Safilo Group S.p.A.

Good evening and welcome to the Safilo Group third quarter and first nine month 2025 trading update. 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 Melotti, 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. Thanks very much. Good evening, everyone, and thank you for joining us today to discuss Safilo's trading update for the third quarter and the first nine months of 2025. Let me start by saying that Q3 was another solid quarter for Safilo. We stayed on course, delivering a consistent performance, marked by steady sales growth at constant exchange rates, further margin improvement, and another round of robust cash flow generation. In a context of persistent macroeconomic uncertainty and tariff pressure, these results give us even greater confidence in our ability to navigate complexity and keep building momentum. We are proving that we continue to grow in a sustainable way even when the environment doesn't make it easy. Let me briefly walk you through the key highlights of the quarter. Despite intensified forex headwinds, penalizing reported sales, we maintained a positive trajectory at constant exchange rates, delivering a resilient plus 2.1%, substantially in line with the performance of the first half, and again supported by the strengths of our contemporary and lifestyle brands and the breadth of our geographical footprint. Originally, the picture remained mixed. In our core markets, Flat sales in North America were offset by high single digits upside in Europe, while in emerging markets, the continued growth in Asia Pacific helped mitigate the softness seen in the rest of the world. From an economic standpoint, our operations continue to face pressures from tariffs, yet the effectiveness of our mitigation actions, together with fireball price mix dynamic, and the gradual normalization of some operating costs allowed us to protect our gross margin and to increase our adjusted EBITDA margin to 10% of sales, 210 basis points higher than last year. And thanks to this strong operating performance and to our tight control over working capital, we delivered another quarter of robust cash generation we brought the free cash flow in the first nine months to around 64 million euros, leading us for the first time in our history to become net debt positive pre-IRSS 16. That's a milestone we are really proud of, and it shows just how far we have come in building a resilient and more agile business model. Michele, over to you to go through our results in more detail.

