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spk00: Welcome everybody. Thanks for being with us today. I'm Giorgio Iannella from the IR team. I'm pleased to introduce our speakers, Francesco Milleri, Chairman and CEO, Paul Dusayan, Deputy CEO, and Stefano Grassi, CFO of the group. At the end of their presentations, we'll have a 30-minute Q&A section. If you want to make a question, please press star followed by five. We kindly ask you to limit your questions to a maximum of two, each one of you. And with that, I hand over to Francesco Milleri.
spk09: Good morning and good afternoon to everybody. Thanks for joining us. Today, I'm pleased to present to you a Silor Luxottica sound financial result of the first semester, as well as its new strategic initiative in the hearing aid market. Let me start from the H1 results that we are proud of with respect to both revenue growth and margin trend. Revenue at constant exchange rates grew by 8% in the second quarter and 8.2% in the first six months, close to 13 billion euros. All regions and segments were positive and contributed to growth. We just saw some softness in the u.s market but less material than expected as it was limited only to the sun category So far, this year, the Group Top Line has performed well above the mid-single-digit long-term target, thanks to its open business model, positive integration journey and higher diversification in terms of products, services, geographies, channels and segments. The adjusted operating profits deliver a robust performance in the first six months of the year, growing faster than sales at constant exchange rates to 18.5 margin, 10 basis points higher than last year, which is a remarkable achievement considering the impact of the cost inflation in the period. While working on the efficiency and synergies, we continue to invest in our new business model with the focus on advanced solutions in lenses like Varilux XR, disruptive technology and design like Ray-Ban Reverse, tele-optometry system and digital learning platform Leonardo. At the same time, in order to protect our profitability, we are now taking selective measures of price increase across products and countries. Today, we are proud to announce a groundbreaking strategic initiative that we gave some clues about at our last Capital Market Day, when we spoke about Super Audio. Essilor Luxottica is expanding into the hearing aid market with the launch of a completely new type of product based on proprietary hardware and software. We'll combine innovative hearing aid solution and prescription glasses into one single brand new disruptive product. This will serve more than 1 billion mild to moderate hearing impaired people worldwide in a completely different way, allowing them to see and hear better the world around them. See more, hear more, be more. Following the recent acquisition of Nuance, the Israeli company specialized in advanced audio software technology, Essilor Luxottica has established the new division Nuance Audio. At this stage, we have already built and tested prototypes with strongly supportive results. The product will be available on the market in the second half of the next year. From stigma to style, that's our journey in hearing solution. With the launch of this new category at the intersection of sight and sound, we want to grow and elevate the entire hearing aid industry, like we are doing with the eye care and eyewear sector. Both businesses have great potential in terms of growing demand driven by population aging, as well as growing penetration of the category currently much lower in hearing aids than prescription eyeglasses. To make the most of this opportunity, we'll work in close synergy with doctors, archaeologists and all industry players to make sure we offer solutions based on the patients' needs. We also leverage the capability in advanced miniaturization, electronic components, weight reduction, and wearing comfort that we have built along our journey in smart glasses. In terms of the distribution strategy, we serve both hearing aid and optical wholesale markets, as well as our own retail network. Few words to conclude on our carbon roadmap to confirm that we are on track with the target of neutrality in Europe on Scope 1 and 2 by the end of this year. This gives you the sense of the priority we assign to our sustainability program as reflected also by our recent commitment to the science-based target initiatives. With that, I hand over to Paul, who will keep talking about product and innovation in different fields.
