EssilorLuxottica (PA: EL) Q2 2022 earnings call dated Jul. 29, 2022
Corporate Participants:
Francesco Milleri — Chairman and Chief Executive Officer
Paul du Saillant — Deputy Chief Executive Officer
Stefano Grassi — Chief Financial Officer
Analysts:
Susy Tibaldi — UBS — Analyst
Graham Renwick — Berenberg — Analyst
Cedric Lecasble — Stifel — Analyst
Luca Solca — Bernstein — Analyst
Julien Dormois — BNP Paribas — Analyst
Domenico Ghilotti — Equita Group — Analyst
Presentation:
Operator
Hello, everyone, and welcome to the EssilorLuxottica First Half 2022 Results Presentation. At the end of the presentation, there will be a 30-minute Q&A session, where you’ll be allowed a maximum of two questions. [Operator Instructions]
I now turn the call over to our host, Francesco Milleri, Chairman and CEO.
Francesco Milleri — Chairman and Chief Executive Officer
Good morning all, and thank you for joining us. Before commenting our first half results, let me spend some words to celebrate the memory of Leonardo del Vecchio. It’s already a month since he left us, and we all missed his patience, his dedication and commitment to innovate our company and the whole industry. I am honored to have the responsibility to continue the journey he started, and to grow EssilorLuxottica inspired by his values, vision and strategy.
Leonardo would have been particularly proud of the results we are presenting today with the achievements of the second quarter and the first half of the year. In a deteriorated macro environment, our open and flexible business model, as well as our diversified footprint, continued to drive the growth of our sales and margins. We are the only player in the industry with a leading presence in all the geographies and all the business segments, which help us to mitigate the market headwinds and to capitalize on its positive trends.
In addition, our fast and effective decision-making process greatly help us to adapt quicker and better to the evolving customer needs. This is the kind of result we target as a network company focused on the evolution of the industry and the upgrade of the category driven by a sustainable and inclusive business platform for the benefit of the company and all its stakeholders at this stage, is not [Technical Issues] revenue grew in all the countries worldwide, excluding China and Russia.
What we are especially proud of is our strong margin expansion in the context of rising inflation on energy, labor, transport and raw materials, we managed to deliver a 100 basis point lift in the adjusted operating profit margin, up to 18.4%. Free cash flow delivery was also solid and continued to support our investments in the innovation of product and services. We look forward to meeting you in September at our Capital Market Day in our brand-new digital and the signup where you will have an immersive experience into the future of our company and industry.
And with that, I will leave the floor to Paul and Stefan.
Paul du Saillant — Deputy Chief Executive Officer
Thank you, Francesco, and good morning, everyone. Happy to be with you today. Before I share with you a few highlights from our H1, I would like to recall Francesco’s words and address the special thought for Chairman, Leonardo de Vecchio. His unique vision and values will continue to guide us as we carry on is inspiring legacy without team. Looking at our results today, you see a strong and unified company effective, impactful and on a clear trajectory.
This was made possible, thanks to a few factors. First, the unique commitment and talent of our 180,000 people worldwide. We have created a unified, efficient and focused organization with highly skilled and experienced leaders across the company who are putting in place the integrated organization while delivering on objectives. Together with Francesco, we thank our teams for the outstanding work done in H1 in a complex environment.
Second, our unique innovation and solutions capability. Since the beginning of the year, we have seen our innovation truly at work. Ray-Ban and Oakley continued their healthy growth, notably with Ray-Ban Stories, Oakley Prism which we will continue to roll out. On the land side, Varilux, Crizal, Transitions and Eyezen continue to perform extremely well, while we continue to expand Stellest. Third, our brand portfolio delivered great results, benefiting from our omnichannel approach and the performance of our luxury eyewear brand, as well as Ray-Ban and Oakley.
Stefano will tell you more about it. It was quite impressive to see our collection during the EssilorLuxottica Day held in our Tortona new showroom in Milan throughout July. We had the pleasure to welcome hundreds of customers from all regions in the world. Fourth, the progressive integration of GrandVision. The past months have further highlighted their complementary skills and know-how which truly enrich the organization.
Fifth, I would like to highlight the power of our supply chain from a manufacturing, logistic and lab standpoint. This unique global network of plants, distribution center and labs has once again proven its resilience and adaptability in a very complex environment. And we continue to invest significantly to make this supply chain even stronger and support our growth. And last, but not least, mission and sustainability, where we celebrated some important milestone in H1.