Thank you, Angelo, and good evening, everyone. Let me start with a quick look at our total sales performance in the third quarter and over the first nine months of the year. At constant exchange rates, Q3 net sales growth was consistent with the pace we recorded in the first half, while reported revenues were more significantly impacted by negative currency movement, particularly the depreciation of the U.S. dollar against the euro, closing down 2.1% at current exchange rates. For the nine-month period, we closed with a total net sales of $758.4 million, up 2.2% at cost of exchange rate, and in line with last year at current exchange rates. Across brands, as Angela highlighted, our contemporary and lifestyle brands continue to grow nicely. We are talking about Carrera, David Beckham, Marc Jacobs, Boss, Carolina Herrera, and now also Kate Spade, while the quarter was still soft for Blender's e-commerce and Smith's poor product in physical stores. By product category, prescription frame continued to show growth across all regions, while sunglasses recorded a nice recovery in Europe. Let me then walk you through our regional performance, starting with Europe. Europe was clearly the bright spot this quarter, with sales up 7.7% at cost and change rates. This acceleration was fueled by two key drivers. First, our prescription frame business strongly outperforming the quarter, in this occasion also supported by a favorable phasing of delivery, which last year had fallen into the fourth quarter. Second, we saw a rebound in sunglass sales, As commented in August, this started to be visible in July, driven by favorable sell-out dynamics, particularly in Italy. Demand remains strong across both independent opticians and retail chains, and we are especially pleased with the continued traction of our UN Safido B2B platform. Its growing adoption is helping us deepen customer engagement and sharpen our commercial execution. Brand momentum was broad-based. Carrera, David Becker, Marc Jacobs, Tommy Figer, Boss, and Carolina Herrera all strengthened their competitive position in the region. Looking at individual markets, France stood out once again as our top performer, driven by an expanding customer base and dynamic commercial and marketing initiatives. Growth was powered not only by our leading international brand, but also by regional successes like Isabel Marant, which continue to resonate strongly with French consumers. In Germany, we maintain solid momentum, particularly among independent opticians and online pure players. And in Eastern Europe, we deliver another strong quarter in Poland and Turkey, which remain our largest market in the region. In the first nine months of the year, sales in Europe were up 3.2% at constant exchange rates. Let's turn to our performance in North America, where the third quarter was marked by a mixed picture, set against a backdrop of continued volatility and uncertainty in the business environment. Sales were flat at cost of exchange rate, while down 6.6% at current exchange rate, given the stronger depreciation of the dollar. In the sports segment, Smith experienced diverging trend across its two channels. delivering on one side very solid growth in direct consumer business. This was supported by strong demand and effective online engagement. On the other end, sales to physical sport shops were affected by the ongoing normalization of shipment of sport products from China. As we had anticipated in August, these deliveries were to be recovered between the third and the fourth quarter. In August, our wholesale business posted a mid-single-digit increase, thus a very healthy performance, although a bit of a slowdown compared to the second quarter. Positive momentum was driven by solid demand from independent opticians and chains, with Tommy Figer, Mark Jacobs, Boss, Kate Spade, and David Beckham continuing to act as our growth engines. The quarter remained challenging for Blender's e-commerce, which was still affected by intense promotional activity from several players in the value for money segment. Overall, our sales in North America closed the nine-month period up 1.9% at cost of exchange rates. Let me now briefly comment on the performance of our emerging market, starting with Asia-Pacific. In the third quarter, the region sustained its positive momentum with sales up 7.8% at constant and change rates. Growth was primarily driven by our distributor-led market, supported by the strong brand's contribution from Tommy Figer, Boss, and Hugo. Australia stood out with a particularly strong performance fueled by career-ongoing brand building initiatives. including the successful launch of its woman collection earlier this year and by Smith's continued development in the market. Looking at the first nine months, sales in Asia-Pacific were up 12.4% at cost and change rates. Finally, turning to the rest of the world, the third quarter remained challenging, with sales down 13% at cost and change rates. Performance continued to be affected by persistent headwind in India and a difficult market environment for our Middle Eastern distributors. Mexico, on the other hand, demonstrated resilience, supported by positive sales trend to independent opticians. Across the regions, Tommy, Boss, and David Beckham stood out as top performing brands, helping to partially offset the broader market pressures. Over the first nine months of the year, sales in this area were down 6.8% at cost and change rate versus the same period in 2024. Let's now move to our economic performance for the quarter, focusing on the two key indicators we typically comment on during our trading updates. Gross margin showed another improvement in Q3. The impact of our mitigation action against higher tariff pressure became more visible, particularly the price adjustment introduced in early June and the ongoing shift toward out-of-China sourcing. This measure helped us absorb much of the cost inflation and protect profitability. The year-on-year increase in gross margin from 59.1 to 59.7 was then supported by federal price beat dynamics, although to a lesser extent than in Q2, and a more meaningful contribution from foreign exchange. At constant price, gross margin was broadly stable compared to last year's third quarter. Looking at the nine-month period, gross margin rose to 60.6%, up from 59.7%. At the operating level, Q3 marked the most significant step forward. We reached our highest ever adjusted BDA margin for a third quarter at 10% of sales, up 210 basis points from Q3 2024. This result was supported by a gradual normalization of market investment after the peak we saw in the first half, where spending reached nearly 30% of sales. In Q3, marketing expenses declined by roughly 50 basis points year-on-year, Cost optimization also came from lower logistic and IT costs. For the nine-month period, our adjusted BDA margin stood at 11.1%, up from 10% last year. As a reminder, our BDA margin at 12% includes €9.7 million gain from the disposal of Volenti in Q2. Finally, let's look at our financial performance, which continued to strengthen in Q3. We delivered another quarter of strong free cash flow, generating €20.7 million, up from €16.9 million in Q3 last year. This was driven by solid operating performance and disciplined working capital management. Over the first nine months, total free cash flow reached €64.2 million, including €11.9 million from the lengthy disposal. This level of cash generation allows us to continue reducing debt. As of September 30th, net debt decreased to 30.4 million euro, bringing us to a positive net financial position, pre-FRS 16, of 10.7 million euro for the first time in our history. It's also worth noting that these results include the transaction costs for 10.2 million euro related to our share buyback program launched in late June. Since then, we have purchased approximately 7.8 million shares. equal to around 1.9% of our outstanding capital, including shares already held at the same date. Treasury shares represented 4.5% of the company's capital. That concludes our presentation. Thank you all for your attention. We are now happy to take your questions.

