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spk00: Hello everybody, this is Giorgio Iannella from the IR team. Thank you for joining Essiro Luxottica H1 2024 results management call. The group's chairman and CEO Francesco Milleri, the deputy CEO Paul Dusayan and the CFO Stefano Grassi will walk you through the business and financial highlights for the period. After their presentations, there will be a Q&A session. If you want to make a question, please press a star, followed by five. We kindly ask you to limit your questions to a maximum of two. With that, I hand it over to Francesco.
spk08: Welcome everybody. Good to see so many of you connected today for the Silor Luxottica first semester earning call. I'm pleased to introduce our sound financial performance and give you an update on our key strategic initiatives. In the first six months of the year, we posted revenue growth in line with the long-term targets, with the two quarter well aligned in their performance and the operating margin in sound progression. That leaves us fully confident to deliver on our five-year targets. Stefano will elaborate on that. I'd just like to emphasize here the solidity of our growth path since 2021 on both revenue and margins, always translating into strong cash flows. While we well execute our strategy in the core business of eye care and eyewear, we play the role of a front runner in the technological revolution of the industry. The combination of Essilor, Luxottica and Grand Vision into one single stronger group was just the first step. Now we are at work to make a second, much bolder move, bringing our group into the promising future of wearable and AI-based face computing. We'll bring together digital platforms, portfolios of new applications ranging from eye care, hearing aids, predictive advanced diagnostics to gaming, sports and entertainment. In that direction, Ray-Ban Meta continued to be a great success, upgrading product quality, adding new functionalities and accelerating growth sales. At the start of its journey, Ray-Ban Meta already sold more than Ray-Ban's story in its entire life. We strongly believe we are just at the beginning of a revolution which will combine technology with design and branding and deeply reshape many industries converging on our wearable unique platform. One of the key engines of such a revolution is our long-term partnership with Meta, making our proposition in new generation of eyewear more and more powerful. Nuance Audio is part of the same vision. Over the past year, we have made significant progress in developing the new technology, fine-tuning the product, and collecting supportive clinical evidence from extensive research and top-quality tests. We continue to present the product to end-users and potential customers, gathering a great deal of interest. At the launch we will be ready with presentation tools and store product corners to support the sales of Nuance Audio in third-party optical and audiological locations, together with our own stores. Based on the high potential of our product, we have decided to proceed with a submission with the FDA in order to ensure that our product meets the highest standards of safety and efficacy. Being fully respectful of FDA procedures, we still target the end of the year for the launch of Nuance Audio in the U.S. market. The two acquisitions we announced last week, the leading diagnostic medtech platform Heidelberg Engineering from Germany and the iconic Supreme brand from the US coast, are fully in line with our strategy, as they respectfully bring to Essilor Luxottica strong capabilities in the ophthalmic applications and one of the most iconic brands among the youth. Starting from Heidelberg Engineering, on which Paul will elaborate further, I want to highlight that the German group, founded in 1990, is a leading innovator in high-end diagnostic imaging and healthcare IT solutions for ophthalmology, with a unique portfolio of patents and applications. In two SLO Luxottica's ecosystem, including Helix's new digital division, Heidelberg will bring opportunity in different areas, like R&D, optometry, healthcare IT, big data, and AI. As for Supreme, Started in 1994 in New York City, that is really a leading iconic brand, the most authentic and desired brand for the new generations, fully direct to consumer, with an aura of exclusivity and scarcity around its product offering, often released in limited units. Such a community is loyal to the brand, thus offering Silor Luxottica an access to an audience that is untapped by its current brand portfolio. Well beyond the strong position in Apparel, we are acquiring a unique communication platform to address young consumers. Nice retail points offering a superior in-store experience are part of such identity. supreme directly operates 17 well-performing stores in big city worldwide with a strong penetration in china and the other asian markets in a much more fluid landscape with different business and industry converging and mixing each other brands will matter even more than ever We see brands as the necessary support for the diffusion of innovations in wearable and digital platforms, the necessary cultural vehicle to push our disruptive view of the future. Last but not least, supreme acquisition will be a creative on our margin. With that, I hand over to Paul. Thank you.
