Safilo Group S.p.A. ($SFL)

Good evening, and welcome to the Safilo Group First Quarter 2026 Trading Update Conference Call. 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 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 very much. Good evening. Good evening, everyone, and thank you for joining us for the Safilo's Q1 2026 Trading Update. The first quarter of 2026 marked a solid start of the year, once again outlining the resilience of our business model, which rests on 2 pillars and strong and relevant brand portfolio and the consistent commercial execution across markets and channel. Importantly, Q1 delivered another meaningful step forward on margins and cash generation. This is the outcome of the structural work we have been carrying out over the past few years across operations, sourcing and cost discipline. As we move through 2026, our priorities remain unchanged: disciplined execution in a challenging business environment, profitability and cash generation, combined with selective investments that can support long-term value creation. Let me briefly highlight a few key messages from the quarter. First, on sales. Net revenue were broadly in line with the Q4 exit rate, growing plus 0.4% at constant exchange rate. What matters here is the continuity in the business trends across geographies, in particular in 2 of our key regions. Second, from a brand perspective, Kate Spade, Smith, BOSS, David Beckham and Carrera delivered strong performances across channels and key market, once again confirming the breadth and balance of our portfolio. Third, profitability and cash. We continue to make quite a significant progress with gross margin reaching 62% of revenue and adjusted EBITDA margin at 13.6%, and operating improvement then translated into solid cash generation with free cash flow of EUR 17.5 million before the investment in Inspecs and a positive net financial position pre-IFRS 16. Let me now hand over to Michele, who will talk you through the results in more detail.

Thank you, Angelo, and good evening, everyone. Let me start from total revenues. In the first quarter, group net sales amounted to EUR 272.9 million, up 0.4% at constant exchange rate. Like in the fourth quarter, reported sales were impacted by a 5% currency headwind. So they were down 4.5% at current exchange rate, driven mainly by the weaker U.S. dollar. From a geographical perspective, the picture is clear. We saw positive momentum continuing in North America and across core European markets, while Asia and the Middle East represented a headwind to overall growth. By product category, our performance was once again led by prescription frames, which remained the most resilient part of the portfolio and also for products. Turning to Europe. Sales in the region were up 1.4% at constant exchange rates. Performance was solid across key markets with France, Italy and Germany delivering positive trends, both with independent optician and key accounts. We also continue to strengthen our footprint in Eastern Europe where the expansion of key brand distribution continued to support growth. A positive highlight is the launch of the new Victoria Beckham eyewear collection, which is seeing a very promising reception from customer and consumer. In the quarter, this largely offset the impact of the Lenti deconsolidation, which will no longer be an headwind from the third quarter. In the retail chains and Internet Pure Player BOSS, David Beckham, Carrera and Isabel Marant were our key outperformer during the quarter. Moving to North America. Sales grew 2.3% at constant exchange rate. At current exchange rate, revenue declined by 7.7%, reflecting