Earnings call transcript: FILA reports Q2 2025 with solid cash flow amid challenges

Fila Group (FILA) reported its financial results for the second quarter of 2025, highlighting a steady performance in challenging market conditions. The company maintained its EBITDA margin at 20.8% and reported a free cash flow to equity of €17.1 million, an increase from the previous year. Trading near its 52-week low of $9.55, the stock offers an attractive free cash flow yield of 18%. According to InvestingPro analysis, Fila appears undervalued based on its Fair Value estimates, with the stock price dropping by 4.24% following the announcement, reflecting investor concerns over ongoing market challenges and geopolitical uncertainties.

Key Takeaways

• Fila Group’s EBITDA margin remained steady at 20.8% despite a 7.7% year-over-year decline in adjusted EBITDA.
• The company closed a Chinese plant and consolidated UK manufacturing to address tariff and production challenges.
• Free cash flow to equity increased to €17.1 million, showing improved cash management.
• Stock price fell by 4.24% amid concerns about market conditions and geopolitical uncertainties.
• Fila remains confident in its competitive position despite industry challenges.

Company Performance

Fila Group’s performance in the first half of 2025 was marked by a strategic reorganization of its production facilities, including the closure of a Chinese plant and consolidation of UK sites. These efforts are part of the company’s response to tariff challenges and geopolitical uncertainties. Despite a 5.6% decrease in core business seats, Fila maintained its EBITDA margin, underscoring its resilience in a difficult market environment. The company also reported a significant reduction in its net financial position, improving by €80.3 million compared to June 2024.

Financial Highlights

• Revenue: Not specified in the summary
• Adjusted EBITDA: €65.4 million, down 7.7% YoY
• EBITDA Margin: 20.8%, consistent with 2024
• Adjusted Net Profit: €22.5 million, down from €32 million in H1 2024
• Free Cash Flow to Equity: €17.1 million, up from €14.3 million in H1 2024
• Net Financial Position: €280 million, €80.3 million reduction vs June 2024

Outlook & Guidance

Fila Group anticipates its performance in the second half of 2025 to align broadly with the same period in 2024. The company confirmed its free cash flow to equity range of €40-50 million and is closely monitoring tariff developments, particularly with India and Mexico. Despite current challenges, Fila expects potential market recovery in the latter half of the year.

Executive Commentary

CEO Massimo Candela emphasized the company’s solid position amidst industry challenges, stating, "Despite the difficult first half, Fila remains the most solid and strongest player in our business." He also expressed concerns about the potential impact of tariffs on the U.S. economy, suggesting a possible recession.

Risks and Challenges

• Geopolitical Uncertainties: Tariff challenges and currency fluctuations could impact production costs and market access.
• Economic Conditions: Potential recession in the U.S. and budget cuts in educational sectors may affect demand.
• Supply Chain Disruptions: Ongoing reorganization efforts and plant closures could pose operational risks.
• Competitive Pressure: While Fila remains strong, competitors’ struggles could alter market dynamics.

Q&A

During the earnings call, analysts queried the company on its strategy to manage supply chain disruptions and the impact of potential tariffs on its U.S. business. Executives addressed concerns about the DOMS stake and potential future combinations, providing insights into Fila’s strategic positioning in the evolving market landscape.

Full transcript - FILA Fabbrica Italiana Lapis ed Affini SpA (FILA) Q2 2025:

Conference Operator: Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Villa First Half twenty twenty five Results Conference All participants are in listen only mode. And after the presentation, there will be a Q and A session. At this time, I would like to turn the conference over to Mr.

Christian Nicoletti, Group CFO of Phyla. Please go ahead, sir.

Christian Nicoletti, Group CFO, Fila Group: Ladies and gentlemen, good afternoon. I am Christian Nicoletti, CFO of Fila Group. The Group CEO, Massimo Candela and the Group COO, Luca Pelosi, who will also participate in today’s conference call. Let’s start with brief overview on our financial results for the first six months of twenty twenty five. I would like to underline that these first six months were characterized by challenging condition, you say, reduced government funding for secured tariff impacts and negative ForEx effects.

