By  on November 15, 2005

MILAN — Bulgari SpA blamed higher operating costs, as well as the London terrorist attacks and the hurricanes in the U.S. for a drop in third-quarter profits.

Net profit for the three months ended Sept. 30 fell 7.6 percent to 26.3 million euros, or $32.1 million. Sales advanced 7.3 percent to 218.1 million euros, or $266.1 million, but the company said revenue would have grown 8.1 percent at constant exchange rates.

Dollar figures have been converted from the euro at average exchange rates for the period to which they refer.

"There is no doubt that the quarter registered sales performances — and therefore operating profits — penalized by the terrorist attacks in the United Kingdom and by the hurricanes in the United States, where sales performance was lower than our expectations," Bulgari chief executive officer Francesco Trapani said in a statement.

But the ceo characterized the terrorist attacks and storms as isolated events. He noted an "excellent" sales trend in October and said a good holiday season will allow the jewelry company to post full-year sales growth of more than 10 percent at constant exchange rates. Profits are seen registering a "similar increase."

At the first-half mark, Trapani had forecast that full-year net profits would grow by between 11 and 13 percent, while sales, excluding the effects of currency exchange rates, would advance by between 10 and 12 percent.

Operating costs rose 17.5 percent to 108.8 million euros, or $132.7 million, during the third quarter. Bulgari said costs increased as a result of store openings, the integration of a now-directly distributed fragrance business in the U.S. and on the consolidation of recently acquired companies. Acquisitions include a 50 percent stake in jeweler Crova, 50 percent of timepiece dial manufacturer Cadrans Design and 51 percent stake of watchband maker Prestige D'Or.

These costs bit into operating profits, which fell 9.1 percent to 31.9 million euros, or $38.9 million. Bulgari also noted that 2004's profit growth at the operating and net levels provided a challenging base for comparison.

All product categories except watches saw their sales rise. Jewelry, Bulgari's largest revenue generator, saw revenue climb 6.5 percent to 85.9 million euros, or $104.8 million. Sales of timepieces slid 2.4 percent to 63.6 million euros, or $77.6 million. Bulgari said the launch of its Assioma watch had a limited impact in the quarter as it hit stores in late September."As for watches — substantially stable in the nine months — I am convinced, also in consideration of the preliminary sales indications of Assioma, that the results will considerably improve in the last part of the year," Trapani said.

The new men's fragrance, Aqua, helped propel an 18.5 percent jump in perfume revenues to 44.7 million euros, or $54.5 million. Accessories, a business Bulgari has earmarked for future growth, saw sales jump 21.5 percent to 18.4 million euros, or $22.4 million.

For the first time, Bulgari included a sales breakdown for the Milan hotel, opened in the spring of last year. Its revenue for the quarter rose 52.3 percent to 2.5 million euros, or $3.1 million.

Geographically, sales in Japan advanced 12.5 percent to 57.6 million euros, or $70.3 million, although sales in the rest of Asia dropped 14.2 percent to 31.2 million euros, or $38.1 million, amid a "general weakness of the market."

Revenue in the U.S. rose 4.7 percent to 30 million euros, or $36.6 million, despite a "particularly difficult summer season from a climatic point of view."

Revenues from Italy advanced 25.6 percent to 34.3 million euros, or $41.8 million, while those from the rest of Europe grew 9.3 percent to 50.7 million euros, or $61.9 million.

Net financial debt stood at 159.4 million euros, or $194.5 million, compared with a year-earlier figure of 90.6 million euros, or $110.5 million. Bulgari attributed the increase to last May's exceptionally large dividend payout of 65 million euros, or $79.3 million, and an increase in product inventory ahead of the holiday season.

Bulgari said it invested 43.3 million euros, or $54.6 million, in the first nine months of the year, including funds for store openings this year and "key money" for boutiques due to open next year.

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