In the first quarter, Luxottica booked a 19.9 percent increase in sales to €2,210 million, setting a new quarterly record. At constant currency rates, the top line grew by 5.3 percent. Excluding changes made in the reinsurance agreement of EyeMed, the group's U.S.-based vision insurance program, adjusted revenues grew by 22.2 percent in euros and by 7.2 percent on a currency-neutral basis, reaching €2,252 million.

Wholesale revenues rose by 16.8 percent to €939.9 million at actual currency rates, or by 8.0 percent at constant rates. The new Michael Kors line contributed some 2.5 percentage points to the growth in local currencies. Luxottica is estimated to have generated some €20 million in revenues from the new license in the quarter.

The group previously said that the brand's launch had been its best ever planned, with half a million frames in inventory at the end of 2014 in view of shipping from Jan. 2. The launch started in the U.S. in January and went global from February. About 300 Michael Kors boutiques are joining Luxottica's automatic replenishment system, STARS, for the line in the U.S. and in Europe.

The line could finish the year 50-60 percent ahead of its target, according to Luxottica's co-chief executive in charge of markets, Adil Mehboob-Khan, who indicated that it could reach its objective of €70 million in full-year revenues as soon as September if sales continue at the same pace. Thanks in part to Michael Kors, Luxottica expects wholesale growth to accelerate during the rest of the year at stable currency rates.

The group's retail sales were up by 22.4 percent in reported euros to €1,270 million, and by 3.3 percent in local currencies. Adjusted retail sales totalled €1,312 million, up by 26.4 percent at current rates and by 6.6 percent at constant rates. The group's global comparable retail sales went up by 5.4 percent, with Sunglass Hut rising by 7.8 percent.

Adjusted North American sales, which represented 58 percent of the group's total revenues, rose by 29.4 percent to €1,315 million, largely thanks to the appreciation of the dollar against the euro. On a currency-neutral basis, they grew by 6.7 percent.

In the region, wholesale revenues were up by 31.9 percent to €275 million on a reported basis and by 9.8 percent at constant currency rates. Adjusted retail sales rose by 28.8 percent to €1,040 million at actual currency rates and by 5.9 percent at constant rates.

Comparable store sales rose by 5.9 percent for LensCrafters in North America, while the licensed brands - Sears Optical and Target Optical – increased same-store sales by 10.7 percent. This compares with an increase of about 2 percent for the overall optical market in the U.S. Same-store sales rose by 7.4 percent at Sunglass Hut in North America and its online platform bolstered quarterly sales by about 30 percent.

Sales progressed by 8.5 percent to €425 million in Europe, Luxottica's second-largest market, and they were 6.3 percent higher in constant currencies. Wholesale revenues in the region were driven by Italy, Spain, France, the U.K. and Turkey. During the quarter the company's automatic replenishment program, STARS, was rolled out in 150 stores in Europe. Retail sales posted double-digit growth in Continental Europe.  

Luxottica Group Sales Breakdown

(Million Euros, Quarter ended March 31)

 

2015

2014

% Change (€ terms)

% Change (currency neutral)

North America

1 315

1 016

29,4

6,7

Wholesale

275

209

31,9

9,8

Retail (adj.)

1 040

808

28,8

5,9

Europe

425

392

8,5

6,3

Asia-Pacific

298

251

18,7

6,4

Latin America

130

107

21,7

16,8

RoW

84

76

9,5

7,0

Total (adj.)

2 252

1 842

22,2

7,2

Total

2 210

1 842

19,9

5,3

In Asia-Pacific, Luxottica's sales increased by 18.7 percent to €298 million, led by China, India and Southeast Asia, which all grew by more than 30 percent. At constant currency rates, sales were up by 6.4 percent in the region. In China, the group's wholesale business was lifted by further penetration into tier two and tier three cities. LensCrafters' Chinese sales were up at a double-digit rates, but flat on a comparable basis. In Australia and New Zealand, same-store sales were up by 1.4 percent, with Sunglass Hut up by a double-digit rate and OPSM down marginally.

Luxottica announced the upcoming opening of its own wholesale operations in Indonesia. The group also plans to open wholesale subsidiaries in Colombia and Chile by the end of the year.

In China, the group's entire business was placed under the leadership of a single general country manager, replicating a model already applied in Brazil. Mehboob-Khan said that it is useful to have a leader that can “call the shots” across all business units in markets where you have “an embarrassment of riches.”

Luxottica Group Consolidated Income Statement

('000 Euros, Quarter ended March 31)

 

2015

2014

% Change

Manufacturing/Wholesale

940,XXX

805,XXX

16,7

Retail

1,312,XXX

1,038,XXX

26,4

NET SALES

2 209 850

1 842 334

19,9

Cost of Sales

727 886

664 142

9,6

Selling Expenses

683 935

547 667

24,9

Royalties

43 914

36 003

22,0

Advertising Expenses

135 938

108 504

25,3

G&A

259 860

215 804

20,4

Net Interest Expense

25 649

21 854

17,4

Pre-Tax

332 669

248 360

33,9

Tax

120 653

89 382

35,0

Minority Interests

1 652

1 651

0,1

NET

212 016

158 978

33,4

Euro/Share (Diluted)

0,44

0,33

33,3

In Latin America, sales rose 21.7 percent to €130 million, with growth of 16.8 percent at constant exchange rates. In Brazil, sales were up by 17.6 percent, lifted by market share gains and double-digit comparable growth at Sunglass Hut stores. In Mexico, sales surged by 38.3 percent. GMO, a retail chain operated by Luxottica in more than one South American country, posted double-digit growth in comparable store sales.

In the rest of the world, group sales increased by 9.5 percent to €84 million, up by 7.0 percent in local currencies.

The group's operating profit rose by 32.6 percent to €358.3 million. The adjusted operating margin widened to 15.9 percent from 14.7 percent a year earlier, the highest quarterly level in eight years.

The wholesale division bolstered its operating margin to 25.1 percent from 24.1 percent, lifted by improvements in manufacturing, and the retail margin grew to 13.1 percent from 12.0 percent, driven by profitability in North America. 

The reported attributable net profit rose by 33.7 percent to €210.4 million, the highest level since 2008. Free cash flow reached €38 million, down from €60 million a year earlier, as capital expenditures rose by 16 percent to €94 million and the company made an extraordinary tax payment of €29 million.

Net debt slipped slightly to €1,005 million at the end of March from €1,013 million at the end of last December, leading to a stable debt/adjusted Ebitda ratio of 0.6 times.

The company maintained its full-year guidance of adjusted sales rising by a mid- to high single digit at constant exchange rates. Operating and net income are forecast to rise twice the pace of the top line. Luxottica said that it will wait until the second quarter, which is traditionally its largest, to decide whether to improve its sales forecast.

Financial analysts predict that Luxottica's sales will exceed €9 billion in 2015, compared with $7.6 billiion in 2014. They are estimated a net profit approaching €880 million for this year, compared with €646 million.

Luxottica indicated that orders for the second quarter are up at a mid-teen growth rate in constant currencies and that the quarter will be marked by strong product releases. It estimates to be on track to open 1,400 new STARS doors during the quarter, which will also see a “soft” opening of Ray-Ban's flagship store in New York next month. The full-scale opening is scheduled for July.

Luxottica wants to raise e-commerce sales to 5-10 percent of its total revenues from a current 2 percent. Over the past 12 months, e-commerce generated €200 million in revenues for the company, with Ray-Ban.com nearly doubling its sales to €50 million and sunglasshut.com up 30-40 percent. Luxottica aims to spread the skills acquired from the takeover of glasses.com among its various online operations.