spk08: Thank you, Francesco, and to all of you for being here with us today. As you can imagine, we are quite proud of our first half achievements. Today, I would like to spend a few minutes to share with you some key factors to keep in mind when looking at our performance in the first six months of 2023 and beyond. Our company is at the core of an industry that is rich of untapped opportunities and centered around a basic right, the need for good vision. Leveraging our well-balanced setup in terms of geographical reach, distribution channels, product categories, and brand portfolio, we can size and bring the opportunities to life where and when appropriate. We have the unique ability to deliver a resilient growth. Embedded at the heart of our organization are our people. In the past months, we strongly invested in our teams in order to retain and continue to develop our pool of talents. At an average age of 37, our employees are a young and dynamic force bringing together a vast range of competencies, blending deep expertise with fresh ideas. Their enthusiasm for our mission is a common feature. while the ever-growing number of employee shareholders representing today 72,000 colleagues is a testament to the strong sentiment of belonging inside the organization. The setup of our supply chain is scattered to fulfill the diverse needs of our customers at best. Substantial investments have been made this year to bring our manufacturing and logistics footprint to the next level. In the coming months, two new global integrated facilities in Mexico and Thailand will start their operation, adding extra capacity to sustain our future growth. The optimization of our lab network is underway, combining the cost advantage of the industrial labs with the premium service of the proximity labs. Since the beginning of the year, the biggest industrial labs have continued their journey to operational excellence to match and exceed customer expectation, while the network of proximity labs is being strengthened. Now, let's talk about innovation, which is always on top of our mind. For us, innovation is based on a holistic approach, as you know. First, embracing our active portfolio of products and brands. A powerful engine is at work to continue to refine our current product range and keep enhancing the value we bring to our customers and consumers. We regularly drop novelties into our frame collection and deploy new lens generations, such as Crystal Sapphire HR and the Transition Extractive. Our latest newness was presented at the Essilor Luxottica Days in Milan this month and received excellent traction. In connection with this, our R&D teams are also unlocking new disruptive technologies and design to be incorporated in our products, pushing the boundaries of the industry standards. Let's take a couple of great illustrations with the recent launch of two new groundbreaking technologies. First, the new Varilux XR series. It is the first high responsive progressive lens powered by artificial intelligence. The best overall progressive lens on the market. Thanks to the creation of a digital twin, we are able to predict the visual behavior profile of each consumer and provide a lens that respects the natural movements of the eye. The product has already been introduced in a number of key markets, and to support the launch, we have conducted more than 30 events and roadshows in EMEA, US, and Brazil, reaching 18,000 customers and receiving exceptional feedback from both consumers and opticians. Second, Ray-Ban Reverse, which defies convention with an inverted lens design. The switch from a convex to a concave lens shape is a revolution and an audacious move not only from an optical but from a fashion perspective. Successfully overcoming the optical challenges which come along with the new design, the lens delivers the sharpest and most accurate vision experience. It can be fitted with four iconic Ray-Ban styles. Aviator, Wayfarer, Caravan, and Boyfriend, and is made for the ones that love to be at the forefront of the new trends and express their uniqueness in every detail. The product has been launched starting from May. On top of that, we are selectively adding new names to our frame brand portfolio, keeping it contemporary and attractive in the customer's eyes. On this, we are proud to share that we have just presented our first Swarovski collection, which can be found on the shelf starting from the fall. During the first half of the year, we also announced the collaboration between Roger Federer and our Oliver's People brand and signed the new Jimmy Cho license. Our ambition is to create also brand new categories to address yet unmet consumer needs. Two new categories which the group has embarked on are myopia management and wearables. Myopia management, we have now unveiled our fourth year clinical trial results for STELEST showing sustained myopia control efficiency. children saved more than 1.25 diopters of myopia on average over the period. A huge contribution to their well-being. On wearables, the experience of our first-generation Ray-Ban stories has taught us important elements about the consumer relationship vis-à-vis the new functionalities. Based on these valuable insights, our R&D team are preparing the future of the next generation to come. As you can see, the breadth of our products, brands, and categories is underpinned by deep innovation and a robust end-to-end organization, which is at the heart of the growth of our company and the development of our industry. With this, I am handing it over to Stefano. Thank you.
