• Ray-Ban maker lowers target, plans $1.6 billion in investments
  • Adjusted 2015 net income trails analysts' predictions

Luxottica Group SpA fell in Milan after the Ray-Ban maker sunglasses curbed its earnings growth outlook as it invests more than 1.5 billion euros ($1.6 billion) to revitalize and expand its business.

Net income will increase at least 1.5 times the pace of sales each year through 2018, Milan-based Luxottica said late Tuesday after European markets closed. The company’s goal for the past six years has been twice as fast. The shares fell as much as 6 percent.

Luxottica is coming out of 18 months of management upheaval. Adil Mehboob-Khan resigned as co-CEO last month, becoming the third leader of the eyewear maker to quit since 2014, when Andrea Guerra stepped down after a decade at the helm. The company on Tuesday named Francesco Milleri as a director to assist 80-year-old founder Leonardo Del Vecchio, who has returned as executive chairman.

Given “ongoing governance uncertainty and this overall disappointing set of results, we would expect the stock to come under pressure,” said Chiara Battistini, an analyst at JPMorgan Cazenove.

Founder’s Mission

“I am not back to solve critical issues, but to fully seize new opportunities in retail, emerging markets, e-commerce and in our key brands such as Oakley and Ray-Ban,” Del Vecchio said Wednesday in a recorded speech to analysts. He said he will return to a non-executive role in a few years.

The stock fell 4 percent to 51.60 euros as of 11:35 a.m. in Milan.

Full-year profit was shy of analysts’ predictions. Adjusted net income rose 24 percent to 854 million euros, trailing the 870.4 million-euro consensus. Changes to the financial calendar meant Luxottica’s retail division reported nine fewer days last year compared with 2014, corresponding to about 90 million euros of sales, the company said.

Spending on digital, product development and expansion into new markets will help boost currency-neutral revenue by 5 percent to 6 percent this year and at a “mid-to-high single-digit” rate in 2017 and 2018, the company said.

Luxottica’s sales in the first two months of 2016 were “positive, in line with our guidance, in a economic context that conversely is showing signs of volatility,” Massimo Vian, chief executive officer for product and operations, said in an interview.

Sunny Markets

Demand for eyewear is expanding in emerging markets with more than 2.3 billion people in Asia, Africa and Latin America needing optical frames, according to Exane BNP Paribas. The scale of the opportunity and changes such as Gucci-owner Kering SA building its own eyewear operations had led to calls for Luxottica to make its own prescription lenses, with Exane’s Solca saying a merger with Essilor International SA would make sense.

The company’s mergers and acquisitions team is “hyperactive” and Luxottica is “always in a buying mood,” Vian said. “We continue to review options, mostly on the distribution side.”

Carl Zeiss AG, a German maker of optical instruments, is among possible takeover targets, Il Sole 24 Ore reported last month. Talks aren’t taking place with Carl Zeiss, though “we have a close relation with them,” Vian said, adding that in the future he expects the worlds of frames and lenses to converge.

Luxottica said it plans to buy back as much as 2.1 percent of its shares. The share buyback and disposal of treasury stock will be proposed to shareholders at the annual meeting on April 29. Luxottica will withdraw as much as 750 million euros from its extraordinary reserves to fund the repurchases.

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