UPDATE: Luxottica's Net Profit Up; In Talks With Armani On License

Eyewear maker Luxottica Group SpA (LUX), is in talks with Giorgio Armani SpA to produce glasses for the designer under license, in a push to add one of the fashion world's most highly coveted labels to its stable of brands, Chief Executive Andrea Guerra said in an interview.

Landing an agreement with Armani, a household name around the world, would be a major coup for Luxottica. Smaller rival Safilo SpA (SLF.MI) currently holds the Armani contract, which expires at the end of this year. Safilo could not be reached for comment.

"We are in talks with Armani for the license that is expiring," Guerra said, confirming months of speculation that Armani would return to Luxottica.

The comments came as the world's largest eyewear maker posted a 4% increase in third-quarter adjusted net profit Monday as its sunglasses brands, retail and wholesale businesses all posted solid growth.

The Armani contract has been generating EUR170 million in annual revenue for Safilo, which has held the license since 2003. Prior to that, Luxottica produced Armani prescription and glass for 14 years, and in 2001 the license accounted for about EUR240 million in Luxottica revenue. The unlisted Giorgio Armani SpA, which could not be reached for comment, owns a 4.9% stake in Luxottica.

Luxottica beat expectations. Third quarter net profit (adjusted to exclude a one-time gain and non-recurring costs) rose to EUR106.1 million from EUR101.9 million a year earlier.

Sales rose 4% to EUR1.52 billion from EUR1.46 billion, and were up 10% at constant exchange rates.

Luxottica, which makes eyewear under license for several companies, said its premium and luxury brands posted good growth, citing the Chanel SA, Prada SpA (1913.HK), Burberry Group PLC (BRBY.LN), Tiffany & Co (TIF) and Ralph Lauren labels.

Ray-Ban and Oakley also made a strong contribution, Guerra said in a telephone interview.

Luxottica's wholesale division posted a 10.7% increase in sales after currency fluctuations, helped by key contributions from China, Brazil and the Middle East, along with Germany, Italy and the UK. Revenue for the retail unit was EUR550 million.

Third-quarter sales at the retail division were impacted by the weaker U.S. dollar, since approximately 80% of retail revenue comes from the U.S. At constant exchange rates, the retail division's sales grew 9.6% to EUR968.7 million; at current exchange rates, the increase was 2.4%.

Guerra said Luxottica was on track to meet its target of opening 90 new stores in Brazil, with around 15 opened by year-end. In China, the company aims to open 65 new stores by year-end, and 65 more next year, in order to meet its target of having 500 stores there in three years' time. It currently has about 230 stores in China.

Luxottica doesn't rule out acquisitions in the future, targeting China, India, Mexico, Turkey and Brazil.

"We will continue to target Latin America in the next six to nine months," Guerra said.

-By Jennifer Clark, Dow Jones Newswires; 39 02 58 91 99 04; [e-mail]

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