Alessandra Senici – IR
Andrea Guerra – CEO
Enrico Cavatorta – CFO and General Manager Central Corporate Functions
Paolo Pezzutto – Lead, Commercial Services Planning for Visual Merchandising and Store Design
Paolo Alberti – EVP, Wholesale
Colin Baden – CEO, Oakley
Fabio d’Angelantonio – Lead, Retail Luxury and Sun Business and Chief Marketing Officer
Mark Weikel – President and General Manager, LensCrafters
Antoine Belge – HSBC
Luca Solca – Exane BNP Paribas
Marc Willaume – Raymond James
Julian Easthope – Barclays
Domenico Ghilotti – Equita
Bassel Choughari – Berenberg
Allegra Perry – Cantor Fitzgerald
Luxottica Group SpA (LUX) 2013 Investor and Analyst Conference Call March 1, 2013 3:30 AM ET
Good morning, everyone. It’s a pleasure to welcome you to our Annual Investor Presentation. Before going briefly to today’s agenda, I would like to remind you that this presentation is recorded and it’s also available via video webcast from our website.
Today’s presentation is divided in two parts. The first one is about 2012 results, our rule of thumb for 2013 and what’s behind it, and the secular growth drivers fueling our industry growth. The second part is dedicated to some of our growth engines, the optical segment, emerging markets, Oakley, Sunglass Hut, and our North American business with a focus on LensCrafters.
The presentation will end with a Q&A section. This afternoon will be dedicated to our strong brand portfolio with a visit to Luxottica Days. Now, to start – now, as usual, we start with a video on one side followed by Andrea Guerra with 2012 highlights.
Good morning. It’s not easy to go back to 2012 because it has been such an amazing year that it would be nice to continue 2012 forever. And instead, it’s finished, and we are in 2013.
So, the first comment I will do is around OneSight. As you know, we always 10 minutes during our beginning-of-March conversation about OneSight. OneSight has gone through another year of evolution and another year of big changes. 2012 has been the first year where we have done a strategic plan on OneSight. And the headline of the plan was two times. Two times what? Two times participation of our associates, two times the initiatives around the world, and two times the funding we are going to be able to raise in the next years. So, now, it’s a perfect, let me say, business unit with objectives which are not exactly our normal objectives but it’s a business unit, it’s a global organization; and day after day, more proud about it and more happy about it.
Having said that, 2012, it’s not easy for me to say what worked well and what didn’t work well because at the end, more or less, everything worked well. We could say United States, we could say Europe, some emerging markets, Oakley, Ray-Ban, our luxury portfolio, acquisitions, technology, SAP, innovation, R&D I think has been a pretty magic year, 2012.
And if it has been a magic year, it also means that we come out from 2012 even stronger. And I think this is important for all of us and all of you to think and to hear the fact that we feel ourselves more secure, more comfortable, stronger, and more adaptive. You know that this is a world where cycles are shorter, where every day, it’s more difficult to understand what happens the day after, where booms are higher and valleys are lower, and where it’s so critical to have more people inside the company sharing the strategy, more plans arranged, more people that know exactly what should happen so that you can adapt constantly to whatever happens in the world. And what happens every week, every month in the world is different from what it was happening a week before and a month before.
So, even with this kind of exercise and knowing that we need to be perfectly adaptive every week, every month, our headline of 2013 has been and is 2013 the natural evolution of 2012. So, we’re happy. We’re happy for the €7 billion of sales. We’re happy for the 20% increase of net profit. We’re happy for our €700-and-something-million free cash flow. We’re happy of many different things.
I think that it’s fair to say that the strategy of being very close to certain emerging markets and building a stronger platform in those emerging markets, building on our seven or eight strongest strategic brands, building on our retail banners and make them simpler and bigger and stronger worked well.
We were here exactly a year ago, and this is the only example, specific example that I will tell you today, we were here one year ago telling you that we have rethought from scratch our Australian business on how we were putting all our efforts on one brand which was OPSM and we had worked six, eight, nine months before then for that plan. We made it real on the 15th of February today’s history. We have done it. Finished. We have rebranded more than 100 stores. We closed almost 100 stores, and at the end, our sales were higher than a year before.
Profits are climbing to our peak and the team is happy. The team is really happy, confident that now it’s easier because we have gone back to our pillars. We have gone back to our foundations. We have put again the consumer right in the center of all our conversations and success is there.
So, just – this is just to say how many things we have done in 2012. And just to keep everything in the loop and not to me just revisiting everything we have done in 2012, before giving the word to Enrico, I would like to go through what we have done in 2012 through a video. Thank you very much.
Good morning. We are particularly proud of commenting the results of 2012 because, as we’ve just seen in the video and based on what Andrea just told you, this has been a record year. And it came at the end of – on top of 2010 and 2011 that were, in turn, record year. We had recovered since the financial crisis that hurt us in 2008 and 2009. This has been the third year in a row where we had achieved strong results in terms of top line sales and even more in terms of top – or bottom line growth. And you might have noticed that for the third year in a row, we’ve been able to deliver a margin improvement and to deliver a growth in our bottom line results that was at least twice as much as our growth in top line.
So, good results, easy to comment. Of course this is creating additional challenges looking ahead but we are here to take them and to beat them.
Now, let me give some details and some highlights of the financial statement that we disclosed last night. In terms of sales, that is a very well-known figure since we have disclosed that more than a month ago. I would only remember to you the exchange rate impact because we should take that into account looking at 2013.
In Q4, again, we had a positive growth, 5% constant ForEx partially helped by exchange rate. The exchange rate was 1.29 euro/dollar exchange rate in the quarter, 1.28 for the full year. Looking ahead, this positive effect should be lower or slightly negative for the total of 2013. Let me recall that in Q1 2012, the exchange rate had been 1.31. That is more or less the level at which the dollar is trading nowadays. In the quarter, so far, so in the two months, January and February, the exchange rate has been 1.33. So, we are running against a slight headwind. And we will see during the month of March how it goes.
And again, as I said, for the total fiscal 2012, the average rate was 1.28. So, we clearly don’t know how would be the dollar for 2013. But for sure, we are not expecting the help that we had in 2012.
Looking at the two business divisions, strong results in particular, in the Wholesale, pretty consistent throughout the year, almost double digit or more than double digit in every quarter. In the fourth quarter, we achieved 9%, 10% in the total year, again excluding the gain from exchange rate.
Clearly, we had some non-organic help like the introduction of Coach and the acquisition of Tecnol in Brazil that helped, in particular, the top line growth of Wholesale. But on the contrary, we will see that in a moment, had a dilutive effect on the profitability for this division.
Looking at 2013, of course, we are expecting a big help from the new Armani license. But this will show its effect starting from the second quarter and will be very limited the impact on the first quarter of 2013.
In terms of Retail, very strong comp growth, 4.5% in the quarter, 5.8% for the total year, so a very satisfactory growth. Let me recall two of the main pillars behind this growth. One has been Sunglass Hut worldwide that achieved 10% growth and that has been the third year in a row of double-digit growth, so an outstanding performance and also the full recovery of our Australian business. The recovery started at the mid of 2011. So, it’s now more than a year-and-a-half that the Australian business is performing very well. And OPSM only, in Australia, for 2012, achieved again double-digit growth, and we are expecting similar results or slightly lower results for 2013.
The Q4, we had a slowdown in comp sales in North America, and that has been explained particularly that we had a shift to do to the insurance week among the two years, between December and January and also some extraordinary bad weather like Hurricane Sandy that hurt North America in Q4.
Looking at the operating and – operating profitability for the group, as I’ve said, we had a strong margin improvement since our bottom-line growth has been twice as much than our top line. We had a full 100-basis-point improvement at the group level from 13.2% to 14.2%. And this is, by far, the 14.2%, the best absolute margin since 2008, after four years, but with more than €2 billion of additional sales because we were at €5 billion sales four years ago. We have been able to achieve again a 14% operating profitability. And the help on exchange rate has been limited to only 10 basis points. So, in any case, at constant ForEx, our operating profitability would have grown 90 basis points. This has been particularly helped by the Retail division that grew 140 basis points, and we will see in a moment more details behind that.
But also, I would like to underline that our Wholesale profitability has been almost as good as the Retail one even if on a reported basis, we had only 30 basis points improvement, let’s not forget two effects that have negatively impacted this division. One is exchange rate because, clearly, it’s not just the dollar that has increased its exchange rate versus the euro, but let’s not forget that also the Chinese renminbi grew 10% versus the euro in 2012, and now we have quite an important cost base in our manufacturing division that is related to the Chinese renminbi.
And also there was another negative impact on this division, has been due to the fall of the Brazilian reais. We know that Brazil is the fourth largest market for this division and the Brazilian currency has actually devaluated versus the euro during 2012 by approximately 8%. So, the impact of exchange rate if at a total group level has been for sure positive, for this division has been negative. And we would have gained 20 additional basis points in this division. So the real growth at constant ForEx would have been 50 basis points instead of 30 basis points.
A second important impact has been Tecnol. As I mentioned, Tecnol has boosted our sales, but in terms of profitability, clearly, Tecnol is not yet at the same level of the balance of the Wholesale division in Luxottica. And the Tecnol dilution has been approximately 60 basis points for this division. So, it’s a number slightly higher than the number that we have disclosed so far. We had some year-end adjustment in this division. So, the total impact for the year had been, now, 60 basis point.
