Luxottica Group's (LUX) CEO Massimo Vian on Q2 2016 Results - Earnings Call Transcript

| About: Luxottica Group (LUX)

Luxottica Group S.p.A. (NYSE:LUX)

Q2 2016 Earnings Conference Call

July 25, 2016, 12:30 PM ET

Executives

Alessandra Senici - Group IR and Corporate Communications Director

Massimo Vian - CEO

Stefano Grassi - CFO

Paolo Alberti - EVP, Wholesale

Nicola Brandolese - President, Retail Optical Americas

Analysts

Cedric Lecasble - Raymond James

Antoine Belge - HSBC

Elena Mariani - Morgan Stanley

Julian Easthope - Barclays Capital

Domenico Ghilotti - Equita SIM

Piral Dadhania - RBC Capital Markets

Jamie Bajwa - Goldman Sachs

Katie Tillson - Credit Suisse

Chiara Battistini - JPMorgan

Presentation

Operator

Good afternoon. This is the Chorus Call Conference operator. Welcome and thank you for joining Luxottica Group First Half 2016 results Conference Call.

As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator instructions] At this time, I would like to turn the conference over to Ms. Alessandra Senici, Group Investor Relations and Conference Communication Director of Luxottica. Please go ahead Madam.

Alessandra Senici

Thank you, operator. Good evening and thank you for joining us today. Here with me are Massimo Vian, CEO Product and Operation, Stefano Grassi, CFO, Paolo Alberti, President Wholesale and Nicola Brandolese, President, Retail.

Before we begin, first, I have a couple of quick items to cover. As a reminder, a slide presentation which we will informally follow during this call is available for download from our website under the Investor Relation section. This presentation includes certain non-IFRS financial data and information, which are further explained and reconciled in results for the first half of 2016 press release available under the “Investor Press Releases” section of our website.

This conference call is being recorded and is also available via video -- audio webcast from our website. During the course of today’s call, certain projection or other forward-looking statement may be made regarding Luxottica Group’s future financial performance or future event. We wish to caution you that such projection or statement are based upon current information and expectation and actual results may differ materially from those projected in the forward-looking statements. You can read more about such forward-looking statement on Page 2 of the slide presentation.

We also refer you to our filings with the SEC and Italian Security Authorities. These filings contain additional information concerning factors that could cause actual results to differ materially from those contained in management projection or forward-looking statements.

We will be being to review our first half results with Massimo Vian.

Massimo Vian

Good evening to all. Last time we talked together, we commented April to be okay in line with our expectation and we said that Q2 would have been all about May and June performances our two busiest months of the year.

Three elements now to help you to read our first half results; first, we have actually a softer than expected May. Some season started very late and especially compared to '15 also the 20 days of June weather didn’t help.

We compensated Sun sales with a solid optical business performance. LensCrafters continues to represent a more resilient portion of our business. We had solid performance across Europe and very, very positive in Latin America.

Second element is that we knew we had a very positive semester last year. Half 1 in '15 was plus 7% from previous year. The overall macroeconomic environment definitely has not improved in the last two to three months. Traffic in U.S. physical retail is down. U.S. and Chinese consumer has slightly weakened.

Despite this, our sales were up 1.6% growing across all channels, retail, wholesale and especially e-commerce.

Third element is that in Q2 we worked even harder to accelerate our strategic initiatives, both to boost growth in the remaining part of the year and in parallel to our goal to an even leaner business model.

We remain confident we are on the right track. The immense organizational effort we've undertaken is starting just now to pay back. Our firepower is laid out. Our projects are on track and results we're going to comment today are a true reflection of a positive quarter.

As a factor, sales grew by 1.6% at constant exchange rate. We reached €4.7 billion. Adjusted operating margin unchanged from record 18.5% in first half '15. The acceleration on retail footprint for the long term temporarily is having an effect on retail margins minus 150 Bps, but this was largely planned.

Basically, all new store openings are concentrated in second half this year, so that, we were able to compensate with higher efficiency on wholesale margins, plus 150 Bps and we had all-time high net income at €532 million, net margin its current exchange rate up by 50 Bps.

We also consolidate furthermore our debt financial position. We are particularly proud of this result. We have record free cash flow generation in first half, exceeding €400 million and our debt ratio went at 0.6.

Our strategic business remain unchanged. Therefore we continue to leverage on our vertical model. Both the macroeconomic evolutions and our ambition themselves are pushing us to evolve even further. Speed and simplicity stay in our D&A, both for growth and for efficiencies.

We concluded price harmonization project and starting July, this July, we’ll have the benefit of a more balanced global pricing strategy without any more negative effect on cost.

We are in the acceleration phase of Macy's, LensCrafters opening. We opened one only store in the first semester and all remaining ones will be opened with a smaller footprint without store lapse in the next coming months.

Map policy started in April in U.S. We're seeing now the first rebalancing effect on channels and distribution. But this has been done to be stronger medium term and for sure in the second semester we will start receiving positive effect.

We are growing channels, we are growing geographies, but we were able to continually change ourselves decreasing the complexity of the system and the supply chain. We have more effective go-to-market approach. We go from design development, launch, distribution winter campaigns even faster than before and we are ready for the next story to tell you in a matter of weeks or months.

We will finish the current year with 2% reduction on active SKUs in our pipeline and astonishing minus 15% SKUs in non-acting city in our business. This is yet to come, of course partially or part of this result is integrated in the first half cash improvement, but we're not over yet for the remaining part of the year.

We are therefore keeping investing in our logistic owned distribution infrastructure. You know that by yearend we will have brand new distribution center in China, in Italy and in U.S. Atlanta. We are in the process now to centralize inventory, shutting down local distribution client centers.

This not only will give further cash advantage, but will enable us to fuel e-commerce B2C accelerated growth with customized distribution offers and we will be able to continually commit to a match service level in the industry.

During June, we also decided to accelerate the completion of the Oakley integration project. This is really the last part of the process. Wholesale stores and all stores will report directly into Luxottica respective divisions.

We confirm, though, that Oakley Foothill Ranch, California will stay the absolute center of Oakley product design, research and development and generating activities and manufacturing as well. Our recent investment on our industrial infrastructure there, are more than double compared to last year and they make Foothill Ranch site the most advanced and automated factory in the Group for injected high performance products in both frames and Oakley lenses.

The Oakley front-end sales activities will be closer to Luxottica. As I said all integrated in our North America headquarters, Mason, Ohio for Retail and New York for Wholesale Supports division.

Brand activities will be more and more coordinated by Milan main office and also the apparel, footwear and accessories product offer will be simplified. We’ll be more focused. We will have less verticals and you’ll be able to see immediate effect on Spring '17 new collections.

So immense effort I said, organizational effort, super rich portfolio of projects and overall acceleration of our business model. This said I hand it over to Stefano for financial details.

Stefano Grassi

Thank you, Massimo and good evening, everybody.

We'll start now with our top line results and afterwards Paolo and Nicola will share with you a bit more color with respect to the specific performance of their business units.

Looking at the page, beginning from the top left hand side, the overall growth for the first six months of the year was 1.6% on a constant FX, negative 0.7 at current FX.

For the second quarter, you're looking at plus 1.4% at constant and negative 1.9% at current FX, a fairly consistent growth with the first quarter. Our current FX results were mainly impacted by the devaluation of the Brazilian Real and the Australian Dollar that devaluated respectively 20% and 6% over the course of the semester.

Clearly our first half result did some have area of challenges, but you also have to bear in mind that we are growing against a very high base in H1 2015, where you might remember and see from the bottom of the page that we posted the first half growth of approximately 22% at current FX and approximately 7% on a constant FX basis.

Now if you move to the middle of the page and we look at our Wholesale division, we delivered 1.1% growth on a constant FX for the first six month of the year with a negative 1.9 on a current FX basis.

Looking at Wholesale, we can’t forget the division same as the group is up at 15% growth in H1 2015; therefore a very tough base for comparability.

With that in mind, we're very happy with the growth we achieved despite a spring season that didn’t really happen in several countries, pleased with our Vista RX business that confirms to be a strong growth driver, and last but not least, we’re delighted with the growth we were able to achieve with our independent efficient customers across the different geographies.

