ANNUAL REPORT 2004 - Luxottica Group
ANNUAL REPORT 2004 - Luxottica Group
ANNUAL REPORT 2004 - Luxottica Group
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MANAGEMENT’S DISCUSSION AND ANALYSIS<br />
due to increased sales of the Ray-Ban, Prada and<br />
Versace lines, and partially offset the impact of the<br />
depreciation of the U.S. Dollar against the Euro. The<br />
impact of this devaluation on wholesale sales to<br />
third party clients for <strong>2004</strong> was approximately Euro<br />
12.7 million.<br />
By region, in <strong>2004</strong> sales in the U.S. and Canada<br />
totaled Euro 2,083.5 million, or 64.0% of <strong>Luxottica</strong><br />
<strong>Group</strong>’s total sales, reflecting an increase of Euro<br />
134.1 million over 2003. This increase was primarily<br />
attributable to the integration of Cole National fourth<br />
quarter sales for Euro 240.5 million, and partially<br />
offset the impact of the devaluation of the U.S. Dollar<br />
against the Euro (sales in the United States and<br />
Canada were up US$ 399.5 million compared with<br />
2003). Sales in Asia-Pacific for <strong>2004</strong> were Euro 435.1<br />
million, representing 13.4% of total sales, up Euro<br />
181.3 million compared with 2003. This increase was<br />
primarily attributable to the integration of results of<br />
OPSM <strong>Group</strong> for the year (twelve months as<br />
opposed to five in 2003). Sales in the other countries<br />
where <strong>Luxottica</strong> <strong>Group</strong> operates were Euro 736.7<br />
million, up a 13.5% increase over 2003. The increase<br />
in sales in these regions was largely due to strong<br />
performances in several countries in Europe and<br />
Latin America.<br />
In <strong>2004</strong>, sales of the retail division accounted for<br />
72.1% of the <strong>Group</strong>’s total sales, compared with<br />
71.1% in 2003.<br />
COST OF SALES<br />
Cost of sales for <strong>2004</strong> increased 15.2%, to Euro<br />
1,040.7 million, compared with Euro 903.6 million in<br />
2003. Cost of sales for the retail division increased by<br />
Euro 103.4 million, primarily as a result of the<br />
consolidation of Cole National in the fourth quarter of<br />
<strong>2004</strong> and the consolidation of OPSM <strong>Group</strong> for the<br />
entire twelve-month period. Cost of sales for the<br />
wholesale division increased by Euro 32.5 million, as<br />
a result of the increase in sales. As a percentage of<br />
sales, cost of sales increased to 32.0%, from 31.7%.<br />
Production costs for the year were up 6.6% to Euro<br />
256.9 million, from Euro 240.9 million in 2003. As a<br />
percentage of sales, production costs for <strong>2004</strong><br />
64<br />
decreased by 7.9% from 8.4% for 2003, as a result of<br />
the inclusion of sales of Cole National, where<br />
production costs as a percentage of sales is lower<br />
than at other companies of the <strong>Group</strong>. In <strong>2004</strong>, the<br />
<strong>Group</strong> achieved an average daily output at its<br />
manufacturing plants, including production at the<br />
Chinese subsidiary Tristar, of approximately 123,000<br />
frames, as in 2003.<br />
GROSS PROFIT<br />
As a result of the factors discussed above, operating<br />
expenses increased 13.7% in <strong>2004</strong>, to Euro 2,214.6<br />
million, compared with Euro 1,948.6 million in 2003.<br />
As a percentage of sales, operating expenses<br />
decreased to 68.0% in <strong>2004</strong>, compared with 68.3%<br />
in 2003.<br />
OPERATING EXPENSES<br />
Total operating costs increased 13.5% in <strong>2004</strong>, to<br />
Euro 1,721.8 million, compared with Euro 1,516.8<br />
million in 2003. As a percentage of sales, operating<br />
costs decreased in <strong>2004</strong> to 52.9%, from 53.2% in<br />
2003.<br />
Expenses for sales, publicity and royalties increased<br />
by 11.4% in <strong>2004</strong>, to Euro 1,376.5 million, compared<br />
with Euro 1,235.8 million in 2003. Approximately Euro<br />
88.0 million of this increase was attributable to the<br />
consolidation of OPSM <strong>Group</strong> over the entire twelvemonth<br />
period, compared with only five months in<br />
2003. Approximately Euro 110.2 million of this<br />
increase was related to Cole National results for the<br />
fourth quarter of <strong>2004</strong>. This increase was, however,<br />
offset by the devaluation of the U.S. Dollar against<br />
the Euro, which resulted in lower sales costs for<br />
advertising and royalties of Euro 97.9 million for<br />
subsidiaries whose financial results are expressed in<br />
U.S. Dollar. As a percentage of sales, these<br />
expenses decreased from 43.3% in 2003 to 42.3% in<br />
<strong>2004</strong>. This decrease was primarily due to the<br />
significant increase in sales at <strong>Luxottica</strong> Retail North<br />
America without a corresponding increase in these