PARIS — EssilorLuxottica’s share price took a hit on Friday after it reported results for the first time since Essilor and Luxottica merged last October.
The new eyewear behemoth’s stock closed down 6.3 percent to 101.80 euros on the Paris stock exchange, as the market reacted negatively to indications that the integration of the two companies will take longer than expected.
EssilorLuxottica said net profit on a pro forma, adjusted basis — which consolidates the two companies’ results starting from Jan. 1, 2018, and adjusts them from one-off or otherwise unusual expenses — declined 1.7 percent to 1.87 billion euros for the full year.
Operating profit was down 4.8 percent to 2.57 billion euros, while sales eased 1.2 percent to 16.16 billion euros. At constant exchange rates, sales were up 3.2 percent, with both Essilor and Luxottica contributing to the gain.
“The results seemed OK, with some acceleration in the fourth quarter of 2018, which is good,” said Luca Solca, senior research analyst, luxury goods, at Sanford C. Bernstein & Co.
Grégoire Laverne, deputy chief executive officer and senior fund manager at Roche-Brune Asset Management, noted that EssilorLuxotica sales were in line with analysts’ expectations.
“The reason for [the revenue] decline is essentially explained by the group’s strong presence in the U.S., and therefore its exposure to the dollar. It’s also the currency effect that weighs down and reduces the group’s operating margin to 15.9 percent against 16.5 percent previously,” he wrote in a note.
In 2018, the negative currency impact on EssilorLuxottica sales was 4.4 percent. Laverne added that on the other hand, the group’s net debt — at 1.9 billion euros — was lower than expected.
“What seemed disappointing to an impatient market eager to see the synergies from the merger was the impression that we are still facing two independent companies, and that the post-merger integration effort will take time,” Solca said.
“The fact they moved the capital market day to September, while it was previously announced for the first half of 2019, was badly received. This is when the market would like to see some substance on the post-merger integration: who is in charge, what are the priorities, what are the expected benefits, when these will materialize,” he added.
EssilorLuxottica executives said the integration of the two companies was moving forward, with top management working together to identify key value-creation initiatives for the short- to long-term.
During a call with analysts, Laurent Vacherot, ceo of Essilor International, said EssilorLuxottica is on a “journey.” He confirmed the company was on track to appoint a new ceo by the end of 2020. “We are looking outside. The remuneration and nomination committee of the board is also investigating inside the organization,” he said.
A question arose about whether the company’s long list of co-managers, co-chief financial officers and co-heads of integration could be perceived as a suboptimal structure for decision-making.
“There is a lot of great talent in both companies,” Vacherot said. “The cooperation between top talent of both companies is a way to start, and we’ll see moving forward how we can learn, improve and be better. What we are building is quite an immense and unique company. You need to give us time to do it properly — not rush for easy, fast solutions, but really build a solid, strong, sound company with the growth and value-creation that we have [in mind while] growing this industry and building a strong momentum.”
The merger of Essilor and Luxottica was first revealed in January 2017 and promised to transform the eyewear sector’s global landscape, and spark both further technological innovations and deals. The antitrust process took almost two years to complete.
EssilorLuxottica also said it expects for 2019, in constant-exchange rate terms, net profit growth at between 1- and 1.5-times sales, and adjusted operating profit gains at 0.8- to 1.2-times sales.
On a pro forma, constant-exchange rate basis, the company’s sales in 2018 improved in all regions — up 2.6 percent in North America, 1.3 percent in Europe, 6.6 percent in Asia, Oceania and Africa, and 6.5 percent in Latin America.
All but one operating segment registered sales growth in the year in pro forma, constant-exchange terms. From the Essilor business, sales of lenses and optical instruments were up 4.8 percent; sunglasses and readers sales advanced 7.6 percent, while equipments sales were up 9.1 percent.
From the Luxottica business, the wholesale operating segment’s sales declined 1 percent, and the retail operating division’s revenues advanced 3 percent.
On a reported basis, net profit for EssilorLuxottica was 1.16 billion euros, and operating profit came in at 1.36 billion euros. The company’s sales stood at 10.8 billion euros.
Vacherot said EssilorLuxottica has a “very important acquisition pipeline.”
Since Jan. 1, Essilor has made two transactions that together represent additional annual sales of approximately 34 million euros. In Germany, it acquired 100 percent of Brille24 GmbH, among the leading online sellers of optical products in the country, with annual sales of about 25 million euros. In Greece, Essilor’s partner Shamir bought Union Optic, a prescription laboratory that distributes optical instruments, as well.