Operating synergies from the tie-up with Oakley are estimated to have been €5 million in the second quarter and are projected at €6 million in the third one and €7 million in the last quarter of this year. Luxottica said that with Oakley it has increased its negotiating power, and that it is uniting its purchasing activities into one unit.
The integration of Oakley with Luxottica has been complete and these will enable the group to reach the results it has projected for 2008. In a conference call with financial analysts at the end of June, the company's chief executive, Andrea Guerra, also noted that Luxottica had been putting off some cost-saving programs over the past four to five years of growth, and added that its should not be so difficult to do so now.
He said that Luxottica's retail business improved dramatically in the second quarter thanks to cost reduction initiatives. However the operating margin of these activities fell by 1.5 percentage points compared with a pro forma margin of 12.4 percent a year earlier because of the lower retail margin of Oakley, acquired in November 2007. In the first three months of the year, the operating margin for retailing had dropped by 3.2 percentage points. Luxottica said that Sunglass Hut stores selling Oakley eyewear were very successful.
The operating margin of the wholesale business shrunk by 0.50 percentage points from a pro forma 25.3 percent a year earlier, attributable to one-off costs to restructure the business, mainly in Europe, as well as a slowdown in Spain and Italy because of poor weather conditions and the tougher economic environment. In the first quarter, the wholesale operations had increased their operating margin by 1.0 percentage points.
Guerra indicated that the Ray-Ban and Oakley brands «are very hot and doing a wonderful job» in the USA. In all other regions, except Europe, Oakley improved sales.
Overall, Luxottica's operating margin in the second quarter fell by 0.8 percentage points from 17.6 percent a year earlier, in line with the decline in the first three months of the year. The company added that the second quarter was the peak for one-off charges related to the merger of Oakley merger and that costs will decline during the rest of the year. In the second quarter, these charges reached €11 million. The figure is forecast at €7 million for the third quarter and €3 million for the fourth one.