an approximately 11% depreciation of the average dollar versus the euro. Beyond FX, the underlying picture was positive. Sales momentum was driven by higher productivity at independent optician and by new brand launches in retail chains. Several brands delivered strong performance, in particular, Kate Spade, Carrera, Tommy Hilfiger, BOSS, Marc Jacobs and David Beckham. In sport shops, Smith delivered another solid quarter, driven in particular by goggle and promising start for summer helmet. While Blenders improved, supported by the expansion in the wholesale channel and some initial recovery recorded in the direct-to-consumer channel. Turning to Asia and rest of World, which together represent around 12% of our total business, sales at constant exchange rate were down by 13.6% and 6.3%, respectively. In Asia, the quarter was affected by a challenging comparison base as revenues were up by around 19% in the same period last year. More broadly, we observed more prudent demand patterns across both distributor and POs. In China, trading in January and February was influenced by the timing of Chinese New Year with some improved trading in March, supported by the Shanghai Optical Fair. In the rest of the world, performance was mainly impacted by the weak trend in the Middle East following the escalation of geopolitical tension, which weighted on commercial activities from March onwards. This impact was partially offset by continued growth in Mexico, where key licensed brands such as Carolina Herrera, Tommy Hilfiger and BOSS sustained demand across our main distribution channels. Moving down the P&L, and let me start as usual with gross margin, which grew to 62% of sales, up 150 basis points year-on-year. The improvement reflected several factors working together. First, the continued mitigation of tariff through the pricing action introduced last year and sourcing rebalancing. Second, we benefited from a sustained positive price/mix effect, driven by a reduced share of gross margin dilutive activities, namely Lenti and the product supply business. Finally, we continue to see a positive FX effect at the gross margin level linked to our dollar-denominated sourcing base. This accounted for around 50% of the total gross margin improvement. At the operating level, adjusted EBITDA reached EUR 37.1 million, up 7.9% with the margin expanding to 13.6%, which is an improvement of 160 basis points versus the first quarter of last year. This confirms our ability to consistently convert gross margin improvement into stronger operating profitability. During the quarter, we maintained effective cost discipline with marketing investment and other operating costs kept broadly in line with last year. Foreign exchange and a more limited impact at the EBITDA level, meaning that the margin expansion was driven primarily by the underlying performance of the business. Finally, on our financial performance. Free cash flow stood at EUR 12.6 million compared to EUR 14.4 million last year. This reflected our solid operating performance in the quarter, a normal seasonal absorption from working capital and the purchase of additional shares in Inspecs for around EUR 5 million. As you know, this brought our stake in the group from 25% to 29.9%. Thus, before this investment, our free cash flow amounted to EUR 17.5 million. Finally, our net debt at the end of March stood at EUR 30.1 million, down from EUR 46.1 million at year-end with a positive net financial position of EUR 6.6 million pre-IFRS 16, which compared to a net debt of EUR 6.6 million pre-IFRS 16 at the end of last year. With that, I'll hand back to Angelo for his closing remarks.

