Luxottica: profitability accelerates in the third quarter

Luxottica Group has announced consolidated results for the three- and nine-month periods ended September 30, 2004. These do not include results of Cole National Corporation, since the acquisition of this business closed on October 4, 2004.

Consolidated financial highlights for the third quarter:
- Sales up 3.4 percent to € 718.3 million (by 9.5 percent, at constant exchange rates);
- Retail sales up 1.6 percent to € 539.1 million; retail comparable store sales up 4.0 percent;
- Wholesale sales up 12.1 percent to € 225.1 million;
- Operating income up 17.9 percent to € 129.1 million; operating margin: 18.0 percent;
- Retail operating income up 4.5 percent to € 92.4 million; retail operating margin: 17.1 percent;
- Wholesale operating income up 71.9 percent to € 47.2 million; wholesale operating margin: 21.0 percent;
- Net income up 3.4 percent to € 77.0 million; net margin: 10.7 percent;
- Earnings per share (EPS) or per American Depositary Share (ADS) (one Luxottica Group ADS represents one ordinary share) were € 0.17, EPADS were US$ 0.21.

Consolidated financial highlights for nine-month period:
- Sales up 8.4 percent to € 2,282.2 million (by 14.7 percent, at constant exchange rates);
- Retail sales up 7.8 percent to € 1,585.7 million; comparable store sales up 4.1 percent;
- Wholesale sales up 8.0 percent to € 836.1 million;
- Operating income up 16.7 percent to € 388.3 million; operating margin: 17.0 percent;
- Retail operating income up 12.2 percent to € 235.9 million; retail operating margin: 14.9 percent;
- Wholesale operating income up 22.3 percent to € 187.7 million; wholesale operating margin: 22.4 percent;
- Net income up 9.3 percent to € 227.1 million; net margin: 10.0 percent;
- EPS or EPADS were € 0.51, EPADS were US$ 0.62.

Consolidated net outstanding debt as of September 30, 2004, was € 1,283.5 million, compared with € 1,470.4 million as of December 31, 2003. This reflected a net improvement of € 186.9 million.

Luxottica Group's wholesale operating margin for the quarter improved significantly to 21.0 percent, from 13.7 percent last year, vis-à-vis a 71.9 percent jump in operating income. This reflected the strong performance of fashion brands in the Group's portfolio, especially Chanel, Prada and Versace. With respect to house brands, Ray-Ban and Vogue were the two best performing brands. Ray-Ban in fact continued to perform strongly in line with its status of #1 sun brand in the world, with Ray-Ban Ophthalmic now firmly established as Luxottica Group's best-selling prescription brand, representing nearly 20 percent of total Ray-Ban sales.

In terms of markets, the Group's wholesale business continued to grow ahead of most of the markets in which it operates, with wholesale sales to third parties for the quarter up 9.3 percent. Europe, which is the Group's most important wholesale market, remained strong and the Group continued to grow even in markets that are not growing in absolute terms. In the U.S., Luxottica Group's wholesale business to third parties enjoyed improved sales and profitability, the latter mainly reflecting the renewed strength of the Group's brand portfolio, fashion brands in particular.

In retail, this continued to be a strong year for Luxottica Group, both in terms of sales growth but especially in terms of profitability - which remains the focus of the Group. Operating income for both the quarter and the nine-month periods improved ahead of top line growth, resulting in margin appreciation for both periods, to 17.1 percent for the quarter and 14.9 percent year-to-date.

In North America, the single most important optical market in the world, Luxottica Group's business was particularly solid. Both LensCrafters and Sunglass Hut enjoyed strong quarters and positive comparable sales growth, mainly on the back of strength in fashion brands. This more than offset softness in the sport category for which sales at Luxottica Retail's stores were lower than historical levels, but still positive. Overall, the strong performance in this market reflected the company's ongoing emphasis on premium products and multiple pairs, quality of service and cost control. In Australia, the main focus continued to be on improving profitability as OPSM Group continued to work to strengthen the positioning of its key trading brands in that market though the roll out of new store designs, marketing campaigns, improved product assortment and associate (staff) development programs.

For the full year, Luxottica Group confirmed the previously announced earnings guidance of € 0.64 per share, or US$ 0.80 per ADS (based on a € 1 = US$ 1.25 exchange rate). This reflects the expected impact on Group results of the consolidation of the Cole National Corporation business for the October - December period.

As of September 30, 2004, Luxottica Group's retail division consisted of 3,334 stores, broken down as follows: LensCrafters 887; Sunglass Hut International 1,585 in North America, 165 in Australasia and 107 in the rest of the World; Opsm Group 457 in Australia, 35 in New Zealand and 98 in other markets.

Andrea Guerra, chief executive officer of Luxottica Group, commented: 'This was another solid quarter for our Group, building on an already positive first half of the year. Revenues continued to grow, reflecting the positive performance of both retail and wholesale. We are especially pleased with the accelerating operating profitability seen at the consolidated level, as operating income grew by 17.9 percent versus a 3.4 percent rise in net revenues (consolidated net revenues would have risen by 9.5 percent, assuming constant exchange rates). As a result, operating margin improved by 220 basis points to 18.0 percent'.

Leonardo Del Vecchio, chairman of Luxottica Group, commented: 'At the Board level, we remain focused on continuing to make progress on the corporate governance front and strengthen our ability to support the business objectives of Luxottica Group. In line with this, over the past few months we took steps to bring our corporate governance closer in line with best practices at other global companies. In addition, today the Board resolved to establish a Human Resources Committee, reflecting our renewed focus on one of the key assets that will ensure the continued growth of our Group - our people'.