Luxottica Group S.p.A., the parent of Oakley and Sunglass Hut, saw forth quarter sales rise 4% to €1.24 billion ($1.58bn) from €1.19 million ($1.51bn). At constant exchange rates, sales were unchanged at current exchange rates. Assuming the inclusion of results by Oakley, Inc., a subsidiary that was acquired in November 2007, as if it had been acquired on Jan. 1, 2007, pro-forma sales were down by 5.5% at constant exchange rates.

 

Earnings fell 44.2% to €54.1 million ($68.8mm) from €96.9 million ($123.2mm). On a per share basis in dollars, earnings fell to 16 cents a share from 31 cents. Operating income fell 22.6% to €117.4 million ($149.3mm) from €151.7 million ($192.9mm). EBITDA was down 13.7% to €186.1 million ($236.7mm) from €215.7 million ($301.1mm).

 

The Milan-based eyewear giant said that in the fourth quarter of 2008, “overall demand contracted significantly, resulting in a reduction in margins for both the retail and wholesale divisions: sharp and sudden declines in sales have an immediate impact on operating margins, especially for the Retail division. At the same time, during the fourth quarter the Group took a number of significant steps within its manufacturing and logistics operations, which are contributing to returning the Group's balance sheet to its optimal status.”

 

For the year, sales advanced 4.7% to €5.2 billion ($ 6.6mm) from €4.97 billion ($6.3mm) and gained 10.7% at constant exchange rates. Earnings slid 17.6% to €395.0 million ($502.4mm) from €479.2 million ($609.5mm). On a per share basis in dollars, earnings slipped to $1.27 from $1.44 a year ago. Operating income was down 7.8% to €749.8 million ($953.7mm) from €813.3 million ($1.03bn.) EBITDA dipped 3.0% to €1.01 billion ($1.28bn) from €1.04 billion ($1.32bn).

 

“We closed 2008, a particularly challenging year, with all-time high consolidated sales of over Euro 5 billion, net income of nearly Euro 400 million and free cash flow of Euro 300 million,” said Andrea Guerra, CEO of Luxottica Group. “We successfully completed the first full year of working with Oakley and laid the foundation for Luxottica's long-term growth, even through a period as difficult as the one we are now facing.”

 

For Luxottica, 2008 was characterized by three factors: the first year of integration with Oakley, the depreciation of the U.S. Dollar and other currencies used by the Group against the Euro, the drastic contraction first of the U.S. market and then of the European market.

 

Luxottica has reacted to this situation with all the flexibility and efficacy of its integrated business model, which enabled it to continue to generate significant free cash flow generation (Euro 302 million for fiscal 2008). In particular, Luxottica benefited from the merger with Oakley, from ongoing investments (around Euro 300 million over the course of the year) and measures to boost sales and improve efficiency from which the Group expects to reap significant advantages in the coming quarters. Such measures will also allow Luxottica to further strengthen its equity structure and optimize costs to be in a position to take advantage of new opportunities.

 

“We have already implemented a series of measures that will enable us to rapidly and flexibly adapt to the new environment and that will both contribute to boosting sales and streamline our cost structure across all divisions and geographic regions,” continued Mr. Guerra. “We are working hard to optimize our working capital and balance sheet to maintain our ability to generate excellent cash flow levels, even in the present situation, enabling us to take advantage of opportunities that may arise. We are also rapidly adapting our manufacturing, distribution and sales capacity to the new needs of the market.”

 

Actions for 2009

 

The year 2009 promises to be a demanding one, especially in the first and second quarters. The comparison with 2008 will be challenging because of the structural adjustments that the market is undergoing. The first half of the year will see the completion of most of the measures that are enabling the Group to more effectively adapt to a changing market and to be best positioned for the future.

 

SALES

 

  • After posting its sixth consecutive year of double-digit growth, in 2009 Ray-Ban will continue to be the world's leading eyewear brand thanks to, among other things, the success of its many iconic models, an improvement in the sales mix, acceleration in the prescription segment and the launch of collections that are particularly innovative in both design and materials (for example, Ray-Ban Tech).

 

  • In 2009, Luxottica benefits from the second full year of the integration with Oakley, further synergies between the two structures and the yet-to-be-fully-recognized potential of Oakley in Europe and emerging markets. The brand is expected to continue to grow significantly also in 2009, thanks to the launch of new models in the sports and high-performance segments, further development of optical and women's collections and an exclusive sun lens technology, one of the best available in the market today, that has the potential to generate strong synergies at Group level. The innovative Jawbone model, to be launched in the next few weeks, is expected to contribute significantly to the brand's continuing success.

 

  • Regarding other projects, 2009 is an important year for REVO. This brand's manufacturing and distribution in the sports channel are now managed by Oakley.

 

  • On the premium and luxury front, the Group is rolling out numerous projects, collections and special editions to attract customers less inclined to make purchases at this time.

 

  • Increased priority is being given to the more resilient prescription business, where Luxottica is looking to grow in terms of market penetration, client service and breadth of offering. Here the launch of the Prada Linea Rossa Vista collection will be an important contributor.

 

  • Particular care is going into the selection of the product offerings by geographic region and type of customer, so that commercial strategies are even more aligned with local needs. The approach to key clients will be made more effective to capitalize on the entire brand portfolio, with activities planned over increasingly longer periods and with investments in the potential of individual clients.

