Safilo Group Aktie

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. 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 very much. Good evening, good evening, everyone, and thank you for joining us today for the Safilo's' first half 2026 results. After a resilient start of the year, the second quarter developed within a softer demand environment across our core markets, 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. In a more demanding market, we stayed firmly focused on the levers under our control. We protected the quality of our business through disciplined commercial execution, a favorable price/mix and continued cost control.

This is the same approach that has guided us over the past few years and once again deliver where it matters most, another quarter of solid margin expansion and strong cash generation, which further reinforces our financial flexibility. That flexibility is precisely what allow us to keep investing in our strategic priorities even in a less supportive environment.

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 rate before customers in North America and in Europe turned more cautious on ordering, leading our sales to a mid-single-digit decline in the second quarter. We are not downplaying that softness, but we are managing it with discipline, prioritizing the quality of our business. To be underlined is the strength of our profitability. We delivered further margin expansion, supported by structural improvements we have built into the business and by a onetime benefit from tariff refunds, 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. 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. Michele?

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, 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 rate eased considerably in the second. So reported and constant currency figure are now much closer together.

The quarter was affected by a clearly weaker market environment that set in from late March and run through April and May before we saw some sign of improvement in June. This is an important point. The softness was concentrated and the quarter ended on somewhat better note. By category, the partner were consistent with the nature of our product. Sunglasses being the most discretionary purchase were the most affected, while in prescription frame, we saw some deceleration compared with prior trends. 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. And within this context, Carrera, Smith, David Becker and Kate Spade all confirmed solid momentum.

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, essentially stable over the half year at minus 0.5%. The quarter was mainly shaped by a more challenging trading condition in France and Germany, though for different reasons. In France, the optical market declined broadly across distribution channel and product categories, reflecting a more uncertain business environment. This was also compounded by an unfavorable calendar effect with 2 fewer business days in May.

In Germany, our sales softened, particularly in the Internet pure player channel, while our performance with independent optician held up better. Our sales told a positive story, continue to grow in Eastern Europe, in particular in Turkey and Poland as well as in Italy, where sustained tourist flow supported optician business across both prescription frame and sunglasses. In the Italian market, the growth of Carrera, David Beckham, Polaroid, Tommy Hilfiger, Boss and Mar 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.

In North America, second quarter sales were down 4.4% at constant exchange rates with the half year at minus 0.8%. The key factor in the quarter was the independent optician channel. The market there was weak, particularly in May, when the overall eyewear business recorded a high single-digit decline. Department store and retail chain were instead more supportive, helped by stronger demand from premium brands, particularly in June. By brand, Kate Spade, Carrera, David Becka, Marc Jacobs and Carolina Herrera outperformed, while Blenders remained in the negative territory in a still difficult environment. In the sports channels, SMI delivered a positive performance, thanks to a solid bike business across both direct-to-consumer and sport shops and the strength helped it offset the preorder -- the soft preorder of winter sport product where the previous season has been uneven.

In Asia Pacific, where second quarter sales were down 17.7% at constant exchange rates, 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, soft market condition in China and the rescheduling 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. On the positive side, business in Australia continued to grow, supported by the good performance of Smith and Carrera.

In the Rest of World, second quarter sales were down 5.1% at constant exchange rates. 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 strengthened commercial organization, while Latin America stayed muted with growth still concentrated in the lower-price segment.

Before I turn to the individual lines of the P&L, let me briefly address the onetime item that supported our performance this half year and helps explain the bridge to the underlying trends. Following the February 2026 Supreme Court ruling on the EPA tariff and the refund mechanism subsequently implemented by the U.S. custom authority, we filed claims for duty previously paid in the United States. And at the end of the quarter, we received refunds for EUR 22.2 million. Of this amount, EUR 20 million was recognized in the P&L, mostly as a reduction of cost of goods sold, while the remaining EUR 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 operating infrastructure and accelerate marketing activities across key markets and brands.

Turning now to our gross margin. This rose 11.5 percentage points in the second quarter to 73.1% -- of this increase, 8 points related to the tariff refund, while 3.5 points came from improvement in the underlying business, driven by favorable price/mix effect. Three were the main contributors. First, we benefited from the lower weight of dilutive business following the deconsolidation of Lenti and the reduction in the product supply business I mentioned earlier. 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 channel.

In this respect, I would highlight the online channel that remained positive -- a positive contributor in both the second quarter and the first half, supported by the continued strong performance of Smith D2C business and by the growth in the Internet pure player channel across most markets, with Germany being the only exception. These factors were further supported by a positive year-on-year impact from lower tariffs and from a more favorable sourcing profile as the action taken over the last 18 months to diversify production outside China continue to deliver benefit.

For the first half, gross margin was up 6.1 percentage points to 67.2%. Here, 3.8 points related to the refund and 2.3 points 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 tariff from the second quarter. The same dynamic carries down to the operating level. In the second quarter, adjusted EBITDA was EUR 49 million, up 75.2% year-on-year with the margin reaching 20.5%, an increase of 9.4 percentage points.

For the first half, adjusted EBITDA was EUR 86 million with a 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. This improvement was achieved while absorbing lower operating leverage on softer sales, cost inflation and continued investment behind our brands.

Moving further down the P&L, the adjusted operating profit for the first half was EUR 68.3 million, with the margin up 5.2 percentage points to 13.3%, benefiting from the same dynamics that supported EBITDA. Adjusted group net profit reached EUR 49.4 million, up almost 47%, with the net margin improving by around 3.3% points to 9.6%. Below the operating line, net financial charges rose to EUR 5.6 million from EUR 2.9 million, mainly reflecting a neutral impact from Forex exchange difference compared to the net positive effect recorded in the first half of last year.

Finally, we booked EUR 0.8 million loss on the option related to non-controlling interest following the final adjustment on the purchase of the remaining 20% of Blender, which brought us to full ownership of the brand. 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, where the half year again confirmed the strength of our model. Free cash flow was EUR 23.8 million in the quarter and EUR 36.4 million in the first half compared with EUR 43.5 million a year ago when the figure had benefited from the proceeds of the Lenti disposal. Cash flow from operating activities rose markedly to EUR 78.8 million from EUR 40.7 million, supported by a solid economic performance and by the tariff refund.

