Luxottica Group reported net sales fell 1.2 percent to €1.8 billion in the first quarter ended March 31, but were up 4.2 percent in currency-neutral (c-n) terms as unfavorable exchanger ates, North America's harsh weather and weak sales at its Lenscrafters stores offset continued double-digit growth at its Oakley and Ray-Ban brands and Sun Glass Hut.
High volatility of certain exchange rates against the euro trimmed net sales by more than 5 percent. Group operating income for the quarter was €270 million, down by -1.7 percent on the same period of 2013 (€275 million). As a result, the operating margin was 14.7 percent, up +60 bps c-n. Net income reached €157 million compared to €159 million in the first quarter of 2013, corresponding to eanings per share)of €0.33. EPS in U.S. dollars was 45 cents based on an average €/U.S. dollar exchange rate of 1.3696.
"In the first quarter of the year we performed overall better than the figures say," said Andrea Guerra, Chief Executive Officer of Luxottica. "The Wholesale Division continued its robust growth trend supported by all our main brands, first and foremost Ray-Ban and Oakley. The Retail Division performed well despite a winter season in North America affected by heavy snow and ice storms. Sunglass Hut started the year with an excellent 11.1 percent increase in net sales (c-n) globally."
Disciplined working capital management allowed Luxottica to generate € 60 million in free cash flow, highest level in four years. The cash was used in part to further reduce net debt to € 1,429 million at March 31, 2014, compared with € 1,461 million a year earlier for a net debt/EBITDA ratio of 1.0x. Wholesale Division
The trend of the Wholesale Division's net sales in the quarter confirmed solid and balanced growth c-n across all of the major geographic areas in which the Group operates. In the first quarter of 2014, the Wholesale Division's net sales were €805 million, up 3.0 percent, or 7.9 percent c-n, compared to the first quarter of 2013. Europe continued its growth trend up 7.3 percent c-n, with double- digit growth rates in the U.K., Germany and the Nordic countries. Emerging markets were up 6.8 percent c-n, with excellent performance in India and Brazil. In North America, net sales increased by 7.0 percent in U.S. dollars. Operating income increased from € 188 million in the first quarter of 2013 to € 194 million in the first quarter of 2014, up by 2.9 percent. The operating margin was 24.1 percent in line with the first quarter of 2013 at current exchange rates, up 90 bps c-n.
Retail Division
The performance of the Retail Division was adversely affected by persistently volatile exchange rates together with harsh weather in North America. In the first quarter of 2014, net sales amounted to € 1,038 million, -4.2 percent (+1.6 percent c-n). Comparable store sales were up 1.9 percent for the Retail Division.
In particular, LensCrafters recorded a -1.8 percent decrease in comparable store sales in North America, with a more marked slowdown in February, mostly attributable to bad weather conditions. However a trend reversal started in April when comparable store sales turned positive increasing by approximately 2 percent. At Sunglass Hut, net sales climbed 11.1 percent c-n compared to the same period of 2013. In North America, Sunglass Hut, similar to the Division's other retail chains, is exhibiting strongly improved comparable store sales performance. Sales have accelerated to double digits in April compared to an increase of 3.3 percent achieved in the first quarter 2014.
In emerging markets, Sunglass Hut's comparable store sales growth increased double-digits in Brazil, Mexico and South Africa. In the first quarter of 2014, the Retail Division's operating income was €124 million compared to €132 million in the same period of 2013, a decline of 5.9 percent. As a result, the operating margin dropped 20 basis points to 12.0 percent, (+20 bps c-n).
