By  on November 13, 2008

MILAN — Bulgari SpA issued a profit warning Thursday after third-quarter earnings dropped 43.7 percent, hit by a decline in watch and accessories sales and a slowdown in Italy, the Americas and Japan.

Bulgari chief executive officer Francesco Trapani also told WWD 2009 would be “an altogether very difficult year,” for the most part worse than 2008. He added, though, that he hoped it would end better than this year.

Trapani stressed the grim outlook would not affect Bulgari’s plans to celebrate its 125th anniversary next year, saying, “We’ll cut funds left and right, but not on the big retrospective.”

Net profits for the three months through Sept. 30 reached 23 million euros, or $34.7 million, on revenues down 0.5 percent to 256.2 million euros, or $386 million.

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

Blaming the declines on the unsettled macroeconomic environment, Trapani said he now expected lower full-year turnover, operating profits and net profits than previously estimated, although he added the decrease would be less than the 22 percent drop in the first nine months of the year.

“The results reached by the group in the third quarter inevitably reflect the current economic crisis — and people’s reduced tendency to purchase as a consequence — which has hit all sectors and is continuing to have repercussions in October. Although pursuing an even stricter cost control to further improve efficiency in the medium term, the group is strongly determined to confirm and defend the long-term strategies adopted so far to protect and increase the strength and attractiveness of the brand, the highest quality of its products and the fundamental presence in key markets,” Trapani said Thursday.

“Moreover, although it is clearly an unprecedented crisis, I would like to underline that the group, given its financial solidity and the proven experience of its management, has already shown in the past to be able to face and handle very difficult moments…and I am therefore confident that the Bulgari brand will be winning and well-positioned once again at the time of the economic recovery.”

Sales of jewels, Bulgari’s core business, edged up 1 percent to 106.3 million euros, or $160.2 million, which the company noted was “especially positive” given that the 2007 third-quarter figure included the “extraordinary” sale of a high-end jewelry piece in the brand’s store on New York’s Fifth Avenue. Bulgari in recent years has been pushing high jewelry and Lev Leviev is one of its suppliers.

Perfume revenues were also up, gaining 11.4 percent to 60.5 million euros, or $91.2 million.

However, watch sales, which accounted for just over a quarter of revenues, fell 7.4 percent to 65.9 million euros, or $79.5 million. Bulgari attributed the fall in part to shortages in sourcing some technical components and slowing demand in the wholesale channel.

Sales of accessories dropped 16.8 percent to 16.2 million euros, or $24.4 million, despite double-digit increases in directly owned stores.

Looking at revenues by region, Europe overall gained 4.5 percent to 106.3 million euros, or $160.2 million, although Italy fell 5.1 percent to 29.5 million euros, or $44.4 million.

The Americas decreased 14.7 percent to 36 million euros, or $54.2 million, although Bulgari noted that excluding the extraordinary sale mentioned above, the region increased nearly 10 percent in real terms.

Asia overall remained flat at 102.4 million euros, or $154.3 million, buoyed by double-digit growth in directly owned stores in countries excluding Japan, which offset a 2.2 percent dip to 55.1 million euros, or $83 million, in the latter.

As of Sept. 30, the group’s net financial indebtedness stood at 331 million euros, or $479.6 million, compared with 177 million euros, or $252.6 million, at the same point a year earlier.

Bulgari released the results after the close of the Milan Bourse. Its stock, which dipped 7.4 percent Thursday to 5.13 euros, has fallen by more than half in the last 12 months.�

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