Luxottica Group Exec Insights: Western Europe, Wholesale Order Patterns

On Monday, Luxottica Group S.p.A. ADR (NYSE:LUX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Western Europe

Stefano Corneliani – Intermonte Securities: I have a couple of questions and then sort of a clarification. The first question is about Western Europe of course and just I’d like just a comment from you in order to understand to what extent the growth, you see in Western Europe is a sort of trade-off between the more markets Oakley and Ray-Ban vis-a-vis the more luxurious brand names and second to Enrico is about networking capital and just to understand if Forex played favorably in the rotation of the networking capital in the second quarter, and thirdly just clarification, it’s about the price increase. You mentioned about Ray-Ban. Just to recap, where you would be or it was effective? Thank you.

Andrea Guerra – CEO: I didn’t get your last question or maybe I did. Ray-Ban price list increase was effective March 1st, but obviously with some customers across the world will be really effective let me say mid-May. So, we are expecting to see the full effect in Q3, but some effect in Q2 as well. Forex, I will leave this wonderful question to Enrico.

Stefano Corneliani – Intermonte Securities: Yeah, Forex working capital.

Enrico Cavatorta – CFO, GM Central Corporate Functions: Forex and working capital, I mean, the number that we report to you and we say 15 day less, this is a constant Forex because other wide exchange rate on working capital number being different between two different balance sheet at two different days, there would be a mess. So, the number when we quote a day’s reduction or increase, it’s always excluding Forex effect. West Europe if we’ve grown, let’s say 5% all-in-all, Ray-Ban and Oakley were above average, but I have to tell you that 80% of our premium and luxury portfolio was positive.

Wholesale Order Patterns

Daniel Hofkin – William Blair & Company: Congratulations on the quarter. I just wanted to get a little bit of a clarification about the sort of the wholesale, the order patterns that you are seeing going into the peak season in a month or so. Do the order patterns match pretty closely with the shipment rates, in other words, your actual wholesale revenues at this point? Are you seeing any places where there is – wholesale orders are trailing or running ahead of – that would be my first question?

Andrea Guerra – CEO: I will answer immediately to your first question. When we look to the first three months, orders were ahead of our shipments. I think that today year-to-date, mid-May let’s say, we are head-to-head between order rate and shipments. I think all across the world, we are still ahead. Italy and Spain are quite nervous at this time, so, some weeks we have thunderstorms of orders and some weeks instead we don’t have a lot.

Daniel Hofkin – William Blair & Company: And as far as the rate of margin improvement that you’ve seen especially I think in the wholesale segment where you’ve already seen quite a bit of improvement in the last two years or so. How much further room do you think that there is in that segment as you continue to expand your global reach?

Andrea Guerra – CEO: When we talk about wholesale I would give you a comment and then I will ask you – I will ask Enrico to give you a further comment. There are three things here to be said. The first is obviously scale has an effect and so therefore if we are able to keep up with this kind of growth rhythm I think that we will observe a margin expansion. Second, I still think Oakley can help profitability in the wholesale. It’s helping but it’s not finished. And the third obviously, as our brand portfolio is getting richer next year, I think that probably not exactly at the beginning, I think that a richer brand portfolio going forward can help profitability. So I don’t think that there is more room ahead. But I will ask Enrico to give you some color as well.

Enrico Cavatorta – CFO, GM Central Corporate Functions: The only thing I would add is that basically this growth that we are experiencing in Q1 is more or less in line with our expectation for the entire year. So as we mentioned at the beginning of the year we do expect a better performance in terms of margin improvement in retail rather than in wholesale. But on the 70 basis points improvement to 110 – 120 basically I think flat is our expectation for the total year.

Daniel Hofkin – William Blair & Company: So that, just to clarify that last point. A similar you would expect from where you are sitting right now, a fairly similar dynamic between the two segments in the balance of the year?

Enrico Cavatorta – CFO, GM Central Corporate Functions: That’s correct.