Luxottica: An Unstoppable Machine

| About: Luxottica Group (LUX)

Summary

Luxottica dominates the eyewear market with over an 80% share.

Recently, Luxottica partnered with Intel to develop stylish smartglasses and has already partnered with Google to make Google Glass more stylish.

Luxottica posted strong Q3 results, has consistently increased its dividend, and has grown net sales and net income every year since 2009.

Company Background:

Luxottica (NYSE:LUX) is an Italian eyewear company that controls over 80% of the eyewear market. Luxottica's brands and exclusive liscense agreements include: Brooks Brothers, Burberry (OTCPK:BURBY), Bvlgari, Chanel, Coach (COH), DKNY, Dolce & Gabbana, Emporio Armani, Giorgio Armani, Michael Kors (NYSE:KORS), Oakley, Oliver Peoples, Polo Ralph Lauren, Prada (OTCPK:PRDSF), Ralph Lauren (NYSE:RL), Ray-Ban, Tiffany (NYSE:TIF), Tory Burch, Versace, and Vogue. Luxottica owns over 7,000 eyewear retail stores worldwide. The company owns LensCrafters, Pearle Vision, OPSM, Laubman & Pank, GMO, Sears Optical, Target Optical, Sunglass Hut, ILORI, and The Optical Store of Aspen. Furthermore, Luxottica owns the second largest eyewear insurance company in the United States, EyeMed.

Competition:

Even though Luxottica is the pre-eminent player in the eyewear market, there are other less expensive options such as Warby Parker, Walmart (NYSE:WMT), and Costco (NASDAQ:COST). However, these less-expensive options are not cutting into Luxottica's market share because consumers are willing to pay a premium for Luxottica's high-quality glasses since they wear them every day.

Financials:

Luxottica's net sales and net income have increased every single year since 2009. Last year, the company's net sales were upwards of 7.3 billion Euros. Luxottica is currently on pace to once again post higher net sales year-over-year as for the first nine months of 2014, the company's net sales are up 5.5%. In Q3, sales increased from Euro 1,785.0 million a year ago to Euro 1,883.0 million, representing a 5.5% year-over-year increase. Additionally, EBITDA increased 9.4% year-over-year and operating income was up 10.4% year-over-year. Q3 EPS came in at $.48/share, beating consensus estimates by 2.13%.

Reasons to Invest in Luxottica Today:

Aside from market share dominance and an array of powerful brands, here are some other attractive reasons to buy shares of Luxottica. It is not just prescription glasses that have driven Luxottica's sales. In fact, its top selling brand in 2013 was its famous sunglass brand, Ray-Ban. Consumers, especially women, continue to buy sunglasses to make fashion statements as a cheaper alternative to jewelry and other accessories. In 2013, revenue from women's sunglasses increased nine percent, exceeding the four percent increase in women's apparel. This trend bodes well for Luxottica as it has the two top selling sunglass brands in the world, Oakley and Ray-Ban.

Luxottica has consistently returned value to shareholders. The company's dividend has regularly increased over time. Its dividend went from .22/share in 2008 to .72/share this year.

About three weeks ago, Luxottica announced a multi-year partnership with Intel (NASDAQ:INTC) to produce smartglasses. Their first product is expected to launch in 2015. If Luxottica and Intel are able to develop high-quality, stylish smartglasses, they will be extremely well-positioned to benefit from the ever-growing space of wearable technology. Sales in the wearable technology market are expected to be $7.14 billion in 2015 and increase to $12.6 billion by 2018.

This past April, Luxottica announced a strategic partnership with Google (GOOG, GOOGL) to be the designer for Glass, Google's wearable technology glasses. Luxottica will make Google Glass more stylish, which in turn will boost sales benefiting both Google and Luxottica. Also, the possibilities of this partnership are endless. In the future, all eyewear could feature technology similar to and/or greater than that of Google Glass and with Luxottica basically designing all the eyewear in the world today, they are extremely well-positioned to benefit from the trend towards wearable technology.

Risks to Investing in Luxottica:

I do not see any significant risks to investing in Luxottica. However, if consumer preferences change and they demand less expensive glasses then it is possible that Costco, Walmart, and other smaller players such as Warby Parker could gain market share, therefore impacting Luxottica's bottom line.

The Final Word:

Luxottica is an extremely solid company that will continue to benefit in the future due to its robust market share and high-quality products. Luxottica has made wearing glasses "cool" and provides the finest and most stylish eyewear on the market. Furthermore, deals with Intel and Google to develop and distribute smartglasses will enable Luxottica to capitalize on the growth of wearable technology. I believe this company is a very solid long-term investment.

Disclosure: The author is long LUX.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Tagged: , , , Specialty Retail, Other, Italy
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