First, the launch of the OneSite EssilorLuxottica Foundation, which unites all of the group’s global advocacy and philanthropic actions to scale them up and accelerate them. The foundation will play a key role in realizing the United Nation Resolution Vision 4. And second, the first anniversary of our sustainability program Eyes on the Planet. Since its launch, we have been implementing projects to advance on each strategic pillar, carbon, circularity, worksite, inclusion and ethic.
A key highlight in H1 was the completion of our first carbon footprint assessment globally, bringing a complete understanding of our direct and indirect CO2 impact at each stage of the value chain. The collection of data not only improve our reporting capabilities, but also provided a clear overview of Scope three emissions, while progressing towards our 2025 carbon neutrality target for direct operation.
We want to widen our effort and prepare a more comprehensive and long-term road map covering Scope one to 3. As you can see, we have solid fundamentals in place, which makes us an effective and focused organization and supported our performance in H1. Looking ahead, we will keep this focus to deliver on H2 and prepare the ground for 2023 and the years to come.
With that, I hand over to Stefano. Thank you very much.
Stefano Grassi — Chief Financial Officer
Thank you, Paul, and good morning, everybody. Let’s take now a closer look to our sales results, and then afterwards, let’s dig into our profit and loss and our financial position for the first half of 2022. Our top line in the second quarter grew on a 36% on a reported basis, with GrandVision part of our results in 2022. While if we consider on a comparable basis with GrandVision in both 2021 as well as 2022, our top line grew 14% at current FX and 7% at constant capex.
These results, if you think about it, is quite remarkable because it comes on top of 8% growth the group reported in 2021 second quarter versus the second quarter of prepandemic 2019. From a currency standpoint, as you can see, we are experiencing quite strong tailwinds in our results with a U.S. dollar that revaluated approximately 13% versus euro during the course of the second quarter. As you can imagine, if currencies remain at those levels, we can expect those tailwinds to continue all the way through the end of 2022.
But now let’s take a closer look into our two operating segments. We are pleased to report growth in both of them, strong growth, I would say, in both of them, with a professional solution that posted a top line up 5.5% at constant currency on top of a 5% growth that we recorded in the second quarter ’21 versus 2019. All the four regions posted solid growth, with Latin America leading the way at double-digit pace, while EMEA posted a mid-single digit and North America and Asia Pac who posted a low single-digit growth during the course of the second quarter.
The dollar to consumer segment posted top line up 8.5% on top of 11% growth that we reported in Q2 2021 versus 2019. And that proves, once again, the strength of our omnichannel proposition with our e-commerce business that was flat on top of 70% growth last year and our brick-and-mortar that grew approximately double digits with EMEA and Latin America very much driving those results with a double-digit pace.
Now as usual, let’s start getting into or four different regions, and let’s begin with the biggest one, North America. North America posted a comparable revenue in the second quarter of 2.4% on top of a 16% growth last year versus 2019. Beginning with our professional solution, both frames and lenses posted solid growth during the course of the second quarter, I would say, pretty remarkable, in particular, on the freight side of the business, where in Q2 ’21, we recorded a growth of approximately 20% versus 2019.
We believe that the market and the demand in the market is still there. From a channel mix standpoint, our key accounts, our department stores, very much we’re leading the growth during the course of the second quarter. While independent ECP channel experienced a deceleration during the course of the second quarter, and we see the price mix on the positive side continues to be solid for both lenses as well as for frames.
If we now look at our direct-to-consumer segment, we are now partnering in the second quarter despite a very tough comparison base. In Q2 last year, we grew 22% versus 2019. Sunglass accounts were flat on top of a 14% comp last year, and LensCrafters posted comps they were slightly negative on top of 11% comp sales we recruited last year versus 2019. The last touch on our Oakley retail banner that posted a double-digit growth through the course of the second quarter, proving once again the strength of the Oakley brand in particular in North America.
But now let’s go to our second largest region, EMEA, that posted a remarkable 12.4% growth in the second quarter on a comparable basis. Both division reported solid results in Q2 with Professional Solutions and mid-single-digit growth in our direct-to-consumer segment strong double digit. In our Professional Solutions, we are pleased to report that Spain was double digit. The U.K. was double digit. Turkey was double digit. And we were actually in the high single-digit territory for Germany and Eastern Europe.
