Luxottica Q4 Earnings Call Transcript

123jump.com Staff
30 Mar, 2010
New York City

Revenues fell 6.4% to

Luxottica Group S.p.A. ((LUX))
Q4 2009 Earnings Call Transcript
March 2, 2010 4:15 a.m. ET

Executives

Alessandra Senici – Group Director, Investor Relations
Enrico Cavatorta – Chief Financial Officer
Andrea Guerra – Chief Executive Officer
Paolo Alberti – Executive Vice President, Wholesale Division
Colin Baden – Chief Executive Officer, Oakley
Kerry Bradley – President, Luxottica Retail North America
Fabio D''Angelantonio – Chief Marketing Officer
Sergio Farioli – Director, Group Engineering and Manufacturing
Carlo Privitera – Chief Investment Officer

Analysts

Allegra Perry – Nomura
Julian Pope – Barclays Capital
Thomas Schiessle – Citigroup
Edouard Crowley – BNP Paribas
Phil Clark – Teeramis
Peter Farren – Bryan Garnier
Stefano Corneliani – Intermonte
Francesca di Pasquantonio – Deutsche Bank

Presentation

Operator

As a reminder, a slide presentation is available for download from Luxottica Group''s website, under the heading Investor Relations Presentation section. This presentation includes certain non-GAAP financial information within the meaning of Regulation G under the U.S. Securities Exchange Act.

Further information, including additional information required by Regulation G is also available in Luxottica Group''s press release, relating to its results for the Fourth Quarter and Full year 2009, which may be found on Luxottica''s website, under the reading Investor Relations Press Releases section.

During the course of today''s call, certain projections or other forward-looking statements may be made by management regarding Luxottica Group''s future financial performance or future events. On behalf of Luxottica, we wish to caution you that such projections or statements are based upon current information and expectations and actual results may differ materially from those projected in the forward-looking statements. You can read more about such forward-looking statements on page two of the slide presentation.

Luxottica also refers you to our filings with the SEC and Italian securities authorities. These filings contain additional information concerning factors that could cause actual results to differ materially from those contained in management''s projections or forward-looking statements.

Alessandra Senici

Ladies and gentlemen, good morning and thank you for joining us today. This presentation is being recorded and is also available via audio webcast from our website.

Today''s presentation will be divided in three sections and followed by a Q&A. The focus of the first section will be 2009 results and the key strategies of our Group. The second section will be about planned growth drivers and outlook for 2010. We will follow with a 20-minute coffee break. And finally, the third section will be focusing on four areas, which represent long-term growth opportunities for our Group. Then we will take your questions.

Now, we would like to start, as we do every year, with a video on OneSight, our foundation, which helps people in need who cannot afford basic eye care.

Now, here is Enrico Cavatorta to comment on 2009 results.

Enrico Cavatorta

First of all, let me start, good morning. Let me start with a brief snapshot of our main results achieved during 2009. I would say the most significant achievement this year, before we look at P&L, has been our cash generation. We have seen that in the 12 months, we have generated 691 million euro of free cash flow. We have invested -- distributed a small amount of it, 100 million euro to our shareholders.

Most of it has been used to reduce our outstanding debt that was 2.9 billion euro at the beginning of the year and resulted to be slightly in excess of 2.3 billion euro at the end of the year. The 691 million euro, we will see that later on, is more than double than 2008 free cash flow generation despite a fall in profitability that we will see more in detail in a moment.

Our Group sales resulted in the end at 5 -- in excess of 5 billion euro, so in line with our record year across 2008 and excluding currency effect, on a like-for-like basis, they were only 3.8% below a year ago. If four months ago, in this same room, someone would have told me that our end results in terms of sales would have been 3.8% down, I think I would have sputtered, given how well the financial market and what was the condition of our market was spread in the world four months ago.

We have been able to achieve that result thanks to the solidity of our house brands, mainly Ray Ban and Oakley, that both grew double-digits during 2009. Their underlying profitability, we shall see that in a moment, has improved quarter-after-quarter. You all remember, the first quarter of the year was quite -- we were -- our sales were down double-digits and our profitability down approximately 30%, while those results have improved significantly during the quarter.

Finally, thanks to those results we''ve seen last night, we are proposing to distribute, next May, the dividends for 2010, 60% higher than last year, so in total 160 million euro. Let''s see, more in detail, how those results have been achieved during the year. First of all, if you look at sales, as I said, we give all these numbers are like for like. So they have been adjusted to exclude the non-recurring gain of costs of ForEx effects -- for ForEx effects and we will see in a moment exactly how they have been adjusted.

First of all, our sales growth, 3.8% down and you see the performance during the quarter starting from a dramatic 11.2% down in the first quarter, we are then progressively improving. In the last nine months, our sales performance has been in the low single-digit loss or in the fourth quarter we were turning that up, 3% more, and let me say that this trend is continuing even stronger during the first two months of 2010.

So we are quite more relaxed now than we were 12 months ago. This has translated into a better performance in terms of operating margins. This graph here, on the upper-right side of the slide, represents the shortfall effect of basic points of our operating profitability quarter-after-quarter.

The average of the year, on an adjusted basis, has been 220 basis points, largely in line with our sensitivity issued 12 months ago and again more importantly the trend has been consistently with our sales trend improvement. In terms of net income, the bottom part of the slide, the net income in euros on the left side, this has come out biased by the huge fluctuation of the euro-dollar exchange rate.

So I was saying our net income in euros has been somehow biased by the huge fluctuation that we had quarter-after-quarter in the euro-dollar exchange rate. You might recall, during the year, it went from 130 to 160, now it''s back to 135. So what is more meaningful is the trend of our net income in U.S. dollars, because as you know it''s more stable or less biased by debt exchange rates.

You might see that our average results of 18% down were basically due to a huge focus in the first half of the year, in the 30% range, while in the second half of the year, we were back to a single-digit loss. I said that a moment ago that those results are broadly in line with our -- these results are broadly in line with our sensitivity analysis. They''re the same sensitivities analysis that we disclosed three months ago. You might recall that we said that in the central part of these sensitivities that were targeting a mid-single digit sales shortfall, between 4% and 6% down. We were expecting 320 basis point dilution in operating margins and a net income fall between 15% and 20%.