Now moving to the right hand side of the page and talking about Retail, Retail for the first six months grew on a constant FX basis 1.9%, 0.2% was the growth at current FX and positive 0.6% were the comp sales.

Same as in wholesale we're comparing ourselves against a strong semester last year with a Q1 that was 26% and a Q2 that still are growing 27%, clearly not an easy base for comparability.

LensCrafters delivered 1.3% comps in H1, 0.5 in Q2, but remember that Q2 of last year was the best quarter for LensCrafters. So we’re not worrying about it.

Sunglass Hut posted a 5% total sales growth at constant FX. In North America spring time was challenging because of the weather, but when we were happy -- but then we were happy with the growth we were able to achieve in the month of June and all you know how critical is June for Sunglass Hut. I’m very pleased with the way we are entering into the third quarter with July that is performing on track with June.

Now moving to the next page, let’s now run through our different geographies and better understand our first semester. I will begin from the top left hand side of the page with the total North America sales. North America delivered 0.5% positive at constant FX, definitely a more challenging H1 than we thought especially on the Wholesale side where you can see in the middle of the page, we posted a negative 2% growth in H1.

I would say four things about Wholesale, map policy, minimum advertise pricing policy impact that it was probably stronger than we thought, but again, let me reemphasize here as Paolo did before that business for the long-term health look solid here.

Secondly a challenging Oakley Sport channel where in addition, we have to be with some of our clients that operate in the sport industry that are facing a problematic financial situation. Third point conversely, we posted positive growth in Luxottica traditional channel in particular through independent optician and especially -- in specialty retail chains, but we faced a more challenge department store in biomed.

Four, let’s not forget our tough comparison base, we last year where you might remember we did 30% on a current FX basis and approximately 8% on a constant FX basis in the first semester. Given this background, we're taking a more cautious outlook to wholesale North America. We had top line growth between 1% and 3% for the full year.

Now moving to the right hand side to retail, plus 1%, which comes on top of a 29% growth last year on a current FX, 6% on a constant FX basis. LensCrafters accounts were plus 1.3% in H1 over 6.1% in H1 2015. So on a two year basis, we're looking at 7.4% comp growth and I will define that a quite remarkable growth over the two years period.

Moving to Sunglass Hut, we're pleased with the progression we’re seeing in North America. Q2 comps were 0.5% improved versus the negative 1.3 in Q1. With May very challenging due to the weather and the negative comp stores that are for the stores that are exposed to international tourists.

Then we experienced strong month of July -- of June and July is continuing with the same pace. In addition, you can see from the second gray box of retail that North America H2 base is much easier in retail. As we grew top line only 1% during the second half versus up 6% growth that we were able to achieve in the first half of last year. So that now our guidance for the full year on retail North America is now between 2% and 3% n a full year basis.

Moving to the bottom left of the page Europe, plus 5% in H2 improving in the second quarter and outstanding results once again close to double-digit growth in Italy, double digit growth in Spain, in Turkey and Eastern European countries.

So really congratulations to all the organization that Europe delivered such an outstanding result in a region impacted by several terrorist attack and by an unstable political situation in some countries.

Asia-Pac negative 0.8 on the first semester and positive 0.5 in Q2 with a couple of hotspots for us. The first Hong Kong trend that continue to be negative in Q2 and I would say overall in the first half of the year. Mainland China where we accelerated versus the first quarter as we are pushing our transformation journey in exiting from our relationship with some distributors and we are developing a more direct relationship with our consumer.

The rest of Asia is a good story. Growth in Korea was in excess of 40% in Q2 rebounding from a negative benefactor we described it during the first quarter call. India was double-digit and Japan was high single digit. In light of the current trend, we have revived our full year target for Asia-Pac to a 3% to 5% growth expectation.

Last but not least Latin America, a great story, booming story for us, plus 13% in the first six months of the year. High single digit Brazil with Q2 better than Q1 all despite what’s going on in Brazil. Not to mention Mexico that posted another strong double-digit quarter once again.

We now move to our profit and loss. I would say that we are fairly pleased with the way we closed the first semester. In fact despite a limited top line growth, we were able to further exploit synergies from our profit and loss and hold strong margins also considered in H1 2015, you may remember, our profitability was much stronger than in the second half of last year.

In my commentary of our profit and loss, I will focus more on the adjusted results but then we will give you a bit more color with respect to the adjusting guidance. At Group levels, as I mentioned before you’re looking at 1.6% top line growth on a constant FX basis.

From an operating income standpoint, we were able to keep margin substantially flat. And I would define it as an outstanding result as normally we would need to grow approximate 3% to keep margins flat at Group level.

This outstanding result was achieved thanks to our tight cost control activity so for example G&A costs were down over 10% year-over-year. From a wholesale perspective, margin did improve 150 basis points on a constant FX, despite a fairly limited top line growth of 1.1%.

Wholesale margin on a current FX basis, did improve 100 basis points year-over-year. This result was achieved thanks to the cost efficiency initiatives that we did implement mid last year with the Oakley integration project as well as a tighter control in our marketing investments.

Moving to retail now, you can see that retail margin were down approximately 150 basis points on a constant FX basis, as well as on a current FX basis. And that was due to a couple of items, first, the limit leverage on fixed cost. Second, the margin dilution that we saw for Sunglass Hut, Oakley retail and retail Optical China.

Thirdly, I would mention the significant amount of investment that Massimo mentioned to you before that we did in our Optical Retail North America and in Europe for the new initiatives we are implementing.

In North America worth to mention LensCrafter amazes to clarify eye exam rollout, all investments that are right for the long term growth of Luxottica, but clearly in the short term do created dilution in our retail profit and loss.

From a net income standpoint, things are actually considered better as the net income grew on a constant FX basis approximately 5.6% or 50 basis points versus last year. Three times over our top line growth and that was mainly thanks to lower interest expense in 2016 versus 2015.

On a current FX basis, you are looking at net income that improved approximately 30 basis point year-over-year. As you can see we booked approximately 70 million of adjusting items during the first six months of the year. A portion of those pertains to no recurring items related to the exit of the previous CEO as well as the accrual for a litigation matter. And the remaining part to the reorganization activities and efficiency projects in several different area of the business that started towards the end of last year.

Now let’s move to our stats review and free cash flow generation. And let me share with you once again a great semester of strong cash generation for the group. In the first six months of the year, we generated Luxottica record high free cash flow of €400 million in the first six months. This result was achieved thanks to the tight working capital management and as you can see there, our working capital was actually down five days, thanks to one day improvement in our DSO and four days improvement in our DPO, our payables.

In addition, let me say that as you can see we are able to achieve our record high free cash flow, but we were also continuing -- we look to continue to invest in our company. As you can see our CapEx are actually up 30% year-over-year.

Now reviewing our 2016 rule of thumb, with all that said there’s no time to share with you our financial outlook where in light of a Q2 that came softer than we expected. In a more crucial view on H2 we decided to revise our guidance for the full year 2016.

So from a top line perspective, we are now looking at full year growth between 2% and 3% clearly with H2 in acceleration versus the first half of the year where as you can see up from the Grey box in the middle of the page we grew 1.6%.

Moving to operating income and net income, we’re now assuming a growth that is going to be approximately the same as the top line one. And now net debt to EBITDA ratio guidance is actually going to stay unchanged excluding the impact of shares buyback.

But now let me hand it over to Paolo and together with Nicola will give us a bit more color of what’s going on in our different geography. Paolo please.

Paolo Alberti

Thank you, Stefano and good evening to all of you.

In North America, I guess that 1.6% negative of wholesale couldn’t be at -- can be a little bit outstanding, but on the other hand if you look at it, there is the -- a marriage of two numbers that’s a positive Optical business and a somewhat more challenging Sports business.

And let me give you a little bit more color of why this is happening and then how we look at it. I look at this as exciting number and the reason for that is we have still the map policy. What exactly is a map policy? We’ve said it many times its minimum advertise price, but what does that mean for sales?

That means that other clients whether they be Brick & Motor or online, cannot advertise Ray-Ban in this occasion unless with a discount unless we agree to it. That means for us or for example Sunglass Hut is not able to do that or to a wholesale clients.

