EssilorLuxottica is on a recovery path after a difficult second quarter, when revenues were nearly halved amid Covid-19 lockdowns. Sales in the fourth quarter were up by 1.7 percent in constant currencies. For the second half of the year, revenues gained 0.3 percent from the year-ago period to €8,199 million, but declined by 4.8 percent in reported terms. The gross margin was down by 1.6 percent to 60.4 percent. However, net income for the second half soared by 22.2 percent to €496 million.

The management highlighted cost-control efforts, such as reductions or deferrals of executive compensation, prioritization of marketing expenses and negotiations with suppliers and landlords. Cash was also preserved via the cessation of share buybacks, the deferral of dividend payments and the temporary suspension of all non-essential investments. New acquisitions and partnerships were put on hold.

Overall, the company focused on digitalizing its business processes and enhancing its e-commerce platforms. Direct e-commerce rose by 39 percent in the fourth quarter at constant exchange rates. Overall in 2020, it gained around 40 percent to €1.2 billion.

In addition, the group worked on synergies and integration following the merger between Essilor and Luxottica. The management expects synergies in the range of €300 to €350 million in adjusted operating profit by the end of 2021 and of €420 to €600 million by the end of 2023.

The optical business as an engine of growth

Revenue synergies included the launch of Ray-Ban Authentic, with Essilor’s advanced lens technologies. After a successful launch in Italy, the product prepared to launch in the United States and Canada. Essilux expanded cross-selling opportunities between the Essilor and Luxottica platforms, with Essilor lenses rolled out into all Luxottica retail chains globally.

EssilorLuxottica Revenues by segment
(Million euros, Financial year ended on Dec. 31)
  2020 2019 % Change (constant exchange rates)
Lenses & Optical Instruments  5,960 6,791 (9.5)
Sunglasses & Readers  595 740 (18.0)
Equipment  158 221 (26.9)
Essilor revenues 6,714 7,752 (10.8)
       
Wholesale 2,471 3,383 (24.3)
Retail 5,244 6,255 (14.1)
Luxottica revenues 7,715 9,638 (17.1)
       
TOTAL  14,429 17,390 (14.6)
       
EssilorLuxottica Revenues by segment
(Million euros, Quarter ended on Dec. 31)
  2020 2019 % Change (constant exchange rates)
Lenses & Optical Instruments  1,685 1,701 5.3 
Sunglasses & Readers  188 214 (8.8)
Equipment  50 70 (24.3)
Essilor revenues 1,923 1,985 2.7 
       
Wholesale 692 774 (3.9)
Retail 1,498 1,545 3.2 
Luxottica revenues 2,190 2,319 0.8 
       
TOTAL  4,113 4,304 1.7 
Source: EssilorLuxottica

The management also attributed this recovery to its resilient optical business and balanced mix in terms of products, segments and geographies. It highlighted the launch of the Ray-Ban Authentic, myopia management with the Stellest lens, improved eye exams and optometry with the Vision R-800 and AVA package and smart glasses with the Facebook collaboration.

Optical activities, which represent around 75 percent of the company’s revenues, drove the regained sales momentum. The management believes this was supported by pent-up demand and enhanced awareness from consumers about the need to take care of their eyes as they spend more time in front of screens during curfews, remote-working and lockdowns. At the end of December, most of its stores around the world had reopened.

During the second half of the year and in constant currencies, wholesale revenues were down by 2.6 percent to €1,431 million. North America was the key driver, up by double digits, led by independents and third-party e-commerce. Retail revenues dipped by 0.8 percent to €2,978 million, supported by the robust performance of optical banners, in particular in North America, Australia and Latin America, while it was impacted by new restrictions at the end of the period in Europe and North America.

Also on a constant-currency basis, revenues rose by 4.0 percent to €3,368 million in the Lenses & Optical Instruments segment. The company said that Independent Eye Care Professionals adapted quickly to the new environment, fueling the prompt rebound of the business worldwide. North America, France and China were key drivers. However, sales decreased by 6.8 percent to €366 million in the Sunglasses & Readers segment, as department stores and travel retail continued to suffer, although sunglasses started to fare better. In the Equipment division, revenues dropped by 18.9 percent, also in constant currencies, as demand for surfacing and coating machines remained subdued.

France is a bright spot

On a geographic basis, EssilorLuxottica’s revenues in North America decreased by 2.5 percent in the fourth quarter, but were up 4.2 percent at constant exchange rates. For the full year 2020, they decreased by 11.8 percent at constant exchange rates, thanks to a strong rebound during the second half of the year after a significant decline in revenue in the second quarter.