Despite this market condition, Fila achieved its profitability mainly thanks to effective cost containment. Let me add that the leverage ratio is comfortable and permits the company to face current challenges with an uncomfortable and solid financial base. I would now draw your attention to Slide number seven, where we illustrate the core business seats. In the 2025, core business seats decreased by 5.6%. Let’s say on comparable ForEx basis, core seats would have been merely 3% lower.

The main currency effect was due to USA dollar and Mexican pesos weakness. These results from lower consumer demand and reduced the government funding for skew in The USA and UK. Central South America, however, posted positive growth mainly driven by a very positive performance in Mexico. Let’s move to profitability on Slide eight. Adjusted EBITDA at EUR65.4 million declined by 7.7% compared to the 2024, with a negative impact pro form a effects of around less 3%.

Let’s say that it is important to underline, EBITDA margin was broadly in line with 2024, 20.8%, supported by ongoing operational efficiency. Please turn to Slide 10 on adjusted net profit. In the same way, adjusted group net profit stood at €22,500,000 down from €32,000,000 in H1 twenty twenty four. Let me remind you that each one net profit results includes the contribution for participation domes for just January 2025. The decrease in adjusted net income was the result of approximately $7,000,000 of ForEx losses.

Please keep in mind that these are not cash items. On Slide 11, we highlight the development of free cash flow. Free cash flow to equity stood at 17,100,000.0 versus EUR 14,300,000.0 in H1 twenty twenty four. This reflects some degree of seasonality in the first six months, which consists of working capital absorption, including $2,500,000 of tariff related effects and $2,000,000 for closure of production site in China. Cash flow reflects also $5,000,000 of higher CapEx and some negative ForEx impacts.

On the other hand, we underline a significant reduction in net lease expenses of 4,700,000.0 Let’s move on to Slide 12. As of June 2025, the net financial position stood at €280,000,000 This was €80,300,000 reduction versus June 2024, many thanks to downstate disposal. I want to take the opportunity to make a couple of comments on our outlook for year end. Firstly, we confirm a free cash flow to equity range of EUR 40,000,000 to EUR 50,000,000 as for year end, despite a reduction of revenue and EBITDA. Given the challenging USA consumption condition, currency and tariff effects.

Secondly, H2 twenty twenty five organic performance is expected to be broadly in line with last year results for the same period. Looking ahead, new tariff policy in North America may present positive tailwinds, thanks to significant geographical diversification the ’20 impact a reduced macroeconomic instability and a clear tough outlook is makes us confident on the recovery of revenue and profitability. Villa confirmed its strategy to consolidate its leadership and long term prospects while maintaining a solid financial position to size potential market opportunity and assure shareholder remuneration. Thank you all for your attention. We are now ready to take your questions.

Conference Operator: Thank you. We will now begin the question and answer session. Click Continue on the pop up window. First question is from Izako Brambilla, Mediobanca.

Izako Brambilla, Analyst, Mediobanca: Hi, good afternoon, everybody. A couple of questions from my side. The first one is on full year guidance and the implied outlook for the second semester. We come from a very tough second quarter while you are envisaging overall flat trends in the coming semester. So if you can give us a bit more color on what’s driving confidence for a sort of a sharp improvement?

And also, you have any color on current trading exit speed to June or enter speed into July, you could share with us? Second question is on net working capital. Cash absorption was more driven by receivables, if I see correctly, rather than inventory. So if you can elaborate a bit more on what’s going on within receivables and also if you have any benefit related to US dollar devaluation that is impacting inventory in this semester.

Massimo Candela, Group CEO, Fila Group: If I can answer Massimo Candida, I can answer the first question. Maybe you can answer the second question. So concerning the expectation we have for the first for the second semester, what we see is that for the second half, we do expect numbers comparable to last year’s second half. So what we think that what has happened in the first semester is almost consolidated. And now the situation is slightly improving.

We this is confirmed these days by the some improvement we see in the level of orders and some information on the back to school that is giving us some positive signs. The macroeconomic situation, we don’t think is going to improve a lot. Just take an example, just one week ago, Trump has announced the 25% tariff with India, not yet confirmed. So the situation remain extremely confused, unstable. Our customers have very limited view.

