EssilorLuxottica SA

PAR:EL

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen. Welcome to the EssilorLuxottica 2019 Third Quarter revenue presentation. Today, I am pleased to present Mr. Laurent Vacherot, Ms. Hilary Halper; and Mr. Stefano Grassi. [Operator Instructions] I now turn the call to Mr. Vacherot. Please go ahead, sir.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Thank you and good morning, everyone. Welcome to our Q3 conference call. I am here, as you understand, with Hilary, Stefano, Paul and the full IR team. Well, it's a month since we met most of you at the Capital Market Day in London. And in the meantime, we have been very active to deploy our strategic vision and integration plans. This call will be focused on the Q3 sales. Well, I told you in July that in the second half of the year, there will be an acceleration. So here we go. Q3 was very strong for EssilorLuxottica with revenue growth of 5.2% at constant exchange rate. This quarterly performance has been driven by Luxottica improving growth at 3.4%, and Essilor accelerating to 7.5%. Having said that, we will confirm our guidance for the full year to '19. So what underpinned this growth? We see 4 main drivers that Hilary and Stefano will comment in more detail in a few minutes. Number one, new products with the star of the moment, which is the launch of Transition 8 in the U.S., impacting positively sales to eye care professionals, key account and also through Luxottica retail. Second, good dynamic in Retail, both offline and online, mainly in the U.S. and Europe, especially direct online sales were up 18% in Q3 driven by all branded frames at plus 24% Ray-Ban, Oakley and Sunglass Hut, but also Bolon, Foster Grant, and [ FGX ] and continued double-digit growth in eyeglasses. Third, good momentum in Sun for all brands and retailers. And finally, fourth, steady growth of around 10% in fast-growing market, which now represent close to 20% of our total revenue. And as a result, you may see that our full growth is balanced between mature markets and fast-growing markets. In terms of countries, the main contribution to the acceleration of U.S. was Retail, direct e-commerce and Transition Gen 8; the world, Europe with Retail, e-commerce and also the new instrument to do prescription, the VR800; and Mainland China, close to 20% growth, which validate our investment in the last few quarter in myopia, digital and branded frames. Actually, I'm just coming back from China yesterday. And I just can confirm how dynamic the country is in our industry. So we hear about slowdown of the economy and so on. But I can tell you, in our industry, this is not the case, with more consumer asking for quality vision care and branded product at every price point. So very encouraging for the next coming quarters. Finally, on September 24, alongside the UN General Assembly, Essilor published a new report called Eliminating Poor Vision in a Generation: What It Takes to Eliminate Uncorrected Refractive Errors By 2050. And I encourage all of you, if you have not done it yet, to go on www.seechange.com (sic) [ www.essilorseechange.com ] to download this report. This report assesses the magnitude of the uncorrected poor vision in the world and outlines solutions to eliminate this largest disability with one generation. And finally, the total investment of USD 14 billion over the next 30 years would achieve this goal. As a major player in eye care and eyewear industry, EssilorLuxottica is committed to play a leading role and mobilize the world to reach that objective. In the meantime, we continue to build our contribution to that objective and are very proud to have brought good vision to more than 6 million new wearers through different exclusive program as well as through Essilor Vision Foundation and OneSight, an independent nonprofit organization of which Luxottica is a founding sponsor. We also have great news about the first country that will eliminate poor vision. This first country is Bhutan. And by 2021, every citizen of that country will see well. We started this year with the kids, and we'll continue with the adults. So having said that and build on this great quarter, how do we see the next few quarters. On the acquisition front, while the antitrust process is ongoing for the GrandVision acquisition, we refocused our bolt-on acquisition strategy on countries where there is no interference, mainly fast-growing markets and Asia. Second, we'll continue, as explained in the Capital Market Day, to drive integration and to deliver synergies. And for those that were not participants, I just remind you these synergies should have net positive impact of EUR 300 million to EUR 350 million on the adjusted operating profit by 2021, which offer then 60% -- over 60% of the total objective of EUR 420 million to EUR 600 million by 2023. The first step include, as we mentioned in the Capital Market Day, creation of a simple single supply chain and prescription lab network, of a single IT platform, the integration of the Costa brand in the Luxottica brand portfolio and co-location of teams at local and regional level. Third, we'll continue to deploy innovation and new products. After the renewal of the Bulgari license, we are very proud to confirm the renewal of the exclusive license with CHANEL for 8 years, starting from January 1, 2020. Transition Gen 8 will continue to be launched in LatAm in Q4; Europe, in Q1; and Asia, in Q2 next year. We will also launch Eyezen Start in LatAm in Q4 and U.S. and China in Q1 next year. This lens specifically addresses the needs of children and young adults who intensively use digital device and often switch from one to the other. These lens will protect their eyes and reduce eye fatigue. We will also upgrade Varilux Comfort, which is still today our largest volume as far as the line of Varilux in all region through 2020. This new version maximize the quality of intermediate vision no matter the gaze direction and, therefore, allow for more instinctive adaptation of the posterior. It will act as an entry point for new wearer of progressive lenses and of the Varilux brand. As you can see, we continue to innovate at all price points. In 2020, we will also see the first launch of product co-developed by Essilor and Luxottica. We presented some of them at the Capital Market Day: branded frames and lenses, complete pair for kids and young adults, among others. So we will have new product launch in all our regions in Q1 next year, which is very powerful. And generally speaking, innovation is a powerful way to connect all the types of clients and deliver on our strategic vision of a network company. With this, I'm pleased to hand over the call to Hilary.

[Hilary Halper, Co]

Thank you, Laurent, and good morning, everybody. As Laurent said, we're very pleased with our third quarter results of 2019 as it really showed further acceleration versus Q1 and Q2. At constant exchange rates, revenue were up 5.2%, which is a touch above our top end guidance for our annual sales. This acceleration is really a function of a strong lens business, up 7% at constant exchange rates compared to 4.9% in the first half, and is essentially comprised of pure organic growth. The Retail division also contributed to the acceleration as it grew at 4.2% at constant exchange rates versus 3.6% in the first 6 months. While the performance of Wholesale and Sun & Reader's divisions were more consistent from one period to another. With that, I'll hand it over to Stefano to go through the revenue by geography.

