H2 Results well received

Luxottica is a business that is interested in looking after your eyes, with sunglasses, yet they also have a very significant normal eyewear (glasses) business, you may be familiar with LensCrafters. Glasses manufacturing used to take a week or two, nowadays you can have them in no time, an hour! Their North American business is 56 percent of their total business, Europe is 20 percent of their business. Asia is only 14 percent of their business, that is all.

You will know Luxottica from their flagship brands, Oakley, Ray-Ban and their front end retail offering, the Sunglass Hut. They manufacture sunglasses and spectacles (I bet you have not heard that word for a while) for almost every single iconic fashion brand that you could think of, from Tory Burch to Bulgari, Giorgio Armani to Dolce & Gabbana, Persol, Prada, Michael Kors, Ralph Lauren, Tiffany & Co., Vogue and Arnette. The list goes on and on. The very first licensing deal was struck with Armani in 1988.

Not only are sunglasses designed to give you a smidgen of coolness and let us face it, we could all do with a little more of that, they are designed to protect one of your most important senses. A LensCrafters exec is quoted on the website as saying: "Our eyes process 150 million pieces of information a year on average", that is 410 thousand pieces of information a day. Your normal specs are no longer just functional, for the last two odd decades they have been designed to be lightweight, scratch resistant, no longer made from glass, they are quite simply more than that. After all, if you are wearing something on the bridge of your nose for more than half the day you should have extreme comfort. Statistics suggest that more people should use spectacles, or contact lenses, this is big, really big business.

There is only one "problem" that you have as a shareholder of this business. The founder and main shareholder (and chairman), Leonardo Del Vecchio is back "running" the business, there seems a little too much overreach in that regard. Andrea Guerra resigned back in September last year, after holding the top job for over ten years. The management structure is currently two CEO's below a chief figure, one to oversee the operational part of the business (Massimo Vian), manufacturing, quality assurance, style and design, whilst the other CEO (Adil Mehboob-Khan) is in charge of the retail and wholesale front end. I guess being a business of two halves makes sense, there is one CEO a level up to manage the whole thing, Enrico Cavatorta.

Leonardo Del Vecchio controls the company through a Luxembourg business, Delfin, which has 61.42 percent of the issued share capital. Believe it or not, the next biggest shareholder is Giorgio Armani with 4.955 percent (of which 2.947 percent is held through the ADR program), 5.73 percent of the stock are ADR's, the balance is held on the Milan stock exchange. There is another Del Vecchio on the board, Claudio, one of the founders 6 children. Claudio is the first son, he is also the CEO of Brooks Brothers, the company that has outfitted 39 out of the 44 US presidents. Ralph Lauren was in a previous life a salesman there, Wiki tells me. So, the point I am trying to make is that while Leonardo is large and in charge, and at 80 he looks fit and healthy, there is a succession plan even if his interventions are currently too much. Too much for some shareholders, I suppose he has their best intentions at heart, he built the business brick by brick.

Quickly to the half year and quarterly numbers. At a quarterly level this was a record. The group recorded a whopping 21.4 percent growth in net sales for the second quarter, the weak Euro has been helpful. At constant currency exchange rates, revenue growth was 6.6 percent. Obviously you can see the benefits of having a large US business and reporting in Euros, for now that is. Earnings per share, US, clocked 0.72 Dollars. Remember that the ADR trades at 72.65, you can quickly (if you annualise that number) get to a price to earnings multiple of 25 times. The yield is a paltry 1.1 percent, the dividend has increased tenfold over a decade and a half, that is what you want to see as a shareholder. We continue to recommend this business as a buy, great brands, growing market.