While the only key country in Europe that was slightly negative during the course of the second quarter was France, and that was very much due to a deceleration on the optical frame business, while on the lens side of our business in France we are still holding up, driven by solid price mix, in particular, branded lenses. If we now move for a second to our direct to consumer segment.
Our optical retail chain grew double digits during the course of the quarter, while some retail banners grew in excess of 80% with several key locations in Europe that see now a strong rebound of optimistic traffic inflows, if we look a little bit closely, our different optical banner, Salmoiraghi & Vigano almost double digits during the course of the second quarter. GrandVision was actually double digits during the course of Q2, supported by growth in France, Spain, Nordic as well as in Eastern Europe. So a very compelling story for EMEA.
And now let’s have a look at East into Asia Pac. Asia Pac recorded a growth of 1.7% on a comparable basis for the second quarter. This was another quarter of low single digits for this region with Professional Solutions solid positive in our dark-to-consumer segment that was slightly negative during the course of Q2. Clearly, when we talk about Asia Pac, you all understand that our results were impacted in a way by the severe lockdown that were mandated in China during the course of the second quarter, with quite a few restrictions that were easy just few days before the end of the second quarter.
If we would exclude Mainland China from the results of Asia Pacific region, you would have seen a growth in the range of 20% during the course of the second quarter. On the Professional Solutions side, I would highlight a strong delivery of India at triple digit pace, very much driven by volume growth in both lenses and frames, but also Hong Kong, Korea, Japan and Southeast Asia who all reported strong growth during the course of the second quarter.
In China, our Professional Solutions segment were back to positive in the month of June, supported by our growth in the lens brand portfolio, and in particular, thanks to Stellest that as we speak now, very much at the end of July, we already sold more units with Stellest lenses in China than in the entire 2021. We’re now very excited as we’re getting into the high season of the back-to-school period because we believe that, that volume growth is going to further accelerate. On the retail side, we posted double-digit growth in the Sun business, very much driven by Sunglass Hut in Australia as well as in Southeast Asia.
And on the optical side, we observed a decline in China very much due to the lockdown that I described to you before, but we were then pleased to see a rebound in our Oakley Sun business, the overall was flat during the course of the second quarter with a double-digit pace in the month of June. And now let’s move to the last region, that is Latin America. Latin America was for the third consecutive quarter, the best performer region in EssilorLuxottica.
Both professional solution and direct-to-consumer were at double-digit pace. In Professional Solutions, both Brazil and Latin America, both frames and lenses, performed on a double-digit pace. On the lens side, our growth was primarily driven by price mix very much due to the branded lenses with our key branded lenses varied at a double-digit pace. Let’s touch on our critical assets in the region that is OchicaHarol, that posted a quarter second quarter of double-digit growth rate.
If we move for a second to our dollar to consumer segment, both our optical retail banners and our sand banners delivered a double-digit growth during the course of the second quarter. GMO that was double digit With GrandVision that was double digit with Sunglass Hut that did another double-digit growth in Andes, Mexico as well as in Brazil. So a very nice way to close the journey across the different regions. And as I anticipated before, let’s now take a closer look to our profit and loss.
As we’ve always been talking about at EssilorLuxottica, we said that our storyline is a storyline of top line growth and margin expansion. And what you can see in this page is very much a confirmation of that statement. I won’t spend too much time on the top line, as we already commented before, and I think what we should focus on is very much our profitability. As you can see, we were capable to expand margin with top line growth. Our operating profit on an adjusted basis for the first half of 2022 was 18.4%.
That means 100 basis points improvement at current FX rate, and excluding currency, you would be looking at 80 basis points improvement on a constant FX basis. The key areas of improvement in our profit and loss was the gross margin, where you do see a 30 basis point improvement versus 2021 first half, both professional solution and direct-to-consumer show margin expansion during the first half of the year. And the main driver of that margin expansion for the first half was very much our price/mix.
In addition, it’s important to mention that our profit and loss was capable to absorb the headwinds deriving from the inflationary impact around the world. If you ask me how much do you estimate that I would tell you that we were probably absorbing 100 to 150 basis points of headwind deriving from inflation. If we look at below our operating profit on a net profit basis, you will be looking at a margin improvement of 110 basis points versus first half of 2021, with a margin rate of 12.9% on a net profit.
