EssilorLuxottica SA

PAR:EL

Earnings Call Transcript 2022-Q4

[Giorgio Iannella, Head of Investor Relations]

Good morning, everyone, and welcome to EssilorLuxottica's Full-Year 2022 Results Presentation. It's Giorgio Iannella speaking from the Investor Relations team. I'm here with Francesco Milleri, Chairman and CEO of the Group; Paul du Saillant, Deputy CEO; and Stefano Grassi, CFO. Following their presentation, we'll have a 30-minute Q&A session. [Operator Instructions]

With that, I leave the floor to Francesco Milleri.

[Francesco Milleri, Chairman and Chief Executive Officer]

Good morning to everybody. Thanks for joining us today, and thanks for the interest you continue to show in EssilorLuxottica. I'm pleased to be here to celebrate with you our progress on the group's integration journey, the development of our network company model as well as the sound financial performance of the last year. 2022 has been a year of records for our group in revenue, operating income and net profit. Our Chairman, who continues to inspire us, would have been proud of that.

Looking at numbers. Last year, we managed to grow the total revenue of our group by EUR3 billion, 1.6% at constant currency. The pace of growth of 7.5% at constant currency in the full-year were consistent with our long-term target. The adjusted operating income was on track, with 11% growth versus 2021, and the margin up to 16.8%, progressing by 70 basis points. Stefano will elaborate further on that. I just like to highlight here that the New Year has started strong with a robust growth of sales so far.

Talking about integration, we have accelerated our former GrandVision's banners, which rose overall 9% in same-store revenue in the full-year, even slightly faster than the rest of the group's retail network. At GrandVision, we have found talents and capabilities in the teams with a good execution in store. We believe that we can further improve these banners' performance, thanks to a better assortment, as well as the support from the group central team in store operations, marketing and digital communication. The strategic fit of GrandVision into the EssilorLuxottica platform couldn't be more evident.

With regards to product innovation, we move ahead with our lens launch pipeline, rolling out Stellest in myopia management to many new markets globally and launching at MIDO, Varilux XR, the new progressive lens generation powered by artificial intelligence. Paul will elaborate further on that.

Following the record 15-years renewal with Armani announced in September last year, we also managed to further reach our unique branded frame portfolio, signing new multiyear licensing agreement with the well-known brands such as Brunello Cucinelli, Ferrari and Swarovski. I'm also happy to announce that we have just renewed our long-term partnership with the U.S. leading department store, Target.

We have made progress also with our global supply chain. Capillarity and flexibility are the new guidelines to respond to surging geopolitical instability, supply chain disruption, energy and transportation cost volatility. We are investing in new manufacturing and distribution hubs in Mexico, Poland and Thailand. Today, we operate more than 650 production sites globally for lenses, frames, instruments and machinery, fully integrated to maximize the system flexibility and reactivity in moving flows from one to another.

Last, we have also been extremely active with M&A, which is a key part of our growth strategy. Last year, we acquired Walman, completed the acquisition of Shamir and bought 50% of SightGlass Vision in joint venture with CooperCompanies. All these assets bring to EssilorLuxottica additional distinctive capabilities and are expected to materially contribute to its performance. And more is to come soon with bolt-on acquisitions.

Behind all that, today, we are closely focused on the increasing role of technology in eye care and eyewear products. We want to play a leading role in this game-changing field, leveraging wearable technology and artificial intelligence in partnership with the biggest tech players. Our increased investment in breakthrough technology like lamination, high tracking and way guide open multiple new applications and push the boundaries of our business, extending our influence to many other industries.

On top of our mission to eliminate uncorrected poor vision in one generation worldwide, we want to advocate the right to see as we believe that the good vision is a basic human right. In doing so, we joined forces with governments, the United Nation, the World Health Organization as well as the NGOs partnering with OneSight EssilorLuxottica Foundation.

With that, I hand over to Paul, who will walk you through the group operational highlights of last year.

[Paul du Saillant, Deputy Chief Executive Officer]

Thank you, Francesco, and good morning, everybody. I am very pleased to be here with you today to deliver our full-year 2022 results. As Francesco already mentioned, it was an outstanding year and this success is very much due to the hard work, dedication and passion of our 190,000 colleagues across the globe. Each and every one of them gave their contribution, and for that, we would like to dearly thank them. We have really become one company with a clear organization network rooted in the profound commitment to our mission and building a common culture.

Today, I would like to focus on EssilorLuxottica products and brand, supported by the largest R&D organization of the industry. 2022 and 2023 are testimony of this, delivering rich innovation on our key categories. On the vision care side, we have launched a new state-of-the-art coating range, not only for our own leading brand, Crizal, with the Sapphire HR, but also Shamir, which has now fully joined our family, as you know, and has released its new Glacier expression coating. The category represents an important asset as it enters in symbiosis with our other lens brands, enriching particularly the value of our single vision offering.

