MILAN — A stronger euro and extraordinary events impacted Luxottica Group SpA’s performance in the third quarter. In the three months ended Sept. 30, sales at the Italian eyewear giant decreased 3.5 percent to 2.14 billion euros. At constant exchange rates, revenues inched up 0.8 percent. In the first nine months of the year, revenues rose 1.7 percent to 7.06 billion euros.Business accelerated in July and August compared with the first half of the year but was curbed by a drop in September due to the hurricanes that hurt performance, mainly in North America, Mexico and China. Globally, these events led to a closure of about 800 group stores and the total loss of more than 4,000 retail days.Strong growth in Europe and Latin America and an improvement in Asia-Pacific drove the group’s quarterly sales. The restructuring of Oakley's sport and retail channels and changes in the LensCrafters business still weighed on sales in North America."The many initiatives taken in the last two years are bringing clear benefits, particularly the ‘MAP [Minimum Advertised Price] policy,’ which in North America supported double-digit growth for Ray-Ban in the sun segment and online,” said executive chairman Leonardo Del Vecchio, in a statement together with Massimo Vian, chief executive officer for product and operations. “The success of OPSM [Optical Prescription Spectacle Makers] in Australia is another example of a strategic initiative undertaken by the group with consistency and determination. In the same spirit, we are now leading the change in LensCrafters for the chain's long-term success, with a new courageous commercial offering for the American market that is clear and transparent, free of a heavily promotional approach and focused on the quality of the products and services.”During a conference call with analysts, Vian confirmed the outlook for 2017 thanks to “a return to growth in the first weeks of October and the solid profitability and cash flow of the first nine months.” He also expressed confidence in an acceleration of growth in 2018.The group produces and distributes collections for brands ranging from Giorgio Armani and Chanel to Michael Kors and Prada and owns labels including Ray-Ban and Oakley.In the third quarter, the wholesale division, which showed an improvement compared to the second quarter, was down 3.7 percent to 800 million euros. At constant exchange, this channel edged down 0.3 percent.The retail business was down 3.3 percent to 1.42 billion euros. At constant exchange rates, it grew 1.3 percent, boosted by the contribution of new stores.In the third quarter, Europe continued to be a bright spot for the group, increasing 14.2 percent to 457 million euros, representing 21 percent of total. Growth in the region was driven by Italy, Spain, France, the U.K., Turkey and Eastern Europe. The retail division benefited from the consolidation of the Salmoiraghi & Viganò stores in Italy and Sunglass Hut's growth in continental Europe.In North America, sales dropped 9 percent to 1.23 billion euros, accounting for 57 percent of total revenues, hurt by the extraordinary events that affected the region during the period and changes introduced in retail, particularly in LensCrafters, "which did not perform within our expectations," Vian said. "We remain confident we are headed in the right direction. We are focused on executing. September was better and encouraging." Chief financial officer Stefano Grassi said the group "missed an opportunity with back-to-school at LensCrafters, but the fourth quarter is off to a good start, also with Sunglass Hut."
Grassi said "after three consecutive quarters of tailwinds, now we are facing headwinds with the U.S. dollar down 5 percent in the quarter, and we will see a further dilution in the fourth quarter if it stays like this, although we expect acceleration in the fourth quarter in the U.S."
The devastating hurricanes that hit Texas, Florida and Puerto Rico led to the closure of about 570 stores, most of them for over a week, and impacting thousands of wholesale customers. The wholesale business, decreased 5.4 percent, and was driven by sales to the optical channel and department stores, which offset weakness in the sports channel. In the quarter, Ray-Ban sales were up double-digit in the sun segment. "Ray-Ban is the strongest and most iconic brand globally, it's in excellent shape and growing double-digit in the U.S.," Vian said. He noted that the brand's aviator glasses are being displayed at the Museum of Modern Art, "being celebrated as an influential item in history." He said the company has expanded its store fleet in China for the label to reach 100 units and that 120 are expected by December.Revenues in Asia-Pacific dropped 5.2 percent to 273 million euros, representing 13 percent of total sales. The region performed well in Australia and Japan and was helped by the travel retail business in the Asian region. The wholesale division was still impacted by the restructuring of distribution in mainland China and the new commercial policies that are almost exclusively focused on direct sales to the final consumer, Luxottica said. The retail business drove the growth in the region, thanks to the “excellent performance” of the optical retail business and Ray-Ban stores in China, with more than 60 new openings by the end of the year. Typhoons in South China also disrupted the performance.Sales in Latin America rose 6.7 percent to 148 million euros. Brazil saw an acceleration in the quarter, lifted by an improved macroeconomic environment and the consolidation in the group's perimeter of Óticas Carol. Mexico, which was driving Latin America, continued to grow solidly but slowed down its pace due to the September earthquake that has led to the temporary closure of a quarter of the group’s stores in the area. Sunglass Hut opened its first stores in Colombia and Argentina. The region was also affected by a series of strikes in Chile for the renewal of the labor contract. "It went on for more days than expected, with 100 stores closed for four days, but the negotiations went well, and the contract has been renewed for three more years," Vian said.
Regarding Luxottica's proposed 46 billion euro merger with French lens-maker Essilor, which is being investigated by the European antitrust authorities, during the call Alessandra Senici, group investor relations and corporate communications director, said the company continues to view it as "highly beneficial." She said the company "is having a solid and constructive dialogue" with the antitrust authorities. The merger is believed to be "highly complementary," with "no overlaps," making for "a more efficient group." Senici reiterated the merger has already been approved in several countries from Russia and India to Colombia and Japan. Vian said the announcement of the merger earlier this year had not disrupted business nor did it have any negative impact on sales. "I see no downside to it."
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