Luxottica: Bye Bye Crisis

2014 has not been an easy year for the Italian eyewear maker Luxottica, immersed in a war between management and ownership of the firm.

Leeson. 05/03/2015
Luxottica sunglasses
Luxottica sunglasses
Luxottica sunglasses

Luxottica ended 2014 with good final taste, given the difficult year it has left behind. The year was marked by the strong confrontation between the CEO of the company, Andrea Guerra and the founder and principal shareholder, Leonardo Del Vecchio, which closed with the sudden departure of the CEO after ten years in Luxottica

The reason? Its annual results, the best in company´s history. Adjusted net income increased by 11% to €687 million, representing a record for the manufacturer of the sunglasses brands Ray-Ban, Prada and Chanel, among others. The figure is in line with the consensus estimates. Sales grew less, below 5%, to over €7.6 billion. The United States has been the main support of the growth, with an increase of 5% in the year, but 12% in the last quarter (encouraged by US dollar strength against the euro).

Gafas RayBan, Luxottica group. Make clic to buy
Gafas RayBan, Luxottica group. Make clic to buy

Although these results are the first to be issued under the new leadership of Adil Mehboob Khan and Massimo Vian (co-CEOs), the fact is that investors know that, so far, the company maintains the inertia of the business of its predecessor, Andrea Guerra. Now the focus is on whether the new CEOs will be able to keep growth pace achieved by Guerra, which doubled the size of Luxottica and tripled its market value during his stay at the top of the company.

So far we can say their objectives are ambitious. A few weeks ago announced their strategic plans, aiming to double size in 10 years to over €15 billion. To do this, the company will keep its acquisition strategy that has developed in recent years (Oakley and Brazilian Tecnol Group are good examples of that). As for the shorter term, the company expects a good 2015, thanks to the increase of sales, the strength of the US dollar against the euro and the increase of its sales network, as it plans to open 1,000 new stores of the Sunglass Hut chain to a total of 4,000 stores, with new openings in Brazil, India and Southeast Asia

Gafas Dolce & Gabbana, Luxottica group. Make clic to buy
Gafas Dolce & Gabbana, Luxottica group. Make clic to buy

The company shows an impressive performance in the stock market. Although initially the exit of the former CEO was taken up with pessimism (the stock fell to 34 euros per share, the lowest in almost two years), the subsequent recovery takes it to the highest ever, trading above 55 euros per share. The stocks rose by 60% from its October lows and trades at a PE of 40 times, very high for the industry and for the growth rates of the company. This imposes a bit of caution when investing in this stock. It’s a great choice to keep the shares already purchased and still make money, but it’s hard to buy right now considering the current prices.

Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.


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