MILAN — Italian eyewear giant Luxottica Group SpA on Monday reported a 3.2 percent increase in net sales as consumers in Europe and Latin America kept snapping up designer frames even as markets like North America and China softened.
Luxottica on Monday reported that net sales in the three months ended September reached 2.23 billion euros, or $2.42 billion. At constant exchange, the increase would have been 3.5 percent. Adjusted for a change in the way the company reported some revenues from EyeMed-related activities, revenues increased by 1.2 percent, at current currencies (1.4 percent at constant exchange), the company said.
In the latest three-month period, retail sales — which made up just over 60 percent of total revenues — jumped 7.2 percent, helped by the opening of some 130 stores in the period, and more than compensated for a 3.2 percent decrease in wholesale revenues. In adjusted terms, retail sales were up 3.8 percent on the previous comparable period while wholesale dropped 3.2 percent.
Luxottica’s executive chairman Leonardo Del Vecchio and chief executive officer for product and operations Massimo Vian said the reason for the decline in wholesale channel revenues was mostly due to the “decision to sharply reduce sales to online operators in North America and the withdrawal of goods from Chinese independent distributors who were not aligned with the group’s new distribution strategies.”
Looking at markets, the company — whose portfolio includes its own brands like Ray-Ban, Oakley and Oliver Peoples, as well as licensed brands like Giorgio Armani, Michael Kors and Prada — said Europe and Latin America (especially Mexico) remained strong. The only market in Europe that did not perform strongly was Turkey, where political instability has impacted consumer sentiment, said Stefano Grassi, the company’s chief financial officer.
In North America, although wholesale performed poorly, retail sales expanded slightly, thanks mostly to Sunglass Hut.
Among the challenges the company has faced over the July to September period, Vian pointed out that summer started late in June, but that the company “executed well.” However, he said LensCrafters faced a more challenging situation as the U.S. optical market was “particularly soft and we struggled with comparables.” The company “struggled with weaker traffic” in stores, he said. Meanwhile consumers were more price conscious and “we, too, were more disciplined with a lower level of back-to-school promotions.”
E-commerce sales outshone the other channels, up 18 percent on the year-ago period.
Meanwhile, U.S. wholesale performance was impacted by the implementation of the group’s MAP (minimum advertised price) policy, which prohibits wholesale customers from advertising Ray-Ban products at deep discounts compared to retail and has been in effect since July 1, as well as by the integration of the Oakley sport channel, the company said.
In Asia, the company said that while Hong Kong continued to remain negative, there were signs of stabilization in the third quarter and China was negative as the company continues to exit relationships with some distributors and focus on developing the retail channel, Grassi said. Retail comparables are “double-digit” in China; “the efforts we are taking are paying off.”
Regarding 2017, Grassi said next year was going to be “a year of acceleration for us” with growth in the “midsingle-digit range.” While in terms of expected profitability, referring to earlier targets, he said that growth in operating income at 1.5 times sales “is not a question of ‘if’ we are going to do it but ‘when.’ We are going through the budgeting process now. We will be more precise in early 2017.”
He confirmed the company targets some 15 billion euros in annual sales by 2024, compared with 8.8 billion euros in 2015.
The executives also shed light on growth plans for the rollout of LensCrafters shops in Macy’s stores in the U.S., with Grassi saying the company targeted some 47 by the end of 2016.
The company will continue to remain on the lookout for opportunities for mergers and acquisitions. Responding to a question about remarks in recent interviews that Luxottica was on the hunt for possible acquisitions, Vian said the company would continue scouting and was particularly interested in eventual opportunities more on the distribution side, “where there are areas we could accelerate.” He said that in terms of brands, the company couldn’t add much more to its already powerful portfolio: “Our portfolio is rich and we have to find ways to not compete against ourselves.”