Luxottica Q1 Sales Drop 11.6%; Oakley Sales Remain Strong

mike lewis

• May 11 2009
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Luxottica Group, the parent company of Oakley, announced its Q1 earnings late last week. While sales for the company as a whole were off 6.2% at current exchange rates and 11.6% at constant exchange rates, Oakley’s “positive sales performance in all markets” buoyed the company during a difficult quarter.

Luxottica says demand dropped due to consumer attitudes, rapid reduction in inventories by clients in all geographical areas and the slowdown in the global economy. However, it says it is seeing signs of a turnaround for business and the market.

“After the first four months of 2009, we are already seeing a clear difference between the January to February and March to April periods,” said Andrea Guerra, Chief Executive Officer of Luxottica Group. “In fact, in March and April our results have stabilized in North America, while improving in nearly all other markets. April ended with sales results ahead of last year. In fact consolidated sales year-to-date were down by only 3% compared to the same period last year.”

On the wholesale side, the company says “the positive sales performance in all markets by Oakley and the success of Ray-Ban’s optical collections only enabled the Wholesale Group to partially offset the effects of the challenging macro-economic environment, which triggered strong measures by clients to cut inventory levels. Wholesale sales for the period were Euro 501.6 million, compared to Euro 619.6 million (down by 19.0% at current exchange rates and by 19.8% at constant exchange rates).”

Luxottica also reports that sales in its retail division have been strong, improving to Euro 810.8 million for the first quarter of 2009, from Euro 779.1 million for the same period in 2008 (up by 4.1% at current exchange rates, down by 5.0% at constant exchange rates). “Thanks to cost control initiatives, the Retail Division’s operating income was substantially in line with the same quarter in the previous year (Euro 83.6 million compared to Euro 84.5 million for last year’s first quarter, reflecting a decline of 1.1%). Consequently, the Retail Division’s operating margin for the first quarter of 2009 declined to 10.3%, from 10.8% for the first quarter of 2008.”

Consolidated results for the first quarter
Consolidated sales were Euro 1,312.3 million, compared to Euro 1,398.7 million for the first quarter of 2008 (down by 6.2% at current exchange rates and by 11.6% at constant exchange rates).

Consolidated EBITDA2 was down year-over-year by 16.6% to Euro 229.6 million from Euro 275.3 million. Consolidated EBITDA margin2 for the period declined to 17.5% from 19.7% for the first quarter of 2008.

Consolidated operating income for the quarter was Euro 156.7 million, compared to Euro 207.1 million (down by 24.3%) for the first quarter of 2008. Consolidated operating margin was 11.9% for the quarter while it was 14.8% for the same period last year, thanks to particularly strong results by the Wholesale Division for that period.

Consolidated net income was Euro 80.4 million for the quarter, compared to Euro 103.7 million (down by 22.5%) for the same period last year. This result reflected earnings per share (EPS) of Euro 0.18 (at an average Euro/U.S. Dollar exchange rate of approximately 1.30). In terms of EPS in Euro before trademark amortization2, the decrease would have been limited to 20.1%.

Thanks to strong control over working capital, the Group’s cash flow generation for the quarter was significant. However, due to the impact of exchange rate fluctuations, at March 31, 2009, Luxottica’s net debt2 position was Euro 2,963.4 million (compared to Euro 2,949.5 million at the end of 2008), while the ratio of net debt to EBITDA2 was 3.1x (3.0x net of currency exchange effects), compared to 2.9x at December 31, 2008.