So, all in all, on a, I would say, on a theoretical basis, even the Wholesale performance would have achieved 100 – approximately 100-basis-point improvement, mostly in line with the Retail one. In any case, the 21.8% represents, if we put that in perspective, a growth for this division of approximately 360 basis points in three years.
I would like to comment the Retail performance. So, I would move immediately to slide number 10, and then I will go back commenting the free cash flow. As we said, on a reported basis, our Retail division grew 140 basis points. Clearly, we had a positive impact from exchange rate in this division since approximately 80% of our Retail division is in – the sales are generated in U.S. dollar or Australian dollar that both grew versus the euro. So, 40 basis points has been the impact, the positive impact from exchange rate. But then also, we had approximately 40-basis-point dilution due to the expansion in our emerging markets, so, in particularly, the full year of consolidation of our Latin American chains, and also the expansion of Sunglass Hut in Iberia and in other markets.
So, in any case, our adjusted core business has – or the constant ForEx generated a growth of 130 basis points. It has been one of the best performance since, now, many, many years.
And I would like to point out that basically, all our core retail brands have contributed positively to these results. In particular, our optical retail business in North America has grown in the range – this profitability in the range of 100 basis points. Our Sunglass Hut worldwide has grown the profitability more than 200 basis point, thanks to the excellent results of sales. And also, our optical business in Australia, as I’ve said, has fully recovered and grew more in excess of 200 basis points versus a year ago. So, good expansion, favorable effect from exchange rate, but also a very solid performance from our core retail chain.
Coming back to the free cash flow, and I would – sorry, I would just remember to you that the difference between our reported numbers and our adjusted number is, again, the very well-known restructuring for our Australian business that happened in the Q1. And the news for Q4 is this €10 million accrual for a potential liability due to a tax audit for fiscal year 2007. So, a very clear adjustment.
Now, going to free cash flow, this has been one of the most positive, I wouldn’t say surprise, but clearly, those results have gone beyond our expectation. We have generated in excess of €700 million cash flow, up from €500 million last year. Let me say that we had approximately €50 million or slightly in excess of €50 million of non-recurring gain in those at €700 million that were due to a number of different reason, among which, one of the main is the unusually high level of stock options that were exercised during 2012. We had approximately 3 times the average number of stock option exercise in 2012 as compared to the average year. And, clearly, this was due to a number of reasons; first of all, the strong performance of the stock and also due to the fact that some important plans vested during the year.
So, this is – I consider that positive effect as a non-recurring that I shouldn’t expect for next year. And it’s positive, of course, because the beneficial holder of the stock option paid to the company the stock price. So, we had, for the company, positive effect for this cash flow.
But even excluding that, we had a free cash flow that was in excess of our original target. And this has been achieved despite the fact that we have increased our CapEx spending quite significantly from €307 million in 2011 up to €365 million in 2012. And this is approximately the number that we are expecting from 2013. We would expect a number slightly in excess of €370 million, €380 million for 2013.
Clearly, we had a lower impact from operating working capital. This has been neutral. And for a group that is growing 7.5% at constant ForEx or 14% on reported basis, having a neutral working capital effect is already positive. These results could have been much better but at the end of 2012, we have decided to increase our inventory level since we were at the beginning of the SAP go-live in our manufacturing facilities in Italy and we didn’t want to run any risks. So, this effect will be reversed in 2013, and actually during this year, from a reduction in DSI is where we are expecting most of the benefit in terms of working capital for 2013, while in 2012, the benefit was related to receivables and payables.
Clearly, the strong cash flow generation has allowed us to deleverage quite significantly our balance sheet. We went from 1.7 debt – reported debt to reported EBITDA to 1.25, and we have an aggressive target also for 2013. During Q1, you will see an increase in net debt simply because, first of all, I remember to you the seasonality of cash flow. We have strong cash flow generation in Q2 and Q3 and partially Q4, but Q1 typically is a negative season for our cash flow. And also in Q1, we will pay for the two acquisitions that we have signed at the end of 2012, €92 million for Alain Mikli that has been already paid during the month of January and the capital injection in Salmoiraghi & Viganò of €45 million that has not yet happened but should happen before the end of the quarter, so in a few weeks’ time. So, you will see a net debt clearly higher at the end of March as compared to the end of December.
Let me finish with the famous rule of thumb. For 2012, we have delivered exactly bang in line with our objective. In particular, if you look at the far right column that showed the result at constant exchange rate and clearly the rule of thumb is based on constant exchange rate. We had success, 7.5% top line growth, 15% or 16% operating income growth and net income growth. So, exactly bang in line or slightly better.
In terms of at current ForEx on a reported basis, clearly you see a different mix because the impact of exchange rate on the top line is somehow different from the impact on the bottom line. So, we are not exactly there but I would consider these results as achieved. And as I told before, given the fact that we have generated more cash than expected, clearly we have gone beyond our expectation in terms of deleverage.
Finally, looking at 2013, we think that the same rule of thumb, for the fourth year in a row, can be replicated. So, again, and Andrea will assure to you more details about that. We are planning to grow our top line again in the high single-digit area. And if that becomes true, we have the possibility to increase our bottom line again twice as much.
So, nothing different from what we have achieved already in 2010, 2011, and 2012. That would be the fourth year. Therefore, free cash flow, as I mentioned to you, I expect a slightly lower free cash flow generation in 2013 as compared to 2012 because of some non-recurring gain that will not be present in 2013. But considering also the increase in dividend payment and some smaller, traditional acquisitions that we do during the year, we have a target to be below 1.0 into – at the end of 2013. And when I say below 1.0, I mean that also 0.99, I would consider that as a target achieved.
Let me finish with the two watch-outs. One is – the rule of thumb is again based on constant exchange rate. So, clearly, depending on the exchange rate fluctuation during the year, you might see different results. And as I mentioned at the beginning, the exchange rate can be adverse in 2013.
The second watch-out is the seasonality by quarter. This rule of thumb is not necessarily true for every quarter. This rule of thumb is set for the total year. And in particular, if you look at our results in 2012, let’s not forget that Q1 of 2012 has been, by far, the best one. We had an increase in sales by 11% at constant ForEx versus an average of the year at 7.5%. So, clearly, this is a very tough comparison. And you should factor in this fact when looking at the growth for 2013.
Thank you. And I will give again the word to Andrea.
So, the reason why we’re still playing this what-if game rule of thumb exactly the same, the reason why we’re doing it is because it brings good luck. So, there is no other reasons why we keep on with the same rule of thumb.
Looking to the different businesses – no, one back. Should I do it? Yes. So, looking to the different businesses and regions, starting with regions, here is how we see our performance during 2013. So, starting on the top left, North America Wholesale, we had a couple of years of strong growth and strong market share gains. And I would say that 2013 with the second year of Coach and the first year of Armani and the development of Oakley especially on the Rx, and Ray-Ban, overall, I think that we still have an opportunity to be in the double-digit range. And I think that this target is absolutely feasible.
When we look to Western Europe Wholesale, plus 4, plus 7, we could argue here. We could say that nothing is – there is no comment possible until spring. And so, as usually the range is pretty high and pretty wide between plus 4 and plus 7. But we’re not seeing a decrease. We’re not seeing a zero.
Obviously, keep in mind that we’re not talking about Europe but we’re only talking about Western Europe, which is obviously the toughest region. Nordics are performing really well. UK is performing well. Germany is performing well, extremely well, I would say. France has always been in the last nine to twelve months, maybe our biggest question mark. At the end, worked well in 2012 and began with a positive push in 2013. I would say Sun didn’t help but the great effort in the last four or five years on our Rx side of the business really helped us to perform well. And I think that we will be positive in 2013 as well.
Italy and Spain are always there. I don’t think we will be positive in Spain. I think there is a chance to be positive in Italy. Why am I so optimistic about Italy? Because of Armani. Obviously, Armani helps. Armani dramatically helps in these countries during 2013 and we are so happy of these first weeks. We launched Armani with a number of spectacular events in the last 30 days and we’re going through a number of events from here to the next 15 days. And then, we could say the launch is over and we’re all very happy to say the launch is over. And we – I think we had something which was – which is pretty new in our market. We came in with a capsule collection of eight models of Giorgio Armani. You will see the models. You will see the range. You will see the collections. And you will fall in love with what we have done.
And the real new thing is that we came out and we shipped to the market. So, that has been a completely new way to serve the markets. The windows are ready. Product is almost hitting the market. I would say in some markets, already hit the market and that would be perfectly visible to all in April, so happy about it. Emerging markets will continue to grow. We will talk about it in the next slide. So, I will not spend time on emerging markets Wholesale.
Retail North America, so we had a year of plus 5%. We had a year of plus 6% and we begin the year with a plus 4% and plus 5% there. Is there an opportunity to do more? Probably, hopefully yes. The beginning of the year was extremely good. The first five – four weeks have been really – probably the best we ever had in the last 24 months, then we had in February two, three weeks which have been pretty tough. We could argue about many different things, but obviously, we couldn’t see the push of January going forward, so we were happy about it, but we knew that there would have been a balance.
You know that there has been a number of tax changes in the U.S. and so some of the reactions have been go, go to the market as quickly as you can before that, and rest a little bit after that. We see the market coming back in the last 10 days, so we’re pretty confident about U.S. going forward.