During the period, we also deployed capital into our strategic priorities, EUR 5 million for the additional share inspects in Q1, EUR 21.5 million for the acquisition of SPY+ and Serengeti, and EUR 6.3 million for the remaining 20% of Blenders. On a normalized basis, excluding both the tariff refunds and the strategic investment, free cash flow amounted to EUR 29.4 million in the second quarter of 2026 and EUR 46.9 million in the first half of 2026 compared to EUR 17.2 million and EUR 31.6 million in the corresponding period of 2025. As a result, net debt fell to EUR 5.4 million at the end of June, equivalent to a positive net financial position of EUR 29.6 million pre-IFRS 16, already incorporating EUR 2.4 million of share purchases under the new program. This compared with EUR 46.1 million at the end of 2025 and EUR 42.4 million at the end of June last year. With that, let me hand it back to Angelo.

Thank you, Michele. Let me close by returning to the two acquisitions we completed on July 1 because they capture well how we intend to create value. SPY+ and Serengeti are 2 iconic brands, highly complementary to our existing portfolio, and they expand our reach across 2 attractive spaces. SPY+ and Serengeti is our gateway to technical luxury with an authentic American heritage and a strong reputation for premium, high-quality lenses. SPY+ brings California action sport credibility, reinforcing our sport and outdoor ecosystem alongside Smith and Branders. 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.

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. As we look ahead, the positive sign observed towards the end of the second quarter and at the beginning of the third give us greater confidence for the second half. We remain focused on capturing the opportunities that may arise from a gradual recovery in market trends. Thank you for your attention, and we are now ready to take your questions.

[Operator Instructions] The first question comes from Oriana Cardani of Intesa Sanpaolo.

Thank you for taking my three questions. The first question is on the gross margin in the second half of the year. Do you expect tariffs to refund also in H2? If so, can you provide a guidance? And excluding any refunds, do you see room for an increase in gross margin compared to the second part of the year 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 EUR 20 million refunds will be allocated to these new investments? And over what time frame? And can you provide some color on this infrastructure and brands, which will be involved? And the third question is on the outlook -- sorry, on the current trade. Can you give details of the factors driving the good exit rate of second quarter and some comments on July performance?

Thanks, Oriana. So I'm starting on the first question related to gross margin. So overall, we expect that some of the benefit we saw in H1 should naturally become a bit less pronounced. The positive impact from the deconsolidation of Lenti and the pricing action implemented, I mean, around May, June last year are now fully in the base and therefore, won't provide the same year-on-year rate we have seen in the first half.

On the other hand, we will continue to see a lower tariff. And I would say, very much consistent to what we have been experiencing in Q2, of course, assuming that the current framework will remain unchanged. On tariff specifically, of course, the overall refund process has not yet been completed. But we would expect that any further amount will be fairly residual compared to what we have already recognized in the first half. Okay.

Thanks, Michele. So answering to question #2 about future investments, we are planning to invest approximately 1/3 of the tariff refund benefit. As I said, 2 areas. One is infrastructure, which is mainly IT and digital. We can -- 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. 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. So media investment, we think that we may have some opportunity in quarter 4 where we can boost some marketing support with 2 aims from one side, obviously support and make the brand bigger on the other side also to support an additional traffic and some additional sellout with some of our main customers. So mainly behind the priority brands with the priority customers.

Going on the last question on the current -- or the current trading, we can say that, again, we need to take all these things with measuring the emphasis on it because we are talking about a few weeks -- but by 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. 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. So we see signs from the customer and also on our D2C mainly in North America, we see positive sign on the Smith D2C. So I would say that directionally, by geography, we could expect a recovery from the quarter 2 slowdown, and this recovery will be more visible in North America compared to Europe.

In North America, we see -- we are getting some more positive sign. In Europe, remain -- the picture remains a little bit mixed with France, which definitely in this moment is the market which is suffering more. And the second market is Germany, mainly in the independent, not so much on the big chain, but mainly in independent. Where on the other side, South of Europe, Italy, Iberia, we see clear signs. So we look to the H2 should be better compared to the H1, mainly in North America, if I should summarize.

The next question is from Harrison Woodin-Lygo of Berenberg.

First of all, congratulations on another quarter of margin expansion underlying ex tariff refund. I suppose 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? 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?

Okay. Start from the first point, of course, Q2 -- in Q2, operating leverage has been negative. of course, fully -- I mean, fully offset even more from the gross margin improvement. 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 driver we have seen in Q2. And on the other side, of course, the operating leverage will highly depend on the top line evolution, assuming a better evolution of the sales starting from Q3, and we should start seeing eventually from the second part of the semester, a more supportive operating leverage.

I answer on blenders. Yes, I think Blender is still not where it should be. But I think the fact the decision that we are now becoming 100% owner, so that Chase, we have commonly decided is leaving so that we can run the company in a more integrated way compared in the Safilo portfolio. So there is no intention to take different decisions. I think that especially in the new having SPY+, I think now we are going to play more sort of piano strategy in the sport arena, 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.

So I think that step-by-step with the right time. We took the decision to don't follow some very aggressive price strategy than other competitors have done. 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 sports.

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. 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? 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?

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. So it's not going to be in the structural base. So that's not going to be the effect in 2027. We think that there are some market dynamic and some dynamic on some brands where we felt that can be a good decision to invest this year, but it's not going to be into the base. So 2027 should be seen with a normal base, and it's not going to be out there.

The next question is from Domenico Ghilotti of Equita.

A few questions. I'm starting just to have some better understanding. When you say June, July, so improving, we can assume that there was some positive growth. So you were back on positive growth or just improving compared to the first 2 months. Second, I'm interested in understanding so the European really underlying performance in the second quarter being -- you were mentioning also Lenti and the SPPA. So if we can assume that the underlying has been more closer to flattish. And the third is on the price strategy because clearly, last year, you raised prices because you had tariffs, 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 the price environment will be more deflationary.

Okay. I answer to. We see the two months where we really saw the dip in terms of the softness of the market has been April, May, and the first half of June. That was where we saw the biggest slowdown of the market. As of the second part of June and the first weeks of July, we see definitely an improvement in terms of customer behavior and in terms of consumer reaction. Especially looking to North America, I think we should expect that not only the numbers are going to be better than quarter two, but North America should be positive. We see a faster change in the demand, mainly in North America, less in Europe.