In the bubble, you see the actual results. We have been able, at 3.8%, a stage also to deliver a 220 basis point dilution, so I would say better than that. And our net income was broadly in line with our expectations. Quarter-after-quarter, those results might have been slightly better or worse in the sensitivity.

I think the results should be judged on a total basis, when all the different accounting pros and cons will settle and so therefore this is a total 12-month results that are the most meaningful. Now, I said that those that I presented are adjusted numbers. Here is how we have adjusted.

Of course, we are not adjusting the numbers just to -- just for them to look nicer, even if that is the case, but because we want to exclude all the non-recurring items in order to focus on the underlying pillars of our business. First of all, you might remember that in 2008, we had the 53rd week effect in North America. So we are taking that out from 2008 numbers. In 2009, we have a much smaller 53rd week effect, it is for our Asia-Pacific region and so we are taking out the positive effect as well, out of 2009.

You might wonder why we have different 53rd week, depending on the region of the world, but I would say that is a quite a boring explanation, so I will skip that. But we are targeting towards the common year for a 23rd week next time that this will happen. Also in the fourth quarter, we had approximately 7.5%, 7.5 million euro, of restructuring costs. Those are mainly in our Retail North America division, mostly due to restructuring anticipated and voluntary closure of stores and some severance packages we will offer to employees that have left the company.

Last year, in the fourth quarter, we had an extraordinary capital loss related to the sale of a note, a credit, that we had in our balance sheet since 2006. It was originated by our sales of this tremendous business back in September 2006. That sale, we had installed a capital loss of 15 million euro after tax in 2008, that was disclosed last year and so we have taken it out. And finally, in October, we have already seen, when we disclosed that we -- in the third quarter of ''08, we had an extraordinary non-recurring gain of approximately 29 million euro, which was related to three different measures that did lift it there. And you might recall we disclosed that when we were commenting on the third quarter results, financial results. Of course this also has been taken out.

So excluding all those effects, you have the net sales for our total Group for Retail and for Wholesale, both on an as-reported basis is our GAAP and on an adjusted basis. They have been adjusted exactly the way I said and here you can see exactly the impact of the adjustments and the numbers that we''ve seen on the press release that we''ve seen on the graph and the previous slide, I was only commenting on these numbers, the adjusted numbers, because I exclude the non-recurring effects. So again, fourth quarter by far the best of the year in terms of sales. Total Group, up 2%, driven by Retail, that was up 3.5%, while our Wholesale was flat. You might recall, Wholesale, at the beginning of the year, was down 20%.

Profitability, on a reported basis, we have lost approximately 300 basis points, but if you take out the effect of the 53rd week and the non-recurring loss, actually the real adjusted total profitability has been 190 basis points. Particularly affected is the Retail because, as I said, most of the non-recurring costs in Q4 were in the Retail division. So the real performance of our Retail division was down 220 basis points.

You might argue why our profitability is going down in Q4? We should say it''s going up, but again, two things. One is; if you remember, given the fixed cost structure that we described at the time of the sensitivity, even with the flat sales, I think these 12 referred to here.

So even with flat sales, we were projecting 120-basis point dilution because of the impact of the fixed costs. And also, don''t forget, the impact of the exchange rate that, of course, was taken out of that profitability. So basically, this is the reason why our profitability is going down in Q4. And also, let''s not forget, as I said before, from quarter-to-quarter, in my way of some switch and some ups and downs as to the sensitivity, but basically due to the accounting charges that we can adjust on a quarterly analysis, but then they all settle in the 12 months here.

So if I look at the 12 months that are more significant, I would say, as I said, we have been able to deliver a 3.8% performance in sales that again was mostly driven by better performance in Retail than Wholesale. Why is that?

Because in Wholesale we''ve been penalized in the first half of the year, I would say in the first quarter of the year, by the destocking effect of our customers. And this, of course, didn''t happen in Retail. So I would say that a lot of our -- of sales was probably broadly in line with our Retail performance than -- of course, the geographic distribution is different.

Because as you know, Retail for us is mainly North America, while Wholesale is much more widespread worldwide. But on top, in Wholesale, we had, in the first quarter, the destocking effect. So that''s why we had a negative 7% for the total year average. But as I said, in the following quarter, Wholesale has improved.

12-month profitability, this is the number that I mentioned in the original chart, 220 basis points dilution with 4% sales total. This is the number, basically, that represents better than any other number the performance of Luxottica during these 12 months. In terms of net income, as I said, 14% on a euro basis, 18% on a dollar basis, again, broadly in line with our sensitivity. And among the divisions, not surprisingly, Retail division performed better than Wholesale due to a different set of markets.

Moving to the cash flow, 2009 has been by far the record year in terms of free cash flow generation. 691 million euros, more than double the 302 million euros generated during 2008, despite a short-fall in profitability that you''ve just seen, has been in absolute terms. We have lost 150 million euros of EBITDA and despite that, our figures for generation has been more than double.

Of course there has been a number of actions, one voluntary action has been the reduction of our CapEx, that has been reduced by 30% in 2009 versus 2008. In terms of absolute amounts, we are talking of 200 million euros invested in versus more than 300 million euros invested in ''08. But I would say one of the most important effects has been the net working capital control. All eyes on the net working capital, payables, receivables, investments.

Overall, for the 12 months, dollars generated have contributed to this free cash flow generation for 129 million euros of free cash, while in 2008, the net working capital has absorbed 22 million. So clearly, this is a huge difference that explains a big part of the difference and also if I look forward, clearly this is not the result that I would expect every year. We might say that in a year of falling sales, it might be easier to reduce working capital than in a year of growing sales, this is true, even if sometimes the timing is not exactly in your hands.

But since for 2010 we are projecting to restore back our growth in line with what''s happening in the last five months, in the last quarter and the first two months of this year. Clearly, you would expect a net working capital effect negative in 2010. Our target is, of course, to remain positive or at least to break even. But, of course, we do not expect another 130 million euros free cash generation.

The second -- another big effect here, the tax effect, in 2008, we have paid more taxes than those charged to P&L. In 2009, we have used those tax credits, so we have paid approximately 100 million euro less taxes than those charged to P&L. So now the effect was settled and starting from 2010, you would expect that we pay the exempted taxes that are charged to the P&L and we should not have this debit and credit effect that helped 2009 free cash flow.