OPSM, I already talked about it. Extremely happy at the beginning of the year, the first two months have been even in excess of this plus 6%, plus 8% and emerging markets plus 10%, plus 15% in terms of our comps in GMO. Sunglass Hut, emerging markets and Chinese retail is there to be achieved. So, this is more or less what we can achieve. As usual, the most volatile number in this slide is Western Europe, but we took 2012 home and we will do our best to take 2013 home as well.
When we look at Ray-Ban, Ray-Ban had another double-digit growth in 2012. And as usual, we start off the year saying we target in high-single digit. Why that? Again, brings good luck. You will see what kind of effort on prescription we are putting. What kind of opportunities Ray-Ban Rx, Ray-Ban prescription, has in emerging markets and yet in United States.
Oakley, again, double digits. It looks like the slide of a year ago. And what is new about Oakley, I think, are two things. One is Oakley Europe is a reality. Oakley Europe is visible. Oakley Europe is a success story. Oakley Europe is a brand, is a brand which is recognized, is a brand which has a strong equity today, and Colin will tell us a little bit more about it.
The second reason why I’m pretty comfortable with this number is that Oakley Rx, Oakley prescription, is a reality. Oakley came out a year ago with a very peculiar, a very iconic product on Rx. It was the first time that Oakley came out with a very specific product in Rx. The name is Crosslink. And really the name says it all. Because it links and crosses between the Oakley iconic Sun products to Rx. It has been a wild success across the world from Japan to Europe to U.S.
Premium and luxury, it’s easy to say strong double digits. I mean, Alain Mikli is there. Oliver Peoples is gaining from the mix with Alain Mikli. We have built this new business unit division inside our company. And we have now a global organization behind it. The scale is there. And really, we can address this a little bit different consumer in this world and a little bit different customer in this world. And I think that, really, the opportunity there is huge. It’s luxury without commissions, without royalties.
So, Atelier is a big thing. The other obvious here is Armani, €130 million is our target, as you all know. So, premium and luxury should really be something that helps during 2013.
So, here we are. And when we look at why do we feel comfortable going forward, I think that there is a number of reasons why we feel comfort about our long-term strategy. It’s very long. Okay. So, what we have organized for you today is a two-way of looking into our businesses – to our business. On one side – and I think this is fair once in a while to go out and rethink about our industry, rethink about social and demographic trends across the world and really compare and link to what is happening in the world and what is happening to our industry and what are the opportunities for players in this industry to be achieved. So, we will talk about this and really understand how we are playing in a very young immature and potential industry.
And on the other side, we will link this to the platforms that we built and we feel are platforms of growth for the long term. So, we will link these two things. One, before coffee break, one after the coffee break in order really to give you how comfortable we are in the long term to keep on with our growth story. So, we are talking about demographics. We’re talking about penetration, premiumization, emerging markets and you will see that when we talk about emerging markets we are redefining the scope, new channels and mega cities.
This is easy. This an easy slide. And this is something that other players in this industry are talking about. And I think that we really are in line. We feel comfortable with these numbers. Then we can say that maybe there is 1 billion people that need eyesight correction and do not wear correction, we could say it’s 2 billion, we could say it’s 1 billion but it’s a big number. And how is this big number changing and evolving? It’s changing through education. It’s changing through reach and it’s changing through social evolution. And I think this is the easiest and probably this could be the only slide I could show today saying, it’s there. It’s a growing population and the social evolution is really allowing us to think that more and more people will be fine and comfortable wearing a functional device that in the years has become something else.
Population is aging in Western world. That’s obvious to see. The baby boomers are there, exactly there in that kind of age that helps our business. And on the other side, the first time people are wearing eyewear correction has declined quite a bit. Obviously, everything, all the technological devices we’re using. So, I think this is a pretty easy and straightforward number.
On the other side, as I said, this is pretty new industry. This is something where really there is an opportunity to go on in educating, to go on in getting our eye exams better, our doctor rooms better, our doctors more trained. The way we take care of eye care has really changed in our company in the last, probably, two to three years. The doctor is, again, in the middle of our conversation. He’s in the center of our strategy, and we feel that this under-penetration, we can help. We can help in that in Asia, in Latin America, U.S. and Europe. And we really feel that this is for the optical world.
In sum, I would repeat what I repeat every time we talk. U.S.A. is on a secular growth journey for premium side. So, I will congratulate Fabio and the team as much as I can on the fact that they have been able for the third year in a row in United States to achieve a double-digit growth like-for-like, and I’m sure that the team is phenomenal. I’m sure the excitement, motivation and understanding of the strategic levers is there. But if the market was not growing, we would – I don’t think we would be able to achieve three years in a row at double digit.
And if you erased 2008 and 2009 and take the last 10 years, we could see this secular growth rate very clearly on the picture. So, this is U.S., think about emerging markets and think about those high-growth-rate markets. So, I really think that this is the second reason why we feel comfortable about the long term.
When we look specifically to a part of our business, which is the luxury and premium part, and if you we look how this luxury world has grown significantly in the last decade, what has grown in the last decade especially accessories. And if we take and if we think about eyewear in that category, we were representing zero 10 years ago, we are representing a small part today. But if you look how fast eyewear has grown, and we will see some numbers in some channels, it’s quite astonishing. We’re still small compared to shoes, bags, fragrances, beauty, but I think that that’s the good news for us.
When we think about emerging markets, the takeaway of this slide is waiting for the big wave. Sometimes I still hear today and read today when people observe us, the exposure of Luxottica to emerging markets is lower. If we think about market shares, I think Luxottica market share in the premium markets of emerging markets is bigger than Luxottica market share in Western world.
The work we have done in the last five years in preparing the platforms of growth, Retail and Wholesale, in the top five markets we have been talking about in the last five years, Brazil, Mexico, Turkey, India and China are there. They’re growing fast. I think that in some of these markets the wave is coming, but will take time. In some of the markets, the wave is there, even faster than other luxury accessories. Let’s take India or let’s take Brazil. So, we have invested. We have planted. We have seeded. And sometimes we feel that we just need to wait for the big wave to come.
Here we are. We still feel that in China, Brazil, India, Turkey and Mexico in the next years, we can still grow with a growth rate of between 15% and 20%. But if we include today, and this is the first time that we list the other eight countries that we have started, basically, I would say, 12 to 18 months ago, to be scouting, pioneering, building the first building blocks. Where? Indonesia, Philippines, Vietnam, Thailand, Malaysia, Taiwan, Andes Region in Latin America and Russia.
It’s the first time we talk about Russia. So, Indonesia today, you know how many Luxottica employees are on the ground in Indonesia? Zero. How many Luxottica people are on the ground in Philippines today? Zero. How many people from Luxottica are on the ground in Vietnam? Zero. So, I could not exactly say the same thing for the next five. But this is telling us that the business that we have been able, so far, to build in these regions is insignificant because we were focused somewhere else. We are building our own organizations during 2013 in Thailand and Indonesia.
And we have built 36 months ago a hub in Singapore and this hub has become one of the bellies of Luxottica, one of the focus of Luxottica. And I really feel that what we have built in the last couple of years there is really allowing us to look at this platform and imagine that in the next three years, 20 to 30, sometimes plus 50. Maybe plus 55, 60 is achievable in these countries as well. These countries are pretty different from China. This is what we have understood and learned. This is why we have accelerated in these countries. Fashion on our specific accessory, luxury and premium in our specific accessory has a completely different welcome compared to China today. And this is why we have started to build our organizations in this part of the world as well.
Department stores. Again, I could tell you that when I look to department stores, and I think that you can see there, sales per square meter per category. And it’s pretty, pretty, pretty astonishing how department stores have not yet really understood the power of sunglasses. But as soon as they get it, and either they give it to us in terms of Wholesale or they give it to us in terms of Sunglass Hut productivity, efficiency, sales per square feet and meter is changing fast.
And I can list so many initiatives that we achieved in the last 36, 24 months: Macy’s in U.S., Edgars in South Africa, Myer in Australia on which to add our traditional partners in UK: Harrods, Selfridges, House of Fraser, Debenhams, all of these are Sunglass Hut concessions; Beymen in Turkey, Sunglass Hut concession; John Lewis in UK, new Sunglass Hut concession; (inaudible) in Japan, wholesale relationship; Karlstad in Germany with KaDeWe, Sunglass Hut concession; De Bijenkorf, Netherlands, Sunglass Hut concession; Corte Inglés, wholesale relationship. And we are today negotiating with Thailand and Singapore and Mexican department stores.
If you just think our business in department stores five years ago and today, I think we multiplied that business by 25 in the last five years. How much are we represented in department stores? Nothing compared to the rest.
I could say the same thing about travel retail. I could have shown this slide in a different way and seeing what kind of space is allocated to other categories, what kind of space is allocated to us and the growth rates of the last three years of the different categories. So, we are in the top left, very small space, the best growth rate in any category in travel retail in the last three years. So, again, great opportunities.
And this is something different I want to introduce to all of you. We felt and we think and it’s 15 months we’re working on this now that the world is evolving in two ways. On one side, opinion leadership in terms of cool glamour is becoming more and more and more in specific cities across the world. And on the other side, the way emerging markets are growing is a complete and continuous urbanization.
So, we have chosen, in July last year, 50 cities where we feel that we can – even if – let’s take New York or Los Angeles. In New York, Luxottica sales are in the region of €200 million. In Los Angeles, it’s just one drop behind it. But if we go to Paris, our total sales is €30 million today. If we go to Jakarta, our total sales is €1 million today.