Specifically on Europe, Q2, if you exclude both the reconsideration effect of Lenti and the reduction on the product supply business, we see a substantially flattish performance on the key markets in the region.

Answering to your question on the tariff. The pricing strategy, it's always linked really to the market dynamic, to the inflationary environment by country. Obviously, we are going to use part of this fund to reinforce our brand and to reinforce traffic and activity, which are going to be more related to the customer, to the traffic. We have no plan to intervene directly toward the customers. That's not the strategy. The strategy, help the customer as much as we can in sell out, in traffic, in getting stronger brand, but that's it.

And if I may, on -- just an additional point on the gross margin for second half. Should we expect the M&A that you're starting to consolidate is not dilutive on gross margin at least? Is it fair?

I mean, as we commented earlier, the 2 business -- I mean, the 2 brands that we acquired are slightly dilutive from a gross margin standpoint. But given the margin, we don't expect any material impact on our H2 gross margin, 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. So we don't expect a dilution from the integration of the acquired brands.

And my last question is actually on the free cash flow that has been extremely strong even net of the tariff refund. Should I be aware of any, say, dynamic in the working capital that has been, if I'm not wrong, well, was even slightly positive in the second quarter. And so I'm trying to understand this is the impact of something temporary or really structural?

No. I mean, of course, there is nothing one-off temporary other than what we already commented on tariff and investments. So the overall free cash flow we are generating, I mean, the almost EUR 47 million in the semester is our organic cash generation. Of course, this has been benefiting from a pretty sizable reduction on inventory. Of course, reduction of inventory is also linked to the overall dynamics on the sales. So we should expect that once eventually sales will turn to a more favorable dynamics to see build back of inventory eventually in the coming quarters. But overall, we should continue to see a free cash flow generation in the second half, very much consistent with what we have been experiencing in the last quarters.

The next question comes from Andrea Bonfa of Banca Akros.

Actually, most of them have been already answered, but I got some -- if you want 2 clarifications. One is on the EUR 22 million, let's say, benefit from the duties, the EUR 2 million that you mentioned related to inventories went through also the P&L or they went through the balance sheet. Just a clarification on that. And finally, -- what's the state of the art with inspects stake? If you can just update or any color on that?

On the tariff, the EUR 2.2 million has not been hit in the P&L, has been reported a reduction of inventory. Of course, they will be flowing into the P&L once the goods will be sold, so potentially in the coming quarters.

On inspects, I mean, no news. We have a constructive relationship between shareholders, having us 30% of the company, but no news for the time being.

[Operator Instructions] The next question comes from Niccolò Storer of Kepler Cheuvreux.

Actually, a quick one and basically further to Oriana's first question about gross margin evolution. I was wondering if you can help quantifying, let's say, the contribution from the 4, let's say, drivers you mentioned, namely the lower weight of dilutive businesses, pricing, mix and lower tariff to the EUR 350 million improvement net of refund of Q2.

Yes. 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 on the 3 drivers we mentioned. So on one side, the lower dilutive business, the pricing action and the supporting mix, while tariffs or the lower tariff, let's not forget also the better and the more favorable sourcing profile contributed for approximately 100 basis points in the quarter.

No, sorry, say it again. It's 100 from lower tariffs, you said 150 or 250 from the other.

So it's 100 million from lower tariff, EUR 250 million from price/mix, the EUR 250 million price mix more or less equally -- EUR 250 million equally split among the 3 drivers we mentioned.

[Operator Instructions] Mr. Ferrante, gentlemen, there are no more questions registered at this time.

Thanks very much. Thanks very much for everyone. And for the one going on holiday, good holidays. Thank you. Have a nice time. Thanks very much.

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

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.

Good evening, and welcome to the Safilo Group 2025 Full Year Results 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, please go ahead.

Thanks. Good evening. Good evening, everyone, and thank you for joining us today for the Safilo's Full Year 2025 results. 2025 was a year in which Safilo demonstrated its ability to grow and to create value even in a global environment that remains complex, uncertain and often volatile. Geopolitical tensions, market fluctuations, ForEx headwinds, tariff pressures, all of the shaped the context in which we operated. And yet the strength of our brand portfolio, the breadth of our geographical reach and our ability to adapt quickly allowed us to deliver another year of resilient sales performance and significant economic and financial progress.

I would like to start this presentation by thanking all Safilo employees for their passion, dedication and commitment throughout the year and all our stakeholders for the trust with which you continue to support our journey of sustainable improvement. I will begin with the key highlights of the year. Then I will walk through the performance of our brands and our progress in sustainability. After that, Michele will take you through the financial results in more detail. Let me start with the key highlights of the year. Our net sales performance at constant exchange rate grew pretty steadily throughout the different quarters, finally up 1.8% on a reported basis, while the organic increase was of 2.6% when excluding the deconsolidation of Lenti, which we sold in June.

In Europe and North America, we delivered positive constant currency growth in each single quarter, and this was driven by the resilience of the prescription frame business, which kept demand strong in all our core wholesale channels. In both our core regions, the solidity of our business confirmed the quality and the strength of our relationship with customers and the power of our brand portfolio, which is to be able to generate value across multiple markets and distribution channel and appeal to different consumer groups from our flagship home brand to our leading license. All in all, our top line performance in 2025 confirms the quality of the work we have done over the last years to strengthen our brand platform, our distribution model and our customer reach.

On profits and margin, we continue to strengthen our performance. The volatility created by tariffs could have been a major headwind, but our rapid response, combining supply chain flexibility with precise commercial actions allowed us to offset the impact over the year. We delivered a further step-up in gross margin, reaching approximately 61%. And this improvement flowed through the operating profitability, lifting our adjusted EBITDA margin to 10.6% of sales. These results brought our profitability back to the highest level of the past decade and together with disciplined working capital management helped us to further strengthen our financial profile, boosting cash flow generation to around EUR 68 million before the investments and the disinvestment of the year and reducing the net debt to around EUR 46 million after the EUR 80 million buyback program we completed in December.