Finally, this is a result on our net debt. It went down from 2.9 billion euros to 2.3 billion euros. Our ratio, despite, again, the falling EBITDA by 150 million euros has improved from 2.9 to 2.7 on a reported basis, basically from 2.8 to 2.6, if I exclude the different exchange rates that you have to -- that you use to consolidate net debt and EBITDA. So excluding that effect, standard effect, still you have an improvement and still the number looks quite promising, versus the beginning of the year or versus our worst results that was at the end of third quarter, when we were at 3.1.

So clearly this gives us a lot head room and a lot of financial strength in order to continue to sustain and to generate other growth. Thank you. I think before I leave -- before Andrea takes over, I think we have another small video. Thank you.

Operator

Ladies and gentlemen, please hold the line as video is currently being shown in the room and the presentation will resume shortly.

Andrea Guerra

So good morning to you all from my side as well. It''s a beautiful day. I mean, we are -- today we are much happier than exactly 12 months ago, we were exactly in the same room and we came back here in order to build another story and I think we are already building it. So I would like just to go through, very briefly, on some of our key assets -- key strengths, but before doing that, I will take you over some of the challenges we faced and some of the challenges that we will still continue to face in the next periods and months.

So the -- I think at the end, when it -- a year ends and finishes, we have to summarize, we have to think what happened, we have to think how we behaved, how we worked. You will not find the slides in your presentation, so it''s useless that you all are looking for them, it''s just here, so you will not find them, you can just read them.

So I think the biggest challenge has been the following. We are two-thirds -- almost two-thirds of our sales are Retail, almost 60% of our sales are based in the States. In the last three years, we have the explosion of the premium and luxury segments, and I think to end up a year like 2009, minus 4% in sales and minus 18% in net profits. I think already there''s small equations tells it all.

If we want to go in detail on some challenges, I think the biggest challenge we had was the price mix effect. This is not finished, this will go along next quarter and in all our presentations, you will see how we are challenging that. That''s a fact. That''s a matter of fact today and we''re challenging that as strong as we can. You will see on our strong brands, in Ray Ban and Oakley, everything we''re doing to manage the mix, what we''re doing on our premium and luxury brands in Wholesale and what we''re doing in some Retail and optical Retail in order to cope with the challenges and weaknesses.

I think this is the challenge we will face in next quarters as well. Sunglass Hut U.S. has been the best year for Sunglass Hut across the world, in terms of brands, in terms of store format, in terms of business model, it''s totally received across the world. Even in the U.S., when you''re going on the quality measurements of the key performance indicators, everything is up and strongly up.

We had low traffic for many years, many months during last year. We started off, as you all remember, at minus 18% during quarter one and we finished almost break even at Q4. So it''s improving, the first two months of 2010 are positive and therefore we look forward to a better year in Sunglass Hut.

Sunglass Hut is a very quite simple business model. Most stores, most of our stores, are in the region of the 70, 75 square meters. I would say that more than half of our stores are on a single shift for labor and the profitability, average profitability, per store in the States is about 20%.

Therefore, we had just to suffer a little bit. Traffic is coming back and we see it. The main regions of the United States are coming back today. Therefore I would say Sunglass Hut has been a major challenge in 2009 and I think that we will recuperate during 2010. LensCrafters has been the other main challenge we had in ''09. LensCrafters, we said more than once, was hit by a perfect storm; 80% of LensCrafters'' consumers are not insured, 25% of our sales were the second unit we were selling and most of the time was sun and we have seen what happened to the sun consumers looking to Sunglass Hut.

Regions like California, very important for LensCrafters and we lost, we lost some ground. We made some mistakes and I think that in the last nine months, we understood very clearly and I think we were very also clear in our disclosures, what we have to do. We also reorganized our team in the last eight months in a significant way and I think this is the best result that we can talk about for the first two months.

The first two months, obviously, do not tell the story of a year that we imagined in the first 60 days of 2010. Considering the weather that we also had in the States with, I would say, probably two or three full days of a lot of store closures around the country, we are plus seven with LensCrafters.

So I would say Sunglass Hut is, in the way, progressive improvement, LensCrafters has improved and we will challenge the price mix effects for all of 2010. We are going back to our assets. I think that they are very easy, very clear to be understood what it''s for. It''s Ray Ban and Oakley on one side and on the other side, a very strong brand portfolio. Obviously, sometimes a brand portfolio, which is heavily concentrated on the luxury and premium is a strong asset, sometimes it''s a challenge, but we are proud of the brand recovery.

On the other side, the fact that we have Retail and Wholesale across the geographies, our Retail is in the premium side, but we also had some good value-oriented brands that Sears and Target that really performed well during 2009. We have discussed, in the last three years, continuously of how we are changing our approach in the Wholesale segment and we will see the results of the two big segments of our sales, how they performed during 2009.

The other has been easy. We still manufacture, today, I would say, 80% of the molds that then we use to manufacture basically everything we sell. We ship to the market more than 1 million units a week. We are represented basically on all countries of the world, with our 6,500 stores. We were quick, we were adaptive, we were flexible and I think that that has been the main reason of the great cash generation Enrico was talking about before.

Ray Ban is stronger than ever. I mean, we had, since the acquisition of Ray Ban , which is now 11 years ago, a growth of plus 6.5% for many years. In the last year, we won double-digits, 11.6% growth of Ray Ban . As you can imagine, we are, every couple of years, doing a brand health check and it''s not just business, it is not just performance. The brand health is excellent and I''ve just given you an example of the home country of Ray Ban , where Ray Ban suffered the most, it''s periods of decline of the ''90s, U.S.

As you can see, it''s not a marginal increase of key qualitative performance. It''s a massive increase and the brand is healthy as ever. On the other side, Oakley, I think that Oakley is the other great pillar, great asset that now the Group has. Growth has been spectacular during integration projects, during United States 2008 and 2009 and overall we have started to see in 2009, strong acceleration in many different regions of the world.

