Check me, check you

Last week Luxottica released their 3Q results. You will remember that the company has been in a bit of turmoil lately with the ex-CEO, failing out with the founder and Chairman Leonardo Del Vecchio. Since then Del Vecchio took over executive roles until he recently appointed co-CEOs. Due to the "management crisis" so to speak the stock dropped around 10% at the start of October, it has recovered most of that lost ground over the last week though.

The results for the 3Q or the first 9 months have been strong with sales up 6.8%, margins grew by 70bps to 16.6% and operating income up 16.1% compared to the same period last year. Due to the increased sales and margins the company produced record free cash flow of 316 million Euros, which they used to pay down their debt. Their debt at the end of the last quarter was 1,429 billion Euros which they have reduced to 1,119 billion for this quarter, at that rate they will have no debt next year this time. I can't see any mention of what they plan to do with all the free cash once the debt is paid off but if I were to guess, stock buy-backs and further investment to grow their optical category.


Here is a breakdown of sales in the different regions:





Starting with the disappointing European number, the reason given was that there was not as much sun out this year as there was last year. Emerging markets had a very solid quarter with Del Vecchio having the following to say, "Luxottica also continued to grow stronger in emerging markets, reporting increases in sales of more than 30% in China, Brazil, India and the Middle East."


This a company that combines the luxury goods theme through all the brands that they sell and the healthcare theme through their optical division. The stock is not cheap at a PE of 33 but the valuation is for good reason. The company has a growing consumer base, growing margins and big cashflows. Buy