EssilorLuxottica Revenues by region
(Million euros, Financial year ended on Dec. 31)
  2020 2019 % Change (constant exchange rates)
North America 7,901 9,146 (11.8)
Europe 3,450 4,239 (17.5)
Asia, Oceania and Africa 2,362 2,891 (16.4)
Latin America 715 1,114 (21.9)
TOTAL  14,429 17,390 (14.6)
       
EssilorLuxottica Revenues by region
(Million euros, Quarter ended on Dec. 31)
  2020 2019 % Change (constant exchange rates)
North America 2,213 2,270 4.2 
Europe 911 971 (3.7)
Asia, Oceania and Africa 727 757 (1.0)
Latin America 263 305 7.1 
TOTAL  4,113 4,304 (1.7) 
Source: EssilorLuxottica

In the fourth quarter, revenue in Europe decreased by 6.3 percent, or by 3.7 percent in constant currencies. For the full year 2020, they fell by 17.5 percent at constant exchange rates. In Lenses and Optical instruments, the business in the region confirmed its rebound in the fourth quarter. This was particularly the case in France, thanks to the success of the multi-network distribution strategy, the restart of marketing campaigns and the desire of consumers to trade up. The Nordics and the U.K. also fared well. Spain, Portugal and Poland delivered a weaker performance as they were penalized by a challenging Covid-19 business environment. In terms of products, blue-cut lenses continued to benefit from intense screen usage in the new pandemic environment. Varilux in progressives, Crizal in anti-reflectives, Transitions GEN 8 in photochromics, Eyezen in anti-fatigue and the VR-800 precision instrument all fared well during the quarter.

In Asia, Oceania and Africa, sales increased by 1.0 percent in constant currencies in the fourth quarter and by 16.4 percent for the full year. Revenues in Mainland China climbed by around 10 percent in the fourth quarter at constant exchange rates. In Latin America, revenues were up by 7.1 percent in constant currencies in the fourth quarter, but dropped by 21.9 percent in 2020. Australia and Brazil were among the best performing markets in the fourth quarter, both up by double digits at constant exchange rates.

Overall, EssilorLuxottica reported revenue of €14,429 million for the full year 2020, down by 17.0 percent from 2019 in reported terms and by 14.6 percent in constant currencies. The gross margin dropped by 3.7 percentage points to 58.9 percent and net profit tumbled by 92.2 percent to €85 million.

EssilorLuxottica Consolidated Income
Million euros, Financial year ended on Dec. 31
  2020 2019 % Change
Revenue 14,429 17,390 (17.0)
Cost of sales 5,953 6,573 (9.4)
Gross profit 8,476 10,817 (21.6)
R&D 544 548 (0.7)
Selling 4,320 4,918 (12.2)
Royalties 134 168 (20.2)
Advertising & marketing 1,149 1,331 (13.7)
General & administrative 1,867 2,000 (6.7)
Other expense 10 174 (94.3)
Total operating expenses 8,024 9,138 (12.2)
Operating profit 452 1,678 (73.1)
Cost of net debt 119 117 1.7
Other financial expense 22 25 (12.0)
Pre-tax 313 1,534 (79.6)
Tax 164 350 (53.1)
Net profit 149 1,185 (87.4)
Source: EssilorLuxottica

Essilux highlighted its solid financial position, with €8.9 billion in cash and short-term investments at the end of December.

The management gave an update on the proposed acquisition of GrandVision, which has stalled since its announcement on July 31, 2019, due to legal issues. In June last year, the European Commission issued to EssilorLuxottica a statement of objection, which the company has challenged. The review process is still ongoing. In July, it initiated legal proceedings before a District Court in Rotterdam, the Netherlands, to obtain information from GrandVision, to assess the way it has managed the course of its business during the Covid-19 crisis. But in response, GrandVision has initiated an arbitration process, which EssilorLuxottica considers as “an obvious attempt” to detract from “breaches of its contractual commitments and its failure to provide the required information.” EssilorLuxottica says its demands for disclosure of information from GrandVision was dismissed by the Dutch District Court. In September, it filed an appeal against the judgment, and the appeal decision is expected on April 6, 2021.

On the issue of future governance, Leonardo Del Vecchio, EssilorLuxottica’s non-executive chairman and main shareholder, indicated that he intented to ask the new board of directors to maintain Francesco Milleri and Paul du Saillant in their executive positions, respectively CEO and deputy CEO of the group. A new slate of board directors had been communicated by the company at the end of last month to be submitted to the vote of shareholders at the next general assembly, scheduled in May. 

Looking ahead, EssilorLuxottica expects to deliver a performance in 2021 comparable to pre-pandemic levels.