spk15: Thank you, Paul, and good morning, good afternoon, and welcome to our first half 2023 earnings release. As usual, let's start our journey looking a bit closer to our top line first, and then take a closer look to our profit and loss and financial position. Our second quarter revenue were up 8% at constant currency, while on a current exchange rate, you're looking at a top line up 4.9%. I remind you that the 8% growth comes on top of a 7% sales growth that we recorded in the second quarter of last year. So we continue to grow our top line above the mid single digit guidance, even against a tougher comparison base. From a currency standpoint, after seven consecutive quarters of currency tailwinds, we're now experiencing some headwinds in our results. And those headwinds are quantifying about three percentage points as the difference between constant and current exchange results for the second quarter. The main driver for that is the US dollar, but I would also add the Turkish lira and the Chinese renminbi. If currency stays at those level, we do expect those headwinds to carry on during the remainder part of 2023. For the first six months of the year, as you can see in the slide, we're looking at 8.2% growth at constant currency and 7.1% our growth at current exchange rate. But now let's start a journey across the different geographies. And as usual, let's begin from the biggest one, North America. North America posted the top line up 2.3% at constant currency during the course of the second quarter, with the first half results overall at 4.5% still at constant currency. Both professional solution and direct-to-consumers progressed at an even pace throughout the second quarter. If we look at our professional solution, our price mix was very strong on both frames as well as lenses. If we look at our lens business, we post a solid growth in Q2, very much driven by our ECP channel. And this is obviously very promising as we're now approaching the launch of Viralux XR in the US during the course of a third quarter. On the French side, after a good first quarter, we've seen clients a bit more cautious on the reordering side and that caused a bit of a deceleration during the quarter. But we had the Ray-Ban brand that was still strong in Q2 and the luxury that delivered double-digit growth during the course of a quarter. If we now switch gear and move to the direct-to-consumer, on the direct-to-consumer side, we posted solid growth in Q2 with our optical retail banner with Lance Crafters, Purr Vision, Target Optical that all posted solid comp sales during the course of a second quarter. Conversely, our Sunglass Hut banner in North America had negative comps during the course of a quarter with a deceleration that was a bit stronger on the Sunglass Hut location that were not exposed to the touristic traffic. Let's move now to EMEA, that is a story of sequential escalation. During the first quarter, EMEA recorded a top line up 8.9% constant currency, while in the second quarter, we're now delivering 10.6% constant currency. Professional Solution posted high single-digit growth, while our direct-to-consumer segment was actually up on the double-digit pace. When we look at our Professional Solution, we posted double-digit growth in Italy, in Spain, as well as in Turkey, and a high single-digit growth in France and in Middle East. From a channel mix standpoint, the large account, the buying groups, the ECP, they all posted solid growth during the course of a second quarter. Our branded lens portfolio is solid with a high single-digit growth and I believe it will be even stronger with the progressive rollout of Varilux XR throughout the region. So far we have very promising results. We engaged more than 18,000 ECPs across the region that participated to several roadshows in Europe. 19 countries have been activated and we already see a strong penetration of Varilux XR within the Varilux product offering. If we now move for a second to direct-to-consumer, just a couple of data here. 10% comp sales in optical retail EMEA and 15% comps in our Sun retail business. In the optical part of the business, we deliver double-digit growth in Vision Express in UK, in Salmoreghe Viganò in Italy, and proudly so in our optical banner in Ukraine. On the Sun Retail banner, we are very pleased with the 15% comps because they come on top of 80 plus percent that we recorded in the second quarter of 2022. All the Sun markets were very positive in the region and the main driver of the growth with the large retail stores that we have across Europe, the ones that are located in the prime location, in particular in department stores and premium shopping malls, and that do represent about a fourth of the overall revenue base in Sanglassati in Europe. But now let's move east to Asia-Pacific. Another story of sequential improvement in the performance. You remember first quarter in Asia-Pacific, we delivered 12% at constant currency. In the second quarter now, we are approximately 24% at constant currency. On our professional solution side, we were double digit in China, in India, as well as in Korea. In China, we experienced a further boost on the B2B channel with both lenses and frames that delivered double digit growth. With our Stellas lens, our Myopia solution that grew on the triple digit territory for the second quarter, marching, I would say at a higher pace, higher than expected to hit the 1 million pairs to be sold by the end of 2023 globally. Switching to direct-to-consumer, both optical and sun banners deliver double-digit comps, primarily driven by the strong rebound that we experienced in China. Last region in the pipe is Latin America. Latin America that delivered 9.3% top line growth at constant currency. We had a mid single digit growth in our professional solution with Mexico that delivered double digit pace as the main growth driver in the region. The lens category was very much the primary category. In terms of growth, and that was very much thanks to a strong price mix with Eisen, Varelux, Kodak, that all delivered double digit pace. Well, when we look at our frame side of a business, we were double digit in Brazil, and we were double digit actually in both optical as