Luxottica posted soft revenue growth in the first quarter. But the results were in line with market expectations and the company reiterated its full-year guidance of a 5-6 percent boost in the top line growth, predicting a significant improvement in its sales performance in the second half of the year.

The group posted a 2.5 percent increase in sales to €2,266 million. At constant currency rates, the top line grew by 3.8 percent. Luxottica suffered from weak sunglass sales in some regions while the optical business registered a strong performance.

When adjusted to exclude an accounting change at EyeMed, the group's U.S.-based vision insurance program, revenues rose by 0.6 percent at actual exchange rates and by 1.8 percent at constant rates. The change reduced reported revenues by €42 million during the quarter.

Wholesale revenues fell by 0.6 percent in euros to €935 million but rose by 2.1 percent in local currencies. The decline in euros was mainly due to the 25 percent depreciation of the Brazilian real. The country represents 3 percent of the group's revenues.

Quarterly retail sales were up by 4.8 percent at current rates to €1,331 million, and rose by 5.0 percent in local currencies. Adjusted retail sales were up by 1.6 percent at current rates and by 1.5 percent at constant rates. The group's global comparable retail sales went up by 1.6 percent in the first quarter. Worldwide, Sunglass Hut increased same-store sales by 1.1 percent, despite a decline in North America.

Overall adjusted North American sales, which represented 60 percent of the group's total revenues in the quarter, rose by 2.8 percent, to €1,352 million. On a currency-neutral basis, they grew by 1.3 percent. The group noted that the launch in April in the U.S. and Canada of a minimum advertising price policy to protect the reputation of the Ray-Ban brand was impacting sales. It added that the policy could lead to the loss of some accounts. Nevertheless, Ray-Ban's global sales growth was positive.

In North America, wholesale revenues were up by 3.9 percent on a reported basis and by 2.7 percent at constant currency rates, reaching a level of €286 million. Excluding Oakley's sports division, whose apparel, footwear and accessories (AFA) business is facing difficulties, wholesale revenues in the region rose by about 4 percent in local currencies.

Luxottica's management said that it is working intensively to master AFA product assortment and turn around Oakley's sports business. It pointed out that the brand's optical frame activity is “performing really well.” The company expects its total North American wholesale revenues to grow by 7-8 percent at constant currency rates in the full year.

Adjusted North American retail sales were up by 2.5 percent to €1,066 million, lifted by higher comparable store sales, especially for LensCrafters. At constant currency rates, retail sales inched up by 0.9 percent. Sales were partly affected by the adoption of the Gregorian calendar, which dampened revenue growth by about 1 percentage point.

The group predicts its retail sales will rise by 4-5 percent in 2016 at constant currency rates partly thanks to new openings. In May, LensCrafters will open its first point of sale in a Macy's department store. About 80 similar stores will be opened in the second half of the year as part of an agreement to establish up to 500 LensCrafters stores in Macy's locations. The group is also counting on management changes at Sunglass Hut to spur sales from this quarter onwards.

Luxottica Group Sales Breakdown

(Million Euros, Quarter ended March 31)

 

2016

2015

% Change
(€ terms)

% Change
(constant
currency)

North America

1,352

1,315

2.8

1.3

Wholesale

286

275

3.9

2.7

Retail (adj.)

1,066

1,040

2.5

0.9

Europe

435

425

2.3

4.2

Asia-Pacific

281

298

-5.5

-2.1

Latin America

120

130

-7.5

13.1

Rest of the World

77

84

-8.2

-5.4

Total (adj.)

2,266

2,252

0.6

1.8

Total (adj.)

2,266

2,210

2.5

3.8

Same-store sales in North America were 2.0 percent higher than a year ago for LensCrafters and 1.8 percent higher for the licensed brands - Sears Optical and Target Optical. But, Sunglass Hut's comparable sales were down by about 1.0 percent due to a slowdown in purchases in tourist areas. The management stressed that about 100 North American stores exposed to tourist flows, which represent about 15 percent of the chain's sales, registered a double-digit decline in traffic and nearly a double-digit drop in comparable revenues. Meanwhile, the nearly 1,000 Sunglass Hut stores in North America stores without exposure to tourism booked positive same-store sales. Overall, Sunglass Hut's sales in North America rose by about 4 percent.

Sales in Europe increased by 2.3 percent in euros and by 4.2 percent in local currencies, rising to a total of €435 million in the quarter. Currency-neutral sales were up by a double-digit rate in Italy, Spain, Turkey and Eastern Europe. Hit by lower tourist spending, sales in France and the U.K. were described as “soft.” Luxottica anticipates European sales to rise 4-5 percent at constant currency rates this year.

In Asia-Pacific, revenues decreased by 5.5 percent at current currency rates and by 2.1 percent in local currencies, down to €281 million. The decline was largely due to lower sales in Hong Kong and South Korea. Meanwhile, sales in mainland China and Japan were up by a double-digit growth rate, lifted by increased volumes and market share gains as a result of a price harmonization process implemented in the second part of 2015. Luxottica is pursuing its store expansion in China, opening stores in tier two and tier three cities.

In Hong Kong, which is being affected by a decline in tourist spending, the group does not expect the situation to improve in the short term and is shifting the focus of its local stores to providing more prescription glasses to locals from selling sunglasses to tourists.

In Korea, revenues were impacted during the quarter by a change in shipment schedules stemming from an upgrade of the company's Enterprise Resource Planning system. Luxottica claimed that the situation in the country went back to normal in April and anticipates the market to generate high single-digit sales growth this year.

Excluding Hong Kong and South Korea, first-quarter sales would have been in line with Luxottica's revenue growth target of 8-10 percent given for the full year in constant currencies. Same-store sales continued to improve in the group's optical retail business in Australia and New Zealand, rising by 4.2 percent in the first quarter, after increasing by 3.5 percent in the previous three months. The OPSM chain was back to positive comparable sales growth and Sunglass Hut booked the ninth consecutive quarter of same-store sales, up by at least a high single digit.

In Latin America, sales fell by 7.5 percent to €120 million but rose by 13.1 percent in local currencies, driven by Brazil and Mexico, performing better than the management's previous forecast of a rise of between 9 and 11 percent for the full year. The retail business benefitted from double-digit growth in comparable store sales for the GMO chain in Peru and Colombia, and for Sunglass Hut in Mexico.

In the rest of the world, sales dropped by 8.2 percent at current exchange rates and by 5.4 percent in local currencies, down to €77 million.

Global e-commerce revenues rose by 16 percent. The channel represented some 4 percent of group sales and Luxottica aims to double the online turnover in the next three to four years.

Luxottica anticipates an acceleration in sales growth in the second part of the year thanks to an easier comparison basis, a higher number of trading days and the opening of new stores. It also expects an increase in the bottom line. Analysts forecast Luxottica's 2016 sales above €9.4 billion, up from a reported €8,837 million in 2015, while the bottom line is seen exceeding €920 million, up from €804 million. As previously reported, going forward no profit figures will be given for the first quarter or the third one.