Essilorluxottica’s Growth Slows in Q4 and Margin Progression Weakens in 2H

We are maintaining our fair value estimate for wide-moat Essilorluxottica EL as the company reported full-year results largely in line with our estimates. Revenue came in 2% higher than our estimates, but operating profit was bang in line as adjusted profitability progression was a bit slower than expected (16.8%, up 70 basis points from 2021 and lower than our 17.2% estimate). Shares look slightly overvalued at current levels.

In the fourth quarter, growth significantly decelerated to 3.9% at constant exchange rates. Deceleration was across the geographies, explained by management by an increasingly challenging comparison base (11% growth versus 2019 in the fourth quarter of 2021). For the full year, revenue was up 7.5% at constant exchange rates and excluding the impact of the timing of the Grandvision consolidation. More muted margin progression was recorded in the second half of the year (up 30 basis points) versus the 100-basis-point expansion reached in the first half. Wage inflation pressured costs as the company decided not to pass on cost increases significantly to consumers in terms of pricing. The company stuck to its long-term margin target of 19%-20% by 2026 (18.2% in our forecasts), helped by synergies from acquisitions (for example, Grandvision synergies from insourcing should play out to a higher extent in 2023).