[Stefano Grassi, Co]

Thank you, Hilary, and good morning, everybody. I'll run quickly through this page of the revenue by region for the third quarter as we're going to go into more details in the following page. Just a couple of touchpoints here. The top line, as mentioned, was positive 5.2% on a constant FX basis. Progressive improvement -- sequential improvement throughout first, second through the third quarter, where we have the best past quarter so far in a year from a growth rate standpoint. The other highlights that I would have is related to currency. As you can see, we benefit even on the third quarter from currency tailwinds in a measure of about 3 percentage points. That is very much due to the revaluation of the U.S. dollar against Europe, which, during the course of the third quarter, was about 4.6%. We do expect that if the dollar remains at current level, that tailwinds that we experienced, I would say pretty much all the 9 months, will continue throughout the fourth quarter, although to a smaller extent than what we've seen so far. But now let's move through the different geographies. Let's start our journey through our 4 regions, beginning from the biggest one and the most important, North America. In North America, on the third quarter, we posted as EssilorLuxottica a top line growth of 4.2% on a constant FX basis, clearly, an acceleration compared to the first half of the year performance where you might remember we delivered 1.9%. I'll start commenting the Luxottica side of the performance and then hand it over to Hilary for more color around the Essilor one. On the Luxottica side, I would say we are pretty happy about the way and the growth that we were able to achieve in the third quarter for a couple of reasons. First of all, the third quarter was the best quarter for Luxottica in North America so far. It comes on top of the best quarter that we delivered last year in 2018. The second good thing is that it was a fairly balanced growth between our Wholesale and our Retail, which is something, obviously, of which we are very pleased. Now looking at our Wholesale performance in North America, the growth was very much driven by our independent channel, which, as you know, represents about 50% of our revenue base as well as from our department stores and our third-party website partners, on which we do have a critical partnership. If we now move to Retail. Retail division had a solid growth during the third quarter despite the dilution that we continue to experience in Sears Optical, and that is very much driven by the challenging whole situation on which Sears Optical continues to operate. But despite that, we have quite a few good news. Sunglass Hut, for example, in North America, delivered solid positive comp sales during the third quarter after 3 consecutive quarters of which we were on a negative comp sales territory. The key driver for that positive comp sales were a couple of things. First of all, strong Retail execution in our store. The second one is the continuous and relentless effort to innovate and make our store apt today from a technological standpoint. We talk about digitalization of our Retail footprint. This is what happening, and it's today. Just to give you a couple of example. During the course of the third quarter, we roll out BOSS, buy online, ship on store on over 800 Sunglass Hut locations in North America. Still, during the course of the third quarter, we were able to allow our online consumer to check our store inventory for all the Sunglass Hut location so that each consumer can understand where he or she can purchase a specific frame in-store at the closest Sunglass Hut location. Now let's move and talk a little bit about LensCrafters. The third quarter for LensCrafters started soft during the month of July. But then we have a pretty sound back-to-school time period for LensCrafters. And that was very much thanks to a 360-degree approach to the critical time period of the year that is the back-to-school. That 360 degrees started from training and engagement of our store associates in-store of our store market manager. It continued through the launch of new products. Laurent mentioned the successful launch of Transition Gen 8 that clearly creates some momentum also in LensCrafters, but also the launch of the progressive XVP lens for LensCrafters. We couple all of that with a strong marketing and CRM campaign and really deliver a sound back-to-school period for LensCrafters. Just another couple of touchpoints before I hand it over to Hilary. The first one is the direct e-commerce. You see the number down there, 26% during the course of the third quarter. SunglassHut.com was double digits. Oakley.com was double digits. RayBan.com was double digits. So we had a very compelling story and very compelling growth rate for all our 3 major websites on e-commerce in North America. The last bullet, it really pertain to an important partnership between, I would say, 2 iconic brands: Oakley brand and the NFL. And really, we started the -- and announced this agreement at the end of August. The agreement in itself effectively allows the NFL player to wear Oakley visors to leverage the Prizm technology. On top of that, we are also launching a product story that associates Oakley products with NFL teams. And so far, I can tell you we are off for a very promising start. With that, let me hand it over to Hilary, that will give us more color on the Essilor side.

[Hilary Halper, Co]

Thank you, Stefano. So for Essilor in North America. We've heard a lot about Transitions 8. And we've been anticipating a solid Transitions Signature 8 launch, and we're pleased to see that flow through into our numbers for the quarter. The launch has really produced a step change on a number of fronts with a strong Gen 8 uptake and also a solid response to what we believe is a robust consumer marketing program to support this launch. In Q3, volumes of Transitions lenses sold through our networks have tripled in the U.S. compared to H1 at high single digits. And this acceleration is very specific to the U.S. So it's quite promising when you think about all the other regions that we're going to roll out the Transition 8 that still have to be implemented. So we're quite encouraged by this. As in the past quarters, the independent ECP segment, and particularly our alliances and Essilor Experts, whose total headcount is projected to reach 6,000 by year-end, are the main drivers for us. In the third quarter, our business with members of our alliances grew twice as fast as the average of the independent channel we serve. The high growth we've seen in Q3 in North America was also driven by our online business, with noticeable acceleration in the eyeglass category, which was growing close to 30%. And in this segment, our EyeBuyDirect.com continues to be our standout performer. And if I turn, lastly, to Sun & Readers, the Sun & Readers business performed well, with both FGX and Costa, and the latter continued to benefit from the robust expansion within the ECP channel, which more than offset the lack of dynamism in most of the sports retailers that we've seen. So I will now go to Europe. So Europe for the combined group for Q3 was up at 6% at constant exchange rates, and I'll start with the Essilor side. We had another, what we believe, is satisfying quarter in Europe, and the acceleration of the growth pattern versus H1 was mainly driven by the Instruments business. So Laurent alluded to a number of our new products. And as expected, Europe benefited from the massive rollout of 2 key innovations with a strong order book. First, we have the new Vision-R 800 phoropter, which encountered a huge success and is now in active delivery phase. As we already shared in the past, this 2.0 optometry device offers a much, much more precise refraction that enhances the consumer experience and opens the way to an increased product mix. Eventually, it should help us promote a more advanced optical solutions under the AVA offer. I remind you, AVA stands for the advanced visual accuracy, and it's a much more precise lens, which has started to be commercialized. So it's definitely boosting sales in the short term, but we believe that in the long-term potential of this instrument is strong globally for both sales and profitability. Second, we have Visioffice X, which is the latest generation of optical measurement system, which. Encompasses new functionalities and gives the optician more options to promote personalization of the lens to the wearer. But the traditional lens business itself also contributed to the good performance. Like in H1, France, the eastern countries, Russia and Turkey, continued to deliver very sound growth. In France, the group continues to take advantage of its multi-network strategy and its ability to adapt its offer to all types of clients and price points. So beyond the flagship brands, such as Varilux and Crizal, promoted by our first Essilor network, brands like Nikon and Leica, promoted by our second and third networks, are key assets as well. Nikon, for example, has been successfully leveraged into the ability to win a new tender, and Leica actually received the Silmo d'Or award at the latest SILMO trade fair at the end of September for its new Variovid Volterra, it's a tongue twister but that's the product. It is a progressive lens that greatly reduces optical aberrations. So as you can see, the appetite for our brands in optics is increasing, and Essilor is very well positioned in this arena. I'll turn it back to Stefano.

