Q2 2026 Safilo Group SpA Earnings Call
Speaker #2: Let him play with crazy. I don't care about that. Put your hands in my hand, baby. Don't ever look back. Got the world around us.
Speaker #2: Just fall apart. Baby, we can make it if we're heart to heart.
Speaker #1: And we can build this thing together, standing strong forever. Nothing's gonna stop us now. And if this world runs out of lovers, we'll still have each other.
Speaker #1: Nothing's going to stop us. Nothing's going to stop us now.
Speaker #2: I forgot I found you. I'm not going to lose you.
Speaker #3: Good evening and welcome to the Safilo Group first half 2026 results conference call. This call may contain forward-looking statements related to future events and operating, economic, and financial results for the Safilo Group.
Speaker #3: Such forecasts, due to their nature, imply a component of risk and uncertainty, as they depend on the occurrence of certain future events and developments.
Speaker #3: The actual results may therefore vary, even significantly, from 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.
Speaker #3: I will now pass the call over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.
Speaker #4: Thanks. Thanks very much. Good evening. Good evening, everyone, and thank you for joining us today for Safilo's first half 2026 results. After a resilient start to the year, the second quarter developed within a softer demand environment across our core markets.
Speaker #4: A backdrop which inevitably weighed on our sales performance in the period. What I would like you to take away this evening is how we responded to this situation.
Speaker #4: In a more demanding market, we stayed firmly focused on the leaders under our control. We protected the quality of our business through disciplined commercial execution.
Speaker #4: A firewall price mix and continued cost control—this is the same approach that has guided us over the past few years and has once again delivered what matters most.
Speaker #4: Another quarter of solid margin expansion and strong cash generation, which further reinforces our financial flexibility. That flexibility is precisely what allowed us to keep investing in our strategic priorities, even in a less supportive environment.
Speaker #4: Let me briefly frame the highlights of this first half before handing over to Michele for the details. In the first quarter, net sales had grown by 0.4% at constant exchange rates, before customers in North America and in Europe turned more cautious.
Speaker #4: On ordering, leading our sales to a mid-single-digit decline in the second quarter. We are not downplaying that substance, but we are managing it with discipline, prioritizing the quality of our business.
Speaker #4: Underlying our performance is the strength of our profitability. We delivered further margin expansion, supported by structural improvements we have built into the business and by a one-time benefit from tariff refunds.
Speaker #4: Which we will cover later on. To finish, let's talk about cash. Our solid cash generation allowed us to fully fund our strategic investments with our own resources, including the acquisition of SPY and Serengeti, which was completed immediately after the end of the quarter.
Speaker #4: And in June, we also launched a new buyback program, consistent with our commitment to efficient and disciplined capital allocation. With that said, let me hand over to Michele, who will take you through the results in more detail.
Speaker #4: Michele.
Speaker #5: Thank you, Angelo, and good evening, everyone. Let me start from the top line and from the dynamics behind it. In the second quarter, net sales were down 4.5% at constant exchange rates.
Speaker #5: Bringing the first half to a decline of 1.9%. One point worth flagging is that, after the significant currency headwind we faced in the first quarter, the impact of foreign exchange rates is considerably less in the second.
Speaker #5: So, reported cost and currency figures are now much closer together. The quarter was affected by a clearly weaker market environment that set in from late March and ran through April and May.
Speaker #5: Before, we saw some signs of improvement in June. This is an important point. The softness was concentrated, and the quarter ended on a somewhat better note.
Speaker #5: By category, the partners were consistent with the nature of our product. Sunglasses, being the most discretionary purchase, were the most affected. While in prescription frames, we saw some deceleration compared with prior trends.
Speaker #5: What we did see, and what plays to our portfolio, was a degree of polarization in certain markets, where premium and luxury proved generally more resilient. Within this context, Carrera, Smith, David Beckham, and Kate Spade all confirmed solid momentum.
Speaker #5: By region, starting with Europe and then moving across our other markets. In Europe, second quarter sales were down 2.7% at constant exchange rates, and essentially stable over the half year at minus 0.5%.
Speaker #5: The quarter was mainly shaped by more challenging trading conditions in France and Germany, though for different reasons. In France, the optical market declined broadly across distribution channels and product categories, reflecting a more uncertain business environment.