If we exclude currency, you will be looking at 100 basis points improvement on our net profit. So overall margin expansion quite remarkable for the first six months of 2022. The last chapter of our finance section is very much dedicated to our free cash flow generation. For the first six months of 2022, EssilorLuxottica generated in excess of $900 million free cash flow. That refreshable was achieved despite a quite material lift in capex investments.
As a matter of fact, we invested EUR350 million more than what we did in 2021, where investments in supply chain, in strengthening and diversifying our manufacturing capacity, in renovating our store footprint, in converting progressively our IT infrastructure into a single platform. All in all, we were capable to generate strong free cash flow and at the same time, continue to invest in the company. Our overall net debt position is at 10.4 billion and a net debt to EBITDA, is below two at 1.8 for the first six months of the year.
With that, let me hand it over to the operator for the Q&A session.
Questions and Answers:
Operator
[Operator Instructions] Our first question today comes from Susy Tibaldi with UBS. Suji, please go ahead.
Susy Tibaldi — UBS — Analyst
Thank you. Thanks for addressing my questions. So my first question would be on the top line trends that you’re seeing, both in Europe and in the U.S. because you mentioned several times that the conditions and macro conditions are a little bit deteriorating and especially at the lower entry-level point of the product portfolio, where it sounds like the higher end is still doing quite well. So can you just give us a little bit more comments, especially on these two very important regions also in light of of the second half of the year?
Because I know you don’t comment on the current trends usually, but your midterm guidance for a mid-single-digit growth. Is this something that you feel comfortable with for H2? Or do you think a low single-digit growth would be more of a reasonable expectation? Then secondly, a question on the margins. You delivered a really excellent margin expansion despite the inflationary pressures — and I know you don’t really like to split operating leverage and synergies, but just to understand about this algorithm. And when we think about the the actual leverage.
Is there any price that you have also taken — because previously, you said that you have been doing some price actions selectively but not across the whole product range. So I was wondering if this is something that you have been considering also when it comes to the lens portfolio and some color on the synergies because clearly, there must be already quite a decent amount of benefit from GrandVision coming through to deliver such strong profitability. So if you can give us some color on that, that would be very helpful. Thank you.
Stefano Grassi — Chief Financial Officer
Susy, I’ll take your question, both of them. With respect to the trend that we see in North America, in EMEA. Just to give you a flavor of the evolution, especially during the month of July. We do see Europe continue to be very solid on both channel, professional solution, as well as direct-to-consumer. Again, if you think about it to Europe, the only real country where we had a deceleration in recent months with France. And that was very much on a specific part of the business because the remainder part remains, I would say, pretty healthy.
But Europe is trending well. We’re solid, and we continue to have solid growth in both channels. With respect to North America, North America trends are pretty similar to the one that we’ve seen during the course of the second quarter. In that respect. But again, my expectation for the month of July is to see North America in the positive territory overall — now with respect to the growth of the second half expectations, as you know, we don’t guide on half of the year.
We have a guidance that is a long-term one. of mid-single-digit top line growth. There is an expectation to hit the 19% to 20% margin on adjusted basis by 2026, and we’re marching in that direction. I would say, pretty, pretty well. We continue to believe on the strength of our platform and our network company, as Francesco well described before, — and we believe that we are very well in control of our business. If you remember, at the beginning of the year, I shared a flavor of what could be an expectation for this year — we expect to a story line of top line growth and margin expansion.
And today, we can confirm that. With respect to the margin, the strong margin and operating leverage that you’ve seen during the first six months of the year. Let me say a couple of things. We drove price mix, thanks to the innovation — we drove price mix strength through the new product launches, thanks to the strength of our luxury portfolio frames than to the strength of our branded lens portfolio. And that very much helps us to lift progressively the mix in the upper part.
We haven’t really taken material price adjustments around our portfolio. We only took a selective adjustment whatever was needed for filling the gap of currency discrepancies. But we haven’t really taken any other adjustment in our pricing position in that respect. So the recipients and the pillars of the margin expansion that you’ve seen in the first half is very much price mix on the gross margin level. And on the other side, on the opex side, I would say a couple of things.
On one side, a very diligent cost control — on the other side, the realization of the synergetic work stream that we are undertaking, not only EssilorLuxottica, but also the early stage of the work that will start doing on GrandVision. So the combination of that allow us to keep the cost under control to ease the investment whenever we believe was the right place to do, and ultimately, where we believe we have the proper return. And that is a mix that allows us to very much absorb the headwinds deriving from the inflationary impact.
