ESSILORLUXOTTICA

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EssilorLuxottica : Transcriptions PDF 0.16MB

04/28/2022 | 10:06am

EssilorLuxottica's first-quarter 2022 revenue

Transcript of the Management Call

Company Speakers:

Stefano Grassi, Chief Financial Officer

Questions from:

Susy Tibaldi, UBS

Elena Mariani, Morgan Stanley

Luca Solca, Bernstein

Veronika Dubajova, Goldman Sachs

Cédric Lecasble, Stifel

Julien Dormois, BNP Paribas Exane

Piral Dadhania, Royal Bank of Canada

James Grzinic, Jefferies

Domenico Ghilotti, Equita

Key Highlights

Stefano Grassi, Chief Financial Officer

Good morning and welcome to our first-quarter trading update. We are very pleased with the way we started 2022, despite some headwinds, like the COVID outbreak that hit several parts of the world and also the dramatic events related to the war in Ukraine.

But Q1 has been a quarter of strong growth for the Group, a quarter where our top line was up 38% on a reported basis, while on a pro forma basis we are looking at the second consecutive quarter of double-digit growth, with sales up 11.5% at constant currency and 15.7% at current exchange rate.

The key assets of the EssilorLuxottica Group are in healthy shape. All the regions posted solid growth in Q1, with EMEA and Latin America at double-digit pace, while North America was up 8% on top of a 6% in 2021 versus 2019 on a pro forma basis. Our key eyewear brands Oakley and Ray-Ban, they both posted double-digit growth in Q1. Our vision care assets that represent more than 75% of our revenue base, grew in excess of 9% at constant currency, thanks to a demand that continues to be strong, pretty much in all the regions around the world. Last, but not least, our sun business is back again with double-digit growth, very much led by our luxury portfolio.

Before we start our journey around the different geographies, let me give you just a quick flavor on how we performed on our two operating segments.

The Professional Solutions division posted top line slightly south of double-digit pace at 9.6% at constant currency in acceleration versus the fourth quarter trend at 6.8%, with North America on high-single-digit territory and both EMEA and Latin America at double-digit pace.

Our Direct to Consumer segment continued its outstanding performance, posting the fourth consecutive quarter on a pro forma basis at double-digit pace at 13.5% versus Q1 2021. Our brick-and-mortar comps were up double digits, our e-commerce business was up 9% versus 2021 and over 80% versus 2019 levels, proving once again that our multi-channel oriented strategy is definitely going in the right direction.

Now let's start our journey around the different geographies and on page 12 as usual let's start with

North America. North America posted a growth in top line at about 8% at constant currency. The demand in the market is still there, probably a bit softer in the month of January, due to the spread of COVID cases around North America.

On the Professional Solutions side, overall growth in the quarter was in the high-single-digit territory for the frame business, with double-digit pace in key accounts, double digits in e-commerce partners, double digits in the sports channel, with a strong support from the sun business that was up, again, double digits thanks to our luxury brand portfolio support. On the lens side of the business, our branded portfolio reported solid growth in Q1, also supported by the new Transition XTRActive and by Varilux that during Q1 posted a top line up in the mid-single-digit territory.

Moving now to retail, the overall comps were in the low-single digit, with Sunglass Hut performing in mid-single-digit territory, led by our international store locations as the US border reopened to international tourists during the latter part of the fourth quarter. While LensCrafters was actually on the low-single-digit territory, with a soft start in January due to the Omicron cases and a tougher comparison base during the last two to three weeks of March as we anniversary the stimulus pack in the US and a strong acceleration of the vaccination campaign in Q1 2021.

Let's touch on e-commerce, our e-commerce business was south of double digits with our three key branded eyewear websites, Oakley.com, Sunglasshut.com and Rayban.com, they all posted double-digit growth during the course of Q1.

Now let's move to EMEA. EMEA posted a remarkable acceleration in the top line. On a pro forma basis

EMEA posted a first half of 2021 negative 1%, in the second half of the year, last year, we were up 8.5% versus 2019 and now in the first quarter 2022 our top line grew 18% with both Professional Solutions and Direct to Consumer at a double-digit pace.

