MILAN—Citing what it called a “profound transformation and strategic renewal” across the company, Luxottica Group (MTA:LUX) reported Monday that it achieved record net profits and free-cash flow in its fiscal year 2017. In addition, Luxottica said net sales rose 2.2 percent at constant exchange to €9,157 million while net income increased 24.7 percent at constant exchange to €1,038 million, according to the company's earnings announcement. Adjusted net income increased 12.2 percent at constant exchange to €970 million, producing a net margin of 10.6 percent. Net profit and free-cash flow generation exceeded €1 billion for the first time in the company’s history, Luxottica said. The last three months of 2017 were “the best of the year for the wholesale business, comparable-store sales, Sunglass Hut in the main geographies ... and e-commerce,” Luxottica reported in its earnings announcement.

“The performance in the past year is the result of the group's profound transformation and strategic renewal, [and] a more direct relationship with the consumer and an extensive digitization of the entire business were the main drivers of change,” Luxottica said. The company also cited its “most significant initiatives of 2017,” which included the launch of Ray-Ban ophthalmic lenses, “price harmonization across sales channels, greater segmentation and attention to wholesale distribution,” and the continuous development of the company’s proprietary brands’ e-commerce platforms.

Leonardo Del Vecchio, executive chairman of Luxottica, said in the announcement that the company is looking “forward to writing a new chapter of our history together with our French partners at Essilor.” The companies' planned merger is expected to close in the first half of the year, the announcement noted. Del Vecchio also said the company expects 2018 to be a year of “further growth,” and continued investment to strengthen business in all markets.

Del Vecchio added, “We closed a very good 2017 with many positive signals coming every day from the markets and confirming the value of our strategic initiatives from digital innovation and the evolution of e- commerce to the start of big lens laboratories and the establishment of global and standardized commercial policies. The new Luxottica we have created over the last three years, with its newfound simplicity, courage and speed, is beginning to remind me of the Group I had left,” he said.

Looking ahead, Luxottica said it expects 2018 will be “another year of growth and important investments” for the company, with continued emphasis on product quality, strong brands, efficient factories, widespread
distribution and “an increasingly direct relationship with the end-consumer through retail and e-commerce.” The company expects sales growth in the range of 2 percent to 4 percent at constant exchange rates.

In addition, Luxottica executives said during a conference call with analysts that “strong chain profitability” at LensCrafters will enable the company to remodel and refurbish “on a major scale” more than 50 stores this year, while a revised agreement with Macy’s Inc. will result in “up to a total of 200 locations by early 2019.” Luxottica also is working on developing “the new LensCrafters.com platform.” Chief financial officer Stefano Grassi told analysts that LensCrafters is “going through a radical transformation,” but that it remains very profitable overall for Luxottica.

In its North American operations, Luxottica said overall group sales in fiscal 2017 declined less than 1 percent to €5,252 million at constant exchange rates. Wholesale division sales rose 3.7 percent to €1,056 million, while retail sales fell 1.5 percent to €4,197 million. In the fourth quarter, wholesale sales rose 14 percent at constant exchange to €251 million, with retail sales rising 1.5 percent to €974 million, according to the earnings announcement.

The retail division saw “a trend reversal in the fourth quarter compared to the third quarter of 2017,” Luxottica noted, which the company said reflected improved comparable-store sales at Sunglass Hut and negative, “but improving, sales for LensCrafters, which is still focused on transforming its business model. “

On the conference call with financial analysts, Grassi also noted that the fourth quarter was the “best quarter of the year” for Luxottica and that the company was “very pleased with the way we closed the year in our wholesale division.” He also noted that the effort to improve the performance of LensCrafters has led to putting more emphasis on the experience and ability of the managers leading the stores, which resulted in about a 20 percent turnover rate in 2017 among LensCrafters managers.

In response to an analyst’s question, Grassi said new television advertising is planned to hit next month and that the company expects to have a better gauge on its efforts to reposition LensCrafters by the second half of 2018.

A Luxottica spokeswoman noted during the conference call with analysts that the decision by Brazilian regulators on Friday to approve the previously announced merger of Luxottica with Essilor [Euronext Paris: EI] raised to 14 the number of countries that have given their OK to the planned deal. Luxottica said that while the transaction “remains subject to the approval of the antitrust authorities of certain jurisdictions,” it is expected to close in the first half of 2018.

As VMAIL reported, Luxottica, its majority shareholder Delfin and Essilor announced in January 2017 the plan to combine the two optical companies.