EssilorLuxottica Société anonyme (EL) Earnings Call Transcript & Summary

Good morning, and good afternoon, everybody. This is Giorgio Iannella from the IR team. Thank you for joining EssilorLuxottica Q1 revenue management call. The group's CFO, Stefano Grassi, will walk you through the revenue highlights of the first quarter of the year. After his presentation, there will be a 30-minute Q&A session. [Operator Instructions]. With that, I hand it over to Stefano.

Good evening, good afternoon and good morning, everyone. Welcome to our Q1 trading update. We started the year with a mid-single-digit speed in revenue growth. Our top line was up 5.5% at constant currency, very much on target with our long-term strategic guidelines that we shared with you a couple of years ago. And we delivered this in a quarter where we have a pretty tough comparison base as Q1 2023 was up 8.6% at constant currency. Our growth at current exchange rate was 3%. So clearly, you can see the impact of currency headwinds during the course of Q1. In particular, the headwinds come really from 2 currencies: the U.S. dollar and the Turkish lira. If currency now stay at those level, you can expect those headwinds to continue throughout the remainder part of 2024, probably with a lower extent to a lower extent during the latter part of 2024. If we look at our 2 divisions, both professional solution and direct-to-consumer grew in a mid-single-digit territory with positive delivery in every single region. But now, as usual, let's begin our journey across the 4 different regions and let's start with North America, the biggest one. North America in Q1 delivered a top line up 1.7% at constant currency. The Professional Solutions B2B posted low single-digit growth with frames that deliver a stronger pace than our lens business. On the frame side, optical frames were on a strong pace, double-digit growth confirming a strong momentum that we've seen in 2023. While the some part of the business was a little bit softer. And I would say it was softer in particular in 2 channels, the department store ones and the sport channel. Now moving to the lens part of the business. In Q1, we're positive. And in particular, we were positive thanks to a strong price mix that helped very much to sustain our top line. The channel mix was good, in particular on the ECP. ECP delivered a positive growth on our B2B side, in particular, thanks to Vision Source Alliance that delivered strong high single-digit growth during the course of the first quarter. We now move to the Direct-to-Consumer. Happy to report that optical retail banner delivered positive comp sales, in LensCrafter positive, in Target Optical positive and last but not least, positive in Pearle Vision. While on the some part of the business, we were still on the negative side. If I look at my glass half full here, I would say that we've seen a sequential improvement in the comp sales of Sunglass Hut in North America between January, February and March. In March, we actually turned into the positive territory. And in particular, let me say that in Q1, the International Sunglass Hut locations, the one that were more exposed to the touristic traffic deliver high single-digit growth during the course of Q1. But now let's move to EMEA. EMEA delivered an 8.5% at constant currency in Q1. This represents a further acceleration compared to the 2022 trend in the region, is the 12th consecutive quarter, just to give a bit of a statistics here, 12 consecutive quarter of sales growth in the region. We were mid-single-digit in professional solution and we were double digit in the direct-to-consumer segment. On the B2B side, Italy, Spain, U.K. and South Africa, they all delivered mid-single-digit growth, while we were flattish in France. Price mix continued to be strong and we see strong price mix on lenses. We see strong price mix on the frame side of the business. If we touch for a second on frames, we were pleased with the delivery in Ray-Ban, high single digit for Q1 in EMEA. We were very pleased with Oakley double-digit growth in the first quarter in EMEA with both brands that deliver strong results in prescription as well as in Sun. If we touch a bit on the lens part of our business, I would say that we are in a very healthy shape here. And just to give you an example, the recently launched Varilux XR is now delivering strong results pretty much across the country, representing 80% of the growth that we deliver in the Varilux product category during the course of the first quarter. Now let's switch gears and look at the Direct-to-consumer. We were double-digit comp sales for Sun and high single digit in the optical retail part of EMEA. So clearly, very pleased with the trend that we've seen here. Optical retail banner posted double-digit in Italy, Netherlands and U.K. were actually on the high single-digit territory. The integration with GrandVision is marching at a pretty high speed. Just to give you a couple of examples. 