 

  • Building on the past three years of success, the STARS program will be continued. Its goal is to reach over 1,000 clients and to establish even stronger relationships of trust with an important category of clients.

 

  • In the retail division, after the entry into Thailand and India, the Group will consider new opportunities in emerging markets as well as premium locations that might become available even in the mature markets. In North America, the Group will continue to pursue a strategy of segmentation and differentiation in the approach to consumers by retail brand, to optimize the potential of each brand and attract new consumers. Particularly relevant in this context will be LensCrafters, which is working to further strengthen its status of America's leading optical brand by leveraging its values of excellence in service and breadth of offering.

 

MEASURES TO BOOST EFFICIENCY AND OPTIMIZE EQUITY STRUCTURE

 

After having rapidly completed the complex process of adjusting manufacturing capacity, in 2009 the Group will continue to drive the optimization of its working capital and balance sheet. In particular, the goal is to reduce inventories by approximately 10% to 15%, to see a significant improvement in the entire supply chain and to revise commercial terms with around 80% of suppliers.

 

  • New investments, which in 2009 will be just under €200 million, will be carefully selected and focus on high value-added IT and supply chain projects.

 

  • There will be a strong focus on containing all expenses, at both the operating level and in the commercial areas. The brand portfolio and the international sales structure will be further optimized. Additionally. advertising spending will be cut in order to strengthen product promotion in the field.

 

  • The Group plans to optimize its global retail network, resulting in a 2% to 3% reduction in store numbers worldwide.

 

Luxottica expects to benefit from changing euro/dollar exchange rates in 2009 but is also looking intently at other currencies which have different impacts on sales performance and profitability.

 

The performance of the Group in 2008

 

In 2008, consolidated net sales rose at sustained rates, increasing by 10.7% at constant exchange rates (by 4.7% at current exchange rates), thus passing the €5 billion mark for the first time in the history of the Group (Euro 5,201.6 million, compared with €4,966.1 million for fiscal year 2007). This was mainly due to the contribution made by Oakley sales. Pro forma consolidated net sales at constant exchange rates, on the other hand, were substantially unchanged (down 0.8%).

 

Regarding operating performance, EBITDA for the year decreased slightly (by 3% to €1,014.7 million for 2008, from €1,046.1 million for the previous year). On a pro forma basis, EBITDA margin declined by 120 basis points to 19.5%, from 20.7% for fiscal 2007. In the fourth quarter, EBITDA declined by 13.7% to €186.1 million, from €215.7 million for the same period the previous year.

 

Operating income for the year was €749.8 million, compared with €813.3 million for the previous year (reflecting a decline by 7.8%. On a pro forma basis, the Group's operating margin for the full year was 14.4%, compared with 15.5% for 2007 (down by 110 bps). For the fourth quarter, operating income was €117.4 million, reflecting a 22.6% decline from €151.7 million for the same period the previous year.

 

Net income for fiscal year 2008 was €395.0 million versus €479.2 million in 2007, reflecting a 17.6% decline from the previous year, with earnings per share (EPS) of €0.87 (at an average Euro/U.S. Dollar exchange rate of 1.47). On a comparable basis, i.e. considering EPS in U.S. Dollars before trademark amortization, the decrease would have been limited to 9.2%. The change was almost entirely due to greater financial charges than in the previous year in connection with the Oakley transaction and to exchange rate fluctuations.

 

The EPS figure does not include an extraordinary capital loss of €15 million net of taxes (equivalent to approximately €0.03 per share) due to the write-off of debt related to the sale of the Things Remembered retail chain in September 2006.

 

Strong cash flow generation enabled the Group to reduce its net debt. Due to the impact of exchange rate fluctuations, however, the Group's net debt(2) at December 31, 2008 stood at €2,949.5 million (compared with Euro 2,871.8 million at Dec. 31, 2007). Thanks to tight controls on working capital, the net debt/EBITDA ratio was 2.9 (2.8 net of the effect of exchange rate fluctuations, in line with the previous year's level).

 
   
 
Fourth quarter of 2008 according to U.S. GAAP
    (In millions of euros)     4Q08         4Q07           % Change
 
 
    Net sales               1,236.5      1,188.5             +4.0%
                                                       (same at constant
                                                         exchange rates)
 
    EBITDA(2)                 186.1        215.7            -13.7%
 
    Operating income          117.4        151.7            -22.6%
 
 
    Earnings per share
     (Euro)
                              0.12(4)       0.21            -44.3%(4)
    - Before trademark
       amortization(2)        0.14(4)       0.24            -39.7%(4)
 
    Earnings per share
     (Dollars)                0.16(4)       0.31            -49.3%(4)
 
    - Before trademark
       amortization(2)        0.19(4)       0.35            -45.1%(4) 
 
    EBITDA(2)              1,014.7     1,046.1(3)            -3.0%(3)
 
    Operating income         749.8       813.3(3)            -7.8%(3)
 
    Net income                 Earnings per share      0.87(4)       1.05(3)           -17.8%(3,4)
     (Euro)
 
     - Before trademark
        amortization(2)     0.96(4)       1.14(3)           -15.4%(3,4)
 
    Earnings per share      1.27(4)       1.44(3)           -11.8%(3,4)