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Oakley parent company Luxottica reports 19% drop in Q1 net profit

Surfersvillage Global Surf News, 25 April, 2008 : - - Luxottica Group SpA, the parent of Oakley, reported a 19% drop in first-quarter net profit as retail sales in the U.S., its largest single market, continued to decline and the weak dollar took a toll. Milan-based Luxottica, the world's biggest eyewear company by revenue and maker of glasses for names like Prada and Chanel, said net profit for the first quarter fell to 103.7 million euros ($163.52 million) from 128.3 euros million in the same period a year earlier.

Luxottica, which purchased U.S.-based Oakley for US$2.1 billion last year, said the first half is being affected by one-time restructuring charges. The company said its wholesale operating income surged 32.9 percent to 619.6 million euros ($977.05 million), but retail operating income slipped 6.5 percent to 779.1 million euros ($1.23 billion), as consumer traffic slowed in the U.S.

The company posted an operating profit of 207.1 million euros ($326.58 million) for the first quarter, down from 224.1 million a year earlier. "This quarter was characterized by a continued weakness of the U.S. currency, by the slowdown of the North American market," the company said in a statement.

Luxottica said it expects profits to improve in the second half of the year as its acquisition of Oakley as well as cost reduction efforts begin to yield results. Andrea Guerra, chief executive officer of Luxottica Group, commented: "We are pleased with our overall performance for the first three months of the current year.

The Group grew significantly: +17% at constant exchange rates, due to the first effects of the integration of Oakley's business and to the organic growth of the Group all across the world. In the U.S., we posted a positive quarter also including Oakley's results for the first quarter on a pro forma basis, which is an encouraging indicator for the remainder of the year.

"This quarter was characterized by a continued weakness of the U.S. currency, by the slowdown of the North American market and by the activities necessary to obtain great synergies from the new journey with Oakley. In these circumstances and despite these factors, Group profitability performed well.

Earnings per share before trademark amortization in US dollars was just 3% lower than the first quarter of 2007, a great quarter. That confirms an outstanding resilience of the Group to face more complicated macroeconomic trends.

"We expect that for the remainder of the year, especially in the second half, our business will have an opportunity to reap to an even greater degree the benefits of its leadership in the market, exploiting Oakley's seasonality and the new wholesale/retail mix resulting from the integration.

We have already implemented several business-specific as well as Group-wide initiatives to further improve our ability to capture and maximize opportunities for growth while further increasing cost controls, confirming a 5% of net sales investment plan for our future.

"In the first quarter of 2008, the Group also grew in North America. Net sales for the retail and wholesale segments combined, including Oakley pro forma, grew in US$ by 3% compared to the first quarter of 2007, due to a diversified strategy and a balanced brand portfolio for the retail and wholesale segments. While there is clearly a market slowdown, the severe market fluctuations appear to have been stabilized.

We have been able to plan and react to these new conditions. We have been engaged in an important cost-control plan, the purpose of which is to enhance efficiency. This plan allows us to view our prospects for future quarters positively.

"Our manufacturing and wholesale segment's best brands performed very well across all regions. The different positioning of our brand portfolio, the strengths of each brand and our deeply rooted global presence allowed us to post a strong overall growth: +36% at constant exchange rates.

"Integration projects with Oakley are moving very quickly, exceeding our expectations. Europe and emerging markets are the regions where we have done the most integration work so far and where we are already reaping the initial results of such work.

"These results allow us to confirm our previously announced guidance for FY 2008."

In the first quarter of 2008, our two most important house brands, Ray-Ban and Oakley, posted strong results, as did the first collection of our licensed brand, Tiffany, which was successfully launched first in North America and then in other markets. The launch of 30 new colors of Wayfarer completed the restyling campaign, started last year, for this iconic Ray-Ban model and was well-received by the market.

This quarter, Oakley posted double digit sales growth in the U.S. and in other markets. This is the year of the Olympic games and great product launches which are being well-received by male and female audiences.

Luxottica Group's consolidated net outstanding debt on March 31, 2008, was euro 2,729 million, reflecting a consolidated net debt to pro forma EBITDA ratio(3) of 2.38x.

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