As you know, we are at the start of an exciting journey to develop a new life-changing category for the benefit of the younger generation, myopia management. In September 2022, we released the result of our three-year clinical trial for Stellest, demonstrating the conclusive evidence that it remains effective in slowing down the myopia progression of children, saving more than one diopter on average over the triennial. The rollout is progressing, and sales are growing fast, especially, of course, in countries with a high prevalence of myopia such as Greater China, where we have now doubled the number of new kids wearing Stellest from the prior year.

2023 is still young, but we have already major news to share with you. Just a couple of weeks ago, we have unveiled the newest generation of Varilux: the Varilux XR Series. Lots of research have gone into this project and have culminated in the development of the best progressive lens to be found on the market yet. People today face an information overload, and for current progressive lens wearers, multitasking, especially in motion, is still an issue.

With the power of artificial intelligence, leveraging more than 1 million real-life data, the new technology addresses this pain point by predicting the visual behavior of the patient and delivering an outstanding volume of vision in terms of precision and fluidity. The commercialization is now underway of the product and will start in EMEA in the second quarter, followed by North America, Brazil, Asia Pacific and the rest of Latin America during the remainder of ‘23.

Now let's turn to our frame portfolio, where you will also find strong momentum. Ray-Ban. Several new features have been introduced in its latest collections, leveraging the capabilities of our recent acquisitions and partnerships. Here are a couple of examples. The brand has added its first Ray-Ban Wayfarer sustainable collection. The frame mirrors the original iconic style from the outside, but actually contains 67% bio-based materials on the inside and comes with a green packaging.

The bio acetate used in this collection was developed with our partner Mazzucchelli. Ray-Ban has also recently introduced the Transitions Signature GEN 8 technology for all its icon fitted with the high-performance mineral lens of Barberini and other one our recent key acquisitions. This example shows you how we put together three of our most recognizable brands to play, Ray-Ban, Transitions and Barberini, an example of how the combined company brings concrete benefit to consumers.

Oakley, a brand which has delivered consistent growth over the last years. Its success is underpinned by its attractive frame collection and powerful Prizm lens technology, combined with the endorsement of some of the best athletes of all times as its brand ambassadors. Just think about it. The American football player, Patrick Mahomes, MVP and winner of this year's Super Bowl; the Alpine skier, Mikaela Shiffrin, holding the title of most female World Cup wins of all times; and the football player, Kylian Mbappé, World Cup Champion 2018 and finalist in 2022, a huge boost to the brand's identity.

From a more strategic standpoint, we are implementing several initiatives to sharpen our overall brand portfolio. Over the years, we have entered into a number of high-impact collaborations with our proprietary brands, Ray-Ban with Ferrari, Oliver Peoples with Brunello Cucinelli, Persol with Dolce & Gabbana. These collaborations have proven to be a powerful means to further develop our license portfolio as weakness last year when some of them have turned into new full-blown license agreement, such as Brunello Cucinelli and Ferrari.

On top of this, we are enriching our license portfolio, not only by extending it to new partners but also by expanding the product range for our existing ones. Example, we have launched a new line of snow goggles signed Prada, Miu and Armani, featuring the Oakley technology. We have also introduced a wide-range of new designer kids frame to support the category and the growth of Stellest. Our work on the licensed brand has paid off. 2022 was a record year for our luxury frame, driving the performance in both retail and wholesale.

Last year, we have worked on our core to shape the future that lays ahead of us. While we have made big progress on the integration of the three industry champions, unleashing our synergy potential and targets, we also kept investing heavily in our product and infrastructure to bolster the growth of the years to come. All this with a clear objective in our mind bring good vision to everyone, being aware that 2.7 billion people in the world still suffer from uncorrected poor vision today.

Our advocacy and philanthropic actions over the years have created more than 22,000 vision care access points, able to reach close to 600 million people in underserved communities. And the efforts have been regrouped in the OneSight EssilorLuxottica Foundation in 2022 with great success. The execution of our sustainability road map is also progressing, and we will have more to share during the course of 2023.

Our teams are aligned with our goals and our strategy as demonstrated by the strong participation in our employee shareholding programs joined by 72,000 colleagues, representing almost 40% of the total of us. The new identity of young EssilorLuxottica is taking shape.

With that, I will hand it over to Stefano.

