By  on April 1, 2005

MILAN — A lower tax rate boosted Benetton’s 2004 profits on declining sales, but the company warned that 2005 earnings and revenue figures will drop.

Net profit for the year ended Dec. 31 grew 14.1 percent to 123 million euros, or $161.1 million at average exchange rates for the period, boosted by a lower tax rate. Pretax profit was flat at 165 million euros, or $216.2 million.

Revenue for the period fell 9.3 percent to 1.69 billion euros, or $2.21 billion. Benetton blamed unfavorable exchange rates and the 2003 sale of its sporting goods unit for the decline, and said revenue would have lost 3.8 percent, stripping out those two factors.

Benetton cut its full-year 2004 sales estimates three times over the past few months, in September, November and February. Similarly, net profit forecast ranges were revised downward in September and November.

Benetton also is forecasting declining numbers for 2005. The company said this year’s revenue should oscillate between 1.62 billion euros, or $2.16 billion at current exchange, and 1.65 billion euros, or $2.16 billion. Earnings before interest and taxes should come in at about 9.5 to 10 percent of sales while net profit will be about 6 percent of sales. That works out to a net profit of 99 million euros, or $129.7 million, in the best-case scenario.

A Benetton spokesman said 2005 results will suffer as the company carries out a plan to help out its franchisees. The company will sell goods to franchisees at a discount, allowing these retailers to pass on lower prices to final consumers or use the savings to invest in infrastructure such as renovation or expansion, he said.

Market observers and analysts said  Benetton is losing ground to trendier mass market players such as Hennes & Mauritz and Zara. Benetton has dismissed this theory, saying it is catering to a different clientele by focusing on quality over price.

Benetton said 2004 sales of casual clothing, its core business, dropped 4.8 percent to 1.5 billion euros, or $1.97 billion at average exchange, but the company said volumes were constant.

The company also said its board is appointing Alessandro Benetton, son of chairman Luciano Benetton, as co-vice chairman to flank Carlo Benetton.The board named a new independent board member, Giorgio Brunetti, to replace interim member Sergio De Simoi. Brunetti is a Bocconi University professor and sits on the boards of companies such as bookstore chain Messaggerie Libri and Benetton family-controlled restaurant firm Autogrill. In 2003, the Benetton family said it wanted to take a step back from day-to-day involvement in the company.

Meanwhile, Benetton is negotiating with banks for a new revolving credit line worth 500 million euros, or $655 million at current exchange. The company said it will use operating cash flow to reimburse 300 million euros, or $393 million, of bonds due this July.

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