spk05: Thank you, Francesco, and good morning, good evening to you all. It's a pleasure, like always, to be here with you. Today, as you have heard, we are presenting solid first half results. We are very thankful to all our colleagues for the hard work they have put into delivering them. Before digging a little bit deeper into the acquisition of Heidelberg Engineering, I would like to emphasize three messages. First, our core activity is in strong shape. In a context that is complex, our teams are deeply focused on the execution of our strategic priorities. In the last month, we have consolidated our organization, developing our leaders and preparing the generation of tomorrow at all levels. Our flat and agile structure is nurturing the entrepreneurial spirit of our company. Second, our innovation dynamism remains unparalleled. Just think about how rich our pipeline has been in recent time and the tangible impact it has already made to our growth. Stellest, Varilux XR, Transition Gen S, Ray-Ban Meta, Ray-Ban Change, the new licenses Swarovski, Jimmy Chou, Bruno Locucinelli, Ferrari, Moncler and now Diesel. It is truly inspiring. We have talked about them already during our last call, so today I would like to just touch upon two of our iconic brands and categories, Stelest and Oakley. We have recently released our five-year clinical trial findings for Stelest at the ARVO annual meeting in Seattle. The data shows that the lenses are effective in slowing down the myopia progression and axial elongation, saving one and three-quarters of diopters on average over five years. The confirmation of the strong results over an extended time horizon really proves how impactful our technology is. More than one million children have been equipped with STELEST in the first half. A lot is going on at Oakley. And on top, they are preparing for the Olympics starting tomorrow in Paris. The brand is buzzing with excitement for this huge sporting event and will have a pavilion at the Palais Brognard to host its team Oakley athletes. Oakley will be outfitting the US surfing team with a super cool collection of functional offshore apparel and eyewear. The brand has also just dropped the new special Inner Spark frame collection, drawing attention to the deep emotions that athletes go through when competing. Check it out. Third, we are preparing for the future in a bold way. With industry transforming initiatives, as we have heard from Francesco, and a clear focus on sustainability, where we are advancing well on our agenda with concrete actions. We have just announced that by 2025 we will create a 25 hectares solar farm close to our Italian Barberini manufacturing site, able to produce approximately 30,000 MWh of the renewable energy per year, an equivalent of the annual electricity consumption of approximately 10,000 families. and we have recently submitted our near-term emission reduction targets to the SBTI for approval. Our initiatives so far have led to an improvement in major sustainability rankings, such as MSCI, ESG, Sustain Analytics, and Moody's. Now, I would like to focus on Heidelberg Engineering. This is clearly a leap forward in stepping up the capabilities of Essilor Luxottica in the medtech space through building a complete spectrum of eye care solutions from routine exam to advanced diagnostics combined with AI capabilities. With Heidelberg Engineering and their teams, we are bringing great expertise connecting edge technology and a globally renowned brand into the Essilor Luxutica family. Their advanced solution in the field of diagnostic imaging, digital surgical microscopes, and healthcare IT solutions empower ophthalmologists to detect, diagnose, and monitor eye disease at an early stage. Their Spectralis device is widely recognized as the gold standard in ophthalmic imaging and has also been chosen by the NASA to monitor the vision of astronauts aboard the ISS. Heidelberg Engineering is known for its powerful R&D capabilities and contribution to site-saving scientific research. They are also actively integrating small and innovative companies to foster the development of new projects. Values that are very much aligned with the one of our company. With this move, we enter the space of clinical ophthalmology, which will allow us to upgrade our offering and expand our scientific programs. And now I will hand it over to Stefano, who will run you through the financial performance. Thank you.
spk07: Thank you, Paul, and welcome to our first half earnings release. As usual, we start our journey on the financial, commenting first our revenue results, and then I'll move to the P&L and the free cash flow generation. During the course of a second quarter, Estella Luxottica delivered a top line up 5.2% at constant currency, a cruise speed that is very much aligned with our long-term guidance, despite the environment we are surrounded is uncertain, in particular in our main market, the US one. When we look at our growth at current exchange rate, our top line was up 3.8%. So the gap between constant and current exchange result is narrowing during the course of a second quarter, and I would say it's mainly driven by some minor currencies. Both professional solution and direct-to-consumer deliver a mid-single-digit quarter, posting a solid growth pretty much in every region. That's always a pretty important priority for us, making sure that our delivery is pretty balanced across the geographies and within each geography across the two distribution channels. But now, as usual, let me walk through the first geography in Pi, and that is North America, that posted, during the course of a second quarter, a top line up 1.4%. I would say both divisions, professional solution and direct-to-consumer, delivered a low single-digit quarter. In the B2B division, we experienced a deceleration independent channel with a pretty polarized picture. On one side we had our ECP that are not part of our strategic partnerships, they