In other words we have to agree not only to when this promotional times happen, but to the amount of discount that can be given. Today, discount is zero that’s what’s allowed now. What does that mean? That means that a lot of our clients that were normally buying and then selling, I would say savagely, which is a kind of a tough word, but savagely in online even in their own stores Brick & Motor stores are no longer able to do that.

And that means that some of our online clients in particular have decreased their sales by 50, 60, 70 and one very large one that begins with an A, actually has decreased their sales by 90% in the last two weeks. So this is substantially hitting our sales in Ray-Ban.

On the other hand why am I excited, you say like this guy is crazy. No because it’s the quality of our sales is growing and that means that we’re not selling Ray-Ban at minus 50%, 30% or 40% or 70% off, I have seen promotions like that. But we're selling it without a discount and what that happens, what happens is in a few months I can’t exactly say the right timing, the exact timing, but in months from now the average unit price for our Ray-Ban sales will go up and that’s going to help all our businesses both retail and wholesale.

The other thing that, that we also have to think is that we’ve been looking at this part of tagging them. So we are tagging with our FIDs our same Ray-Ban products we’re talking about in the map policy.

So if clients do not follow the map policy at the same time we can also understand who they’re buying from. And if they’re not buying from us and they’re buying from diverters we will be able to also close diverters.

The combination of less diversion, less grade market, less parallel and the fact that we’re discounting less, the two things will help the health of the Ray-Ban business, which we remember is our largest brand and actually I’m going to exaggerate pays or salaries every month. So we to protect it.

The other thing that I think is very positive and again I don’t want to say I did not manage the Sport channel until now and so it’s going to go great in the future. But what I can say is that Oakley Optical channel that we manage since January is up strongly almost double digit.

So I think that where we face a lot of challenges in the Optical -- I’m sorry in the sports channel, I think that just because it become and again not because I was mad but because it will become part of the Luxottica wholesale family that does also run the Optical business will help our sales and will help also some of the power that we can have in negotiations in terms of the power that we can get and I want to call it positive powers that we can get because we're part of a larger family.

So I think these two things while have hurt a little bit our top line, I think looking forward I am more than positive to a healthier much healthier Ray-Ban equity and then to sports channel results that will be stronger in the near future.

Nicola Brandolese

Thank you, Paolo. Good evening, everyone. I’ll talk a bit about retail North America upon that chapters. So let’s start with Stefano was sharing was 1.3% comps in the first half on top of very strong semester last year.

I would judge that traffic performance pretty good considering the amount of this transformation and investments undertaken in the first semester. As Stefano mentioned, we have huge investments that impacted profitability and store operations.

We did disrupt a bit our stores in the last few months. We will keep probably feeling some dangers a month but we will see real growth in the back half of '16 and throughout 2017. So I will mention probably three main initiatives we rolled out over the last few months.

First, we covered some 550 locations with our new Clarifye digital eye exam and we will complete the roll out of Clarifye in 2017 as a critical step towards this transformation of LensCrafters as we talked about that here in the Investors Day in March.

Clarifye offers a completely new digital eye exam experience. The digital system allowing much shorter patient still making more upon concentration time, provides digital viewing to the eye through an iPad and gives patients more visibility into the eye help into their eye.

So we are still embracing digital than never before in the history, new data, analytics, the level of personal additional technology really unseen in the industry. So big, big initiative.

Second, we got ready to scale up Macy’s and today we're sitting on seven LensCrafters at Macy’s already opened to date, very early days. We're very pleased with the early result so far. We're very happy about what we’re seeing, but it’s really too soon to claim victory, but we're very, very positive will be rolling out 80 LensCrafter at Macy’s by the end of the year most of which in Q3.

And third, we rolled out our new point of sales system in under 400 stores of LensCrafters for a total of 600 stores and this will be completed by the end of the year.

So we have three big initiatives, very surprised with our teams a big thing and obviously drove actual investments. But in the second half of '16, we will take advantage of all the proprietary work done in first semester and so therefore sales we be definitely stronger, also probably taking advantage of some pricing power opportunity we got for less traffic in the second half.

So let me switch to Sunglass Hut, I think we’ve got positive news for Sunglass Hut even if the numbers probably still don’t tally but we also observed a very nice trend over the last month and weeks. So Sunglass Hut is back to positive comps in Q2 after soft closure of 2015 and soft Q1 as you remember.

So traffic was still down in first semester of 2016 but it significantly improved over the last weeks in June and July were really, really positive. So first traffic drop -- sorry first half traffic drop was consistent with the retail industry overall. As expected Sunglass Hut was over proportionally hit by unusually cold and wet spring but in more Eastern and Western regions of the North America regions Sunglass Hut actually was slightly worse than retail benchmark in bad weather but much better in June and July when weather is back to normal.

We did talk about tourist last time in March, so let me talk about that. The second stores in high tourist areas performed worse than the bulk chain, but improved throughout semester particularly in June and July. So California is substantially better now, both North and South Florida improved as well.

New York dramatically improved after weak April and May due to very cold weather there and now we’re back to positive comps. I think probably Vegas and Orlando are today the spots where we’re still struggling a bit. But they have improved quite nicely though still weaker than opportunity.

I think most importantly we initiated a strong some 60 degrees turnaround to our bread in North America, I would perfectly appreciate more than tourist traffic are going to stay soft. But we had new leadership in place there, new energy, new plans, new initiatives and we’ve got a few actions with immediate results already in late and longer term action that will drive our performance in the North American retail market.

So with immediate effect and we actually started in Q2 with visible effects since May, we dramatically improved our e-com and omnichannel performance SunglassHut.com grew over 30% in the first half of North America, accelerating, sorry the first half of the year North America accelerating in Q2.

We're dramatic growing retention rates to existing customers to offset top lift in terrific areas and we already achieved record retention results to existing customers over the last couple of months.

And third, we are announcing conventional rate through better operations. So we're running out a new labor model, we are financially taking a much segment strategy and different simplifying go-to-market approach that will pay back very, very quickly.

So, three things with immediate effects, longer term we're also looking at our store footprint, revising the quality of our retail presence and we'll be reviewing our brand promise and assume a target for more effective marketing strategy in North America.

So let me take a little bit through Europe wholesale. I think I’m in improperly use this call to congratulate my European team, and the reason for that is that without markets booming and with a sun season that has been quite a bit of a challenge, yesterday I experienced for the first time hail on my head when I was in the Mediterranean Sea swimming and so sun has actually not helped us this year. It really can make a swing.

In the first three days of this week, actually weather was quite good in Europe and we see what we call telephone sales, but actually they're mostly ecommerce sales that come from our opticians into -- directly into our warehouses where we could see a switch quite a bit in a negative number can go positive very quickly we’re able to service our clients so quickly.

In another words, if I sell a glass today I ordered online directly to my warehouse, for my warehouse and the next day I have it. Usually 24 hours, 48 at the maximum within Europe and really that goes through a second positive that we had and as it is that operational actions that we’re having in Europe.

Basically our back order is down. So we don’t need to ship glasses that we've promised a long time ago and if orders get cancelled, that does not exist anymore, we're able to deliver the right product on time always.

And on top of that we’re doing that with less expenses and all of this, on top of the operational excellence that we’re achieving we’ve been able to lower our selling and our G&A expenses and that is part of that 150 Bps you see at the end of the second half, I think that was first half in the wholesale choice.

Europe is really doing a great job I would say in all respects and if the sun comes out as the hope it will, still not too late to trend those numbers around even stronger than that 5% we see today compared to 6% last time.

STARS continues to grow in Europe and that is not only true in Europe. I’ll talk a little bit about Brazil later, but STARS continues to be also a churn and continues -- why is that so important to us because STARS continues to perform, thanks to its assortment policy and a service to our clients, but it used to perform better than our markets. So that means two to three points better than the market in general within Europe, within the world also.

So basically I will not talk about some of the issues that we've had in France and unfortunately in Turkey where some of our clients have cancelled their visits to our buying days, but I would just say that Europe has done an excellent job and I feel that it will continue to do so in the next half.

So as we face concern we did that in solid performance in Europe Sunglass Hut fueled by store expansion at Galeries Lafayette in France. We did open 26 stores out of 57 stores that we planned to open by year end. Obviously we started with the biggest one. Once we're experiencing a nice trend, things are growing well there and we're positive about completing our opening effort by year end.

