completed the important journey. We are particularly pleased to contain this successful collaboration with one of the most iconic names in the global women's world. The synergy between Carolina's creative directors and our design and craftsmanship expertise has produced distinctive modern art collections that truly reflect the extent of that. And that has allowed us in just a few years to place it among our leading licensed brands. Secondly, this renewal has given us that additional hint of confidence also to proceed with the launch of the share back program we had announced in March. Not standing the highly uncertain landscape, we continue to navigate market by still evolving tariffs negotiation. As we had already declared, the program is designed to set up the reserve of treasury shares, ensuring we retain the flexibility to cite the future investment opportunity, whether for growth or strategic initiative. It underscores our focus on long-term value creation for our shareholders. As a quick reminder, the plan allows for the purchase of up to 15 million shares, equal to approximately 3.6% of our outstanding capital, and is expected to be concluded by December 2025. Based on the share purchase program, we started on June 2025. At the end of the semester, we had bought around 438,000 Saffron Group order and share, equally approximately 0.11% of the outstanding capital. Finally, we enter the third quarter announcing the addition of Victoria Beckham to our portfolio, a brand that further enhances our women's offering and strengthens our position in the aspirational entry to luxury segments. Victoria Baker is a signature in the women's fashion, backed by one of the most influential creative directors in the industry. We are thrilled to welcome her into the big Sapphira family. Together, we aim to establish the brand as a global reference in hardware, with collections defined by minimal design and highly distinctive brand identities. This new partnership exemplifies our ambition to lead in the segments where creativity, quality, and brand storytelling make the difference. With this, I conclude our presentation. Thank you all for your attention, and we are now happy to take your questions.

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We will pause momentarily while participants join the queue.

The first question is from Oriana Cardani of Intesa San Paolo.

Yes, good evening. Thank you for taking my three questions. The first one is on price development. Do you think that the price increase already implemented in North America is enough? Or are you considering a further slight revision in light of the scenario? And so how do you expect the price mix effect to be in the second part of the year? Then the second question is about gross margin. What are the headwinds you expect in the second part of the year? And considering this scenario, do you think that there is room for margin stabilization at the level of the second half of last year in terms of gross margin? And third question is about current rate. Can you give an update on the trend you saw in July for the group and across each region?

Thank you. Sorry, thanks for your question.

I will start answering to your last question and then I will answer the other two. In terms of current trading, we can say that we exited the second quarter with the trend largely aligned with what the overall performance was of the period. If we look by region, North America June was a solid month, particularly in our wholesale channel. In July, trading remained positive, but showed some signs of deceleration, related mainly to uncertainty and volatility. If we look to Europe, in Europe we had a solid April, We had a very challenging May related to very rain period, especially in the south of Europe. So Europe has been almost divided in two. But we have been penalized in the south of Europe, mainly Italy and Spain, which has impacted our sunglasses. June saw a very clear improvement of the performance. in terms of both sell-in and sell-out. And in July, we see a pickup of the sunglasses category. This is divided by region. If we look to the high answer to the price, and then Michele will answer on the gross margin, With the current scenario and with the current assumption except that big changes will happen on the tariff side, we don't see a need to do other activities or take other actions on the price increase. We've been very careful in doing it. We've been doing differentiated by different categories, but as it stands today, that's it. We don't see need. for a father acting on price. With the relationship to the H2, I think H2 now, to be honest, we don't see effect on the demand from the price increase. At least we have not seen it for our categories. Ultimately, to be honest here, the question is what's going to happen on the inflation in North America. As it stands, we don't see negative impact from the price increase that they've been done so far.

On the gross margin for second half, clearly our key end will remain tariffs and our ability to mitigate all the tariff-related costs. I would say as a matter of fact, in Q2, we have been able not only to offset most of the impact arising from the tariffs, but even to build margin, primarily from a positive price mix effect. And, of course, also some development on obsolescence reduction and also some tailwind from the forex input. So our ambition for HO, of course, depending on how the TARIC scenario will evolve, is to continue to build margin. which will highly depend on one side, on our ability, as I was saying before, to counter the impact arising from the tariffs, and on the other side, but also the mix of our sales in the second semester.

Great. Thank you very much. The next question comes from Nicola Storer of Kepler.

Thanks. Thanks for taking my two questions. The first one is on the transfer of your production capacity. If I remember well, you were mentioning to lower China to below 50% by the beginning of Q2. And so I was wondering if this has actually happened. And the second one is on CAPEX. I see that CAPEX has remained extremely low in the first part of the year. Why that and should we expect any kind of acceleration in the second part? Thank you.

I answer on the first one of the sourcing. No, I think we are absolutely in line according to the plan that we've been discussing last time. So all the so-called differentiation of the supply chain toward Vietnam, Philippines, Cambodia, and Thailand is going absolutely according to the plan. So, so far, there are no mean variance versus the numbers you were referring to Yeah. But what is important, I think, the way in which we are working give us also flexibility. If anything will change in the current weeks, you know, that we need to get used to quite some instability, we will be able to eventually rebalance or take the right decision according to the different situation. But so far, in the current scenario, we are definitely in line with the plan we've been discussing and declaring last time.

On CapEx, as you can see recently, we have a very light, I would say, infrastructure setup. I would say that around 10 million would be a reasonable estimate for the year, and this is mainly related to maintenance CapEx, which this year is more skewed to the second half. Great. Thank you.

The next question is from Andrea Bonfa of Banca Acros.

