The group's total consolidated sales increased by 21.7 percent to €1,262 million in the 1st quarter ended March 31, with growth of 14.2 percent on a currency-neutral basis. Boosted by a stronger dollar, Luxottica's retail sales increased by 17.7 percent to €890.9 million, while wholesale revenues from sales to third parties jumped by 39.4 percent to €455.6 million, with balanced growth in prescription eyewear and sunglasses. At constant exchange rates, these two values would have risen by 9 percent and by 34.6 percent, respectively. Operating income rose twice as fast as sales, leading to a 35.3 percent increase in net income to €103.2 million, or 8.2 percent of sales.
The group's retail sales grew by 8.3 percent worldwide and by 8.6 percent in the USA on a comparable store basis. Outpacing the strong growth of the premium segment of a market which is catching up with European trends, both LensCrafters and Sunglass Hut had double-digit increases in same-store sales during the quarter. Pearle Vision moved up in the mid-single digits, and its profitability more than doubled.
Following on a successful launch of LensCrafters' new and more fashion-oriented store format and logo, Luxottica has decided to add almost 50 new stores based on the same concept before the end of this year. It will also set up 100-120 new Sunglass Hut stores in North America, where products retailing for more than $150 apiece comprise 51 percent of their revenues.
At the same time, Luxottica continues to close unprofitable stores and to remodel the others. At Pearle Vision, where 50 percent of the products sold are now supplied by Luxottica, the elimination of in-store labs will be completed by the month of July.
In Australia and New Zealand, the OPSM chain is approaching the profitability of LensCrafters. About 50 of its stores have a luxury fashion wall studded with Luxottica products. Luxottica began six months ago to restructure its Sunglass Hut stores in the region. It is going through the same overhaul with Sunglass Hut in the UK, where the independently managed and 50 percent owned David Clulow chain of sunglass stores has started up a franchising program of its own.
In China, where all its stores are now called Xueliang, the first five flagship stores will be opened in Beijing on May 21. The new store format adopted in Hong Kong, which has given very encouraging results, will be rolled out to all the 57 stores in the region by year-end.
Operating margins came in 2 percentage points higher than a year ago. Before amortization and depreciation (EBITDA), the margin in Luxottica's retail activities rose to 15.9 percent from 13.6 percent in the same quarter a year ago. After amortization and depreciation (EBIT), the margin increased from 10.1 to 12.6 percent in retailing. It grew from 23.8 to 26.0 percent in the company's wholesale operations, but the management cautions that it will be unable to sustain this exceptional performance during the balance of this year.
The group's manufacturing and sourcing operations benefited from a strong improvement in their flexibility. Production planning cycles have been shortened. The company's second manufacturing plant in China is now fully operational, specializing in plastic frames, but Luxottica remains committed to Italian manufacturing for its higher-end lines, whose deliveries will be supported by a brand-new central distribution center due to be completed in July.
Luxottica will make new additions to its brand portfolio. While Ray-Ban continued to grow, Bvlgari and Prada were the best performing brands in the 1st quarter. Together with the new Dolce & Gabbana lines, they contributed to a 52 percent overall increase in wholesale sales of fashion and luxury products. Those priced above $150 came to represent 42 percent of all wholesale revenues. Only 12 percent came in below $100.
In view of the strong results, the board of directors has proposed a 26 percent increase to 29 cents in dividends for the year. The number of directors is to be raised from 12 to 15. The number of independent directors will rise to six with the appointment of Claudio Costamagna, former chairman of Goldman Sachs' investment banking division for Europe, the Middle East and Africa, and of Roger Abravanel, director of the Italian practice of McKinsey & Co..