We did have different velocities across different countries, huge strong performance in Iberia. We did have the first semester very good performance in Turkey and other countries where we did have softer performance, but overall Sunglass Hut did deliver in Europe.

And as for Asia Pacific, we look at India for example and we see that it has had record sales in the first half of this year. Japan performing fantastically, Japan with some of our larger clients do know but it has never done in the last, I would say 10 years, fantastic growth in high end distribution.

And Korea where we actually manage our sales far more directly even as a wholesale because we have the concessions of department stores again doing fantastic and I can repeat the number because Stefano already did a plus 40% in the second quarter.

In terms of China, Mainland, China, I would say there are two things worth mentioning. One is a difficult task and that is to convert our current distributors, there are about 60 of them into a more direct approach towards our clients. What does that mean?

It means that slowly, slowly we have one performance that we have already done it in. We slowly take our power from the distributors with their own clients into our own hands, hiring salesmen. It's a more of a traditional if you like approach something that we have like in the United States or in Europe.

But obviously we had to build this turn of business before we actually did it ourselves in China and the reason for that is while you can imagine when we first started, we had 50 salesmen for a country of the size of China and without the distributors, we probably wouldn’t have been able to expand the distribution as we have.

So now one by one and obviously some of the stronger distributors will stay with us for a certain amount of time. Some of the weaker ones will be changed and we will go direct. We will hire salesmen. We will hire reps and we will serve our independent clients directly. Where we have done so, numbers have improved greatly.

So that’s the first thing I think that’s going to be exciting and this is something that is going to keep ongoing for the next year or two at least. The other exciting thing that I will talk about briefly, but then I will pass the word onto Nicola is that we are actually opening some Ray-Ban stores. The Ray-Ban direct stores that in some countries we have as a wholesale because they are storage stores, in other words, they're hosted by our clients, we're now opening ourselves.

The first 10 stores are opened and they're doing very well and over and above, the actual sales of the departments have started to use direct Ray-Ban stores. There is also a building of Ray-Ban equity that these stores give and again like I said, not just store sales we make there, but it's the impression we make to the public and to the growth of the Ray-Ban equity in China.

Hong Kong is still struggling and it's struggling for wholesale but I think also for the whole assignment. Let me pass the word to him.

Nicola Brandolese

Yes Sunglass Hut performance in Hong Kong is still struggling. Overall Sunglass Hut in Asia Pacific did deliver greatly. Amazing performance overall, but Hong Kong we're still down, with traffic that is down double-digits.

The team however executed very well and like-for-like sales were slightly negative, compensating most of the drop in traffic with better conversion, better conversion rates overall. So not a very meaningful loss business overall for us but traffic is still not great.

As far as all the other regions in Asia Pacific, I think Sunglass Hut as I said did perform very well. The positive double-digit growth in Mainland, China for Sunglass Hut thanks to store network expansion as for plan that we share last time together.

Sunglass Hut again delivered solid comps in the first half of the year. In Australia New Zealand we're growing nicely there with excellent execution done by our team there.

While talking optical retail obvious and the year runs from regions, optical retail in Australia New Zealand kept increasing volumes and customer served by significant amount. So we're selling more customers. We're selling more glasses to more customers. Volumes are growing nicely, thanks to new repositioning pricing and assortment and we're pleased with the results. So as we discussed last March, we're repositioning our win in Australia.

Before switching to Latin America, I just want to say one thing about Australia because I think I owe to them, that is that both Ray-Ban and Oakley and wholesale are both growing above double-digit growth. So thank you for Australia for that.

And let me turn to Latin America, which actually is the powerhouse of our growth in this quarter and in this half. Brazil again notwithstanding the issues that we have there and we're talking about a country that obviously has lost 20% of its currency in the last month or two, actually got a little bit better lately, was even worse before has done just an excellent job.

An excellent job in raising its AUR its average unit revenue and its mix and as in volume, all three of those segments, those three things grow together all at once while you do see the differences in the P&L. I think that one important thing to say is though that there is one negative side in this, it doesn’t really affect Brazil, but somehow affects other countries and that is that the Brazilian tourists because the Real's weakness, may not be visiting Miami or New York or London for that matter as they much used to.

In fact if you look Harrods, Harrods' tourism in Harrods London, number one customers are coming from Arab countries. Number two was Brazil, they are no longer in the first five, bit of same thing goes to what happened in Miami, but the good thing is that the Brazilians those are not buying perhaps in Miami or in London are buying their beautiful glasses in their own country.

So we see a great increase, double-digit growth in the luxury business that we see in Brazil, which is counterintuitive because if you see we're having a problem with the economy, but we're selling much more luxury because they -- the Brazilians are staying home. They also have other reasons to stay home and the Olympics I think we're going to talk about that soon are up and coming,

Mexico doing -- one thing sorry, I go back to Brazil just for one thing in March we did raise prices because of the currency fluctuations and we're looking at currencies very, if you can make sure that should the currencies fluctuate again, we will relook at this. Right now though, we have nothing in plan in the near future.

Mexico doing fantastically, Mexico, we have even stronger relationship with our clients. Now also thanks because their investments in IT are closure to us. They’ve invested in SAP and the two of us together can speak much, much better.

Basically another thing as important is that department stores while they're weaker in North America, the department stores and especially Liverpool doing very, very good in Mexico and then again are closest to this client is helping the Mexican numbers very strongly.

One other I guess two other things worth mentioning, one is that we've opened up, last year and doing very well both Chile and Colombia and Peru is next an upcoming, I would say probably at the beginning of next year.

And the other very positive news is that we started business in Argentina. Argentina was a closed business for us. We closed a company about a year ago, year and half and we restarted business in Argentina slowly, but it’s always good to see a country where so many people also because of their Italian descent love products that we -- that we produce. So, very positive also for Argentina

And I share tone same tone for retail in Latin America, excellent performance for both retail brands in LATAM, double digit sales growth with GMO again and again. So our nearly 500 stores are really performing very well, across the four countries with Peru, Chile and Columbia growing very, very strong. So, we’re very pleased with the performance there, high single digit growth in comps and the double digit growth in total sales in the region.

Extraordinary performance of Sunglass Hut in Latin America as well with Mexico similarly as Paolo was saying, performing strong digital digit comps in Q2 and the weak peso against the -- obviously is driving also some stores in the region, partially covering some of the tourist spending weakness.

In August we'll launch our new flagship in Mexico City and our e-commerce site as well. As far as the Andes region is concerned, Sunglass Hut another good quarter and we did expand almost double our stores network in the region.

In Brazil, we did have a negative traffic and the first half of the year was offset by very good execution again and decrease in conversion rate. So very pleased by the result of our retail teams in Latin America.

So with this, I think I'll turn it to Massimo.

Massimo Vian

Before I talk about Oakley and it's integration project, but actually this is an Olympic year and in the past months, we concentrated on the long reach of a dedicated new product line with a powerful marketing campaign.

During this Olympic summer, we will measure Oakley's success of course in sales, but also dependent on how many medals our athletes win. So for all of us in the team in Luxottica, it's really competition time.

The campaign is in execution. New products are available in the stores and on our website. Again the main innovation we're bringing to market is a color-enhanced lens with our new prism technology.

You'll see now a new selection of ultra light sports frames, combined with new color lenses. Some situations with mirror effect lenses like you see on right hand side and there are new announced specific light frequency that we highlight for specific sports application.

We just launched those products at the Luxottica Day here in Italy. They will be available starting now. The fierce feedback from sales force has been very, very successful and the present technology especially we also launched a day Prism lifestyle lens, which is one of the hit of the event, one of the best seller.

During the first day of the games, we will also present our wearable device product. We call it Radar Pace; developed with Intel. We decided to concentrate as main solely on lenses and we decided then to have a softer launch for athlete only. Less than 100 units will be available fully operational. Our expectation is to increase choreography and create lot of noise on social platforms.

Mass launch of this new product will be in October and platform will be available on Android and IOS at the same time. Voice recognition will be fully available on four different languages. We're expecting for the new product to have approximately 50% of the sales through our digital .com B2C website.

