Luxottica Group, S.p.A. (LUX)

RETAIL

For fiscal year 2008, net sales by the retail distribution segment were euro 3,109.1 million compared to euro 3,262.3 million in 2007. The 4.7% decrease was largely due to the strengthening of the euro against the US dollar (reducing net sales by euro 228.3 million) and to a 6.8% decrease in comparable store sales (1) in North America. The negative effect of exchange rates was partially offset by the inclusion of Oakley’s retail results (euro 170.9 million).

Pro forma (2) retail net sales in 2008 was down by 8.8% from 2007 due to both the strengthening of the euro, with a negative impact of euro 228.3 million, and to poor performance overall in the retail distribution segment, which lost euro 70.5 million (2.1%) as demand contracted.

Geographically, the contraction in sales in North America, where traffic through stores had begun to slacken at the beginning of the year, was offset by a substantially positive performance by the segment in all other regions.

Net sales by the North American retail division accounted for 83.6% of total retail net sales worldwide against 84.1% in 2007. In US dollars, net sales in North America rose 1.6% from US$ 3,763.7 million in 2007 to US$ 3,822.3 million in 2008 thanks primarily to the inclusion of the Oakley business. In euros, on the other hand, performance was negative, with net sales falling 5.3% due to the strengthening of the euro against the dollar.

In the optical business, comparable store sales (1) by LensCrafters and Pearle Vision were down 6.5%, while sales by licensed brand chains fell 9.1% in 2008.

The sun business, on the other hand, proved less cyclical. Comparable store sales by Sunglass Hut across the globe were down 4.9% year over year in 2008, with a marked difference between results in North America and other regions, such as Australia and New Zealand (which grew by around 4.5%).

(1) Comparable store sales reflects the change in sales from one period to another that, for comparison purposes, includes in the calculation only stores open in the more recent period that also were open during the comparable prior period, and applies to both periods the average exchange rate for the prior period and the same geographic area

(2) Pro forma data reflects the inclusion of results by Oakley, Inc., a subsidiary that was acquired in November 2007, as if it had been acquired on January 1, 2007.

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Luxottica Group’s retail division includes:

·      Ilori, LensCrafters, Pearle Vision (owned and franchise stores), Sears Optical, Target Optical, Sunglass Icon, Oakley Stores and Vaults, The Optical Shop of Aspen and Oliver Peoples shops in North America, where the Group is a leading retailer in optical products;

·      OPSM, Laubman & Pank, Bright Eyes and Budget Eyewear stores in Australia and New Zealand, guaranteeing the Group’s leadership in this region with 910 stores;

·      Sunglass Hut, the world’s leading and widest reaching specialty premium sun retail chain, has 2,000 stores mostly in North America, Asia-Pacific, the Middle East and the UK; and

·      a network of approximately 250 stores in China and Hong Kong.

In 2007, the retail division, excluding Oakley, saw a slight (1.8%) contraction in its revenues to Euro 3.2 million, mainly due to the unfavorable trend in the Euro/Dollar exchange rate. On a comparable exchange rate basis, revenues would have grown 5.6%. Further, on a comparable number of stores, exchange rate and consolidation area basis, and including Oakley, sales increased by 1.2% despite the ups and downs in the North American market. In Australia and China, two major markets for the Group, sales were stable. Sunglass Hut continued to develop in all the countries in which it operates: over the last three years it has recorded 40% growth on comparable stores, exchange rates and consolidation area basis.

Operating income in the retail business (excluding Oakley) amounted to Euro 362 million, down 16.2% from the previous year, while its ratio to sales (operating margin) was 11.2%.

In 2007, the Group’s retail business benefited from its major investment plan, mainly focused on