60% of the lenses supply to GrandVision are coming today from EssilorLuxottica. 3 out of 4 photochromic lenses sold today in GrandVision are actually branded with transition. So pretty compelling picture of synergy realization in GrandVision, I would say, in Q1, but in the remainder part of the year, we have a pretty good and consistent expectation as well. Brief touch on Sun retail banner, double-digit comps in Iberia. The DAC part continues to be strong at double digit, and Turkey was double digit as well. The growth is very much driven by price mix and also by volume during the course of Q1. E-commerce. E-commerce was just south of 10% growth in Q1 with all the key banner, Ray-Ban, Sunglass Hut, Oakley, that all delivered double-digit growth during the course of Q1. Let's move east now to Asia Pacific with a top line that was up 8.2% at constant currency. This was another strong quarter for the region, with double digit in China with double-digit in Korea and last but not least, with double digit in Japan. In this region, the B2B side of our business delivered a double-digit growth, while on the other side, our direct-to-consumer was on more on the mid-single-digit territory. Pretty happy with the performance and the delivery and the execution that we had in China in a pretty uncertain macro environment. The Shanghai fair that was held in the month of March was a great success story for EssilorLuxottica. We showcased our products with a new Ray-Ban Asian design collection. We had more than 1,600 visitors in our stands and we engaged several key opinion leader to talk about the most important topics for the industry, one of them, clearly, myopia management. In addition, during the course of the first quarter, we launched the EssilorLuxottica first myopia camp, that is aiming to engage more than 10,000 ECPs in China and train them on the specific benefits of progressive lenses. Last but not least, Stellest. Stellest is delivering another outstanding quarter with revenue that were up over 70%. If we now move to the direct-to-consumer. While in Direct-to-consumer, brick-and-mortar Sun continues to be strong in the region with mid-single-digit comps. And we have, on one side, the Southeast Asia, where traffic, conversion and price mix were all trending in the positive territory, and we delivered double-digit comps, while on the other side, Sunglass Hut Australia was slightly negative during the course of the first quarter. If we now remain for second still in Australia. Our main optical retail banner, OPSM posted low single-digit comps in Q1 with appointment continue to be a bit soft while conversion and price/mix are improving. Now let's move to Latin America. Top line growth close to 11%, 10.9% at constant currency. This represents the 13th consecutive quarter of positive growth at constant currency. On the Professional Solutions side in Brazil, we posted double-digit growth on frames, while on the lens part of the business, we turned into the negative territory in Q1, I would say, more due to a timing effect between the delivery in Q4 and the first quarter of this year. Óticas Carol posted another outstanding quarter, a double-digit pace, more than 1,000 franchisees joined the new and renovated program of . Óticas Carol that was rolled out during 2023, and we accept more to roll out into this program. Moving now to direct-to-consumer. Our optical business posted high single-digit comps, very much driven by the GrandVision banner in the region, in particular, the one that we're in Mexico and in the Andes. And while we move now to the some part of our business, that business delivered a low single-digit comps with strong comps in Brazil and Andes, while Mexico was a bit softer during the course of Q1, especially due to the softer demand that we experienced in the Sunglass Hut location that were more exposed to touristic traffic. With that, let me hand it over to the operator for the Q&A session.