And in United States and in UK, the government budget for schools has been substantially reduced in the area of 15% compared to last year. So this is clearly impacting our numbers in short term. But what usually happen is that if the schools have less availability to buy products that is something that happens suddenly, the consumers need anyway to our product, and they tend to move to go to the retailers or to e commerce players to buy our products. So there is a kind of shift in the consumption. And of course, we should see this positive effect during the course of July, August and September.

And I do confirm we see some of this shift. Of course, in our view, we cannot consider because we don’t have enough information what will be the final level of tariffs. As of now, we are exempt in Canada and in Mexico because we are compliant with the USMCA deal. But situation is still not consolidated because Trump has given ninety days to Mexico to reach a certain target. And then it’s not clear what will happen.

So we do confirm the view of the second semester based on the information that we have today. Thanks. Christian?

Christian Nicoletti, Group CFO, Fila Group: Hi, Zako. Thanks for your question. Please go to page 11. Relating charges net working capital, we align we are aligned with respect to each one twenty twenty four and a for 7,100,000. It may be due to tariff tariff.

It will be in first quarter first half twenty twenty five, more or less, of 2,500,000.0, and 2,000,000 from the closure of production site in China. We have the main apart from difference respect to 2024. Relating the the other part is due to inventory considering for more or less for 03/04 meet 3,500,000 rated to increase of our sales. Let me see that for receivable and the payable, the other part of it, I’m not discussing before, are quite in line with respect to 2024. Other point that when we show the cash flow statement, the each line are without f FX effects.

Izako Brambilla, Analyst, Mediobanca: Okay. Thanks, everybody.

Conference Operator: Next question is from Nicolas Stoehr, Kepler Cheuvreux.

Nicolas Stoehr, Analyst, Kepler Cheuvreux: Good afternoon and thanks for taking my questions. So the first one, if you can comment a little bit more on actions on cost you have taken during this first six months, which have allowed you to basically to keep a good profitability notwithstanding relevant drop in revenues? And maybe if you can give us an update on your plan to close several plants that you told us a few months ago, if you can give us an update. And second question is on net debt, If you can quantify the benefit in the €289,000,000 you reported of weaker U. S.

Dollar, so translation of debt in dollar to euro. Thank you.

Luca Pelosi, Group COO, Fila Group: Thanks, Niccolo. And with regards to your first question, in term of group organization, I will confirm we are closer to the complete closing of our Chinese one of the two Chinese plants in Kushan. We have already finished push to ship the remaining goods and the for the asset to the other subsidiaries, and that the the the building will be returned to the landlord by the September. I do confirm, one of the three plants in The UK, Middlewich, has been moved completely to the main facility in Bracknell or maybe at the beginning of this year. And, we just announced the closing of a second small plant, including a second warehouse in North Of UK, which will be moved by the end of the year to the main plant, main warehouse, close to London.

We are also in process to organize the strongly one our clients subsidiary in this community. We managed the the different actions to bring back this company to a level of profit and profit, which is in line with our standard. Also, BrightShore, which was another plant included in the first phase of the organization, has been already shrinked, and the full process of this organization will end in the next few months. For this year, these are the main, reorganization in place. We have others in pipelines, will happen between end of this year and the and the next year.

Meanwhile, mainly due to these tariff completely implications, we are shopping more than the best around the world to find the the best of service for any raw material or materials. And, clearly, we are also challenging all our vendors to more reduce cost, from what regards the, purchases. On the other side, there are other many fine tuning in the, I can say, small organization, and I could say, in all our companies mapping the gain of the process, finding additional process efficiency with the aim to have a cleaner structure, which could manage it in a better way in our business.

Christian Nicoletti, Group CFO, Fila Group: Nicola, rate EQ FX effects on net bank debt. The positive impact on Netflix and USD is more or less 7,500,000.0 per euro positive effects on liability in USD.

