Luxottica booked its strongest quarter for both sales and profits in the three months to the end of June with growth in all segments and geographies, with the notable exception of Australia.
In reporting its results for the second quarter, the company also announced that it had spent €60 million to buy out minority shareholders owning 35.2 percent of its subsidiary in Turkey, to take full control of one of its most profitable wholesale businesses.
Luxottica posted a 13.8 percent increase in revenues to €1.595 billion and a 30.1 percent rise in net profits to €150.1 million in the second quarter. The key North American market, which represented about 62 percent of the group's revenues in the quarter, enjoyed an 8 percent rise in second-quarter revenues to $1.211 billion.
The group benefited from the appreciation of many major currencies against the euro, including the U.S., Canadian and Australian dollars and the yen. At constant exchange rates, sales rose by 6.5 percent.
Luxottica's global retail sales were up by 14.3 percent to €944.0 million, lifted by a positive increase in comparable store sales. At homogeneous foreign exchange rates, the rise reached 5.6 percent.
Comparable store sales for the group's North American prescription business rose by 4.1 percent. They increased by 3.5 percent for LensCrafters, but while they down by 0.7 percent for Pearle Vision, they jumped by 9.6 percent for the licensed brands Sears and Target. Sales growth at LensCrafters would have been around 5 percent if two weeks earlier the chain had not stopped its promotion campaign in June to prepare a ?strong? campaign in July and August in view of back-to-school. The group started its third-quarter promotion campaign a few days earlier than usual and expects sales volume lost in June to have been recouped in July.
The decline at Pearle Vision was explained by a less aggressive commercial policy than a year earlier. Luxottica's chief executive, Andrea Guerra, said that a reduction in the number of promotional weeks led to a decline in volumes but emphasized that he is not worried by the chain's performance.
Sales of sun prescription frames booked a double-digit growth throughout Luxottica's North American optical chains in the second quarter. Sunglass Hut booked its best single month ever in North America, with June sales of around $100 million. The chain's comparable sales in the U.S. rose by 5.5 percent in the quarter, with the penetration of polarized lenses reaching nearly 50 percent, probably thanks in part to its new deal with Maui Jim.
Worldwide, Sunglass Hut's comparable store sales were up by 4.6 percent, thanks to an increase in the price mix and higher volumes. Luxottica was satisfied with the Sunglass Hut flagship stores opened this year in New York and London, forecasting that their combined sales will reach $10 million in 2010.
Comparable store sales slumped by 11.2 percent in Australia and New Zealand. The group estimates that the drop experienced in the region is in line with the overall market trend and that the business environment will remain weak in the coming months. Observers suspect, however, that the strong expansion of Specsavers in the region may have played a role, too.
In China, where LensCrafters has around 240 stores and Sunglass Hut six, the group enjoyed ?very solid double-digit? comparable store sales. The group is still losing money on its Chinese business but aims to increase the number of LensCrafters stores to 500 by 2013 and improve the retail operating margin, which is forecast to rise to 12-13 percent over the period from approximately 5 percent currently.
Overall, the group's worldwide comparable store sales are estimated to have increased by 3.5 to 4.0 percent during the quarter, and they continued to be positive in July.
Meanwhile, Luxottica's global wholesale revenues rose by 13.2 percent to €651.1 million led by stronger-than-expected sales growth in emerging economies and a 1.6 percent increase in the price mix as clients bought more expensive products. During the quarter, sales of premium and luxury brands booked a double-digit growth.
At constant currency rates, the increase in wholesale revenues totaled 7.8 percent, with sales up by 6.0 percent in Western Europe, by 8.6 percent in North America, by 11.9 percent in emerging markets and by 8.8 percent in the rest of the world.
In local currencies, wholesale sales were up about 15 percent in North America and rose by about 30 percent in emerging markets, with a strong performance in China, India, Brazil and Eastern Europe.
In southern Europe, Luxottica achieved a positive sun season in Italy, Spain and Portugal but sales dropped by 20 percent in Greece as the country underwent economic turmoil.
Luxottica's worldwide wholesale order book is currently 21 percent higher than a year earlier. The company stressed that the order backlog does not give a long-term indication of its business trend, and that its visibility is limited at 30-45 days.
In the second half, European sales are expected to be supported by the launch of nearly 10 special collections, including Chanel Bouton, Prada Swing, Tiffany Key Collection and Burberry April Showers.
The group remained upbeat about its home brands Ray-Ban and Oakley, which are both enjoying double-digit sales growth. Oakley's revenues were underpinned by sales of prescription frames, women's models and expansion in Europe. In North America, Oakley's turnover rose by 11 percent, with sales of prescription frames up by 30 percent and women's models by 40 percent. In Europe, the brand booked double-digit eyewear sales growth in France, Italy and Scandinavia.
Ray-Ban had double-digit sales in Europe. In emerging markets, the brand's sales surged by 41 percent thanks to the launch of specific collections for those countries.
Luxottica plans to aggressively expand in emerging markets. Group sales in those economies totaled around €350 million in 2009 and are expected to double in the next three years. On top of the wider retail presence in China and Ray-Ban's ad hoc models, growth in emerging markets will be underpinned by the rollout of the «STARS» client support program in Latin America and India, improved distribution, the completion of the integration of the Oakley structure with Luxottica's in Brazil and South Africa, and advertising to bolster brand awareness.
In the second quarter, Luxottica increased its operating margin to 16.2 percent from 14.5 percent a year earlier largely thanks to the wholesale business, which enjoyed stronger volume growth and a better price mix than retail. The operating margin increased to 24.1 percent from 22.5 percent for wholesale and rose to 14.5 percent from 13.8 percent for retail.
The group ended the quarter with a drop in its free cash flow to €160 million from €240 million a year earlier largely due to higher tax payments. Net debt rose to €2.646 billion at the end of June from €2.421 billion on March 31 because of the payment of €160 million in dividends and the acquisition in Turkey.