PARIS — Despite a challenging start due to unresolved governance issues, EssilorLuxottica, the eyewear giant formed by the merger between Italy’s Luxottica and France’s Essilor, is continuing its expansion.
The company has bought a 76.72 percent interest in Dutch optical retailer GrandVision from previous owner HAL at a cash purchase price equal to 28 euros a share, it said Wednesday. The deal values the Dutch firm at upwards of 7 billion euros.
With the acquisition, EssilorLuxottica will add 7,200 stores to its existing retail network of 10,000 points of sale, as well as more than 37,000 employees and 3.7 billion euros in annual revenue. The company plans to expand its optical retail platform, with a focus on Europe.
The eyewear behemoth reported a net profit of 1.1 billion euros for the period ending June 30, up 6.8 percent. Operating profit rose 4.3 percent to 1.5 billion euros, on first-half sales of 8.8 billion euros.
Related Galleries
Revenues were up 7.2 percent in the second quarter to 4.5 billion euros, boosted by strong growth in Latin America, with Brazil maintaining double-digit growth at constant exchange rates, and growth in Mexico reaching 20 percent.
During a conference call with analysts, Luxottica chief financial officer Stefano Grassi also singled out the company’s solid growth in Asia. Revenues for the Asia, Oceania and Africa area were up 5.8 percent in the second quarter to 1.4 billion euros due to strong performances in Japan, South East Asia, South Korea, the Middle East and China, where the company’s wholesale model is currently being rebuilt.
“We are continuing the expansion of our retail footprint in Asia, in particular for Ray-Ban,” Grassi said. “The majority of the 25 new Ray-Ban stores we opened in the first half of 2019 are concentrated in China, because that format is very successful there. Overall, we are now in our 12th consecutive quarter of solid growth in the Asia, Oceania and Africa area.”
In comparison, the North American market saw slow growth of 1.9 percent in first-half sales. This was explained by the bad weather the area experienced between May and June affecting Sunglass Hut’s performance, the closing of 170 Sears stores, as well as a particularly competitive market.
“But we are confident that the effects of the new Sunglass Hut campaign with Gigi Hadid, a very visible and important campaign which debuted on television in July, will be seen throughout the second half of this year,” Grassi said.
EssilorLuxottica confirmed its objectives for 2019, with sales forecast to increase between 3.5 percent and 5 percent at constant exchange rates. The company expects adjusted net profit to grow at 1 to 1.5 times the pace of sales, and adjusted operating profit growth at 0.8 to 1.2 times.
In a statement, company officials, who have been locked in post-merger conflict, struck an upbeat tone, underlining both the acquisition of GrandVision and the renewal of the eyewear group’s license agreement with Bulgari.
“With GrandVision we will be able to develop our retail network, finally extended throughout the geographies, and fully enable our multichannel and digital platforms. We will raise the quality of in-store experience for products, brands and services for the benefit of all consumers and our wholesale customers,” said Leonardo Del Vecchio, executive chairman of EssilorLuxottica, in a statement.
After the completion of the transaction, which is expected to close in 12 to 24 months, EssilorLuxottica will launch a mandatory public offer for all outstanding GrandVision shares.
During the conference call with analysts, the news was deemed to be “a very important move for the industry,” according to Laurent Vacherot, general manager of Essilor International.
“It’s a very natural fit,” said Vacherot, who in May was handed integration responsibilities alongside Francesco Milleri, in charge of Luxottica group, in response to the company’s governance issues.
“GrandVision has a very strong footprint in the EMEA region, where EssilorLuxottica’s retail network is less developed,” he continued. “It’s a very good fit geographically speaking, as it is complementary to our current market presence: Thanks to this acquisition, our retail presence will be split 50/50 between North America and Europe.”
Vacherot stressed the acquisition was part of the merger plan between Essilor and Luxottica, with discussions having started as soon as the deal between both companies had been signed on Oct. 1.
“GrandVision is a very financially attractive company,” he said. “In the last five years, its revenue has grown from 2.6 billion to 3.7 billion euros and its 7,200 stores boast over 700,000 visits a day. Once the combination is complete, together we will have around 18,000 stores globally.”
EssilorLuxottica was formed through a 46-billion-euro merger of Italy’s Luxottica, the producer of eyewear under license for brands including Giorgio Armani Group, Bulgari, Burberry, Chanel, Coach, Prada, Versace and France’s Essilor, which makes lenses.
During the Q&A, analysts voiced concerns over the integration of Essilor and Luxottica, which reached an impasse in April as the 16-member board of directors was evenly split into former Essilor and Luxottica camps on the issue of the newly merged company’s governance.
The eyewear group is on track to appoint a new ceo, from either inside or outside the company, by the end of 2020 — which won’t be in time for EssilorLuxottica’s next corporate marketing day, to be held in London in September.
“We have four ceo’s at the moment,” replied Vacherot, in reference to the temporary governing team made up of Del Vecchio, executive vice chairman of the joint entity Hubert Sagnières, Milleri and himself.
“It is working very well. As you can see, we are making decisions – the proof is in the pudding, if I may say so. The synergy and integration will be accelerating from here. Now let us work together and build this fantastic combination.”