Speaker #5: This was also compounded by an unfavorable calendar effect, which showed fewer business days in May. In Germany, our sales softened, particularly in the internet pure player channel, while our performance with independent opticians held up better.
Speaker #5: Our sales told a positive story, continuing to grow in Eastern Europe, in particular in Turkey and Poland, as well as in Italy, where sustained tourist flow supported the optician business across both prescription frames and sunglasses.
Speaker #5: In the Italian market, the growth of Carrera, David Beckham, Polaroid, Tommy Hilfiger, Boss, and Marc Jacobs, together with the launch of Victoria Beckham, more than offset the deconsolidation effect from the disposal of Lenti, a small headwind seizing from the third quarter, and the reduction in the product supply business.
Speaker #5: In North America, second quarter sales were down 4.4% at cost and exchange rates, with the half year at minus 0.8%. The key factor in the quarter was the independent optician channel.
Speaker #5: The market there was weak, particularly in May, when the overall eyewear business recorded a high single-digit decline. Department stores and retail chains were instead more supportive, held by stronger demand from premium brands, particularly in June.
Speaker #5: By brand, Kate Spade, Carrera, David Beckham, Marc Jacobs, and Carolina Herrera outperformed, while Blenders remained in negative territory in a still difficult environment.
Speaker #5: In the sport channel, Smith delivered a positive performance thanks to a solid bike business across Boss, both direct to consumer and sports shops, and then strength helped it offset the preorder the soft preorder of winter sport product where the previous season has been uneven.
Speaker #5: In Asia-Pacific, where second quarter sales were down 17.7% at constant exchange rate, performance was held back by a combination of factors. A particularly demanding comparison base, as the region was up 11.5% in the second quarter of 2025.
Speaker #5: Soft market condition in China, and there is scheduling of the Xiamen optical fair from its usual timing later in the year to June, which resulted in a weaker than expected customer attendance and reduced commercial traction during the period.
Speaker #5: On the positive side, business in Australia continues to grow, supported by the good performance of Smith and Carrera. In the rest of the world, second quarter sales were down 5.1% at constant exchange rates.
Speaker #5: We continue to feel the impact of the conflict in the Middle East, but the region gradually stabilized as the quarter went on. Elsewhere, India improved, supported by a more focused go-to-market approach and a trend strengthened commercial organization.
Speaker #5: While Latin America stayed muted, with gross steel concentrated in the lower price segment.
Speaker #1: Before I turn to the individual lines of the P&L, let me briefly address the one-time item that supported our performance this half-year and helps explain the bridge to the underlying trends.
Speaker #1: Following the February 2026 Supreme Court ruling on the YEPA tariff and the refund mechanisms subsequently implemented by the US customs authority, we filed claims for duty previously paid in the United States, and at the end of the quarter, we received refunds for €22.2 million. Of this amount, €20 million was recognized in the P&L, mostly as a reduction of cost of goods sold.
Speaker #1: While the remaining €2.2 million was recorded as a reduction to inventory at the end of June, this benefit will be partially used in the coming quarter for additional new investment to further strengthen the Group's operating infrastructure and accelerate marketing activities across key markets and brands.
Speaker #1: Turning now to our gross margin, this rose 11.5 percentage points in the second quarter to 73.1%. Of this increase, 8 points relate to the tariff refund, while 3.5 points came from improvement in the underlying business, driven by a favorable price-mix effect.
Speaker #1: There were three main contributors. First, we benefited from the lower weight of diluted business following the deconsolidation of Lenti and the reduction in the product supply business I mentioned earlier.
Speaker #1: Second, the pricing action undertaken last year, and third, we benefited from a more favorable brand and channel mix, reflecting the greater resilience of our premium brand and the positive performance of higher-margin channels.
Speaker #1: In this respect, I would like to highlight that the online channel remained a positive contributor in both the second quarter and the first half, supported by the continued strong performance of Smith's D2C business and by the growth in the internet pure-player channel across most markets.
Speaker #1: With Germany being the only exception, this factor was further supported by a positive year-on-year impact from lower tariffs and from a more favorable sourcing profile.