So, we have taken the decision to focus our store openings, our outside and outdoor advertising, our PR events, our organizations to be over-skewed and over-imaginative in these 50 cities. It took some time to really come up with the list and the work is there. The team is working. And I really think that we will have great fun talking about this – or this is what I was saying before. So, really, opportunities are there in megacities as well.
So, coming back, is this a mature industry? Not at all. Is this a highly potential industry? Yes. And we are the leaders of this industry. Demographic is helping, urbanization helping. Emerging markets are really emerging. And we are really talking about the emerging markets. So, as you have seen, I’m not talking anymore about the five, I’m talking about the new seven.
Now, we have built ourselves a number of platforms, a number of engines that are still there to give us great opportunities of growth. One is optical and we will have Paolo Pezzutto telling you about it. We will have our five usual countries, and we will have Paolo Alberti talking about it. We have Oakley, Colin. We have Sunglass Hut with Fabio. And the overall way we are playing our North American assets plus LensCrafters with Mark.
So, this is how we see 2013 and beyond. Have a coffee, and let’s come back in half an hour. Thank you very much.
So we are ready to start with the second part of our presentation. I’m very pleased to introduce Paolo Pezzutto who is taking us through the big opportunity of the optical segment.
Thank you, Alessandra. So, good morning, everyone. We have just seen during Andrea’s presentation how many opportunities we have and why we are so confident about the growth of the optical segment in the next future. Just to add on top of what we said two words about the behavioral changes of today. We are certainly asking our eyes today strong efforts like probably it never happened before. Just imagine tablets, imagine mobile for smartphones, the effort we are asking today to our eyes.
Luckily, wearing a pair of glasses today is not as traumatic as it used to be in the past. But nevertheless, optical segment, optical category is not considered a fashion accessory, a style accessory yet. Especially if we compare it with the 11 pair of shoes, the 7 bags that typically populate the wardrobe of a modern mature market woman. So we think that from this point of view, we have a lot of possibility of growth especially as Luxottica and with the portfolio of brands we have to work with.
Just to give you the size of the possibility of the opportunity we have in front of us, just consider that if the eyewear market makes two-thirds of this business with the optical category, in our group, at the moment, we are exactly the opposite in the sense that we sell one frame every two sunglasses. And these give us the opportunity and the space of growth that we have looking ahead.
I would like to show you and to talk to you about how we are preparing to this new challenge, this new opportunity. Talking about a little bit about some actions, some decisions that we have taken over the last two, three years and we are still working on. First of all, I would like to mention that in 2010, we decided to create a specifically dedicated optical category department, cross channel, cross brands, cross geographies, fully dedicated only to the category. In this department, the first initiative that this department put in place was the creation of an internal laboratory that provided with advanced technical equipment is dedicated to study, to explore, to imagine innovative solutions in lens mounting and also in fitting and comfort in developing new styles and new product.
Another important point I would like to mention, already seen sometimes in the video before, is the creation of the new Atelier division. The new Atelier division is a division where creativity in optical frames will be brought to life through the brands Oliver Peoples and Alain Mikli. This is something new specifically dedicated to a new segment of consumer.
Certainly, looking ahead we will not forget, we will instead improve our attention to the services because this is the part of the corporation we are already efficient that we don’t want to lose. Today, service we distribute spare parts, 94% of the spare parts are shipped to our customers within five days from the orders. And this is certainly improved compared to a couple of years ago where we were only 86% and we think that service will keep remaining one of our priorities for the next coming future in developing our partnership with the optician.
And on top of it, I would like to mention the effort about a new platform of work that we’re developing and we launched one month ago, which is a new B2B platform online created on purpose to guarantee to our customer a full time service and full time dialog where spare parts, where other aspects related to the optical world will have a central space in the functionality of this website. If we can say that a lot of opportunities, a lot of initiatives have been taken behind the scenes in the sense creating new division, create a new organization a new solution.
On the other side, it’s important to say that optical category today is in the minds of our licensors, in the minds of our brands, this is something new. There’s something very different from the past. Imagine that partnering with Prada, we have just launched our capsule collection. So capsule means a very specific fashion collection fully dedicated to optical styles with a dedicated communication plan, with a PR dedicated plan, with point-of-sales material fully dedicated to this. And this is something that, in our opinion, is a signal of how important is optical category in fashion, in style and in becoming a fashion accessory.
If style, if fashion is important in this category, comfort and fitting is even more important, in the sense that frames live with us every hour of the day, and wearing beautiful and comfortable styles is something that we have to continue to leverage on, and if possible, also to improve. In this sense, what we have done in the recent past, is to rethink the way we create our collection architecture, in the sense that today we develop styles fully dedicated to certain markets in order to be able to reach local trends that probably in the past we were never been able to catch but also, we developed also specific technical features in order to be perfect for every face in the world, in the sense that we are working on every kind of fitting to guarantee the perfect and maximum comfort of the collection.
Just to provide you an example about what I’m saying, I describe to you, what we have done with Ray-Ban. Certainly with Ray-Ban, we probably, you already know how many initiative we put in place over the last years but certainly what is important to underline is that the optical category in Ray-Ban grows very faster over the last three years especially, more than 20% compound average growth rate. And in this growth, we are sure that a portion, a part of the success of this growth, belongs to the fact that we created a very segmented product architecture, ready to be able, for every kind of taste, for every kind of style but also ready to give technical answer to every kind of needs.
More recently, we enriched this architecture with a special geographical approach in order to be ready and to be dedicated to the emerging markets. In 2012, last year, 46% of the styles, the new styles launched of the Ray-Ban Optical Collection were dedicated and created for local emerging markets which is a very important number that tells how much attention we give to this kind of growth.
And if you look specifically to the Asian market, 100% of the style we launched in the Asian market respond are fully in line with local fitting needs and design trends which through the modification of international styles if needed or through the local development of specific style.
As you see from the graphics, I can say that we are very confident that we have in front of us enormous opportunity for Ray-Ban but we can easily extend the same concept to all the brands of our portfolio. We are working on a similar way to all the brands of our portfolio. Great opportunities in front of us.
Before leaving the word to my colleague, I just would like to share with you a video that celebrate Ray-Ban and the 75 anniversary of last year. Thank you.
Let’s now move to our mass presence in emerging markets with Paolo Alberti.
So good morning everyone. How to talk about emerging markets without repeating myself and Mr. Guerra this morning? I had to sort of find a storyline. And then I realized, it dawned upon me that the storyline was right in the title of my presentation, a rising wave.
You see I am Italian, however, I was brought up in California. So I am a surfer. Now, I grant to you that the only thing that’s left over from those surfing days, physically at least, is my hair. However, some notions still remain and surfing is an incredible sport, not too different from business sometimes.
See, if you’ve got a wave behind you and you paddle very quickly, you get to the shore but the wave has died behind you and that’s really not surfing. That’s sort of paddling. Then if you’re paddling too slow and the wave is behind you and it starts breaking, you are in a washing machine and that doesn’t feel that great and that’s not surfing either.
But if you get that right and you get that momentum right, well that board starts shaking a little bit less and the speed helps you. Now, obviously you’ve got to moderate your speed but definitely that speed makes you feel more stable, more sure of yourself and you’re having a great time. You’re surfing.
Well, I think that’s what we’re doing. I think that’s what we’re doing, we’re learning to surf that wave of emerging markets. And how are we doing that? I mean, basically, I think one of the most important things is the proximity. If you want to surf, you’ve got to be close to the beach and we are doing our best, our utmost, and we’re accelerating, that surfboard is accelerating in terms of growth in emerging markets. We have to be there. I mean, already we’re getting great growth. 13% of our sales are already in emerging markets, and this will change to about 20% by the year 2016.
Another thing we also have to look at, we’re always looking for new beaches and when we talk about some emerging markets that we’ve talked about for years, but there’s the future ones. And again, we’ve talked about opening up in Russia, opening up in Thailand, opening up in Indonesia soon. So, last year – two years ago, maybe we weren’t talking about these markets.
And Brazil is one of those places where – I can talk to you about Brazil, about the demographics, I can tell you that there’s a lot of new surfers in Brazil. 11 million families come into the category of spenders. And it doesn’t just make you feel good, but you see the difference because all of a sudden people that were not consuming, and again, consuming in the good sense, are now buying products, are now thinking about fashion, and of course, that means our products too.
And in Brazil there’s an incredible law that actually raises salaries by law, and in the last few years it’s been about 8%. So even people that were relatively wealthy are getting wealthier, and of course, they will be spending more too.
And Brazil though is not just about growth in terms of population growth, we’re doing things in Brazil to ride that wave again, and one of them is Tecnol. And maybe a few of those stories about Tecnol, I mean Tecnol is a great factory. Tecnol is a factory that was very similar in a certain sense to what we have in Agordo. Now it’s much more similar and the people that work in operations that have been there have really done so much to make it a center of excellence in Brazil.
Now you may ask me, does eyewear made in Brazil cost so much less? You know what? That’s not really the point. Let’s say obviously, we’re trying to pump volumes there. We’re trying to do many things to make it more efficient but that’s not really the point. The point is service, service, service.