[Operator Instructions]. Our first question come from Oriana Cardani, Intesa Sanpaolo.

The first is about the revenue growth. Can you quantify the volume effect and the price mix effect in the first quarter? And what was most important between the price and the mix effect? And the second question concerns the expected trend of the price effect how should the price effect evolve in the coming quarter?

Let me take both of your questions. Beginning with the revenue growth profile. I would say that in Q1, we had price mix, very much being the main driver of our growth profile. I would say fairly balanced price and mix, and that is really for Q1. As we enter into the second quarter onwards, we're probably going to see -- on one side, the impact of the price adjustment to a larger extent, in particular on the French side of our business. And on the other side, we're still going to see the impact of mix evolution because of the launch of the new collection getting the market from the second quarter onwards. So I would say we'll keep that balance throughout the remainder part of the year.

Our next question comes from Chiara Battistini, JPMorgan.

So the first question is, if I can go to the U.S. and your growth there. As you mentioned, the comps were very tough in Q1 and also on a 2-year basis. Is it fair to assume that given that the comps are easing from here, we could see some sort of acceleration towards more mid-single-digit territory for the rest of the year given the comps? Or how should we be thinking about that, please? And then the second question actually on one. I think in -- during this quarter, you started to take orders from wholesale customers in the U.S. So I was wondering if you could share with us any update on this or any insight or feedback and on the order book and the reaction from the wholesale customers there?

Thank you, Chiara, for your question. Let me go and answer those. So with respect to the U.S., well, we don't guide single years and we clearly don't guide the quarters. But what I can tell you is that the U.S. is a strong plan in place for the second quarter. We're also facing an easier comparable base. And that is true on in general, on the B2B side, more specifically on the independent channel. We have an expectation of ramping up our new licenses. Swarovski, for example, has been a very good start for North America and we expect an important contribution for that, not to mention the important contribution coming out from Meta -- Ray-Ban Meta that is very much getting more and more traction week after week. And obviously, U.S. is a very important market for Ray-Ban Meta. On top of that, clearly, there is the impact of the price increase. So all of these things clearly playing in our favor with respect to U.S. Now the second question you have with respect to Nuance. We are engaging a large part of clients in North America. We are showcasing a nuance during the CES that has been greatly appreciated as an innovative product in Vegas. But even more so, we're now yesterday have been part of an important event. We are one of the few companies invited to this event called CES at the Hill where actually, we've been invited to showcase our product at Capitol Hill to Congressmen and a few selected congressional stuff. And this gives you an idea of how important is nuance for the future. How important is going to be these assets as it's going to come to the market. And I should say that the very good interest that we've seen from Congressman yesterday, is the interest that we've seen from a variety of different clients in North America on the eyewear industry, but also on the audiology industry.

The next question comes from Ben Rada Martin, Goldman Sachs.

I've just got 2, if that's right. The first, it was very helpful, some of the color you provided on U.S. Sun improving through the quarter. Interested if there's anything else noteworthy some of your other divisions into March and April worth calling out? And the second one is just on B2B -- on the B2B division, how are you kind of seeing wholesale partner inventory levels at the moment? And if we look at forward order books going forward, is there anything to call out between the key regions?

So with respect to your first question, Ben. I think we're going to phase a second quarter comparability with Sunglass Hut, where clearly, the base, it's easier. You remember, we started commenting softness in the Sun demand during the course of the second quarter in North America last year. And therefore, we have a comparability that it's obviously playing a bit of tailwinds on our side. I also believe that the work to very much Ignite energy, passion on the Sunglass team with new operating procedure in the stores with greater focus on conversion, with the new collection of luxury here in the market now are going to help us, I believe, in a good sun season. But clearly, we're going to wait and see how things are going to play into account. Now clearly, for the month of April, we had a bit of calendar effect between March and April. As usual, we have Easter that is never on the same calendar period. And the 2 months March and April should be looked together. And if I look at them together, I can see that there are signs of improvement. The other important thing, clearly, is the touristic location of Sunglass Hut that are marching at a pretty good pace, and that's obviously very encouraging. The B2B side on North America. Well, I think the inventory level is right. There's definitely a higher degree of consciousness in the reordering cycle. We've seen that in particular on the department store side. But all in all with ECP, the trajectory is going in the right direction. On the key accounts, I think there is a very good level of engagement on both lenses and frame. So I think we have good vibe entering into the second quarter for North America.

The next question comes from Veronika Dubajova, Citi.

