Boosted by the strength of the U.S. dollar, Luxottica announced a 19.3 percent increase in revenues to €2,457 million in the second quarter, beating the previous quarterly record set three months earlier. At constant currency rates, the top line grew by 4.9 percent.

Adjusted revenues grew at an even faster rate of 21.4 percent and by 6.6 percent on a currency-neutral basis, reaching €2,501 million. The adjusted figure does not take into account a change in the reinsurance agreement at EyeMed, the group's U.S.-based vision insurance, which knocked €43.7 million off the group's revenues in the quarter.

Luxottica also reported an increase of 31.4 percent to €521 million in adjusted operating profit for the second quarter, widening the operating margin to 20.8 percent from 19.2 percent a year earlier for the group thanks to higher manufacturing volumes and improved efficiencies. Luxottica's production cost per unit fell by 3.5 percent at constant foreign exchange rates. The group improved the order flow, resulting in over 90 percent of the new product launches being delivered on time and back-orders declining by 10 percent year-on-year.

The wholesale division bolstered its operating margin to 30.0 percent from 28.1 percent and the retail margin grew to 17.6 percent from 16.2 percent.

Wholesale revenues rose by 14.3 percent to €1,068 million at actual currency rates, up by 6.1 percent at constant rates, benefiting from the launch this year of the Michael Kors brand and the rolling out of the automatic replenishment program STARS to 1,281 more stores during the quarter, of which 681 operate in Europe. The system had already been installed in about 4,000 points of sale worldwide at the start of the quarter.

Retail sales were up by 23.4 percent at current rates and by 4.0 percent in local currencies to €1,389 million. Adjusted retail sales totalled €1,433 million, up by 27.3 percent at current rates and up by 7.1 percent at constant rates. The group's global comparable retail sales were up by 3.9 percent in the quarter, slowing down from the 5.4 percent rate posted in the first quarter. Worldwide, Sunglass Hut increased sales by 12.7 percent at constant exchange rates, with same-store sales up by 4.6 percent, and group e-commerce surged by some 57 percent.

Adjusted sales in North America, which represented 57 percent of the group's total revenues against 53 percent a year earlier, went up by 29.3 percent to €1,425 million, thanks largely to the appreciation of the dollar against the euro. On a currency-neutral basis, they grew by 5.7 percent.

Wholesale revenues in the region were up by 29.0 percent to €293 million on a reported basis and up by 5.5 percent at constant currency rates. Adjusted retail sales increased by 29.3 percent €1,132 million at actual currency rates and by 5.8 percent in dollars.

Comparable store sales rose by 6.4 percent for LensCrafters, further extending the 5.9 percent increased booked in the in first quarter and performing better than expected. In a conference call with financial analysts, the group's joint executive in charge of markets, Adil Mehboob-Khan, said that the relaunch of the LensCrafters banner focused in a first phase on boosting comparable sales growth to 4 percent by lifting sales conversion thanks to improved service.

Luxottica Group Consolidated Income Statement

('000 Euros, Three months ended June 30)

 

2015

2014

% Change

Retail

1,389,000

1,125,000

23.5

Wholesale

1,068,000

935,000

14.2

NET SALES

2,457,000

2,059,979

19.3

Cost of Sales

748,208

685,672

9.1

Selling Expenses

713,264

572,435

24.6

Royalties

45,651

39,626

15.2

Advertising Expenses

170,037

140,290

21.2

G&A

279,490

225,823

23.8

Net Interest Expense

26,954

24,280

11.0

Other Net Expense

731

1,698

-56.9

Pre-Tax

473,258

370,154

27.9

Tax

178,504

133,285

33.9

Minority Interests

26

1,655

-98.4

NET

294,754

236,869

24.4

Euro/Share, Diluted

0.61

0.49

24.5

The next phase is to bolster client attendance with a new store format. Mehboob-Khan said that trials are underway. The first couple of test stores will be in place in the second half of the year and the roll out of the new format is scheduled for 2016 with the objective of revamping all the banner's stores.

Meanwhile, the North American licensed brands - Sears Optical and Target Optical – increased same-store sales by 7.1 percent during the second quarter. Sunglass Hut's overall sales in North America improved by about 7 percent in dollars thanks to the contribution of new stores, same-store growth of 2.5 percent and a jump of about 45 percent at the sunglasshut.com online platform. In July, Sunglass Hut's sales grew on a comparable store basis at a high single digit rate.

In Europe, Luxottica's second largest market with 21 percent of group sales, reported sales went up by 9.1 percent to €531 million, rising by 6.5 percent in local currencies. Wholesale revenues in the region were driven by Spain, Germany, the U.K. Nordic and Eastern countries. Sunglass Hut posted double-digit growth in the region, led by Continental Europe. 

In Asia-Pacific, sales increased by 18.2 percent in euros to €318 million, led by increases of 48 percent in China and 34 percent in India. At constant currency exchange rates, sales were up by 6.4 percent in the region.

In China, LensCrafters' sales were up by a double-digit rate, but up one percent on a comparable store basis. Meanwhile, Luxottica's wholesale business in China has been growing sharply thanks to the expansion of the group's coverage of the market. Mehboob-Khan noted that the group is present in only five to six big coastal cities, “so we have a lot of China to conquer.”

In Australia and New Zealand, Sunglass Hut and Oakley posted strong sales but the optical market remained under pressure with same-store retail sales down by 2.2 percent.

In Latin America, reported sales rose by 13.8 percent to €131 million, and they were up by 15.3 percent on a currency-neutral basis.  In Brazil, sales were up at a double-digit rate in the local currency, both at retail and wholesale. Sunglass Hut's sales in the region increased at a double-digit rate after the opening of 48 points of sales over the past 12 months and with double-digit growth in same-store sales in Mexico and Brazil. The GMO retail unit also booked a double-digit sales increase in comparable sales.

During the quarter, Luxottica opened wholesale subsidiaries in Chile and Colombia, raising to five the wholesale units servicing Latin American markets. In the rest of the world sales increased by 10.1 percent at current exchange rates and by 8.4 percent in local currencies to €95 million.

On a reported basis, the group's operating profit was up by 26.3 percent to €500 million in the second quarter, and the attributable net profit rose by 25.3 percent to €295 million. The integration of Oakley into the Luxottica group (see adjoining article) and other reorganization measures trimmed €20.4 million off the operating profit and €19.6 million off the bottom line in the quarter.

The group's free cash flow reached €261 million, down from €321 million a year earlier due to a tax-related payment of €63 million and a 32 percent increase in capital expenditures to €123 million. Net debt rose to €1,447 million at the end of June from €1,005 million at the end of March, with the debt/adjusted Ebitda ratio rising to 0.8 times from 0.6 times.

The company maintained its full-year guidance of adjusted sales rising at a mid- to high single digit rate in terms of constant currencies. Operating and net income are forecast to rise twice the pace of the top line. Mehboob-Khan believes that sales and profit margins margins will be better in the second half than in the first one.

Financial analysts continue to upgrade their own forecasts for the group's results in 2015, predicting that sales will exceed €9.1 billion. Operating profits are seen at around €1.5 billion, representing a margin approaching 16.5 percent.