[Stefano Grassi, Chief Financial Officer]

Thank you, Paul, and good morning, everybody. The headlines on this page very much said it all: growing on a challenging comparison base in Q4. When, in fact, we look at our performance throughout the year, we clearly see that during the course of the fourth quarter, we posted a deceleration in our performance compared to the trend that we had in the first nine months of the year.

The main reason for that very much resides in the comparison with the last year performance, where in Q4, we posted an 11% growth rate versus 2019. The fundamental driver of our top line growth are still there. And when we look at how we started the year, we are getting further confirmation for that.

In the full-year of 2022, we posted a top line up 7.5% at constant currency versus 2021. And this comes on top of a 7.4% that we recorded in 2021 versus 2019. I'll remind you that our long-term strategic guidelines is set at mid-single-digits, so we're clearly marching at a faster pace than our long-term guidance.

Now if we look at the two operating segments: Professional Solutions and Direct to Consumer. On the Professional Solutions side, we grew on a full-year basis at constant currency in excess of 6% while on the Direct to Consumer, our top line growth was set at 8.6%, both of them, again, at constant currency.

If we now look at closely the fourth quarter performance in Q4, on our Professional Solutions side, we posted a top line at approximately 3% growth with the two biggest regions, North America and EMEA, very much leading the way, while Latin America posted a quarter in a negative territory. But if you look at Latin America on a full-year basis, you're looking at a 12% growth rate overall for the full-year 2022.

Looking at our Direct to Consumer, we experienced a quarter at mid-single-digit performance with all the regions that were in the positive territory, with Latin America at double-digit pace and our EMEA region that posted a high single-digit performance during the course of the fourth quarter. We'll last touch on e-commerce. In our e-commerce business, we posted top line growth in the low-single-digit. But this comes on top of an exponential growth of 60% that we recorded in the fourth quarter 2021, compared to the pre-pandemic level of 2019.

But now as usual, let's start our journey across the geography. And as usual, let's begin with North America. 2.7% at constant currency in North America. I remind you that the growth last year, Q4, in North America was up 14% versus 2019. On the Professional Solutions side, we posted a top line up on a mid-single-digit territory in acceleration versus the trend that we've seen in the third quarter.

The lens business posted solid growth in the fourth quarter, led by the independent channel. While from a price/mix standpoint, we continue to see a positive trend on lenses, pretty much thanks to our branded lens portfolio, while on the frame side, our price/mix was very much driven by our luxury portfolio that, during the course of a fourth quarter, posted a top line up double digit with really two brands on the spotlight: Prada and Burberry.

If we now move to Direct to Consumer. The comparison here was even tougher than the one we commented on the Professional Solutions. In Q4 last year, on the Direct to Consumer side, we posted top line growth in excess of 20%. And despite that, we were still capable to grow in the fourth quarter. Our optical retail banners grew on the low-single-digit comps, with December they experienced an acceleration at mid-single digit, and this positive trend, this positive momentum continues to be there as we enter in 2023.

If we now move to Sunglass Hut. Our comp sales were just slightly negative in Q4, on top of a 16% growth rate that we recorded last year versus 2019. Our international Sunglass Hut locations are comping on the mid-single digit, very much confirming the fact that touristic traffic inflow in the U.S. is still very strong.

Last comment on e-commerce. Our revenue declined about 1% during the course of the fourth quarter. But again, 75% was the growth recorded by e-commerce in Q4 ‘21 versus 2019. So if I look at the bigger picture, 2019, 2022, I would say that we are exponentially growing our e-commerce business in North America.

But now let's switch gear, and let's go to EMEA, the best-performing region in the fourth quarter. 6.2% at constant currency, on top of 8.2% that we recorded in ‘21 versus ‘19. On the Professional Solutions side in Q4, our top line was around mid-single digit, with two items on the spotlight, I would say, lenses and sun frames that very much led the performance. Very pleased with the performance that we've seen in some countries like in France, where we're now back to solid growth, thanks to the lens business, in particular, on the key account channel or in Italy and Germany, where our growth was very much led by the sun business.

If we now move for a second to the Direct-to-Consumer channel, we're posting another strong quarter in our DTC in EMEA, with both optical and sun retail banners that were on the spotlight. And the optical banners comps were mid-single digit, very much driven in France by Générale d'Optique, in United Kingdom by Vision Express while our sun business continued to record extraordinary growth. Just to give you an idea the comps in the fourth quarter in the sun retail business in EMEA were close to 40%.

Okay. Now let's move to Asia Pacific. In the fourth quarter, Asia Pacific posted a top line at 3.1% at constant currency, a quarter of solid growth that led to, on overall, second half of the year at double-digit pace in Asia Pacific in material acceleration compared to the 2% that we recorded during the first half of the year. The rebound in Asia Pacific happened despite the headwinds that we experienced due to the severe lockdown that the Chinese population was subject to.