I will keep it to 2. One, Stefano, could you tell us what the first quarter growth rate in North America would have been excluding Sun that would be super helpful for us as we think through the rest of the year? And then my second question is just looking at the remainder of the year. You've obviously delivered 5.5%. What is the toughest comp and with some calendar headwinds. Is there anything that you see today as you look into April and May that makes you think that sort of the strong performance is decelerating in any shape or form. Just if you can share any color as you kind of look forward, are there any specific risks that you're watching which could impact the performance after Q1?

Veronika. Let me ask you -- let me answer your question. So first one, in North America, I mean, Sun was weak really on 2 parts, right? I mean, one was the retail part of the business, Sunglass Hut. The other one was the B2B side, in particular, in department stores and on the sport channel. So I mean, you would see a lift in the total performance that we had in North America. I think what we feel good about it without disclosing the overall number is the fact that the ECP channel was on the positive territory, and I think that is going to be created that resiliency that we like to hear about it more and more. Now when we look at the performance, I don't think we have indication that would drive us to believe that we could experience any sort of deceleration. If you think about it, we're entering in the second quarter with a lot of determination, a lot of energy, a lot of passion and few assets that I believe are going to play in our favor. First of all, the launch of Transition Gen S that is going to hit the market in Q2. Just a few days ago, it's -- we started selling transition Gen S in North America on the independent channel and that is going to be very important for the course of the second quarter. The price increase that I just mentioned before. Let's not forget also that the launch of the new licenses that hit the market at the end of last year haven't annualized yet. So Jimmy Choo, Brunello, Ferrari, Swarovski licenses haven't been annualized. And we've seen, for example, Swarovski had a great success in North America. Then Varilux XR, same story. We launched between the second and the third quarter last year. But really, in Q2, we don't have the full like-for-like comparability, and that should play in our favor. So we have, in a way, a lot of assets that could play in our favor. So right now, I look at my glass still half full.

The next question comes from Cedric Lecasble, Stifel.

I have 2 also. So the first one is on the price increase you had mentioned, I think, in frames. Could you be maybe a little more specific and let us know where you could still tactically rise prices in the course of the year maybe in the main regions? And the second question is related to Europe, which was very strong during this quarter. What was the weight of the important still GrandVision acceleration in the total performance.

So price increase. You're looking at single-digit price increase across the geographies across our brands, our frame brands. So it's going to be a quite broad pricing impact. It's not going to take place all at the same time. But I would say throughout -- mostly throughout the second part of Q2, it's where we're going to see most of the impact from a price increase standpoint. When we look at the performance of GrandVision, clearly, it's quite material, the results in Europe. But again, you look at a mid-single-digit delivery for the B2B side and then you're looking at high single digit in GrandVision. So -- of that, it's clearly an indication of the performance that we're getting with GrandVision. But again, everything is marching on the right direction with respect to GrandVision. The synergy delivery is actually stronger. And as I mentioned, probably during the last call, it will continue to happen quite materially during the course of 2024. We are still have a long pipeline of penetration improvement in our land side. We see the transition is becoming more and more a larger part of our revenue contribution in GrandVision. And clearly, even though we don't have yet a large scale but also myopia solution might become an opportunity in the future. The other thing that is happening today is the continuous rollout of the subscription model. The subscription model, it's already F1 out of 4 of the optical revenues that we realized in Vision Express, for example, in U.K. And it's something that we're going to continue to roll out progressively throughout Europe in the course of 2024. So we're going to have quite a few countries that are going to be part of the subscription model. And I believe in a couple of years, the entire European operation -- optical retail operation will be enrolled into the subscription model for GrandVision.

The next question comes from James Grzinic, Jefferies.

Stefan, Giorgio. I had 2 quick ones. The first one is perhaps the sake of clarity, what do you think the calendar impact was in Q1. We had a leap year. We had an early Easter. So just wanted to really try and strip that out from that 5.5% expect growth? And then secondly, just operationally, can I just check in terms of the timing of the coming on stream of -- and the ramping up of the manufacturing facilities in Mexico and Thailand, please.

