The 2nd quarter was better than the 1st one in all the divisions in terms of profit margins, and the company may yet be able to reach its target of a 9.5 percent operating profit margin (Ebit) for the full year, provided it succeeds in lifting its sluggish sales in the 2nd half, which tends to represent only 45 percent of annual sales. To this end, its GrandOptical stores in France are planning to launch a big new 2-for-1 offer shortly, in competition with those of other French retailers, and GrandVision's UK operation, Vision Express, plans to launch a new marketing campaign to underscore its hard-won higher positioning in the market, without giving in to the aggressive sales tactics of some of its largest competitors.

As previously reported, the group's consolidated sales fell by 1.4 percent to €305.0 million in the 1st half ended June 30, rising by 2 percent in constant currencies. Last week, GrandVision reported that its operating margin increased to 9.5 percent in the period from 8.2 percent in the 1st half of 2002, reaching a ratio of 9.8 percent before charges incurred before the opening of new stores or after closing them down. However, the improvement was mainly due to a profit contribution of €3.3 million from its recently organized central service platform, which works for all the group's multiple chains, as compared to a loss of €2.6 million in the year-ago period.

GrandVision will continue to improve these operations, investing on a new distribution center near Paris. It will make further investments in data processing and logistics and it is about to acquire another lens processing laboratory, mostly for the benefit of its lower-priced Générale d'Optique chain in France, which improved its operating profit by 20.3 percent in the latest period to €8.9 million on 11.2 percent higher sales of €67.7 million, giving it a margin of 13.4 percent.

Instead, operating results declined by 16.1 percent for GrandOptical France, reducing the margin from 12.8 to 10.2 percent. They fell by 19.4 percent in the UK and Ireland, where the margin declined to 8.3 percent. In the rest of Europe, GrandVision cut its losses in half to €0.3 million, but while the group did better in other countries, GrandOptical Italia's profitability didn't improve in spite of its more cautious investments and a 13 percent rise in revenues. The group's chain of sunglass stores, Solaris, took in a 45.5 percent dive in operating profit to €0.6 million on 13.7 percent lower sales of €8.2 million, due to the slowdown in tourism and the difficult sunglass market in Southern Europe.

With hardly any debt, the group's ordinary pre-tax profit increased by 7.4 percent in the 1st half to €28 million, or 9.2 percent of revenues. Net income rose by 3.7 percent to €14.4 million. The debt-equity ratio has deteriorated, reaching 36.9 percent versus 21.0 percent one year earlier, following the acquisition and cancellation by the company of many of about 8 percent of between last September and May.

Meanwhile, investors have shown mixed reactions to a tender offer launched last month by two French equity funds supported by BNP Paribas with the support of GrandVision's founding shareholders, who would obtain a blocking minority stake in the company if it's successful. Financial analysts have generally found the offer price of €21 a share generally fair but not generous, considering among other things that the multiples and premiums offered in recent acquisitions in optical retailing have been slightly higher.

The share price rose up to €22.5 in recent trading as some analysts have been expecting a counter-bid or a higher offer but it has settled lately at below €22, as the management has restated that a foreign takeover attempt would be regarded as being hostile at this stage. It also has stressed that it has no plans to sell Générale d'Optique or any other individual component of the group.

Many investors are holding their shares for the moment to see whether Fielmann, Pearle Europe or another company will bid more before a deadline of 5:30 pm on Sept. 5 (watch our website). Pearle Europe's main owner, HAL Holding, most recently held 8.95 percent stake in GrandVision, or perhaps more through brokers.