EssilorLuxottica, the company behind Ray-Ban and Oakley, just had a quarter that looked good on paper - until you compare it to what Wall Street had in mind.
Missed by a decent margin.
The big reason? North America, the company's largest market, slowed way down.
Global economic uncertainty is part of the story. The Iran war has deterred wealthy shoppers, according to LVMH, a luxury-goods company. Rising costs for components and more competition also squeezed the business.
Not everything was weak. The company actually beat expectations on profitability. Its operating profit margin - that is, the share of sales left after covering operating costs - came in at 18.6%.
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Analysts had predicted 16.3%. So the business is getting more efficient, even as revenue growth disappoints.
Adjusted profit for the first half of the year rose 13%, landing at €1.9 billion. The company is still making more money than last year.
One area that is flying under the radar: myopia-management products. Sales in that category grew 24% in the second quarter. These are specialized lenses that slow down nearsightedness in kids. It is a small slice of the business, but it is growing fast.
The biggest wild card for EssilorLuxottica is the AI-glasses market. The company already makes smart glasses with Meta, including the Ray-Ban Meta Wayfarer. But Meta recently started selling a lower-cost model under its own brand for $299, which is $80 less than the Ray-Ban model. That could squeeze margins.
And the competition is only growing. Alphabet and Apple are both preparing to enter the AI-glasses market. That means two of the most powerful tech companies on earth are aiming at the same space where EssilorLuxottica has been the early leader.
Meanwhile, internal drama - tensions between the heirs of founder Leonardo Del Vecchio - is not helping. That is a steep drop for a company that is still growing profit and beating profit expectations.
EssilorLuxottica is telling investors it expects adjusted operating profit to keep rising at the same pace as sales over the next five years. That is a reasonable target, but a lot has to go right.
The North America slowdown could be temporary. Economic uncertainty and war jitters tend to fade eventually. But the rise of cheaper AI glasses and the arrival of Alphabet and Apple are not going away. Those are long-term competitive pressures.
For anyone holding this stock - or thinking about buying in - the key question is whether the company can hold its ground in smart glasses while the core eyewear business gets back to faster growth. The profit margins are strong right now. The challenge is keeping them that way against a wave of new rivals.
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