On Ray-Ban definitely we're very active, very intense activities. Ray-Ban is 30% of what we do. So it takes courage as the campaign and I think we have the vision and the courage as well. Last year when we decided as Paolo mentioned before to go through all distribution review, helped with a new technology that we embedded into the frames.

I won't go into detail, but 25% of every frames you see on the market, we're talking roughly 10 million units per year, they're hit with this RFID sensors. We have to retool everything. Basically we created automatic tunnel for reading these FIDs in all distribution centers and this solution enable us today to check the effect of this presentation of the met policy.

So we're investing heavily also on rayban.com website. We are further developing our Virtual Try-On experience. Today that algorithm, the experience of the virtual mirror is not available on mobile, is on Web, on desktop and on application in U.S.

In October we will be able to see mobile web in Europe again both for iOS and Android application and this we think will further help us a lot, during the November Thanksgiving season and as we say specifically for our business campaigns.

Paolo said it, our test of Ray-Ban stores in China, they are doing very, very well. They are exceeding our expectations. It's slightly too early to say,, but the rollout of the conversion is up to speed and we're converting stores.

This spring and summer on Ray-Ban you will see new design languages, Ray-Ban keeps leading the innovation on eye wear. We combine the iconic shape of Clubmaster, with full metal round. We created the new Clubround. It is the heat of the moment and it represent very specific trend. Both in sun and optical you will see roll in until next summer.

We fit Ray-Ban also with color enhancement lenses. Commercial line is Chromance. It's not a very important innovation. They are full color contrary to what they are in Oakley, different crystal enlightment in terms of colors. As you can imagine massive synergies with the technology that we used for Prism. Very different consumers, very difference product results.

I want to take the opportunity to give you a sort of anticipation, first one to hear, we happy to report we concluded a deal, of an acquisition that is small in terms of size, but it’s very, very important in terms of own technology. We vote the company in U.S. Columbus, Ohio, that is today producing the pigment and we are fully integrating in-house that technology.

It's very, very small facility in the chemical industry and we are integrated that in to the labs of our RX manufacturing plants. Is another spec in owning every single ring of the chain and will make us even more successful as we will rollout this innovation in the next coming collections.

So with that, we are entering in second half with positive momentum specifically in Sun. What we see in July is what we made in May and in the first part of June, specifically in Sunglass Hut. Order portfolio even in wholesale is up. The supply chain is ready and as Paolo said, record level are high at the historical very minimum.

We are expecting to accelerate retail sales as well with a strong back-to-school proposition. Progressive rollout of Macy's LensCrafters as in Macy's target optical new stores and Sunglass Hut, Galeries Lafayette. Luxottica day is just finished, they went well. New products well received ready for our B2B deliveries early September.

We’re finished. Thank you for your attention and now we are ready to open the Q&A session.

Question-and-Answer Session

Operator

Thank you. This is the Chorus Call |conference operator. We will now begin the question-and-answer session. [Operator Instruction] The first question is from Cedric Lecasble with Raymond James. Please go ahead.

Cedric Lecasble

Yes, good evening. Cedric Lecsable, Raymond James. I have two questions, if I may. So first one on the U.S. wholesale business. Could you help us understand what is driven by support and season, and what is driven by MAP implementation since April?

And what makes you confident that MAP will allow for some positives before the annualization in April '17, as you are losing some wholesale clients as a counterpart of better-quality clients?

And the second question is related to Asia. I'm not sure I understood what you said about the change in distribution for Sunglass Hut in China, the change in distributing your products more directly with new sales. Could you help a little bit understand, give some sense maybe on what you are doing, and your midterm targets in this country? Thank you very much.

Massimo Vian

You’re welcome. In terms of MAP policy, it’s obviously we're not actually excluding clients. We’re excluding clients only should they be doing the parallel business, but what we're doing is we’re not allowing clients to, again I say this word improperly but savagely discount our products, where it's possible to do so in the United states.

And there are times instead where we allow both our own retail and our clients to do certain amount of discounts, but we manage the timing and we manage the actual percentage of discount that you can give.

That does not mean, I repeat the does not mean, that means you can't advertise it. If I come into your store and you want to by word of mouth give me a 50% discount, you still can, okay you just can’t put it on your window.

Now how is that going to help? Well as we have diverters decrease their sales of their purchase from us, we may suffer temporarily. What can happen also at the same time though is less promotions means higher price and while that will not have an effect right away on wholesale, it will still on retail that we'll be able to compete better without savagely discounting and therefore making a bigger profit. I don’t if you want to comment that also Nicola or if you want me to go ahead to the second one.

Nicola Brandolese

No, absolutely I think we did have the same experience a few years ago with Oakley and we did see, we did implement MAP few years ago with Oakley. We did see a short term negative effect compensated with very nice midterm positive rebound and that is obviously a positive where you may have a company that has integrate its retail into wholesale business. So the wholesale part helps the retail part make it better margin.

The other thing about Asia, and let's talk about China, I probably was not clear but in China, how we grew at the beginning was we had 50 direct salesmen. I’m talking about some year ago and that’s how we started the company there and then in order to distribute our products, we used distributors and that has nothing to do with the change in distribution of Sunglass Hut, maybe I did not understand the question, but Sunglass had nothing to do with us.

It’s our wholesale business that have used distributors before and now is slowing going to go away from those distributors towards a direct sales force business, which is how we handle the business in many of the other countries around the world.

So, we did not go in with a full Chinese sales force. We had thousands of salesman without any experience or any revenues to back that up and so we used some salesman and then we used some distributors.

The number of distributors will go down and in the more prominent areas where we can do our direct business, we will start a direct business that has two effects obviously. You’re managing your clients. You’re owning your clients much better. The second effect is obviously you're selling at a wholesale price rather than selling to a distributor who then sales at that wholesale price.

So you have profit effect on that and have a better management, a direct management and more control over your own business. Thank you.

Cedric Lecasble

Understood. Just a very small one, if I may. When you show us your table with the store network and the number of Sunglass Hut stores in China, how do you account for them now?

We have a smaller number in your most recent data, so I would imagine they still exist, but under -- they are put somewhere else. Could you maybe explain how you account? How you changed the accounting of Sunglass Hut in China, Hong Kong?

Alessandra Senici

Cedric, can you please repeat the question because we were not able to catch. Thank you.

Cedric Lecasble

Yes. In the table where you show -- this very useful table where you show all your stores network, and there is a China Hong Kong column, you actually show -- at the end of June, you show 19 stores versus 43 at the end of Q1. So I believe these stores have not disappeared. Maybe you account for them in another section, but just to understand.

Alessandra Senici

I think this is on the question of -- we will classify between on own store and franchising.

Massimo Vian

And we transform some stores from Sunglass Hut into Ray-Ban. So, that’s….

Cedric Lecasble

Okay, okay, okay. So Ray-Ban stores you were mentioning were originally Sunglass Hut stores?

Paolo Alberti

I would say not all of them, some yeah.

Cedric Lecasble

Okay. And just ones maybe you want to franchise?

Paolo Alberti

Yes, yeah correct.

Cedric Lecasble

Okay. Thank you.

Paolo Alberti

You’re welcome.

Operator

The next question comes is from Antoine Belge with HSBC. Please go ahead.

Antoine Belge

Yes, hi, good evening. It's Antoine at HSBC. Three questions if I may. The first one is regarding the Oakley integration. Would you agree that it's taking a bit longer than you had initially expected? And maybe can you comment on the challenges that you're experiencing? Also, would it make sense to actually divest the non-optical business and just keep the true eyewear business?

My second question is regarding the 1.1% growth you had in wholesale in the first half, would it be possible to have the growth -- actually, the negative growth -- for Ray-Ban in wholesale, Oakley, and then the license business?

And my third question is regarding the revised guidance. You're basically taking 3% off in terms of top-line growth. Would it be possible to quantify the impact of the bad weather on the one side, and then maybe the fact that -- the consequence of the MAP program are actually more negative on the short term that you had initially expected? So basically where are the 3% coming from? Thank you.

Massimo Vian

I will take the first one about Oakley and then comments from Paolo and from Stefano. So about Oakley integration, I will divide in my answer in two session, one is actually no did not took longer than planned in terms of execution of the integration.

