Essilor International posted weaker-than-expected revenues in the third quarter, largely due to sluggish sales in the U.S., which remains its biggest single market. They increased by 6.4 percent from the year-ago quarter to €1,723 million, or by 7.2 percent without the effects of currency fluctuations. On a comparable basis, the world leader in ophthalmic optics raised its revenues by 3.2 percent, while analysts expected an increase of 4.4 percent.

Essilor International Revenues
(Million Euros, Third Quarter ended September 30)





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Acquisitions (%)

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In Europe, Essilor's revenues gained 3.0 percent on a comparable basis, driven by product-mix improvements - especially in Italy, Eastern Europe and Russia - as well as an ongoing momentum for the Instruments division. The company said the recently introduced Eyezen lens performed well, especially in France, Spain and Switzerland.

Operations in the Nordic countries had a strong quarter, with particularly fast growth in online sales and with key accounts. These results partly offset weaker performances in the U.K. and Central Europe, where Essilor's situation in Germany was described as “challenging.”

In North America, the group's revenues inched up by 1.3 percent on a comparable basis. The company blamed a deceleration of the optical market's growth since the beginning of the year, following an especially dynamic 2015 in which the U.S. market grew by almost 4 percent. It fell by 0.7 percent in volume during the second quarter of this year, according to the Vision Council, and it doesn't seem to have recovered in the third quarter.

The company's sales of lenses in the U.S. rose by 2.65 percent in the third quarter, lifted by the good performance of Crizal among independent eyecare professionals and by sustained strong business with the optical chains, led by gains in value-added lenses. Sales in Canada were flat.

On the other hand, the group's overall results in the U.S. market were dampened by the continued decline in Transitions Optical's sales to other lens manufacturers and by the expiration of certain governmental supply programs. Online sales continued to be led by the success of the EyeBuyDirect and Frames Direct offerings, but remained impacted by a slower-than-expected return to growth for in the U.S.

The Asia/Pacific/Middle East/Africa region registered a 5.7 percent increase in revenues on a comparable basis. Sales were negatively impacted by a slowdown in consumer spending in the Middle East and difficulties in Turkey. Excluding these two factors, the company said operations in the fast-growing countries of the two continents delivered an excellent performance, while demand grew in Australia and Japan, particularly from the optical retail chains.

Essilor says its online sales are booming in China and India because there are not enough stores in these two populous countries. Still, the company's business in China grew at a mid-single-digit rate during the quarter because of a mixed economic environment. It was driven by partnerships formed in recent years in the mid-range lens segment. Total sales in the fast-growing markets were up by 8 percent, but the growth rate reached 13 percent when excluding China, Brazil, the Middle East and Turkey.

Sales in India remained brisk, while growth remained in the double digits in Southeast Asia and Africa. Revenues in Latin America rose by 4.5 percent on a comparable basis, reflecting a contrast between worsening conditions in Brazil, where sales declined by about 3 percent, and the sustained growth experienced across the rest of the region, especially in Argentina, Colombia and Mexico.

Overall, the group's Sunglasses & Readers division saw a 6.9 percent sales increase on a like-for-like basis in the quarter, bouncing back from the contraction suffered in the first half of the year because of unfavorable weather conditions and the disruptive deployment of a new inventory management system at Xiamen Yarui Optical in China. Sales of sunglasses at FGX International were lifted by fine summer weather conditions, while sales of readers remained solid.

The company's Chinese brand, Bolon, is recovering, and its presence at a busy stand at the recent Silmo show in Paris indicates that Essilor is expanding the brand internationally. To cope with growing demand and to ensure high-quality standards, Essilor is starting up a new manufacturing center in Xiamen.

The Equipment division saw sales climb by 5.4 percent on a comparable basis, as it continued to benefit from the investment cycle across the optical industry. In North America, upgraded surfacing and coating machines boosted sales to independent laboratories as well as to leading optical chains. Sales rose sharply in Latin America, driven by the growing take-up of digital surfacing equipment by small-sized laboratories. In Asia, strong sales growth was reported on the back of higher production capacities for both the domestic and export markets.

Meanwhile, Essilor pursued its strategy of forging local partnerships through “bolt-on” acquisitions, which added four percentage points to the quarterly sales increase of the group. So far this year, it has taken majority interests in 16 companies, representing aggregate full-year revenues of around €205 million.

As we have already reported, Essilor a few weeks ago completed the acquisition of the MyOptique Group, the leading European online retailer for prescription glasses, contact lenses and sunglasses based in the U.K., and the management indicated that it wants to make other acquisitions to reach critical mass in this domain. In addition, Essilor of America deepened its footprint in the U.S. by purchasing a majority stake in US Optical, a New York-based wholesale optical laboratory with around $35 million in annual revenues.

Essilor also released its turnover figures for the nine months ended Sept. 30, 2016, which totaled €5,306 million, up 5.5 percent over the year-ago period. On a comparable basis, revenues grew by 3.8 percent, with good performances for Lenses & Optical Instruments and Equipment, and a slight decline in sales for Sunglasses & Readers, although the business rebounded during the third quarter.

The currency effect reduced revenues by 2.3 percentage points in the first nine months of 2016, mainly due to the depreciation of the British pound, the Brazilian real, the Chinese yuan and the Canadian dollar. As some foreign currencies are firming up, Essilor is predicting a negative currency effect of around 2 percent for the full financial year.

In the fourth quarter, Essilor plans to pursue and amplify the wide range of initiatives implemented to boost growth in all regions and all businesses. For the year as a whole, it says it remains fully engaged to deliver annual results as close as possible to its annual objectives, which call for full-year revenue growth at constant exchange rates of more than 8.0 percent, including a sales increase of close to 4.5 percent on a comparable basis. The operating margin should end up close to 18.8 percent for the year, in spite of higher consumer advertising expenses budgeted at €215 million.

The slowdowns endured in the U.S. and other markets in the third quarter are not structural, the management explained, claiming that Essilor is taking market shares and noting that customers must replace their glasses at some point even if they delay their purchases.