On the Professional Solutions side, Spain, Germany, UK, Eastern Europe, and Turkey, they all delivered double-digit growth, also helped by a favorable comparable base, while Italy and France were respectively flat and at low-single digit during the course of Q1. Our branded lens portfolio grew at the mid-single digit, driven by price mix, with Eyezen, Varilux and Transition, very much leading the way in Q1. On the frame side we posted double-digit growth, led by a strong sun business, even in Europe, and by a strong delivery of both our Ray-Ban and our Oakley brand.

If we now move to retail for a second, comps were in excess of 25% compared to the first quarter of 2021, clearly the COVID restrictions that, if you remember applied last year in Europe, created some easy base of comparison that more than offset, I would say, the headwinds deriving from the uncertainty of the war in Ukraine. In Europe all our main banners, Générale d'Optique, GrandOptical, Apollo, Salmoiraghi & Viganò and Sunglass Hut, they all posted double-digit growth, mainly driven by volume, with the price mix as a nice add-on.

Moving to Asia-Pacific now, top line up 3% at constant currency. In Asia, we posted the best performance during the last five quarters on a pro forma basis. South East Asia and Japan they were all double digits, while our performance in Greater China was flat, with Professional Solutions at mid-single digit, with strong delivery of the Stellest lenses that during the course of the first quarter sold more than half of the Stellest lenses that we sold in the entire 2021 in China. And this remarkable delivery happened despite the severe consequences of COVID related restrictions that impacted Hong Kong as well as Mainland China. And just to give you an idea, in Hong Kong over 95% of our store base in the month of March was impacted by either closure or severe traffic decline due to local restrictions for COVID. That number is 75% in Mainland China, so a material impact, disruption I would say, due to the COVID restrictions in China.

In Australia retail, we had a strong rebound in Sunglass Hut, thanks to the reopening up to tourism with Australians that now can move around the different states. While our OPSM business, our optical retail business in Australia, decelerated in the negative territory due to a soft January due to the COVID case build up and the month of March that was impacted by severe floods. But we have confidence that during the course of the second quarter things will progressively improve.

The last region for today is Latin America and it is actually the best performer of all the regions, 21% in top line growth at constant currency. Both Professional Solutions and Direct to Consumer posted double-digit growth, with Brazil, Mexico, and Argentina, all of them at double-digit pace.

In Brazil that, as you well know, is our largest country, we grew close to 20% in our B2B channel, with lenses that were up at the high-single digit, with our branded lens portfolio that posted double-digit growth. And our frame business was up in excess of 30% compared to the first quarter of 2021.

Let's touch on retail where our comp sales were double digit on both optical and sun retail chains, with double digits in GMO and the growth that for all the main GrandVision chains in the region was double digit.

And now we have finished our journey around all the different geographies and let's move to our Q&A session.

Questions & Answers

Susy Tibaldi, UBS

Hi, good morning, thank you so much for the presentation. I will stick to two questions.

So, the first one would be on the US market, which is the area where you are facing the toughest comps, so it is reasonable to assume that we are seeing a - let's say - deceleration there which in reality is a normalization. But can you help us understand to where this level of normalization is taking us? Is it fair to assume that in Direct to Consumer you are maybe seeing around low-single-digit growth, whereas the Professional Solutions is outperforming? So maybe overall the US is growing around low-to-mid-single digit, something along those lines? It would be very helpful to know because it is a very important market for you. You are doing a lot in terms of work within the business with synergies, etc., so if you can give us an indication of what kind of growth you are starting to see from the second part of March and in April, it would really, really help us.

The second question is on inflation and supply chain. So, inflation clearly is pretty high everywhere in the world, but in your case specifically the verticalization really helps. But what kind of inflation are you seeing? Are you still comfortable that you can offset it internally, or are you considering also potentially raising prices on some parts of your portfolio at some point during this year? Thank you.