well as sun, with all our main brands, Ray-Ban, Oakley, and our luxury portfolio that all delivered double digit pace. If we move now to our direct-to-consumer, our 1,600 optical stores in the region, they grew on a double-digit comp sales, very much led by GMO and the former Grand Vision partner. While if we look at some parts of our business, our retail chain delivered amid single-digit comp sales during the course of the second quarter. But now we have concluded our journey across the four different regions, and now let's take a closer look into our profit and loss results. When we look a bit closely at our profit and loss, I would say that we are pretty happy with the profitability results that we delivered for the first half of 2023, despite the quite severe inflationary headwinds that impacted our profit and loss. I would quantify those headwinds in about 250 business points, impacting our H1 2023, And if we now look at a bit closer to our P&L, our gross margin show approximately 20 basis points dilution. I would say that we have two things. On one side, the main driver of that margin dilution is the higher claim cost that we experienced during the first half of the year on our managed visual care assets. And that dilution was largely offset by strong price mix as well as manufacturing efficiencies. When we look at our operating expenses, their incidence of revenue decreased approximately 30 basis points, very much stands to a strong and diligent management of our cost base. So overall, when you look at our profit and loss, you have an operating profit that on an adjusted basis show 10 basis points of margin expansion and constant currency. While if you look at our results at current exchange rate, you're looking at 10 basis points dilution at 18.3% as a percentage of revenue. Now the bottom of the P&L is our group net profit. And here you have 10 basis points margin accretion to a 13% net profit as a percentage of revenue. While when you look at our result, our current exchange rate, our margin is flat versus the first quarter of last year. Now the last chapter is our financial position. You can see on the picture on the headlines over there 954 million free cash flow generation. That represents approximately 50 million more than the free cash flow that was generated last year. and is the second larger free cash flow generation in SLO Luxottica history for the first semester. Last touch on Net Depth to EBITDA, we continue our journey of deleveraging. We're well below two, more precisely, a Net Depth to EBITDA ratio at 1.6. With that, we completed our journey today. Let me hand it back to the operator for the Q&A session. Thank you.
spk04: Ladies and gentlemen, we will now start the Q&A session. If you want to book a question, press star followed by five. Please limit yourself to a maximum of two questions per person. Our first question comes from Oriana Cardani, Intesa San Paolo.
spk02: Hello. Yes, good afternoon.
spk12: Thank you for taking my two questions. The first one regards the price increase selected initiatives to take in the second half of this year. Can you give us more details on products and markets involved and the size of the price increase? The second question is about the margin trend. What is your expectation for the full year? Do you see room for margin extension in the second part of the year?
spk02: Thank you.
spk15: Good afternoon, Oriana. Let me take both of your questions. First of all, with respect to the price increase, as Francesco mentioned before, those are price adjustment that we are taking on selected eyewear brands, are done on specific SKU specific models, and remember, An important driver of our price mix is also represented by the continuing innovation and release of new collection on the luxury portfolio, which obviously driving our price mix upward. The second question you have is with respect to margin trends and expectation for full year. As you know, we have a long-term outlook out there, which is guiding top line and margin. up to 2026. our objective is to achieve on an adjusted basis the 19 to 20 margin rate by 2026 and we are marching on that direction according to our plan what i can tell you is that during the second half of the year you're going to have a couple things that will help us one of them is the price adjustment that we mentioned before Another one is the benefit coming through from the grand vision integration, in particular, the announcement of the restructuring of the headquarters in Schiphol. They will create some tailwinds, especially on the latter part of 2023 and clearly for the full year 2024. And last but not least, our comparison base. Our comparison base in the second half of the year, it's probably a bit easier. You might remember that we have a stronger margin expansion in 2022 during the first half of the year compared to what we experienced during the second half of the year.
spk04: The next question comes from Susie Tibaldi, UBS.
spk02: Good evening. Thanks for taking my question.
spk13: The first one on the US market, please, if you could give us a bit more detail. Very helpful to understand the various drivers that you mentioned. But just in general, how are you seeing the demand? Because you mentioned the softening demand inside retail, but it sounds like on optical, it's still pretty solid. I think in the release, you mentioned that Sunglass Hut is further deteriorating. So could you perhaps talk a little bit about how you see the outlook for the rest of the year in the US, if anything specific to flag? I'm asking because some of the other players in the US have mentioned that May was the weak point, with June seeing a bit of an improvement. So I was wondering if this was also what you're seeing. And the second question, do you We may expect in the second half of the year. You mentioned around 250 bips in H1. So if you have any idea for H2, given that we're sort of annualizing it. And at the CMD, you were mentioning that a top line growth of around 3% is needed to keep margins flat. And in light of this higher inflation that we've had for a while now, could you share some updated thoughts on this number? Is it more like 4%, 5% now? That will be very helpful. Thank you.