were negative in the second quarter, in a market that was still very competitive, still very price sensitive, especially on the lower price points, while our strategic alliances, and I would probably mention here VisionSource, grew on a high single digit territory. If we look at the other channel now, the key accounts were on the positive territory during the course of Q2. Our e-commerce partner, our department stores, they both performed well with a double digit delivery. Moving to price mix. Well, price mix during Q2 was the primary driver of our growth on the lens business, especially thanks to Varidox, Eisen and Shamir. While for the frame side, we saw a more balanced growth between volume and price mix with double digit in Ray-Ban meta that very much supported the growth of Ray-Ban brand. On the licensing side, I would probably mention a good start for the first half of the year of our Swarovski license in North America. And now let's give a quick touch on direct-to-consumer. Our Optical Retail banner delivered another solid quarter. LensCrafters, Target Optical, they were on low single-digit comps, while PurrVision delivered a mid-single-digit comp during the course of the second quarter, proving once again the resilience of our Optical Retail business in North America. I will make a last touch now on retail, retail sun, that deliver a low single-digit negative comps. Here, let me say we have no indication of a materially different trend between what we've seen in Q2 and the previous quarters. If I look at my glass half-full for a second, I can tell you that the sunglass locations, the ones that were more exposed to touristic traffic, actually performed well with comps on the positive territory during the course of Q2. But now let's switch gear. Let's move to EMEA. EMEA that deliver an outstanding quarter. I would say another outstanding quarter. 7.9% top line growth in the second quarter. The 13th consecutive quarter of top line growth in the EMEA region. And really, for Diemia, there are three areas on which I would focus. First of all, our B2B business that continues to be strong quarter after quarter in both lenses and frames. In all the main geographies, we saw solid growth in France, in Italy, in Spain. in the UK, in Turkey, in Eastern Europe, in South Africa and Middle East. And I'm sorry for a long number of countries, but just to give you an idea of how strong was our delivery in the region. Lens's businesses were positive thanks to our branded Lens portfolio. with Varlux, with Stella, with Eisen, they all perform a double-digit pace. And on the frame side, we deliver a double-digit growth on the Oakley brand that now, with the upcoming Olympics game in Paris, will get more and more visibility thanks to our athletes that are going to compete every day to win the gold medal. The second important pillar is our optical retail business that deliver double digit growth with high speed in synergy realization in both lenses and frames assortment with a deeper penetration of the subscription model that is now running in 18 countries in Europe and represents a third of the growth of optical retail in the region. with a telemetry that is also now available in over 350 stores and with a celebration of two successful flagship stores like the Champs-Élysées one on Grand Optical that some of you visited at the end of May and the other one in Oxford Street for Vision Express that had a lot of visibility in the news. The third important pillar is our Sun Retail business. Here we suffer lack of good weather in Europe and I would say that that was particularly true in the peak month like June where we would normally generate 40% of the revenue of the quarter. Anyway, our sun during the course of a second quarter was just a touch below mid single digit with positive delivery in italy and spain and in my view this performance proves once again the strengths of our sunglasses business model outside the us Now, the third region moving to East is Asia-Pacific, a strong quarter, the best performing growth in the three of the four regions and 9.8% at constant currency. This delivery comes on top of the best quarter for Asia-Pacific in 2023, where I remind you, our top line grew 24% at constant currency. In the region, mainland China and Japan deliver a double-digit growth. All the other key countries were on the positive territory. Stellast, I usually talk about it every time because I think it's an outstanding and impressive story of growth, grew in excess of 80%. But also, Varilux and Aizen started to deliver solid growth with a double-digit pace. On the French side, I would probably mention here, again, Oakley. Oakley is gaining more visibility with the Chinese consumer. Oakley is gaining more awareness. And I think this is obviously very important and very rewarding for us and for the brand. If we move for a second now to the direct-to-consumer, I have mentioned mid-single-digit comps in OPSM, where we are observing an improved conversion, a better price mix, while on the other side, in Hong Kong, our retail business continues to struggle as we experience soft comps throughout the quarter, and that is very much due to a lower touristic traffic in the city. Now, the last region in the pipeline is Latin America, 8.6% top line growth at constant currency. I would say in the top line, we have a material help coming from the inflationary impact of Argentina. We also need to mention that the largest country in the region, Brazil, suffered between the end of April and the month of May the dramatic consequence of the flooding in the region called Rio do Sul. Probably many of you have seen the terrible picture of the situation in that region. We had about 1,800 doors that we serve as a client on the B2B side that were impacted. We have slightly less than 100 stores between corporate-owned stores and franchising stores that were impacted. And we're now every day working next to our clients with