Luxottica turns to Asia and North America for growth

Friday, 06 March 2015
ANALYSIS After a rocky end to the year, when Ray Ban sunglasses parent company Luxottica saw former CEO Andrea Guerra and his replacement to leave in quick succession, the new management is up and running...and with a clear view for growth.

After the exit of long-standing CEO Andrea Guerra, the Italian group now holds a so-called ‘dual head’ management, led by two chief executives: Adil Mehboob-Khan, in charge of markets, and Massimo Vian, product and operations lead.

Commenting the quarterly results earlier this week, the two chief executives of Luxottica told investors they would not step on one another's toes. Mehboob-Khan said "separation of authority" with Vian came naturally. "It's not compulsory, but we like each other, it's been fun ... there is nothing controversial about the way the work is flowing between us," he said.

"What's important for me is that the company sees having two CEOs as an advantage and not as a disadvantage ... we know that's the test." Confident in the success of this pioneer model of management, Vian said he thought the arrangement would work. "There is absolutely no confusion."

Luxottica more than doubles 2014 dividend

And following the company’s latest reported figures, this dual leadership seems to work. As reported by Reuters, Luxottica more than doubled its 2014 dividend, paying out all its adjusted net profit, it stopped short of tapping cash reserves, dashing expectations.

The company revealed it will use all its 2014 net profit to pay a dividend of 1.44 euros per share to its shareholders, while it has already cut its net debt and has brought free cash flow to a record of 802 million euros.

On the wake of the news, shares in Luxottica fell 1.8 percent by midday trading Tuesday after having touched a record high.

Ambitious M&A pipeline ahead

This strength in terms of budget available will allow the group to pursue an ambitious merge and acquisition (M&S) plan in the coming months. "M&A will continue to be an integral part of the growth model going forward," said Vian in a conference with press.

Meanwhile, Mehboob-Khan said the group's cash pile positioned it well to seize any acquisition opportunity.

Thus, the group will see its brand Sunglass Hut expanded by adding about 1,000 stores in the next few years to its existing 3,000 in order to tap into the rising number of potential sunglasses customers. Brazil, India and Southeast Asia are some of the areas where stores will be opened, the CEOs said.

Meanwhile, plans for Ray-Ban set expectations high, with the Italian group saying it plans to double the entire company’s sales to 7.7 billion euros over the next 10 years.

Luxottica has just started selling in Malaysia through its wholesale channel, has opened a subsidiary in Thailand and is about to see Brazil become its second-largest wholesale market. But Luxottica’s main business remains in North America, which accounts for more than half of overall sales. “It’s our core market,” highlighted Vian.

Sales in the US gained over 5 percent in 2014 and 12 percent in the last quarter compared with a year earlier, boosted by favourable currency effects, said the company.

Despite the maturity of this market, Luxottica still sees potential for growth given the Americans’ tendency to buy luxury-goods items, which “is increasing significantly,” according to Vian.

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