Luxottica Group S.p.A. announced consolidated net sales for the first quarter of 2003 declined 20.0 percent to euro 704.5 million. Assuming constant exchange rates,
consolidated net sales for the quarter would have declined by 6.6 percent. Consolidated net income for the quarter was euro 65.6 million.
Earnings per American Depositary Share (ADS) (one ADS represents one ordinary share) for the quarter were euro 0.15. In U.S. Dollars, earnings per ADS (EPADS) for the quarter were US$0.16.
The Group’s manufacturing/wholesale sales for the first quarter declined year-over-year by 15.1 percent to euro 275.7 million. Assuming constant exchange rates manufacturing/wholesale sales for the quarter would have declined by 7.5 percent.
Manufacturing/wholesale operating income for the quarter was euro 64.4 million, reflecting an operating margin of 23.4 percent.
Leonardo Del Vecchio, Chairman of Luxottica Group, commented on the results of the manufacturing/wholesale division: “In January, we added two new designer brands to our portfolio, Versace and Versus, and in March we launched new Luxottica-designed and -made collections for both. We also concurrently introduced the first prescription eyewear collection for Ray-Ban, further leveraging what is historically the world’s leading sun brand by broadening the assortment of products offered under this name. Based on the more than positive feedback from opticians so far, I am fairly confident that over the coming months sales of the new lines should offset sales lost as a result of the non-renewal of the Armani licenses. At the same time, certain brands of our portfolio are gaining market share as the creative resources and manufacturing investments previously dedicated to the Armani brands were reallocated across our entire portfolio. This demonstrates our Group’s ability to quickly and seamlessly adapt to changes in the market and competitive scenario.”
Retail sales declined year-over-year by 19.4 percent to euro 469.2 million. Assuming constant exchange rates, retail sales for the quarter would have declined by 1.9 percent. Same store sales in U.S. Dollar for the quarter declined year-over-year by 3.0 percent.
Retail operating income for the first quarter was euro 54.3 million, resulting in an operating margin of 11.6 percent.
Mr. Del Vecchio continued: “The results of our retail division for the quarter were affected by unusually bad weather in the U.S. in February, as well as overall uncertainty due to the war in Iraq. However, U.S. consumers data since the beginning of the hostilities show that consumption levels did not decline further. In fact, this month we are already seeing signs of a reversal of the negative trend: retail sales are up by three percent, compared with a 1.9 percent decline for the first quarter. As a result, we are hopeful to see a recovery in coming quarters. At the same time, management continues to be focused on all aspects of the business, seeking to achieve improvements both in efficiency and profitability.”
Statement from the Chairman
Mr. Del Vecchio concluded: “The Group’s consolidated results for the first quarter of this year mainly reflected the impact of three factors. Firstly, results were negatively affected by the 18 percent year-over-year devaluation of the U.S. Dollar against the Euro in the quarter. Additionally, in line with management’s expectations, sales of Giorgio Armani and Emporio Armani eyewear nearly halved during the quarter. Finally, the continued weakness of the economy in the U.S., which as a market represents approximately 70 percent of the Group’s consolidated sales, affected retail sales. We expect that the impact of these factors will progressively lessen during the course of the year. In particular, the loss of sales due to the non-renewal of the Armani licenses should be offset by sales from the new lines launched in March. Additionally, in light of the evolution of the Euro/U.S. Dollar exchange rate during 2002 (the average exchange rates for last year were: euro 1.00 = US$0,8766 for the first quarter, euro 1.00 = US$0,9198 for the second quarter, euro 1.00 = US$0,9838 for the third quarter and euro 1.00 = US$0,9982 for the fourth quarter) and assuming that Euro/U.S. Dollar exchange rate stabilizes at current levels, or euro 1.00 = US$1.10, for the balance of the year, the impact from the devaluation of the U.S. Dollar against the Euro should progressively decline to nine percent by the final quarter of this year, down from 18 percent for the quarter just ended.”
“The results for the first quarter confirm that 2003 will be a year of transition for us, as well as for the global economy, and that we should expect to return to growth in sales and earnings only in 2004. We confirm our previously announced expectations of earnings per share (EPS) for fiscal year 2003 of Euro 0.69, or EPADS of US$0.76, with an exchange rate of euro 1.00 = US$1.10.”