In the fourth quarter, just to give you an idea, if we would exclude the impact of Greater China from the Asia Pacific results, you will be looking at overall the region in a growth performance close to double digit. We were double digit in Japan. We were double digit in Southeast Asia. We were double digits in India. In the region, we continue to see the results of the investment that we're doing every day to increase the awareness of vision correction. And a perfect example for that is represented by the performance of our Stellest lenses.

Stellest lenses delivered a growth in China in excess of 100% for the full-year 2022. The overall product assortment related to myopia solution in China today represent more than 10% of our revenue base, a category that up two years ago, barely existed. And our goal for 2023 is to sell more than 1 million pairs of Stellest lenses worldwide. So clearly, stay tuned for more news on that.

Let's touch on the Direct to Consumer. When our brick-and-mortar network crossed the comp sales in a mid-single-digit territory, driven by Sunglass Hut in Australia, as well as in Southeast Asia, while our optical retail business in Australia experienced a deceleration, which we largely expected. You remember that last year in Australia, there was the deconfinement of the population during the course of a fourth quarter after a very severe lockdown that lasted between July and all the way through the end of October and early November.

Clearly, after that deconfinement, there was a strong rebound on the performance, and therefore, why -- that's the reason why we have a fairly challenging, I would say, comparison base. Last region in the pipe is Latin America. 0.6% is our performance in Q4 for Latin America at constant currency. This flattish performance in the region, I would say, it doesn't drive a lot of concern on my side, and I give you three reasons for that.

First of all, we are up against the toughest comparison base in Latin America. In the fourth quarter 2021, we recorded a top line growth 25% up versus 2019. The second reason for that is we look at Latin America on a full-year basis. We are looking at 13% growth rate, and actually, Latin America is the best performing region for EssilorLuxottica in 2022. The third reason for that, it's very much around the way we started the year 2023, where actually Latin America posted a double-digit performance in the month of January.

From a counter mix standpoint, Mexico and Argentina posted a strong double-digit growth, while Brazil decelerated, I would say, probably more in relationship to some political turmoil related to the presidential election in Brazil, which you remember clearly was a pretty contentious event.

On the brick-and-mortar side, both optical and sun banner posted solid growth in the quarter, with the GrandVision banners that posted double-digit growth, also thanks to the effort on assortment, on store innovation to really elevate the experience, the consumer experience in our GrandVision banner in South America. Last touch on e-commerce, double-digit growth rate, Oakley and Sunglass Hut very much leading the way.

And now let's move to the profit and loss. When you look at the profit and loss here, you have the full-year 2022 results, compared to the full-year 2021 on a pro forma basis. And there are a couple of things that I want to highlight for you today. First of all, despite the increased headwinds deriving from inflationary trends, especially on wage inflation, we've been capable to expand gross profit, as well as operating profit in both the first half as well as the second half of the year at constant and current exchange rate.

On a full-year basis, you're looking at 30-basis-point gross margin expansion, very much driven by a strong price/mix, while if we look at the operating profit, I would say, a diligent management of our operating expenses led to 70-basis-point operating profit margin expansion. Last but not least, our net profit that for the full-year 2022 landed approximately EUR2.9 billion, 11.7% margin rate, with a 90-basis-point margin expansion versus 2021.

If we now move to the debt and free cash flow, just a couple of statements here. First of all, our overall free cash flow generation for the full-year was at EUR2.260 billion. And we achieved and delivered that free cash flow, despite an increase in our capital expenditures of 50%, five-zero, versus 2021. The second important remark, it's related to our net debt-to-EBITDA ratio. That is now well stable below 2 and, in particular, at 1.7 for the full-year 2022.

So with this message of reassurance around the strength of our balance sheet, let me hand it over to the operator for our Q&A session.

[Operator]

Thank you, Stefano. We will now start the Q&A session. [Operator Instructions] Our first question comes from Veronika Dubajova, Citi.

[Veronika Dubajova, Citi]

Hi, guys. Good morning and thank you for taking my two questions. If I can please start, first, on the comments, Francesco, that you've made about the strong momentum that you have seen continue year-to-date. Can you just give us some color by region what you are observing in the market at the moment? And I guess maybe clarify if you say that strong momentum has continued, is that, that sort of 4% growth that you had seen exiting the fourth quarter? Or is it higher or lower than that?

And then my second question is for Stefano around the headwinds and tailwinds you see on margins heading into 2023. Obviously, you have done a fantastic job managing inflationary pressure so far. I'm just curious how you're thinking about the balance of those headwinds and tailwinds into next year. Thank you so much.