Thank you, sir. Excuse me. 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 touchstone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. 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 questions. The first one is on October performance. We know that October is a small month. but can you give us an update of the performance across regions and overall, and what is your feeling for a potential recovery in North America in Q4? My second question is on growth margin. Can you give us some indication of your expectation for next year? And finally, I've got some questions on the M&A activity. You revealed that you submitted a no-binding offer for Eschenbach. When do you expect to hear back from INSPECT regarding its potential interest in entering into negotiation? And if successful, have you ruled out other potential acquisitions for the coming year, or would it be possible to combine it with other small acquisitions of companies already under screening? Thank you very much.

Okay, so thanks very much.

I will answer to the first and the last. October was overall a positive month. Both North America and Europe, we saw a continuation of the regional underlying performed, which we exit the third quarter. I would say that in the emerging markets, we would spot some deceleration, mainly in Asia, where on the other side, we saw a sign of improvement in the rest of the world. Obviously, that said, you know, we are, October is only one month, And obviously, we have all the period of the Black Friday and the promotion period around that. So that's, to be honest, we need to wait that part of the Q4 to have really a clear view on the full quarter. I will answer on M&A. I mean, INSPEC obviously is aligned with our strategy that we have said in different locations, which is to reinforce our position in optical segment and to expand our footprint in the key European market, particularly in DACH. Said that, I mean, the process is at the beginning. We have evaluated different options with a very open mind. But as I said, we are really at the beginning. So, I mean, and obviously as soon as some news will come, we will inform the market. But we are really at the beginning of the process. For the rest, I mean, I don't see any issue to, I mean, We are open and we are in a position to look for other M&A and eventually additional M&A. So, I mean, potentially we will not stop here. We don't have any issue to look for more M&A in the next month or in the future. Also, one inspect should come to some positive conclusions.

On gross margin for next year, I mean, we continue to have the ambition to build margin next year. Definitely, TARIC will continue to be an headwind. But as you have seen also in Q3, I believe the countermeasures are actively and effectively managing and offsetting the vast majority of the TARIC-related impacts. So, I mean, it's difficult to quantify now and to give some more light on that, but definitely we see the opportunity to continue to be in a creative margin position, the margins of which will highly depend also on the evolution of the top line and will highly depend also on the mixed component of the different brands and geographies.

And it's good. Thank you very much. The next question is from Nicholas Storer of Kepler.

Hello, can you hear me?

Yes.

Hello? Okay, okay, perfect. Thanks for taking my question. So the first one is on operating cost. You mentioned advertising and promotion, 50 bps. If I'm not wrong, you gain basically four million in a bda and maybe lost something at a gross profit level so 50 bits is roughly 1 million and so i was wondering if you can elaborate a little bit more on the other uh million you were able to save and if this is something that uh we can also project going forward or if this was more kind of one-off. The second question is a clarification on North America. You were flat basically, but at the same time prices were increased. So is it fair to say that volumes were down maybe in the mid to high single digits? Then the other question is on your cash flow. If you maybe can help us a little bit bridging Q2 net debt with Q3s at the very in particular with some comments on working capital, also in light of what you said last time about stocks and possible normalization. Thank you.

Thank you, Nicola. I take the first and the last one.

On the Q3 margin, as we commented, I mean, 50 basis point improvements are coming from the normalization of marketing costs. Of course, 60 are coming from the gross margin, while more or less, I mean, the other 100 basis points coming from the normalization of costs mostly on logistics and IT. On the cash flow, if I'm getting right the question, so the 20 million free cash flow generation in Q3, very much driven by, I would say, an improvement of the flow from operation, has been then supported by a limited, let's say, absorption in working capital, despite also the potential build-up of inventory we're foreseeing back in Q2 to counter the decision of delay some of the import to manage the tariff. So the bridge versus the net debt should be easy. The 20 million free cash flow generation, roughly 10 million in investing in the share buyback, so it should be a 10 million reduction in net debt for AFRS 16 days.

