EssilorLuxottica reported a 7.3 percent increase in revenues to €8,776 million for the first half on a pro-forma basis, with growth of 3.9 percent in local currencies. The adjusted gross margin declined by 0.3 percentage points to 63.2 percent, due to the product mix and the stronger development of the online business. The adjusted operating margin fell slightly to 17.2 percent, down from 17.7 percent in the same period a year ago, due in part to new accounting standards and investments in e-commerce and TV advertising. The group's net profit went up by 6.8 percent to €1,099 million, due in part to lower taxes and favorable exchange rates.
The overall growth rate accelerated to 4.1 percent in constant currencies in the second quarter. Confirming its outlook for the full financial year, the management indicated that it expects improvements in sales and profits for the second half of the year.
At constant exchange rates, Essilor's Lenses & Optical Instruments division posted revenue growth of 4.9 percent, with an increase of 3.8 percent on an organic basis. The currency-neutral growth rate accelerated to 5.3 percent in the second quarter, with good momentum in China, Southeast Asia and all of Latin America.
Essilor's sales of Sunglasses & Readers rose by 8.4 percent in local currencies in the first half, but the growth rate built to 14.1 percent in the second quarter on accelerating progress for Costa and FGX International. Bolon is making a sharp rebound. Equipment sales rose by 1.3 percent, driven by emerging markets, but Essilor admitted to a slight slowdown in demand for surfacing solutions.
Essilor's total revenues went up by 5.2 percent on a currency-neutral basis and by 8.1 percent on a reported basis in the first half, reaching €3.93 billion. Luxottica's overall revenues grew at more modest rates of 2.9 percent in local currencies and 6.7 percent in euros, reaching €4.84 billion. In constant currencies, its wholesale and retail operations were up by 1.7 percent and 3.8 percent, respectively.
Luxottica's wholesale revenues were positive in all the regions except in North America, which turned positive in the second quarter thanks to a rebound with independent retailers and department stores, which represent about half of its total business there. On the other hand, Luxottica's online sales to third-party platforms declined, due to timing issues and a slowdown with certain North American clients. Sales doubled in China, following a repositioning in the market.
Other best performers for Luxottica's wholesale business were Brazil, Mexico, Germany, Eastern Europe, Japan and Korea. The company continued to roll out its STARS partnership program with its wholesale clients around the world. It has been adopted so far by retailers operating more than 13,000 stores, representing over 12 percent of the company's wholesale revenues, including a share of more than 20 percent in Europe. STARS grew by 40 percent in Brazil to reach a total of about 1,000 doors.
While rising more than its wholesale revenues, Luxottica's global retail sales were actually flat on a comparable store basis in the first half of this year. Its online sales recorded double-digit gains, but a strong performance in Italy, Spain, Australia and Brazil was offset by “flattish” sales at LensCrafters and a drop on a same-store basis at Sunglass Hut's 800-odd stores in the U.S., due to unfavorable weather conditions. Sunglass Hut improved in the rest of the world, and its online sales in the U.S. went up as well.
The management stressed that LensCrafters is setting itself apart from the competition in a highly promotional environment with a focus on margins, service and premium products, aided by Essilor. In another segment, while Luxottica is now running 170 fewer Sears Optical stores in the U.S., its Target Optical chain has been growing at a double-digit rate.
Across the group, sales grew by 1.9 percent at constant exchange rates in North America in the first half. Essilor's sales improved sequentially in the second quarter. Online sales continued to grow at a double-digit pace, especially for eyeglasses. Sales of Transitions photochromic lenses to third parties went down in expectation of the launch in the U.S. last month of their new Generation 8 series. Other markets will follow in the next months.
The group's revenues in Europe grew by 4.7 percent in the first half in terms of local currencies. In Lenses & Optical Instruments, Russia, Eastern Europe and Turkey delivered double-digit increases. Essilor's management mentioned higher sales of value-added lenses, fueled by targeted marketing investments, and the roll-out of new instruments like Visionoffice X and the Vision R 800 phoropter.
Essilor is establishing a new omni-channel business model in Germany following its recent acquisition of a major online retailer, Brille24. Transitions performed well in Italy, where it conducted a special marketing campaign. Italy was also a good market for Essilor's sunglasses and readers.
For Luxottica's European wholesale operations, Italy, Germany, Turkey, the Netherlands and Eastern Europe were among the best-performing markets in the first half. One of the drivers was a double-digit increase in sales of complete pairs of Ray-Ban glasses with lenses.
On the retail side, Luxottica's retail sales grew in Europe at a double-digit rate, driven by Sunglass Hut and Ray-Ban, which opened 20 new stores in the region during the first half, as well as the Italian Salmoiraghi & Viganò chain. Overall retail sales grew at a double-digit rate in Spain, Turkey, Germany and Portugal.
In Asia, Oceania and Africa, the group's revenues went up by 5.8 percent in constant currencies. Essilor reported double-digit growth in Lenses & Optical Instruments in China, thanks to its myopia control solutions and its value-added propositions, coupled with innovative products in the medium range of the market. Strong gains were posted in Southeast Asia and – particularly in the second quarter – in South Korea. In India, the business was driven by the development of inclusive distribution channels at the low end of the market.
For Luxottica, the region grew at a similar pace. Its business in China benefited from a repositioning of its wholesale distribution network that started two years ago, but it was affected by the political turmoil in Hong Kong. Sales grew in Japan, Korea, Southeast Asia and the Middle East. Ray-Ban opened 20 new stores in China and two new ones in Japan. The company's retail operations in Australia and New Zealand continued to make progress for the 12th consecutive quarter, accelerating in the second quarter of this year.
Latin America was the fastest-growing region for the group with a 12.3 percent increase in local currencies. Essilor's operations grew at a double-digit rate in Brazil and in the Spanish part of the continent, with Varilux posting an increase of more than 10 percent in Brazil. An effective “Cambia tu cara” (change your face) campaign boosted sales of Transitions lenses in Colombia. In Mexico, Essilor signed an important supply agreement with Devlin, the biggest optical retailing group in the country.
Double-digit increases were also reported by Luxottica in Latin America at the wholesale and retail stages of the supply chain. The newly acquired Óticas Carol chain got 70 new franchise partners in Brazil. Sunglass Hut continued to expand in the country, and the GMO chain continued its steady progress. The Mexican market rebounded at wholesale and retail in the second quarter, thanks in part to the expansion of Sunglass Hut and Ray-Ban in the country.