[Francesco Milleri, Chairman and Chief Executive Officer]

Okay. I tried to comment on the start of the year that is -- we see strong, as expected, really. We see the market responding to our new offer. I don't say really that the market is growing or maybe there is some clear trend that is too early to say. What we see that the customers and partners are responding very well to new offering that we present to the market.

As you can see, we are changing a lot our portfolio, not just because we had some brands but, really, because we are entering on the software market. We are providing a complementary system to our customer. We are providing help with their -- with the e-com activity. So we are really working 360 as we could our service. And the response of the market is really, really good. And in the year, we will launch more new products. And that is why we think that the year will be very strong.

Then for margin and inflation, I leave the floor to Stefano.

[Stefano Grassi, Chief Financial Officer]

Thank you, Francesco, and good morning, Veronika. With respect to margins, well, I think in 2023, we can still expect inflations headwinds to still be there. We've seen it probably stronger in the second-half of the year, and we believe they are still going to be there to a certain extent in 2023.

But I want to remind you that there are a couple of self-help that we can leverage. The first one is the price/mix lever. We've seen it throughout 2022, and we'll continue to see throughout 2023 as well. The second important self-help factor, I would say, it's really the extractions of the synergies from the GrandVision integration. And then obviously, we'll experience an acceleration in due course, 2023.

[Operator]

Our next question comes from Louise Singlehurst, Goldman Sachs.

[Louise Singlehurst, Goldman Sachs]

Good morning, everyone. Thank you for taking my questions. Could you just stick with the U.S., please? If you can help us, put into context, you very much highlight the acceleration of DTC in Q4 with specific comments around LensCrafters in December and also for Target Optical, really to help us think about sort of the exit rate but also managing expectations for Q1 ‘23?

And then my second question, again, sticking with the U.S., if you can just talk to us about the broader consumer environment, what you've seen in Q4. You'd highlight that traffic has been challenged, which highlights the conversion is obviously robust. But has there been any change in terms of the trade down in price points, multiple per purchase? What can you really tell us about the flavor of the U.S. consumer?

[Stefano Grassi, Chief Financial Officer]

Good morning, Louise, so with respect to the Direct to Consumer fourth quarter, yes, we've seen a good insurance week. I remind you that we're up against a fairly tough comparison base in Q4 for LensCrafters. So the overall flattish performance, I think it's pretty reassuring. And as a matter of fact, when we look at the overall performance in the first quarter, we see a very nice start of the year for LensCrafters, as well as for Sunglass Hut. So it's -- we enter into 2023 with, I would say, pretty good reassured confidence with respect to the first quarter 2023.

We do see traffic coming back. I think we have a pretty solid conversion for eye examination. We continue to leverage the technological development and enhancement that we have available, in particular, in LensCrafters, for example, with respect to teleoptometry has proven to be extremely successful and helpful to drive conversion within our optical retail banner, in particular, in North America.

[Operator]

Our next question comes from Graham Renwick from Berenberg.

[Graham Renwick, Berenberg]

Hello, good morning, everyone. Thanks for taking my questions. Just firstly on the margin dynamics across the second half. You had flat margins year-on-year in the second half. H1 margins are up sort of impressively by about more than 100 basis points, and that was despite your gross margins being up a bit more in the second half. So was that wholly attributed to higher wage inflation in the second half? Or were there any sort of reinvestments that you are making in the second half perhaps support more growth into 2023?

And then just secondly, on Stellest and myopia management, are you able to give an update on how that's ramping up in EMEA and other markets outside of China specifically? What percentage of EMEA sales is myopia management now? And is that scaling on a similar path to what you're seeing in China?

[Stefano Grassi, Chief Financial Officer]

Good morning, Graham. Let me take the answer to your first question, and then I'll pass it over to Paul for more color on myopia trend. So first of all, margin dynamics in the second-half of the year, we actually expanded margin in H2. We do see gross margin expansion. We do see operating profit margin expansion. We do see net profit margin expansion in the second half of the year.

For sure, in the second half of the year, we felt the headwinds from wage inflation stronger than what we've seen in the first-half of the year. And that's for sure. But again, that's something that we're looking at. And the main reason for that is also due to the larger retail footprint.

Paul, with respect to myopia?

[Paul du Saillant, Deputy Chief Executive Officer]

Myopia management. So on Stellest, clearly, the pandemia in China on myopia is massive, and it is very key as we pointed, myself and Stefano, to succeed in China and to address this pandemia, and the success we're having with Stellest is very telling, keeping in mind that we are really developing a full suite of solutions as we establish this category in China. Outside of China, we have been starting to roll out in Europe. As you know, you will remember already 1.5 years ago in France with very good traction, progressively also in other countries in Europe.