As we look at our performance across the year, what really stands out is how our portfolio has evolved into a truly balanced ecosystem between home and licensed brands, between global names and strong regional players, between sunglasses and prescription frames and across distinct consumer segments from men to women, from sport to lifestyle. I think this balance is now our greatest strength, allowing us to size opportunities across very different markets, category and consumer behaviors even when the external environment is volatile. Let me give you a quick overview on some of our core brands or crucial brands in our portfolio.

Last year, eyewear by David Beckham continued to deliver exceptional growth, confirming its role as a strategic pillar within our portfolio and accelerating across all geographies. This momentum was driven by consistently strong product performance and by the way in which the brand was brought to life at the retail level. Through premium and immersive activations. The year was also marked by the opening of the first DB eyewear mono-brand store in Mykonos, a high-impact showcase raising the brand visibility among an international luxury audience and a powerful campaign shot in Morocco that delivered remarkable traction, especially across social platform.

Its expansion in the United States accelerate meaningfully in 2025, supported by the first exclusive brand event in New York. Of course, David's driving global relevance across fashion, sports and entertainment continues to reinforce the authenticity and aspirational appeal of the brand. In North America, Blenders faced a challenging year, mainly to the highly promotional environment affecting the value for money e-commerce segment. However, it is very important that brand retains a strong connection with younger consumers. And throughout the year, we continue to strengthen its commercial fundamentals, supporting a real omni channel strategy designed to expand the reach of the brand and align with evolving consumer shopping behavior.

This work was also linked by a go-to-market extension in the wholesale sports channel with very encouraging results, which is a clear sign that the brand has its own appeal and unique proposition. If we go to Polaroid, despite a softer sunglass season in parts of Europe, continue to benefit from its broad consumer appeal and strong brand recognition. Importantly, we took a meaningful step forward by becoming the official eyewear partner of the ATP tour, a global sport platform that placed Polaroid in the center of some of the world's most prestigious tennis tournament. This partnership brings significant opportunity for visibility, engagement and connection with the younger audience.

If we talk about Carrera, Carrera delivered another outstanding year, growing solidly across all the key markets. The blend of this iconic sun and optical collection continue to perform exceptionally well, and the brand's expansion in the women's segment is bringing fresh energy and attracting new consumers. Our spring, summer campaign shot in New York City reinforced Carrera's aspirational positioning, while the renewal of our partnership with Ducati confirmed a strong affinity between performance, design and style that define this brand. And how we cannot talk about Smith. Smith posted another year of healthy growth driven above all by the strength of its direct-to-consumer business, which remains the primary engine behind the brand's success.

Even in a softer brick-and-mortar environment, Smith preserved its leadership in U.S. winter sport, thanks to its deep roots in performance, optic and its strong ties with outdoor communities. In Europe, the new commercial setup introduced back in 2024 began to gain traction, helping the brand extend its reach and recognition. But it's not only a home brand, let's talk about the word of the license. And here it's important to acknowledge that last year, we continued to drive a dynamic management of our licensed brand, taking further steps to reinforce its long-term solidity and strategic coherence. During the year, we renewed our partnership with Dsquared2, Under Armour, Carolina Herrera and Pierre Cardin, strengthen the visibility and stability of a license portfolio that is now secured at around 95% through 2030.

And last year, we also continue to elevate our women offering, signing a 10-year agreement with Victoria Beckham, a brand that brings depth of our presence in the aspirational women segment and fits perfectly with the strategic direction of our portfolio. Alongside these moves, 2025 was also a year of meaningful progress in sustainability. We continue to advance in a decisive way along our emission reduction road map in line with the targets validated by science-based targets initiative. One milestone we are particularly proud of is having reached 100% renewable electricity across all our operations, a clear and tangible step forward in building an increasingly virtuous business model. Our progress was also recognized by CDP with Safilo entering the leadership list with an A- rating, an acknowledgment of the transparency, rigor and continuity that guide our sustainability work. With that, I will hand over to Michele. Thanks, Michele.

Thank you, Angelo, and good evening to everyone. Let me walk through our sales, economic and financial performance in some more detail. We closed 2025 with net sales of EUR 983.4 million, as highlighted, up 1.8% at constant rate and 2.6% organically. At current rates, revenue decreased by 1% due to the persistent weakening of the U.S. dollar. In the fourth quarter, net sales were EUR 225 million, up 0.4% at constant rate and 1.9% organically, while the higher depreciation of the dollar against the euro weighted more on the reported performance, down 4.6% at current rates.

Our organic growth this year was fueled, as said, by the strong performance of our flagship brand, Carrera, Smith and David Beckham and by the solid mid- to high single-digit increases across our core license, Tommy Hilfiger, Marc Jacobs, BOSS, Kate Spade, and Carolina Herrera. By channel, the wholesale business delivered mid-single-digit growth, supported by both independent optician and retail chains. Online remained stable at around 16% of sales with strong performance from the sport direct-to-consumer channel and European Internet pure players.

Turning to our regional performance. In Europe, sales for the year were up 2.7% at constant exchange rate and 2.3% at current rates compared to 2024. In the fourth quarter, sales in Europe were up 0.7% at constant exchange rates, flat at current rates. And considering the headwind we had in the period, lower volumes from product supply business, the deconsolidation of Lenti and the phasing of some delivery that were pulled forward into the third quarter, this was a resilient outcome. Both in Q4 and for the full year, Europe delivered a solid organic performance with mid-single-digit growth driven above all by the prescription frame across all our key markets. France was once again our most dynamic market, supported by a broader commercial footprint and consistently strong demand.

Turkey and Poland also stood out, recording very robust growth and ranking among our fastest-growing countries. Growth was broad-based across the portfolio with particularly strong momentum in our contemporary lifestyle brand. The only softer spot was Polaroid, which saw a modest decline due to a less favorable sunglass season in a few markets. Across the region, we kept strengthening our consumer base and the key lever here was again the UN Safilo B2B platform, which continued to gain traction and help us improve service levels while deepening long-standing relationship with independent opticians. Its growing adoption really shows the trust we have built over time and our commitment to providing customers with digital tools that makes their day-to-day work easier and the overall purchasing experience better.