Colin will tell you how we have worked on distribution first and now how we are heavily investing around the brand in each specific region across the world because we are pretty sure that as we will see in the third section today, it is probably the strongest growth engine Luxottica has. We talked about how we are present in Wholesale and Retail and as I said, it''s not just any more U.S. presence, but we are starting to have a 20% of Retail outside the U.S., how our Retail is not just in the premium segment. Now we were, with our footprint in many different segments and that helped significantly in a period like 2009 and how our brand portfolio, as I said, in 2004, 2008, we were so helped by the fact that we were carrying such strong brands in the luxury part.

Obviously we suffered. I think that not much sell-outs, but less stocking was violent on the upper side of the brand portfolio by our customers. We are not seeing it fully back at all. I don''t know how long it would take to sit fully back, but we are in a better position today compared to a year ago, with two or three strong brands, which are in the healthy double-digit part of the equation today.

Emerging markets, let''s go back a couple of years, 2008 was our strongest year ever in those markets, reaching basically a growth of 20%. So we really were coming out by a long-term story of growth of three or four years. 2009, this psychological reaction at the beginning of last year was really strong. We were down by 23% in all emerging markets in Q1, but immediately, Q2, Q3, Q4, we''re up, we''re up mid-single digits. In the last four months, I would say we''re back to double-digits. I think this is, again, one of the things we will see in the third section because we believe that this will, again, be a great engine of growth.

In any case, 2009, we had some double-digit performers, South Africa, Brazil, India, high single-digits, China and Korea; one strong negative, Russia. This is an example of how we have seen growth behaving -- performances in growth behaving differently in different segments of our Wholesale customer base.

Our key accounts, our top accounts and our STARS activities, as you''ve seen, have continuously reacted during 2009. We started off with a very negative number but immediately in Q2, with our best customers, we were positive. As you can see we were -- have been slowly moving on our traditional Wholesale and I would say that we start 2010, that shift between being very traditional in the way we were serving our customers and our journey in the last three years to move in a more contemporary way of managing our customers, I''d say with 2010, the work is fully completed.

I think Enrico talked very well about it and I think that if you remember when we were in October 2008, October 2008, we had already reacted in our inventory management. I think that is a strong highlight of the fact that through our vertical integration we understand exactly what’s going on in many different markets and a few star, we also understand where we are present with the phase, how those markets are performing and we immediately acted and reacted in our inventory management and obviously, this will help significantly in the first couple of quarters in 2010.

Just to give you a small example, the working days in our manufacturing activity, for the days we work in our factories, in Q1 2010 is nine, ten days more than what we worked during 2009. Because of the voluntary stops, because we started working some days later at the beginning of the year and because, during March, we will have three extra positive Saturdays in our factories in order to react to the demand we have.

So all of this to say that, again I''ll repeat it, always keep in mind that almost two-thirds of our sales are Retail, almost 60% of our business is in the U.S. The great explosion we had experience in luxury and premium in the three or four years before 2009. I think having said all of this, looking to sales, minus four, net profit minus 18 and EUR700 million of free cash flow generation, if I had to sign a piece of paper with these numbers a year ago, I would have done it.

So we entered 2010 with a different mindset and I think that now we can really go through our plan and be sure that I think if we are able to achieve our results of 2010, it''s everything is in our hands. It''s not the environment, it''s not the market, it''s not competition, it''s if we''re able to execute properly or not. I think 2010 seems, in guidelines, is this; are we able to execute properly or not?

And I think that there are so many good items here and good topics and I''ll ask Paolo to come over. Many of you have met Paolo. Paolo has joined Luxottica nine months ago to lead our Wholesale activities. Some of you met him in different occasions and he will go through our 2010 plans. Thank you.

Paolo Alberti

Thank you and good morning. When we talk about the Wholesale business, when we look at how we can best ensure future growth, sustainable growth, I think one great aspect of this is that idea of thinking globally, yet also acting regionally or even locally when it needs -- when need be. We can do this better than our competitors and acting locally or regionally may mean a promotion that is treated in a different way, all the way to different marketing activities, but also even products. We''ll talk about that a little bit later on. But this is key, because we are a global company and we need to think big, that we also are able to execute regionally.

You will see on the left and the right-hand side of that chart, when we talk about what -- some of the things that we are going to be doing in the developed countries and the emerging countries, some of those things may look specular and they are. Just a little bit in a different way, and I think we should talk a little bit about each one of those. We talked about our powerful brand portfolio.

Obviously, in the developed countries, where the awareness of fashion, of luxury and of our own brands is very strong, we have brands that are able to meet all of the needs of a more sophisticated developed country consumer. We''ll talk about what we can do on the other side in a minute.

We have products because of our ample portfolio, that can either be tailor-made, for example, we have some Ray Ban models that are exclusives to one of our biggest customers, Pearle Europe or a Burberry exclusive in Spain, I won''t say the customer yet. But here we can see that we have specific models or brands for our customers. We also have organizations that are designed and are changing.

Right now, we''re undergoing a huge change and transformation in the U.S. with the objective of getting close to our customers, of understanding them better of gaining more ownership and making sure that we have those top-performing customers that we saw in the chart that Andrea was showing to you; that are able to perform better thanks to a better service that we give them, thanks to better information sharing.

We also have, what we saw before, called a partnership model. That means long-term partnership with our clients. We signed contracts that usually are no shorter than two or three years, where we give our clients, Pearle to others, slightly better margins, a better service. Certainly, people that are dedicated to their satisfaction and they give us long-term visibility, two or three years'' worth of visibility, extra visibility.

We give them certain exclusives and they give us partnerships that we''re able to also manage our production, thanks to collaborative planning. They give us their orders much earlier. We are able to serve them better. We are able to plan our factories better, giving us also an advantage in costs.

Now, let''s look on the other side. Some of the things are speculative, like I said, but a little bit different. We were the first to move in some of these emerging markets, the first ones to get there, sometimes not with a -- with -- through distributors and taking over distribution, but also setting up pools of affiliates. We are in China. We are in India. We produce in India. So we have a local presence. We are in Brazil. We are in Argentina. Those places where we''re not, we have people now; a Singapore office that takes care of the region. So we are there, listening, understanding and able to move quickly towards a more sophisticated distribution model.