Let me answer your first question with respect to the calendar impact. Probably the easier example to look at it is some part of the business, so Sunglass Hut. I would say we have a bit of tailwinds in the month of March and a bit of headwinds in the month of April because with the anticipation of Easter, you get a bit of flowing positive traffic before Easter, and that is creating a bit of a help in Q1. But just to reassure you, if we will look at normalizing the impact in Q1 of Sunglass Hut, the comps in Sunglass Hut will still be positive in the month of March. So that should reassure you in that respect. Mexico and Thailand are coming pretty nicely. I mean we're already seeing the contribution, especially in Thailand of our manufacturing capacity and that is very important because it's clearly helping us to sustain the synergy realization, for example, in GrandVision. So we rely a lot on those facilities. It will take time to get them at full speed. But I can tell you there is already a contribution coming especially from Thailand.

The last question come from Domenico Ghilotti, Equita.

I have 2 questions. The first is related to the online business. You commented, Stefan, the European performance, if I am not wrong. Can you also give us a sense of what's going on in terms of e-commerce performance in North America? And the second question is on the traction that you have on Stellest in the European markets.

I want to say a Domenico. So let me take the 2 questions. So first one on e-commerce. E-commerce was positive, first of all, overall in every geographies in North America, in EMEA and Asia Pacific and in Latin America. When we look specifically in North America, I should say, we're pretty happy with the performance that we were able to achieve, thanks to the boost that Ray-Ban Meta added on our performance of e-commerce. Just to give you an idea, 1/3 of the Ray-Ban Meta have been sold through the online. And this, I think, gives you an idea of how well was the setup for selling Ray-Ban Meta online. Clearly, it's a product that has a lot of sophistication that has a lot of different features and it's not given that you are capable to sell to consumer that product online. And I think the work that the online team, that e-commerce team, that the Ray-Ban team has done to create an engagement and engaging consumer experience online, it's very much proving that. The second question that you have is on Stellest. I think Stellest is doing well in Europe. I can tell you, we are growing double digit. We have Stellest available in pretty much all the countries now, and it's going to become more and more important. As you remember, the ramp-up curve is different in Europe from what we've seen in China because the way the product is dispensed to the kids is different in Europe than it is in China. But what I can tell you is that the team is now working country-by-country, engaging the ophthalmology, creating key opinion leaders, engagement, participating in conference and making sure that we get all the things properly set up in some of the key countries, France, Italy, Germany. So definitely is the second important region that we're looking at. And clearly, we're waiting for the rollout that is going to come in the U.S., but that's not a chapter for 2024.

The next question comes from Anne-Laure Bismuth, HSBC.

Just coming back on Stellest. So when is it reasonable to expect an approval from the FDA about Stellest in U.S. and just wondering why is it taking more time to get that approval in the U.S. And the second question is about the performance in LatAm. It was flagged in the press release that it was also supported by the price inflation effect in Argentina. So is it possible to quantify what was that impact on the sales growth at constant FX for that region in Q1.

So when we look at the 2 questions, let me go for the first one, Anne-Laure. And Stellest, well, the FDA approval we shared last time that it's going to be an H2 2025 event and we are still there. It's a process, as you know, is not only on our hand, right? It's an engagement, it's a dialogue. It's an exchange of information, it's a feedback. And that process is going on with a high degree of commitment and engagement from our side. But again, it's a process, and we have to be respectful of this process. With respect to the performance in Latin America, I would say what it matters is when you look at some of those countries to see growth not only in price but also in volume. And that is something important, and we see it. We see it in some of the high-inflation countries like Argentina, we also see it in other countries like Turkey. And I think that's what really matters in that respect. So this was the last question for today's call. I want to thank you everyone and very much look forward to talking to all of you in our next call. Thank you, and have a good rest of the day. Bye.