LUXOTTICA AND OAKLEY AGREE TO DO BUSINESS

Byline: Vicki M. Young

NEW YORK — The chilly relationship between Oakley Inc. and Luxottica Group thawed slightly Wednesday as the two signed a new three-year distribution agreement providing for resumption of sales of Oakley products at Luxottica’s Sunglass Hut International retail stores.
The new deal, effective through Dec. 31, 2004, has no bearing on the pending intellectual property litigation between the two firms and their affiliates. As reported, Oakley said on Nov. 26 that it obtained a temporary restraining order against Luxottica in connection with alleged claims for patent infringement filed in a Los Angeles federal court.
The order barred Luxottica and its Sunglass Hut, LensCrafters Inc. and Ray Ban Sun Optics Inc. units from selling products in the U.S. with emerald green or ice blue lenses which, Oakley charged, infringed on its patent for Iridium reflective lens coatings. On Dec. 3, Oakley said that the restraining order was converted into a preliminary injunction.
The new three-year pact — applicable to all Sunglass Hut locations in the U.S., Canada, the United Kingdom and Ireland — marks the resumption of business between the two companies, which had been substantially reduced after Luxottica’s acquisition of Sunglass Hat last summer. The two firms said they were also looking to resume business under “mutually agreed” terms for markets not covered by the new pact.
Jim Jannard, chief executive officer of Oakley, said in a statement, “This agreement recognizes the unique, mutually beneficial nature of our association with Sunglass Hut International, the largest sunglass specialty retailer in the world.”
Jannard added that while “we may still have our differences,” the renewal of the firms’ business relationship insures that consumers who prefer to shop at Sunglass Hut will again have access to Oakley eyewear.
Luxottica can obtain preferred pricing terms if certain purchase minimums are met or sales levels are obtained.
Jannard said that the additional sales to be gleaned from the new deal will help to maximize Oakley’s operating efficiencies. The company will continue to explore alternate distribution channels as well.
Separately, Oakley revised fiscal 2002 estimates to reflect the impact of the Luxottica agreement. The company provided guidance of between $500 million to $550 million in sales and earnings per share of between 77 cents and 85 cents. The prior 2002 guidance estimated sales of between $475 million to $550 million, and EPS of between 70 cents and 85 cents.
Fourth-quarter estimates are $85 million in sales versus $90 million previously, and EPS of 4 cents versus 9 cents in the year-ago period.
Link Newcomb, chief operating officer of Oakley, said that the new deal means that Sunglass Hut will again become its largest single customer, but added that it shouldn’t be a major concern. He pointed out that the company has “successfully” reduced its overall dependence on Sunglass Hut and will continue to aggressively diversify its distribution with retailers who carry Oakley footwear, apparel, prescription eyewear and watch product lines.

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