Again, our powerful brand, maybe we don''t have the awareness that we would, that we do, have in our developed countries, but there are investments in our strengths, we can build that awareness and we''ll talk about some specifics later and again, we have the power, we have the strength and we have the economics to finance strong investments that not only build the awareness of our brand, but build the categories. So let''s dig a little bit deeper and see what we can do in the developed and emerging markets in order to build our strengths.

The first is, obviously, we talked about our -- I like to call it our Retail arm in Wholesale, STARS that you all know about. We are undergoing great leaps in knowledge and great leaps also in technologies. Carlo Privitera will talk to you later about some of those technological leaps that we''re making. We are going to expanding further in Italy, France and Spain, but also somewhat in the U.K.

Out of the 700 to 800 new doors that we will add in stores, about half of those will be in Europe and the other half we''ll see will be in emerging markets. We talked about average price. Well, we need to improve our average price also on Ray Ban. What can we do there? I''ll talk about it very briefly. Three projects that are on an average price of about -- between 40 euros and 50 euros higher than the base product in Ray Ban.

We''re talking about Polar. Basically, this a great technology that, to put in very simple terms, is eliminating glare from the sun and you can see much better. I don''t know, I was talking to two of you before, there you go, he''s fishing and he needs to have Polar glasses and he says the fish come out of the water almost. It''s not the fish that are actually coming out of the water, it''s that with Polar, without the glare, you can actually see them much better.

So this is a technological and a functional aspect of Ray Ban . Because, let me remind you, Ray Ban has two souls to it. A very performance related soul, a technological soul and another soul, which is what I would call, excuse the expression, kind of cool and trendy. For another technological innovation, let''s talk about Tech, Carbon Tech. Titanium Tech is synonymous with performance.

In this case, we are looking at Carbon Tech, which using motorcycle technology from a company that works on carbon and Kevlar and make light, completely resistible glasses -- break resistible glasses that are also very technological in terms of design aspects.

Then we want to talk about the soul, we have Rare Prints that are the more cool kind of Ray Ban heritage to it. It was born from the colorized, color versions, where all of the sudden glasses become very colorful and very playful, in this case, we had -- we just finished the New York subway Rare Prints.

Now, we are going to be launching very shortly a series of limited series of artists, a very cool I would say, again excuse the expression, a very cool Ray Bans. We also have to, though, scrunch in our luxury brands. Again, thinking about the growth, but thinking about also the average price.

Here, we have continued strong marketing support and we also have special projects. You''ll see some of them outside during the break and two of these projects that I''ll mention very briefly here, because you''ll see it later, one is the Madonna that you see on the top where Dolce & Gabbana and Madonna have partnered with also Luxottica on a major, major project.

In this case, there are six SKUs, six different models that we will see here and then there will be more coming out in October. So this is something that we''re talking about. As of today, clients are seeing them, if the buying days that were -- that are happening from today in (inaudible).

The other is -- it''s called Prada Postcards and basically they are postcards meaning that coming from the apparel of spring, summer, there''s a color that signifies a different place of leisure in the summer time. I remember the green is Forta de Miarmi [ph] and I don''t remember the other five, but we''ll see some of them outside.

We have also another area that we need to focus on, which is the prescription business. It is a more resilient business than the sun business. It is also a bigger business because let''s not forget, the market is about 60-40 in favor of prescription and we are about 35-65 in favor of sun.

So, I mean, we have the possibility and we need to grow in this business. It''s not just words on paper, we''re doing that and we have, in terms of Ray Ban and Oakley, we have very strong brands that we sell in sun and prescription and we need to make sure that our clients, by giving them extra discounts or promotions or display, are able to have both the prescription and the sun together.

We also need to have dedicated after-sales and we''re working on this strongly and we''re launching a program in about two weeks from now with Karlo Salmoni [ph] on this in order to bring the supply of spare parts from two weeks to one week. And we have a complete reorganization in place that will monitor and help the European and the worldwide business to grow in the Rx segment.

Finally, concentration on sell-outs, I''ll give you an example. Six months ago, we gave a major promotion in Cortinglass [ph]. We had something that I brought a bit from the perfumery, which is sell-out people that are actually selling out the product, pushing it, and we sold, this was on Ray Ban, and we sold 36% than at Cortinglass [ph] without the sell-out people.

So we are going to continue to do and we''re adding sell-out at merchandisers all throughout Europe, but not only, also in South America. Now, let''s look at also at what we can do. STARS is another great way of helping our customers that are less sophisticated manage their sun care and their Rx.

In other words, it''s that Retail arm that I was talking about into the Wholesale and we can do that also and we''ll be doing that. About half of our effort will be done in emerging countries. In terms of distribution, things that we have learned and that we have done in the more developed countries, we are now doing also in emerging countries.

We have started to do a true segmentation to get closer to those customers, to understand them better, as we did in Italy, in the U.S. and as we have -- those resulted in changes, major changes, in our sales forces. We are looking at establishing long-term agreements with key accounts that perhaps before we didn''t consider as key accounts.

We are looking at this in China, we are looking at this in India, we are looking at this at South America. In terms of organization, I was with Colin about last month and we were there at the birth of the new Oakley-Luxottica company in Brazil. Believe me, there was so much energy, so much power and it wasn''t about they and them and before and it was about us, the two companies going forward and conquering even more of the Brazilian market, which was with both strengths of both businesses.

It was just a beautiful thing to see and we will continue to work on integrations in South Africa, that is happening as we speak and then we''ll see other opportunities where they come. I think one very important thing that I was talking to you about before is the product.

Now, we realize that in many emerging countries, in this case the -- what we are seeing is China, we have a product that was designed for emerging countries that has a price for emerging countries. We are talking about between 20% and 30% less than the average European price that will be advertised for them and all this, we believe, is an opportunity, not just for China, but for all emerging countries.

Here, we see where we were talking about the seeds of even going as far as creating a product that is regional. It doesn''t mean that it''s local, local, but regional could mean emerging countries, even over and above just Asia. So I think that this shows just one first step towards a more sophisticated product approach that could give us even further strength and competitive advantages in the future.

In terms of advertising investments, again, I think we will see and they have been basically approved, major advertising investments behind this campaign and others that will follow and we will do two -- create awareness behind Ray Ban and the second create awareness of positivity behind the whole category. It might help our competitors also, but definitely we will be there first.