[Stefano Grassi, Co]

Thank you, Hilary, and let's start with the Wholesale in Europe. The growth that we got in the third quarter followed the pace that we got at the first half of the year, so very, very much consistent trend between third quarter and first half of the year for our Wholesale in Europe. We have countries like Italy, Netherlands, Austria, they are trending on the mid-single-digit territory, while Switzerland and Scandinavia are more on the double-digit territory. An important asset, we talk about it very often, is STARS. STARS continue to grow on a double-digit pace in Europe, and we're very happy with that. We are approaching 10,000 store -- STARS stores in Europe, 50%, 5-0, more than what we used to have a year ago. And now STARS program in Europe represents about 1/4 of our Wholesale revenue in that region. So very happy about that as much as we are happy and thrilled about the Retail performance in Europe. The performance in itself was in the high single-digit territory on a constant FX basis for Retail in Europe, very nice growth coming from both Sunglass Hut across all the different countries and also our leading optical retail chain in Italy, Salmoiraghi & Viganò. And now that we have such a good performance, we kind of opened our historical books and realized with Giorgio here that during the last 5 years, our Retail business, so for 23 consecutive quarter, delivered positive growth on a constant FX basis. So very remarkable results from our Retail business in Europe. But now let's hand over to the fast-growing markets. And let's start with Asia, Oceania and Africa, where you see there on the headlines, our top line grew 5.1% on a constant FX basis during the third quarter. I'll start with Luxottica and just share with you that we experienced a bit of a deceleration in our trend during the course of the third quarter. A couple of readings for that. First of all, the political turmoil that we experienced in Hong Kong, you read it on the news, it's still there and obviously created some impact in our business. In addition, we noticed a general deceleration of the touristic flows of Chinese across Asia. And thirdly, we also face an unseasonal weather, summer season in Japan. Even though I must tell you that on a year-to-date basis, our Japanese business is still on the positive territory. On the good news, I would mention, for sure, Mainland China. You know the work that we've been doing in Mainland China to really reposition our commercial offer over there. We delivered another quarter of double-digit growth, sound growth from both Wholesale as well as Retail, and clearly very happy with that. The other important asset that we have in this region is our Optical Australia business that deliver another sound positive comp sales. We are talking about 13 consecutive quarters of positive comp sales for our Retail optical business, which I would say another remarkable results as well. If we look behind that, what's behind those numbers, for sure, there is a strong Retail execution. For sure, there is growth that are very much driven by volume. But all the fundamental Retail KPIs are there and are trending on the positive territory. The conversion rate, the doctor appointments, the multiples are all improving compared to the performance that we got last year. So we are very confident about this trend that will continue also during the last quarter of the year. With that, let me hand it over to Hilary.

[Hilary Halper, Co]

So on the Essilor side, we've seen another very robust quarter in Greater Asia, while the comparables were more difficult than in H1. And this very robust momentum really owes to China first. So the sales here are driven by an improved product mix made up of higher index lenses, Blue Cut lenses and in fact, close to 1 in 3 lenses in China that we sell are Blue Cut. And also, we have more progressive lenses that are being added. And on top of this very sound business, we have the surge of the myopia management solutions in which we continue our investments, and this is a clear acceleration factor for us. In this segment, we're very excited about the forthcoming launch in the first part of 2020 of a brand-new lens that will aim at slowing down the evolution of myopia, leveraging a new and disruptive optical technology. This is an amazing product, and we're very excited about this. Our business in China is also further lifted by the steady expansion of the Bolon brand. So despite a relatively disappointing sun season at the market level, the brand is maintaining its fast-growth journey thanks to strong share gains in the adjacent optical frame segment, which now represents almost 40% of our Bolon volumes. The performance of the other regional clusters are good. We started to experience some improvements with the independent channel in India, with effective media campaign focused on the Crizal brand. In the Middle East countries, we registered a big upswing, while Korea maintained its double-digit growth trend. And lastly, in Japan, we had its best quarter of the year driven by strong demand for high index and branded lenses. So we'll now move on to Latin America, which had the strongest performance of the quarter, which was up on a combined level at 10.9% at constant exchange rates. And on the Essilor side, we posted growth in the mid-teens in LatAm driven by strength across the region as we saw double-digit growth, both in Brazil and ex Brazil. So we're really firing on all cylinders here. The performance also includes the benefit of the new partnership formed in Mexico with Devlyn Optics (sic) [ Opticas Devlyn ], which is one of the leading domestic retail chains. The overall drivers are really market expansion and ongoing execution with our branded lens portfolio as we grew at this rate despite a more mixed macroeconomic background. This supported a continuation of Q2 trends in Brazil through most of the quarter. And one thing to highlight here is the upcoming Transition Gen 8 launch in Q1 next year and taking into account some prelaunch inventory and wind down over the next few months. In Spanish-speaking countries, Colombia posted stellar growth supported by Transitions and Varilux through a very high attachment rate. So overall, we're very pleased with our performance in LatAm, which for Essilor is the best performer in 2019 so far. Stefano?

