+4.01% ABS +6.5% REL

LUX reported Q3 number yesterday after close. Numbers were in line across the board, and the management confirmed the outlook for 2016 but did not give any medium term outlook.

This has been taken well as many including us were looking for a miss. The sector is having a mini renaissance post good LVMH numbers.

We still believe this is punchy for a company on 25x earnings for less than 4% organic but the market loves the sector right now and even the fact they can give us no guidance post 2016 will make no difference to how the market views luxotiica short term.

MT we believe it is a short but we will book a small bit of profit and look to re short in 2017. GRRRRR



Wednesday • 11 May 2016 • 16:16

Pre Q2 earnings, analysts already seem to have settled for organic growth at the same level as Q1. That leaves the FY guidance of 5%-6% unachievable and as we suggested in our original sell idea we should see downgrades at Q2 as a result of mall warnings from the US and under penetration online.

Consensus thinks we are likely to see cost benefits to help minimise the bottom line impact. The stock however is still on 22x earnings and less than 5% organic for the FY.

This is not enough to justify a 35% sector premium and the stock should continue to de-rate.

Stay short or add. Currently +6.8% abs return.



Wednesday • 11 May 2016 • 16:16

A number of reasons to be short this one:

Momentum is slowing. Organic growth of 1.8% in Q1 compares to 7.2% Q1 2015, and 2% last quarter. The US (60% of the biz) is clearly in a mess (see GAP warning and MACYs today) and unseasonal weather continues which is likely to make revenue growth targets of 5-6% hard to achieve.

Because of the US tilt, it is very exposed to the EUR in a big way. Given the US now admitting reliance on global stability for rate hikes, we are likely to see more monetary convergence rather than divergence from here, Why couldn’t the EUR trade at 1.20/1.25?

It is listed in Italy. The banks are dying a slow death given NPLs at 20% and NIRP denying them opportunities to make money. The MIB is a good place to be short.

At 23x earnings it has derated, but it is still expensive vs the sector for what would appear to be similar organic growth,