our store to resume their day-to-day operations. Despite that, The performance in Brazil was slightly positive, with the B2B frames that were a double-digit pace, while on the other side, the direct-to-consumer, we had double-digit comp in Sun as well as in Ocho Cacarol. So, overall, a pretty compelling picture for Brazil, despite the major challenge in a specific region in the southern part of the country. uh if we move now for a second to the dirty consumer in the hispanic latin region i would like once again a strong delivery of the formerly known grand vision banner in particular the one that are in nicaragua in costa rica in andes in mexico and honduras they all post a solid growth and that was very much driven by price mix thanks to a strategic realistic view of the assortment in the region for both lenses and frames that is obviously paying back. We closed out the journey across the four different regions, and now let's face and introduce a new chapter. That is the profit and loss. And moving to the profit and loss, as usual, I will focus more on the constant currency results. Our gross margin, as you can see, is 40 basis points accretive compared to 2023. That's obviously a very pleasing result for our P&L. It's very much the result of a stronger mix effect and coupled that with a price increase that we executed throughout the year, throughout the beginning of 2024, in both lenses and frames. Those tailwinds, price mix, are largely offsetting the headwinds coming from the insurance claim cost and also the strategic investment that we are making on our manufacturing infrastructure. If we move now to the OPEC side, we're successfully balancing here the investments on the new license, the incremental spending for transition GNS, while on the other side, we keep our GNA cost under severe control. In all of this, translating a 50 basis point margin accretion at our operating profit on an adjusted basis, while our net income, on an adjusted basis, expanded 60 basis points at constant currency with a double-digit growth thanks to a slightly favorable, compared to last year, tax rate. Now, I want to go to the last slide for the P&L, and it's a margin bridge, a margin bridge that I'm sure you are familiar with because it's exactly the same that we show you at the end of 2023, early 2024, to comment last year results. As you can see here, you have the major building blocks, inflation, operational efficiency, and strategic investment. And one by one, I'll give you just a few highlights to make you understand what's driving our operating profit improvement year over year. As expected, the inflationary impact is still there. It's still material and it's fairly close to what we experienced during the second part of 2023. And for the vast majority, I would say it's related to the labor cost. On the positive side, you see 280 basis points of our operating efficiency and price mix. That's very important. We already commented the results and the delivery of grand vision synergies, the operating leverage of our business unit, and again, our price mix dynamic. All of this played in our favor and gave us an even greater basis points accretion compared to the one that we commented last year. If you remember, in 2023, this building block was 270 basis points accretion, but with the top line, they grew 7%. Now our top line is more around 5%, and our accretion is actually improved compared to 2023. The last pillar before the foreign exchange is represented by the strategic investment. The strategic investment accounted for about 60 business points that are distributed between the product innovation of Ray-Ban, the upcoming Nuance Earring 8, the digital investment in our platforms, and last but not least, the investment in our portfolio. All of this is translating into 50 basis points margin accretion at constant currency, clearly a material acceleration from the 10 basis points that we commented for the full year 2023. And now the last chapter of our journey today, it's represented by the free cash flow and the net debt. There are really two messages that I want to convey to you. First of all, 971 million free cash flow generation, approximately 20 million more than the free cash flow that we generated in 2023 in the first half, and that despite the currency headwinds. The second message is that we have a strong balance sheet. Our net debt to EBITDA ratio hits a 1.5, and that gave us proper room to execute the two M&A transactions that were well described before by Francesco and Paul. And now, as usual, let me hand it over to the operator for the Q&A session. Thank you.
spk06: Ladies and gentlemen, we will now start the Q&A session. If you want to book a question, press star followed by five. Our first question comes from Chiara Battistini, GP Morgan.
spk12: Good morning, good evening. Thank you very much for taking my questions. I have two, please. The first one, I guess, on Supreme. If we can come back, I know you touched on this, but if we can come back really on the rationale behind the acquisition, how this will fit your portfolio, and also whether we should be thinking that now maybe brands could be potential acquisition targets going forward. And simply also, if we were looking to get exposure to the brand and to the younger consumer through this brand, why not considering an Iowa license instead of the full acquisition of the brand? That's my first question. And then my second question is on the innovations, the larger innovations that you're presenting. Firstly, on Stellis, I was wondering if you could touch on how the expansion into Europe is progressing so far. I know it's very small, Any initial indication on Europe would be very helpful. And the second one on Nuance, which you could confirm about the Q4 launch in the U.S. and possibly where you are in terms of conversations with potential distributors, how you're thinking about the distribution of Nuance once it launches. Thank you very much.
