Luxottica Group S.p.A. announced consolidated net sales for the second quarter declined year-over-year by 19.6% to 707.0 ($804.0) million. Assuming constant exchange rates, consolidated net sales for the quarter would have declined by 5.2%. Consolidated net income for the quarter was 67.7 ($76.99) million and consolidated net margin for the quarter was 9.6%.
In the first half, consolidated net sales for the first half declined year-over-year by 19.8% to 1.4 ($1.59) billion. Assuming constant exchange rates, consolidated net sales for the six months would have declined by 5.9%.
Consolidated operating income for the six months was 223.2 ($246.6) million and consolidated operating margin for the six-month period was 15.8%.
Consolidated net income for the first half was 133.3 ($147.3) million and consolidated net margin for the period was 9.4%.
Manufacturing/Wholesale Division
The Group's manufacturing/wholesale sales for the first half declined year-over-year by 13.8% to 573.0 ($633.1) million. Assuming constant exchange rates manufacturing/wholesale sales for the six-month period would have declined by 5.3%.
Manufacturing/wholesale operating income for the first half was 126.0 ($145) million, reflecting an operating margin of 22.0%.
Leonardo Del Vecchio, Chairman of Luxottica Group, commented on the results of the manufacturing/wholesale division: “In the first half of 2003, the optical sector experienced a decrease in volumes, while our wholesale division posted a better performance when compared to the industry, allowing us to gain market share.
However, since the beginning of June, we have been experiencing an increase in orders from opticians when compared to previous months, which leads us to believe that they have sold out the surplus of inventories built in 2002.
In addition, we have recently added the ten-year license agreement with Prada and Miu Miu brands to our portfolio.
As a result of this new license and the new collections launched during 2003, in 2004 our brand portfolio will be significantly stronger when compared to 2002.”
Retail Division
In the first half, retail sales declined year-over-year by 20.2% to 940.0 million ($1.04 bn). Assuming constant exchange rates, retail sales for the six months would have declined by 2.5%. Same store sales in U.S. Dollar for the first half declined year-over-year by 3.4%.
Retail operating income for the first half was 121.9 ($134.7) million, resulting in an operating margin of 13.0%.
In the second quarter, retail sales declined year-over-year by 21.1% to 470.9 ($520.3) million. Assuming constant exchange rates, retail sales for the quarter would have declined by 3.0%. Same store sales in U.S. Dollar for the quarter declined year-over-year by 3.7%.
Mr. Del Vecchio continued: “The results of our retail division for the second quarter were affected by the unusually bad weather in North America, which lasted until the last week of June, penalizing mainly the sun segment both at LensCrafters and Sunglass Hut International. Retail sales were also affected by the continued cautious spending patterns of consumers.
However, in contrast to the first two quarters, when sales were down compared to the same periods of 2002, in July same store sales have been increasing by 2.0%. This makes us hopeful that a pick-up in consumption will materialize during the second half of 2003; and, assuming that sales in the second half remain at current levels, 2003 retail revenues in Dollar terms should remain stable compared with 2002. Moreover, as a result of management's constant attention on improving efficiency and on controlling cost, operating margin should be in line with 2002.
However, it is encouraging to see that even with lower sales and tough competition, Luxottica Retail continues to maintain its market share in North America, in both sun and prescription segment.”
Mr. Del Vecchio concluded: “The results of the second quarter reflect the continued impact of the same factors we begun to notice at the beginning of the year. Most importantly, the weak U.S Dollar which devalued by 19% year-over-year against the Euro continued to have an important effect on our results. The expiration of the license for the Giorgio Armani and Emporio Armani eyewear at the end of May was also felt during the quarter. Finally, during the quarter the continued weak U.S. economy affected retail sales.
We expect that the impact of these factors will progressively lessen during the second part of the year. Specifically, sales from the new collections launched in March, Versace, Versus, Ray-Ban prescription and Ray-Ban Junior which are performing in line with our expectations and the new license agreement signed with Prada will offset the loss of sales from the Armani licenses.
Moreover, in light of the evolution of the Euro/U.S. Dollar exchange rate during 2002 (the average exchange rates for last year were: 1.00 = US$0,8766 for the first quarter, 1.00 = US$0,9198 for the second quarter, 1.00 = US$0,9838 for the third quarter and 1.00 = US$0,9982 for the fourth quarter) and assuming that Euro/U.S. Dollar exchange rate stabilizes at current levels, or 1.00 = US$1.15 for the balance of the year, the impact from the devaluation of the U.S. Dollar against the Euro should progressively decline to thirteen percent by the last quarter of 2003, down from 18.7% for the first six months of the year.
However, the continued weakening of the U.S Dollar and the weak signs of recovery of the U.S. economy lead me to conservatively revise our expectations for earnings per share (EPS) for fiscal year 2003. With an average exchange rate of 1.00 = US$1.15 for the second half of the year 2003, we expect an earnings per share of 0.63, or EPADS of US$0.71.
Finally, I would like to highlight once again, that 2003 is a year of transition for us. We expect to return to approximately 15% growth in sales and in earnings in 2004, a result of the significantly strengthened brand portfolio, both house brands and designer lines, and the OPSM acquisition.”
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.
2Q 2002 2Q 2003 Adjustment 2Q 2003
U.S. GAAP U.S. GAAP for constant adjusted
Euro million results results exchange rates results
Consolidated net sales 879.0 707.0 127.0 834.0
Manufacturing/
wholesale net sales 339.9 297.4 31.4 328.8
Retail net sales 596.5 470.9 107.7 578.6
1 H 2002 1 H 2003 Adjustment 1 H 2003
U.S. GAAP U.S. GAAP for constant adjusted
Euro million results results exchange rates results
Consolidated net sales 1,759.5 1,411.5 244.9 1,656.4
Manufacturing/
wholesale net sales 664.7 573.0 56.6 629.6
Retail net sales 1,178.7 940.0 209.5 1,149.5
LUXOTTICA GROUP
CONSOLIDATED FINANCIAL HIGHLIGHTS
FOR THE THREE-MONTH PERIODS ENDED
JUNE 30, 2003 AND JUNE 30, 2002
KEY FIGURES IN THOUSAND OF EURO (4)
2003 2002 (5) % Change
NET SALES 706,955 879,003 -19.6%
NET INCOME 67,669 111,283 -39.2%
EARNINGS PER SHARE (ADS) (2) 0.15 0.25
FULLY DILUTED EARNINGS PER SHARE (ADS)(3) 0.15 0.24
KEY FIGURES IN THOUSAND OF U.S. DOLLARS (1) (4)
2003 2002 (5) % Change
NET SALES 803,949 808,507 -0.6%
NET INCOME 76,953 102,358 -24.8%
EARNINGS PER SHARE (ADS) (2) 0.17 0.23
FULLY DILUTED EARNINGS PER SHARE (ADS) (3) 0.17 0.22
