Luxottica said it set a new net sales record of more than €7.3 billion in 2013, an increase of 7.5 percent in currency-neutral (c-n) terms and 3.2 percent at current exchange rates compared to 2012.
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The Italian eyewear company, which owns Oakley and Ray-Ban, attributed the growth to both the Wholesale and Retail Divisions, which includes Sunglass Hut. The company said the third consecutive year of excellent result in emerging markets, where revenues increased 20 percent c-n helped drive the growth. Growth was strongest in China, Brazil and Turkey.
In North America, total sales increased by 3.5 percent in U.S. dollars, driven in particular by the performance of the Wholesale Division, where sales increased 6.7 percent in U.S. dollars. Wholesale revenues increased 12.1 percent in United States, despite a drop in Oakley's sales to the U.S. Army. Luxottica also reported an "almost surprising" increase in net sales in Europe of 11 percent at c-n rates compared to the full year 2012.
Fourth quarter net sales reached €1.6 billion, up 7.6 percent c-n and 0.8 percent at current exchange rates, compared to the same period of 2012. Results reported at current exchange rates continued to be affected by the progressive weakening of certain currencies against the euro. Operating income for the fourth quarter of 2013 amounted to €164 million, reflecting an increase of 1.9 percent over the comparable quarter of 2012, while the operating margin for the same quarter was 10 percent, up 110 bps c-n2 and in line with the fourth quarter of 2012 at current exchange rates. Adjusted operating income for 2013 amounted to €1,065 million, reflecting an increase of 7.3 percent over 2012 results. Accordingly, the Group's adjusted operating margin for 2013 was 14.6 percent, up 110 bps c-n (+60 bps at current exchange rates) compared to 2012.
Tax settlement charge hits bottom line
In the fourth quarter of 2013, adjusted net income was €93 million, up 9.1 percent over the results reported for the fourth quarter of 2012. The adjustment is related to the tax audit by the Italian authorities concerning the year 2007 and that has ended with a determination relating to transfer pricing involving increased charges of €26.7 million. The Group has decided to accept the auditors' report on their findings and pay the resulting sums for the year 2007. This decision was made knowing that the subject matter of the dispute is largely subjective and lends itself to divergent positions that are not easy to resolve in litigation, except at the cost of long and expensive defense proceedings with an inevitably uncertain outcome. As a consequence, the Group decided on its own initiative to prudentially allocate provisions of €40 million for the following years.
Adjusted net income for the full year 2013 amounted to €617 million, up 10.3 percent from €560 million for 2012, corresponding to adjusted Earnings per Share (EPS) of €1.31. In addition, in 2013 disciplined working capital management allowed Luxottica to generate adjusted free cash flow of €648 million. Consequently, net debt at Dec. 31, 2013 decreased to €1,461 million (€1,662 million at fiscal year-end 2012), with a net debt/adjusted EBITDA ratio of 1.0x compared to 1.2x at fiscal year-end 2012.
Wholesale Division
The Wholesale Division grew constantly each quarter throughout 2013, with total results for the year up 12.0 percent c-n (up 7.9 percent at current exchange rates) compared to 2012. The Wholesale Division's net sales for the fourth quarter of 2013 amounted to €644 million, up 11.6 percent c-n on the fourth quarter of 2012, (up 5.4 percent at current exchange rates). Europe was a positive surprise, as sales for the year rose by 8.5 percent c-n. Emerging markets continued to deliver excellent results (up 22.4 percent c-n). Sales in North America grew by 12.1 percent in U.S. dollars, excluding the drop in Oakley's sales to the U.S. Army. Oakley experienced strong double-digit growth in Europe and emerging markets.
Operating income decreased from €99 million of the fourth quarter of 2012 to €94 million of the fourth quarter of 2013, down -5.0 percent, as a consequence of the progressive weakening of certain currencies against the euro, with an operating margin of 14.6 percent (16.2 percent in the comparable period a year ago) at current exchange rates and in line with the operating margin of the fourth quarter 2012 c-n. Adjusted operating income for 2013 rose to €658 million, reflecting an increase of 8.9 percent from 2012, with an adjusted operating margin of 22.0 percent, up 80 bps c-n (up 20 bps at current exchange rates).
Retail Division
For the full year 2013, the Retail Division reported net sales of €4,321 million, which were on par with the full year 2012 (up 4.7 percent c-n). In particular, Sunglass Hut reported net sales increased 11.2 percent c-n over 2012 results. The Optical segment also continued to post solid results in emerging markets, with comparable store sales showing double-digit growth in China and Hong Kong, and in Australia OPSM saw its comparable store sales4 rise by 4.9 percent. With regard to North America, 2013 was a year of transition for LensCrafters, which delivered an increase of 1.0 percent in comparable store sales4 and a progressive increase in profitability.
The Retail Division's net sales for the fourth quarter of 2013 amounted to €1,002 million, compared to €1,021 million for the same period in 2012 (up 5.1 percent c-n; -1.9 percent at current exchange rates), with comparable store sales up 3.0 percent over the same period of 2012.
The Retail Division's adjusted operating income for 2013 rose to €586 million, from €574 million for 2012 (up 1.9 percent). As a result, adjusted operating margin for 2013 settled at 13.5 percent (13.3 percent in 2012), up 60 bps c-n (+20 bps at current exchange rates). Operating income for the fourth quarter was €109 million, compared to €114 million in the same period of 2012 (-4.6 percent). Operating margin for the quarter fell to 10.8 percent, compared to 11.2 percent in the comparable quarter of 2012 (+30 bps c-n).
Because the company met its EPS targets, the board of directors assigned a total of 509,500 Luxottica Group ordinary shares to 35 beneficiaries under the company's performance share plan and approved cash distributions to two beneficiaries whose employment ended but who were entitled allocation amounts determined in accordance with the Plan's regulations
Current quarter and outlook
CEO Andrea Guerra said she expects the company to sustain current growth rates in 2014.
The early months are delivering positive results despite some bad weather and we believe they will set the stage for sales growth and profitability consistent with prior years. We have clearly identified our growth roadmap and its drivers. Our brand portfolio is increasingly strong, with Ray-Ban continuing to be a global leader in its category and Oakley reporting excellent results in Europe and emerging markets.
"Both the Wholesale and Retail Divisions continue to grow in the premium sunglass segment in North America," she continued. "Sunglass Hut continues its expansion globally and in new channels, strengthening its role of sunglass category captain. We continue to invest in the optical segment, which affords us solid growth in developed markets and progressive penetration in emerging markets. We think that developed markets will continue to contribute positively to Group sales and profitability and expect even stronger growth in emerging markets, where we are continuing to invest. Our goal is to enhance our local presence in Brazil, China, India, Mexico and Turkey."
