Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Essilorluxottica (ESLOF, Financial) posted revenue growth in line with long-term targets, with both quarters well aligned in performance.
- The company has made significant progress in developing new technology, including AI-based face computing and wearable tech.
- Essilorluxottica (ESLOF) announced two strategic acquisitions: Heidelberg Engineering and the Supreme brand, which are expected to enhance capabilities and market reach.
- The company reported a strong gross margin expansion of 40 basis points, driven by a favorable price mix and product innovation.
- Essilorluxottica (ESLOF) generated EUR971 million in free cash flow, maintaining a strong balance sheet with a net debt to EBITDA ratio of 1.5.
Negative Points
- The U.S. market showed a low single-digit growth, with some segments experiencing deceleration, particularly in the independent channel.
- Sunglass Hut locations in North America reported low single-digit negative comps, indicating a soft demand in the region.
- The company faces inflationary headwinds, particularly in labor costs, which continue to impact profitability.
- Essilorluxottica (ESLOF) experienced challenges in the Latin American market, particularly in Brazil, due to severe flooding affecting operations.
- The launch of new products like Nuance audio is still pending FDA approval, which could delay market entry and revenue generation.
Q & A Highlights
Q: Can you elaborate on the rationale behind the Supreme acquisition and its fit within your portfolio? Why not consider an eyewear license instead of a full acquisition?
A: Francesco Milleri, Chairman & CEO: The Supreme acquisition is strategic, providing a direct communication channel to a younger audience. Licensing would limit our control over marketing and product direction. Supreme's established reputation and direct-to-consumer model align well with our strategy, enhancing our ability to integrate technology and innovation into popular brands.
Q: Can you provide an update on the expansion of the myopia management technology, Stellest, into Europe and the U.S.?
A: Paul du Saillant, Deputy CEO & Director: Stellest is expanding well in Europe, with strong market presence in France and the UK. We are preparing for a U.S. launch, targeting 2025, working closely with the FDA. The technology continues to gain acceptance among doctors, parents, and children.
Q: What is the expected revenue growth and EBITDA margin impact from the recent acquisitions of Supreme and Heidelberg Engineering?
A: Paul du Saillant, Deputy CEO & Director: Supreme is expected to contribute over EUR500 million in revenue with a healthy EBIT margin of 39%. Heidelberg Engineering, while smaller, will enhance our capabilities in ophthalmic applications, contributing to both revenue growth and margin expansion.
Q: Can you discuss the performance of the U.S. direct-to-consumer segment and any market share gains?
A: Paul du Saillant, Deputy CEO & Director: Our optical retail banners like LensCrafters and Target Optical showed resilience with solid growth. Sunglass Hut experienced soft demand, but we expect a rebound. We are managing costs tightly to maintain margins despite the low growth environment.
Q: What are the main drivers behind the gross margin expansion, especially given the weaker growth in the U.S.?
A: Paul du Saillant, Deputy CEO & Director: The gross margin expansion is driven by a strong price mix, particularly in lenses, and the integration of GrandVision. Despite the deceleration in Sunglass Hut, we have managed to offset this with improvements in other areas.
Q: How do you view the long-term partnership with Meta and the potential for similar partnerships with other tech companies?
A: Francesco Milleri, Chairman & CEO: Our partnership with Meta is strong and long-term. We are open to discussions with other tech companies but remain committed to Meta due to the significant investments and successful collaboration so far.
Q: Can you quantify the impact of strategic investments on profitability and what should we expect going forward?
A: Paul du Saillant, Deputy CEO & Director: Strategic investments will continue but are balanced with operational efficiencies. We expect these investments to drive long-term growth and profitability, with significant initiatives like the launch of Nuance contributing positively.
Q: How do you balance top-line growth opportunities with margin targets, especially given the recent price increases?
A: Paul du Saillant, Deputy CEO & Director: We are committed to our 2026 targets, balancing growth and margins. Price increases have been well-received, and we continue to drive growth through innovation and strategic investments without sacrificing margins.
Q: Can you provide more details on the integration of Heidelberg Engineering and its strategic importance?
A: Paul du Saillant, Deputy CEO & Director: Heidelberg Engineering complements our existing capabilities, enhancing our diagnostic and ophthalmic solutions. The integration will focus on leveraging their R&D and technology to build a comprehensive eye care platform, aligning with our vision care ambitions.
Q: What is the scale and ambition for the launch of Nuance, and how will it be distributed?
A: Francesco Milleri, Chairman & CEO: We plan a significant launch in the U.S., targeting thousands of stores in the first semester. The distribution will be balanced between our retail and wholesale channels, with a strong emphasis on e-commerce.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