We have started to roll out Stellest in Latin America, Brazil, Mexico, and we do that really embarking the full professional, starting with the eye doctors, with the optician, the optometrist. So it's already a profound establishing the category. So Stellest is doing very well. And I point to you the article that was published today in the review Nature, where it was pointed in this very important article that the most efficient myopia management solution is actually Stellest.

[Operator]

The next question comes from Maria-Laura Adurno, Bank of America.

[Maria-Laura Adurno, Bank of America]

Thank you very much for taking my questions. Good morning, everyone. So just two questions. The first one is, can you perhaps discuss any type of cost synergies that you actually achieved in the second-half of 2022, if there was any? Just trying to understand basically what is the timing that we could see in terms of cost synergies moving into 2023?

And then the second question that I had is you mentioned that there was some initial weakness with respect to Brazil due to the political elections. So just wondering if you can provide any comments -- well, where it stands as of now, that would be helpful. Thank you.

[Stefano Grassi, Chief Financial Officer]

So Maria-Laura, good morning. With respect to synergies, what I can tell you is that in 2022, we start seeing an early stage of extraction of synergies from the GrandVision integration. Those synergy mainly focused on a couple of areas that, I believe, are important and we obviously carry forward in the following years. One of them related to the procurement part. The other one is the assortment, assortment in our frame business and to a certain extent, also to the lens business. Those projects, those initiatives will obviously materialize to a greater extent during the course of 2023 and the following years.

With respect to Brazil, I mean, let's remember that when we look at our performance in Brazil, it was very strong overall. The fourth quarter was a bit peculiar due to political tension or, let's say, social tension in Brazil. But again, when I look at how we started the year, overall, in Brazil, I would say, in the year, that is pretty reassuring in that respect. So I mean I don't think I would flag anything out at this stage.

[Operator]

The next question comes from Susy Tibaldi, UBS.

[Susy Tibaldi, UBS]

Hi, good morning. The first question I have is on pricing. So far, I mean, we have seen inflation, but my understanding is that excluding the luxury portfolio, you haven't really been taking any significant price increases. So I was wondering if this is something that you may be planning to do perhaps in 2023 to help offset some of this inflation and support growth.

And the second question, still on GrandVision, if you could elaborate a little bit more in terms of the synergies that -- and all the work streams that will be materializing in 2023? Is it still going to be mostly about the assortment? Or is there something also a little bit more structured in terms of the cost base that will take place?

And on the assortment, are you also seeing -- I mean for now, you're mostly doing sort of a like-for-like change in the assortment by basically having your own products rather than third parties. But is this also leading to some sort of upgrade in the mix of products so far? Or is this something coming at a later stage? Thank you.

[Francesco Milleri, Chairman and Chief Executive Officer]

I take the first, pricing increase and inflation. This is much more than just an economic decision. As a company, we decided really to protect our customers, to protect our ECP and opticians. So this is something that we try to take us a position also in the next year, try not to transfer to the final consumer. The inflation will succeed in the last year. We have really good synergy to have and to achieve in the year. So this is something that we are proud of to take this position. We like to see that many other company, at least in our industry are for.

For GV, we're taking synergy. Paul?

[Paul du Saillant, Deputy Chief Executive Officer]

Stefano?

[Stefano Grassi, Chief Financial Officer]

Okay. Thank you, Francesco. So Susy, let me start backwards looking at what we commented during the Capital Market Day a few months back, right? If you remember, our commentary around Direct to Consumer retail banner in Europe was very much around the elevation of the consumer experience within our optical retail banners in Europe. And if you think about it in that perspective, this is exactly what we're doing. We're working on several different angles to create stores that very much give a much better experience to our consumer, creating an experience that is obviously more and more omnichannel-oriented, putting technology for the development of proper eye examination. And obviously, this will come as an important investment.

But at the same time, we are also -- we're looking at overall of the assortments that we have in those stores, the assortment of the frames, the assortment of the lenses. And for example, we're introducing Transitions within GrandVision, and that's an important example of synergetic work stream between EssilorLuxottica and the GrandVision banners. And we also continue to look, understand, test and retest the overall assortment on frames.

At the same time, we also want to make sure that the driver, the attraction of the consumer within the GrandVision stores is not the discounting activity, but it's more the quality of the product that we offer, whether lenses or frame, the service levels that we can offer to our consumer. That is what I think it really means, in ultimate instance, elevating consumer experience in optical retail banner, and that's exactly what we're doing with GrandVision.

[Operator]

The next question comes from Luca Solca, Bernstein.