Speaker #1: As the actions taken over the last 18 months to diversify production outside China continue to deliver benefits, for the first half, gross margin was up 6.1 percentage points to 67.2%.
Speaker #1: Here, €3.8 million related to the refund and €2.3 million to the structural factor I’ve just mentioned. A continued favorable price/mix effect, the positive currency effect concentrated in the first quarter, and the reduced impact of tariffs from the second quarter.
Speaker #1: The same dynamic carries down to the operating level. In the second quarter, adjusted EBITDA was €49 million, up 75.2% year-on-year, with the margin reaching 20.5%, an increase of 9.4 percentage points.
Speaker #1: For the first half, adjusted EBITDA was €86 million, with the margin at 16.8%, up 5.2 percentage points. Excluding the impact of the refunds, the adjusted EBITDA margin was 12.1% in the second quarter, up 100 basis points, and 12.9% in the first half, up 130 basis points.
Speaker #1: This improvement was achieved while absorbing lower operating leverage on softer sales, cost inflation, and continuing investment behind our brands. Moving further down the P&L, the adjusted operating profit for the first half was €68.3 million, with the margin up 5.2 percentage points to 13.3%, benefiting from the same dynamics that supported EBITDA.
Speaker #1: Adjusted group net profit reached €49.4 million, up almost 47%, with the net margin improving by around 3.3 percentage points to 9.6%. Below the operating line, financial charges rose to €5.6 million from €2.9 million, merely reflecting a neutral impact from forex exchange differences compared to the net positive effect recorded in the first half of last year.
Speaker #1: Finally, we booked a €0.8 million loss on the option related to non-controlling interest, following the final adjustment on the purchase of the remaining 20% of Blenders, which brought us to full ownership of the brand.
Speaker #1: Excluding the impact of the refunds, the adjusted group net margin in the first semester was up 30 basis points, from 6.3% to 6.6%. Turning to cash, the half year again confirmed the strength of our model: free cash flow was €23.8 million in the quarter and €36.4 million in the first half, compared with €43.5 million a year ago, when the figure had benefited from the proceeds of the Lenti disposal.
Speaker #1: Cash flow from operating activities rose markedly to €78.8 million from €40.7 million, supported by a solid economic performance and by the tariff refund.
Speaker #1: During the period, we also deployed capital into our strategic priorities: €5 million for the additional share in Inspects in Q1, €21.5 million for the acquisition of SPY and Serengeti, and €6.3 million for the remaining 20% of Blenders.
Speaker #1: On a normalized basis, excluding both the tariff refunds and the strategic investment, free cash flow amounted to €29.4 million in the second quarter of 2026 and €46.9 million in the first half of 2026, compared to €17.2 million and €31.6 million in the corresponding periods of 2025.
Speaker #1: As a result, the debt fell to €5.4 million at the end of June, equivalent to a positive net financial position of €29.6 million pre-FRX16, already incorporating €2.4 million of share purchases under the new program.
Speaker #1: This compares with €46.1 million at the end of 2025 and €42.4 million at the end of June last year. With that, let me hand it back to Angelo.
Speaker #2: Thank you, Michele. Let me close by returning to the two acquisitions we completed on July 1st, because they capture well how we intend to create value.
Speaker #2: SPY and Serengeti are two iconic brands, highly complementary to our existing portfolio, and they expand our reach across two attractive spaces. Serengeti is our gateway to technical luxury, with an authentic American heritage and a strong reputation for premium, high-quality lenses.
Speaker #2: SPY brings California action sport credibility, reinforcing our sport and outdoor ecosystem alongside Smith and Blenders. Importantly, we funded both entirely with our own resources, fully consistent with the disciplined approach to capital allocation that has defined our decisions during the last years.
Speaker #2: So let me leave you with this. The second quarter was, without any doubt, more demanding, and we are not underestimating the environment. But we manage it in the way we believe a quality business should—protecting margin, generating cash, and investing selectively for the long term.
Speaker #2: As we look ahead, the positive sign observed toward the end of the second quarter and at the beginning of the third gives us greater confidence for the second half.
Speaker #2: We remain focused on capturing the opportunities that may arise from a gradual recovery in market trends. Thank you for your attention. We are now ready to take your questions.
Speaker #1: Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone cell phone.