Operator
Next question comes from Graham Renwick with Berenberg. Graham, please go ahead.
Graham Renwick — Berenberg — Analyst
Good morning everyone, thanks for taking my questions. Just firstly, on price mix. How should we think about that going forward? It’s been a big driver of margin expansion in the first half, as you said. I think your guidance initially was that most of your growth could be volume driven, and we shouldn’t expect much price/mix. So do you expect price mix to stabilize across H2 or maybe possibly reverse in tougher macro backdrop? And is it reasonable to believe that gross margins can again be up or at least stable across the second half of the year?
And then the second one, can you sort of remind us how much of your U.S. sales base is to customers that are covered by vision insurance? And to what extent do you think that would protect the U.S. business in a downturn? And does that also explain perhaps the resilience at the higher end categories and the weakness at the lower end products, which I guess would have had a higher mix than insured customers?
Stefano Grassi — Chief Financial Officer
So with respect to your first question on price mix, let me put it this way. We’re already seeing today, and I believe more so going forward, a fairly balanced between volume and price mix on the frame side, which very much goes into the reaction of your question, which is what we’ve been guiding for the longer term. On the lens side, we’re probably more outbalanced on the price mix in that respect.
Over the longer run, if you remember, we said we don’t have expectation to materially lift our gross margin profile, let’s say, over the next five years because we — I think we have pluses and minuses compensating each other. Clearly, we are pleased with what we’ve seen in the first half of the year. But again, over the longer run, I think we’re going to see a rebalance also on the land side of our business. But to date, that balance between volume and mix is more on the frame side.
With respect to North America, I would say 40% to 50%, depending on the period is what is our insurance, let’s say, coverage, broadly speaking, on our business. It is a part that it’s pretty resilient despite competition in the market. But I believe what has been more resilient in North America is the work that we have done with commercial programs that were customized for our independent ECP.
For example of that is the E360 program. we have over 4,300 ECPs that are now part of the 360 program, which, as you know, encompass commercial proposition for frame and lenses together but also the managed vision care assets that is made available for DCP that embrace the EL 360 program. That program, that activities that are done on a jointly basis, frames, lenses insurance altogether are proving to be definitely much more resilient in the North American market.
Operator
Our next question comes from Cedric Lecasble with Stifel. Cedric. Your line is open.
Cedric Lecasble — Stifel — Analyst
Yes, good morning. Thank you for taking my questions. I have to actually answer U.S. The first one is about the availability of optometrists. Is a competitor of yours, not in the same segment, pointed to some difficulties to retain optometrists, that do you have any pressure either on volume of optometrists, a number of people or a sharp increase in wages in this field? And what are your thoughts on this to secure the retail business in the U.S., number one. And number two, you mentioned some take down and some higher price competition at the lower end. What are your offset strategies going forward? You mentioned also more pressure on your independent ECPs, which is your good business. Does it mean that the change on some value chains are gaining share currently? And how do you intend to react.
Paul du Saillant — Deputy Chief Executive Officer
I can take, the second point on the lower end of the market in the U.S. I think the competition, there has always been competition in the mid-tier part of the market. And I think EssilorLuxottica is well positioned in the lens with offering with all of our network of labs, partner labs and independent labs. And the acquisition of Walman is reinforcing our cost competitivity and our offer competitivity including the same lens and the Samir design.
So I think it’s always been a competitive market. What Stefano pointed to where the branded lens were performing well, meaning the vibe, the transition, the Crizal, with the new offering in Crizal, is a very good aspect of our position in the U.S., including the vision care program. But you should consider that the platform that we have in place and the structure of offering we have in place for lenses is very well set up to compete in the mid-tier part of the market vis-a-vis the key accounts, the large retailers or the more mid-position independent practice. So for me, this is not a concern, the company is very well positioned in the two segments.
Francesco Milleri — Chairman and Chief Executive Officer
I try to answer the first question of optometrists and doctors. — more than pressure on labor cost and availability. I believe that the issue is how engaged doctor or optometrists much more in the future. to be a part of our mission and our business. We are working with two main projects. One is teleoptometry. We just delivered a beta test in U.S. Teleoptometry lead to optometrist and doctors, the role, the central role that they have, but at the same time, is able to optimize the availability and the time of doctor.
