MILAN — A delayed sun season in Europe and the restructuring of its wholesale business in China affected Luxottica Group SpA’s performance in the first quarter of the year, but the Italian eyewear giant on Friday confirmed its positive outlook.
In the three months ended March 31, Luxottica saw revenues decline 10.7 percent to 2.13 billion euros, compared with 2.39 billion euros in the same period the previous year. At constant exchange rates, sales were down 0.8 percent.
During a conference call with analysts on Friday at the end of trading in Milan, where the company is publicly listed, the group’s chief financial officer Stefano Grassi also pointed to the currency headwinds in the period, in particular in relation to the U.S. dollar.
Luxottica makes frames under license for brands including Armani, Michael Kors and Prada, among others, as well as own brands Ray-Ban, Oakley and Oliver Peoples.
In the first quarter, Luxottica’s wholesale channel posted a drop of 11.1 percent to 830 million euros. At constant exchange, it was down 4.2 percent. The unfavorable weather in Europe led to the postponement of orders in March, a month that typically generates half of the wholesale sales for the quarter. “Excluding this, sales would have been in line,” said Grassi.
The retail division was down 10.4 percent to 1.3 billion euros, but grew 1.3 percent at constant exchange. Comparable-store sales decreased 0.6 percent. Sunglass Hut drove sales in North America with comparable-store sales up by 7.6 percent. Retail brands in China and Australia, Target Optical and the e-commerce business worldwide, which recorded an increase of 16 percent because of rayban.com and sunglasshut.com, all helped offset the slowdown in Europe and negative sales of LensCrafters, which is still focused on transforming its business model.
Executive chairman Leonardo del Vecchio highlighted the group’s positive results “in many businesses and geographies thanks to our product innovation, the improvement of the consumer experience in our stores and the development of our e-commerce platforms. Sales performance at constant currency does not affect the group’s quarterly profitability, which remains sustained and solid.”
He said the goal is to continue to invest in the group’s long-term growth. “After China, we have adjusted our distribution and commercial policies in Europe, which are now consistent and balanced between the different sales channels and aimed at fighting counterfeit and parallel. We want to be closer to our customers, with innovations that can benefit the entire industry. The large investments in new technologies will offer our customers all the advantages that digital transformation can deliver, enhancing brands and collections.”
Del Vecchio concluded on an upbeat note, saying, “The many positive signals from the markets, such as the excellent performance of Sunglass Hut and our e-commerce platforms, push us to look at the results of the whole year with confidence and confirm our outlook for 2018.”
Luxottica is in the process of merging with French lens maker Essilor SA and the proposed combination has been cleared by the antitrust authorities in Europe, the U.S., Canada and Brazil, and in 14 other jurisdictions. Approvals are pending from China and Turkey. During the call, Alessandra Senici, the group’s head of investor relations, said the company confirmed it expected to close in the first half of the year and noted that China and Turkey together account for less than 3 percent of sales.
Asked by Exane BNP Paribas’ Luca Solca whether Luxottica was pressured by brands such as the digitally native Warby Parker, for example, similarly to established luxury brands seeing streetwear labels entering their turf, Grassi responded: “We don’t feel a stronger competition today more than in the past. Our collections have been well-received and accepted and we make sure we understand the feedback from clients and we see that it is positive. Ray-Ban is stronger than ever.” He cited ongoing innovation also with the prescription division at Ray-Ban.
Solca also asked Grassi about the forays of luxury goods groups into the category, citing the inauguration earlier in the week of Thélios, the manufacturing plant set up in Longarone, in Italy’s eyewear hub, under the venture between LVMH Moët Hennessy Louis Vuitton and Marcolin to produce eyewear for the French group, starting with Céline, Loewe and Fred. “We have knowledge of the investment, we are curious to see how [it develops]. We wish them all the best, we need healthy competition, it’s good,” Grassi said.
Returning to first-quarter figures, sales in North America were down 13 percent to 1.19 billion euros, accounting for 56 percent of total. At constant exchange, sales inched up 0.1 percent. The company said the “excellent performance” of Sunglass Hut, Target Optical, Pearle Vision, Group’s e-commerce platforms (mainly rayban.com and sunglasshut.com) and EyeMed in Managed Vision Care, “fully balanced the still negative sales of LensCrafters.” Ray-Ban sun in the U.S. is stronger and more attractive than ever,” said Grassi.
After 12 consecutive quarters of solid growth, revenues in Europe decreased 5.5 percent to 489 million euros. “As summer kicks in, we are sure we will see a different trend in the second quarter,” said Grassi, noting “good signs of recovery in the second half of April. We are very happy with the past 10 to 15 days.” There will be a stronger focus on Europe in 2018, he noted.
Sales in Asia-Pacific dropped 9.3 percent to 279 million euros, representing 13 percent of total. At constant exchange, revenues were unvaried, inching down 0.3 percent. The positive contribution of Australia, Japan, India and travel retail offsets the negative performance of China, where the group is completing the restructuring of its distribution channel in favor of a direct relationship with the final consumer. “We will see a different velocity in China in the second quarter,” said Grassi. The region benefited from the excellent performance of the retail business, with the strong growth of Sunglass Hut, OPSM in Australia and LensCrafters and Ray-Ban stores in China.
Sales in Latin America decreased 9.8 percent to 131 million euros. At constant exchange, they rose 2.6 percent. The strong contribution of Brazil drove results, where the group also launched a new commercial organization to improve customer proximity and service and reported an “excellent performance” of Óticas Carol, the eyewear franchising retail chain that Luxottica acquired last year, while Mexico decelerated, said Grassi. The retail division benefited from the growth of Sunglass Hut sales and the promising start of the first Ray-Ban stores in the region.
Grasso said he was “very pleased” with the group’s online business, “which is the [favored] consumer choice,” and which has shown a 15 percent growth at constant exchange. In the first quarter, Ray-Ban and Oakley digitally grew by double digits, said Grassi. “We want to make the web site more appealing, we work on customization, on more exclusivity and it’s very important to expand our customer base and we will do even more.”
In December, the Italian eyewear company said chief executive officer for product and operations Massimo Vian was exiting, three months before his term expired, and after 13 years at Luxottica.
Executive responsibilities were consolidated in the hands of executive chairman Leonardo Del Vecchio and deputy chairman Francesco Milleri, who took on the ceo role.