By Marge Axelrad
Editorial Director

MILAN, Italy--With its consolidation and integration of the Cole National Acquisition “complete” and several initiatives planted in the Asia/Pacific region to build its retail and wholesale presence over the long-term, Luxottica management views 2006 as a year “to exploit all the synergies” of the global company’s retail, manufacturing and wholesale brands and platforms.

In a presentation to analysts upon the release of its record-2005 financial re­sults, Luxottica’s CEO, Andrea Guerra, reviewed several accomplishments and opportunities.

Overall U.S. comp sales rose by 6.1 percent, LensCrafters’ comp sales for the year grew 7.2 percent, Sunglass Hut saw double-digit growth in comp sales at nearly 14 percent, and profitability of the former Cole National retail brands nearly tripled.

Guerra identified Pearle as “one of the drivers in ’06 and ’07 of growth and profitability. We’re entered a new era, we’ve stabilized the business with four months of positive results in a row.”

He and Kerry Bradley, Luxottica Retail’s COO, noted that Pearle has been restored to ‘modest’ profitability and the company targets into 2007 project double-digit operating margins. The company will triple the amount of advertising for the Pearle brand in 2006, emphasizing the “trusted eye care” message. In addition, Luxottica has been steadily increasing its own brands’ penetration into the Pearle mix. By the end of ’05, this had reached 45 percent and by the end of 2006, Bradley said, about 70 percent of Pearle’s inventory will be Luxottica frames.

Also, to get some costs out of the Pearle model, Bradley told analysts, Luxottica has begun a program to serve Pearle stores (and eventually some Sears and Target stores) with Lens­Crafters’ in-house labs. “We are taking out labs which will help reduce the footprint of Pearle stores, and roll out a much-needed new POS system to make Pearle more efficient.

In addition, throughout all the Luxottica retail brands, management said, synergies are being explored. Learnings form the Cole acquisition have resulted in a new strategic viewpoint towards lenses and lab organization throughout the company. For example, LensCrafters’ AR (anti-reflective) lens sales, are now 30 percent of units sold, a 55 percent increase from the previous year.

Also, the company “will leverage” 900 LensCrafters’ in-store labs to support Pearle stores when feasible “to offer faster service and lower costs.”

Guerra said, “In the next few weeks, we’ll finish our strategic analysis of our lab network and lab operations. I think we really didn’t realize what we had--when we bought Cole, we didn’t really understand what kind of goldmine it was. We’ve invested in capacity already, are in the right place with new technology. We’ll talk more about it later in the year.”

Noting Luxottica’s strong position on the wholesale side as well as the strong position of sunwear within Lens­Crafters, Luxottica is also now quite bullish about Sunglass Hut. “Sunglass Hut is the most precious asset in our company. We understand how to develop it in many other places in the world, and we will open at least 100 new stores a year within the next three years.” About 120 new openings will continue the shift of Sunglass Hut to fashion-driven locations, with 85 percent of the store openings in the Sunbelt and West Coast regions.

In addition, Kerry said that while sunwear is roughly 20 percent of LensCrafters’ sales, at Pearle and Sears the sunwear emphasis will be expanded.

Further, Kerry identified contact lenses as a growth category. “We haven’t been big contact lens providers in the past, but we see it as a strong category and we will make a dramatically stronger effort this year.”

Overall, Luxottica Retail plans to open 98 new stores in 2006, among all of its brands and store design and remodeling will continue at Sunglass Hut, LensCrafters and Pearle.

In addition, Guerra told analysts that the company has a “short list” of potential acquirors for its Things Remembered retail gift business and indicated there was a 50 percent chance that they would make a decision to sell it over the next three-to-four months.