spk08: Okay, Susie, this is Paul. I will take the first question on the US market and a little bit how we see it. I think what you have to take away from what we told you so far in the call is that the lens part, the prescription part, the vision related part of our growth in the US has been there in the first half and it will continue in the second half. We see good traction for prescription lens, for branded lens, for optical frame. All of our programs with the EL360 is continuing to be developed. So what is very important to see is that We are first vision care driven and that demand, as you know, is a resilient one. We have always said it, and we are attacking the second half of the year with a major launch in one of our biggest brand, which is very lux XR, which we have been launching just in July in the US. So this is. combined with all of the novelties in the frame brand, we think are good drivers for our second half. So I think this is the way you should look at it. And like it was said by Stefano, the sun part of our portfolio was one of the things that made the Q2 be softer. So that's the way I think you should look at it.
spk15: Let me take the second question, Susie, regarding inflation. It's hard to put a precise stake in what inflation is going to look like in the second half of the year. But what I can tell you is that when we look at that 250 basis points, the vast majority of that, the biggest driver, is definitely labor. Labor probably accounts for about 70% of that headwinds that we experienced during the first half of the year. And presumably, we're going to feel the same kind of headwinds during the second part of the year as well. You also mentioned the 3% top line growth on a steady state beyond which we would accrue the margin. That is correct. And that's what we share with you and the rest of the team during the capital market day. But remember, that is part of a five-year outlook. So, over a five-year period, that is the base case. Clearly, there are years on which inflationary headwinds are stronger, and in those years, clearly, the steady state, the 3 percent, is a different level.
spk03: The next question comes from Graham Renwick, Berenberg.
spk10: Hello, good evening. Thank you very much for taking my questions. Just firstly on revenue, you mentioned in the statement price mix had become a more pronounced impact in Q2 than you'd seen previously. And you also mentioned price increases are now coming through. So can you give us a sense of how the 8% growth in Q2 breaks out between price, volume mix and M&A? So how much did those elements contribute? And then just secondly on myopia management, is there any indication on how close we are to FDA approval for any of the management solutions you have in the U.S.? I believe SiteGlass was very close to approval at the start of the year. Could that come soon? And also, where are we on the path of FDA approval for Stelest as well in the U.S.? Thank you.
spk03: Good afternoon, Graham.
spk15: Price mix, second quarter, it's usually more helpful to look at it from a B2B side, professional solution. So when I look at that on the two categories, the two main categories, lenses and frames, I would say that we have definitely price mix being the main and primary driver on the lens side. Premium Lancer's portfolio is driving across the different geographies, price mix in the upward direction. While on the frame side, the other category, we do see a more balanced between volume and price mix. And that's pretty consistent with what we've seen and I think commented during the course of the first quarter. When we look at our M&A contribution, that is broadly in line a comment that we made during the capital market day, which means an M&A contribution up to 1% of our overall top line.
spk08: On the side-glass vision and STELEST, the FDA process that we are in, I think you should look at something toward the end of 2024-25. That is when we think with the fourth year of data that we are working on, on side-glass vision, we should have the results and the FDA discussions. And then on STELEST, we are in a fast process, but it started a little bit after SGV. Now, I think all together, you should take out from this discussion, from this call, that the Myopia Management Initiative is delivering significant growth, starting, of course, from China, where we have great success with the status, the lands, and portfolio, and now deploying in Europe also successfully. France is off to a great start, and we have key market in France where we are establishing the category, the product. And we have also started to deploy sight glass vision product in China. So the overall program is really moving and delivering very nice growth.
spk04: Our next question comes from Veronica Dubaiova, Citi.