On the last, on the question on North America, in North America we have different dynamics. We have, as I said, we see a positive month in October, so a continuation of the positive trend of North America wholesale. We are very positive on Smith D2C. where we have some, we see some weakness is on blenders as we said, I mean blenders, obviously we need to wait now the Black Friday time, but I mean blenders would be still struggling in quarter four, where on the other side Smith, Shops, as Michele was underlining, we saw some weak figures. Also, honestly, driven partially by the stock, some stock decision we took in Q2. So really, the picture in North America is quite different by channel. Aside from the brands, as Michele was mentioning, we see a positive trend on our main brands there, Carrera, David Beckham, both and also Kate Spade getting on a positive momentum.

The next question is from Domenico Ghilotti of Equita.

Good afternoon. My first is just a follow-up, so just to have the sense of what was the contribution of price mix versus volumes in the third quarter. Second, you mentioned in the call that there is some phase in prescription shipments, if I'm not wrong, in Europe. Does it mean that we should expect some deceleration in this segment going to the Q4? And then I have a broader question, but quite relevant related to the wearables and to the fact that the category now is really getting traction. So if you can update us on What's your view on the category and on your opportunity in this category?

Yeah, on the price mix, component pricing at roughly 70 basis points positive impact in the quarter. While the impact of the European, let's say, phasing impact in Q3 is roughly representing a 3% roughly, 3 to 4%, that of course in Europe we will see as a potential negative block in Q4.

On the smart glasses. I think it's, let me say first of all that I think we need to acknowledge that SELUX and Meta, they are doing a great job. So I think honestly, you know, they are doing a great job. Obviously they are pushing the demand. As I said in different occasions, we are working on both. We are working very, very tight on both legs, the smart glasses and the hearing aids with our traditional partner and with the potential new partner. But to be honest, I mean, we don't chase speed. I mean, we will take some decision when we think it's the right moment. I can assure that, as I said, we see the number, we see some consumer data, so there are two areas of great focus from us, but we will take the decision on the timing when we think it's appropriate. Anyhow, we have our partnership with Amazon that we keep working with them, But yeah, we will see when we think is the right time to step in.

Thank you.

The next question is from Cedric Rossi of Stifel.

Yes, good evening.

I have two questions please. The first one is regarding Europe. I heard about the positive impact from the phasing in Q3, but even stripping out this positive phasing impact, you still have a very good performance in Europe. So I was curious to know what explains this good momentum between distribution gains or existing revenue with existing clients. Could you come back on the performance of Europe? And the second question is regarding your production shift strategy. that continues to deliver on margins. Are you able also to confirm the roadmap, so the terms being below the 50% share done in China by the end of the year? Thank you.

Okay, so I answer on Europe. On Europe, the reason why I think Europe keeps performing is the sum of different elements. First of all, I think our strategy to have a global portfolio but with local adaptation is working very well. I do an example. Obviously, we have David Beckham, Carrera, Boss working everywhere in a great way, but if you take France, we have the success of Isabel Marant. So it's a combination of brands which are global and which are top priority combined with brands that they have a very local but important role to play. This is if I look to the portfolio. Just an example, Isabel Marant or Marc Jacobs, which is performing very, very well both in Italy and in France. If I look on the other side on the channel, let me say that in the last, I think we see the results of the work we have been doing the last two years. With the exit out of GV, we have been reinforcing in a very, very strong way our relationship with almost all the top chain in Europe. And now this relationship, I would say, if I look to France, if I look to Nordic, if I look to Germany, if I look to Italy, is really becoming very, very strong. And last but not least, our B2B. Our B2B keeps growing year after year. It's four years in a row that it keeps growing, keeps growing both in terms of adoption because now, I mean, also this year, the number of customers which buy on our B2B keeps growing by roughly mid-single digit and rotation. So I would say that Europe is a combination of playing right with the portfolio, but also reinforcing our channel. both versus the key account and independent, but also via our digital tools, which is recognized like one of the best tools in Europe, definitely by the opticians.

