EssilorLuxottica Posts Adjusted Proforma Revenue of €16.16 Billion in 2018, but Net Profits Slip

By

CHARENTON-LE-PONT, France—In its first joint financial release since merging last year, EssilorLuxottica, reported today that its 2018 net profit declined when adjusted for the combination of its two component businesses, causing shares of its stock to fall more than 6 percent on the Paris exchange. EssilorLuxottica posted €16.16 billion in adjusted pro-forma revenue for the year, representing a 1.2 percent year-on-year decline. EssilorLuxottica said this represented 3.2 percent revenue growth at constant exchange rates, and that both the Essilor and Luxottica businesses contributed to the result.

EssilorLuxottica's (Reuters: ESLX.PA) reported net profit was €1.16 billion compared with €1.04 billion the prior year. On an adjusted pro-forma basis, net profit was €1.87 billion, down 1.7 percent from 2017.

“We are proud to present strong Luxottica and Essilor combined results. The contribution of Luxottica is significant: net sales, profitability and free cash flow all show positive growth, excluding the exchange rate effect. From a qualitative standpoint, its simplicity, entrepreneurial spirit and speed of execution continued to pay off. Today, Luxottica is well organized and energized for its future as part of EssilorLuxottica. We come to the integration process in the best possible way, bringing with us the most beloved brands, excellent operations capabilities and a digitized business inside and out. Our legacy will continue to grow in this way for years to come. Once we are fully integrated with Essilor and our synergies have taken effect, together we will redefine a revolutionary service model for the benefit of Wholesale partners and consumers everywhere," commented Leonardo Del Vecchio, executive chairman of EssilorLuxottica.

“Since EssilorLuxottica was formed on Oct. 1, 2018, it has fully embraced its mission to help people see more, be more and live life to its fullest. To reach this powerful goal, the Group can rely on an outstanding performance from Essilor, which delivered strong business growth at all of its divisions in 2018 and surpassed its growth targets for the year while continuing to work on numerous innovations that will benefit the entire ophthalmic optics and eyewear industries. These achievements reflect the vibrant culture of entrepreneurship within Essilor and the creativity of its employees, whose interests are fully aligned with those of shareholders thanks to employee share ownership at every level of the company. This powerful value creation model will facilitate the generation of synergies going forward and will be rolled out across the entire EssilorLuxottica Group,” said Hubert Sagnieres, executive vice chairman of EssilorLuxottica.

EssilorLuxottica also reported separate 2018 figures for each of its two constituent businesses. Essilor's 2018 revenue was €7.46 billion, up 0.8 percent from 2017. Essilor cited several factors that contribute to the growth, including a strong performance by its lenses and optical instruments division, where revenue rose 4.2 percent like-for-like as a result the momentum of new Transitions, Varilux and Eyezen products and an 8.1 percent sales increase in its sunglasses and readers division, driven by its Xiamen Yarui Optical (Bolon) brand in China and its Costa brand in the U.S.

Luxottica's 2018 sales were €8.93 billion, down 2.8 percent from the year before due to “currency headwinds.” Luxottica's net income for the year was €900 million, down 13.5 percent year-on-year, EssilorLuxottica said.

Sales for the Luxottica’s Wholesale business were €3,194 million, down 1.1 percent at constant exchange rates and a 5.2 percent drop at current exchange rates. In 2018, Luxottica’s Retail division grew by 3 percent at constant exchange rates, down 1.4 percent at current exchange rates. The growth was primarily fueled by Sunglass Hut, the optical Retail business in Australia, Target Optical and the e-commerce platforms, EssilorLuxottica said. Comparable store sales were up 0.5 percent, growing in all regions excluding North America, where they were flat. Sunglass Hut’s strong performance drove global sales up by 5.7 percent at constant exchange rates with a positive contribution from all geographies, Luxottica said. LensCrafters sales in North America were in line with last year.

In 2018, sales from Luxottica’s e-commerce platforms, representing approximately 5 percent of total sales, were up 14 percent at constant exchange rates. Ray-Ban.com confirmed it is the main driver of the group’s online business.

Both Essilor and Luxottica reported gains in fourth quarter, 2018.

Essilor’s revenue rose to €1.92 billion in the fourth quarter, up 6.4 percent excluding currency effects, with like-for-like growth accelerating from the third quarter, to 5.7 percent. Fourth quarter sales were up on a like-for-like basis at all of Essilor’s businesses: Lenses and Optical Instruments (+5.4 percent), Sunglasses & Readers (+5.5 percent) and Equipment (+12.1 percent).

Luxottica generated net sales of €2.16 billion in fourth quarter 2018, up 2.2 percent at constant exchange rates and 3 percent at current exchange rates. Its Wholesale business generated net sales of €732 million, up 3.4 percent at constant exchange rates and 3.0 at current exchange rates. Luxottica’s Retail division posted net sales of €1.43 billion, a 1.6 percent increase at constant exchange rates and 3.5 percent at current exchange rates.

EssilorLuxottica executives are maintaining a positive outlook for 2019, projecting sales growth of 3.5 percent to 5 percent at constant currency rates, an adjusted operating profit of 0.8 to 1.2 times sales, and adjusted net profit of 1 to 1.5 times sales. The company said it plans to fuel growth through a “wholesale digital transformation” that involves “a further shift from commercial relationships to partnerships with customers, more effective sell-in-tools, digital sample bags” and “new digitized showrooms worldwide.”

Mergers and acquisitions will also drive the company’s growth in 2019. During a conference call today with financial analysts, Hilary Halper, Essilor CFO and co-CFO of EssilorLuxottica, said the company is ramping up its mergers and acquisition strategy following a relatively quiet period leading up to their 2018 merger of Essilor and Luxottica.

EssilorLuxottica executives confirmed to the analysts that a search is underway for a new CEO, and that the search committee is looking both outside and inside the company for appropriate candidates. However, they declined to specify a timetable for concluding the executive search or provide any information about possible changes in EssilorLuxottica's governance. They also declined to provide details about how plans for integrating the two companies are progressing.