[Stefano Grassi, Co]

Yes. Thank you, Hilary. And positive growth, solid growth in Latin America for Luxottica as well, very happy with our growth rate over there. The constituents part of our growth trajectory in Latin America is Brazil. That's not new to you. We already talked about the strong -- the strength of our Brazilian business. We continue to grow very much thanks to the key assets -- the 2 key assets that we have in that part of the world. On one side, Óticas Carol. We have more than 110 franchisees that during 2019 joined the Óticas Carol business. This proves once again the strength and the compelling story that Óticas Carol has to offer to the market. The second important and critical asset that we have in Brazil is the STARS program. We have over 1,200 stores that now are part of the STARS program in Brazil. They're growing on the high single-digit territory. So again, we're very happy with those 2 assets. And I can tell you that those 2 assets will continue to be instrumental for our successful story in Latin America. With that, I close the session of our journey throughout the different region. And I hand it over to Laurent for some remarks.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Thank you, Stefano. Thank you, Hilary. So as you can see, the momentum in the company is quite high. And we enter Q4 and probably the beginning of next year with a positive energy and a lot of initiatives that are -- that start to bear fruit. So with that, I think we'll start to the Q&A session.

[Operator]

[Operators Instructions] Our first question will come from Elena Mariani from Morgan Stanley.

[Elena Mariani, Executive Director of Luxury Goods and Brands]

And congratulations on your very good quarter. I have 3 questions for you, please. The first one on the very strong performance of Essilor, 6.2% like-for-like in lenses was very impressive. And from what I understood, the strength of your performance was broad-based, but there was a significant contribution from the Transitions Gen 8 launch in the U.S. Could you help us understand how much do you think this precise launch has contributed to your growth? And what the implications are on how we should think about your like-for-like growth in the coming quarters? And specifically in Q4, where you have a particularly difficult comp base, I just want to understand whether we should expect your organic growth to move back to a level more in line with your guided range? Or if you see the basis for continuing to grow at a mid- or mid- to high single-digit rate? And maybe you could comment also on to what extent your performance has been enhanced by the usage of the Luxottica Retail network, which technically could be seen as a revenue synergy. My second question is on the Luxottica segment. Stefano, Luxottica is making visible progress, but at the same time, has been underperforming the Essilor part of the business for several quarters now. Would you expect the growth of your business to progressively converge to the Essilor's performance? And how would you explain this gap? I'm particularly interested in 2 areas: the first one is Asia or China, where your gap is particularly visible. And number two, I would like to understand where you stand on the optical Retail business in the U.S. because LensCrafters is struggling, and while this quarter might have been better and might have shown a bit of an acceleration, one could argue that this business keeps underperforming and is definitely performing way below its potential. And then final question for both. Could you comment on the implications of this growth reacceleration on your full year '19 profitability outlook? We are approaching the end of the year, and you might have a bit more visibility now. Do you think it would be feasible to target the top end of your operating profit guidance range? Or would you expect to reinvest 100% of your extra growth. And so maybe we should think more of the middle or lower end of your range.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

[Audio Gap] Question. So I will take the first one on Essilor and Stefano on Luxottica, and I will try to explain about the outlook. So yes, Transitions Gen 8 in the U.S. has been a driver for growth. This is not the only one. All the programs that we connect, Essilor Expert, which has continued to grow, we did mention it, we see also growth in other region. It's maybe early to quantify what is exactly the -- what the Transition brings, but it's probably 1 point of growth additional in Q3, and we expect it to continue in Q4. And with the other region dampening, helping to accelerate as well in the beginning of Q1. Stefano, on the Luxottica?

[Stefano Grassi, Co]

Thank you, Laurent. I think on the Luxottica side, well, I mean we're not chasing, obviously, growth rate Luxottica versus Essilor. I think as long as the combination grows nicely, we are happy about it. I tend to see our glass half full, right? I mean if you look at our growth rate in the last 3 years, actually this has been the best growth rate for Luxottica by far. So the velocity that we're getting here is much faster than what we got in the last 3 years. It's not where Essilor is. But again, I think that our business model is structurally different. We are much more probably balanced between a B2B and B2C, while probably Essilor is more on the B2B side. So I think there is a structural difference in the middle model. With that said, you had specific questions with respect to Asia and China performance. I think we need to distinguish 2 things: On one side, the work that we've been doing in, for example, China, in country like China, where we truly and completely reposition our commercial offer, especially on the Wholesale side. But also on the Retail side, we didn't rest at all. We reposition our Retail commercial offer with the launch of Ray-Ban retail store in China. And you know that the largest representation of Retail stores that we have is in China. It's a work that requires a little bit of time paying back. With that said, we continue to deliver double-digit growth in Mainland China. Then there are episodes like what happened, unfortunately, in Hong Kong, which is something, in a way, unpredictable, and it's a bit of other or out of control. With the rest, I would say that we -- the growth that we continue to see in the country where we focus and we do the proper work is the growth that we're expecting to see. China will become bigger. China will give us back all the investment that we make, and we already see the early stage of those results. Now the other part of your question was regarding LensCrafters. I think LensCrafters has done a lot of work to really turn the business upside down. In the last couple of years, we've been talking a lot about the work that has been done on assortment, the work that has been done on the people that are actually sitting on the floor of LensCrafter stores every day. More than 40% of our store market manager have changed in recent times. We talked about the showroom model that we launched. And I think we proved during the back-to-school period, that when we do have a compelling 360-degree proposition to offer to our consumer, marketing, CRM, products, training, engagement of our associates, we deliver the results that we expect. The market has changed. Clearly, the market today, it is a more competitive optical market than it used to be before. Clearly, we have newcomers into the industry. Clearly, we have a strong competition on the insurance side of the market, which makes the overall market more competitive than what it used to be probably 4 to 5 years ago. And that's something in which we're coming into play. But again, the strategy that LensCrafters is undertaking is position the brand in a different point, in the different space compared to many other retail chain that are out on the market, proposing promotion and very much bidding on price offering.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Thank you, Stefano. So Elena, on your third question, what to say, we confirm the outlook. That's one. Those 9 first months make us very confident that the engine of growth are active. And as you very well said, if there is external resource that we can invest wisely to prepare the first part of next year, we'll do it. So that's what we can say at the moment.