spk11: Good afternoon, and thank you for taking my questions. I will keep it to two, please. If I could return back to the North America performance, and I appreciate this is difficult, but if you can give us any indication whatsoever of how the prescription business performed in the quarter against the sort of to and change growth that you delivered for North America as a whole. And then to the extent that you can provide some forward commentary on the third quarter, especially given the change in weather on the sun front, whether you're seeing any improvements as far as sun is concerned. that would be very helpful. So that's my first question. My second question is on the hearing aid efforts and congratulations. Great to see you guys expand into a new category. Are you also planning to sell traditional hearing aids or is the effort here entirely focused on this new form of factor and will these be sold as traditional hearing aids or will they be sold more in the over the counter category? Thank you.
spk08: Okay, Veronica, I will go back on the U.S., on your U.S. question. I'm not going to detail you which are the whole breakdown in between CERN, prescription, insurance, but I think you should look at our position in the U.S. as one that is very holistic, where the prescription activity is center. Clearly, whether you look at it from the lens, from the optical frames, from the retail, As we have always explained to you, it is a resilient need. People can delay a little bit sometimes the replacement of their prescription, but they really come and need new eyewear, new lenses. We have in front of that, I think, a very good portfolio of products at work with great new innovation going to market. So this is some of the engine that we have. And in parallel to that, the sun was not so strong in the Q2, and then we will see how it is in the H2. Now, the beauty of the company is that, as it was explained, it's a very balanced portfolio of position, geographical, channel, product, categories, brand, and this is what at the end delivers the total growth of the company.
spk15: u.s fortunately we have a strong optical and prescription position i'll take the second question veronica on uh on weather uh i mean yes weather got a little bit better we are 20 plus days into into the third quarter clearly we need to look at trends uh on a longer term base but again The primary driver of the softness that we've seen is the demand on , so I think it's, you know, we still see that weakness in July as we start the third quarter.
spk09: Okay. I tried to comment the hearing aids. We started two years ago to establish our audio division or super audio division, how we call it, to really leverage the technology that we have in industry that are close to the optical. So we decide first to deliver in one year in OTC category, focus on U.S., because this gives the opportunity to better taste our product, better understand the market. but in the future i believe because our approach that combine optical and sound or earrings the differentiation between traditional and otc it will change a little bit and will remain two different legislation and rules to sell and manage that kind of product. But at the end, performance, we believe it will really match because it is not starting from the hardware, but anything is starting from the software, the algorithm. that can manage sound so we believe that this is a promising move for our company and this is a good news also for the industry audio industry that will see a player a new player open to help the industry to improve and to help all the players really to help customers to hear better
spk04: Our next question comes from Adrian Duverger, Goldman Sachs.
spk01: Hey, good afternoon. Thank you very much for taking my question. So the first one would be on Europe. How would you describe the overall demand environment during the second quarter for the industry, and how have you performed relatively to other players? And the second question would be with regards to the professional solutions. Are you sensing any change in ordering behavior across your third-party partners in terms of products by price point or any change in the level of confidence on the sellout? Are you happy with the levels of inventory and how does it compare to what you were seeing about three months ago? Thank you very much.
spk03: Good afternoon, Adrian.
spk15: Let's start with EMEA. I'll take the first part. The work and the execution in Europe has been extremely strong. I would say on both channels, professional solution as well as direct to consumer. The level of engagement with our clients on the B2B side has been pretty high. Just the fact that during the rollout in Europe of Barilux XR, we engaged 18,000 ECPs in 19 countries, being very much part of an important product launch that we believe will be an important asset for the optician, for the market going forward. That tells you a lot about the excitement and the expectation that they have around the astroloxotic ability to deliver products, to deliver innovation around the market. And that is clearly an important part of that. And we see it across different markets, and we are very pleasing to see those results going through the second quarter. And I believe going forward, having an additional asset like Viralux XR could only help to improve that situation. The other part, it's a strong retail execution in India and it's a, it's a work that we've done on the sunglass up part on the some part of the business. Very strong performance, uh, which comes on top of a very strong performance last year, but even more important. is the work that we're doing with the integration of Grand Vision into the network, into the retail network of Acero-Luxottica. That work, it's working, it's doing really well. It's the work that we're doing on the back office. It's the work that we're doing on the renewal of our assortments, on the renewal of our lands offering, and we're clearly seeing that we are executing with no disruption across channel. When we look at the question on the order side, I think there is a bit more cautiousness, and I mentioned that before, especially on the French side, on the reordering in North America. uh we've seen that bit of softness during the course of a second quarter but again i always say that on professional solution the frame category needs to be seen over usually a six month period and when i look at the picture of a six month period for frames for example uh we're flattish so we got a good first quarter and we got a deceleration during the course of a second quarter but all in all the picture is still solid. The first half of the year in North America is still a growth story overall, and I think we're conscious that the first quarter started faster than Q2, but overall the picture is still pretty compelling. Just a last reminder, when we shared the long-term outlook, uh we guided for north america to be anywhere between low to mid single digit and if you look at the performance that we're getting in north america today it's very much aligned with what we guide you for the next question come from cedric le casble stephen thank you for taking my questions uh i have a follow-up on the on sunglasset
spk14: And a specific question, how should we look at your North American network? It's been extremely powerful across the years and for some time where you lack tourism activity, it seems to be a bit softer, maybe a little structurally. Do you think there's a structural issue there that this network seems to be working a little better in Europe with more tourist flows than in the U.S.? ? And do you see any need to maybe rationalize a little bit the number of stores which is still very elevated? That's the first thing. And the second question is linked, is a bit linked to this one, but optical is outperforming sun, more resilient. How should we look at the impact of sun on the overall profitability? How should we think of the comparison of the sun business profitability versus optical, or the indirect impact of low operating leverage from sun in some countries like the US if the sun slows. Thank you very much.
