Breaking News: Vision Monday 6/13/06

[hcjilson]

Industry Awaits Impact of Calif. Supreme Court Ruling on Pearle Case


SACRAMENTO, Calif.--Retail optical chains that do business in California are waiting to see what impact a ruling yesterday by the state's Supreme Court might have on how eyewear retailers do business there.

In sustaining a lower court's ruling, the Supreme Court in effect ruled that optical retailers must follow the state's business and professional code mandating specific, and separate relationships between opticians and optometrists, despite provisions of California's Knox-Keene Act.

In 2002, California attorney general Bill Lockyear sued the Pearle Vision chain, now owned by Luxottica Group (NYSE: LUX), charging that Pearle's 46 stores in the state illegally mixed prescribing eyeglasses and contact lenses with making and selling eyewear under one roof, a violation of California law, and that the chain falsely advertised that optometrists located in or near its retail stores were independent of Pearle.

Pearle's position was that its approach is more convenient for consumers, that the dispensing and eyecare functions are done by two separate corporations (an "affiliated vision health-care specialty plan" called Pearle VisionCare provides the eye exams), and that a 1975 state law--the Knox-Keene Health Care Service Plan Act--allowed the practice.

On Monday, the California Supreme Court unanimously upheld the state Appeals Court's decision that the Knox-Keene Act does not affect the prohibition on the relationship between dispensing opticians and licensed optometrists leaving the way open for the attorney general to pursue his lawsuit.

"They thought they found a technical refuge but the court stripped away that shelter," Lockyer said in a statement. "Consumers have less protection when the firm selling eyewear also controls the doctors writing the prescription."

In a statement issued today, Luxottica Retail said, "In 2002, the California Attorney General filed suit against Pearle Vision and Pearle VisionCare. Yesterday, the Supreme Court of California issued a decision on a single issue in that case, adopting an interpretation of the law that differs from what California regulators have followed for nearly two decades. The Court held that a California law (the Knox-Keene Act of 1975) does not by itself exempt optical companies, including Pearle Vision, from certain business practice restrictions.

"However, the opinion did not address the legality of Pearle Vision's business relationship with Pearle VisionCare. This case will return to the lower court for further legal proceedings. Yesterday's decision is one of many steps in the legal process. Other legal proceedings challenging the regulatory restrictions in California continue and may affect the impact of yesterday's decision. We will continue to provide the highest standard of patient care and customer service in all states, including California," according to the Luxottica Retail statement.

Luxottica's LensCrafters chain had filed a separate lawsuit--in which Lockyer is a defendant--in U.S. District Court here charging that the California statutes are unconstitutional; that lawsuit is still pending.

[Jim Stone]

Whew! I wondered why the stock fell. It will be back. pearle (lens crafters, luxottica) will win this one though. The stock will rebound better than ever.

[Chris Ryser]

Very interesting...................

[impact500]

Jim Stone: <<I wondered why the stock fell. It will be back. pearle (lens crafters, luxottica) will win this one though.>>

There are likely two factors that have had a larger impact on LUX's stock beyond the court decision - the falling stock markets worldwide and the euro-US$ exchange rate. The stock peaked 4 or 5 weeks ago and has fallen fairly steadily since then. The court decision was only issued two days ago. It did have a negative impact but it is likely only in third place as far as causes.

Also a reading of the court decision may reverse your decision that they will win in the end. It is very interesting reading.

The number of Pearle stores in CA is small so the worst case impact is limited. The key question will be the Lenscrafters case which has been suspended for some time at a lower CA court pending a decision in Pearle at the CA Supreme Court.

Duly noted that other CA cases have been decided in the opposite direction although the issues are somewhat different in each case. Also this is the first of the cases to reach the CA Supreme Court.

It is hard to read the decision and reach any other conclusion but that the operations of national chains in CA will be impacted to a very large degree. Of course there will be appeals and the Federal system may provide escape. My guess is that this is a very significant ruling that will have long term consequences.

I do agree that LUX's stock price will come back. It might have further downside first, however. The US$ may be the biggest challenge for LUX now.

These are amateur comments and may be wrong.

[Jim Stone]

Jim Stone: <<I wondered why the stock fell. It will be back. pearle (lens crafters, luxottica) will win this one though.>>

There are likely two factors that have had a larger impact on LUX's stock beyond the court decision - the falling stock markets worldwide and the euro-US$ exchange rate. The stock peaked 4 or 5 weeks ago and has fallen fairly steadily since then. The court decision was only issued two days ago. It did have a negative impact but it is likely only in third place as far as causes.

Also a reading of the court decision may reverse your decision that they will win in the end. It is very interesting reading.

The number of Pearle stores in CA is small so the worst case impact is limited. The key question will be the Lenscrafters case which has been suspended for some time at a lower CA court pending a decision in Pearle at the CA Supreme Court.

Duly noted that other CA cases have been decided in the opposite direction although the issues are somewhat different in each case. Also this is the first of the cases to reach the CA Supreme Court.

It is hard to read the decision and reach any other conclusion but that the operations of national chains in CA will be impacted to a very large degree. Of course there will be appeals and the Federal system may provide escape. My guess is that this is a very significant ruling that will have long term consequences.

I do agree that LUX's stock price will come back. It might have further downside first, however. The US$ may be the biggest challenge for LUX now.

These are amateur comments and may be wrong.

http://www.luxottica.com/english/inv...ndex_nyse.html

Looks up today. $1.39 a share. Hmmm, 5.71%. I wish I had more.