PARIS — EssilorLuxottica expects the hit from the coronavirus crisis to deepen in the second quarter, the eyewear giant said Tuesday, reporting first-quarter revenues slipped 10.1 percent as the the coronavirus crisis spread across its major markets in the U.S. and Europe.
There are encouraging signs, however, with the reopening of some countries, the company said in a trading update.
Forging ahead with its integration process, the company noted progress in some areas, but delays in others. The integration of technology platforms and its network of prescription laboratories is moving forward but some revenue synergy projects were delayed, including prescription products for the Ray-Ban brand, it said.
Despite revenue declines, the group is predicting pent-up demand will fuel business when the crisis eases up, citing the essential nature of optical products.
“While we are adapting the organization for the few months ahead, early experience from the first countries to open is encouraging,” said the chief executive officers of Luxottica and Essilor, Francesco Milleri and Paul du Saillant.
Revenue for the three months came to 3.78 billion euros, with declines in all divisions, and across markets for the eyewear and lens maker. The group noted its business relies on eye exams and retail traffic, both of which have slowed in countries with lockdown and social distancing measures. However, before COVID-19 disrupted activity in North America, the company pointed to a “sound trajectory” of its optical retail business as a sign it will perform well when that economy restarts.
Luxottica’s wholesale activities also had a promising start of the year in that region, the company said, citing the strong performance of Oakley, before retailers closed their doors.
In China, revenue began a gradual recovery in March and sales of prescription lenses have returned to year-on-year growth since the end of April.
For Luxottica, Europe was most affected by the spread of the virus, denting its wholesale and resale tallies.
Revenues fell short of consensus by 3 percent, said RBC analyst Piral Dadhania in a note to clients. Near term, the company’s wholesale and retail activities are both exposed to store closures around the world, but there is potential for some pent-up demand in its prescription business, which accounts for the bulk of sales, while the discretionary side of business is likely to see ongoing pressure from lower tourist flows and evolving consumption habits, Dadhania added.
The COVID-19 crisis has prompted management changes at the upper ranks of the eyewear company, which has reduced the number of executives on its management board by a third in a bid to simplify decision-making.
Formed in 2018 from the 46-billion-euro merger of France-based Essilor and Italy’s Luxottica, EssilorLuxottica has suffered a number of challenges, and the early stages of integration were complicated by disputes between top managers of the French and Italian factions of the company.
EssilorLuxottica did not hold a conference call to discuss the trading update and said it would do so when the market improves.
The company had reported a strong start to the year during its last earnings report, but ended up withdrawing guidance a few weeks later, when store closures rolled across Europe and North America. Behind the initial optimism was the return to business in China, where production was fully operational with spare capacity in March. The company has been adjusting production according to demand, implemented cost and cash control measures, and suspended lower priority investments.