That means that you have doctors in some room everywhere and you can really connect to different stores and doctor rooms and take the visit. This is supported with a really strong system of information, images and so on. I believe that this is — that will be the way we can react to the pressure on availability of optometrists and also really make their life a little bit better. So they don’t have to travel too much, they stay home or in the specific office. They can connect a better service of our and their customers. The second is Vision Source. You know the Vision Source is the biggest community of optometrists and independent opticians in U.S. Really high-end focused on science, focused on quality on visit. And EssilorLuxottica is leading more than owning the association.
We are just starting a really interesting program to better involve doctors and optometrists and all the store managers really to share information, to share understanding of the market and to share how to better manage customers and visit. So I believe that these two combinations to be open to a network, to be a more open company to listen to the needs of optometrists and doctor, he will help to guide the market to the next level. So the combination of two — with many other initiatives that we have in place, I believe we will improve the quality of our service and take the price under control.
Cedric Lecasble — Stifel — Analyst
Thank you.
Operator
Our next question comes from Luca Solca with Bernstein. Luca. Please go ahead.
Luca Solca — Bernstein — Analyst
Thank you very much indeed, and good morning. Maybe I will start with a general question. You have a very complex business exposed to many different fronts, manufacturing, brand marketing, licenses, retail, wholesale, insurance, lenses, frames, glasses, digital, physical, high end, low end and also multiple geographies each with its own specificities. I wonder what your vision about these challenges is? Do you feel EssilorLuxottica’s mission is to compete on all of these fronts and that they are more or less equally important, or is there a hierarchy in your mind? So that some of these areas are going to be more relevant when it comes to dominating the category in the long term and producing a high return for shareholders. My second question is more focused on the American market, not so much on the demand on which you already explained, but about the shift in ground when it comes to competition.
We’ve seen consolidation, especially in the lower end, value retail portion of the market. This is probably one of the most exposed market to digital penetration you have now new players in the high end as well, potentially building up their position with Kering Eyewear buying [Indecipherable]. I wonder how you see the competition in this market? And how you are planning to confront it and win against it in the long term? Thank you very much indeed.
Francesco Milleri — Chairman and Chief Executive Officer
I’ll try to take the first. if I take your question, and I change one word, I believe that everybody can understand our position. You ask a mission to compete on all the fronts. I really — I want to say mission to help the market in all the fronts, that is the approach that we have. Since our dimension, it’s difficult to find a target to compete is really difficult to think in this way. So what we start now is really to approach the market in the way we can improve quality of service.
We can improve quality of product, and help all the markets really grow. With this in mind, the complexity that you underline on our company is really the key factor we compete in all markets, all segments, all types of products. So we are the only company that I can define complete that understand exactly 360 of the market, the needs of the customer. And remember that when you are thinking about different channels, different type of store and country and so on, you refer always to just one single thing.
Customer — customer is one, is not — we don’t have different customers. Then we have a different way to approach customers depend on age, capability of spending and countries and culture. And that is what we try to do through our digital platform and the capability to manage big data. Big data are really key factor behind anything right now. You know that we collect all the sales every day. Every day at night, we really know how much we sell, which do we sold in a certain country, how is the mood of our customer, they are preferring yesterday, they are preferring around oval, red, brown and whatever.
And this is really the key factor that helped us to forecast the future forecast the need, not just for our store or our e-commerce but also for wholesale. That means serve more than 400,000 different stores and partners. So I believe that in long term, but also we show that also in the short term that can generate a good return for all shareholders, can protect the market and can really also protect the people that works in the market. This is much more than business strategy. This is the way we joined the mission, the right to see with the commitment that we took with shareholder to remunerate their investment. So this is the way we see the actual strategy and the future strategy.
Operator
Our next question comes from the line…
Paul du Saillant — Deputy Chief Executive Officer
Excuse me, operator, I just wanted to address the second question of Luca on the U.S. and the shift in competition. I think you should look at the position of EssilorLuxottica in the North American market, but actually in many markets as one of addressing the different segment of the market. I think Francesco touched on it, Stefano touched on it. We have always been serving the different segments, the independent channel, we have this position that we refer to with the Vision Source, with all of our partner program, R360.
We have always been, at the same time, serving the large retailers, the NGI, the Costco, the Walmart that are acting as the market with a different proposal, different lens proposal, different frame proposal, different service proposal. And then we have, of course, this whole ecosystem around managed care in which we are very well positioned, serving the existing provider like VSP or using our own platform like Eyemed. And then you have the e-commerce, which is taking a certain segment that we serve with independent platform like iDirect.