[Elena Mariani, Executive Director of Luxury Goods and Brands]

Okay. Maybe just 2 very small follow-ups, Laurent. Did I interpret correctly the fact that you would expect the fourth quarter to remain on a very good level of growth despite the comp base? And then I just wanted to go back to the point about the usage of the Luxottica Retail network, maybe that helped you in the quarter. And if so, would you be able to comment on that? And the second one, Stefano, based on your comments, what do you think would be a satisfactory or maybe, let's say, feasible level of like-for-like for LensCrafters in the context of a more difficult operating environment?

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

So on your follow-up question. Yes. I expect that all the engine for growth will continue to be active in Q4. Yes we have high comp on the Essilor side in Q4. And as Hilary and Stefano mentioned, there is a few headwinds, Hong Kong, Chile, Sears that will probably remain for the quarter. So overall, I hope those engine for growth will continue to deliver a decent mid-single-digit growth in Q4 if we don't see more headwinds going. Then yes, the Luxottica retail is helpful in promoting innovation. As part of this combination, that's one of the beautiful things we can do together from R&D together and co -- joint program and co-development we have exposed to you in the Capital Market Day that I think are quite fantastic and quite disruptive for some of them. To the go-to-market, where by focusing solution, new solutions, the proper way in Luxottica retail and other retail as well, for sure, we expect to accelerate the growth of the market and doing so, going in our direction of transforming the industry. So that industry is more appealing from a consumer perspective.

[Stefano Grassi, Co]

And just to couple even more what Laurent said, because I know you will ask me, okay. So then what is your expectation from a comp sales perspective? I would say, we would be happy and satisfied with a comp on the low single-digit territory. Remember that this market is a market that is not growing. So low single digit for the leading optical retail chain that has a specific price positioning in the market, it's something I would define satisfactory for us. In addition, just to back up a little bit more with some color what Laurent said, we talk about the launch of Transition Gen 8 during the course of the third quarter. And as a tangible result of that in LensCrafters, we saw that the penetration of Transition lenses during the course of the third quarter was up 3 percentage points compared to the same period of last year. The Blue IQ lenses today represents about 1/4 of our total lens offer in LensCrafters. The progressive lenses have increased 1 percentage point compared to where we were last year, not to mention the Ray-Ban Authentic and the Oakley Authentic lenses. So from a price mix standpoint, the partnership with Essilor, it's really helping in creating benefit from a price mix that we continue to see tangible today in LensCrafters. I hope this can answer your question, Elena?

[Operator]

From MainFirst, our next question comes from Cedric Lecasble.

[Cedric Lecasble, Research Analyst]

Yes. Cedric Lecasble from MainFirst. I have 3 follow-up questions, if I may. The first one on the IT integration that you mentioned. Could you give us some color on the compatibility of the different systems. Is it easy to put the systems together? Is it tough? Where do you stand, and which company is moving toward the other company's direction? The second one is on your Italian pilot, could you tell us maybe what you are targeting? Where you are today? And what it can bring? So still on the IT integration theme. And the third one is on the brand integration. Costa has integrated to Luxottica's brand portfolio. Can you do the same thing with Ray-Ban in China? Can you integrate Ray-Ban to Essilor's portfolio and a strong imprint in the country and maybe longer experience curve in China? So what can you do? And do you expect Ray-Ban to sharply accelerate in the next quarters?

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Okay. So I think I will take the 3 questions. I'll start to answer the 3 question. So I think the IT unified system and integration, we are in a situation where Luxottica in the last 4, 5 years, they have done a tremendous job to unify their system based upon a unified platform I won't name. At the same time, Essilor, this was not the priority in the last 4, 5 years because of acquisition, because of the strategy of bolt-on acquisition, because of every situation that we had to manage in every country. So now we are facing a situation, but at the same time, we want to unify the organization of EssilorLuxottica, meaning at one point of time, there will not be Essilor on one side, Luxottica on the other side, but EssilorLuxottica. Obviously, one of the key driver for that unification to work well, will be to have a more unified system. So I would say the job to be done is from the platform that Luxottica built. What are the gap vis-à-vis the need of prescription lenses, which are manufactured and defined for every order, and how this existing platform should be enhanced in order to cope with that new situation. So in a sense, as far as systems, the system will evolve and will become a new one. As far as is it easy or not? No, it's not easy. If it was, we would have done it before we [ signed ] Essilor. So I think we need first to very well define what should be that unified system, and that's one objective of the Italian pilot. Real nice to see what exactly we have to do and how long or how short it will be to make it happen. And once we have done that, we'll have a plan to roll out that new solution in the rest of the world. Understanding that there is also a specific part of technology, like the calculation system for the design and things like that, that remains proprietary of the lens vision care business. And I don't know yet it will be integrated or not in the unified platform. Then on Costa, Costa it makes sense to add this fantastic brand, growing brand, emerging brand that will be managed by the professional of the managing worldwide brand. And I think for Costa, there is a fantastic future of growth when the whole Luxottica organization, a global organization and regional organization will promote that fantastic brand. Will we do the same in China with Ray-Ban? To be discussed, it's not yet on the agenda. I think both company are growing very well in China at the moment, China Mainland, as we said. For sure, Essilor has built a very strong strategy and investment strategy in China in the last 10 years that we -- Essilor is a little bit bigger than Luxottica, to be seen how integration or not will be fruitful to create value.

[Operator]

From HSBC, our next question comes from Antoine Belge.

