February 27, 2014 / 7:02 PM / 4 years ago

Essilor bets on sunglasses and China after weak 2013

PARIS (Reuters) - Lens maker Essilor (ESSI.PA) is betting on appetite for trendy sunglasses among the fast-growing middle classes of China and other emerging markets to drive sales after weakness in Europe and North America weighed on 2013 earnings.

The French company is the world’s largest opthalmic lens maker with a 37 percent market share, supplying eyewear makers such as Milan-based Luxottica (LUX.MI). Its products span reading glasses that sell in India for the equivalent of a few euros to high-performance lenses costing hundreds.

But Essilor had to cut its sales growth forecast twice last year and still missed this target, blaming a slower-than-expected recovery in Europe and North America, tough competition and delays in finalizing some acquisitions.

The company now plans to focus more on sunglass lenses - which currently make up just 10 percent of revenue - aiming to double sales by 2018. The market in sunglasses is expanding twice as fast as the corrective lens market, as consumers follow fashion trends and are willing to spend more to protect their eyes from the sun’s harmful effects.

Eight out of 10 Europeans already own proper protective sunglasses, but only one in 10 Chinese have them and the untapped potential in children is also huge, Essilor said.

“China’s little emperors deserve good sunglasses too and we will make sure they get them,” Chief Executive Hubert Sagnieres told analysts and reporters.

Essilor is aiming for like-for-like sales growth of 2.5 to 4 percent in 2014, after it more than halved last year to 2.1 percent. Analysts had expected higher guidance. “The group’s strategy is very good but the organic growth it forecasts in the short term is weak,” said Antoine Belge of HSBC.

Essilor's shares dropped more than 3 percent and were the biggest faller on France's CAC 40 .FCHI blue-chip index.

Analysts said the focus on developing economies and more cyclical products implied higher risk. Weakness in emerging market currencies against a strong euro cut 3.9 percentage points from sales growth last year.

But Cedric Rossi at Bryan Garnier & Co said the group’s main markets had reached a certain degree of maturity and the shift to faster-growing markets should prove rewarding.

    “With sunwear, there’s a fashion effect that means the market is constantly renewing itself. It’s affordable luxury that’s very sought after by Brazilian, Indian and Chinese customers,” Rossi said.

    Emerging economies accounted for more than a fifth of Essilor’s revenue last year and posted by far the strongest sales growth, driven by an 89 percent jump in Russia, 16-17 percent growth in China and India, and a 9 percent rise in Brazil.

    Essilor is also looking to online sales to speed up growth and improve its margin - excluding the impact of acquisitions - to 19.5 percent by 2016, from 18.1 percent in 2013.

    The acquisition of Coastal.com COA.TO for about $388 million should be slightly margin dilutive this year and next as the Canadian online retailer is currently loss-making, but Essilor hopes to turn it around.

    Essilor’s 2013 operating profit rose 1.5 percent to 843 million euros ($1.15 billion) on sales of 5.07 billion, below a Reuters poll for profit of 882 million on sales of 5.1 billion.

    ($1 = 0.7317 euros)

    Reporting by Natalie Huet; Editing by John Stonestreet and Jane Merriman

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