Thanks, Michele. Before we open the call to the Q&A, let me briefly touch on one strategic development announced a couple of weeks ago. We signed an exclusivity agreement with Bolle Brands aimed at the acquisition of SPY (sic) [ SPY+ ] and Serengeti. This is fully consistent with our approach of selectively strengthening our portfolio, focusing on brands with a strong complementary with our existing portfolio or filling an attractive gap. Both brands meet this criteria and can offer us top and bottom line synergies while remaining fully aligned with our disciplined approach to capital allocation. SPY+ reinforces our sport and outdoor ecosystem, sitting between Smith's premium technical leadership and Blenders' mass pool position. Serengeti represents a distinctive opportunity in the premium and high-end eyewear segment, supported by strong reputation for the best-in-class high-performance lenses. Thanks for your attention. We are now happy to take your questions.

[Operator Instructions] First question is from Oriana Cardani, Intesa Sanpaolo.

The first one is about the outlook for the U.S. sports segment. What is your feeling for the bike season? The second question is on current trade. If you can give us an update on April and start of May performance. And the third question is on the acquisition of SPY+ and Serengeti. If you can provide some information on the impact of this acquisition on your gross margin and EBIT margin?

So I'm assuming I should answer to all 3 questions. Great pleasure for that. So first question on sports and bike. I mean, let's say, the season on -- let's start from the snow. The seasonal snow this year has been a little bit strange and patchy. As you know, we have quite a huge amount of snow where normally there is no snow, where it was missing really in the central U.S. So let me say it has been -- if I look to the snow, it's been a little bit patchy. But also in this situation, Smith has been able to remain positive. On the bike, we see a clear rebound. You know that we have gone through 2 years difficult in bike, definitely from the last bit of the last year. And in Q1, we see an important rebound of the bike business and we are waiving this rebound. So overall, I would say that the sports remains what we think a growing territory with different dynamic according to the different category. But definitely, we judge like a part of the market, which will keep being in a positive territory and our aim is to catch that growth. On current trading, I will reconnect with what we've been saying when we talk early March. So January and February, let me say, was broadly in line. If I look overall, broadly in line with the Q4 exit pace with both North America and Europe showing quite an important resilience. Obviously as of the end of March and April, both in U.S., maybe more notably in U.S., a little bit less in Europe, we see more a change at customer level and more than at consumer level. What I mean by that, the customer are showing a little bit more cautious approach. Obviously, it's not helping their behavior or what they are hearing around. We personally think that for the moment, it's more, as I said, a customer perspective more than a consumer. I mean there are a lot of research on the consumer confidence. But still, I think, for example, the D2C on Smith keeps going well. So I think it's more a cautious from a customer perspective more than a consumer. Otherwise, we should have a negative effect on the D2C. D2C is maybe we see, obviously, that snow has been impacting negatively for the reason I've been expressing before, but the other categories have been performing well. April, honestly, I will not comment on the month per se. I mean now the game is going to be played in May, June, where obviously what is going to be crucial is if the situation, the macroeconomic or the political situation will stabilize. So I think we need really to wait what's going to happen in the next days because the good thing of -- and this is more true for North America more than in Europe is that in that case, both the customer and the consumer are a little bit nervous in overreacting, but thanks to God, are very fast in positive reacting. So if the change of the situation will happen shortly, I think that we can have -- we can see some positive effect in May and June. You were asking on the M&A. I will not comment on the numbers. I think then I leave to Michele. I will just stress the strategic fit. So we've been always declaring that our strategic direction were optical, were sport, were female. So this acquisition is perfectly fitting with the strategic direction SPY+ obviously is going to play together with Smith & Blenders and reinforcing the Safilo position in the sport outdoor arena with different position, different brand equity. But by sure, we are going to play a portfolio strategy there where Serengeti is going to play in the top end and going to play around high-quality lenses and high-quality product. I leave...

We don't want to comment in detail. It's still a bit premature. But overall, given also how the 2 brands play in the different channel and categories, so SPY+ a bit more outdoor and sport and Serengeti on the optical side, we expect the acquisition to be slightly dilutive at gross margin level, while fully compatible with our underlying EBITDA level. Of course, in the medium run, thanks to the potential synergy of the 2 brands plug in our infrastructure the acquisition will become, of course, accretive also bottom line level.

Next question is from Domenico Ghilotti, Equita.

I have a few questions. Well, first, let's start from the D2C. You were mentioning some signs of improvement. You have been referring also to Smith. I wonder if you can comment also on what's going on, on Blenders. Then a question on Inspecs in the sense that now -- so I'm trying to understand what is your strategy on the stake that you have. And on Polaroid, you did not mention the brand as a contributor to growth. So some color on your view on the performance and the opportunity that you see. And lastly, at this stage, probably also if you can elaborate on the synergies that you see from the acquisition of SPY+ and Serengeti. Both -- you mentioned both top line and cost synergies. So if you can give some color on the opportunity.