Despite the uncertainty and volatility that characterized the market environment, the North America business actually performed better than expected with positive constant currency growth coming through consistently across all 4 quarters. Sales for the year were up 1.8% at constant exchange rates, while at current rates, revenues declined 2.6% due to a 4.4% depreciation of the U.S. dollar. In the fourth quarter, sales increased 1.5% at constant rate and were down 7% at current rates. In North America, the year was really underpinned by a solid wholesale performance. The channel grew mid-single digit in every quarter with strong momentum coming in particular from Tommy Hilfiger, Hugo Boss, Marc Jacobs, Eyewear by David Beckham and Kate Spade. We continue to strengthen the position with our key customers across the market.

By product, the story was similar to what we saw as well. Growth was driven by prescription frame, while sunglasses has a tough time at the enterprise level where the environment remained highly promotional. This continued to weigh on Blenders' e-commerce business, even if in the second half of the year was less challenging than the first 6 months. In Sport, Smith delivered a positive performance, thanks above all to the strong expansion of this direct-to-consumer channel, which now accounts for around 40% of the brand sales. On the other side, brick-and-mortar sporting goods store were softer in the second and third quarter following our decision to temporarily limit import of winter products from China, which delayed some deliveries.

Most of those volumes were recovered in the fourth quarter, helping sales to physical retail store to turn positive towards the end of the year. In emerging markets, conditions remain more challenging and business performance was less homogeneous. In Asia Pacific, the solid recovery that drove much of the year was tempered towards the end by a more uncertain and cautious environment. The fourth quarter saw, in fact, a normalization with revenues down 11.5% at constant rates. Overall, sales for the year were up 4.8% at constant exchange rate. Growth came mainly from our distributor-led market and from the double-digit upside in Australia, where Carrera really played its part, supported by the brand building activity we rolled out in the country and by the great reception of the women collection.

And I would also mention Tommy Hilfiger, which performed particularly well and continue to gain traction across the region.

Turning to the rest of the world. Sales for the year were down 4.5% at constant rate, 10% at current rates. In the fourth quarter, we finally started to see some sign of recovery in a few countries across the region, which allows the area to return to growth, up 3.9% at constant rate, helping soften what had otherwise been a more challenging pattern through the rest of the year. Performance in the area was held back by a slowdown in India and by lower sales to distributor in the Middle East, where rising geopolitical tension and more cautious purchasing behavior created a volatile demand environment.

Latin America showed a mixed picture. Mexico held up well, supported by the strength of Carrera and Carolina Herrera and by more stable consumer spending, while Brazil slowed down, reflecting weaker demand and a distribution environment that remained less dynamic. Let me now move to our economic performance, starting with gross profit and margin. Despite the significant tariff pressure we faced during the year, we reacted quickly and effectively. The combination of targeted price adjustment in North America and increased sourcing outside China allowed us to progressively reduce the impact. And by the fourth quarter, we have fully neutralized it.

For the full year, gross profit reached EUR 599.3 million, up 1.1% and our gross margin increased by 120 basis points to 60.9% of sales. In the fourth quarter, gross profit came in slightly below last year, but gross margin expanded significantly rising to 61.9%. This reflected the same positive drivers that we have seen earlier in the year, a favorable price and mix effect, the reduced weight of lower margin activities such as the product supply business and the deconsolidation of Lenti. We have also continued to benefit from lower obsolescence, thanks to better forecasting, better planning and lower inventory levels. Finally, at the gross margin level, it's worth noting that while the weakening of the dollar had a negative impact on our revenues, it provided a tailwind of 50 to 60 basis points on gross margin, given the share of our supply chain that is dollar-denominated.

Moving down the P&L. In 2025, we achieved our goal of converting the improvement in gross margin into a solid operating performance, even while keeping investment on our own brand at a sustained level to support their development. Adjusted EBITDA for the year reached EUR 104.2 million, up 12% versus 2024 and the adjusted EBITDA margin increased by 120 basis points from 9.4% to 10.6% of sales. In the fourth quarter confirmed this trend. Adjusted EBITDA was up 12.3% year-on-year with margin improving 130 basis points from 7.5% to 8.8%. For the year, selling and marketing expenses ended the year down 3.5%, largely due to the reduction in logistic costs, supported by further efficiency across our distribution processes.

The strong increase in marketing and advertising investment we recorded in the first semester gradually normalized as we moved through the year, allowing the recent process to realign with last year level around 12.7% General and administrative expenses increased by 4.3%, driven by higher IT investment, mainly in Software-as-a-Service solution that support front-end initiatives for the sales force, along with an increase in provision for doubtful account in few emerging markets where uncertainty remained higher. Below the operating line, our financial performance also benefited from a sharp reduction in financial charges, which were nearly up compared to 2024 from EUR 16.3 million to EUR 8.3 million. This reflected both our lower level of net debt and a more favorable trend in exchange rate differences.

As a result, adjusted net profit reached EUR 44.6 million, up 30.4% versus 2024. So overall, it was a year which stronger margin, disciplined cost management and healthier financial structure all came together to drive a clear improvement in the bottom line. To wrap up our review of 2025, let me turn to cash flow and net debt. In 2025, our strong economic performance, combined with disciplined and effective working capital management allow us to generate EUR 55 million of free cash flow, a sharp increase versus the EUR 16.7 million recorded in 2024. This really underline our ability to deliver solid cash generation even in a challenging market environment.

The year started on a very positive note. In the first half, we generated EUR 43.5 million of free cash flow, supported by the robust operating result and steady working capital management, particularly on inventories following our decision to limit product import from China in a high tariff context. We also benefited from a roughly EUR 12 million proceeds from the sales of Lenti subsidiary in the second quarter. Momentum continued into the third quarter with an additional EUR 20.7 million of free cash flow. In the fourth quarter, we saw an outflow of EUR 9 million, entirely explained by our EUR 25 million investment to purchase a 25% stake in Inspecs. Excluding this investment, underlying cash generation in the quarter remained clearly positive at around EUR 16 million.