If we can take our orders and ship them through products made in Brazil in a much quicker rate than we can today, we’re giving something that no other competitor of ours can do. Think about customs. Sometimes, products in Brazil, the ones shipped from Italy, arrive in Brazil a couple of days later, maybe a little bit longer, but even if they’re flown by air and then they sit in customs for 50, 60 days, 40 days, it’s not because they don’t like us, it’s because the single entity that strikes the most in Brazil are the customs. So we can be great in logistics, but imagine if we can make things there, and we have. We put Vogue into the plants, Vogue made in Brazil, designed in Brazil, not just a Vogue that we made in Europe and we shipped over there, this is something that was designed there for Brazilians. And by the way, 40% of Vogue sales today are made in Brazil. And we’re getting ready for more.
We’re going to start with Ray-Ban. We’re going to start with Arnette and at the end of the year, we’re also going to be producing some Oakley.
Not only that, I was present at Tecnol Factory when this machine was coming in. And I was wondering what it was and it was a Ray-Ban five minutes. So this is going to be a center of excellence and can you imagine when we’re talking about 50, 60 days waiting for a pair of Ray-Bans and when we can make them in five minutes in Brazil? That’s surfing the wave.
Now, where do we look in India? And again, we’re looking at a country where if there was the same penetration of eyewear as there is in Europe, the market for eyewear in the world, and I’m not talking about sunglasses, Rx would double overnight. Well, obviously we’re doing things to surf the wave there. We have probably some of the best management and marketing people in the world are now in India and I’m not just saying this because they’re going to be here this afternoon.
We are also – we also have a plant there. We have a plant that today makes Ray-Ban and Vogue, and we’re doubling its size to I think about 600,000 units very quickly this year. Sunglass Hut, 40 stores today, with a partner, and should be within, let’s say, doubling that in the next few years.
But you know, this is something that – where I have probably not done as well as I could have. Now we open up a hub in Singapore, we’ve opened up Hong Kong, but Andrea is absolutely right. If I look at Thailand today but tomorrow there’s somebody going and if I look at Indonesia, if I look at Malaysia, Vietnam, there are no Luxottica employees there. So then I said, okay, I can hire all these people there. Well, it’s not exactly like that. We have to think about efficiencies but imagine this, why should I have today probably a marketing Director of Luxembourg? So the guy in the Luxembourg – we don’t have one in Luxembourg or else he would be here, but the guy is ready for – he’s packing his bags and he’s on way to Jakarta.
Hong Kong, we opened up only one year ago. In Hong Kong, I don’t know how many of you have been there, there’s a Centennial Plaza, there’s Puyi Optical, one the most beautiful, beautiful stores in the world, it has a museum, its own three floors and when I went through a year ago, you walk inside, you see a lot of Cartier. You see some of our brands one year ago, and then there was in the corner, sort of hidden, a little bit of Ray-Ban because they had to have it.
One year later, we are not only great partners because we have a direct relationship with the owners. They’re coming today. I think they’ll probably be there this afternoon at the Luxottica Days. They will be part of our OneSight Foundation dinner. And if you go there, we now have about six counters, beautiful wall units, Bulgari, Chanel, and so on, and they would like to expand and do more with us. So, proximity, direct control of the market, and with our passion, we can do amazing things.
My final slide, I mean, China obviously has been growing at incredible rates. There too we are investing in people. We are investing in structures. We are investing in retail. We are investing in plants. When we think about it, we were in Bali and there was a meeting and Mr. Muffato of Operations, he’s a young engineer who runs the plant there.
He was talking about, well, we’re now building 37,000 square meters more of, but with a simplicity, with this quickness that is only Luxottica. And now we’re doubling the acetate production and all these things with such ease that you could see that not just those of us in the commercial world but also operations is really surfing that wave.
So, before passing the word to another California boy that runs Oakley, the CEO – no, the hair isn’t there, but that’s okay. I do want to say one thing and it’s without arrogance that I say this, this afternoon, I’m very happy to host you at the Luxottica Days where we’re going to see and celebrate many of our brands. There I don’t think we’re surfing the wave. Please allow me to say that there I think we’re making the wave. Thank you and I hope to see you soon this afternoon. Thanks a lot.
Good morning. So 2012 was another spectacular year for Oakley, I think it was our seventh consecutive year of double-digit sales growth. It was a special year for the brand because it’s an Olympic year, and like all Olympic years, the brand tends to elevate itself on the world stage. But 2012 was different and historically the company typically looked at the Olympics as an event, and we would show up with our athletes and our marketing teams. The Olympics would happen and we would rise with the publicity that we garnered during the games.
In 2012, we did it quite a bit differently, in fact, two years preceding the actual games, we reached out and became an official sponsor of the Olympic Games. We actually became partners with Great Britain’s Olympic team and the United States Olympic team. We reached out to global athletes that we knew had a good chance of medaling at the games and we focused on regional athletes as well.
And with all those partnerships in place, we began to build assets and with those assets we began to secure actual real estate within retail in our wholesale channels.
And we launched our first global brand campaign called Beyond Reason. The PR efforts didn’t start during the games, they started long before them, so when the games actually occurred you had all of this energy happening all at the same time. And at the end of the season we could look back and say, wow, not only did our brand elevate itself on the global stage but it actually drove our business in a way that we had never done before and I think it’s an incredible blueprint that we’re going to use in the years ahead.
So 2013 is not an Olympic year but we have every confidence we can do the same business metrics that we did in 2012. And I want to talk about four strategic pillars today that I think are going to be key incremental drivers to our business going forward.
The first is optical. When we say optical, we mean both frames and lenses, our Women’s business, our European team and emerging markets. So the first is optical, this is our – we’ve had four years of double-digit growth in the business and we’re pretty confident that in three years we can double it. And the reason we feel that way is that if you stood back and look at – and looked at the optical business in the world today there really isn’t a brand out there that has the credibility or the capability to innovate and design products that can appeal to men. I think we’re fairly unique in this business.
And Andrea commented earlier on a pretty good example of that and that was Crosslink. So on the screen behind me you see the world’s fastest bike racer, Mark Cavendish. He’s wearing a pair of Crosslinks. Now we launched this frame in early 2012. And within six to eight months, it became our most productive prescription frame ever. And it’s an iconic style that when you look at it on this basis, it allows the consumer that he can wear this thing to the office and he can ride his bike home and we’re not sacrificing style or performance in either case. It’s an entirely new category in the channel and it’s given us a reason to exist as a sole standalone brand.
Along with that, in 2009 we launched Oakley True Digital and each consecutive year after that we designed a sports-specific lens to create a suite of lens portfolio that really has driven substantial growth in the category and our service levels globally are now within 48 hours. If we look back on 2012, we faced serious pressure on capacity. And so we spent a lot of time with the global supply chain in making sure that we had an oversupply of capacity going into 2013 to take advantage of this opportunity.
We’re doing a lot of work in in-store experiences. We’re actually creating Oakley destinations. They’re very effective. We have a whole suite of improved sales tools, so I expect that 2013 this is going to be a stellar year for this business.
Oakley Women, so three to four years ago, we felt we could do in the Women’s category what we have explained that we’ve done in Crosslink. We felt that a gender that was responsible for 80% of the purchasing decisions in the home would feel exactly the same way men felt about their eyewear, that they would not want to sacrifice style for performance, but that if we could deliver both we had a compelling niche within the sunglass business.
So focused on just North America alone, we’ve created brand epicenters in our own retail, Women’s epicenters. We’ve partnered with Sunglass Hut with product exclusives and regionally based marketing campaigns, and our year-over-year view of this business is that we’re on to something, that we have a compelling message and that it matters in the life of an active female.
I won’t spend a lot of time on the details of Europe, but I’d like to look at a long-term commitment to a category that if I look at the North American market, Europe can be just as big for the brand as it is in North America. It has that potential. And if I look at our multiyear commitment to this region, we have overinvested in building the brand. And each year we look back and carefully measure what that has done for our brand recognition in this market. And in last year’s review in several of the regions, our brand awareness had risen 10% and it’s directly tied to our efforts to invest in these countries.
We’ve done a lot of work in both retail and wholesale building compelling stories. These stories are very focused, they’re consistent and they leverage the assets that we’re creating in our global brand campaign. And all of this work is focused specifically on our success in eyewear and in goggles.
So, this year, there are three specific campaigns we’re going to use in Europe. The first is Change Perspective. This campaign will leverage three key athletes, Valentino Rossi, Alonso Fernando and Sébastien Loeb. And really what it does is it twists in the lifestyle category, what these guys are known for outside of their sport, what their passions are outside of their sport.
Then in the summer, like we did with the Olympics, we’ve partnered and become an official sponsor of the Tour de France. And we’ll do an entire series called Conquer the Road. And of course in the fall, to build our goggle platforms, we do a brand campaign called Master the Elements. So with that, I’d play a brief video that speaks to Change Perspective.
So emerging markets we’ve spent a lot of time on this subject, emerging markets represents about 12% of our overall business.
The one specific area we focused heavily on last year and this year was the collections that support those regions. And specifically when I think about it you would think about Asian fit, collection relevant styling. These are all components that are a growing part of our input into those markets, all incredibly successful.
I think our work in Brazil albeit has been dominated by some of our other product categories. We had the real opportunity in optical. So if you think about distribution, the benefits that Tecnol will give us in service really our opportunity in optical in Brazil is very significant. And if you think about how well this brand resonates with the Brazilian population, I can only believe that our success will continue in that country.
Of course, we’ll still be placing into the market great designs, great innovation. I think when you guys go to buying days, you’ll actually see some of our newer collections.