To give -- to finish my speech with a little bit of fun on Ray Ban, the cool and tech part, please leave you with a short movie and thank you very much.

Alessandra Senici

Colin Baden, CEO of Oakley to tell us something about Oakley and then talk about ''010.

Colin Baden

This always happens to me too.

Operator

Ladies and gentlemen, please hold the line, a video is currently being shown in the presentation and the presentation will resume shortly.

Colin Baden

That''s me. I saw some analyst reports that maybe awareness of the brand wasn''t too high in Europe, but I''d like to just go through a little bit of background about who Oakley is. I think most importantly, as a brand, Oakley is authentic, which typically is the hardest thing to create.

I think we are authentic because of three distinct pillars. The first is that the brand invests in research and development. The reason it does that is it''s great to go to an athlete or a consumer and physically show them why our products are better than our competitors. These demonstrations have huge impacts, not only in the sporting world, but in the Retail world as well.

If you look at our sports heritage, when you''re making products that you can show someone that are physically better than everybody else''s and that person depends on those products to win or survive a battle, he''s an immediate customer. So worldwide we have over 1,400 athletes that are hard core brand aficionados who want to deliver on a promise to their fans that the products they wear are making them better.

There''s a reason they''re making them better. It''s an incredible -- it''s a credibility boost that I think in the sport world, no other brand can speak to. The third one is our unique product philosophy, our approach to design. We look products as -- it''s the hero product that''s going to bring somebody to the brand. It may not be what they buy, but it''s what brings them to the brand.

So an example would be on the screen, you see a glass down towards the bottom that''s over the top. It''s a glass that went over the top of your head. I can tell you, if you''re a cat sitting at home watching the Olympics and you see some sprinter going down the track wearing a glass that goes over the top of the head, you are thinking a couple of things.

First, those guys are crazy. The second is, you''re thinking I like these guys, they don''t take themselves too seriously and I want to be part of the brand, but there''s no way I''m going to wear those glasses with my suits. So you go down to your local Sunglass Hut and you buy a very easy-to-wear model like a Pharaoh 5 [ph], and you''re off for the races and happen to represent the O.

Oakley is an odd brand in sports because we are relevant to so many segments of the sport world globally. I think about it this way. We have true relevance in skate, snowboarding, ski, motor sports, golf, cricket and I think about my neighbor''s kid. When he sees his dad wearing his stuff, that''s the last he''s going to wear that stuff. He''s pretty much turned off by Dad wearing your stuff. Somehow, this brand has managed to not get trapped in that vicious cycle. Somehow this brand is able to elevate itself above that discussion.

I think it comes back to my original point. Oakley is authentic. The kid wants to wear our product because it works, it''s real and he wants to excel. The dad wears the product because he wants to look like his kid. It''s pretty simple. I think you have to be dead living in a cave on the moon if you haven''t seen our exposure in Vancouver in these last two weeks, it''s been absolutely astronomical.

We have about 362 athletes in Vancouver. This chart is wrong now. We actually have 65 medals and 24 of those medals are gold. So I cannot believe the accomplishment of our Sports Marketing team.

It''s different this year because usually we went into the Olympics focused on the athletes, focused on building a safe house for the press and the athletes to get together. This year, we essentially went into town and said how much of this town can we decorate like Oakley? So if you physically were able to travel Vancouver, you would see the train that goes from the airport to downtown is completely wrapped in Oakley, the gondolas that go across the mountain completely wrapped in Oakley.

Every storefront that carries our product has a signature piece of heart related to the Olympics. Then, on a secondary hit, all of these large billboards in towns put up by MasterCard and Visa, they''ve got all these amazing 30-foot-high athletes. Well, guess what eyewear they''re wearing? It''s all ours.

So at the end of the day, that particular event has been a great way to start the year. It''s just starting because if you look at the balance of our projects in the year, we promote about 1,000 unique sporting events a year and we''re just talking about one of them. The examples include we''ll have the tour, we''ll have great exposure in the Tour de France.

We just did a project, although it brief, with the Alinghi in The America''s Cup. We''ve got X Games coming up in Europe and we have our Arctic Challenge in Norway. So we have some global projects. What probably tops on the list is if you look in North America, Oakley has probably got -- is recognized by 85% of the people.

But if you look at Oakley in Europe, there''s a lot of countries where we don''t even hit high single-digits. So the brand is poised for growth, Europe is a pretty big market. So we''re spending 2010 spending on some brand-building projects. I''ll give you a couple of examples.

One is from the mountain. If you''re in the United States, you can see a lot of Oakley products all over mountains, but if you travel to European mountain ranges, that hasn''t been the case. So our team here based in Zurich picked 20 resorts in Switzerland, Italy, France and made a point of owning that mountain.

How they went about it was we have a philosophy about getting as close to the consumer as possible. And we looked at training all of the associates that were going to interact with those consumers and then surrounded them, those regions, with marketing. The results are pretty impactful.

Our Optical business is up about 130% on repeating orders, and our Apparel business is up 64% on repeating orders. So that kind of concentrated effort has shown demonstrated, positive results. India and China, we''ve had a few comments about that today. The brand is a sport brand.

In China, we''re not very well-known. We''ve established a beach head and an office in Shanghai, and we''re going about marketing the brands just like we did in our 30-year history. Get the right guys promoting the stuff, and the rest will follow.

We also partnered with a distributor in China who has strong connections to department stores and they are anxious to grow the brands all over that country. In India, India is like -- cricket is to India like hockey is to Canada. We just so happen -- and it''s been that way for years -- to have all of the top cricket players wearing our product. It''s just never been someone on the ground to leverage it. So I think we have a real good opportunity there.

I''m going to comment briefly on Luxottica Retail. For years, and this is just an example, for years, we had a great business with Sunglass Hut and the activities around integration have been eye-opening on what''s possible when you come out with a coordinated plan. I would say for many years it was, okay, we''re going to have a front-door window or maybe we''ll have a couple pieces in a catalog.

These discussions would always happen like right before the season, which when you''re thinking strategically, it''s very difficult to have a long-term view of how you''re going to grow the business. I can say for the first time in our company''s partnership where we''re having dialog about a three-year view. We''re having dialog about what is going to be in the different seasons of the year. We''re even having dialog about products. For the first time in the fourth quarter of this year, we''ll have a frame that''s exclusive to Sunglass Hut, which is completely unheard of in the history of our brand to do something like that.

