LensCrafters 2008 Annual Report Download - page 39

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FINANCIAL OVERVIEW |37 <
increase in the general and administrative expenses of the wholesale distribution segment arising from
production and distribution by the new Oakley business and Euro 26.5 million in amortization of Oakley
intangible fixed assets. These increases were partially offset by the completion of amortization of a number
of minor trade names (around Euro 6.3 million) and cost cutting over the year. As a percentage of sales,
general and administrative expenses rose from 9.8% in 2007 to 10.5% in 2008.
For the reasons described above, the Group’s income from operations decreased 10.0% to Euro 749.8
million, from Euro 833.3 million in 2007. As a percentage of sales, income from operations decreased from
16.8% in 2007 to 14.4% in 2008. Excluding the non-recurring capital gain from the sale of a property in
Milan in 2007, income from operations would have decreased by 7.8%. On a pro forma basis(1), the
operating margin for 2007 would have been 15.5%.
Net interest expense increased to Euro 122.0 million in 2008 from Euro 72.4 million in 2007, mainly due to
the increased indebtedness arising from the Oakley acquisition.
Net income in 2008 was Euro 379.7 million, down from Euro 492.2 million in 2007. Net of an extraordinary
capital loss of approximately Euro 15 million (after taxes) arising from the sale of a note receivable in 2008
acquired as part of our sale of the Things Remembered business and the non-recurring capital gain from
the sale of a property in Milan in 2007, net income in 2008 would have been Euro 395.0 million compared
to Euro 479.1 million in 2007. Earnings per share in 2008 was Euro 0.83 (at an average Euro/dollar exchange
rate of 1:1.47). Net of the non-recurring events mentioned above, EPS was Euro 0.87, down 17.8% from
2007. On a comparable basis, i.e. considering EPS in US dollars before trademark amortization(2), the
decrease would have been 9.2%. The decrease in EPS before trademark amortization was almost entirely
due to greater financial charges than in the previous year and to exchange rate fluctuations.
In a difficult year marked by the emergence of a huge financial and economic crisis, Luxottica nonetheless
produced solid results, in which the successful integration of Oakley undoubtedly played an important
role. In particular, with respect to Oakley’s integration, we completed organizational restructuring in
Europe and the emerging markets for the wholesale distribution segment as well as the integration of the
American and Australian retail chains, and the Group is starting to see the synergies it expected. Sharing
of resources and cost savings in procurement, logistics and IT have also been achieved. On the product
and marketing front, there were brand relaunches by REVO, assigned to a team in Foothill Ranch,
California and Oliver Peoples, whose primary production is to be located in Agordo. There are also
interesting opportunities in the sunglass lens business, stemming mainly from the power and recognition
of the Oakley brand, whose as yet unexpressed potential at a global level is considerable.
WHOLESALE
The economic slowdown in the second half of 2008 impacted significantly the wholesale business, mainly
because of a drastic reduction by customers of stock levels in warehouses leading to a decline in orders in
the last quarter.
Despite this, net sales to third parties in the manufacturing and wholesale distribution segment increased
by Euro 388.8 million (22.8%) to Euro 2,092.5 million in 2008 from Euro 1,703.7 million in 2007. Contributing
to this net increase was Euro 467.4 million from the inclusion of additional net sales generated by Oakley
in 2008 and increased sales of house brands. These increases were partially offset by the decrease in net
sales of license brands and by unfavorable currency fluctuations, due mainly to the US dollar’s weakness
against the Euro, which adversely affected net sales to third parties by Euro 66.0 million. Pro forma(1) net
(1) 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.
(2) Free cash flow and EPS before trademark amortization are not measures in accordance with US GAAP. For additional disclosures regarding non-US
GAAP measures and a reconciliation to US GAAP measures, see Annex.