[Antoine Belge, Global of Consumer and Retail Research]

Yes, it's Antoine Belge at HSBC, 3 questions. First of all, coming back to the rollout of Transitions Generation 8. Would you say that there will be more in Q4 and then in Q1 next year? And maybe could you elaborate a bit on the region where the rollout will happen in Q4 and Q1 next year?Second question relates to wholesale at Luxottica. I think you gave the short-term headwinds, explaining why it's the part of the business that didn't accelerate in Q3. Are there any structural reasons why that business at some stage couldn't go back to a mid-single-digit growth on a worldwide basis? And then what would be the time frame? What would need to be fixed? And maybe in particular, what was the -- could you give the trend maybe of the Ray-Ban brand over the first 9 months and what you think about the rest of the brand?And finally, you mentioned that the CHANEL license had been renewed, and we had also -- you had also the Bulgari one. Could you comment about the royalties? I mean, usually you have 2 types of royalties, the regular one and then the contribution in terms of advertising. Would you say that this going -- the new contract imply higher royalty rates? And also that, on the whole, this brand asks you to maybe have less point of sales?

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Okay, Antoine. So on the Transitions launch, I think, first, we should congratulate the team because it launched a new generation of Transitions in -- it will be, in 1 year, fully worldwide. So yes, we started in Q3 by the U.S., as we mentioned. Then in October, it will be in Canada. In September, it started in LatAm except Brazil. Then in Q1 next year, we'll have Europe plus Brazil. And then in Q2, we'll have China and EMEA. So for those that follow us for a long, long time, you know that it's not so easy to launch such a generation of Transitions worldwide, with the outer group, with the inside group and so on. So I think it's a pretty good performance to launch in 1 year this new generation. Stefano, on the wholesale Luxottica?

[Stefano Grassi, Co]

Yes, on the Luxottica side for Wholesale, well, I think, again, we need to do the bit -- to have a look at a couple of things. First of all, the work that has been done to really clean up our distribution in recent years. I think the map work that we've done in North America, the continuous rollout of our authorized retail agreement. So the relentless effort to govern counterfeit products, it continues to be there. And as I said, we continue to be very tough on this, probably much tougher than what we used to be in the past. And that is obviously creating some headwinds in our numbers from a wholesale perspective.When we look at the regions, I mean the 3 major regions of our wholesale, Europe, North America, Brazil, they're all in the positive territory. And those really are the core part of our business, of Wholesale for Luxottica. Where we got a little bit of challenges, on one side, Hong Kong, that has an impact, and it was quite material. We were down on a double-digit territory there. We had an impact on the travel retail part of the business, especially on the east part of the world where, again, we do take that into connection, the fact that a lot of the travels, especially Chinese travel, kind of slowed down in recent months. And certainly, we got a little bit of a headwind in Japan because Japan had a very challenging summer season. I mean -- but those are very well-known and isolated impact of what we see because the underlying constituents part of our Wholesale business there is solid. And the 3 constituents part, Brazil, Europe and North America, all of them grew throughout the third quarter.So again, it's hard to kind of bet to where we're going to be on the overall from a wholesale perspective whether we could get to the 5% or not, but I can tell you that it still is a healthy part of our business that continue to grow. The growth in itself is very much driven by volume. And that is something that clearly pleased us.The other question that you have, Antoine, was regarding the royalties and market contribution. We don't disclose those details. But generally speaking, the mix of the 2, generally speaking, on the overall portfolio of licensed brands that we have, ranged from 11% up to 24%.

[Operator]

From Exane BNP Paribas, we will now take our next question from Julien Dormois.

[Julien Dormois, Research Analyst]

I have 3. The first one relates to Q4 trends at Luxottica. You will be facing easier comps on that side this quarter, so I was wondering whether we should expect a potential acceleration compared to the trends you have shown so far this year? The second question also relates to Q4 but also to the following quarters, and it comes back to the potential retaliation from customers to the announcement of the GrandVision deal. I was wondering whether you have started seeing this in your relationship to your major customers.And more specifically, I could not find anything on Germany in your release. Is it because the market is not particularly exciting at the moment? Or is it because you're facing some concerns with the biggest customer in the space?And the third question relates to GrandVision, again, it's -- based on what you can do now in the next following quarters to make sure that the business -- to ensure business continuity. We saw that GrandVision is continuing today in good growth that they have tweaked slightly the profitability guidance. So I was just wondering what you can do and whether you intend to do something to just ensure that business continuity is on the agenda for them.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Okay. So Q4, Luxottica, are we noticing easy comps?

[Stefano Grassi, Co]

Well, I don't know if I would say easy, right, because I think when I look at the second half of last year, you might remember, we had an acceleration in our trend compared to the first half. So remember, even Q1 last year was on a negative territory. So again, I think we have a tougher base in the second half than we have in the first half. Then probably, yes, Q4 is a bit easier, in a way, than Q3. But I'd say if your straight question is what do you expect to see in the last quarter, I would probably see a continuation of the trend that you've seen so far from the Luxottica side. Now with customer retaliation...

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Yes. No. Actually, when you see the figures of the third quarter, we cannot say we have suffered from a major retaliation. So far, we don't see that happening so far. And maybe we should come back on the bigger picture that we explained what happened when we announced the EssilorLuxottica deal 2 or 3 years ago now, and there is a lot of such reaction, which are negative from our customers. Then we have planned to be closer to those customers. And actually, in Europe, I think we'll have on the next 2 quarters, Q4 and Q1, 200 roadshows, meaning roadshows, you meet in every big city in Europe. Overall, we will meet 1,500 customers to explain, first, what we want to do; second, that what we want to do is good for the industry and for the consumer; and third, as you know from the Capital Markets Day, there is -- on the top of what I described, which is kind of short-term innovation, there is coming next year and in the coming years, a very strong innovation, totally disruptive.Hilary mentioned AVA, this new, more precise lens -- combination of the more precise perception, more precise lens and frame fitting and more precise technological surface in the produced lens. We are the only one. It's a unique proposal that we'll start to pilot in Q4 in Europe, and we will deploy it next year. And we spoke also about management of the evolution of myopia at the Capital Markets Day that we'll deploy probably in the second part of 2020, starting by China. And those 2 innovations, breakthrough innovation, you need eye care professional, qualified optometrist, either inside EssilorLuxottica retail but also, for sure, among independent and other retailers that want to go through that journey of quality eye care and quality vision care. So that's what we can say today on this topic.And then business continuity. So for the moment, we don't interfere at all with what GrandVision is doing, managing and so on. And I have not seen the detail because I was preparing our discussions at the moment. I am not in the detail of the announcement. But I think we -- obviously, we cannot judge the company under 1 quarter or 1 -- even 1 year. And I think the overall big picture about why GrandVision will fit pretty well in the ambition of EssilorLuxottica remain intact.