Nicolas Stoehr, Analyst, Kepler Cheuvreux: Thank you. Thank you. Maybe a follow-up on pricing. Can you update us on possible price increases yet to be applied in The U. S.

Following tariffs?

Massimo Candela, Group CEO, Fila Group: Massimo Candela. We have just implemented a price increase in the North American market. For the moment, we don’t think we are going to ask for other price increases. In reality, for 2026, we had a project to move some production to India. As of now, we have been forced to freeze this kind of synergies or efficiencies until we don’t understand what will happen with the tariffs.

We have a very important alternative in Mexico, But the decision with India will be taken soon, not today. So, have not clear idea of where we are going to land. So, as of now, we do not expect the further price increase beyond the 6% that we have implemented starting August 1.

Nicolas Stoehr, Analyst, Kepler Cheuvreux: Thank you.

Conference Operator: Next question is from Alessandro Cecchini, Equita.

Alessandro Cecchini, Analyst, Equita: Hello, everybody, and thank you for taking my questions. Take one by one in term of question. The first one, in a recent interview of your company, maybe you spoke about potential combinations agreements with Dons. So if you can elaborate a little bit more what are the options, so just to have a better view what are the potential agreement between you and Dom’s? This is my first question.

Massimo Candela, Group CEO, Fila Group: Thanks, Alessandro, Massimo, Camdila. No, there is nothing more because as of now, we are talking only of medium term strategy, not short term strategy. So there is nothing new. The only comment I can make is that these international turbulence and complication in the micronomical world are clearly changing the environment in which we are working. And despite the difficult first half, Fila remain the most solid and from competitive point of view, the strongest player in our business.

And we see around us a lot of companies struggling. This I can confirm that Phil in the future will be protagonist in the reorganization of our business. Dom, as of now, there is nothing to disclose above what I said already.

Alessandro Cecchini, Analyst, Equita: Okay. Thank you. In terms of organic performance, in terms of top line growth, we saw, of course, already some anticipation that Europe was minus 7% organic in the second quarter, while North America was minus 10% in the second quarter only. So just if you provide us some color, I mean, your expectation for this quarter, so third quarter that is very important if you expect more flattish trend for these two geographies. So if you can elaborate a little bit more on your feeling about this.

Thank you.

Massimo Candela, Group CEO, Fila Group: I think we said in the beginning, so we do expect second half that will be more flattish. The problem we have faced during the first half, unfortunately, all the turbulences happening during the back to school because if the same turbulences happened, let’s say, between September and December, they would have affected us much less. But the dance of craft with the tariffs started when back to school was beginning. So that’s the reason he has injected so much uncertainty, so much confusion with our retailers, with their supply chain, with our supply chain. So unfortunately, situation looks worse than what is really now.

We do confirm the second semester will be flattish, because under normal circumstances, we would be probably more positive. But I think that this tariff strategy will generate a recession in The United States. I don’t know when, but sooner or later, we will have to deal with the difficult situation. We know that many businesses are ready to increase prices. So not only as we did this 6% price increase, but almost every consumable product is going to face price increase.

And it’s hard to believe that the consumer will continue buying with same trend they did in the last decades. So when we say the second half will be flattish, we start to consider a very weak market ahead of us in North America. And inside the flattish, we consider also the difficulties that U. S. Economy will have to face.

For what Europe is concerned, the situation is difficult, especially in U. K. Because in the rest of Europe, the situation is more stable. In U. K, we are facing a very downtrend, very strong downtrend in sales and strong reduction in budget for schools.

In medium term, this will evolve in more purchases from the family with the retailers like it happened in Italy, in which the budget for school is close to zero. So, we are already used to this kind of problems. In U. K, the situation needed to stabilize. So, the big delay in Europe is very much related to what is happening in U.

K. Again, we start seeing some signs of recovery also in UK. So we have a better realistic better situation in the second half of the year.

Alessandro Cecchini, Analyst, Equita: Okay. Thank you. And about I said about the tariff environment, we are still pending, of course, on Indian business. But just to elaborate a little bit on this, is it possible for you I believe that now already you have probably shipped everything for the back school to U. S.

