Luxottica Group S.p.A. has merged Oakley's wholesale operations with its own in the United States and Europe and hired new executives to double the brand's apparel and retail revenues in the next three years, the company's new CEO tandem disclosed last week.  

Adil Khan, who was named LUX's Co-CEO of Markets last October, said he expects the moves will generate €100 million in “synergies” when completed, with about half coming from cost savings and half from incremental sales.

“That is going to give us firepower and coverage and higher penetration particularly of Oakley in the U.S.,” Khan said of the decision to combine the Oakley and Luxottica wholesale teams. “This is the first step of a series of integration moves that you will see at Oakley in the month to come.”

Newly appointed leadership at Oakley's retail and apparel units have been charged with doubling sales and the number of O retail locations over the next three years. The moves reflect LUX's “renewed priority on driving Oakley from being a very strong brand in the US to a very strong brand globally,” the company said in its first quarter earnings release.

Echoes of Safilo
The news, which comes nearly eight years after LUX acquired Oakley for $2.1 billion in 2007, mirrors rival Safilo Group's announcement last year that it would integrate Smith Optics after 18 years of letting that brand operate autonomously from its headquarters in Idaho. Luxottica and Safilo are both based in Italy and both announced the integration initiatives within months of installing new CEOs. 

“We have spent many years not looking at synergies between Oakley and Luxottica,” Khan observed. “And now that we are we are discovering pockets of good news across all areas.”

Khan and Massimo Vian, LUX's co-CEO for product and operations, both pledged to protect Oakley's culture. Under a stock incentive plan approved by LUX shareholders April 29, the two CEOs stand to earn stock rights worth tens of millions of dollars if they hit EPS targets for the 2015-17 period.

“Everything that is related to research and development, the culture of innovation, the uniqueness of Oakley products…will remain untouched,” said Vian.

Michael Kors, e-commerce fuel North American growth
LUX announced it earned 58 percent of its revenues, from North America in the first quarter ended March 31, up from 55 percent in the year earlier quarter. North American sales rose 29.4 percent to €1.32 billion ($1.5 bn), an increase of 6.7 percent in currency-neutral (c-n) terms compared with the first quarter of 2014.

Wholesale revenues, which include sales of Oakley, Ray Ban and dozens of licensed fashion brands of eyewear, increased 31.9  percent (9.8 percent c-n) to €275 million ($310 mm) on stronger than expected sales of Michael Kors eyewear.

Retail revenues increased 28.8 percent (5.9 percent c-n) to €1.04 billion ($1.2 bn)  as comparable store sales growth accelerated to 5.9 percent at LensCrafters and 7.4 percent at Sunglass Hut. Khan estimated e-commerce sales for the 12 months ended March 31 came in at about €200 million, or about 2 percent of total sales. Sales at ray-ban.com nearly doubled to €50 million during that period, while sales grew 30-to-40 percent at sunglasshut.com.

“We see that both as something that we know how to do and something that we have to do a lot more of and we are going to invest in infrastructure and marketing to get that done,” Khan said of growing e-commerce sales.

Helping independents grow
Khan added, however, that LUX sees plenty of opportunity to help independent retailers grow their businesses at double digit rates with SKU management technology more prevalent in the big box and online channels.
“Contrary to some of the projections that were floating around a couple of years ago, independents have done well,” he said. “In some markets like the U.S., independents are actually growing.”

In currency-neutral terms, LUX sales grew 6.3 percent in Europe, 16.8 percent in Latin America and 7.0 percent in Rest of World, resulting in consolidated global sales of €2.21 billion ($2.5 bn), up 19.9 percent (5.3 percent c-n) compared with the first quarter of 2014.

LUX ended the quarter with cash and cash equivalents to €1.50 billion and inventory valued at €809.4 million, up 11.1 percent.

Khan said LUX remains in the hunt for acquisitions, particularly for businesses that can bolster its position in emerging markets or expand the company's capabilities, such as Glasses.com, an online retailer LUX bought last year.

However, LUX is prepared to meet its financial targets just by growing its existing businesses. Sunglass Hut, for instance, is planning to open 1,000 stores in the next three years, primarily in emerging markets.