LensCrafters 2005 Annual Report Download - page 18

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2005 was another year of strong growth for Luxottica Group, in both the retail and wholesale businesses.
The particularly good overall performance resulted from the strategic decisions made over the years in
both divisions and the efficacy of the Group’s business model, which is unique in the industry. The
results of the retail business were above average for the sector overall, especially in terms of profitability.
At the same time, the wholesale division continued to strengthen its competitive position in the world’s
most important markets, thus confirming the strength of its portfolio of house and license brands. Within
house brands, Ray-Ban, the world’s leading sun and prescription brand, surpassed eleven million units
sold in 2005, for the first time in its history. This is an industry record and yet another testament to the
effectiveness of the work the Group has carried out from design to product quality and distribution, to
relaunch and further develop this iconic brand acquired in 1999.
The excellent results for the year were made possible by a combination of factors that explain Luxottica
Group’s success: the depth and strength of its distribution structure, which combines a wholesale
network with directly controlled operations in the most important markets; over 5,700 stores, mainly in
North America, Asia-Pacific and China; an increasingly strong and well balanced brand portfolio;
Luxottica Group’s tradition of high product quality; and the flexibility of its manufacturing structure.
Luxottica Group’s consolidated sales for 2005 reached Euro 4.4 billion, up 34.3% from the previous year.
This result reflected a 19.7% improvement in the wholesale business and a 40.5% increase by the retail
division, in part related to the integration of Cole National’s retail business. Operating performance for
2005 improved both as a whole and for each of the two divisions. From a profitability perspective,
margins of the wholesale division continued to improve. The year closed with consolidated net income
of Euro 342.3 million, up 19.3% from 2004. Significant cash flow generation was once again one of
Luxottica Group’s most significant results for the year, reaching Euro 440 million. The Group’s net debt
at the end of 2005 was Euro 1,435.2 million, reflecting a decrease of Euro 280.8 million from 2004, only
one year after the approximately Euro 600 million Cole National acquisition (October 2004) and after
investments of approximately Euro 176 million and dividend payments of Euro 103.5 million.
RETAIL
The retail division also enjoyed an important year, posting extremely positive results. Retail sales rose
40.5% from the previous year to Euro 3.3 billion, thanks to: the excellent performance of the Group’s
retail brands, especially LensCrafters and Sunglass Hut; the positive contribution of the retail brands in
Asia-Pacific formerly part of OPSM Group; and, the consolidation of results of the businesses acquired
in the Cole National transaction. Retail comparable store sales (1) rose year-over-year 5.5%. Operating
income rose to Euro 378.4 million, up 21.9% from 2004.
The retail division also continued to pursue the strategy first adopted in 1995 with the acquisition of
LensCrafters and that led, in October 2004, to the acquisition of Cole National. The extraordinary
benefits of those transactions enabled the Group to serve some of the more important eyewear markets
more efficiently and more closely thanks to direct control of a significant portion of the distribution.
Strong in this foundation and keenly aware of how crucial a presence in the retail sector is in the North
American market, Luxottica Group in 2004 closed its acquisition of Cole National, the second largest
optical retailer in that market, owner of retail brands such as Pearle Vision and its extensive network of
own and franchise stores, as well as the in-store optical departments Sears Optical, Target Optical and
BJ’s Optical (Licensed Brands). The acquisition of Cole National brought into the Group not only
LUXOTTICA
GROUP IN 2005
(1) “Comparable store sales” reflects the change in sales from one period to another by considering only those stores open in the more recent period that were
also open in the comparable prior period and by applying to both periods the average exchange rate for the prior period in the same geographical region. The
calculation of comparable store sales for the twelve-month period ended December 31, 2005 includes relevant stores of the former Cole National business as
if the Cole National acquisition had been completed as of January 1, 2004.