MILAN — Luxottica Spa on Friday said net sales in the first quarter increased 5.2 percent because of an "excellent" performance of the Ray-Ban brand, strong growth in Europe and Latin America and exchange rate tailwinds.In the three months ended March, net sales reached 2.38 billion euros, or $2.52 billion, compared to 2.27 billion euros, or $2.5 billion, in the year-earlier period.Luxottica — which is in the process of merging with French lens maker Essilor SA — said retail sales were up some 3.3 percent to 1.43 billion euros, or $1.52 billion, while wholesale was flat, at 958 million euros, or $1.02 billion — mostly the result of "ongoing efforts to elevate sales quality, mainly in North American and China."In North America, total sales decreased slightly in the period, down 2.5 percent at constant exchange, as the company felt the effects of its MAP policy, whereby it has cut promotional activities and discounts at retailers and on its web site in support of a strategy to protect the equity of its brands.International markets put in a positive performance. In particular, sales were strong in Europe, where revenues jumped more than 17 percent — a feat achieved also because of the consolidation of Italian retail chain Salmoiraghi & Viganò, which counts 430 stores in Italy. Revenues were also strong in Latin America, where they were up over 5 percent.During a conference call following the results, Stefano Grassi, the company's chief financial officer, pointed out that the Mexican market was performing particularly strongly and that Brazil, where performance was still negative in the first quarter, was expected to rebound in the second half of this year.E-commerce sales increased 6 percent in the period, at constant exchange.Referring to the implementation of the MAP policy during the conference call, Massimo Vian, chief executive officer for product and operations, said while it had a negative impact on the first quarter, it was "less significant" than initially projected and is set to positively affect the group's bottom line.Vian said Oakley was "still struggling a bit" in North America and that this had to do in part with big retailers of sporting goods, which are "not doing very well." Luxottica not only closed shops, it also opened some 100 optical locations, Vian said. He pointed to a strong performance at Ray-Ban, in particular its new sun prescription lenses in Europe. He said that 50 percent of Ray-Ban lenses selling in Europe are sun lenses, "and this is a brand new segment for Luxottica."Grassi said the company's new store model — which represents about 10 percent of the group's retail footprint in North America — is beginning to compensate the negative trend in like-for-like business, which was driven by the reduction in promotional activities. He said last year, the company opened about 650 stores in North America and closed some 300. He said the company would continue to look at its store portfolio and would close and open new stores "when it makes sense."The retail strategy in the U.S. is focused on reshaping the store portfolio to make it more efficient, to get more revenue and profit per square meter in smaller stores and so increase return on invested capital, Grassi explained.Asked what they thought the "optimal size" of the sun and prescription frames network in the U.S. would be, Grassi said it was hard to make a call, but he pointed out that Luxottica has more than 2,500 optical stores and 1,700 Sunglass Huts. He added that the company closed 160 Sunglass Huts in the first quarter. "Probably we won't go through another massive closure of Sunglass Hut, but longer term I don't see Sunglass Hut growing in North America. We see expansion from the optical point of view."Vian also discussed progress on the company's new lens production center in Atlanta, pointing out it is running at about 10 percent of capacity. He reaffirmed the new center is crucial to Luxottica's plans to roll out its new store platforms: thanks to super-quick-delivery times of frames to stores, shops will not need to keep large stocks of frames which, in turn, will allow for smaller shop sizes with benefits to store operating costs.Vian said the goal for Lens Crafters is a "lighter" business model — one powered by digital machined production and a high degree of product personalization. Asked to imagine the future of Luxottica's retail locations, he said future optical stores would likely only need to have samples in stores and virtually no need for reassortments, which means there would be no need to dispose of returns, save samples in stores. Thanks to an increasingly tight and integrated supply chain, Vian said consumers would order their glasses in-store or online and receive their new frames from the distribution center, in many cases within a couple of days.
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