There is some really great material stories in injection-molded titanium, carbon fiber. There is an incredible new glass called two-phase that has a pressure molded aluminum center really interesting stuff. We’ve built quite a following in what we call our Switchlock technology in sport and we’re bringing that technology into a lifestyle piece.
And because of that, we’re allowing a consumer who now is becoming trained to change lenses to given light condition or aesthetic that this is a real opportunity. Late in last year, we introduced in our own retail channel a self-dispensing Plano lens display so consumers could actually go in and see a story about different lens tints for different conditions and different activities. We’re seeing real success with this, so it’s a whole new twist on how we’re selling Sun. And of course our successful Crosslink category will reach new extensions with interchangeable centers as well as different center sight and lens sizes.
And then lastly you’ve seen the demonstration out in the side hall, and if you haven’t, it’s really important that you get a chance to experience it because when you experience it it’s when the product comes to life. Oakley has been exploring heads-up displays for the last 10 to 12 years and really technology is getting to a place where we can bring what I think is an augmented experience to sports. And I think we’re unique in the business because in sports you’re allowed a certain latitude when it comes to aesthetic design that you can get away with things that make you look like Superman and it’s okay.
So, the launch of Airwave for me does two things. One, it’s a laboratory. It’s a laboratory to put something into this space and understand how the customer reacts to it, how a channel like Apple can support it because it’s connected to their device in the app space. But also that it’s disruptive and I feel like as a brand, we need to be disruptive because of the followings that like our culture. They like our courage, and if we lack the courage to do interesting things like this, we will cease to be relevant. Thank you.
Now it’s time for Sunglass Hut with Fabio d’Angelantonio.
Good morning, everybody. Sunglass Hut 2012 is quite a simple and consistent story given our meetings in the past years, I think you know the trajectory, you know the brand, you know the business model. 2012 has been a year of incredible success, incredible results. We arrived for the first year north of €1 billion around the world. Andrea mentioned the super result of North American team, but the result in Asia-Pac has been outstanding with a high single digit, results in other region like South Africa, above 20%, while Mexico above 30%, has been outstanding as well.
When talking about Sunglass Hut in North America, third year in a row of double-digit comps, I think an incredible result of growing the category. I think also an incredible result for a brand that has today over 2,000 stores in the country of which about 500 opened in the last three years. So growing the comp business while keeping focused on increasing the penetration in the marketplace.
Enrico mentioned the profitability improvement. I think the only thing to add from my perspective is that this improvement really came from all the different lines of the P&L. Sunglass Hut is a business model where when the top line ramps, the sales ramps, their fall-through is quite positive. Keeping our global expansion direction journey and very important steps last year with entering the Iberian, so Spanish and Portugal markets, with the acquisition of the Sun Planet chain.
I’m trying to change the slide. Thank you. Key success factors of the journey of the results. The same we have been sharing, discussing last year, so more and more deep and accurate store segmentation, trying to execute to what really the people is looking for, consumers are looking in every different channel and demographic, plus fashion, visual merchandising store, brand building and the right experience for consumers.
In the last 18 months, we’ve been working hard in our experience model in trying to train our associates in the kind of behave they have in front of consumers and I think the key guidelines are really the sentence in the slides. We are clear that when consumer comes from the Sunglass Hut, there’s really gratification. It’s really for a fashion accessory.
We don’t sell products, we sell feel good. So we’re trying to define an experience, to implement an experience, which is all about smile and energy from our side, but also brand celebration and the best product training in the planet about our brands and our products that are all the time new. So I think this really makes a difference for a customer coming in Sunglass Hut.
Operating model today is standardized globally. We know what we stand for. We know how to execute it. This helps tremendously in synergies in terms of the systems we implement and it also helps having the best talent in the organization flying and moving around the different organization to grow the culture, to grow the people and also to put the best people in the best opportunity and the best roles.
We also tremendously learned in the last 18 months our capability, not only to deliver this operating model but to implement in a new channel, in a new partnership, in a new country when we enter we call this “SunglassHutization” and is the capability to deliver from A to Z our operating model in the short possible time, of course maintaining the right eyes opening on the kind of twist that every market deserves.
New frontiers: omni-channel, digital opportunities, I think it is clear that online and digital would progressively change the offline retail experience. Sunglass Hut is there, omni-channel which is – recently I read a sentence which I love which is, welcome in the era of expectations. Consumers want from the best brands and best retailer to be always on, always reachable for the different tablets, platforms, mobile devices.
Sunglass Hut is there working this experience, working on all the possibility to be accessible, working on e-com from tablets, from mobile, from the store, and of course trying to implement the best possible digital experience in store with front doors, with in-store screen, with tablets, in order to continuously increase the experience and the brand celebration.
And can you change in the slide, please?
The global journey is going on. I mentioned Spain, I think today Sunglass Hut is globally pretty well placed with the traditional four geographies where the brand was present: North America, UK, Australia and South Africa. And I think we created a certain number of new regional hubs that will fuel the growth, additional growth in the next years: Mexico and Brazil in Latin America, Spain and Turkey in Europe, Middle East and North Africa from Dubai, India, Southeast Asia with Hong Kong and Singapore presence.
We are really well placed to fuel our development internationally. Clearly, we keep focus on the sunbelt, new countries and new opportunities if you look at 2013 clearly identified. We want to expand ourselves in Santiago, in Chile and all the Andes region where we’re already for the company exist, Grupo Multiopticas platform.
We want to expand in Southeast Asia in the country which are closer to the hub we have so Malaysia, Macau, Thailand started to working and looking in Indonesia. We’re probably going to be focused in Europe into accelerating the growth in Turkey and the turnaround of Spain business for the year.
New channels, E-com is growing very fast in North America, very happy with this growth and on the other side launching E-com in Australia in the second part of the year probably Q4 where is also the key seasonality for Australia. We maintain, Andrea mentioned, our focus, in developing partnerships in department stores and travel retail. We are continually discussion around the world, very interested in new opportunities but at the same time very, very happy to keep renewing constantly the partnerships already in place, which is equally strategic to us.
Click, a few charts on two or three case history over the last years. Mexico, fantastic country, close to North America, under 10 million people. We really came from 18 exciting, 15 actually exciting months. We acquired two chains, we merged into one, we move from Guadalajara to Mexico City where we established ourselves in the same wholesale business offices where we can really partner on some of the back office functions.
We’ve been delivering in less than six months, 360 degree SunglassHutization of the chain. We rebranded all the stores, we’ve been – remodels the top quartile, new products and new assortment in store, new visual merchandising systems, new training, new system and Sunglass Hut experience. Results are there fantastic, over 30% comps delivered last year, good team, good excitement to be in place and if you look around the corner, in a country which we have a good halo effect on the brand from North America.
Of course we have an opportunity to increase our partnership farther, through partnerships, through department store presence and there are some areas of the country like Mexico City in which we are today underpenetrated and we can open a store. The number we have in mind is very clear, 200 stores in the next two to three years.
Brazil, other very interesting and learning 18 months, we started from – 18 months ago we had no presence, not one Sunglass Hut employee in the place. We end the year at 20 store. We have 25 as we speak stores opened already. We want to double our presence so reaching somewhere between 40, 45 by the end of the year. It’s a challenge. It’s a challenge in entering greenfield in new region. We have to get to know all the different retailers, get to know the brand.
This is a case in which we have been into we said tropicalize, adapt our business model. Our store design was not sufficiently bright and inviting for Brazilian malls. We had to adapt the way we were implementing the doors. Brazilian business is really today around key four, five, six brands, and we have to develop a different way to celebrate those brands, to enlighten those brands and to make a brand narration about these brands in stores.
And clearly, this business in which what you can call commercial or credit offer is completely different than anywhere else in the world. There’s a lot of credit purchase in this country. So we have to really to implement 15, 20 different ways, test different ways to make this successful, to highlight and then define the three or four that really were game changers.
Today looking in the future, I think the opportunity is, of course, in this country huge. And as said, we plan to double the business in the present this year with the objective of testing and again, twisting, preparing our franchising model for further expansion in the country to reach regions that probably does not today deserve direct presence.
Last example, India has a four, five years history. We’re very happy of this present today. As Paolo is saying, we have presence in old model. It’s a franchising model where we have an incredibly pleasant to work with local partner who is also very good in getting for Sunglass Hut excellent locations locally.
The business is totally integrated into our wholesale division and we keep growing year after year somewhere between 20% or 30% in terms of comps which is really an outstanding number in this region. This year has been particularly relevant in terms of, let me say brand status. In India, we’ve been able to get into the first and the best airport which is Delhi Airport, plus we are opening – we’ve signed that we’ll open next year. So in a couple of months from now in April, this year in April, that flagship store in Emporio which is the number one mall in the country.
Opportunity here, probably as much as in Mexico, is really sales density. So, the single store versus other regions is still pretty small. While I didn’t mention, but in Brazil Q4 in Brazil of our store sales per store in Q4 in Brazil was already this year as big as Q4 sales per store in North America. So, opportunity in Brazil to grow the network, opportunity in this country to grow the network but also the sales density.
I think this is for Sunglass Hut today, I just also have a little video to share to give a little bit of sense of what kind of brand we are building around the world.
To conclude with our growth engine, now we have Mark Weikel with our North American Business and LensCrafters.
Thanks, Alessandra. Perfect.