Speaker #1: To remove your question, please press star and two. We will pause momentarily while participants join the queue. The first question comes from Oriana Cardani of Intesa Sanpaolo.
Speaker #3: Yes, good evening. Thank you for taking my three questions. The first question is on the gross margin in the second half of the year.
Speaker #3: Do you expect tariff refunds also in H2? If so, can you provide guidance? And excluding any refunds, do you see room for an increase in gross margin compared to the second part of the year?
Speaker #3: And of what magnitude? The second question is on the future investments in infrastructure and marketing activities made possible by cash from refunds. What portion of the €20 million in refunds will be allocated to these new investments?
Speaker #3: And over what timeframe? And can you provide some color on this infrastructure and the brands which will be involved? And the third question is on the outlook.
Speaker #3: Sorry, on the current trade, can you give details of the sectors driving the good exit rate of the second quarter? And some comment on July performance?
Speaker #3: Thank you very much.
Speaker #4: Thanks, Oriana. So, I'm starting on the first question related to gross margin. Overall, we expect that some of the benefits we saw in H1 should naturally become a bit less pronounced.
Speaker #4: The positive impact from the consolidation of Lenti and the pricing action implemented, I mean, around May or June last year, are now fully in the base and therefore won't provide the same benefits, roughly, that we have seen in the first half.
Speaker #4: On the other hand, we will continue to see lower tariffs, and I would say very much consistent with what we have been experiencing in Q2.
Speaker #4: Of course, assuming that the current framework will remain unchanged. On tariffs specifically, the overall refund process has not yet been completed. But we would expect that any further amount would be fairly residual compared to what we have already recognized in the first half.
Speaker #2: Okay, thanks, Michele. So, answering question number two about future investments, we are planning to invest approximately one-third of the tariffs refunds benefit. As you said, two areas.
Speaker #2: One is infrastructure, which is mainly IT and digital. We are going to accelerate some investment on the Smith D2C, on the RX. So it’s really related to the area of digital IT, mainly in the sport area.
Speaker #2: The other part of the investment is media support behind our priority brands. So, it's going to be behind Smith, behind Carrera, and behind David Beckham.
Speaker #2: So, media investment—we think that we may have some opportunity in Q4 where we can boost some marketing support, with two aims. From one side, obviously to support and make the brand bigger.
Speaker #2: On the other side, also to support additional traffic and some additional sell-out with some of our main customers. So my main focus is behind the priority brands with the priority customers.
Speaker #2: Going back to the last question regarding the current trading, again, we need to take all these things with a measured emphasis, because we are talking about just a few weeks.
Speaker #2: But for sure, we see that July is providing a confirmation that the business is exiting the second quarter on a better trajectory than what we saw in April and May.
Speaker #2: Obviously, this is an encouraging sign because we see that both customers—customers are getting less nervous somehow. They are getting used to this new normality.
Speaker #2: So, we see signs from the customer, and also on our D2C—mainly in North America, we see positive signs on the Smith D2C. So, I would say that, directionally, by geography, we could expect a recovery from the Q2 slowdown.
Speaker #2: And this recovery will be more visible in North America compared to Europe. In North America, we see we are getting some more positive signs.
Speaker #2: In Europe, the picture remains a little bit mixed, with France definitely at this moment being the market which is suffering more. The second market is Germany, mainly in the independent segment—not so much in the big chains, but mainly among independents.
Speaker #2: Where, on the other side, South Europe, Italy, Iberia, we see clear signs. So we look to the H2, it should be better compared to H1, mainly in North America, if I should summarize.
Speaker #3: Thank you very much.
Speaker #1: The next question is from Harrison Wooting-Lego of Berenberg.
Speaker #5: Hi there, good afternoon. First of all, congratulations on another quarter of margin expansion, underlying ex-tariff refund. Building on that, could you guide to any operating cost levers you can pull going forward, or is margin expansion really just reliant on gross margin, given the limited impact of operating leverage?
Speaker #5: And then secondly, a question on Blenders. So, Blenders has been weak for a while. What do you think can help to turn this brand around? And if you expect it to continue to remain weak, would you consider a disposal?
Speaker #4: Okay, starting from the first point. Of course, Q2 operating leverage has been negative. Of course, it has been fully offset, even more so, by the gross margin improvement.