So the approach we have is to really be well positioned in all of the different segment, channel in parallel to be present with our own retail. And I think it’s a very powerful and good position to be able to grow the market, the different categories, to bring our innovation at the different price points or different brand sunglasses, eyewear into the market. So I would look at it that way, Luca. And then the market is dynamic. The competition is dynamic, but this is not something that just happened. It has always been that way. And we keep reinforcing. I did mention earlier the Walman acquisition which I think is a very interesting move to reinforce the mid-tier service capability of the company. Back to you, operator.
Operator
Thank you. Our next question comes from Julien Dormois with BNP Paribas. Julian. Your line is open.
Julien Dormois — BNP Paribas — Analyst
Yes, hi, good morning everyone, thanks for taking my questions. I have two. One relates to the seasonality of margin in your business. If you could just remind us what are the the main drivers of what is usually a much higher H1 margin across your business. And I think last year, for instance, you had more than 300 basis points of difference between H1 and H2 margin. Is it fair to assume that this year could be about the same difference as we saw?
And the second question is a quick update on Stellest, if possible, please. I think last year in fiscal year ’21, you had sales which were just shy of EUR150 million just for Stellest in China. You’ve indicated that you already sold more units in the first half of this year than you did in the entire year 2021. So is it fair to assume that you expect at least a doubling of that business for fiscal year 2022?
Stefano Grassi — Chief Financial Officer
Julien, so the first question with respect to seasonality on the margin between first half and second half of the — as part of our business model, yes, we do have anywhere between 250 to 300 basis points, let’s say, of difference in the margin between H1 and H2. The main reason for that is very much on the sun season that is stronger at the later stage of Q1, and obviously, a full exploitation during the second quarter and then the progress will fade out during the remainder part of the year.
With respect to Stellest numbers, the EUR150 million sales at retail value, we continue to see price/mix holding up for Stellest in China, and clearly, that number will be much stronger. Hard to tell with the visibility that we have in China right now, whether we’re going to double 2021 results. But I can tell you that as we speak really today in this week, we already passed 2021 level in terms of volume of Stellest lens in China, and I would say, around the rest of the world.
Operator
Our next question comes from Domenico Ghilotti with Equita Group. Domenico, Please go ahead.
Domenico Ghilotti — Equita Group — Analyst
Good morning. Two questions on my side. The first is on cost inflation. Inflation, in particular, well, I wonder if you are expecting the wage inflation picking up in second half and 2023. And on the other hand, if you see cost inflation from other items from freight rates to raw materials already say, having picked in first semester or say, close to peak level already this year. The second question is a follow-up on North America. Could you provide a bit more color because I’m not sure I catch your indication on the current slowdown. And as you did for Europe, if you can give us some color on the two different performance in the two divisions.
Stefano Grassi — Chief Financial Officer
Domenico, I’ll take both the answer to your two questions. First of all, on cost inflation, when we look at our cost inflation, the primary driver of that, as you rightly pointed out, is the wage inflation. It’s the biggest part of that headwinds that we’re feeling. I think it has been probably stronger in the second quarter more than in the first quarter. And I believe we’ll carry on throughout third quarter and then we’ll see how it’s going to evolve throughout the latter part of 2022.
Hard to predict what we can expect in 2023, but again, the work that we’ve been doing, it’s very much in the direction of protecting and offsetting those inflationary trend. Being the largest one, labor is not the only one. We’re also exposed to freight costs, as you rightly pointed out, and obviously, the energy cost. Probably the least of the exposure that we have from a profit and loss standpoint is nonmaterial. A lot of our business model is being vertically integrated, very much reduce the exposure to material.
And I think we found a lot of measures that allow us to offset on the material side. So labor, freight, logistic cost and the energy costs are really the three most important driver, with labor being by far the largest one. With respect to North America, again, what I pointed out that we are aligned on this. We do expect North America July business to be on the positive territory. And that is true for our direct-to-consumer part of the business, as well as our professional solution. So that’s the picture.
Operator
That was our last question of our 30 minute Q&A session. I will now turn the call back to the management team to conclude.
Francesco Milleri — Chairman and Chief Executive Officer
Thanks for staying with us. And we hope to have some rest at least a couple of weeks, and so see you after the summer break. Thank you
Operator
[Operator Closing Remarks]