EssilorLuxottica, the parent company of popular eyewear brands like Ray-Ban and Oliver Peoples, has reported strong financial results for 2019 and is optimistic about continued growth in 2020. Despite concerns over the outbreak of the coronavirus, the company has stated that its Italian factories are operating normally and production in China is gradually returning to normal. However, the virus has had an impact on EssilorLuxottica’s Chinese business, which represents about 5% of its total revenue.
The company is projecting a sales increase of 3%-5% for this year, with adjusted net profit growth expected to reach up to 1.2 times its revenue growth. However, due to worries about the potential disruptions caused by the coronavirus leading to a global economic slowdown, shares in EssilorLuxottica fell by 3.24%.
EssilorLuxottica has reassured investors that its plants in China are currently operating at slightly reduced capacity but are quickly normalizing. Plants in other locations, including Italy, are running at full capacity. In 2019, the company’s adjusted net profit, excluding acquisitions and other costs, surpassed targets by increasing 4.8% at constant exchange rates to 1.94 billion euros ($2.18 billion).
Despite the positive financial results, the company still faces challenges, particularly in terms of governance. The merger between Essilor and Luxottica in 2018 was marked by disagreements over leadership. The company’s founder and largest shareholder, Leonardo Del Vecchio, initiated an arbitration process in 2019, but it was ultimately abandoned. Both parties have committed to finding a new CEO by the end of 2020.
Recently, EssilorLuxottica experienced a departure in its leadership team, with co-chief financial officer Hilary Halper stepping down without providing any reasons. She was replaced by David Wielemans, who previously served as the CFO of Essilor’s Sun & Readers unit. The governance issues surrounding the company raise concerns among investors about its ability to deliver on the merger and promised cost cuts.
U.S. hedge fund Third Point has been urging EssilorLuxottica to boost earnings and expedite leadership transitions. Additionally, the company needs to convince regulators that its proposed acquisition of Dutch opticians group GrandVision for up to 7.2 billion euros in cash will not result in higher prices or reduced consumer choice. The European Union’s antitrust regulators are currently investigating the case, with a decision expected in July.