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Rising Costs Weigh on Benetton Net

Company was weakened by difficult economies in some of its main markets, such as Greece.

MILAN — Weakened by difficult economies in some of its main markets, such as Greece, and rising costs of raw materials, Benetton Group reported a 25.5 drop in net profits in the first half to 30 million euros, or $43.5 million, compared with 40 million euros, or $49.2 million, in the same period the previous year.

This story first appeared in the July 29, 2011 issue of WWD.  Subscribe Today.

Sales rose 1.7 percent to 906 million euros, or $1.31 billion.

Dollar figures are converted at average exchange rates for the periods to which they refer.

The performance in Asia and the Americas, which posted gains of 4.7 percent and 4.5 percent, respectively, helped boost sales. While Europe edged up 1.2 percent, other areas showed more significant signs of growth: Russia, now the group’s fourth largest market in Europe, posted a 39 percent increase, and South Korea and Mexico, 11 and 18 percent growth, respectively. Hurt by the country’s recession, sales in Greece fell 21 percent.

Due to the strong increases in the cost of raw materials, such as cotton and wool, gross operating profit dropped 5.3 percent to 403 million, or $584.3 million, in the period ended June 30.

Earnings before interest and taxes dropped 7.6 percent to 58 million euros, $84 million.

Benetton said 2011 has “to date, been in line with expectations: orders for the spring-summer collection showed a more moderate slowdown compared with recent collections, and fall-winter 2011 confirmed indications of a return to growth.”

The Italian clothing group said more recently developed countries will be “fundamental” to maintain sales in the second part of the year, as it sees ongoing weakness of demand in the Mediterranean area. Benetton also believes the strong increase in the cost of raw materials will continue to erode margins in the coming months.

As of June 30, net debt stood at 543 million, or $787.3 million, compared with 508 million euros, or $624.8 million, at the end of June last year.

In June, Benetton tapped former Levi’s vice president of global merchandising and design You Nguyen as creative director and chief merchandising officer. At the time, Alessandro Benetton, executive vice president of Benetton Group, told WWD he was mapping out a new phase for the 46-year-old fashion company.