So it’s a tariff probably or something to digest for 2026 if there are additional tariffs. But it’s potentially possible for Fila to manage The U. S. Business through Mexico and Canada and just a little bit of Europe. So given the fact that I believe that probably Mexico and Canada, they will continue to have zero tariffs.

So just to understand if it’s possible, if it’s something that you are reminded, so just if you can elaborate a little bit more on this. Thank you.

Massimo Candela, Group CEO, Fila Group: Yes. It is definitely possible to manage the business under the condition that we see today. Of course, the decision against India has taken out of the table a huge opportunity for us to have a strategic growth in United States because giving 25% to India put India more or less in a comparable situation to China. We are going to adjust our assortment. We are going to have more Mexican origin products, more made in U.

S. A, because our plant in United States is still working. From Europe, if the tariff at the end will be 10%, we don’t see a big impact in our ranges. So it’s doable, it’s sustainable. Again, I repeat what I said already in January.

The real problem of the tariffs is that my personal view is that The U. S. Economy will fall into recession. In terms of sustainability, our product can easily sustain a 10% tariff from Europe or even a 25% tariff from India. What is difficult to sustain is to understand how deep will be the recession in United States.

And here, I think nobody can have a clear view neither on the recession nor on the level of the exchange rate of the dollar. Because anyway, United States represent for us 55% of the group turnover. And when we consolidate a weaker dollar, of course, we consolidate less turnover and less EBITDA. So we really don’t understand where will be the new level of exchange rate between the euro and the dollar. The situation, I repeat, I try to answer again, is sustainable as of now.

With Mexico, it was like this until a few years ago because India was not a supplier for us. It was too small and not ready to supply United States. So for the moment, it does not touch a big portion of our business. So we need to understand what will be the final scenario and we will adjust accordingly. Okay.

Alessandro Cecchini, Analyst, Equita: Very clear. So just on tariff, of course, if probably the only one is India to change, but this year is, I believe, secured at this stage for you given the backlog that you have in The U. S?

Massimo Candela, Group CEO, Fila Group: You say it is sure with Mexico, the agreement says ninety days and then we will review the situation. So ninety days from the August 1 to the November 1. Unfortunately, nothing is clear. Personally, I am very pessimistic on impact this strategy will have over U. S.

Economy because until now really the effect has been limited in terms of inflation and reduction in terms of consumption. But the situation from my point of view is not sustainable. So, we will see what will happen. Mexico for the moment, we are working with zero tariff for ninety days.

Alessandro Cecchini, Analyst, Equita: Yes. Okay. Thank you.

Conference Operator: Next question is from Michael Niedzlevski, Rothschild Capital. Michael Can you

Christian Nicoletti, Group CFO, Fila Group: hear me?

Michael Niedzlevski, Analyst, Rothschild Capital: Yeah. Can you hear me?

Conference Operator: We can hear you now. Yes, sir.

Michael Niedzlevski, Analyst, Rothschild Capital: Yeah. Hi, everyone. Three questions for me. I noticed you have kept your free cash flow guidance despite the difficult H1. Could you help us by giving us your target for year end net debt excluding IFRS?

And basically, I’m trying to find out whether, you know, the stronger working capital outflow that we’ve seen in h one are gonna reverse in h two. So it’d be helpful if we could have a year end net debt excluding IFRS. Second question is on DOMS. Any plans to cut the stake further in DOMS over the next twelve months? That’d be helpful if we could have your your view on that.

And the last question on The US, I mean, I’m a bit surprised that we haven’t seen some, you know, buying ahead of the ahead of the tariffs during h one. You know, it was pretty bad in The US. And and I would have thought with, you know, the tariffs coming, you would see some some some, you know, buying ahead and we haven’t seen that. Can you just maybe make a few comments on that as well? Thank you.

Massimo Candela, Group CEO, Fila Group: So Massimo Candela, I can answer your question number two and number three. Concerning domes, we don’t have any plans to dispose further the shares. Again, we have some strategic possible development in the next two, three years with DOMS. And we are going to dispose the shares only in case there will be important M and A opportunities, which will come for sure because our business is entering in a very difficult situation worldwide. So I still consider DOMS a great opportunity.

