After announcing the successful completion of a tender offer for Cole National's subordinated notes, which will cost a total of $181.7 million, Luxottica has issued its long-awaited bid to buy up the stake it doesn't own yet in OPSM Group, the big Australian-based optical retail group in which it had obtained control in the summer of 2003. It now owns 82.6 percent of OPSM's shares, but it wants at least 90 percent of the equity.
Luxottica says the price offered is firm and final. At 4.35 Australian dollars a share, it represents a premium of 11.5 percent from the closing price on Nov. 25 and a 13.6 percent premium from the average of the last three months. OPSM's board of directors is recommending the offer, which also includes a fully franked special dividend. The total value of the offer for the shares not held by Luxottica is of about A$103 million, or about €62 million.
As of last Sept. 30, OPSM operated 457 stores in Australia, 35 in New Zealand and 98 in other markets. LensCrafters had 887 stores in the USA. Cole National operated out of more than 2,100 locations. Sunglass Hut International had 1,585 stores in North America, 165 in Australasia and 107 in the rest of the world.
Under Luxottica's ownership, OPSM has been posting strong sales increases on a same-store basis lately. Both LensCrafters and Sunglass Hut enjoyed a strong third quarter, with Sunglass Hut performing just a little better thanks to its continued focus on fashion, which has allowed Luxottica's brands to take up more than 50 percent of its sales in terms of dollars and almost 60 percent in terms of units.
In the 3rd quarter ended Sept. 30, Luxottica's retail operations, which didn't include Cole National yet, improved their operating results by 4.5 percent, reaching a slightly improved operating margin of 17.1 percent. The group's total retail sales were up 1.6 percent to €539.1 million in euros, but they grew more strongly in terms of local currencies and by 4.0 percent on a same-store basis.
Wholesale revenues increased by 12.1 percent to €225.1 million in the quarter, with strong progress in Italy and in the rest of Europe ? particularly in Greece, Turkey and France. Only Japan scored below the average but that market should recover in the 4th quarter. Wholesale sales to third parties grew by 9.3 percent in the quarter.
Besides the strong performance of Chanel, the successful addition of the Prada and Versace fashion lines, which offset the loss of the Armani licenses, contributed to the growth in sales and operating income. The operating margin of the wholesale division jumped in fact to 21.0 percent from the 13.7 percent level of a year ago, when it was affected by the liquidation of the discontinued Armani lines.
Among Luxottica's house brands, Ray-Ban and Vogue were the best-sellers. Ray-Ban, which now represents about 15 percent of Luxottica's sales, remained the #1 brand of sunglasses in the world and its performance was enhanced by the strong progress of its ophthalmic line, which now accounts of for nearly 20 percent of total Ray-Ban sales.
The addition of the Donna Karan collection next January and of the new Dolce & Gabbana license in 2006 (not in 2005 as previously reported) will further boost Luxottica's brand portfolio. Luxottica is holding discussions with Marcolin, which has the D&G contract until the end of 2005, about possibly handling the distribution of Marcolin's products in some countries in the course of next year in order to maximize its sales and pave the way for a smooth transition.
Overall, Luxottica posted a 3.4 percent increase in total consolidated sales to €718.3 million in the latest quarter, although the growth rate would have been more like 9.5 percent if exchange rates had remained the same. The group's operating profit rose by 17.9 percent, reaching a margin of 18.0 percent. Net income went up by 3.4 percent to €77.0 million.
While confirming the management's earnings guidance for 2004, Andrea Guerra, the group's new CEO, indicated in his first financial conference call with the analysts that he sees new opportunities ahead for further manufacturing efficiencies. The group will insist on Italian production, although China already represents 10-15 percent of the total input.