Overall, as Angelo underlined at the beginning, net of this purchase and the disposal of Lenti, free cash flow for 2025 reached EUR 68.1 million, a level that clearly demonstrates the strong cash generation capability of the group. These results stand well above the EUR 47.8 million generated in 2024 before the investment in David Beckham perpetual license. Finally, after accounting for the EUR 18 million share buyback program, which, together with the share already had brought us to total 5.6% of Safilo share capital, our year-end net debt decreased significantly to EUR 46.1 million compared with EUR 82.7 million at the end of 2024. If we look at the metrics pre IFRS 16, our net debt stood at EUR 6.6 million, reflecting an even stronger improvement in the group's underlying financial position and further confirming the solidity of our balance sheet as we exited the year. With that, I will hand it back to Angelo for his closing remarks.

Thanks, Michele. Let me begin with a brief snapshot of how the year has started. The start of the year progresses broadly in line with the pace at which we closed 2025 with essentially a continuation of the underlying trends. Remember that in the first half, we still have lengthy in the base period. As you know, anyhow, March remains by far the most significant month of the first quarter. In March, the geopolitical and macroeconomic environment unfortunately became even more complex following the joint U.S. Israel strikes on Iran on February 28, which triggered a rapid escalation of tension in the Middle East. But to put things in context, approximately 2% of our sales are linked to markets directly or indirectly affected by the conflict.

So we approached 2026 with both awareness and a strong sense of responsibility. In an environment marked by new tension and instability, financial discipline and our ability to adapt quickly become even more important, critical -- more important and critical for our long-term value creation journey. At the same time, our commitment will not change. We remain firmly focused on our brands, on innovation, on nurturing the quality of the relationship we have with customers and partners around the world. Finally, as communicated today, the Board has supported the resolution for Safilo S.p.A. to execute a new share buyback program in 2026, up to the maximum of 10 million shares, equally to around 2.5 percentage of Safilo outstanding capital. This follows from last year program and reflect our confidence in the group trajectory and our commitment to ensuring efficient allocation of financial resources. Thank you very much. So far, we are now ready to take your questions.

[Operator Instructions] The first question is from Niccolo Storer, Kepler Cheuvreux.

The first one is on working capital. It's been a few years that you've been doing a great job on that. 2025, another brilliant result. I was wondering what should we expect going forward? Is there still any room for optimization? Or you think that we have reached now a level which could be, let's say, sustained going forward, but not further improved?

The second question is about financial charges. Also in this case, what should we expect going forward and which could have been the picture without, let's say, the noise from FX movement? Last question on Inspecs. You have now quite a big stake in the company. What should we expect next? Which are your next move you have in mind? And how do you plan to, let's say, deal with this big stake?

I will take the first 2, then I'll leave the third one to Angelo. So on working capital, the reduction that we have seen in 2025, mostly coming from inventory. I would say, structural and is now part of the base. So while we believe that, of course, this reduction is structural, we cannot expect, of course, to continue on a path of reduction in the coming year. I would say our midterm ambition remain to improve working capital. We have closed the year roughly a 22% incidence on working capital.

In the meanwhile, we expect to further optimize going down to a 20% incidence. On financial charges, let me say that half of the improvement versus a year ago is driven by ForEx dynamic, while the rest is driven by both the reduction of the net debt and a slight reduction on also interest rates. Of course, going forward, we should continue to assume a reduction of the debt because, of course, as we still have debt on hand, further reductions supported by continued free cash flow generation should support an additional improvement in the coming future.

Yes. Going on -- answering to your question on Inspecs, at the present, we have no updates to provide, and there are no additional comments we can make on this investment. But just as a reminder, on February 10, I think as we have already communicated, we had reached 29.9% of Inspecs share capital, which is the maximum level we can currently reach under the restriction of the so-called Rule 2.8 of the U.K. Takeover Code. Shortly after our communication, Bidco switched its approach from a scheme of arrangement to a takeover offer. Given this context, I think nothing to say in the short run, we need to see what will happen in front of us. But we just like to restress that we think that Inspecs remain a very good investment and there is a huge strategic fitting with the Safilo strategy.

The next question is from Oriana Cardani, Intesa Sanpaolo.

The first one is about marketing cost. What do you budget for this year in terms of percentage of sales? The second question is about CapEx. Also, what do you budget for CapEx? And the third question is on M&A. In the press release, you say that you are committed to make acquisitions. Can you provide us some color on targets that you would like to see?

I take the second question on the CapEx, I will leave the other 2 to Angelo. So on CapEx, I believe we will continue to watch carefully the opportunity. Our CapEx should be limited in the range between EUR 12 million and EUR 15 million in next year and also structurally going forward.

Yes. I mean, answering to the marketing costs and the M&A, I mean, if you start that from marketing costs, I think today, we closed the 2025 years with quite a high level of investment, which is right. I mean it's part of the strategy. But look, obviously, -- we cannot answer on the precise number, but I think that there is room to stabilize or let me say, to optimize this amount of investment because definitely, we are on the top edge of the industry in terms of the investments. So moving forward, this number will stabilize more. And the challenge we have, but I think having now some brands which have scale like you know the Carrera, the David Beckham, the Polaroid, the BOSS, some of these big brands are having scale, obviously, I mean, percentage of marketing is a little bit misleading because at the end, it comes how much money you invest in terms of absolute money.

So moving forward, I think that we will try to optimize and get to a more reasonable level of investment without jeopardizing the focus, but more looking to how to optimize the investment that we are doing. On the M&A, as we've been keeping saying, it's -- obviously, we are quite active. And as we say, there are 3 areas that we keep looking and where some potential targets are there. One is optical and the discussion on Inspecs, the previous question on Inspecs and the fact that I judge Inspecs like a strategic investment fitting with the strategy is because it's answering to the topic of optical.

The second dimension is sport/optical, but with a little bit sophisticated sub is the second area, and that is also an area where we are looking because now we start having a quite important brand -- set of brands within the sports arena. We have Smith, we have Blenders, we have Carrera. We have launched Carrera Sports. So it's an area where we think that some additional brands can even strengthen our portfolio. So looking to M&A, these are the 2 areas. There is the women area is more complex to find in this moment the right target, but that remains the third area where we are looking. But definitely optical and sport/high optical is the area where we are looking and some potential targets are out there.

The next question is from Cedric Rossi of Stifel.