spk08: Thank you. Chiara, I try to answer to the supreme rational. Really, I have been very surprised for the reaction of the market that really the market didn't understand immediately how was the purpose of this acquisition. And the purpose is really far behind the fact that they are an iconic brand, that they are doing very well, that they are profitable and so on. Really is the strategic approach of our group that found a perfect brand that fit with our strategy. And so we had the chance to close the deal and really to plan the future together. First of all, we think Supreme as a communication platform. is really a direct channel to an audience that is very difficult to reach. And this communication channel has a real great reputation that maintained for more than 30 years. Why not through license? Because license is a totally different matter. We depend on communication, on marketing, on product many times from the brand's creativity that is really giving us direction and sometimes constraint. We believe that a good balance between house brand and licensed brand is what make the company very, very healthy. So that is the rationale behind. It's not so complex. It's not a decision to enter in the apparel. Apparel for us really is something that helps to communicate. It could be skateboard, it could be cycling, and in the future could be also other brands or product that can allow the company to bring technology in a natural way to the new audience. This is, if you think of the success of our Ryban Meta, of course, the technology, especially of the second generation, is amazing. The quality of the sound, the capability, the function are very, very strong and good. But what allowed us really to reach the real target, it was the brand. It was the popularity of Ray-Ban, the capability to be recognized from a large population. And that is the way we would like to approach in the future, bringing through brands all our innovation to the large public and to all new audience. Then I leave Paul to comment on STELEST.
spk05: So STELEST, myopia management, as we have explained often to you, we have a very systematic approach to establish this new management of myopia. by, of course, continuing the expansion into China. What is noticeable in the first half is that now we have the second technology platform, the one of sightless vision, which is in the market and starting to address hundreds of thousands of children. So it's really starting to be complementing the steadiest part. The second expansion is the geographical expansion into Europe. We are going to market with Stellest. The product is well established in France, in the UK and more and more in more and more countries in Europe. So that's the second development. And all of that, we do it as we often explain. working with the doctor community with the ophthalmologist being very present in the in the big symposium like we were at arvo very recently and third we are preparing the north america us working with the fda with the two technologies with the preferred status targeting 2025 for sightless vision uh early 2026 for status so that is really the roadmap and we continue to see great acceptance for this technology by the parents by the doctors and of course by the the children about nuance so we have the we expect the launch at the end of the year or at the beginning of the next
spk08: And the approach will be in line with the strategy that our company always had in the past. Not disruption in the market, partnership with everybody. This is why we are really discussing with all the operators in the audiological sector. And we believe that our product really will improve and the large, the market for everybody is really targeting 1.2 billion and that is really big numbers of people that really cannot find a solution or solution acceptable to fix the problem. So they cannot use the traditionally ring gates for many reasons. One, it could be a stigma or maybe the price or because they don't fit for their needs. So we launched a new generation of products that combine the two optical and audiological functionality. And I believe that we will be and help for the entire industry, it will be present in our store, but also in all the other audiological stores of all the partners and players, first in the US, then around the world. Thank you.
spk06: The next question comes from Oriana Cardani in Tesa, Sao Paulo.
spk10: Good evening. Thank you for taking my two questions. The first one regards the M&A policy. So can you quantify the contribution to revenues growth and EBIT margin impact expected for next year from the consolidation of the two acquisitions? And the second question is about Grand Vision. Can you give us the organic growth in the second quarter of Grand Vision? Thank you.
spk07: Good evening, Oriana. Let me take your two questions. I mean, the long-term guidance, if you remember when it was shared, it implied an M&A contribution over the period of 21-26 up to 1% of our growth profile. Now, of the two acquisitions that we disclosed, Supreme figures are public, so you see revenue in excess of 500 million. The other one hasn't been disclosed, but I can tell you it's smaller in terms of materiality. And this is really the thing. With respect to profitability, as Francesco said before, the EBIT margin of Supreme has been disclosed. by EVF when they file the 8K to the SEC and you can see a very rich and healthy EBIT margin in excess of 20%. The second question you have is with respect to grand vision, organic growth. I think it's a healthy pace of grand vision, double digit that you've seen during the course of the second quarter. It's healthy because it's widespread across all the different countries. It's healthy because it comes on top of another year, 2023, where we are trending very close to double digits once again. And it's healthy because it's been a major driver of our top line and margin expansion. So we are very pleased with the trajectory that the Grand Vision team has been delivering in Europe.
spk06: Our following question comes from Louise Singlehurst, Goldman Sachs.
spk09: Hi, good evening to you all, Francesco, Paul, Stefano, and Giorgio. Thanks for taking my questions. I wondered if I could ask two related to the US, please. Firstly, on the US, and particularly the DTC backdrop, can you give us any view of the performance during the period, any flavors that you might be able to share on the exit rate going into July, and particularly that consumer behavior? any sensitivity that you're seeing to price relative to Q1. And then secondly, for the U.S., can you give us any flavor on the margin, specifically on how you're managing the drag from the low-growth environment? I'm just trying to understand if there's a tight rein on cost currently and whether, as the growth starts to recover, whether we'll start to see a nice operational leverage coming through or whether the cost comes back into the business. Thank you.