We created two ways, one is what we integrated last year and it was all about traditional optical channel both Sun and obstacle frames and that successfully was integrated last year and is what is up in actually North America this year.

The second way was about sports channel and I think we're actually acceleration that integration and it's a project that will be concluded before end of this year.

Second part of my answer is that results are coming later than expected. So \the execution is done. We're struggling more than planned on sports channel this year and we're not invested in non-obstacle business, but we're heavily working to simplify what we do outside eyewear.

We have still quite large store footprint 250 Oakley stores. They were designed to both eyewear and part as well. So footage is quite generous. So there might be further evaluation in the next period, but today we're not planning to disinvest on apparel and footwear. For sure, we don’t want that this has relatively small division will absorb more than needed energies for the growth. That’s why we're simplifying it.

Paolo Alberti

Okay. I want to like to answer on the wholesale growth. If I take North America out where that’s where the MAP policy is, okay MAP policy only pertains to North America. Ray-Ban is up and in fact it's up on a worldwide basis slightly up, okay because obviously we've said that we've had a slow start to the Sun business.

If I take the United States and North America, the business, Sun business of Ray-Ban is down and that is due to weather and MAP. Now exactly the science behind this I will straight away affirm but it is mid-single digit decline on Ray-Ban Sun in North America due to weather and MAP.

Exactly the amount for each is kind of difficult to actually articulate okay, but the license business is also growing and again if you look at the fact that, we're not growing our Ran-Ban in North America and we're growing both on licensing business and on Ray-Ban in the rest of the world, you could kind of figure out what the numbers are okay, but both are growing.

Stefano Grassi

With respect to the guidance, back to the overall revised outlook, here we discounted here a bit of weather impact. We can be scientific right. We know that May came under our expectation and May usually it's a pretty good entry leading into the Spring season and obviously having a pretty rainy spring season really didn’t really help,

MAP the impact as I said is probably bigger than what we originally estimated and now we're getting 2% to 3% top line guidance. Clearly, we are discounting a greater sense of MAP policy impact in our top line, but again nevertheless, but don’t forget the second half, it's going to be an acceleration versus H1 and you can clearly do the math if you look at our first semester.

Let's not forget that there are two important items that need to be considered for the second half. First of all the basis, it's going to be much easier H2 versus H1. Other two things, remember retail because of the switch from fiscal to Gregorian calendar, it's going to have four trading days favorable during H2 2016 and that's going to be a considerable help in the second half of the year.

Last but not least, let's not forget that our retail machine it can open quite significant number of stores during the second half of the year, Nicola mentioned let's LensCrafters in Macy's, we talked about target expansion and let's not forget the further development of our expansion Sunglass Hut Europe and Galeries Lafayette. So there is a lot going on in business while we're confident about acceleration in H2 versus the first half of the year.

Antoine Belge

Yes. Maybe if I can just follow up, I actually understand why H2 should be accelerating, but my question is more this 3% delta between the new and the old guidance because the basis of comparison was already known when you gave the initial guidance. On the calendar changes, calendar effect was also known.

So what I'm trying to get at is, I don't know weather and MAP account for 1% and the remaining 2% would be a retail macro, terrorist attacks, and weaker consumer sentiment across the globe. And that is more what I am trying to get at, rather than trying to know why H2 will be better than H1.

Stefano Grassi

I will say in the full-year guidance there is a Q2 discount or Q2 that came below our expectation no doubt, but there is also a more closer approach to the second half of the year and again there is something that we know we're looking at things around but again the overall 3% compared to the old one, it's the old guidance, it's really if I can make a summary, simply more cautious approach to the remainder part of the year.

And then obviously we have a checkpoint that is going to be the closure of third quarter and we're going to see how we -- where we are once we are there.

Antoine Belge

Thank you very much.

Operator

The next question is from Elena Mariani with Morgan Stanley. Please go ahead.

Elena Mariani

Hi, good evening. Thanks very much for taking my questions. I'm going to start again with the guidance. Actually, back in March, you had given us an indication also on 2017 and 2018 guidance. Back at the time it was for sales growth, mid to high single-digit growth, and then for the bottom line to grow more than 1.5 times sales.

Are you going to confirm this guidance? Or do you think that you should take a more cautious approach on these two years as well?

The second question is about the store openings plan. Are you going to take a slightly more cautious approach on store openings? Maybe can you share with us the guidance with regards to the total openings, but also the total closures that you're expecting? Especially with Macy's I think you have a pretty ambitious rollout plan. But that's exactly where the traffic is actually quite slow in the U.S.. So how do you think about this?

And then thirdly, with regards to your exceptionals, are you able to break down the €69 million into different components? In particular, how much was, like, the line item related to the write-down on inventories, and should we expect more in the second half? Finally, sorry, I haven't seen the total retail like-for-like for the Group. Could you please share that with us as well? Thanks very much.

Stefano Grassi

So I will take the first answer and regarding the guidance beyond 2016, I think right now as we said, we have revised our outlook for 2016. We have taken more cautious approach. It's probably right for us to say that we want to see how things progress in the next the few months.

We want to take and deliver our commitment year. And then after that really relook at our future years with a more fresh look in light of 2016, Massimo on you anything you have.

Massimo Vian

The important message that we really love you to take away this evening is really about the really strong activities that is laid down in a sort of anticipation mode to work microeconomic trends today. So, project that we started quarters ago and still have to deliver results.

So Stefano’s feedback is not defensive at all. I think is responsible. But we are really confident that all the projects we started were the right one. And I absolutely can ensure that level of energy, the level of operational execution in all we go from design to distribution and sales force management has acted as a really, rarely see in my 10 years in Luxottica.

So that is the important message I love you to takeaway, beside our ambition is to be back together year-end and look at '17 and '18 with renewed commitment for long-term growth.

Paolo Alberti

Let me address the second question, store opening. I think we should divide all the answer in two parts Optical and Sun starting from North America. The optical retail market is fragmented is incredibly fragmented and we do see a huge opportunity for growth both the size of the buy-end and our share of it. So we not hear retail and talk LensCrafters and Target Optical.

We are not changing our plans, our objectives. We're not changing our plans for growth at Macy’s. We do see the opportunity to grow for 150ish location with Macy’s. We’re committed to do so and we think there is huge opportunity to do so and same for Target Optical, huge opportunity to grow the market and to take advantage of more share.

As far as Sun is concerned, we're probably careful reviewing in Chinese and traffic in North America. We will expand Digital as much as we can and there is huge opportunity there.

So, we’re may be taking it bit more cautious approach on expansion of Sunglass Hut stores. We don’t see huge openings in North America for Sunglass Hut, but we do see huge opportunities as we shared in all the America countries. So globally we're taking still a very aggressive approach, it will be bit more cautious for Sunglass Hut.

Elena Mariani

Thank you. So you are not planning any closures?

Nicola Brandolese

Not massive closure. We will refine our store footprint while we go. So, we have a few marginal stores. We will optimize our bottom line by closing stores that are underperforming, but I think this is pretty much consumable what we will be doing over the last year. We may be accelerating a bit more in case some that should deteriorating more.

Paolo Alberti

So if I can add to what Nicola said, I think it’s fair to say that the amount of closure which obviously will take place as a normal retailer will be lower in H2 versus H1 as a normal activity. In addition, you will have also an higher number of opening. So the net store count at the end of the year is going to be higher than the one that you have in H1 so far.

Elena Mariani

Okay. Thank you.

Paolo Alberti

Sure. And then I will probably take the third and the fourth question you asked. The first one was regarding the breakdown of the $69 million adjusting items that I described you before. I would say probably 60% of those are referring to non-recurring items and the remainder are its really related to the reorganization activities and efficiency project we're undertaking.

The cleanup of the inventory is probably I would roughly speaking a third of that. With respect to that retail like for like comp in the first six months of the year for the total retail we're positive 0.6.

Elena Mariani

0.6, okay. Thank you.

Paolo Alberti

Sure.

Operator

Your next question is from Julian Easthope with Barclays. Please go ahead.

Julian Easthope

Yes. Hi, Good evening, everyone. Just a couple of questions for me. First of all maybe for Paolo in terms of the wholesale business and the second quarter is generally the big sell-in for the sun season, and then reordering patterns take place throughout Q3.