I have 3 actually. The first one is, so you said that the start of the year was broadly in line with Q4. But I was curious to have your view on the mood of U.S. retailers. I recall that National Vision said that some of your brands were quite successful in their stores. What's your view on the on the U.S. market for 2026? And my second question is regarding the DTC strategy. So as you said, the mono-brand store at David Beckham was quite successful. Does it encourage you maybe to consider also some mono-brand stores also for Carrera, for instance, that could also be opened in Europe or in North America? And the third question is regarding the tariff impact. So you managed -- you mitigated the impact quite well in the second half of the year. Can we also expect some good mitigation impact also in the -- during the first half of the year?

I take the first 2. I mean it's -- let me say, if we look to the start of the year, as I said, the first 2 months of the year were really progressing broadly in line with what was the pace of the 2025. And if we look to North America, also if you consider that in the year has been a strange year because in some parts of North America, there was this huge winter storm in New York and the coast was minus 30 with a lot of snow. Independent from that, to be honest, we see that North America was going -- was showing a strong resilience, to be honest.

The point is I'm talking about Jan and Feb. In the beginning of March, we don't see any change. The question, to be honest, that we have, but we just need to wait some more weeks is what is going to happen more, let me say, in Q2. So for me, currently, honestly, we don't see any negative effect. We see a retail which is resilient. And we don't see big negative trend in North America for Q1. We need to see now what's going to happen with the oil cost and stuff like that. But for the time being, to be honest, North America is definitely okay and in line with the exit speed. The same is in Europe. If we looked at the beginning of the year, obviously, now we need to see what's going to happen. In terms of the DTC strategy, just to be sure that I've understood your question, you were referring to physical, if it would make sense to have physical store for Carrera, right? Have I got it right?

Yes, indeed, Angelo.

Okay. Yes. No, honestly, no. I think it's too early. I think it's too early, I think, and also the -- what Carrera is doing is that we are defending the core, we are building the women and we are building the sport. We are investing on the D2C mean the e-commerce platform in North America for Carrera. So personally, I don't see that strategy moving forward for Carrera, -- maybe it can be an option more for Smith, which we believe that in terms of product characteristics can fit more in having a limited number of mono-brand stores. But we -- personally, I don't see in the short run for Carrera.

And sorry, Cedric, can you repeat the third question was about tariff, price?

Exactly, yes.

Okay. So I mean, as we -- as I said earlier, I mean, we are exiting the year with, let's say, a fully balanced, let's say, strategy. So all the countermeasures that we have developed and put in place throughout the year are now fully, let's say, sufficient to offset the tariff. The current tariff landscape. Of course, the landscape is still very much evolving. So we also need to see the real outcome of the Supreme Court decision. So again, so far, let's say, it's not an area of risk anymore, but we need to see how the situation will settle in the coming weeks, may even translate into an opportunity if the court decision is confirmed.

[Operator Instructions] Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Just to thank everyone, and enjoy the rest of the evening. Thanks very much. Thank you. Bye-bye.

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

Good evening, and welcome to the Safilo Group Third Quarter and First 9 Months 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 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 9 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 the 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 didn'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 rate, delivering a resilient plus 2.1%, substantially in line with the performance of the first half and again, supported by the strength of our contemporary and lifestyle brands and the breadth of our geographical footprint.

Regionally, the picture remained mixed. In our core markets, flat sales in North America were offset by high single-digit 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 favorable 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.

Thanks to the 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 9 months to around EUR 64 million, leading us for the first time in our history to become net debt positive pre-IFRS 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 9 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 9-month period, we closed with a total net sales of $758.4 million, up 2.2% at constant exchange rate and in line with last year at current exchange rates.

Across brands, as Angelo 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 Blenders e-commerce and Smith sport products 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 constant exchange rates. This acceleration was fueled by two key drivers. First, our prescription frame business strongly outperformed in 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 sellout dynamics, particularly in Italy.

Demand remains strong across both independent optician and retail chains, and we are especially pleased with the continued traction of our You&Safilo B2B platform. Its growing adoption is helping us deepen customer engagement and sharpen our commercial execution. Brand momentum was broad-based. Carrera, David Beckham, Marc Jacobs, Tommy Hilfiger, BOSS, and Carolina Herrera, all strengthened their competitive position in the region.

Looking at the 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 continued to resonate strongly with French consumers.

In Germany, we maintained solid momentum, particularly among independent optician and online pure player. And in Eastern Europe, we delivered another strong quarter in Poland and Turkey, which remain our largest market in the region. In the first 9 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 constant exchange rate, while down 6.6% at current exchange rate, given the stronger depreciation of the dollar.

In the Sports segment, Smith experienced diverging trends across its 2 channels, delivering on one side, very solid growth in the direct-consumer business. This was supported by strong demand and effective online engagement. On the other hand, sales to physical sports shops were affected by the ongoing normalization of shipment of sport products from China. As we had anticipated in August, this delivery were to be recovered between the third and the fourth quarter.

In eyewear, 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 optician and chains with Tommy Hilfiger, Marc Jacobs, BOSS, Kate Spade, and David Beckham continue to act as our growth engines.

The quarter remained challenging for Blenders' 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 9-month period, up 1.9% at constant exchange rates.

Let me now briefly comment on the performance of our emerging markets, starting with Asia Pacific. In the third quarter, the region sustained its positive momentum with sales up 7.8% at constant exchange rates. Growth was primarily driven by our distributor-led market, supported by the strong brand contribution from Tommy Hilfiger, BOSS and HUGO. Australia stood out with a particularly strong performance fueled by Carrera ongoing brand-building initiatives, including the successful launch of its women collection earlier this year and by Smith continued development in the market. Looking at the first 9 months, sales in Asia Pacific were up 12.4% at constant exchange rates.

Finally, turning to the rest of world. The third quarter remained challenging with sales down 13% at constant exchange rates. Performance continued to be affected by persistent headwind in India, and a difficult market environment for our Middle East distributors. Mexico, on the other hand, demonstrated resilience, supported by positive sales trend to independent optician. 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 9 months of the year, sales in this area were down 6.8% at constant exchange rate versus the same period in 2024.

