Bulgari’s Trapani Touts 32.3% Uptick in 4Q Net

Bulgari fell a bit short of its 2005 profitability target, but chief executive Francesco Trapani said he's upbeat about a 32.3 percent surge in fourth-quarter net profits and a good start to the current year.

MILAN — Bulgari fell a bit short of its 2005 profitability target, but chief executive Francesco Trapani said he’s upbeat about a 32.3 percent surge in fourth-quarter net profits and a good start to the current year.

Net profits rose 7 percent to 116.4 million euros, or $145.5 million, for the 12 months ended Dec. 31. The jeweler was targeting 10 percent growth for the year. Trapani said the jeweler wasn’t able to fully compensate for softer sales earlier in the year, which he blamed on the terrorist bombings in London and the U.S. hurricanes.

“We weren’t able to recuperate everything we lost [in terms of sales],” the ceo said in an interview.

Sales advanced 10.5 percent to 918.5 million euros, or $1.1 billion, in line with preliminary revenue figures released in January, as well as Bulgari’s initial forecast. Currency impact was negligible; sales would have grown 10.6 percent at constant exchange rates. All dollar figures have been converted from the euro at average exchange rates for the period to which they refer.

On a fourth-quarter basis, net profits grew 32.3 percent to 61.2 million euros, or $72.8 million, while revenues advanced 13.2 percent to 311.2 million euros, or $370.3 million.

Trapani said 2006 sales should grow by 8 to 9 percent, while net profits should advance at a similar pace “in the high single digits.” That’s the same forecast he made at the end of January.

“I don’t have any particular concerns. The first quarter [of this year] is going well, but we prefer to be cautious,” he said.

Full-year operating profits rose 8.4 percent to 142.8 million euros, or $178.5 million, despite higher promotional and advertising investments to support the launches of new products, such as the Assioma watch. Those expenditures rose 20.6 percent to 116.3 million euros ($145.4 million), or 12.7 percent of sales. Bulgari said that those investments should drop to 12 percent of sales this year.

Bulgari isn’t just spending on ads. The company is making major retail investments, including the refurbishment and expansion of its Fifth Avenue store and the building of a 10-story tower in Tokyo, which will house both the brand’s biggest-ever store and Bulgari’s Japanese headquarters. The brand is also rolling out a series of accessories-only boutiques. Last year, Bulgari opened two of these, in Osaka and Tokyo, and there are plans for another three or four in Asia and Europe.

This story first appeared in the March 30, 2006 issue of WWD.  Subscribe Today.

Trapani declined to quantify retail investments, but said that they are “very important” for Bulgari’s future development.

“All the refurbishments in New York and the large-scale project we are doing in Ginza will generate results in 2007,” he said.

Bulgari’s two biggest product categories grew last year. Jewelry sales advanced 7.5 percent to 368.2 million euros, or $460.3 million, while watch revenues increased 4.5 percent to 267.9 million euros, or $334.9 million.

Sales of handbags, scarves and other accessories leaped 23.8 percent to 76.9 million euros, or $96.1 million. Perfume sales grew 18.3 percent to 182.4 million euros, or $228 million.

Geographically, the fourth-quarter figures indicate a slowing growth trend for North and South America. Sales there grew 4.8 percent in the last three months of the year and finished the full year up 12.6 percent to 138.2 million euros, or $172.8 million. Trapani said the U.S. market has since picked up. January wasn’t a great month, but trading in February and March improved, he added.

Stronger tourist flows boosted sales in Europe. Revenues in Italy rose 15.4 percent to 129.9 million euros, or $162.4 million, while those on the rest of the Continent advanced 15.2 percent to 218.6 million euros, or $273.3 million.

Last year, Bulgari shuttered some wholesale accounts in Asia to prevent the reselling of stock to Japan. That decision bit into full-year sales in Asia, which dropped 4.7 percent to 139.6 million euros, or $174.5 million. On the other hand, sales in Japan rose 15.7 percent to 238.9 million euros, or $298.6 million.

Trapani downplayed the potential impact of higher sales taxes in China. (Last week, the Chinese government said it will introduce a series of consumption taxes on a wide range of products, including luxury watches.) The ceo said an increasing number of mainland Chinese people are shopping in Hong Kong and Macau, where Bulgari is planning to open a store, so he doesn’t foresee a big effect on regional sales.