spk09: I'll try to clarify something on sunglass sat, especially in North America. I believe that is more than just a network to sell sunglasses for us. You know that we are the only one with the full dedicated stores to sunglasses in US. We built through Sunglass Art in UN a category and we are really supporting that kind of demand. So, I believe that the role of our retail is much more than just sell some pair of sunglasses more day by day. But it really is to communicate the category and really support the category against the many uh competitors that are not coming from our industry as you know uh sneakers is the most powerful competitor of sunglasses and the our store really is a really a marketing tool That's how we see. We are refurbishing, re-positioning many of our store in U.S. following evolution of mall or cities. And this is good, is showing that the result are solid and we won't continue on this journey. EMEA is younger than any North America. So that is why any time we enter in the market, open new stores, we see immediately good retard with good margin. But it was the story that we saw in UN 10 years ago. So we are very confident that is the right way to approach the category, to support the category and evolve. in the next year our retail.
spk03: The next question comes from Ugo Solveig, BNP.
spk07: Hi, hello. Thanks for taking my questions. I have two first on travel retail. You had a soft performance in Q1, maybe outside of the US in Q2. Can you comment on the quality of travel retail and if you're seeing a pick up here? second on uh even get and maybe a two-parter here uh so far the the otc market in the us failed to to gain traction uh what have you identified or what do you believe you can bring to the market to to to really help uh this market take off and uh why partnering with traditional ewing players what do you think they can uh add to the equation here and uh second part uh you mentioned that you set up the ewing business um of the audio business two years ago. Should we understand that any revenues coming from that business over the next three years is part of the 2026 target or come on top of that?
spk03: Thank you.
spk15: Okay. So, Ugo, good afternoon. I'll take the first question related to travel retail. We've seen a good dynamic in travel retail. I would say still pretty localized in Asia. Travelers in Europe are probably a big portion driven by local travelers europeans traveling around we've seen it um and also a good touristy traffic inflow from north america we haven't seen yet um massive uh inflow of touristic traffic from china yet and uh i believe probably the second half of the year things might uh get better but right now we we've seen an improvement of chinese traffic in europe but not that materially so the the numbers that we see on the second quarter are uh are better and we definitely see a pickup in uh in that respect now the second question was uh regarding the hearing aids maybe francesco
spk09: Yes. First, we don't disclose number today. We just established the fact that we are entering in the hearing aids market. So the fact that these are not in the guidance is to me today is not so relevant. What has to be clear that we are not trying to bring the hearing aids in the optical market. we are really trying to compete on the audio market with the new solution and this new solution since it will be in the intersection of audio and optical it will be managed at the best also in optical retail but we will we won't supply also the traditional hearing stores and support the entire industry
spk04: The next question comes from James Grisnich Jefferies.