Let's now move to our economic performance for the quarter, focusing on the 2 key indicators we typically comment on during our trading update. Gross margin showed another improvement in Q3. The impact of our mitigation action against higher tariff pressure become more visible, particularly the price adjustment introduced in early June and the ongoing shift towards out of China sourcing. This measures 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 favorable price dynamics, although to a lesser extent than in Q2 and a more meaningful contribution from foreign exchange. At constant rates, gross margin was broadly stable compared to last year's third quarter. Looking at the 9-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 EBITDA 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 marketing investment after the peak we saw in the first half, where spending reached nearly 13% of sales. In Q3, marketing expenses declined by roughly 50 basis points year-on-year. Cost optimization also came from lower logistics and IT costs. For the 9-month period, our adjusted EBITDA margin stood at 11.1%, up from 10% last year. As a reminder, our EBITDA margin at 12% includes EUR 9.7 million gain from the disposal of Lenti 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 EUR 20.7 million, up from EUR 16.9 million in Q3 last year. This was driven by solid operating performance and disciplined working capital management. Over the first 9 months, total free cash flow reached EUR 64.2 million, including EUR 11.9 million from the Lenti disposal. This level of cash generation allow us to continue reducing debt. As of September 30, net debt decreased to EUR 30.4 million, bringing us to a positive net financial position pre-IFRS 16 of EUR 10.7 million for the first time in our history.

It's also worth noting that these results include the transaction cost for EUR 10.2 million 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 share already held at the same date, treasury share 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.

[Operator Instructions] The first question is from Oriana Cardani of Intesa Sanpaolo.

The first one is on October performance. We know that October is a small month, but can you give us an update on 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 gross margin. Can you give us some indication on your expectation for next year? Finally, I've got some questions on the M&A activity. You revealed that you submitted a non-binding offer for Eschenbach. When do you expect to hear back from [ Inspes ] 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?

Okay. 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 performance, which we exit the third quarter. I'd 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, we are -- October is just 1 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, Inspes, obviously, is aligned with our strategy that we have said in different occasions, 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 are 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 the beginning of the process.

For the rest, I mean, I don't see an 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, we -- 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 once inspect should come to some positive conclusion.

On gross margin for next year, I mean, we continue to have the ambition to build margin next year. Definitely, tariff will continue to be a 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 tariff impact. 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 an accretive margin position. The margins of which will highly depend also on the evolution of the top line and will highly depend also on the mix component of the different brands and geographies.

The next question is from Niccolo Storer of Kepler.

So the first one is on operating cost. You mentioned advertising and promotion of 50 bps. If I'm not wrong, you gained basically EUR 4 million in EBITDA and maybe lost something at gross profit level. So 50 bps is roughly EUR 1 million. And so I was wondering if you can elaborate a little bit more on the other million you were able to save and if this is something that 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 Q3 at a very high level, in particular, with some comments on working capital also in light of what you said last time about stocks and possible normalization?

Yes. I'll take the first and the last one. So on the Q3 margin, as we commented, I mean, 50 basis point improvement 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 EUR 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 buildup of inventory we were foreseeing back in Q2 to counter the decision of [indiscernible] some of the import to manage the tariff. So the bridge versus the net debt should be easy is the EUR 20 million free cash flow generation, roughly EUR 10 million in investing in the share buyback. So it should be a EUR 10 million reduction in net debt to IFRS 16 base.

On the last -- on the question on North America. In North America, we have different dynamic. 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 B2C, 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 will be still struggling in quarter 4. Where on the other side, Smith shops, as Michele was underlying, we saw some weak figures, also honestly, driven partially by the stock -- some stock decision we took in Q2. So really, the picture on North America is quite different by channel.

As on the brands, as Michele was mentioning, we see a positive trend on our main brands there, Carrera, Divid Beckham, BOSS, and also Kate Spade getting on a positive momentum.

Next question is from Domenico Ghilotti of Equita.

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 phasing prescription shipments, if I'm not wrong, in Europe. Does it mean that we should expect -- we should expect some deceleration in this segment going into 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?

Yes. On the price mix component pricing had 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 -- I mean, 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 Essilor and Meta, they are doing a great job. So I think, honestly, 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 -- we don't chase speed. I mean, we will take some decision when we think is the right moment.

I can assure that, as I said, we see the number, we see some consumer data. So it -- 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 yes, we will see when we think is the right time to step in.

The next question is from Cedric Rossi of Stifel.

I have two questions, please. The first one is regarding Europe. So I heard 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 the -- so your production shift strategy that continues to deliver on margins. Are you able also to confirm the road map? So in other terms being below the 50% share done in China by the end of the year?

Okay. So I answer on Europe. On Europe, the reason why I think it 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 Isabel Marant -- I mean, 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 in the last 2 years. With the exit out of JV, 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, it is really becoming very, very strong.

Last but not least, our B2B -- our B2B keeps growing year after year, it's 4 years in a row that 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 digits 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 tool in Europe destiny 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 have -- 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 evolution, the potential evolution on tariffs in the coming weeks and months.

The next question is from Andrea Bonfa of Banca Akros.

My question has been partly answered. But again, if it's possible for you to further elaborate on your cost performance in Q3. I mean we saw that, I mean, more or less out of the EUR 4 million margin improvement at EBITDA level, one is coming from gross margin and more or less EUR 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 the cost evolving into '26?

Yes. I mean, as I said, yes, out of -- I mean, the components are the one 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 [indiscernible]. And of course, we also approach the holiday season where, of course, marketing investments are very sensitive. So I believe it's a bit too 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 saving will not be linear in the coming quarters. So I believe there is an opportunity to continue to see this cost normalization supporting the margin improvement in the coming months. But not with the same magnitude.

[Operator Instructions] We have the next question from Harrison Woodin-Lygo of Berenberg.

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?

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?

Okay. In terms of brand, I mean, what we -- the brands which are performing better in our portfolio transversal to the geography, as I said, are Carrera, David Beckham, BOSS, Tommy, Carolina and now -- and the Marc Jacobs. So let me say the part of our portfolio, which is performing better is what we call within the contemporary, the premium bit. So the premium bit is the part of the portfolio, which is performing well, which is 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. Where in Europe, I was mentioning the example of Isabel Marant or the example of Marc Jacobs. 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 9 months around 13% roughly. So I think that there is -- I think there is space to slowly, slowly normalize this number 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 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.

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.

Thank you very much. Bye-bye.

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