MILAN — A late sun season and the volatile and uncertain economy dented Luxottica Group SpA’s profits despite growing revenues in the first half of the year.
In the six months ended June 30, the Italian eyewear group saw net profit fall 5.8 percent to 476 million euros, or $533.1 million, compared with 505 million euros, or $591 million.
Sales grew 1.1 percent to 4.72 billion euros, or $5.28 billion, compared with 4.66 billion euros, or $5.45 billion. At constant exchange rates, sales would have risen 3.5 percent.
Group operating income decreased 8.2 percent to 788 million euros, or $882.5 million.
“In the first six months of the year, we have continued to grow despite the increasingly volatile and uncertain macroeconomic environment, the undergoing simplification of the group’s organization, the implementation of stricter trade policies and major structural investments,” said executive chairman Leonardo Del Vecchio. “These courageous decisions are not yet reflected in our short-term results. The quality of growth, which is visible in the exceptional cash generation and increasing earnings, remains the priority for all of us.”
During a conference call with analysts, Massimo Vian, chief executive officer for product and operations, conceded that “May was softer than expected” and that the “sun season was very late, and June weather didn’t help.” These were offset by a “solid optical” business, gains at LensCrafters and in Europe and a “very positive” performance in Latin America. Vian underscored that the company “worked even harder in the second quarter to boost initiatives” and he touted a “leaner business model. We are confident we are on the right track.”
That said, the company revised its sales projections for the year to 2 to 3 percent from a 5 to 6 percent growth.
Global sales at Sunglass Hut rose 5 percent in the first half, said the executive. “The resilience of the group’s operating margin and continued growth of the profitability of the wholesale division demonstrate the effectiveness of the Oakley integration activities and initiatives to improve business efficiency and push us to make, with calm determination, the decisions that we believe are right for the business,” Vian said.
Chief financial officer Stefano Grassi underscored that Luxottica’s cash flow totaled 400 million euros, or $448 million, trumpeting “an unchanged strategic vision,” leveraging on the company’s vertical model. He also said that Luxottica will benefit from price harmonization from July. He also highlighted new distribution centers in China, Italy and Atlanta, in the U.S., which will allow a “customized distribution offer.”
Luxottica produces and distributes collections for brands ranging from Giorgio Armani and Burberry to Prada and Versace and owns labels including Ray-Ban and Oakley.
Sales in Europe rose 2.6 percent to 981 million euros, or $1.09 billion, representing 21 percent of the total and with particularly strong results in Italy, Spain, Turkey and Eastern Europe. Conversely, results in France were slightly negative due to the decline in tourism following the terrorist attack there late last year. Sunglass Hut opened its first 26 stores in Galeries Lafayette in France.
Adjusted sales in North America were flat, or up 0.5 percent to 2.73 billion euros, or $3.05 billion, representing 58 percent of the total, dented by a paring down of distribution in the region. LensCrafters continued to grow, said the company, which will continue to roll out LensCrafters at Macy’s.
Revenues in Asia-Pacific decreased 4.2 percent to 590 million euros, or $661 million, picking up after the first three months of the year. At constant exchange rates, mainland China, India and Japan confirmed their growth and Korea in the second quarter reported an expected rebound in sales, recovering from the negative impact of different shipment timing in the first three months of the year compared to 2015.
Mainland China slowed down in the second quarter as Luxottica is expanding its direct distribution. The company has opened nine direct Ray-Ban stores in the region, responding to a customer need. Hong Kong is still struggling, confirming the double-digit decline of the first quarter.
The company trumpeted strong growth in Latin America, where sales were up 13 percent at constant exchange rates, but down 5.4 percent due to the steep depreciation of the Brazilian real and other local currencies against the euro. The opening of the first Sunglass Hut stores through a franchise agreement have improved the distribution presence in Brazil, and business in Mexico, Peru and Colombia was also very strong. The company started business in Argentina.
Ahead of the Olympics in Rio, Vian highlighted Oakley color enhanced lenses worn by athletes, and the Oakley Radar Pace glasses with a voice activated system, which will be available in stores and online in October.
Vian revealed that Luxottica just bought a small company based in Columbus, Ohio, that produces pigments for industrial integration.
Dollar figures were converted from the euro at average exchange rates for the periods they refer to.