In 2012 in North America we posted solid results, plus 6% in U.S. dollars. All of our businesses contributed to these positive results. Wholesale sales were up 15% supported by the Coach launch in January of last year. Retail comps were up 6%. And as it was already mentioned by Fabio, Sunglass Hut had its third consecutive year of double-digit comps. Solid results also at LensCrafters, plus 2.4%. And the initial results for 2013 continue to confirm the growth trend despite the tough comparison that Alessandra mentioned about the first quarter last year, which was our strongest quarter of the year.
What I wanted to talk about a little bit was how we get focused altogether in North America around driving category growth. We’re doing this by working very closely together across all brands and all businesses with a relentless focus putting the customer, consumer and patient at the center of everything we do and everything we think about.
We’ve recently reorganized the retail optical brands in North America under a portfolio group called RONA, Retail Optical North America. We believe this really enables us to better manage our North America retail optical businesses as a true portfolio. It allows us to really create further strategic differentiation between these brands, these four brands, and also to determine where the appropriate synergies are between these four brands.
And I also just wanted to give a couple of other examples of how the brands and businesses work together in North America. So, for example, Sunglass Hut with the other brands can work on things like business operating models, labor planning, performance management. Even though the contextual differences between these brands exist, there’s a lot that can be shared.
Another example is EyeMed. EyeMed has done a phenomenal job of sharing experiences with their members and their providers. And one of the things that’s been great to see is EyeMed wholesale and all of the retail brands working together to bring to market in a pilot dispensing model that allows us to compete even more effectively against other managed vision care providers.
Luxottica wholesale and our labs are just remarkable assets in the United States and in North America. They allow us to partner to drive category growth. We can learn things together around customer segmentation, lenses, product differentiation that allows all brands and all businesses to win together.
And Oakley and LensCrafters, wow, I tell you, working together whether it’s with Sun or Optical and bringing solutions to market, as Colin described, solutions that are lifestyle-oriented, active-oriented is just remarkable. And Oakley and LensCrafters working together as brands is a powerful combination, including things like trying to bring sales mastery to the selling floor through things like the Oakley Guru Program.
Now, what I’d like to do is spend just a little bit of time focusing on LensCrafters North America. LensCrafters has made significant strides in elevating the brand and transforming the brand in 2012. We’ve elevated our marketing and brand equity in 2012, we developed capabilities to deliver legendary signature customer experience in stores and we’ve reinvested, as you’ve seen, in market-leading innovations at scale.
And I think this is a key thing for LensCrafters going forward is about market leading innovations at a scale for customers, consumers and patients. Our LensCrafters brand strategy in 2013 remains unchanged we will still focus on our three pillars.
Number one, building the brand for the future. I think everyone knows that our aspiration is to be the vision-care brand, to have everyone believe in LensCrafters as the most trusted partner, to help you see your best and look your best.
Second, we are amplifying and reconnecting with the customer, and we’re doing this by building a scalable signature customer experience.
And the third place that we’ve talked about is executing with excellence.
We’re also further committed to elevating the brand and our marketing in 2013 and as you see here, these pictures try to depict a multifaceted way that we’re doing this. First, on the left hand side more emotional imagery. Something that allows us to have fabric in our discussions with our consumers. Second, celebrity endorsements showcasing our latest styles and innovation through celebrity representations. Third, more vibrant storytelling that allows us to have a rich memory with our consumers. Fourth, focusing on Sun. This is a massive opportunity in North America. There was a slide that I think Andrea had earlier that showed this. This is a megatrend that’s going to be phenomenal and LensCrafters will have marketing communications pinpointed against this in 2013.
And lens leadership. They’re kind of simple way to think about it just putting lens back in LensCrafters. That’s about LensCrafters retaking its position as the purveyor and innovator of lens in North America. Now, a year ago, when we were together, we talked a little bit about omni-channel and this is the customer’s desire to shop with our brand whenever and however she desires. And what I wanted to do was to show a real quick clip on what we’ve progressed on this year. Can we roll the video?
So we created this clip to really help our 15,000 associates and field management understand where we’re headed and what we’re doing this year. What I’d like to do now is to spend a few minutes focused on the tablet portion of omni-channel.
I’m just super excited about this and what the capabilities are. So the associate tablet aggregates all of the manual work with whether it’s paper-bound or binder-bound material and puts it in one easy-to-use digital platform. And I think about this as a platform because it will exist for quite some period of time and we will continue to modularize it and bolt on new benefits.
The other thing that’s really cool about this as a powerful selling tool, if you think about it, it provides the lens simulator which you saw on the screen. So it allows a customer or patient to really understand the perfect lens for them, the right frame for them so they look their best and they see their best.
The other thing that’s interesting in here is it also provides make-ability. Make-ability is simply the compatibility between lens and frame combination which today is done manually. So tomorrow it can be done in a very easy way for the consumer to understand and it happens right away. We’re also – today where we’re at is currently live with tablets in 40 stores. Super excited about the progress that we’re making there and are planning a national rollout based on the results of the pilot.
In addition, what’s fun about this is you get to consistently innovate around omni-channel, I just wanted to give you maybe two to three examples. One would be a single view of the customer. What omni allows you to do is really to have precision around your understanding of the consumer, their family, their activities, their lifestyle, their upcoming needs. It allows you to really customize with specificity how to communicate with that consumer.
You could see this today in My Account on lc.com, but we are just scratching the surface on this and the opportunities here long-term are amazing. Another one would be myLook 2.0, which would either be the magic mirror or the next generation within AccuFit, and what’s really slick about this is the consumer can select their frames, take a variety of photographs and share it on social media to get immediate reaction back. This gives the consumer confidence in the frame selection for themselves.
And the last one is, I’d say, kind of it’s been an untapped asset. I think Andrea talked briefly about how we’ve brought the doctor back to the center of the discussion. In this case, if you think about it, we’ve got our patient sitting in the OD waiting room. What should we be doing? We should be communicating with them, engaging them, educating them and making sure they’re part of the story from the time they get to the doctor’s office, which will also be digitized.
So, I hope you share our excitement around the omni-channel work at LensCrafters and appreciate everybody’s support. Thank you. Alessandra?
So, I think we’re finished. We were pretty fast, I would say, in being able to explain all of you which we feel are the great avenues of growth and on the other side, obviously, even if in Italy has become a little bit unpopular to open a debate. There have been parties gaining 25% without any kind of debate, here we are ready for any questions you have, any doubt or comments you wish to have. So, the floor to you. Thank you. We need microphones. They’re coming.
Antoine Belge – HSBC
It’s Antoine Belge, HSBC. Three questions. First of all regarding China, in the previous Investor Day, you had a target of opening 500 stores and I think we’ve seen more closure than openings recently. Are you now happy with the new format at LensCrafters and could we see an acceleration in the number of store openings in China this year? I think there was a test with Sunglass Hut, I think in Shanghai. Can you maybe say some word about that? Also what’s the profitability of China in retail in 2012?
Second question regarding the margin evolution in 2013, 2012 was more a story of improving margins in retail rather than wholesale. So how do you see the balance between the two divisions in terms of contribution to margin?
And finally, in terms of production, what is now the geographic splits between China, Italy, the U.S. and Brazil and how has it evolved compared to last year? Thank you.
So regarding China, so it was a couple of years ago when we were talking about 500 stores. I don’t think that we will reach that 500 stores in the near term. I think I’ve been pretty direct on that. I think that we have grown experience. We have grown profitability. We’re just above breakeven today with retail and very, very profitable on the wholesale side. Sunglass Hut was not a test, it was just to preserve the, how do you say, the protection, the intellectual protection of the brand and so that was not a test.
And we keep on growing slightly. We are shutting down and opening. I would say that the last three years have been substantially good, not excellent. But I’m happy. I cannot say that we are frightened about that. It will come. It’s a question of density. It’s a question of how many frames a day we’re able to sell in those stores. That’s it.
In terms of margin, I think that wholesale did a pretty good job in 2012. The dilution came specifically from the integration with the Tecnol brand in Brazil, so that was dilutive in 2012 and that will help in 2013. I think the Atelier business division creation will dilute a little bit the margin during 2013. Armani will not help in the first six months, but will incredibly help in the second six months. So we will see a good improvement especially in the second half of the year in the Wholesale profitability.
In terms of Retail, I think that we’ve got an opportunity to continue the evolution of margins as we have seen in 2012.
Manufacturing, the mix is today 50% Italy and 50% all the rest.
Luca Solca – Exane BNP Paribas
Good morning, Luca Solca from Exane BNP Paribas. Three questions on strategic elements if I may. I was wondering whether you expect, especially in emerging markets, to have a different channel mix, and specifically whether you expect the online channel to be more important for starters there.
As a second point I was wondering how you plan to evolve your distribution channel mix in Europe, and whether we’ll see more direct retail involvement either through M&A as with some Salmoiraghi & Viganò or through further development of your chains.
And thirdly how you plan to evolve your brand portfolio. You recently acquired Alain Mikli, I wonder about the strategic framework around that and how you see the evolution of your brands versus your license engagements. Thank you.
So as you have noted in our external secular growth of opportunities we did not include this year online. Why is that? Because travel retail is still small but already a reality, same thing we could say about department stores. Online is growing fast for us. We have grown in the region of 35% to 40% during 2012, we’re still focusing 90% in USA today and I think that in 2013 we will continue to be focused – I would say 80% in U.S. and creating the basis in other parts of the world in order to have the supply chain ready for ray-ban.com, oakley.com and sunglasshut.com in other parts of the world. So if a year ago we would have said 100% U.S., now we’re saying 80% U.S., 20% getting ready for the rest of the world with a priority list, a priority list which has some emerging markets and some non-emerging markets there. So online is still infant stage for us.