Okay. I will try to start and then eventually, I will ask Michele to comment or add some more info. Let's start from the D2C. I mean, as I said, net of the snow, the D2C business keeps being positive. And we -- to be honest, we see on bike and on eyewear that the trend there keeps being positive. So the arena, this is for Smith. Blenders, we are not yet there. We are improving compared to last year compared to the previous year. The dynamic of Blenders and Smith are completely different, and I try to build on. Smith plays performance, plays sports, plays high prices. And thanks to the strength of the brand, we have been not moving there in terms of pricing or discounts. So the strategy is let's keep building on the brand. So -- and I think the numbers are there are telling that we are in the right direction. On Blenders, we took a tough decision. We took the decision more than a year ago to don't follow the price war there. So we've been stick to what we think is the right position from Blenders means that in the short run, we have been suffering. We are still suffering. But there are clear signs that we see that our strategy is the right. So we will not move out of the strategy of Blenders. But on Blenders, we have done quite an important change in the vision last year, which is let's look to Blenders not anymore only like a D2C brand, but really a brand which fight or plays in different channels. So online remain -- will remain the core, the heart of the Blenders. But 1.5 years ago, we've been, thanks to the combination with Smith, launching Blenders in wholesale. And honestly, the rotation of the Blenders product in wholesale are really, really good, and the business in wholesale is growing. And then we have a small combination with few shops, which are more have a role of brand building. So Blenders is not yet out, but more we will move through 2026 and for the year to come, Blenders has not to be seen anymore like a brand which plays only D2C, is going to be a combination. So we will stick to the decision that we took last year, which means keep suffering a little bit on the D2C, but we see a trend there between the combination of the 3 channels I was mentioning before. I was not mentioning Polaroid because Polaroid is a little bit too early. Polaroid remains still a brand which is mainly Sun. So the game of the Sun has to start. We are now in May. So I mean, to talk about Sun in Q1 is a little bit too early. Polaroid, you know that we have done this agreement with HAL, which I think is working very well. We had the Madrid tournament which has been great, great success there in terms of activation, in terms of consumer reach, in terms of having a brand which is getting out from the crowd. Next week, we will have the tournament in Rome, which I think is going to be another great occasion. So I think Polaroid is moving there. I think the tennis, we were right in choosing the tennis. I mean, especially now if Sinner is going to win also Rome, I think they are expecting a huge reach there. We are working with Cobolli, which has a different position. So I think Polaroid is getting there, but we need to wait the Sun season because, again, Polaroid remains still mainly a Sun brand. On the M&A, I think it's -- I will leave to Michele on the cost. I think for me, let's start from why, which is I think is more important than anything else. We are looking for brands that have a strategic role to be played in the Safilo portfolio. So Serengeti will allow Safilo to play in the high end of the market, will play with high-quality lenses, will allow us to play and catch a part of the market that we were not able to cover with the current brand portfolio. So Serengeti is really reinforcing is a Sun brand. It will not necessarily stay only as a Sun brand but is a brand which has a story of lenses and is really filling a strategic gap into the Safilo portfolio. SPY+ is a different story. SPY+ is perfectly fitting with Smith and Blenders. So it's going to reinforce how we will go to the big American chain or how we can play in different geography because now we have 3 brands with 3 different execution, 3 different positions. So we can really play a portfolio, even stronger portfolio game into the sports channel. On the cost, I will...

Overall, I believe 2 source of synergies, top line synergies, cost synergies, equally important. I believe top line synergies will come by 2 key factors. On one side, leveraging the Safilo distribution, both on the sports outdoor channel and on the optical market. So leveraging our current commercial infrastructure. While secondly, on d2C, leveraging our capabilities especially in the state and also investment capacity when it comes to the online market. When it comes to cost, of course, COG synergies leveraging our scale and G&A saving, again, trying to integrate where possible everything that is not specific to those 2 brands. So I think that relates to back office and infrastructure.

Just to add not only back office infrastructure, it's D2C, is marketing, is media because, as I said, we will run a sport portfolio. And obviously, we will have common resources running the D2C, common knowledge, common contract with the provider, the savings in terms of resources on marketing, content creation. So there's going to be really run like a full portfolio into sports. And the other question on Inspecs, I think for me, our position in Inspecs is we think there is a strategic fit. We think that there are some assets into Inspecs, which can really add value to us. We are not in a rush. We will sit. We will discuss with the consortium at the right time. I mean, we are not on the rush. I think the strategic suite is there. It's very clear why we think that we can add value, but there is no rush. So at the right time, we will sit with the consortium, and I'm sure that we will find the best way forward.

Just also to add, the offer period will end mid-May.

Okay. And if I may, maybe just another question is, it's not clear to me what's going on, on the tariff side because sometimes we hear that you can ask for a refund. So you are mentioning that you are mitigating the tariffs so they are still ongoing. It's a situation that I don't understand anymore.

Yes. I mean let's start from Q1. I mean from Q1, I believe the picture is not very much different versus the exit of last year. So again, last year, tariff were not yet there. I mean the big increase came during the Liberation Day in April. So in Q1, we still have a pretty important headwind on tariff, again, as we commented, fully counterbalanced by the mitigation that we put in place from May-June last year. Then moving forward, I believe -- I mean, what we heard from the Superior Court decision is a clear opportunity for us. So there is a reduction, a reduction that is material. It's 10% duty reduction from both China and the other country issued -- translate in a clear tailwind for us from Q2 onwards. On the refund, it's not yet fully clear. I mean we are, of course, following tight all options. Of course, if refund come, it will be a one-off benefit for us clearly.