I just wondered whether you had a strong view as to how full the third parties are in terms of inventory, as to whether or not there will be some destocking, or whether you're worried about reorders taking place as we get to later in the season. Or whether or not your just-in-time delivery means that your logistics parts of your business are so efficient now that most of the stores out there, third-party stores, are actually relatively efficient with regards to inventory.

And the second question I guess to Massimo is on the automation of Aviators. I just wonder how far you'd actually got on producing the lines to actually to fully automate Aviators. Thank you.

Operator

Ladies and gentlemen please hold the line. The conference will resume shortly. Thank you. Please go ahead your line is open.

Paolo Alberti

Hi, I don’t know how far we got, but let me just very quickly say that name of the game is no longer stocking our clients and that is a positive thing because when they do, if I’m giving them a service in a certain sense, when the sun comes out, they sell out we’re able to replenish them and the good thing about that is that we're the only ones that can replenish them that quickly.

For two reasons, first our logistics that we have are very efficient and secondly, we have a structure to do so and we have the plans behind and before that stock model that are able to produce our products in a timely fashion.

The other thing that we look at as STARS expands and as we get a smaller part of our business into the STARS system, STARS doesn’t stuck. So, it's just purely a replenishment of glasses that are sold, frames that are sold.

So, obviously we will suffer a bit and that is in some season, some seasons are not good and that is why we are able to and we try to push also our frame business are frame business so that we are not completely realign on the sun and we’re less reliant on the Sun today than we were three, four five years ago.

So, I’m completely -- you're kind of answering your questions, I’ll add STARS in that too saying that both our ability to produce stock and then ship in a timely fashion sun frames is going to help our business. Secondly STARS helps that too, in other words, STARS doesn’t stop our clients.

So if we have -- even at the sun season that’s why even if sun season starts tomorrow, if we were to start tomorrow, I already had the problem in the second quarter and Q3 will just be punishment and no way I’m stopping that clients and we’re also and actually probably had better numbers, but I’m stuck with clients in Sun for sure. Now in our rich frames, I showed more than my share of experience and that’s why the numbers are good. Again no stocking in Q2.

Julian Easthope

Thank you.

Paolo Alberti

You're welcome.

Massimo Vian

Automation program has given us really lot of satisfaction, completely ruled out as planned. 30%, 35% of Ray-Ban that we assemble from May, June, July they came out for us fully automated third line and the second one will be available end of this year in our Italian manufacturing plant.

So next year -- next year starting June generally 70% of Ray-Ban Aviator will be fully assembled without one second of human labor and also the new robots is our Agorgo facility are now working not any more in engineering prototype department but in line side by side with humans with operators.

Julian Easthope

Fantastic. Thank you very much.

Operator

The next question is from Domenico Ghilotti with Equita SIM. Please go ahead sir.

Domenico Ghilotti

Good afternoon, a few questions. The first is related to the recovery in Sunglass Hut you were mentioning in June and July. I am curious about the drivers that are driving this recovery in terms of traffic or conversion or price/mix.

And second on the Ray-Ban performance in North America, if I'm not wrong you were mentioning down mid single digit. If I understood properly the impact of the MAP show I would expect that volumes have been even lower, and then you had a quite significant price/mix. If you can elaborate on this.

And then the third question is on the net income guidance. I'm a bit surprised to see that you are seeing acceleration at constant currency in top line, probably also some acceleration in the operating profitability, while you are well above in the first half in terms of net income. So I wonder if in the guidance there is something that I should be aware of in terms of additional costs we should take into account.

Massimo Vian

Okay. So I will start with the first one Sunglass Hut recovery on June, July, I would say the key factors are the ones that I mentioned before. So e-com retention conversion, but gets back to the KPI, traffic improved in June, July wet weather. We saw two four points improvement in traffic still negative, but much better than it was in the first four, five months of the conversion holds very strongly throughout the last month up 4%, 5% to last year.

So it was up and strong and it holds very strongly in May -- sorry in June and July, AURs also sales on three years unified. It didn’t materially change. We did raise the amount of multiples. So it did increase the amount of glass sold to our existing customers and that in nutshell is what drove that performance in June, July.

Domenico Ghilotti

Okay.

Massimo Vian

Sorry, in terms of Ray-Ban North America please remember I said down mid-single digit. I was talking about Sun only because that's what's really affected by the MAP policy. If I take total Ray-Ban North America right now is slightly up, okay because frame sales will compensate what lost in the Sun that again I said I didn’t want to go into exactly how much was MAP and how much was Sun.

In other words the fact that it not Sun because it's kind of difficult and I don’t want to say anything incorrect. What I can say is that Ray-Ban Sun obviously suffered for two reasons, one was the final word was the lack of Sun and the other one was the MAP policy.

In terms of actual price mix, you don’t really feel the MAP policy yet. I can't really give that kind of in other words the things that maybe because of this I'll be selling Ray-Ban at more expensive price it's going to happen. It will happen faster in the retail business because they're getting less discounts.

In terms of actual pricing of Ray-Ban there is a small price increase that will happen in North America coming soon on a certain amount of products that are not as significant line for the U.S. but will always give us a slight bit of help. So again Ray-Ban total North America slightly up, Ray Ban Sun mid single-digit down Ray-Ban RX frames strongly up to compensate that loss.

Domenico Ghilotti

Okay. Thank you.

Massimo Vian

You're welcome.

Stefano Grassi

I'll just add on the third question with respect to guidance. I think when we look at our two profitability indicators operating income and net income and we look at first half results, I would say that probably the net income one is the one where we probably do have a bit of more upside in light of the first six months performance.

There isn’t really anything different that is going to change the benefit that we're seeing in the first half for the vast majority from a net income perspective should carry down the remainder part of the year.

Probably, some of the interest expense reduction are going to anniversary between end of Q3 and Q4 as we repaid a portion of our debt during the second half of last year, but in largely in vast majority of the benefits should reply during the second half. So net income is probably one that where we feel even we're optimistic than operating income in terms of growth for the full year.

Domenico Ghilotti

Okay. And just a clarification on my previous question. The same-store sales at Group level, I was surprised to see the minus 0.3% in the second quarter, while basically any other chain is reporting much better or better performance.

Stefano Grassi

Can you please repeat your comment? I think you're just saying why you're saying 0.3% same-store sales while all the chains that we talked about were tightened. Is that right?

Domenico Ghilotti

Yes, it is even more evident on the second quarter.

Stefano Grassi

And the main effect was driven by Oakley Retail and Hong Kong, China we didn’t see -- we didn’t talked about the specific numbers but those were the two main things.

Domenico Ghilotti

Okay. Thank you.

Stefano Grassi

You're welcome.

Operator

Your next question is from Piral Dadhania with RBC Capital Markets. Please go ahead.

Piral Dadhania

Thank you. Thank you for taking my questions. I just have one on Sunglass Hut to start with. I just wanted to understand whether there's any cannibalization occurring between a strong e-commerce growth rate, plus 20%, versus your bricks-and-mortar performance.

Could you also remind us whether your Sunglass Hut like-for-like includes your e-commerce growth? Just a clarification there please. Then just in terms of your revised guidance, sorry to have to come back to this, but you haven't adjusted your European regional guidance, and it still stands at 4% to 5%. I just wanted to understand what gives you confidence, given all of the worsening geopolitical risk that we are seeing in this market that you be able to deliver a mid-single digit top line growth rate in Europe?

And then just finally on Europe, what actions are being taken consistent with MAP, I know you can’t use MAPs specifically in Europe, but what actions have been taken to clean up distribution of Ray-Ban in the European market and to limit Gray market activity for Ray-Ban, to compliment the actions you are taking in North America? Thank you.

Massimo Vian

So thank you. I’ll start with the first one. So e-com, actually adding to our store sales. We do see an effect of aggressive and discounted e-com sales on third party site, which will obviously start improving as a consequence of MAP and that is what kind of synergies that we think that Paolo was talking about that this have strong effect over last 18 months on Sunglass Hut's strong traffic.

As far as our e-com sales are concerned actually we don’t see a negative effect. Brand is the same and customers do love to shop between stores and what and website. Our comps do not include e-com data for SunglassHut.com. So we're really referring to our store effect for the guidance Stefano?

