Safilo stock recovers from Armani contract loss

MILAN - Shares in Italy's Safilo bounced back from the loss of its contract to make Armani-branded eyewear, with investors reassured the announcement marked an end to uncertainty over the lucrative deal.


Safilo lowered its medium-term targets on Wednesday after losing the licence from 2013 to bigger rival Luxottica, the world's biggest premium eyewear maker.

Safilo said it was confident that it could meet its medium-term business and economic targets by developing its current portfolio, launching new Safilo brands and signing new licences.

By 1537 GMT Safilo shares had come off a 26-month low to rise 9.7 percent after being suspended limit up, reversing initial sharp losses and an 8.3 percent fall on Tuesday.

An analyst said in the long term the company can expand. On Monday it signed a multi-year licensing deal with French luxury group LVMH brand Celine.

Safilo's announcement ended uncertainty over the renewal of the Armani licence, which Luxottica first won at the end of the 1980s before losing it to Safilo.

Luxottica's shares were up 1.8 percent, outperforming a flat Milan's blue-chip index on a crucial day for the unveiling of Italy's new government led by Mario Monti.

"The market does not expect any other bad news for Safilo now," said a luxury analyst who asked not to be named.

In 2010 Armani sunglasses represented around 15 percent of Safilo's annual sales of 1.08 billion euros and the group said it was cutting its 2015 net sales target by 150 million to 200 million euros due to the loss of the licence.

It also lowered its core earnings margin target for 2015 to 13.5 percent from a previous 15 percent.

UNCERTAINTY OVER

Safilo warned at the end of September the outcome of ongoing negotiations with Armani was uncertain.

"The announcement ends a period of uncertainty over the renewal, although the outcome was expected," said a Milan-based analyst who asked not to be named.

Media reports speculated Safilo's loss would benefit industry leader Luxottica, which an analyst said can offer luxury brand Armani more outlets for sales of premium eyewear.

Group head Giorgio Armani is Luxottica's second biggest shareholder with a 4.9 percent stake. The designer had first debuted in fashion eyewear with Luxottica, prompting other luxury brands to follow.

"Luxottica has taken the (Armani) licence. It is not that relevant for Luxottica's share price and a 2 percent rise has more than incorporated it," another Milan analyst said. (Additional reporting by Valentina Za and Nigel Tutt; Editing by David Cowell)

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