Hi, good evening to everybody. Some of my questions have been already answered. So I got two remaining. One is you mentioned some benefits on the working capital from the, say, the pre-tension with China, which benefited exploiting current stocks in U.S. Does that imply that you will have some networking capital absorption in H2 that we need to consider? This is my first question. And the second, if you can elaborate on Victoria Beckham license, which seems interesting, and if you can give us an idea in terms of potential vis-a-vis your overall sales. Thank you very much.

On working capital, yes. I mean, Q2 and overall H1 has been supported also by, let's say, the decision of delaying some of the input to second out. I would say the amount is roughly in the range of 10 million inventory that has been delayed so we should assume in the second half a buildup of this working capital for these related drivers. At the same time, as for seasonality, H2 would also foresee a reduction in receivables so we should we should expect anyhow an end of year with an improvement on our working capital efficiency versus prior year.

Answering about Victoria Beckham, Victoria Beckham is in line with the strategy or the strategic direction we've been defining some years ago, which is let's catch the women opportunities. So this is related to the fact that we've been adding Isabel Maran, the fact that we've been adding Carolina Herrera, the fact that we've been launching Carrera Women. So Victoria Beckham is in line to reinforce in a substantial way, our presence and our strength in the women part of the market, which, by the way, is the biggest part of the Iowa market. about how we see the license. I mean, I believe that the start of the relationship, the collection that you will see, and all the campaigns we've been developing, I think they're quite encouraging. I mean, we are getting some first very positive feedback. In the medium term, this is a license which can represent something between 2% and 3% for Safilo.

Thank you very much.

The next question is from Domenico Gilotti of Equita.

Good afternoon. I have a few questions. I'm starting a follow-up on the tariff situation. First of all, I'm trying to understand if there is any risk of so-called pooling orders. So maybe clients in North America anticipated, brought forward some purchases, and so you will see then the impact in the second part of the year. And in general, if you can give us an update on what's going on, how are you managing the situation, for example, in the negotiation with the suppliers, also in terms of transferring to them part of the impact. And then another question is related to the opportunities for capital allocation. You were mentioning in an article interview the possibility to come back to dividend payment, but also some opportunities in terms of M&A. So if you can elaborate a little bit. And last, on the lengthy disposal, just to understand what is the rationale for the transaction and what are actually the impact that you are seeing, apart from the cashing that we have seen in the capital gain.

So I will try to answer... the full set of questions, so thanks very much for that, Dominique. You are pushing me to work. Let's start from the tariffs. Honestly, we don't see an effect on the American customer to build up stock Because to be honest, now the customers are, I think, have been teached by the COVID. So in general, the customers now have quite a more conservative profile in loading or in buying or in getting higher stocks. So I would say that we don't see that effect talking with our customers. The question on the supplier, we don't give the details there, but thanks to the fact that we have a strong, strong historical relationship, at least with four or five suppliers, And so the discussion with them has been a combination between getting better negotiation on what is produced in China versus with some of the suppliers. We have been building a strong relationship with them, allowing them to go to Vietnam or to go to other countries. So I would say that on that area, honestly speaking, I would say that my feedback is very, very positive on the, I will not call negotiation, I will say the discussion which are going on with some of our top suppliers. On capital allocation, as we said, I think in this moment, also thanks to our financial situation, the priority is M&A. As I said, we have clear direction of the M&A, as I said, is optical, is sport, and is women. These are the three directions. So we think that in this moment still that is the priority, but if at a certain stage we think that we will come to the conclusion that there are not M&A at the price or at the multiple that we think the right one, then we can do different capital allocations. So the scenario is quite clear. Let's see what's going to happen in H2 on the M&A side. On the last question on Lenti, then, about numbers, I will leave Michele to answer to you. I mean, Lenti... was not strategic for us in the sense that Lenti is most manufacturing producing lenses also producing other categories like plastic shield and for motorcycle or for car so I don't think was an asset so strategic for Saffilo. So in the light also to make our manufacturing setup lighter and more flexible than we have decided to sell the asset. Also was an asset underutilized for us. So I think that as we've done for some other manufacturing that the asset can be by far better utilized by others. So that's where the reasons behind the decision.

Yeah, the number, I mean, the consolidation will impact, I would say, on a full year base, so not specifically on the remainder of the year. One percent of sales, on third-party sales, while it's not really material from a profit standpoint. So basically next year we'll be missing roughly five months out of the 12 we have in our consolidated numbers.

Thank you.

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We have a follow-up from Domenico Ghilotti of Equita.

A follow-up on the M&A scenario. Do you see in the current situation a better scenario compared to the past few years in terms of opportunities? Maybe some players are less active and more focused on their own business. I don't know if there is any kind of reading.

I agree with your reading. I think that I think there are some of the other guys which are now busy maybe more on internal topic than external, so this is one dimension. The other also, all these variability of the market and with all these tariffs is also, let me say, putting under discussion some of the more traditional supply chain. So I would say that in this moment we see a more favorable environment for potential M&A if we compare with one year ago. Yes, by sure it's more favorable now.

And you have not mentioned the filling the regional gaps or the Asia-Pacific area. So is it? a focus of potential M&A, or do you think that you want to improve and strengthen the core markets of North America and Europe today?

I think the priority remains North America and Europe. especially along the direction of the optical. I think that we're the biggest opportunity here. But to be honest with you, we are looking to some opportunity in Asia. But if I would rank it, Europe and North America definitely are the two areas where I think we have the highest priority there. Okay. Thank you. Thanks.

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Okay, so thanks very much. I'm assuming that this is the last call before holiday time, so I wish you the best holiday time, and I think we will be in touch in, I don't know, November.

Good. Thanks very much.

Thank you. Bye-bye. Thanks very much. Bye-bye.