[Luca Solca, Bernstein]

Yes, good morning. I wonder if we could put some numbers on the progress that you're saying you're producing. In particular, my first question would be about the like-for-like retail space performance that you're experiencing. If you could possibly elaborate on that, maybe differentiating North America from Europe where you have the major impact of GrandVision and the progression there presumably.

In terms of upgrading -- and that is my second question. In terms of upgrading, the consumer experience and moving to higher value-added products, I wonder if you could give us a quantitative understanding of unit price trends, for example, and what's your progression has been in terms of both frames and lenses, if I may. Thank you.

[Stefano Grassi, Chief Financial Officer]

Luca, let me take the answer to your question. So first of all, productivity on our Direct to Consumer. Without entering into many specific details, I would say, overall, things are progressing on the right directions. And it's very pleasing to see, for example, the returns that we get from the new stores, the one that we renew. Every time we do it, we do see a material lift on the performance.

Therefore, the productivity per square meter is actually materially improving in that respect. So we have a pretty important pipeline of store renovation around our retail banner, I would say, worldwide. And obviously, a particular focus is going to be around optical retail banner.

The upgrading of the consumer experience, it doesn't necessarily come through a repositioning of the assortment per se. I think it goes more into the direction of ensuring that we have quality and service aligned with what EssilorLuxottica can offer. And this is extremely important for us. So there are a lot of good things that we're learning that we are taking out of the GrandVision experience. And I think that's something that we can definitely leverage.

But at the same time, we are conscious of the fact that we have a state-of-the-art frame portfolio that, in a certain extent, can be adopted for GrandVision, and we have an excellent lens portfolio and lens offering we will adopt also to GrandVision. Just to give you a data point, Luca. We do expect that by the end of 2023, probably more than 50% of the lenses that we're going to sell through GrandVision banner will come from EssilorLuxottica.

[Operator]

Our next question comes from James Grzinic, Jefferies.

[James Grzinic, Jefferies]

Yes, good morning, team. Can I just -- I guess I'm trying to paraphrase you, Francesco, are you basically saying that you have in your power to grow significant amount of self-help innovation coming to absorb part or fully the input pressures, the operating cost pressures that you're seeing within the business without having to pass it necessarily to customers, whether it's retail customers or wholesale customers. Is that basically the point you're making for 2023?

And if that is the case, can you perhaps make us understand what the balance of that is that self-help versus what you're absorbing? Is there any reason why we shouldn't expect a decent expansion in your margin within the frame of your longer-term expectations on margins given that dynamic?

[Francesco Milleri, Chairman and Chief Executive Officer]

Innovation is, for us, in two different sides. One is on our operation footprint. We are investing in three brand new plants, new capability and shipping, automatic warehouse and so on. So one part of the innovation, it will bring the savings on cost. And this is one driver that is very strong. It will increase in the next year.

The second is the technology that we are delivering in the store, our store, the store of our partner. That really will lower the cost of the store itself, but also, it will increase the capability to better serve the customers. So it was what the previous demand underline. We try to deliver higher value to our customer and providing that we try also to drive down our cost.

Then there is a third driver that is go behind the product and services that they are delivering right now. When you enter in the new field of digital platform, cost and revenues has totally different dynamics. So becoming over more and the med tech company, we believe that we can find more margin and we can use this margin really to protect customer from inflation.

[Operator]

The next question comes from Delphine Le Louet, Societe Generale.

[Delphine Le Louet, Societe Generale]

[Foreign Language] Good morning, everyone. A quick question regarding Stellest. I was wondering if you have the same penetration rate in China and in Europe. If yes or if no, can you elaborate a bit on this? And what would be the ideal target?

My second question deals with the very interesting amount of acquisitions you've been doing and integrating last year. Especially, can we have a bit of a focus and quantification regarding the Walman acquisition in terms of accretion to the revenue and to the margin? Thank you.

[Paul du Saillant, Deputy Chief Executive Officer]

So Stellest, Delphine. Stellest, I don't think it's a question of penetration. I think it's a question of establishing the myopia management category. As I said, if you take a country like France, you have to work with the ophthalmologist community. You have to work with the optician. You have to work with the parents, with the children and progressively by explaining where the benefit equipped. And we measure really more in the term of number of kids that we equip and how this is progressively growing in each market, knowing that China is well ahead and that the millions of children that needs to be equipped is completely different than what you would see in France or Italy or some of the other countries I mentioned.

So clearly, China is, by far, at this point, where the Stellest in terms of number of kids equipped is the most important, and Stefano gave you some color on the numbers. But what is important is to establish and equip the children progressively in the key markets, and that is progressing very well.