Next question is from Andrea Bonfa, Banca Akros.

Most of my questions have been answered. I was wondering if you can elaborate on the performance of Asia Pacific and in particular, of the approximately 14% decline at constant forex, how much was the impact of March on the key Gulf countries impacted by the war? And the second one, if you can give us some more details on the nonrecurring items which affected EBITDA?

Just I think you -- when you talk about Asia, you mean also Middle East, right? I'm assuming. So which is in our definition is in the rest of the world. Obviously, Middle East, to be honest, the situation is what you read. I mean, if you go to Dubai, assuming that you're able to fly there, there are not so many people around. So I think, obviously, Middle East, it's -- I mean, thanks to -- those for us, the weight is only 2% as we have been saying in previous call. But in this moment, talking with all the big chain and the geos there, I mean, the fundamental, there is no traffic. I mean some of our key customers had a drop of 80% of the traffic in the shop. So Middle East, the only thing is to say when this story is going to end or when the situation can allow people to fly over there. If we refer to Asia, different performance by country. Overall, let's be clear, we see a soft trading environment. Truth is also that if we compare to last year, more we move along the year, more we should have an easy comparison. But transparently, we see a market -- mainly, it's very interesting because if we look to Australia, Australia is going well. Carrera is doing well. We launched Stuart Weitzman. So I mean, honestly, we don't see any problem in Australia. The area which is depressing the overall Asia numbers are China per se, where we see really a little bit -- in that case, I think, the consumer is a bit really reluctant and is other distributors. So I would say Australia, well done, really no problem. Where we see struggling now is the distributor, but it's more because they are very cautious. So it's not -- no, we share with them sell-out data. It's not initial sellout data. It's more an issue that with all this uncertainty, they try to be very, very conservative on the buying side.

Yes. On the nonrecurring, we posted in Q1 EUR 2.9 million, roughly 50-50 between restructuring project in North America to drive efficiency and cost to support M&A projects.

Next question is from Cedric Rossi, Stifel.

I have 3 questions, please. The first one is -- so again, a follow-up on the acquisitions and regarding more specifically the supply chain. Could you just elaborate a little bit more on how SPY+ and Serengeti will fit within your supply chain footprint in terms of production, location and so on? The second question is regarding -- so of course -- so no direct impact from the Middle East conflict. But could you also confirm that you are not witnessing any negative pressure coming from freight cost or raw material cost on that side? And the third question is that since the marketing spend was relatively stable in Q1, you were guiding to a slight decrease over the year. So can we assume that probably the reduction will occur in the second half of the year since you would probably not change the marketing budget ahead of the sun peak season?

So I will start from the acquisition, the 2 brands. As I said, I think Michele was -- I think your question is specifically on the supply chain. I mean, obviously, the 2 brands are quite different. So if you start from SPY+, SPY+ is eyewear and is snow. Obviously, there, the synergies on the supply chain is 100%. Obviously, there are not so many supply on snow. We are talking about 4, 5 main supply globally, which obviously happen to be the same than Smith. So on SPY+, I would say that there is a 100% overlap means that we will plug into the Safilo supply chain, which it's almost the same. On SPY+, SPY+ is more eyewear. In that case, there are 2 components. One is -- sorry, one is the frame, the other are the lenses. Also there, the frames, I mean, we buy quite some frames. So obviously, it will get immediately into the Safilo supply chain, plug it in any kind of saving of an advantage. On lenses is where more we need to understand strategically because lenses is complex, is glass lens, is mineral lenses, is plastic lenses. But also there, to be honest, I see a plug-in in our sourcing. So the day after the closing, all the sourcing for the 2 brands will completely put into the Safilo organization. In terms of...

