Luxottica 4Q and full year numbers

Luxottica is a company founded by an orphan, not that it matters too much right now. Although technically not , his guardians were too poor to look after him. He redesigned the world of sunglasses (sunnies, shades), as well as the way people look at these semi luxury items. A good pair is not cheap, it is almost technically a durable good in terms of the duration of the life of the product. We should recycle them more often, those old out of fashion scratched Oakley's should find a home somewhere, or be sent to sunglasses heaven. Or sunglasses hell, no doubt when you are being recycled, it hardly seems like a good outcome for the piece. Luxottica, the company is a manufacturer and seller of their own brands, as well as manufacturing brands for lifestyle brands across the globe.

You will know their flagship brands, such as Oakley and RayBan, as well as their outlet Sunglass Hut. The company is controlled (perhaps too much) by founder Leonardo Del Vecchio. He is around 80 years old, tough as nails in controlling his empire and is a testament to how to overcome all. Not too dissimilar in a sense to the Spanish success story, the Ortega family, the folks who founded Zara. The company also operates in the huge lens market, making customer and optometrists lives a whole lot easier, in terms of turnaround times to get your specs.

Enough of that, there is no such place where shades check out and go to heaven, they disappear to the bottom drawer. The company reported full year numbers to end December last week. At face value the numbers reflect the global economy for middle to upper middle income consumers. Adjusted net sales on a comparable basis increased mid single digits, currency headwinds saw growth at current exchange rates only reflect a 2 percent rise to 8.8 billion Euros, profits of 1.42 billion Euros. A miss in terms of expectations from the market, and of course in this kind of jittery environment, it is always sell first and then ask questions later.

The company certainly ticks a lot of boxes. Selling semi luxury goods to rich people (by global standards). Their sales mix geographically is around 59 percent North America, 19 percent Europe. Meaning that the rest of the world, including Asia Pacific (at 13 percent) is only one-fifth of total sales. Down here, where the sun shines relentlessly, we fit into the category of rest of world, with a mere 3 percent of sales, I guess not quite a rounding area for the whole continent and the middle East, almost though. Latin America makes up the rest with 6 percent.

By these numbers one can easily see (sunnies on your head) that there is still plenty of room for growth globally. The sun may be very important to the successes of the likes of Tesla/SolarCity and the progress that Elon Musk makes for humanity, it is certainly very important for Luxottica. Like clockwork, the sun comes up and goes down each and every day, there is ALWAYS going to be a market for their products, of course their lenses in their other business help people who couldn't see before. I fit into that category, I had the laser operation, I am guessing that it may be another decade before I have to wear glasses all the time again. Money well spent though!

Expectations are always important for investors. Expectations that the custodians of your hard earned funds are looking after your best interests. Expectations that revenue and earnings growth are going to meet and beat your lofty trajectory. Shareholders are a real demanding lot, and why not, they after all have many choices, right? In this case the stock looks rather pricey at a forward multiple in the region of 25 times earnings. The dividend yield (in Euro terms, before tax) of around 2.75 percent is acceptable in a very low rate environment.

We started out the piece suggesting that founder De Vecchio was a loner from a very young age, not by choice. After a period of calm in terms of leadership, there have been CEO and co-CEO ructions, too many in fact, which is not great news for investors. Uncertainty, and the prospect that the founder still has an overreaching arm. Not able to find a captain to drive the business, perhaps that is the untrusting nature of his past. It is not normal for us to stay with a hold on a specific business, we are a buy or sell house, the current share price justifies the reality that the very short term sees stodgy growth. If you have this business in your portfolio, there is nothing to do. The growth rates will return, I have conviction on that score, not for the time being. This is where you need to be patient for a little while.