Luxottica numbers - slow growth, merger still on

Luxottica, the eyewear manufacturer, designer and distributor reported results last week. The business is made up of a few parts, the retail outlets you would know well as a customer, the Sunglass Hut, you would also be familiar with their brands if you bought online or at another outlet, Ray-Ban and Oakley, as well as Persol and a couple of others. You might also have worn one of the many licensed eyewear products that they manufacture for many luxury brands, here is a list of some of the brands you can buy at their outlets: Giorgio Armani, Burberry, Bulgari, Chanel, Dolce&Gabbana, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Versace and Valentino.

There is also another part to the company, their LensCrafters business where they are a global leader in prescription eyewear. There is always an irony for me, as a previous wearer of spectacles (and no doubt future wearer of spectacles), that someone with prescription eyewear is a "four-eyes and a nerd", yet someone with sunnies (essentially the same thing), is cool and hip and with it. How does that work? The mysteries of humanity, sheep thinking and what is cool and not. All I know is that the sunnies protect your eyes against the glare and that spectacles help you see better. As simple as that, they are both helpful.

Sales for the 2016 financial year topped 10 billion Dollars, 10.056 to be more precise, an increase of 2.6 percent on the prior financial year. In Euro terms, sales grew a little over 2.8 percent. Basic earnings per share in Dollars (all that we care about) clocked 1.96 Dollars, an increase of 5.6 percent. The dividend is 50 percent of earnings, and as ADR shareholders, one will get the annual dividend on the last day of May, the equivalent of 92 Euro cents per share, less Italian dividend withholding tax. At nearly 52 Dollars a share, the stock trades on over 26 times earnings. And you and I can plainly see that the growth rates have definitely slowed. Added to that, Italian dividend withholding tax is 26 percent, so the yield pre tax at 1.88 percent is hardly a "steal".

The 2017 outlook is for low to middle single digit sales growth, most of the other metrics "staying the same". The stock reacted negatively, as you can understand. On what is a pretty demanding multiple, the year forward represents few opportunities for shareholders. There is something very different going on in the background, there is a deal pending with a French competitor of a similar size and scale, we wrote about this - Essilor & Luxottica to merge. We are currently not adding to this stock, we are awaiting the outcome of the deal and will assess post that. For the time being, we see little growth here, yet at the same time this is a growth industry.