Speaker #4: As I briefly commented before, we would see the gross margin less supportive in H2, but, of course, still positive, confirming some of the underlying drivers we have seen in Q2.
Speaker #4: And on the other side, of course, the operating leverage will highly depend on the top line evolution, assuming a better evolution of sales starting from Q3.
Speaker #4: We should start seeing, eventually from the second part of the semester, a more supportive operating leverage.
Speaker #2: On your question on Blenders, yes, I think Blenders is still not where it should be. But I think the fact that the decision that we are now becoming 100% owner—so that Chase, as we have commonly decided, is leaving—means that we can run the company in a more integrated way compared to when it was in the Safilo portfolio.
Speaker #2: So there is no intention to take different decisions. I think that, especially with the new—having a spy—I think now we are going to play more of a sort of piano strategy in the sport arena.
Speaker #2: Blenders covering more the lifestyle. Spy between Blenders and Smith, with a sort of sport dimension but with a very strong California angle. And Smith on the top, with a more performance angle.
Speaker #2: So I think that, step by step, with the right timing, we took the decision to not follow some of the very aggressive price strategies that other competitors have done.
Speaker #2: We have decided not to follow that. But, I mean, there is absolutely a role for blenders, especially in the new, stronger brand portfolio in sport.
Speaker #5: Okay, that's clear. I was wondering, could I ask a quick follow-up on the operating expenses, just on marketing? So, you've said that you're going to continue to invest.
Speaker #5: Previously, you said that marketing as a share of revenues is sort of at its peak. Now, how do we expect this to evolve from here?
Speaker #5: Do you still see it at its peak and it's going to taper, or are you going to continue driving close to 13% of revenues?
Speaker #2: But I mean, the marketing, the additional investment is going to be a one-off. It's not going to be sort of in the base.
Speaker #2: So it's not going to be in the structure of the base. So that's not going to be the effect in 2027. We think that there are some market dynamics and some dynamics on some brands where we felt that it could be a good decision to invest this year, but it's not going to be in the base.
Speaker #2: So 2027 should be seen with a normal base, and it's not going to be out of there.
Speaker #5: Yeah, that's great. Thank you.
Speaker #1: The next question is from Domenico Ghillotti of Equita.
Speaker #6: Good afternoon. A few questions. I'm just starting to get a better understanding. When you say June, July—so improving—we can assume that there was some positive growth.
Speaker #6: So, you were back on positive growth or just improving compared to the first two months. Second, I'm interested in understanding the European underlying performance in the second quarter. You were mentioning also Lenti and the SPPA.
Speaker #6: So, if we can assume that the underlying has been more or less flat. And third, on the price strategy, because clearly last year you raised prices because you had tariffs.
Speaker #6: So the clients absorbed the higher prices. I wonder if today there is a strategy to give back some of these tariff refunds to clients—not just through the marketing investments, as you mentioned, but also since the price environment will be more deflationary.
Speaker #2: Okay, I'll go on. In answer to what we see: I mean, the two months where we really saw the dip in terms of the softness of the market have been April, May, and the first half of June.
Speaker #2: So, that was where we saw the biggest slowdown of the market as of the second part of June. In the first weeks of July, we definitely see an improvement in terms of customer behavior and in terms of consumer reaction.
Speaker #2: So, especially looking to North America, I think we should expect that not only the numbers are going to be better than Q2, but North America should be positive.
Speaker #2: We see a faster change in demand mainly in North America, and less in Europe.
Speaker #4: Specifically on Europe, Q2, if you exclude both the deconsolidation effect of Lenti and the reduction on the product supply business, we see a substantially flattish performance in the key markets in the region.
Speaker #2: Yes, answering your question on the tariff, I mean the pricing strategy, it's always really linked to the market dynamics and to the inflationary environment by country.
Speaker #2: Obviously, we are going to use this part of the fund to reinforce our brands and to reinforce traffic and activity, which are going to be more related to the customer, to the traffic.
Speaker #2: But we have no plan to intervene directly with the customers. That's not the strategy. The strategy is to help the customer as much as we can in sell-out, in traffic, in getting a stronger brand, but that's it.
