Seeing Into Luxottica's Future

Posted by: Charles DuBow on January 30

Luxottica’s share price is down sharply since the end of 2007

Are Luxottica’s glasses fogged? The Milanese eyewear giant announced its annual results on Jan. 29, reporting consolidated sales of €4.9 billion (approximately $7.2 billion) and the fourth consecutive year in which they posted double-digit sales growth. But it is still trading near its twelve-month low of $24.71, off 37% from a high of $39.39 on July 12. Is it a victim of the general economic malaise affecting the retail sector or is it something peculiar to the company itself?

It would seem that Luxottica is well-positioned to ride out any economic downturn. The primary concern is how exchange rate fluctuations will affect its retail sales and whether it will continue to see the same growth in 2008, especially in North America.

Because of its broad brand portfolio and global reach, it may be less adversely impacted by a consumer pullback than many other companies in the luxury sector. For one thing, it is the world's largest eyewear company, and second, it has aggressively expanded into developing nations like China where demand for its designer sunglasses from such brands as Prada, Versace and Oakley is especially strong.

For another, unlike say, handbags or shoes, eyeglasses are not discretionary purchases. Moreover, most healthcare plans cover the purchase of corrective lenses.

The company's report cites growth in its Retail Division in Australia and China, saying that it "showed a constant and strong growth trend" and that "improvement in Sunglass Hut's sales was even stronger all over the world with comparable store sales growth of 40% over the last three years."

Luxottica is the world's largest eyewear firm. Founded by Leonardo Del Vecchio in 1961, the company designs, makes and sells nearly 20 licensed designer lines, such as Chanel, Prada, Dolce & Gabbana, D&G,Versace, Bvlgari, Brooks Brothers, Polo, and Ralph Lauren; and eight house brands, such as Ray-Ban, Oakley (which it acquired last year), Revo, Arnette, Killer Loop, Persol, Vogue, Luxottica, and Sferoflex.

In addition it operates a 5,800-store retail division, which includes LensCrafters, Sunglass Hut, and the EyeMed Vision Care group. It manufactures its frames in Italy and China and sells them in about 130 countries.

Full-year results will be reported on March 13, 2008 and a detailed outlook for fiscal year 2008 will be announced on Feb. 7.