spk07: Good evening, good afternoon, Luis. I'll take both of your questions. So with respect to the data consumer performance, as we commented already, we have a two-side story, right? We have a solid growth in our optical retail banners, Lance Crafters, Target Optical, ProVision. And we are pretty pleased with that because we see it consistently. It proves once again the resilience, as I said before, of our optical business model in North America. It's nicely coupled with a performance that we've seen also on VisionSource on the independent side. When we look at the exit rate, I would say no major change in the month of July for optical rated binders. For the sun part of the business, it's quite a few quarters that we continue to experience, I would say, a soft demand in sun. We haven't seen material change in the trajectory, neither in the second quarter. or in the early start of the third quarter. But again, we are just three weeks into Q3, so obviously we're going to have to wait and see if there is any evolution. I think at a certain point in time, we will see a rebound of some demand in North America. The other question you had was related to margin and specifically margin dynamic in North America. in an environment of low single-digit growth, as you rightly pointed out. But I would say there are probably two dynamics. We're pretty pleased with the professional solution margin dynamic that we see there. The growth that we have on some of the channels that we have on the B2B, it's driven by a pretty solid price mix and that helps the profitability. While on the retail side, we probably feel a bit more the headwinds deriving from the inflationary trend, especially on labor, due to the intensity of labor into our profit a bit.
spk06: The next question comes from Veronica Dubajova, Citi.
spk13: Hi. Good evening, Francesca, Paul, Stefano, Georgia. Thank you so much for taking my questions. I will also keep it to two. If I can just follow up, Stefano, on the drivers of the gross margin expansion across the group. Obviously, really impressive performance given that the U.S. was the weakest growing region. So I was hoping you could maybe elaborate on what were the big levers that you had? Was it the improvement at Grand Vision? Was it just product mix across the broader business, not just specifically within the U.S., if you can just give us a little bit of insight into what's driven that fairly impressive gross margin performance while your single highest gross margin region is growing the least. So that was my first question. And then my second question is a question on the setup partnership and how you guys are thinking about potentially sharing the technology that you have developed with Ray-Ban Meta with other players in the tech market versus keeping it exclusively for Meta and sort of what would be the trade-offs that you would need to see to choose one versus the other, if you can talk through your thinking process on that. Thank you guys so much.
spk07: Hi, Veronica. Good evening. But you see, I'm glad you asked the question of gross margin, because I think it's been a while since last time we saw gross margin expanding. There are really a couple of dynamics underneath that gross margin expansion for the group. You have on one side the expansion driven by price mix. And I would probably mention both as equally important in this case. mix in particular on lenses and we've seen the good performance the good traction that we're getting on the product innovation like barrux xr on the launch of transition gen s that right now is still launched on a limited number of countries and obviously on the other side there is the price effect we we've been very open to announce price increase on a single digit territory which is bringing obviously an additional lift in our overall price mix dynamic. On the other side, Grand Vision is an important driver of the gross margin expansion. the improvement and further penetration of astro-luxottical lenses within the grand vision assortment is progressively at a fast pace, respecting the existing lens supply agreements, but we're clearly very pleased with that. And I would say that this margin expansion comes despite the deceleration on the negative territory of St. Glastat in North America, which, as you all know, it's a business that is highly profitable. And clearly when you see that deceleration, we've been able to largely offset that, expanding our margin.
spk08: I'll try to comment a little bit on Raiba Meta and potential partnership with other competitors. First, our relationship with Meta is really strong. We invested a lot together. in terms of professional capability, plant, CapEx, and we spend a lot of time together really to design the strategy for the future, starting from the strong relationship with Mark Zuckerberg and the top managers of Meta. So for us, this is something so relevant and important that has been preserved And we won't preserve for a long term. And if you read the story of our partnership, also with the license, you see that they last more than 10, 20 years. And really, when we found the right approach, we try to remain consistent for a long term. The products that are coming out are very good. We see the continuous improving on the functionality and the quality. So we believe that that partnership with Meta will last for a very long term. At the same time we have conversation that doesn't mean partnership with the competitors because with most of them we have commercial agreement. We are customers with all the other players. We don't want comment for the future. No one can really understand what will happen in five, ten years. But so far we are very happy with the partnership with Meta and we would like to really concentrate our capability and our investment on that kind of relationship.
spk06: The next question comes from Domenico Ghilotti, Equitab.
spk02: Good afternoon. A couple of questions. The first is a follow-up on the gross margin improvement. I would like to understand where are we in the progress, because you were mentioning some drivers from GV integration to the price hikes that will not stop, say, in the first semester. So I'm trying to understand where are you in the progression on these drivers. And the second is... on the strategic investments that you were mentioning as a headwind on profitability. Could you give us a sense of what should we expect? So we should expect a pickup on this impact or if something that will remain stable for the long term because you have so many new projects. Thank you.
