March 1, 2017 / 5:18 PM / a year ago

Luxottica cautious on the year ahead after 2016 profit slips

MILAN (Reuters) - Ray Ban maker Luxottica (LUX.MI) on Wednesday gave a cautious outlook for 2017 after reporting a slight drop in operating profit for last year on slower sales growth and rising investments.

The company, the world’s biggest spectacles maker, has just agreed a merger with top lens manufacturer Essilor (ESSI.PA) to create a global eyewear group with annual revenue of more than 15 billion euros.

The deal struck in January by Luxottica’s founder and top shareholder Leonardo Del Vecchio and Essilor Chairman and CEO Hubert Sagnieres still needs approval by Essilor shareholders and anti-trust authorities in several countries.

The long-mooted merger will allow the businesses to tap more easily into growing demand for eyeglasses as the global population ages and awareness about eye care spreads. At the same time, it will help them face challenges posed by e-commerce and the investments needed to develop wearable technology.

In its annual results, Luxottica forecast revenue growth of “low to mid” single-digits at constant currencies for this year and said its adjusted operating profit would grow at between 0.8 and 1.0 times the rise in sales. It expects adjusted net profit growing as much as revenues.

Luxottica’s revenue growth slowed down last year due to weaker consumer spending in the United States, its biggest market, and restructuring initiatives launched by Del Vecchio after he returned to the helm in late 2014, such as a move to curb online discounts of Ray Ban sunglasses.

“Our outlook incorporates a degree of cautiousness,” CEO Massimo Vian told Reuters in a telephone interview.

“We’re going to open more LensCrafters and Target stores in the States this year as we approach our desired retail size ... and there are a number of ongoing projects that have an impact on the top line ... (at a time) when growth is not explosive.”

Vian said market trends had improved in the past two weeks after a soft patch between the end of January and mid-February.

“March is the key month, we’re moderately optimistic,” he said. “We’re holding up well in Europe ... LensCrafters must do well in March.”

    Luxottica said adjusted operating profit, or earnings before interest and tax (EBIT), fell 0.7 percent last year to 1.43 billion euros, just ahead of a Thomson Reuters SmartEstimate of 1.42 billion euros.

    The group raised its dividend by 3.4 percent to 92 euro cents per share.

    The adjusted EBIT margin fell to 15.8 percent from 16 percent in 2015 as digital and retail investments hit profitability. Investments rose by nearly 30 percent last year to 650 million euros as Luxottica added a net 300 shops.

    The adjusted results exclude one-off restructuring costs, a payoff to former CEO Adil Mehboob-Khan who left in early 2016 after just a year in the job and one-off gains from the November acquisition of Italian retail chain Salmoraighi & Viganò.

    Luxottica reported in January a 0.8 percent increase in adjusted sales to 9.1 billion euros.

    Vian said the year had begun very well in Asia, where sales suffered last year due to Luxottica’s decision to cut most independent distributors in favor of its own network of agents and directly-owned shops.

    “Let’s be honest we had made some mistakes in late 2015 ... entrusting too much of our distribution to intermediaries to accelerate wholesale growth ... and we hurried to put a remedy to that in the second half of 2016.”

    Editing by Jane Merriman

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