[Operator]

From Societe Generale, we will now take our next question from Delphine Le Louet.

[Delphine Le Louet, Equity Analyst]

Just a follow-up and possibly more precision, back to the Gen 8 and Transitions. Can we get any idea about the percentage of Transitions within lenses that has been sold currently in Q3 in the U.S. versus Q3 last year to see if we have a clear ramp-up in terms of package offer?Second question for Stefano, and to get more precision regarding the wholesale situation at Luxottica and mainly in APAC. Is it a good guess to see that APAC region has a negative impact in the range of 50 bps to 1% in terms of growth?Second question regarding the retail position and specifically LensCrafters situation. As you mentioned earlier, you've been working very hard in the past 2, 3 years to fix and relaunch the business. So I know the diagnosis, fairly well done. Now the question is when do you plan to reallocate probably CapEx differently that you used to do for LensCrafters. And can we imagine in the context of OP checkup a reallocation of the stores with new brands or even being a collection point for online sales?Finally, can you confirm to me the level of shares that Delfin has already? I have seen that Delfin has bought a lot of shares in August and also in September. So can we have the final figures for the holding of Delfin in EssilorLuxottica?

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Well, thank you, Delphine, for your question. So on Gen 8, probably we'll give you more detail that we have given in the past. On the Delfin share, I don't think we have the number precisely. What we have is public on the AMF website. So we don't have the information here in the room. And Stefano, you have the bulk of the question of Delphine's on APAC.

[Stefano Grassi, Co]

Yes. With respect to APAC, I think that the dilution that we see, the deceleration that we've seen in the third quarter was smaller. Remember, APAC, we do see a deceleration but we're still on the positive growth rate for the third quarter, so it's smaller than that.

[Delphine Le Louet, Equity Analyst]

Okay. And regarding LensCrafters?

[Stefano Grassi, Co]

So Paul will take then the U.S.

[Paul du Saillant, Deputy Chief Executive Officer]

Yes. Good morning, everybody. Good afternoon. I think the takeaway 4 months after the launching, already Laurent commented quite a bit on Gen 8, the quick learnings are what? Are that we accelerated from a low -- a soft H1, where we had the diluting of G7, of the previous generation. And in the launch, in the third quarter, we saw a very good acceleration in the U.S., in the high single-digit number of growth versus a year ago. So that was very good news. And it is both coming from the independent ECP endorsing the product and its performance. A very quick switch from the old generation to the new one. And as it was also covered, a very good traction in the key accounts and specifically, into Luxottica retail North America. So that's what we can say 4 months into the launch. And then you got the calendar of all of the launching that are going on worldwide, that should contribute to the continued good growth of the Transitions brand in Essilor and in EssilorLuxottica.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Delphine, does this answer your question?

[Delphine Le Louet, Equity Analyst]

Yes. Just a follow-up on the AMF website, which is a very badly made. All the information regarding the shares bought, but Delfin are not confirmed. So that was one of the reasons for my question to see if you have a final number, which is validated on your side, because AMF is not yet confirming anything.

[Giorgio Striano, Chief Operating Officer]

Delphine, it's Giorgio speaking. You actually can reveal the recent stake building by Delfin. It's a small amount. And anyway, we confirm the cap at a 31% of the voting rights is absolutely in place. So I don't think this is a material change in the overall picture.

[Delphine Le Louet, Equity Analyst]

Okay. And could you also confirm the meeting with Dan Loeb over summer?

[Giorgio Striano, Chief Operating Officer]

Yes. We have confirmed that. There was -- that there were a number of interactions with Third Point at different levels of the organization. It's absolutely standard activity at the moment.

[Operator]

Bank of America, we will now take our next question from Ben Lacaille.

[Benjamin Lacaille, Associate]

Ben Lacaille here from Bank of America. Just a few questions mainly focused on the retail side of the business so we can understand better. In terms of the LensCrafters comp in 3Q, could we just have an idea of how much of that was made up by price versus volume and how you see that evolving going forward?Second question on Sunglass Hut. You were quite kind in giving us the idea of low single-digit comps going forward for LensCrafters. I just wonder what your view is over the medium term about Sunglass Hut, if you could give us some similar visibility.And third question, on the e-commerce. I'm just wondering -- obviously, the growth is quite impressive but just wondering how large e-commerce is today as a proportion of Sunglass Hut and Ray-Ban, respectively and also how much e-commerce contributed in terms of the sales growth at retail level.

[Stefano Grassi, Co]