In terms of Europe retail, we have been very clear on how we want to move. Sunglass Hut entered Mediterranean Europe, Sunglass Hut is today in UK, Netherlands, Iberian and Turkey. And slowly we continue to move in other parts of Europe, Mediterranean Europe especially.
In terms of optical retail, I think we explained pretty well why we partnered with Salmoiraghi and there is no intention to move from there in 2013.
Brand portfolio, Alain Mikli was December 2012, Armani just started so I think we got enough on our back and enough in our souls. I think the first six, eight months of 2013 will be totally devoted to our original brand portfolio. And we will work and we’re working on things to happen in 2014.
Marc Willaume – Raymond James
Marc Willaume from Raymond James. I’ve got one question on the Mikli. As far as I’ve understood some years ago when Mikli was still owned by an investment firm, Mikli purchased the Vuarnet brand. It seems that you’re not talking of the Vuarnet brand so does that mean that brand was not part of the deal, so you acquired only Alain Mikli brand? Could you give us some flavor of this, like sales? And also, as far as I’ve understood Alain Mikli either owns, directly operates or maybe franchise some stores under the banners. Could you give us maybe some figures related to this? Thank you.
Sure. So as we stated, we didn’t acquire the Vuarnet business at all. So that was carved out from the acquisition. Alain Mikli is one of the iconic brands in the designers’ world of optical. It’s a long-standing brand, it’s a European-French brand with great presence on East Coast, USA and Asia, around 10 stores, maybe a little bit more, split between again, East Coast, France, one in Italy, and Hong Kong and Japan, €60 million of sales and really unbelievable opportunities putting a French designer brand together with a Los Angeles designer’s brand with very different areas of success and areas of opportunity which are pretty complementary.
So we’re starting off, basically we started a month-and-a-half ago and we will have some costs to be faced in the first six months of 2013 for the integration and the first couple of months already we had a growth trend. So when you have a brand that in the middle of an integration process still grows, it means it a strong brand.
Marc Willaume – Raymond James
A follow-up on this one. The fact that you didn’t acquire Vuarnet, was it your choice or was it the choice of Mr. Vuarnet, which was still the minority shareholder in the business, not to sell the business because it’s a very appealing brand, it seems to me because it could very well complement either Ray-Ban and Persol.
It’s a brand that total sales is in the region of €5 million today.
Marc Willaume – Raymond James
Okay. Thank you.
Julian Easthope – Barclays
Yes. Hi, it’s Julian Easthope from Barclays. Just I’ve got three questions rather for me. Can I ask maybe start off with Ray-Ban in five minutes because it’s been integrated now and going well. Will that actually be produced into say, Oakley, five minutes and some of the other areas and what sort of benefit that will have?
And coming back to Alain Mikli, in terms of the integration within the business, presumably they use third party manufacturers and things, are you – can you explain how – the process of getting it into your hosts and to your own manufacturing business and the likely implications that has for margins within that business?
And thirdly, going back to the emerging markets, the new eight countries or so, will – is there likely to be any acquisitions there or was this going to be an organic growth and is there likely to be retailer or is it mainly wholesale? Thanks.
Regarding the opportunity to manufacture in five minutes injected plastics, we have started in Foothill Ranch and we will begin soon in Brazil. And at the end of the year we will have the first machines in China as well. So, it was not an episode, it’s a process. It’s now five or six stations in Italy and so we will move. And as usual this has an efficiency and most of all service level. So both of these things will be a total reality in Italy, Foothill Ranch and Brazil by the end of 2013.
In terms of Alain Mikli, so Alain Mikli is five or six avenues of integration. It’s a question of IT as usual. It’s a question of supply chain. It’s a question of commercial organizations and it’s a question of manufacturing and planning. The plan is already scheduled and everything will be delivered by the end of this year. And even manufacturing integration will begin not before fall 2013 and securing certain kind of handcraftsmanship that Alain Mikli has in specific parts of their manufacturing base today.
In terms of emerging markets, as we have done so far, it’s a mix of everything you said. So it’s a mix of organic growth and it’s a mix of acquisition of some small to medium chains especially Latin America and South Asia.
Domenico Ghilotti – Equita
Domenico Ghilotti from Equita. First, we are interested in having a flavor on the current geographical and product mix for Oakley and what can be the mix in three or four years because you mentioned the opportunities on suns versus optical and also Europe versus the U.S.?
And the second question is related to Sunglass Hut, your target of doubling sales and how much of – I’m trusting you understand me, how much did you invest in 2012 in store openings or also acquisition and if this is the run rate needed to reach the target?
So I think Colin was pretty clear on Oakley mix of business in the longer term and geographical opportunities. He said that Europe in the long term can be as big as U.S. In Europe, I think between 2007 and 2010, we really have built the foundations, the geographical coverage and the last couple of years, instead, we’ve seen the rapid growth. I would say that the main reason why Italy was at the end positive in 2012 is because of Oakley. So it’s big enough to influence the flip between negative and positive in any European country today.
Colin said that today emerging markets are in the region of 15% of total business, and I could add that 80% of that is made by India plus Brazil. So when we think about the drivers all in those main five markets I think the long way there and he said that it can be around 20% in the next three years.
Domenico Ghilotti – Equita
Sorry, what is the starting point of Europe?
Domenico Ghilotti – Equita
Of Europe today, yes? What percent?
Today, it’s in the 20% of the business.
Sunglass Hut, the run rate we have seen in 2012 is what we are following up in 2013 and onwards. It’s a one or two acquisitions a year and the remaining is opening stores and to open a Sunglass Hut store is not a big investment.
Bassel Choughari – Berenberg
Good morning. Bassel Choughari, Berenberg. I have three questions, please. The first one is going to be given your net debt evolution profile. Are we likely to see at some point some dividend like exceptional or an increase in the payout ratio?
The second one, could you please help me in understanding how in your growth you see volumes and price mix and are there any price increases planned for this year?
And the last one, the STARS program, could you tell us where you are now? And last time we spoke about it, you were well ahead of your plans of 5,214. Do you plan to increase that on a...
So, let me start from this. As usual, when you have to pick your growth drivers and you have to pick four or five, then you always miss one and people argue the fact that we are forgetting that specific one. STARS is a jewel, STARS is a foundation. STARS is moving on and STARS is basically moving at the rate that we wished and even in more traditional countries like Italy is really becoming an important asset of the business.
Our growth, volume and price mix 2012, it was basically in wholesale, I would say, 80%-20% currency neutral, 80% volume, 20% price mix. And looking to the two years ahead and before, we were able to have again a portion which was due to price mix and I would expect the same thing happening in 2013 because the Ray-Ban price effect was basically second semester 2012, so we still have all this semester to be used.
And the other fact is March 1, 2013, we had a price increase on all Ray-Ban prescription. And end of year, beginning of year 2012, 2013 four or five iconic products of Oakley have gone through a price increase.
Net debt evolution.
Net debt evolution, sorry. Grazie, Alessandra. So if we look to 2012, 2012 we were able to grow currency neutral in the basically €500 million. We had outflow for acquisitions in the €150 million and ordinary CapEx in the €350 million. So, we feel that that is still the opportunity we have in 2013 and probably 2014. There are bigger things that we love, but as usual we are never defining the timing of these bigger things we love. On the other side, dividend policy didn’t change in 2012. I would not expect major changes going forward.
I didn’t miss others, correct? Okay.
Allegra Perry – Cantor Fitzgerald
Hello, it’s Allegra Perry from Cantor Fitzgerald. I just have a question on Coach please. I was wondering if you could give us an update on the performance in 2012, perhaps your expectations for 2013 and perhaps remind us where you are in the rollout, is it fully complete or are there further parts of the process ahead? Thank you.
So Coach has been the fastest brand ever in a launch. It has been so fast that we had to postpone the Asian region for some months. Now all regions for Coach are on air and we expect another strong growth in 2013. So we over exceeded our objectives by 20%, 25%. So if we had – I don’t remember if it was $50 million, $40 million, $45 million and then we moved it to $60 million and we made it.
Good. So if there are no other questions on one side there is, oops there is a follow-up question.
Thank you. I’m always happy to ask questions. Just one thing, could you give us like a hint on where now the profitability of Ray-Ban versus Oakley is standing?
You know it’s an ever catch-up game. So Oakley profitability is exceeding the rate of the last couple of years, I mean, we had a wonderful year in 2012 and our budget in 2013 is again strong. On the other side Ray-Ban profitability keep on improving and therefore it’s a never ending story of catch-up. What I can tell you is that Oakley profitability today is above average profitability of Luxottica.
Just if I can comment, I remember once you told us that you had 1,000 basis points spread between the two brands. Are we still within that type of range?
I think we’ve talked about 500 not 1,000.
Okay, thank you.
Okay, if there are no other questions I think it’s time for lunch. Hopefully it’s already ready because we are little bit ahead of time. We have also time to experience Oakley Wave and no later than 2:00 PM, we are – we should leave to Luxottica Days. We have busses in front of the hotel but we will be around to direct you to the right direction. So thank you very much for being here with us and thank you very much to the people in webcast for listening and we are available for any other questions you might have. Thank you.
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