Back to my comment on Europe, one of the other things that we''re going to be doing to build brand exposure here is to launch oakleyeurope.com. That goes live in April. It''s available to 19 countries in five languages. We''ll even go so far as to adjust the assortments by region and by price. I would highlight about oakley.com, oakley.com gets about 1.5 million unique visitors a month, that''s a lot of people.

I think Nike at 20 billion sits around a little over 2.3 million unique visitors a month. So for a brand of relevant scale, they''re not that far ahead of us. Another aspect of our website is people who come to our website tend to spend between 20 and 30 minutes on the site, and it''s usually revolving around not just product, but all of the collateral that goes on that site. Whether it''s product technology, activities, athletes, it is a very compelling site.

So for what we''ve done with oakley.com in the U.S., I think we will do in Europe. Several years ago, we launched Oakley Custom. This has been a hug program. It''s about 25% of our direct retail sales. Up in front of me, this is Jawbone. I showed this last, actually, last year when we were here.

In Optics, like this glass here, Oakley Custom allows consumers to pick lenses, pick lens tents, pick an ear stock color or an icon or change the actual frame size. So it''s a very compelling program. It''s something that has grown so dramatically in such a key part of our business. In 2010, we are keen to figure out how to execute that model at full sale.

So we have a lot of tests going on. We have a big key test that starts in May, it''s at Sunglass Hut. So you will see throughout the world a number of experiments occurring in which we can establish, train and produce an Oakley Custom business beyond just direct. This is really important and I''ll tell you why because I don''t think the customer five years from now is going to be satisfied that 23 of our products are customizable.

I think in the world, customers are going to expect that half of the products they buy, they''ve influenced how it looks in some way. So I think as a brand to be competitive, this is something you have to be very cognitive about. This is something you have to attack. With that, I''ll turn it over to Kerry.

Alessandra Senici

So let''s now move it to our Retail division, starting from the Optical business with Kerry Bradley.

Kerry Bradley

Good morning. Thank you. I''m here representing Optical Retail of North America, and what I want to focus on is our five key strategies for 2010 that really apply to all four of our Optical Retail brands, obviously, LensCrafters, with Pearle Vision, Sears Optical and Target. These are five themes that would run through all the brands, the first being that we''re going to take the stores that we have and grow with those stores.

This will not be year of adding significant new store footprint, but rather growing productively and profitably the spaces that we have. LensCrafters, first, is actually something that affects all four brands because we''ve concluded that we need to martial resources, people, priorities, everything, actually away from some of the other brands and to LensCrafters so that it as our flagship brand gets the premier resources and priorities it deserves.

All the brands are working to make sure that LensCrafters regains its swagger and regains its leadership. We will all be accelerating EyeMed, our managed vision care component of our business that''s so important. We will all be leveraging our labs, our beautiful, big, central labs that will be leading in North America and giving us product and service advantages.

Finally, Sun will be a theme in all four of our Optical businesses. Sun, as Andrea mentioned earlier, was one of the things that we lost last year. We want to get it back and then some and really be known not only as just the clear, indoor optical provider, but the sun and optical provider.

LensCrafters first. LensCrafters has five key focus areas. We''re going to be simple, focused and fast against all four -- all five of these areas. The first is in our stores where we''re training our associates at unmatched levels, more than we ever have before. We''ve taken training to all the stores to really change the mindset to be more entrepreneurial and less corporate. I won''t bore you with all the details, but what I can say is its working. Those results that Andrea talked about in the last four months are purely because of conversion at this point.

We have an eight-point lift in converting the traffic that we already have in for sales this year, and often it''s just from taking somebody who came in for an adjustment, taking a family member who came in to accompany someone who was shopping or just taking somebody who was browsing and turning them into a satisfied customer. That''s really driving our business.

Secondly, on lens leadership, we''ve said that we''re going to leverage new products and really shift our mix. Already this year, we''ve seen a three-point mix shift towards premium lenses without really having introduced anything new this year, just leveraging the lenses we have.

We will have more to come, but our associates are being more entrepreneurial. They''re also driving people to the very best lenses that we have. We said Sun was a huge focus across all brands, certainly at LensCrafters where, today, it''s 20% of our business. We have a vision of it being 40% of our business, effectively everybody buying an indoor pair and an outdoor pair, clear and sun, that''s our vision. We have a major new program we''ll be rolling out in the second quarter to help us achieve that vision, not in one year, but that''s where we''re moving toward. I''ll tell you that this mindset has already helped us. We''ve got plus two points in Sun ahead of our Clear business already in the first couple months in the year during the snow that Andrea mentioned earlier.

So our associates are thinking sun, our doctors are thinking sun and we really have very high hopes for Q2 when it becomes sun season. Boosting traffic is largely going to come from Insurance, but also non-insurance. Insurance is the largest-growing segment in the North American business. We are essentially playing catch-up and we are wanting to do everything.

An example of that is this year, for the first time, LensCrafters and its CRM program, our direct mail programs to our database, segregated customers as those who had paid out of their own pocket in the past and those who paid with insurance in the past. We sent those insurance customers the targeted message tailored to them as insurance users.

The first time we''ve ever done that, but a very effective addition to our program. Our fifth focus area for LensCrafters is simply leveraging our consumer marketing more effectively than we have before. We launched a new campaign last year, a new way of thinking called ""LensCrafters Loves Your Eyes."" We got it out of the gates, but we haven''t fully developed it and this is the year that we truly want to fully develop it and make ""LensCrafters Loves Your Eyes"" something that truly attracts the free-to-choose customer especially.

Another focus for all of our businesses is accelerating EyeMed. This is not only for LensCrafters or our four Optical Retail brands, but really for the benefit of our Wholesale business as well, our great Wholesale partners, whether they''re independent or small regional chain. EyeMed is a major Group asset that is growing very quickly. It''s gaining market share of the insurance segment.

On this slide, you see that we have several big-name, new clients for next year, that''s on top of the AT&T and Home Depot this past year. So we really are making our mark in the marketplace to the benefit of our retail stores and also for our Wholesale customers. But we''re doing things to partner with major health insurance companies as a key strategy. It is one thing to go direct to these large corporations, but it''s another thing to partner with large insurance companies who already have relationships with tens of millions of members around North America.