I don’t see us to dispose not even the next twelve months to dispose further the shares. For the question number three, it is exactly what has damaged us. So, during the period of when United States was dancing on announcement of tariffs, CELA has always had a very stable situation with our customers. They know we produce in U. S, we produce in Canada and Mexico.

So they have not customers have not had it revised, they tend to do Chinese origin. So they wanted to meet and this happened also with U. S. Consumers. So they have pre bought cars, they have pre bought electrical devices, digital devices.

This has gone against our product. I think you catch my comment a few minutes ago. I told that we’re starting an acceleration of the level of sell out of our product starting from the July, early August because we are entering in the back to school season. Finally, we are in a very good competitive situation, but there was no reason for customers to pre buy from us because we did not attract with any price increase as our supply chain is extremely efficient. So in a certain way, I hope FINA will enjoy the situation starting third, fourth quarter twenty twenty five and definitely 2026 because as of now, we have been damaged by the pre buy made by all the Chinese supplier supplier or supply chain.

Tristan, can you answer question number one, please?

Christian Nicoletti, Group CFO, Fila Group: Of course. Relating to net debt debt, let me say the main driver that we used to to define more or less the results or the expected results at the 2025. We confirm the free cash flow to equity exceed between a range of 40 and €50,000,000, considering also on a dividend distribution for 40,000,000. And more or less, let me say, considering the actual situation that the net vector is more or less in line of the previous year, December 2024, of course, at the actual situation that we have the moment.

Michael Niedzlevski, Analyst, Rothschild Capital: Okay. Thank you.

Conference Operator: As a reminder, if you wish to ask a question, please click on the q and a icon Next question is a follow-up from Izako Brambilla, Mediobanca.

Izako Brambilla, Analyst, Mediobanca: Again, two quick follow ups on my side. The first one is on refinancing that is mentioned in the press release. If you can give us a bit more color on what should we expect, if we should expect anything over the second semester of the year on this front? Second question is if you can recap sourcing of your U. S.

Sales, how much comes from the domestic market and improve the split of production between Mexico, Europe and India for the rest?

Massimo Candela, Group CEO, Fila Group: Christian, can you answer question number one and look at question number two, please?

Christian Nicoletti, Group CFO, Fila Group: Of course. Thanks for your questions, Zako. Of course, Zako, we are discussing with the bank about the condition, for the event in the New York financing. Of course, we have time until June 2027, considering that is our deadline. And, we have a an a window discussion with the bank is the 2025 and the the first semester twenty twenty six.

Of course, the renegotiation depends, of the opportunity of Fila it would take in the future and the continued deleverage that Fila is arising. I confirm that Fila is absolutely confident to respect the payment at the end of 2025 and 2026 without any kind of problems. Considering that, we are open discussion to take the better position with the bank at the moment.

Luca Pelosi, Group COO, Fila Group: Okay. With regards to the supply chain for for US, the main subsidiary supplying US is here in Mexico. We can say it is should be between 1520%. And then, the rest, the second one, I can I can combine the Europe because we are supplying The US, from France, Italy, Germany, UK? So it’s a it’s a big portion of the supply.

India, at the moment, is not so big also for the reason already explained before. And then there is another portion of that related to domestic sales, mainly for school paper products, which are converted in our plans I I do. I recall

Izako Brambilla, Analyst, Mediobanca: correctly domestic portion is above 50%. So but well above, I would say, of what you sell in The United States.

Luca Pelosi, Group COO, Fila Group: Whatever is related to convert the products in United States, yes. It is already around 50%.

Izako Brambilla, Analyst, Mediobanca: Okay. Thanks again.

Luca Pelosi, Group COO, Fila Group: Probably a little bit less than 50. We don’t have precise figures, but it’s a big big portion. Question.

Conference Operator: Mr. Nicoletti, gentlemen, there are no more questions registered at this time.

Christian Nicoletti, Group CFO, Fila Group: Thanks a lot for attending our conference call, and we’ll see you next one. Thanks a lot.

Conference Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.

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