Why the owner’s inventory of Oakley and Ray-Ban sunglasses is brighter

A Ray-Ban logo on a pair of sunglasses, made by EssilorLuxottica.

Angel Garcia / Bloomberg

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Ray-Ban and Oakley eyewear

EssilorLuxottica

resolved several years of unrest after the merger, appointing an insider as CEO to integrate the two companies.

In 2017, leading French lens maker Essilor partnered with Italian frame producer Luxottica, but the resulting French company (ticker: EL: France) was held back by a friction-fueled co-leadership deal.

In May, the two companies were fully unified, with Luxottica CEO Francesco Milleri retaining that title and Luxottica founder Leonardo Del Vecchio appointed chairman. “I am proud to say that my lifelong dream of creating a complete, fully integrated champion in the eyewear industry has come true,” Del Vecchio said in a statement at the time.

This new phase allows the company to reduce costs, introduce new products and consider possible acquisitions, which could transform the company and further increase inventory.

Shares have risen around 28% in the past 12 months, to € 152.24 ($ 179.56), in line with rival lens maker

Hoya

(7741: Japan). But EssilorLuxottica lags behind luxury goods company and owner of Gucci

Kering

(KER: France), up 41.3%, and

Ralph lauren

(RL), which gained 45.3%.

Sumit Sayal, analyst at research firm Alpha Value, has a target price of € 179 on the share. Piral Dadhania of RBC Capital Markets wrote in a June memo that “at all levels of management the company has already moved from co-management to a more streamlined structure.”

The rapidity of leadership changes shows “the sense of urgency to move the onboarding agenda forward,” which will unlock value for the company in the years to come, Dadhania said.

The € 67.7 billion eyewear giant, which holds the license to make frames for Armani, Bulgari, Chanel and Prada, and owns retailer Sunglass Hut, employs 180,000 workers. The company hits a high multiple of 31.7 times this year’s expected earnings, but is valued at a 20% discount to its peers.

Profits and sales fell in 2020; the company attributed this to lockdowns linked to Covid. Operating profit divided by more than half to 452 million euros, against 1.6 billion euros in 2019, for a turnover of 14.4 billion euros.

Yet given the conditions, the results “demonstrate the strength of our business model and the benefits of our integration,” Milleri said in a statement. Strong management and recognized brands, combined with organizational changes and cost controls, point to “solid profitability”, he added.

At the end of June, EssilorLuxottica decided to carry out a new transaction, a merger of 7.3 billion euros with

GrandVision

this gives EssilorLuxottica a network of 7,000 retail stores that offer eye care services, sunglasses and prescription glasses.

The optical prescription activity, which represents two thirds of turnover, is a reliable recurring activity. It compensates for the uncertainty of impulse buying, a less reliable source of income.

And the company is developing new products, including those for prescription lenses, which RBC’s Dadhania says offer “a significant opportunity for the group.”

Costs could be reduced by around 420-600 million euros by the end of 2023. Although e-commerce remains a powerful channel for expansion, it still only accounts for 10% of turnover, against 7%, according to Dadhania. China only accounts for 6% of sales, but this is expected to increase as access to vision care expands and more people buy products.

The optics seem good for the new structure of EssilorLuxottica.


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