So we are partnering with the WellPoints, with Aetna, with Humana, with many other regional healthcare companies, three of the top five in North America. We are helping them be successful in selling the Vision product. We''re their partner, and when they win a vision contract, we win and our customers win, our Wholesale customers win.

So we are adding staff to go side-by-side with them in sales presentations. They have the customer relationship. We have the vision expertise, and that''s paying off significantly. I expect that by the end of this year, as we head into next year, we will be over 30 million covered lives and growing.

Our major focus is lenses and labs. Again, it''s something that we forget sometimes, but we are a major, major force in North America with our central lens manufacturing facilities. We have had the advantage of being relatively new to the game. So we''ve built five large, high-efficiency, state-of-the-art, high-technology labs.

The good news is we were not saddled with any old investments, it''s almost brand new in many ways. We do 100,000 pair per week in these five high-efficiency labs. So we enjoy a great speed advantage, a great cost advantage. This year, as we look at our volumes, we will at least reduce our cost per unit by 6% versus 2009 levels.

I expect we''ll do even better than that. Our biggest problem right now is planning March capacity because we are a little bit afraid of what''s coming down the pipe. We also have major new product initiatives, new product abilities that are going to be driving our business.

I''m wearing Ray Ban prescription lenses today. I can tell you that in 25 years of wearing glasses, these are the clearest, best lenses I''ve ever worn in my life. Ray Ban lenses will not only come in sun lenses, like Oakley Authentics, but they''ll be clear Ray Ban lenses. We''re launching those in LensCrafters and in Pearle Vision this spring, and this will be a home run. It''s a premium item, but also a unique, new product to the marketplace that I am personally very passionate about.

Our associates are passionate. We have pilot-tested it very well, and very excited, these would be made for us in our Luxottica laboratories. Also, digital lenses is a product that has been out there for the last year or two. We believe we''ve been leaders in the digital world with penetrations. In fact, LensCrafters, for example, this year to date, 33% of our progressives are digital, that''s up from 25% last year. But we also think that that is an industry-leading level.

Our associates love the precision, the clarity that comes with digital, and it''s something that we plan to continue and do in a leading way. The last area that I''d like to talk about is Sun, and we are passionate about this. Our doctors, this year we''re really working with them in these LensCrafters team huddles and across all of our businesses to have our doctors partner with us in Sun.

Our customers, our patients, will buy Sun if they see the need for it. Nobody can help them see the need for it better than our doctors. So we are working with them to pre-sell. So when they walk out of the doctor''s office and onto the retail floor, they''ll also see a fantastic, new Sun presentation, especially at LensCrafters, but really in every brand.

At LensCrafters, we are consolidating all the Sun into one section of the store. For the last two or three years, we actually scattered the Sun throughout the store. But we feel like we need to make a big statement, a big presentation. So we will be bringing it together these Sun centers that represent about 25% of the visual space in the store with a shrine to Oakley and a shrine to Ray Ban, lots of great visual merchandising to attract the customers as they come in.

We will also -- from a product standpoint, I mentioned Ray Ban Rx lenses. But we''ve also brought out new technologies this year that will allow us to create wrap styles. I just brought one here, you can see that this is a very current wrap style. In the past, it''s been very difficult for anyone around the country to be able to make these types of styles in your prescription with that much of a curve.

We are expanding our range this year so that this is an eight-based curve, and we''ll be able to do prescription, very cool, very good-looking, no one will ever know that your prescription is in there. We know from research that the number one barrier to people buying prescription sunglasses is their belief that you have to buy boring, safe glasses in prescription.

We''re going to shatter that belief this year, and we believe we will start America onto a new way of thinking. So comp stores is what we''re going to focus on, LensCrafters, of course EyeMed, labs and lenses and Sun. As Andrea said, if we execute those five things, we''ll have a great year.

So I don''t have a video to share with you. But I''d like to bring up the living video of our Group, Fabio.

Fabio D’Angelantonio

Good morning, everybody. 2009 has been challenging for traffic in North America. We have been very successful in all the other geographies, but it''s been a very important year for Sunglass Hut. We created a global business unit dedicated to Sunglass Hut with a mission especially to define clearly what are the development actors of the brand. I think we, this slide, are pretty clear in planning on the side the development actors are geographical through the Sun Belt that we want to -- in which we want to be as much present as possible.

There are certain channels in which today we were less represented that we want to span, which are department stores and travel retail. We have been, in 2009, clear into the factors that we defined for what concerned geographies we''ve been after. We''ve been keeping our development in Asia after developing -- opening Sunglass Hut in the past years in Singapore, Hong Kong, India, Middle East, Thailand.

This year, we will be expanding in the Philippines, and there are more Asian countries we are looking at. We are interested in Latin America. Our work here in China, 2009 has been a very successful year. We have been defining in our major geographies. We''ve been defining strategic partnerships with different department store chains, and we''ve been defining contracts that will bring between 2009 and 2011 more than 500 new stores between North America, Australia and South Africa.

Sunglass Hut is a very simple, retained model. It is about 70 square meters. It''s about 800 XQ in the world. 80% of the time, it is a single shift, so a single person in the store. So it''s pretty simple, and we are very clear about where we want to execute. Those are what we define as strategic operational pillars of this brand.

First of all, it''s people. We are a single person in the store. We know how much this person, that person, makes a difference. Even in tough times, we constantly monitor with the mystery shopping how much we are close to consumers, and we are very happy that those matching keeps going on and has been in 2009 constantly about 90%.

Our turnover, which is structural in such a format, has been constantly going down. We have been more and more accurate and more in monitoring the turnover and especially the turnover holds highly-rated Acetate when 2009 under 10%, which is a very relevant score for us. We keep investing; we are investing, first of all, in a world-class HR team in the different geographies.

We are investing -- tripling in 2010 our training efforts for training our associates both toward concerns and behaviors in consumer relations as well as how talk and present and celebrate our product story. Fourth, we understand how much conversion is really a driver of this business. We are keeping that mission and incentive scheme to make this part of the activity of the exquisite more and more focused.

Second pillar, and the different item with