Speaker #6: And, if I may, just an additional point on the gross margin for the second half: should we expect that the M&A, which is just starting to consolidate, is not dilutive on gross margin, at least?
Speaker #6: Is it fair?
Speaker #4: I mean, as we commented earlier, the two businesses—I mean, the two brands—that we acquired are likely dilutive from a gross margin standpoint, but given the magnitude, we don't expect any material impact on our H2 gross margin.
Speaker #4: Of course, as a percentage of sales. While on the other side, the overall business profitability and contribution is very much consistent, on par with our underlying organic business.
Speaker #4: So, we don't expect any dilution from the integration of the acquired brands.
Speaker #6: And my last question is actually on the free cash flow, which has been extremely strong even net of the tariff refund. Should I be aware of any dynamics in the working capital? If I'm not wrong, it was even slightly positive in the second quarter, so I'm trying to understand if this is the impact of something temporary or really structural?
Speaker #4: No, I mean, of course, there is nothing one-off or temporary, other than what we already commented on regarding tariffs and investments. So, the overall free cash flow we are generating—the almost €47 million in the semester—is our organic cash generation.
Speaker #4: Of course, this has been benefiting from a pretty sizable reduction in inventory. Of course, reduction of inventory is also linked to the overall dynamics of sales.
Speaker #4: So, we should expect that, once eventually sales turn to a more favorable dynamic, we will see a build-back of inventory in the coming quarters.
Speaker #4: But overall, we should continue to see free cash flow generation in the second half very much consistent with what we have been experiencing in the last quarters.
Speaker #6: Okay. Thank you.
Speaker #1: The next question comes from Andrea Bonfa of Banca Akros.
Speaker #7: Hello, good afternoon. Thank you for taking my questions. Actually, most of them have already been answered, but I have some if you want further clarification.
Speaker #7: One is on the €22 million that you say benefited from the duties. The €2 million that you mentioned related to inventories—did they go through also the P&L, or did they go through the balance sheet?
Speaker #7: Just a clarification on that. And finally, what's the state of the art with Inspect's stake? If you can just update any color on that?
Speaker #7: Thank you very much.
Speaker #4: On the tariff, the $2.2 million has not been taken to the P&L; it has been reported as a reduction of inventory. Of course, it will flow into the P&L once the goods are sold.
Speaker #4: So, potentially in the coming quarters.
Speaker #2: On the inspects, I mean, no news. We have a constructive relationship between shareholders, having us 30% of the company. But no news for that.
Speaker #2: No news for the time being.
Speaker #7: Thank you very much.
Speaker #1: As a reminder, if you wish to register for a question, please press star and one on your touch-tone telephone. The next question comes from Niccolò Storer of Kepler Cheuvreux.
Speaker #6: Thanks for taking my question. Actually, a quick one. Basically, further to Oriana's first question about the gross margin evolution, I was wondering if you can help quantify, let's say, the contribution from the four drivers you mentioned—namely, the lower weight of dilutive businesses, pricing, mix, and lower tariff—to the 350-basis-point improvement, net of refund, in Q2.
Speaker #6: Thank you.
Speaker #4: Yeah. I mean, overall, as you said, the underlying gross margin improved 350 basis points in the quarter. Out of that, 150 basis points came from price/mix, more or less equally distributed across the three drivers we mentioned.
Speaker #4: So, on one side, the lower diluted business, the pricing action, and the supporting mix. While tariffs—so the lower tariff—and let's not forget also the better and more favorable sourcing profile contributed for approximately 100 basis points in the quarter.
Speaker #6: No, sorry, say it again. It's $100 from lower tariffs. You said $150 or $250 from the other.
Speaker #4: So, it's 100 from lower tariff, 250 from price mix. The 250 from price mix is more or less equally, yeah, 250 equally split among the three drivers we mentioned.
Speaker #6: Okay. Thank you.
Speaker #1: For any further questions, please press *1 on your touch-tone telephone. Ms. Ferrante, gentlemen, there are no more questions registered at this time.
Speaker #4: Thank you very much. Thanks so much to everyone. And for those going on holiday, have a good holiday. Thank you.
Speaker #7: Thank you. Have a nice day. Thanks very much.
Speaker #1: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
