EssilorLuxottica Stock: New Collaborations | Seeking Alpha

Since our initiation of coverage with a buy rating called EssilorLuxottica (OTCPK:ESLOF, OTCPK:ESLOY), a combination between value and growth , the company is up by almost 25% compared to an average S&P 500 return of 0.88%. In the meantime, here at the Lab, we provided various follow-up notes to support our long-term investment thesis. Aside from our comment on the half-year performance and the Q3 results release, in early September, the company hosted a capital market day. EssilorLuxottica’s CMD was the first one without Del Vecchio (Luxottica founder and the company’s CEO & President); however, the world’s largest producer and retailer of frames and glasses fully confirmed its long-term targets and was pretty in line with our buy case recap.

1. Francesco Milleri’s first message, the new CEO and Del Vecchio’s right hand, was related to inorganic acquisitions as a key value driver for growth;
2. Still related to M&A, here at the Lab, EssilorLuxottica was still forecasting significant synergies with GrandVision’s integration;
3. There was a positive reiteration of the company’s 2026 guidances with forecasted top-line sales in the €27 and 28 billion range and an adjusted operating profit margin in the 19% and 20% range.
4. And more importantly, EssilorLuxottica extended its partnership with Armani.

The last point might seem part of the day-to-day business; however, we believe it was a sign of continuity that traced the founder’s path. As already mentioned:

the first collaboration between the two houses dated back to 1988 and marked the beginning of a revolution. Indeed, glasses were no longer viewed just as a corrective medical device, but as a fashion accessory to express personality and style. Thus, the industry has been completely reshaped by a new product category. The new licensing agreement for the development, production and global distribution of glasses under the Armani brands will last another 15 years.

Source: Mare Evidence Lab’s previous publication – CMD follow up

New Collaborations

Armani Group’s renewal collaboration marked the path for other licensing agreements to renew. Indeed, in the period, EssilorLuxottica communicated:

1. A new collaboration with Swarovski. The agreement will be in force until 31 December 2028 with an automatic renewal option for a further 5 years and the first collection will be available on the market from September 2023. An agreement, as we can see in the press release, which brings together the creativity and the savoir-faire of Swarovski with the craftsmanship, innovation, and expertise of EssilorLuxottica. In particular, Swarovski’s partnership stems from the desire to make eyewear a top accessory (in line with EssilorLuxottica’s strategy). The glasses, which draw inspiration from the design of its jewels, add another facet to the Swarovski offer by completing the brand’s extraordinary collections that include jewels, home décor, and accessories.
2. EssilorLuxottica prolonged its partnership with the Ferrari Group. Aside from the usual collaboration with Ray-Ban and Scuderia Ferrari brand, the new license agreement will involve the new Ferrari brand called Prancing Horse;
3. Last but not least, EssilorLuxottica and Brunello Cucinelli are again together for the next 10 years. They signed an exclusive agreement with a common goal – to style the World with Italian elegance and beauty.

Conclusion and Valuation

On the negative news, EssilorLuxottica has pending litigation with the FCA-French Competition Authority. Essilor International was fined €81 million for having acted to the detriment of online players and in favor of physical retailers in the distribution of specific ophthalmic lenses. However, the company reiterates that it acted in full compliance with the regulatory standards, and legally maintained to distribute its products with prescriptions to ensure that customers receive the best vision correction for their individual needs. We are still not pricing in this information, and we believe it is immaterial. More important to note is the fact that consumer expenditure is resilient and travel recovery will play a favor in EssilorLuxottica’s P&L. Armani’s renewal collaboration was truly a key takeaway and as already mentioned, the company’s share price performance is still not matched by a fall in earnings expectations. With positive confirmation from FX development and already ahead of Wall Street estimates, we decide to maintain our buy rating at €196 per share over the next 12 months horizon.

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