On the second question, yes, inflationary pressure, we are not yet seeing anything material. So Q1 has been pretty stable. Of course, the only relevant area for us are the logistic costs that you were mentioning. This will highly depend on how long -- of course, oil price will continue to stay at the level it is today. For us, logistic costs represent roughly 5% on sales of the total cost base. So all in all, it can become -- again, if the situation persists as it is a headwind from Q2 onward, but it will not be a material impact for us. On the marketing, I think the good thing of how we run the business, we are quite flexible. There is no intention. And by the way, we are not going to slow down on some of the core brands, I mean, especially Carrera, Polaroid, David Beckham, BOSS and Tommy. The only thing we have been doing, obviously, considering the situation in the Middle East, obviously, we have been prudent in what to spend there, but we are ready to push the bottom as soon as the situation will improve. But on the other side, what we have been doing always in a very careful way, we are reshuffling some investment on the market and on the brand where we see that there is a grip like Carrera North America or Carrera BOSS in France or David Beckham and Carrera and Carrera in Italy. So I mean, we are very, very flexible. The only decision we have taken so far, obviously is slow down in the investment in the Middle East because there is no consumer, no customer there, was not making sense to spend money. But we are ready already with the plan. As soon as the situation will improve, we will start re-plugging in.

Next question is from Harrison Woodin-Lygo, Berenberg.

Three questions, if I may. I'm just wondering, are there any -- I understand it's a small share of your sales, but it's more the signal. Are there any signs of acceleration in demand or sell-through for the Safilo Alexa Smart Glasses? And then secondly, on the Winter Olympics, did the Winter Olympics provide any noticeable benefit to trading in Q1, especially because it was on your home turf? And then finally, a follow-up on the SPY+ supply chain. Will Smith's Utah manufacturing facility also be used for production, as in are you going to bring things in-house following the acquisition? That's it.

Just I will start from the comment on the winter. We saw some positive effect for the European bit. By the way, I think with Smith also sponsoring a few outlets, we won quite some set of metals. The effect we saw was on the Smith snow Europe, but honestly is not dramatically there. I haven't catch so well the question on the Smart Glasses. Can you just repeat that because.

Yes. It's just I'm trying to understand if there's been any acceleration in demand for the Alexa Smart Glasses?

I think it's -- look, I think we are -- I think, first of all, let's say like this, there's been an important step with Alexa glass. So Alexa glass has been rolled out in the full U.S. also they are started rolling in Europe, which gives even more solid base. I think, as I said before, we are working. I think that we are getting slowly closer to the right time. But yes, we are fully on it. Time is coming more than in the past. On SPY+, so when it comes to goggle, of course, there is the opportunity to evaluate potential in-sourcing in our Q3 plans. This will highly depend on the technological element of every single product. So we'll check exactly what can be in or not. Overall, the price point of SPY+ probably will indicate a mix between Asia and U.S. sourcing overall moving forward.

Next question is from Domenico Ghilotti, Equita.

My last 2 questions. First is on the price versus volumes contribution in Q1 top line. And then just a clarification when you say that you had a stable cost compared to last year. So are you referring in absolute value or as a percentage of sales. So it is a matter of stability [indiscernible]

In terms of volumes, I mean, volumes were down low single digits in the quarter, more or less the same in Europe and North America. When it comes to cost comment was mostly related to incidental sales. So as you can see, I mean, the gross margin and EBITDA progress versus a year ago is more or less the same.

Next question is from Niccolo Storer, Kepler Cheuvreux.

It's a very quick one. Can you maybe help us understanding again on the 160 bps EBITDA improvement, which was the FX impact. If I understand well, you said before that was much less than that at the gross margin level, but can you maybe quantify?

Yes, that's what -- I mean on gross margin, it is roughly 70 basis points forex tailwind, while it's roughly 30 basis points at the EBITDA level. Yes.

And the remaining is operating leverage basically?

Indeed, yes, at cost on forex, yes, slightly positive. Rest is fully coming of course from the gross margin.

[Operator Instructions] There are no more questions registered at this time.

Okay. So thanks very much.

Thank you.

Enjoy the rest of the evening. Thanks very much. Bye-bye. Thanks. Bye.

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