The largely flat market in the USA affected Luxottica's sales but it didn't prevent the group from raising its net income by 16.5 percent in the first 9 months of this to e297.7 million on a relatively modest 5.2 percent growth in sales over the period to e2.4 billion, with a 9.1 percent increase in local currencies. The net profit margin thus grew from 10.9 to 12.1 percent, in line with the management's expectations.
Drastic cost cutting explains the growing profitability, starting with the dismantling of Sunglass Hut International's central structure and its integration into LensCrafters at the end of 2001. Furthermore, the fall in US consumption led the group to cut its advertising budget slightly to around 7 percent of turnover. These and other factors contributed to a 19.9 percent growth in operating profit to e487.1 million, leading to a boost in the operating margin from 17.4 to 19.8 percent of sales. There were no particular savings from offshore processing as the proportion of the group's production coming from China remained below 10 percent.
The turnover declined by 5.3 percent in the 3rd quarter because of the 10 percent weaker dollar, but even on a currency-neutral basis revenues, the growth rate would have slowed down to 4.2 percent. The operating profit shot up by 20.5 percent in the quarter, taking the operating profit margin up to 19.5 percent from 15.3 percent in the year-ago period. The growth in net profit was an even stronger 23.7 percent, giving a margin of 11.7 percent as compared to 9.0 percent.
Retail sales for the group's two US chains, LensCrafters and Sunglass Hut, remained flat on a comparable basis for the first 9 months of 2002 at $1.4 billion, as did the operating margin, at 16.1 percent. But Sunglass Hut was acquired by the group in March of 2001 and consolidated in April, so it only weighed on the balance sheet for the second and third quarters of that year. If Sunglass Hut's first-quarter results are taken into account, the operating margin on Luxottica's retail sales would have been 14.3 percent in the the year-ago period.
Wholesale production and distribution were also relatively flat, although they rose by 2.8 percent excluding currency fluctuations. Sales to the group's own chains actually fell in the first 9 months of 2002, explaining in part the drop in Italy's exports to the USA in the 1st half of this year (see previous issue of EyeWear Intelligence), as Sunglass Hut outlets were still moving excess stock that the group had supplied them with in 2001. But this drop was outweighed by a an increase of more than 6 percent in sales to other customers. Luxottica's wholesale operating margin increased by one percentage point to 26.5 percent.
Meanwhile, after 15 trouble-free years, some of Luxottica's Italian employees staged a 4-hour strike on Nov. 6, after the management refused to accept certain non-wage demands put forward by the unions. The brief strike involved about 70 percent of the 5,000 workers in the company's factories at Sedico and in Treviso. The issue has since been resolved.