Luxottica Group uses certain measures of financial performance that exclude the impact of fluctuations in currency exchange rates in the translation of operating results into Euro. The Company believes that these adjusted financial measures provide useful information to both management and investors by allowing a comparison of operating performance on a consistent basis. In addition, since the Luxottica Group has historically reported such adjusted financial measures to the investment community, the Company believes that their inclusion provides consistency in its financial reporting. Further, these adjusted financial measures are one of the primary indicators management uses for planning and forecasting in future periods. Operating measures that assume constant exchange rates between the first quarter of 2003 and the first quarter of 2002 are calculated using for each currency the average exchange rate for the three-month period ended March 31, 2002. Operating measures that exclude the impact of fluctuations in currency exchange rates are not measures of performance under accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP measures are not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. In addition, Luxottica Group’s method of calculating operating performance excluding the impact of changes in exchange rates may differ from methods used by other companies. See Table below for a reconciliation of the operating measures excluding the impact of fluctuations in currency exchange rates to their most directly comparable U.S. GAAP financial measures. The adjusted financial measures should be used as a supplement to U.S. GAAP results to assist the reader in better understanding the operational performance of the Company.
1Q02 1Q03 Adjustment 1Q03 U.S. GAAP U.S. GAAP for constant adjusted (in millions of Euro) results results exchange rates results Consolidated net sales 880.5 704.5 118.3 822.8 Manufacturing/wholesale net sales 324.8 275.7 24.6 300.3 Retail net sales 582.3 469.2 101.8 571.0
(1) Unless otherwise noted, all comparisons made in this announcement are between the three-month period ended March 31, 2003, and the equivalent three-month period ended March 31, 2002. The Company's results are discussed in this announcement in accordance with U.S. GAAP and are broken out for additional perspective into consolidated, manufacturing/wholesale, including Ray-Ban and retail components, which include Sunglass Hut International and LensCrafters. As there are intercompany items, it is important to note the full reconciliation detailed in the Segmental Information Table provided with this announcement. Additionally, Luxottica Group considers the financial results denominated in Euro (euro), the Group's reporting currency, to be a more accurate gauge of its operating performance. The results denominated in U.S. Dollars were converted at the average exchange rate for the three-month period ended March 31, 2003, of EUR 1.00 = US$1.0730, compared with euro 1.00 = US$0.8766 for the first quarter of 2002. Results of the Sunglass Hut International operations were consolidated into the Group's results as of March 31, 2001. LUXOTTICA GROUP CONSOLIDATED FINANCIAL HIGHLIGHTS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002 KEY FIGURES IN THOUSAND OF EURO(4) 2003 2002(5) % Change NET SALES 704,547 880,486 -20.0% NET INCOME 65,614 101,070 -35.1% EARNINGS PER SHARE (ADS)(2) 0.15 0.22 FULLY DILUTED EARNINGS PER SHARE (ADS)(3) 0.15 0.22 KEY FIGURES IN THOUSAND OF U.S. DOLLARS(1)(4) 2003 2002(5) % Change NET SALES 755,979 771,833 -2.1% NET INCOME 70,404 88,599 -20.5% EARNINGS PER SHARE (ADS)(2) 0.16 0.20 FULLY DILUTED EARNINGS PER SHARE (ADS)(3) 0.16 0.19 Notes: 2003 2002 (1) Average exchange rate (in U.S. Dollars per Euro) 1.0730 0.8766 (2) Weighted average number of outstanding shares 450,957,163 451,990,536 (3) Fully diluted average number of shares 452,104,290 454,925,403 (4) Except earnings per share (ADS), which are expressed in Euro and U.S. Dollars, respectively (5) Certain amounts presented in prior year financial statements have been reclassified to conform with the current year presentation. Among them was a reclassification of certain revenue items of the retail division which were recorded in prior year as a reduction in the related costs and are now reflected as gross revenues and gross costs. The effect of this reclassification is an increase in sales for the three-month period ended March 31, 2002 of U.S. Dollars 12,0 million, and an offsetting increase in costs for the same amounts LUXOTTICA GROUP CONSOLIDATED INCOME STATEMENT FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002 In thousand of Euro(1) 2003 2002(2) % Change NET SALES 704,547 880,486 -20.0% COST OF SALES (208,016) (258,246) GROSS PROFIT 496,531 622,240 -20.2% OPERATING EXPENSES: SELLING EXPENSES (249,355) (294,649) ROYALTIES (14,951) (18,522) ADVERTISING EXPENSES (50,822) (62,653) GENERAL AND ADMINISTRATIVE EXPENSES (61,069) (73,784) TRADEMARK AMORTIZATION (8,982) (9,447) TOTAL (385,179) (459,056) OPERATING INCOME 111,351 163,185 -31.8% OTHER INCOME (EXPENSE): INTEREST EXPENSES (11,808) (20,674) INTEREST INCOME 897 1,555 OTHER - NET (4,587) 2,962 OTHER INCOME (EXPENSES) NET (15,498) (16,157) INCOME BEFORE PROVISION FOR INCOME TAXES 95,853 147,028 -34.8% PROVISION FOR INCOME TAXES (28,761) (44,108) INCOME BEFORE MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES 67,092 102,920 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES (1,478) (1,849) NET INCOME 65,614 101,070 -35.1%