spk07: I want to say, Radomenico, so I'll take both of your questions here. Growth margin. Let's not forget that when we shared the long-term outlook, 21-26, we said that we have an expectation of growth margin broadly flat over time. So I think we've seen semesters in which our growth margin was slightly dilutive. now we're seeing gross margin moving on the on the positive side but again i'm not materially different from where i was when i share the original guidance clearly now we're benefiting from the price and mix effect combined we are getting the benefit of grand vision i would say the impact of those will not be annualized yet for second semester. So you can realistically think that this might continue also during the second half of this year. So the second question related to strategic investment. Well, the dynamic, it's moving in what we probably discussed quite a few times in the past, right? For 24, we were expecting the inflationary headwinds to fade out. And we see second half, first half of this year, inflationary headwinds are pre-aligned with the second half of last year. While we would expect a pick up on strategic investments. They might go slightly up during the second half of the year. We have quite a few strategic important initiatives. Obviously, the most evident one will be the launch of Nuance at the end of the year, as recommended by Francesco. But overall, I think the trajectory that we're getting of a stronger margin expansion that, you remember, we shared at the beginning of the year, is still our commitment for 2024.
spk06: The next question comes from Grace Melly, Morgan Staley.
spk11: Hi, good evening. Thank you for taking my questions. My first one would just be, I've seen that you've reiterated the 2026 targets. Just given all the significant revenue opportunities that you have outlined across different pillars, how do you think about the importance of the components of those targets? Is there a scenario where you would be willing to sacrifice margins for higher growth as you invest behind those growth opportunities that you've outlined? Or how do you think about balancing the top-line growth opportunity and the margins and whether the mix of those targets could change over time? And then my second question would just be, following the price increases that you have implemented during the quarter, could you just update us on what you've seen in terms of customer reaction to those price increases, given we are hearing some signs of a price-sensitive consumer in some places? Thank you very much.
spk07: Good evening, Grace. So let me take both of your questions. Target 2026, we're fully committed for our 2026 target here. Then clearly, you know, a few things changed since the time we shared those long-term targets. Here, I don't think it's a matter of sacrificing margin for growth or the other way around. I think if you look at the trajectory of Avessaro Luxottica, we are looking at, I think, eight consecutive semesters of margin expansion at constant currency. And during those semesters, we've always been growing. So for us, it's not a matter of sacrifice one for the other. And I think we're fairly committed and dedicated to get where we need to be. Then clearly, we have two important assets that are coming together. One, the two acquisitions that were disclosed before by Francesco and Paul, and those will close very likely at the end of this year. Secondly, the launch of Nuance, the hearing aids. Those are important assets for us, which we believe will generate important revenue and profitability streams for the future. So we'll obviously take a closer look, crystallize our view for both those two important areas. And eventually, if, and I want to underline, if there is a need to revise our targets, we will actually come back with you at the end of next year, at the beginning of next year. You have a second question on price increase. I think the price hasn't been materially increased from us for a long time. We decided to take an approach that was very much driving mix through the innovation, conscious of the challenge that some of our clients were going due to inflationary headwinds that they had to live every day on labor, on other material increase. And we purposely decide to keep our pricing profile very low in many different product categories. This year, for the first time, we took those price adjustments. which again, I remind you all, are in the single digit territory. And I think customer well understood the strategy and the decision to take those price adjustments throughout the product category.
spk06: The next question comes from Lucas Solka, Bernstein.
spk03: Yes, good afternoon and thank you for taking my questions. Capitalizing and leveraging on what Francesco just said and the partnership with Meta being a partnership for the long term, I guess that we need to discount what was reported by some media outlets that Google could be interested in a similar partnership. You had a partnership with Google in the past, clearly, when you entered the smart glasses initially. But I take that either you work with Meta or you work with Google, but please correct me if I'm wrong. And then maybe as a follow-up to that, there were also media reports about Meta being interested in taking a stake at Tesla or Luxottica. I wonder if you could say anything about that and how this could potentially work.