On the out of China, we confirm what we said back in the Q2 call. So we continue to move volumes from China to other countries in Southeast Asia. as we said, Cambodia, Vietnam, Philippines, and Thailand being the major ones. We do have a visibility and we do have a plan on hand that will basically lead us to reduce the dependency on China below 50% for next year. But on the other side, we remain flexible and agile in adapting the speed of this plan based on the potential evolution on TARIC in the coming weeks and months.

Okay, thank you.

The next question is from Andrea Bonfa of Banca Acros.

Hello. Good evening to everybody. My question has been partly answered, but, again, if it's possible for you to further elaborate on your cost performance in Q3, we saw that, I mean, more or less out of the 4 million margin improvement, APK Level 1 is coming from cross-margin and more or less 3 million from costs below it. Are these basically cost reductions set to remain structural or will they come back in the fourth quarter? And even more, how do you see these costs evolving into 26?

Thank you very much.

Yeah, I mean, as I said, out of, I mean, the components are the ones that I have outlined. So marketing and then normalization of IT and logistics. I would say on marketing, as we always do, we stay very much flexible based on the market demand. I mean, Q4 is a very important period for Black Friday, Cyber Monday, and, of course, we also approach the only decision where, of course, marketing investments are very sensitive. So I believe it's a bit early to say that the marketing and normalization is structured or not. On IT and logistics, also there I believe for certain degrees are structural savings, but, of course, the savings will not be linear savings. in the coming quarter. So I believe there is an opportunity to continue to see this cost normalization supporting the margin improvement in the coming month, but not with the same magnitude.

All right. Thank you very much.

As a reminder, if you wish to register for a question, please press star and one on your touchtone telephone. For any further questions, please press star and one. We have a The next question from Harrison Wooding Ligo of Barenburg.

Hi, good evening. You've mentioned strong momentum in contemporary and lifestyle brands like Carrera and Marc Jacobs. Could you elaborate on how this mix between these brands and more value-oriented ones is evolving and whether this mix shift is still providing a tailwind to margins heading into 2026? And then a second question actually following up on the marketing normalization. Do you have a target level or range in mind for marketing investment into 2026 as well? Thank you.

Okay, in terms of brands, I mean, the brands which are performing better in our portfolio, transversal to the geography, as I said, Carrera, DeRibeca, Boss, Tommy, Carolina, and now Marc Jacobs. So let me say the part of our portfolio which is performing better is what we call within the contemporary the premium bid. So the premium bid is the part of the portfolio which is performing well, which better, which is there is a logic because obviously let me say that maybe some of the luxury brands went up And so there is a space. Somehow they have created a space for us. So definitely, depending from the geography, we see this like a sort of global trend. Then, obviously, as I said, by geography, we have specific brands which are performing well. I mean, Kate Spade is back to growth. If I look to North America, we're in Europe. I was mentioning the example of Isabel Marat or the example of Margerio. But I would say that the premium part of our contemporary portfolio is the BIT, which is performing by far better. And we see this trend, to be honest, which starts really from the end of last year. With the slowdown of the luxury, we saw this trend picking up there. On marketing, I think we are almost now in the nine months around 13, 13%. Roughly. So I think that there is a, uh, I think there is space to slowly, slowly normalize and normalize these number in the next, in the next, in the next years, always having the focus on investing behind our brands and investing behind. I mean, the brands that we see, they need, they need support. As Michele was mentioning, we are quite flexible. Thanks to the fact that most of our investments are now in the digital field, we can be very, very flexible in understanding which brand to support more and in which moment. But we should see in the next years a slowly normalization of the overall marketing investment.

Just for the answer, gentlemen, at this time there are no more questions registered. Would you like to make any closing remarks?

Okay, so thanks very much for having been with us and enjoy the rest of the evening. Thank you very much. Bye-bye.

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