Luxottica's FY 2008 Consolidated Net Sales Up by 10.7% at Constant Exchange Rates, by 4.7% at Current Exchange Rates
Sales trends in 2008
For Luxottica, 2008 was a year characterized by three main factors: the depreciation of the US Dollar against the Euro; the drastic contraction first of the US market and later of the European market; and, the first full year of integration with Oakley.
Consolidated net sales for the full year improved by 10.7% at constant exchange rates (by 4.7% at current exchange rates), to Euro 5,201.6 million, compared with consolidated net sales of Euro 4,966.1 million for fiscal year 2007, mainly due to the inclusion of sales by Oakley. Net pro forma sales 2 at constant exchange rates, on the other hand, were nearly unchanged, declining by 0.8% for the year.
Throughout the year, Luxottica was able to respond rapidly with flexibility and effectiveness to the slowdown it experienced in demand by implementing cost-control and cost-cutting measures that enabled the Group to maintain its operating margin for the first nine months of 2008 substantially in line with previous years. However, during the fourth quarter there was a significant contraction in demand that contributed to an erosion in the Group’s margins in both the Wholesale and Retail Divisions.
Consolidated net sales for the fourth quarter increased to Euro 1,236.5 million, from Euro 1,188.5 million for the same quarter in the previous year (unchanged at constant exchange rates, up by 4% at current exchange rates). At the same time, consolidated net pro forma sales(2) for the quarter decreased by 5.5% at constant exchange rates. This slowdown triggered further cost-cutting measures, the benefits of which Luxottica expects to realize in the coming quarters.
Luxottica currently expects to post consolidated net income for the full year 2008 of approximately Euro 400 million (down by approximately 16% from the previous year(4)), with earnings per share (EPS) for the period of approximately Euro 0.88 (at an average Euro/US Dollar exchange rate of 1:1.47).
On a comparable basis, i.e. considering EPS in US Dollars before trademark amortization(3), the decrease in consolidated net income would have been 8%(4). It should be noted that this estimate does not include an extraordinary capital loss of Euro 15 million after taxes (equivalent to EPS of Euro 0.03) arising from the write-off of debt related to the September 2006 sale of the Things Remembered business.
Luxottica also currently estimates that, thanks to its strict control on working capital and despite the negative impact of the Euro/US Dollar exchange rate experienced for the full year, its net debt to EBITDA ratio at December 31, 2008 will be substantially in line with the same ratio as of September 30, 2008.
Andrea Guerra, CEO of Luxottica Group, commented: “2008 was an important year for our Group, one in which we certainly worked on a number of fronts. Most importantly, we successfully closed the first full year of integration with Oakley: despite certain changes in the distribution structure in certain markets, we managed to significantly grow the brand and its visibility, particularly in European and emerging markets, which shows its great underlying value.”
“After years of sustained growth, global markets are now experiencing not a crisis so much as a structural re-adjustment,” continued Mr. Guerra. “Over the past five years, our Group enjoyed a near doubling in sales as well as improved overall performance and profitability, thanks to our unique business model. Now we must be as responsive and flexible as ever in adapting to the new scenario and continue on our path of growth in anticipation of a 2009 that will certainly be challenging for all.
For this reason, we are working on the optimization of our working capital and balance sheet, with the clear objective of continuing to generate strong cash flow.
We want to make sure we have the appropriate resources to take advantage of all the opportunities that the coming years may offer, while being extremely selective with our investments. At the same time, we are aggressively adjusting our manufacturing, distribution and sales structures to the new level of demand. Similarly, in all areas of the business and regions in which we operate, we are working on our cost structure to make it even leaner.”
For the full year, the Wholesale Division posted sales to third parties of Euro 2,092.5 million, compared with Euro 1,703.7 million for 2007 (up by 22.8% at current exchange rates and by 26.7% at constant exchange rates), with growth due almost entirely to the inclusion of Oakley sales. Pro forma sales(2) to third parties for the year rose by 1.3% at constant exchange rates.
Regarding the sales performance by geographic region, in 2008 Luxottica saw positive results in Continental Europe, emerging markets and North America. Over the same period, the Group experienced a slowdown in Southern Europe and Japan.
The latter part of the fourth quarter was characterized by a weakened economy in many geographic regions and massive reductions by clients in their inventories, resulting in a contraction in the results of the Wholesale Division. At the same time, the turnaround in the Euro/dollar exchange rate for the period impacted sales positively.
Sales to third parties for the fourth quarter increased to Euro 459.7 million, from Euro 446.1 million for the same quarter last year (up by 3.1% at current exchange rates and by 2.2% at constant exchange rates). Pro forma sales(2) to third parties, on the other hand, declined by 8.3% at constant exchange rates.
For the year, retail sales declined to Euro 3,109.1 million, from Euro 3,262.3 million for fiscal year 2007 (down by 4.7% at current exchange rates, but up by 2.3% at constant exchange rates). Pro forma sales(2) fell 2.1% at constant exchange rates.
The decline in retail sales in North America was countered by a substantially strong performance in all other geographic regions. In North America, since the beginning of the year, the retail business experienced a strong contraction in traffic at its stores. As a result, comparable store sales(5) at LensCrafters and Pearle Vision declined by 6.5% for the year and by 11.5% for the fourth quarter. Comparable store sales(5) at the Licensed Brand chains were down by 9.1% for the year and by 9.7% for the fourth quarter.
With respect to the sun business, Sunglass Hut’s global comparable store sales(5) for the year were down by 4.9% and by 12.9% for the fourth quarter, with a marked difference between results in North America and in other regions where the chain operates. In Australia and New Zealand, for example, Sunglass Hut’s comparable store sales5 were up by around 4.5% for the year and by 2.9% for the fourth quarter.
Notes to the press release
- All comparisons, including percentage changes, are between the three- and twelve-month periods ended December 31, 2008 and 2007.
- Pro forma data reflects the inclusion of Oakley, Inc., a subsidiary that was acquired in November 2007, as if it had been acquired on January 1, 2007.
- EPS before trademark amortization is a non-US GAAP measure. For additional disclosure regarding such measure, please refer to the tables attached.
- Does not include an extraordinary item arising from the transfer of a real estate property in 2Q07 of around €20 million before tax and €13 million after tax.
- Comparable store sales reflects the change in sales from one period to another that, for comparison purposes, includes in the calculation only stores open in the more recent period that were also open during the comparable prior period, and applies to both periods the average exchange rate for the prior period and same geographic area.