spk08: Good evening, Luca. Meta partnership, we really we are convinced that is the right one. We are very consistent and we saw good results, improving, increasing sales. So we don't see any reason why we have to change. At the same time, we are very proud that we see that interest coming from Google, but also from other big tech for our company to start partnership or to understand if we can share our capability, not only, I would like to underline, not only because we are very good to design beautiful eyewear i'm afraid but also because really we show that we can really bring into the market the innovation in the right way so we are here we listen to everybody but i repeat partnership we are so happy with the partnership with meta that so far is our main target and and commitment About Meta taking a stake in eHealth. We are informed of this kind of intention. We welcome everybody, any investors in our company. Also in this case, we are proud that the company that know us very well now after years of partnership is convinced that our company, our group can grow and make much better in the future. And this is also the way that the partnership can be reinforced. We don't see any risk about that. Taking stake in a company like us, it doesn't affect any kind of relationship. Relationships are based on common interests, common view, and really they must have a solid economic behind. to function. So I believe that if they will go ahead with that, it will work, it will help, but it's not really necessary to our partnership that is strong behind that. Thank you.
spk06: The next question comes from Jay Grisnich, Jefferies. James Griznich, Jefferies, please.
spk01: Apologies about that. I was on mute. I'm here now. Two quick ones, please. The first one, Francesco, just to follow up on what you just said, would that mean that this is not about you issuing primary shares, new shares to Meta? First question is that one. And second question, on Nuance, can you perhaps help us understand the scale of the ambition at launch How many doors do you see involved in the coming months and perhaps the split between wholesale and retail doors? That would be really helpful. Thank you.
spk08: Sorry. Hi, James. We have not a plan to capital increase dedicated to Meta. So if Meta would like to become our shareholder, it will buy on March. that is our position at this moment. About to answer, scale and ambition. We will go quite big, especially in US because all the tests that we performed with customers really had so wonderful result. and also the presentation that we had in the U.S. in many exhibitions. It was so good. So we would like really to start in the right way with the presence in almost all the countries in the U.S. And the split between retail and wholesale, I would say our balance usually is 50-50. But in this case, I believe that wholesale can really be bigger than our direct selling. Then we have also to understand the impact of the e-comm on that product. you know that it will be an OTC device. So a quite good ambition at the launch and doors we cannot really now have the defined idea, but in terms of thousands doors, if not at the launch, at least in the first semester of the next year.
spk06: And our last question comes from Cedric Lecasble, Stifel.
spk04: Yes, thank you, Cedric Lecasble, Stifel. I have two follow-ups. Well, one which is more projection, given all your strategic initiatives. If we think five years from now, what would be, in your view, the largest or most promising area between Rayburn Meta, Celeste, nuance between the three. What idea of a ranking in terms of sales and profit potential should we have today, if you have an idea? And you must have one. The last question is on Heidelberg. How will you integrate this company? Where will it be placed? What are the teams that will work on this project? Is this R&D? Is this some operational teams? Could you maybe elaborate a tiny bit on this new business? Thank you.
spk08: Hi, Cedric. Strategic initiative and what will be most important. Fortunately, we don't have to really choose one. All three belong to us. We are really betting big. on Stelest for certain reasons because it's the first treatment. It's the first time that we moved to correction to treatment of a pathology. And for us, it's so important and it's growing so well that we believe it will become a great asset. Nuance is a totally new approach of the market. So now we have a very big expectation that can be very relevant in our revenues and balance sheet, but it's too early really to define how big it will be. Meta, the trajectory is already clear. We sold at the launch of the new product almost the same amount of pieces that we sold in the previous two years with the first release. So the projection is very, very clear. It will increase. And I believe in five years, it's difficult to say, but wearable as a category, it will represent really one of the biggest part of our revenues and the most profitable.
spk05: So great Cédric that you ask a question on Heidelberg Engineering because it is, as you have seen, a very strategic move, totally coherent with the medtech orientation of the company. And I want to identify a very simple idea. It's complementary to some of the capabilities that we have in Essilor Luxottica in the instrument part already. So first, the great news is that it is a complement of the offering for the diagnostic part. Second, it's not an immediate idea that you find a company with a great reputation with a great brand that is established in this field with great scientific depth and expertise. That has been a long term company with a family behind it, people very dedicated to this technology. So we were extremely fortunate that we could open this discussion and come up with the idea that we would take 80% of ownership in the company. And it's quite important that it means that there is 20% remaining with the founders to combine the transition of Heidelberg Engineering into building together this full platform of instrument, diagnostic, software solutions, leveraging AI. So to your question, we are going to first really discover ourselves better and better. We are going to certainly deepen into the R&D capability. into building together the full integrated offer for doctors, for ophthalmologists, and to combine this vision care ambition that we have for the company to go deeper to our clinics, hospitals, doctors, ophthalmologists. And it's very, very coherent and complementary to what we have already in the house. So it will be... a progressive integration and finding the right synergies. But we are really, really pleased that we could announce this acquisition at the same time.
spk08: Thank you for your attention, as usual. And I wish you that you can have a good holiday vacation and some break. And we see you in the next quarter. Thank you very much. Bye.
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