[Stefano Grassi, Chief Financial Officer]

With respect to Walman, Delphine. Good morning, [Foreign Language] and we don't disclose specific figures on Walman. But you remember our long-term five-year outlook that in the buildup of our top line progression, we have an expectation to have M&A bolt-on acquisition to contribute up to 1 percentage point of our growth. And I would say if I look at 2022, we are overall in that range.

[Operator]

The next question comes from Domenico Ghilotti, Equita.

[Domenico Ghilotti, Equita]

Good afternoon. I have a couple of questions. The first is on the price/mix contribution, so if you can give us a sense of what was the price/mix contribution in Q4 and full-year last year, because I understand that this -- probably not very different. So you are not changing your approach in terms of price policy for 2023.

And the second question, you sound quite confident on the top line performance and also on your self-help on the margin. So if you can comment on the possibility for 2023 to be broadly similar to the trajectory that you are -- you have presented for the midterm. So if you can give a comment on that.

[Stefano Grassi, Chief Financial Officer]

Domenico, [Foreign Language] Let me take both your questions. The first one on price/mix. The second one on 2023. On price/mix, in Q4, we continued to experience strong price/mix, and we've seen it pretty much across all the geographies. And we've seen it for lens, and we've seen it for frames. It's a price/mix very much driven by innovation. It's price/mix very much driven by the strength of our luxury collection of frames. And I would say probably in Q4, that price/mix were probably stronger than what we've seen before.

Now with respect to the top line and the margin in 2023 more broadly. I need to go back to what we shared last year, right? So last year, we shifted to a five-year outlook as we believe this outlook ultimately better represent our transformation, our integration journey and also better represent our strategy over the longer term, the same strategy that we commented and discussed during the Capital Market Day in Tortona a few months back.

Now when we first announced and shared with all of you this five-year outlook, we wanted to give you a qualitative indication on 2022 with respect to sales and margin expansion. Clearly, this was an exception to the new standards that we embraced. But what I can tell you today is that for the full-year 2023, we will be on track to meet our 2026 target like we did in 2022.

[Operator]

Our last question comes from Piral Dadhania, RBC Capital Markets.

[Piral Dadhania, RBC Capital Markets]

Hi, thank you for taking my questions. Most of them have been answered, but maybe I could just go back to Stellest and your target for 1 million units to be sold in 2023. To give us a baseline, could you perhaps give us an indication of what you were able to achieve in terms of volumes in 2022? And in what regions do you see the potential for the greatest growth contribution? Is that still coming from China? Or do you expect acceleration in your European and more recent Latin America expansion?

And then my second question is just on the guidance, Stefano, that you just helpfully gave some more color on. My question was actually going to be around the -- we should think about that 2026 guidance to be a straight line. Obviously, the business has expanded significantly in the last couple of years through the COVID period, but also as a result of some sizable acquisitions.

In consolidating those gains in 2023, could we expect [Technical Difficulty]. Sorry, there's some feedback on the line. I'm just going to say, in 2023, should we expect maybe that the growth rate could be slightly below the mid-single-digit mid-term target just based on where you're coming from in the last couple of years? Thank you. Hello?

[Giorgio Iannella, Head of Investor Relations]

Hello? We are sorry. We have a technical issue here. Piral, we kindly ask you to repeat your questions. I'm sorry for that.

[Piral Dadhania, RBC Capital Markets]

That's okay. Thank you, Giorgio. No worries. I'll keep it brief because I know we're at the end of the call. My first question was just Stellest. Thank you for flagging your 1-million-unit target for 2023. To help us understand the context of that, could you help us maybe with what you were able to sell in 2022 and where you see the optionality or the growth potential in terms of regions? Are we still thinking China as being the major contributor to that growth? Or do you expect an acceleration in Europe and in Latin America?

And my second question was just on the midterm guidance framework. The business has seen a lot of growth in the last few years. So should we think that maybe 2023, the growth rate could dip below the mid-single-digit constant currency growth rate as you consolidate some of those gains?

[Paul du Saillant, Deputy Chief Executive Officer]

So on Stellest, clearly, in China, you've got some color from Stefano that we had doubled the number of kids that have been equipped in 2022, and we are going to continue at a very strong pace in 2023. So that's clear. And as we do this, the other countries are starting to contribute to that growth. But the growth of Stellest and myopia is still pulled forward by China. By the way, the good news that we have since the month of February, since being past the Chinese New Year is that we see a strong acceleration in the activity in China, domestic, as we talk, including Stellest.

[Stefano Grassi, Chief Financial Officer]

And for the answer to the second question, I got to repeat myself again, and you will excuse me for that. But again, 2023 will be on track with our 2026 target like 2022 was.

[Operator]

There are no further questions.

[Francesco Milleri, Chairman and Chief Executive Officer]

So thanks for staying with us and see you next time. Thank you.