All right. So let's start from the LensCrafters question with respect to the total contributions of price/mix versus volume. Right now the driver of the performance of LensCrafters is very much price/mix. And we can see it pretty clearly. It's the result of the work that we've done on the lens side of the business as a result of what the consumer ultimately demand: more premium lenses, more lenses with transition coating, more lenses with Blue IQ. And the work that we've done in partnership with Essilor has been very much instrumental to really make sure that price/mix was an important constituent of our story for LensCrafters. So we are where we needed to be.Now if your question is where we expect to be in the longer run for LensCrafters, the expectation is, for example, I think price/mix will continue to be a constituent part of our growth rate. I do expect probably volume to further help more than what we've done -- we've seen so far for LensCrafters.Now with respect to Sunglass Hut. With respect to Sunglass Hut, I would say a couple of things. One thing, the market in itself in North America has been kind of back and forth. We experienced a couple of quarters that were quite challenging on Sunglass Hut. Now we got back on track of where we thought we could do. Remember, it's a couple of things. The Sunglass Hut proposition is more and more an omni-channel one. So it's physical, and it's digital. When we enable our Sunglass Hut location with more than 800 smart shopping stores where you effectively search, shop and choose where to get your products, yes, it's a physical experience because you are within the brick-and-mortar environment but, at the same time, you are in a digital world. And sometimes, it's actually hard to define a certain sales whether they are e-commerce or they are retail revenues.So again, the evolution of that, it will continue to be more and more omni-channel, for sure. The evolution of our stores will encompass more digital content. We do see that nice growth in e-commerce channel. For sure, some of our consumer might shop online. But we believe, at the same time, that there is a strong need for the Sunglass Hut presence in North America because the vast majority of our retail Sunglass Hut locations in North America are profitable ones, very profitable ones. So we have a good e-commerce, represents about 5% of our total revenue. But at the end of the day, we like to see a stronger and more continuous interaction between physical and digital, especially on the Sunglass Hut side of our business.In terms of growth rates, well, again, I think over the longer run, we continue -- we expect to see growth rate that is more in line with to what you've seen in the third quarter rather than what you've seen in the last 3 quarters for Sunglass Hut. A lot of the work that has been done in recent times on the assortment, on the innovation of the store is going exactly in that direction. So I'm pretty positive on what we can expect to see for Sunglass Hut, especially in the United States.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

And Stefano, if I may add, one of the directions for creating value and growth for EssilorLuxottica is to develop the Sun prescription category, which is totally underdeveloped today. And for that category, being in a store, like Sunglass Hut, will be a key element to really expose the consumer to the benefit of that technology. So the market will be more and more segmented. And like any growing market, a market is becoming more mature. And yes, store omni-channel and e-commerce are both part of that growth of the industry.

[Benjamin Lacaille, Associate]

A follow-up, if I may. If I may, just one follow-up on LensCrafters, I suppose. With low single-digit comp going forward, where do you see OpEx inflation? How would you see that trending over time? Is it reasonable to expect flat margins? Or how would you think about that?

[Stefano Grassi, Co]

I would expect that, that growth rate, we can hold the margins because a lot of the work that, remember, has been done is to make the overall operating machine of LensCrafters more efficient. The progressive reduction of the in-store lab is being going into that direction. Leaner store, smaller space, more efficient productivity and a lower capital investment. Now we're going to undertake in the upcoming months an important renovation program for LensCrafters. We talked about that in the Capital Markets Day, and we actually have a pretty ambitious plan to really take up to the latest technology a large part of our store base of LensCrafters in North America. That will naturally create a lift in our performance that we have already seen every time we go through a renovation program of our LensCrafters location in North America.So again, the low single-digit territory for comp sales will allow us to hold the margin because of all the improvements that we are doing on operations, on store outlook to really make it better and up to the latest technology.

[Operator]

We will now take a question from Domenico Ghilotti from Equita.

[Domenico Ghilotti, Co]

Very 2 quick questions. One is still on the APAC side, in particular, in Luxottica. Probably, it was the only weak spot of these Q3 results. And you explained the reason for it and the headwinds. It's not clear to me if you expect these headwinds to continue into Q4. So how much of this is structure really? And how much was it the contingent?And the second question is on bolt-on M&A. If I understood well your comments about GrandVision, so you are still refocusing on the pipeline of M&A, clearly, outside of Europe, more likely.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Second part of your question, yes, that's clearly what we are doing at the moment. And on APAC?

[Stefano Grassi, Co]

Well, on the APAC side, I think some of the things that we've seen and observed during this third quarter are still there. Honestly, the situation in Hong Kong hasn't improved. We got to be fully transparent, Domenico. The situation on the travel retail, especially on the Chinese consumer, I think right now nothing different to report throughout the fourth quarter right now, but we are taking a closer look. The situation in Japan, probably much better again. On a 9-month basis, we're still on the positive territory in Japan. So I'm not worried about it, too. Probably what we're still going to be seeing in the third -- in the fourth quarter is the weakness in Hong Kong and probably still a tail of the slowdown on touristic traffic.

[Operator]

Our next question comes from James Grzinic from Jefferies.

[James Robert Grzinic, Equity Analyst]

I just had a very quick question. Laurent, can you perhaps confirm what the increase in ASPs for Gen 8 versus Gen 7?

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Right. So to the consumer level, it's a few tens of dollars or euro, a few percent. And at the wholesale level, it's a few dollars more per lens.

[James Robert Grzinic, Equity Analyst]

Would you be able to express that in percentage then from your perspective?

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Sorry. So maybe you follow up with the IR, and they will give you more precise information.

[Operator]

Our final question is a follow-up from Julien Dormois from Exane BNP Paribas.

[Julien Dormois, Research Analyst]

Yes. So we meet again, but I promise I will be short. I would be brief. First one is just a housekeeping one on the growth in wholesale for Luxottica in Q3. You have provided the constant currency growth of 1.6%, but I assume that the closing of Barberini has helped slightly for the month of September. So could you provide the like-for-like number for wholesale in Q3, please?And the second one relates to Sears. I believe that the number of stores has been halved over the recent past. Should that be now small enough not to matter in 2020? Or could we see another headwind in 2020?

[Stefano Grassi, Co]

So I take the -- both questions. The Barberini impact on our numbers for wholesale is negligible. So it's very marginal. With respect to Sears, yes, that's a good question. I think what we're seeing today, just looking back on how the dynamics of our closing took place really during the last few quarters, the bulk of the closing really happened between the third -- the fourth quarter 2018 and the first quarter 2019. So during that semester, let's say, we should anniversary the largest bulk of closure for Sears Optical and, therefore, come into a more normalized situation, if things stand as they are today, obviously.

[Laurent Vacherot, Deputy Chief Executive Officer of Essilor]

Thank you. Is there any other question? No other questions. So thank you all of you for your time and interest in EssilorLuxottica. As you can see, we are very active to build EssilorLuxottica, and I think the next rendezvous is March 6, 2020, for the full year 2019 results. Thank you, and have a great day.

[Operator]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.