spk05: Good evening, everybody. Congratulations on a good and resilient quarter. I guess I have a couple of questions. The first one is just on the numbers side of things, Stefano. Of course, effects become a much bigger discrepancy in the second half. is there anything on on the basis of what is done in half one on the margin side of things that it's worth flagging at this point in time um and secondly uh if i think about grand vision can you help us with a couple of kpis uh in terms of the integration um i was wondering firstly or what has happened to the level penetration of astro lenses um into the grand vision operations uh in half one versus of one last year and second half last year and how that is expected to progress. And I guess it might be a third or it might be a second. I was wondering how the pilot, the SAP pilot is going in Italy.
spk03: Good afternoon, James.
spk15: I'll take your questions here. The first one relates to the effects. Yeah, we've seen actually for the first time some headwinds in our results due to currency. After seven, I believe seven consecutive quarters of currency tailwinds. I mean, you have a good proxy of what is the impact taking the proper proportions between constant and current change that we have on the margins. And that could be a good proxy to be considered during the second half. As you said, in the second half of the year, we do expect those headwinds to remain and be, and be there also in Q3 and Q4. But again, we have a fairly balanced cost base between revenue and cost, so we have a kind of, in a way, natural hedge in quite a few key geographies in that respect. The other question you have is with Grand Vision, with respect to Grand Vision. One of the KPI, or let's say the target that we had, is to get approximately 50% of the lands supplied through in Grand Vision to be supplied through Astralux Optica. And I can tell you that we are approaching that target as we planned. We are a bit south of that 50%. already through the first half of the year, so we're confident that we're going to reach out that target by the end of 2023. SAP implementation, it's going well as planned. SAP, I think it's an important enabler to allow us to manage more and more our infrastructure on a common basis to manage our inventory more effectively, to manage our supply chain, allocating resources, assets, depending on what is the demand in which part of the world. And therefore, we continue to support that. And I'd say it's working pretty well so far.
spk04: Our last question comes from Domenico Ghigliotti, Equita.
spk06: Good afternoon. Two questions. First is a follow-up on Grand Vision. So I am curious about the performance of the Grand Vision banners, also because I would expect that revenue synergies should take more time to materialize compared to cost synergies, so you are still in the middle of your process to extract higher revenues, and so there is potentially room for acceleration. And the second question is on the online business. I understood that it's still struggling a little bit. Do you expect any recovery soon or probably postpone to 2024 if you can elaborate a little bit?
spk03: Domenico, good afternoon.
spk15: So let me take the two questions. We are here, obviously, commenting Grand Vision, but clearly we are conscious of the fact that we have, I would say, two successful stories in Europe. One is our professional solutions side, very successful, I would say, the work that the team has done in Europe. And on the other side, another very successful story on the retail side of the business, both optical as well as sun. um the impact of revenue synergies in our top line performance it's marginal and it's nothing new in a way we we always kept saying that the vast majority of the work that we're doing on grand vision will will generate synergies that will probably be more related to cost synergies and a bit of uh work with respect to the assortment um I think we brought discipline, we brought strong execution around the different banners. And the result that we're seeing is very promising. A lot of initiatives that have been undertaken in the course of 2023 deliver very strong results. For example, the subscription model in United Kingdom. We launched that at the beginning of the year. And we can say that already today, approximately a third of the growth that we are delivering in UK is due to the subscription model. So we're going to leverage and take that learning also in other parts of Europe whenever we think it makes sense. On the other side, the rollout of transition lenses throughout the Grand Vision banner has proven to be very good in terms of penetration. We see consumer demand in that, and clearly this is helping also our price mix. It's a pretty compelling story and, uh, we're pleased with the trend that we've seen in the second quarter, I would say overall in the first half of the year. And we're clearly pleased to see that trend continuing also. In, uh, in, uh, in the month of July overall, I would say for the trend that we've seen in the media, uh, the online business. I would have a hard time to say that we're struggling in a way. Let's just take a broader perspective of what online was in 2019 pre-pandemic for Essilor Lux Optica. We were looking at a business that was 5% of our overall turnover. And now we have a business that is 7%. in overall contribution to our revenue. So it is a business that is structurally bigger than what it used to be three years ago. It is a business that more and more is convergent with our offline proposition in an omnichannel structure. And I feel that today the investment that we're making in a way are making our online proposition more and more convergent with our stores. So, again, I know if we look at the single quarter, the growth is probably not what we've seen in 2022 or before. But, again, we are talking a business that is structurally two percentage point bigger than what it used to be in terms of contribution to the overall revenue of Estero Luxottica.
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