Luxottica and Guerra's two years
Andrea Guerra, the former heir apparent to Francesco Caio, took over the running of Luxottica on July 27 two years ago and Guerra has chosen the same date to convene the Board of Directors to examine the figures of the second quarter; the results are encouraging, but there could even be an increase in those expected for the entire year. Another anniversary will be celebrated July 27: it was on that date in 2004 that Luxottica finalized the acquisition of Cole National, one of America's leading eyewear chains and the last triumph of the 'old' Luxottica run by Leonardo Del Vecchio.
A series of anniversaries that the Stock Exchange has already been celebrating in recent days.It only takes a few comparisons to be able to judge the results of «Guerra's two years»: at end June 2004 revenues stood at 1.5 billion, operating profit at 259 million and net profits at 150. According to the analysts, the figures halfway through 2006 will show billings of 2.5 billion, EBIT of 380 million and around 210 million in net profits. Assuming a euro/dollar exchange rate of 1.24, in January Luxottica stated that for 2006 the objective for growth in revenues was 8-10% (between 4.7 and 4.8 billion), a profit per share of 0.89 to 0.91 euros (+20% compared to the 0.76 euros in 2005). With the dollar on hold, Guerra can now raise his sights: about a hundred million more in revenues (4.9 billion) which, in terms of profit per share, means 3 cents more in EPS (at 0.92-0.95, 21-25% up on 2005).
But, figures apart, everyone agrees that the founder, Del Vecchio, successfully completed his most difficult mission: to transform a one-man company into a managerial company with a global network.
In terms of distribution, after acquiring 75 stores in Canada over the last six months, Luxottica has decided to open 50 new SunGlass Hutin stores in the Middle East and aims to double the Pearle Vision directly-managed outlets to 700. Not to mention expansion in the Far East. The group has recently taken over Modern Sight Optics, the leading chain in the high-range vision segment, which has 75 stores in Shanghai. This operation brings the retail network in China to 290 luxury outlets in Beijing, Hong Kong and Guangdong Province. Once the game has been won in the US, a market that accounts for two-thirds of its turnover, which is also thanks to the strategic value of the distribution network (a fifth of the entire market), Luxottica plans to spread its net over the most promising new markets.
This year, Luxottica also began producing and distributing Donna Karan and Dolce&Gabbana eyewear.As with the Prada license (after three years, billings already stand at 180 million), in 2006 alone the D&G label should generate a turnover of about 140 million.
In January 2007, Guerra will launch the Burberry and Polo Ralph Lauren lines, a mega-operation: for a 10-year contract with the US stylist (which alone is worth 5% of the US market), Luxottica will pay advance royalties of 199 million. On the other hand, the group expects the brand to bring in billings of 1.45 billion in 10 years, less than the estimate by the experts: by 2007, revenues could be 170 million higher. On the down side, dollar exposure, the only unpredictable variable in the group's accounts, could increase again.
When Luxottica lost the Giorgio Armani license in March 2002, its most important at that time, the euro/dollar exchange rate was below parity and shares were worth 23 euros, 10% more than at present. Since then, global Luxottica leadership has strengthened. Billings have grown by 40% together with margins. Four years ago, the group had record profits of 372 million (342 in 2005), this year, despite the weak greenback, Luxottica profits could be in excess of 420 million. While waiting to see what surprises Guerra has in store for his second birthday at the helm of the group, target prices are fluctuating between 24 and 26.5 euros per share.