Stefano Grassi, Chief Financial Officer

Good morning, Susy. Let me take your two questions. The first one on the US. As you pointed out, we have a tougher comparison base in the US, very much due to the few things that we mentioned before: the acceleration of the vaccination campaign in 2021 and the stimulus pack that was announced during the latter part of March 2021. What we see in the US from a shipment perspective, on the Professional Solutions side, it is still a performance that I would define as solid. There is a bit of a timing difference between April and May due to the different timing of shipments. From a retail perspective, I would say we are happy with the trend, it is aligned with our expectation, considering the fact that we have a tougher base of comparability.

With respect to inflation, we feel the impact of inflation, like anybody else in the market. We mentioned last time that inflation, it is on labor, it is on shipping costs, and, in a way, it is on raw materials and obviously utilities. But if I had to look at our first quarter, that inflationary impact has been broadly and largely managed within our profit and loss. I do expect, probably, that between the second and the third quarter there is going to be a bigger hit on the inflationary trend. And then, probably, in the latter part of 2022 we are going to see a normalization of that.

Elena Mariani, Morgan Stanley

Hi, good morning, Stefano, I will stick to two questions as requested.

The first one is on the other regions into the second quarter, so could you just indicate briefly which sort of trends you have seen at the beginning of the second quarter? Anything to flag in terms of changing consumer sentiment? Are people trading down to lower price points? You have mentioned that Asia was a bit weaker than expected in the first quarter, but you expect things to improve into Q2, and are youalready seeing that in April? And what about EMEA, as you know there is a big debate around consumer sentiment holding up, so we are all keen to hear whether you are seeing any change in trends in to the second quarter?

And then my second question is going back on the margin outlook, putting together inflation, synergies coming through and a situation that is definitely unstable from a macro perspective. Could you confirm that you are still comfortable in saying that you are going to see an EBIT margin improvement in 2022?

And do you expect some GrandVision synergies to come through already in 2022? I have seen that there has been a change in management happening, so perhaps you are going to start to implement quite a few initiatives already this year? Thank you.

Stefano Grassi, Chief Financial Officer

Good morning, Elena, we will go through your two plus one questions. Let me start from the trend at the beginning of Q2. When I look at our trends overall I think we have a pretty solid shipment trend, for example in Europe, and this is true for frames and lenses. For the rest of the world really nothing major to report, with the obvious exceptions of Russia and China. I do not see consumers trading down, as a matter of fact, price mix is still there. In retail, we have a solid optical performance worldwide and we have a strong sun business. So, all in all, we have an expectation of growth for the month of April.

The second question pertained to the margin outlook. Yes, if you remember during the last call, we talked about the fact that we are obviously not guiding for the year, for 2022. But what you can expect for this year is a story of top line growth and margin expansion. And we are still confirming that.

Clearly, with GrandVision we are at the beginning of a journey, a journey on which we know the job that needs to be done, a journey that has started already with respect to synergy workstreams and a journey that now sees in place a new leadership, which I believe is going to overall accelerate the execution of our synergy realization.

Luca Solca, Bernstein

Thank you very much indeed. There is a lot of debate about the impact of COVID-19 restrictions in China and, as you are on the ground, and you have quite a broad distribution there, could you tell us, are you seeing the impact on traffic from the COVID-19 restrictions? And do you see a rebound in traffic once these restrictions are lifted? I am getting mixed reviews on this point, with consumers potentially continuing to be concerned that they could be on the wrong side of the contagion and affected by further restrictions, and so, traffic rebounds are not as sharp as we saw last year for example.

On the value-added products which you are developing on many different fronts, starting with myopia management, but then looking at prescription sunglasses and many others, what metrics do you monitor and how do you see this shift to more value-added products developing across the various markets, if you could go through the main geographies? Thank you very much indeed.

Stefano Grassi, Chief Financial Officer

Thank you, Luca, and good morning. Let me answer your questions here. First of all, the COVID impact in China: we did not see a rebound of traffic, so we are still going through severe traffic decline over

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EssilorLuxottica SA published this content on 28 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 April 2022 14:02:06 UTC.

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