Stefano Grassi

Yeah. in terms of -- I won’t talk about the guidance per se of the company, but I will say what’s happening in Europe, in Europe right now. We are enjoying increasing shares. In other words we are doing better than our competition.

Now we say again that if I have to take the reasons for that and there are mainly two. The first is that the brands that we have are really operable, Let’s face it, other than, than I don’t want to talk about competition, but all of our brands wherever they may stand either in the lower end or the higher end are re-appitable and doing very, very well.

The other thing of that, I shaded a moment ago, we are -- when the times get a little rough, those competitors that are able to supply the clients in a timely and more precious fashion actually are the ones that went out of the market. Because if I think about many of the clients that we have, a lot of them are large chains run by very intelligent people that will not just simply add the path get stock.

So once they don’t get stock and things do get sold out, there are more than opportunities to choose Luxottica over other competitors, because we're able to supply them still quickly and correctly. So again that’s why I think we can still do better than the market.

Finally, we should never forget and I know this is a game that I keep on talking about, but it is so important for wholesale, this madness continues to the STARS. STARS is able to perform three to four points better in the markets. So even if you see that a market average for Europe right now and Europe for us is a large region, because it's Europe, Africa, Middle East and it goes from Russia all the way down to Israel.

And so Europe is a bit larger than what maybe that what other companies call Europe, but if you look Europe now gross and if you look at either should be around 3%, you add the STARS performance to that and I am talking specifically to eyewear. So that’s where really growth comes in.

And that’s why I am still confident. It’s obvious that I cannot predict complete future and that’s I also very hopeful and positive about hoping that things get better in the terms of geopolitical terms.

As far as the MAP concern, the original MAP possibility in Europe. But there is something else that we're doing which is just as powerful. What happened is this. We have signed exclusive distribution agreement with our clients with Ray-Ban.

This was not true three, four years ago. We're the only country that had an exclusive distribution agreement with our clients or actually it’s a retail agreement was actually France. Actually thanks to this because of the European Union that we were able to expand this to all the European countries that are within the Union.

So we have -- we have signed for these -- signed these documents with our clients. This allows them to sell intra-exclusive distribution agreements sold to another client that hasn’t true distribution agreement. It is not possible for them to sell outside that agreement meaning that, if he does so, well I can see it through the RFID on the glasses that he has sold outside the distribution agreement network.

And therefore I won’t do it probably at the first time I catch him but again that’s up to me, up to us and the relationship also to have with your client, you could take that exclusive distribution agreement away from and start selling Ray-Ban legally. Okay.

So we’re not talking about pricing here. We’re talking about selling outside of distribution of an organized distribution network and that is true for many of our products even in our other categories.

Massimo Vian

And maybe I could couple Paolo’s comments on the retail side also saying that remember during second half we’re going to further boost our retail expansion with the especially in Sunglass Hut Galeries Lafayette as Nicola mentioned.

And also we must say that early start of the second half of the year are very positive in Europe especially in that part of Europe where Sun is coming up and I refer especially to the Northern part of Europe and the southern part. So we are happy with the way we started and we understand and have noticed that part of the risk, but we're still pretty optimistic for Europe.

Piral Dadhania

Thank you.

Stefano Grassi

Thank you.

Operator

The next question is from Jamie Bajwa with Goldman Sachs. Please go ahead.

Jamie Bajwa

Good evening, everyone. Just a couple of quick questions from me. First of all, you mentioned in your press release that e-commerce was up 20%. I just want to confirm. Is that just in your retail business, or is that including your wholesale business?

And the second one is also relating to just your half-yearly profit number. I noticed that A&P has been reduced quite significantly. I'm just wondering in terms of how we should be thinking about this line item going forward, particularly as you are going to continue to be opening stores.

Massimo Vian

So quickly on the e-commerce business, it's part on the retail side for SunglassHut.com and Oakley.com and a portion of that resides within the wholesale side for Ray-Ban.com. So -- and it’s obviously all directly operated websites. In terms of MAP, Paolo you might want to give a comment?

Paolo Alberti

Sure. I’m not sure what opening stores means with MAP because MAP policy is in the wholesale business.

Jamie Bajwa

Sorry, it was referring to your A&P spending, and your reduction in A&P spend.

Paolo Alberti

Oh! Not MAP it was A&P spending.

Jamie Bajwa

Yeah.

Paolo Alberti

Okay. So I think that again A&P has been rebalanced out and it’s obvious that we did that in order to have the right balance to keep on pushing the brands that we have. Obviously we don’t change the A&P on our license agreements because it’s a percentage of the turnover.

And it’s still on Ray-Ban we did saw also recruiting some of lesser positive numbers that we got in other words in the Sun. So I think that we did something very positive. The Sun didn’t come, the Sun didn’t help us, we lowered our spending on advertising where we could. Should the Sun be there, should the Sun help us it goes back in.

Luckily advertising in today’s world and considering today’s economy is quite a variable cost in our P&L. So I would not say that that’s the guidance for the future. Let’s remember how many years that we raised our A&P by half a point as a percentage of sales for years and years. So I think that this year we’re able to manage it better than we had in the past again without being native of the past.

Jamie Bajwa

Okay. Great. Thanks very much.

Paolo Alberti

Thank you.

Operator

The next question is from Katie Tillson with Credit Suisse. Please go ahead.

Katie Tillson

Hi, so I was just going back to the Sunglass Hut in Mainland China. I just wanted to understand the 30 Sunglass Huts which were launched last year. Why did they move to Ray-Ban or franchising? Can you just give us a bit more color around that? And what should we take away from this change? And then sorry if I missed this, but could you quantify the Sunglass Hut LFL in North America? Thank you.

Massimo Vian

So for Sunglass Hut China, I'll take the questions, only few of Sunglass Hut has been converted into Ray-Ban stores because we are concentrating our activities of conversion on LensCrafters. Actually the beauty and the power of our Ray-Ban conversion project really relies on optical Ray-Ban business with prescription lenses.

This is really the bet we aren’t today winning although it's early in China with Ray-Ban. In terms of Sunglass Hut franchising in a minute we are moving some of the Sunglass Hut in franchising. We want to keep Sunglass Hut in China in the main cities Shanghai, Beijing while expanding the retail brand across China using franchising models.

Nicola Brandolese

And for Sunglass Hut like-for-like North America for Q2 was slightly positive, slightly positive and as a consequence of different brands that we talked about. So, slightly better traffic, good conversion in AUR was in line with first half of the year.

Catherine Tillson

Okay. Thank you.

Nicola Brandolese

You’re welcome.

Operator

The next question is from Chiara Battistini with JPMorgan. Please go ahead.

Chiara Battistini

Hello, hi good evening. Just two quick follow-up please for me. First of all on the like-for-like for the quarter, if I understand correctly, that should've been negative at minus -- at negative 0.3%. But from your slide on page 26 I see all the banners in positive territory. So what am I missing that is driving the like-for-like for the overall group to negative please?

And the second question on the gross margin for the first half that was down almost 300 basis points, would you be able to provide more color on what the drivers of such declines were between pricing measures ForEx and on other drivers there that have led to that decline please. Thank you.

Stefano Grassi

So I will take both of that. For the Q2 comps, I think we said before it's Oakley Retail and comps of the negative comps in Hong Kong the main drivers. With respect to gross margin, I would say couple of things.

Probably the first and most important is the pricing impact. As you might remember, our price adjustment, our price alignment, price amortization in a way you want was taken during second half of last year. So we haven’t anniversary that yet during H1 this year. So that is obviously taking a negative impact on AUR average unit retail and obviously that was into the margin.

The other impact is related to the industrial cost that in the short semester excluding currency effect that hasn’t helped us and I would say it's really a combination of couple of things. One, we're producing richer products for our collection, richer more complicated products. Secondly the absorption, cost absorption year-over-year has been a bit more limited to what we've seen in the past.

And those are the combination of the two things that gross margin impact that you've seen for the first six months of the year.

Chiara Battistini

Okay. Thank you very much.

Stefano Grassi

Sure.

Alessandra Senici

So thank you Kianna. Thank you, Stefano. Thank you, all. It's been a long call. We thank you always for staying connected and for listening and we wish you a great summer. Everybody bye-bye.

Operator

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.