By  on April 17, 2008

MILAN — The retail environment may be getting tougher, but Italy's Gruppo Coin SpA has reason for optimism after registering a 322 percent jump in earnings in 2007.

The group, which operates the Coin and Oviesse department stores, on Tuesday reported that net profits for the 12 months through Jan. 31 increased to 43.5 million euros, or $59.6 million, compared with 10.3 million euros, or $12.9 million, in the same period a year earlier, after updating its retail formats and logistics processes and lowering sourcing costs.

Earnings before interest, taxes, depreciation and amortization climbed 25.9 percent to 144.6 million euros, or $198.2 million, from $114.8 million, or $144.2 million, while sales grew 5 percent to 1.17 billion euros, or $1.61 billion, from 1.12 billion euros, or $1.41 billion.

The figures, which are at average exchange rates for the period, outperformed analyst estimates.

During a news conference in the newly refurbished Coin flagship in Piazza 5 Giornate, Milan, chief executive officer Stefano Beraldo described the results as "spectacular." The group returned to profitability in 2006 after seven years of losses.

Beraldo said sales "were flying" until mid-November, when "something happened, which translated into a slump for the entire sector."

He said the situation improved in January, with sales up 4 percent at Coin and 6 percent at Oviesse, although these were largely of discounted items.

Overall, the company reported a 0.2 rise in sales in the first two months of this year, compared with a 14 percent jump in 2007.

"Despite the general market difficulty, the group continues to show a limited growth," the company said.

Beraldo added, "Sales were weak in this period, but not dramatically so."

Looking to the full year and beyond, Beraldo said he expected gross margins to improve in 2008 and 2009, citing further savings from sourcing and by adjusting the company's hedging forecasts against the dollar.

"I still see space for gross margin growth," Beraldo said.

Coin is a midrange department store, and Oviesse is a more mass market clothing retailer known for lower-end adult and children's apparel.Oviesse has sought to reposition itself as a fast-fashion player appealing to teenagers and younger adults with the new OVSindustry store identity, and the move seems to be paying off. Sales were up 7 percent to 820 million euros, or $1.12 billion, from 767.3 million euros, or $966.8 million.

The company said it would continue to overhaul its store network and expand both domestically and abroad. The first Coin store outside of Italy is to open in Belgrade in the fall and new OVSindustry units are planned, particularly in Eastern Europe.

The higher sales and improved operating efficiencies led to a 34.6 percent increase in gross profits in 2007 to 106.5 million euros, or $146 million, compared with 79.1 million euros, or $99.7 million, in the previous year.

Oviesse plans to revamp 25 stores in Italy with the OVSindustry format and open "at least" 10 new units in the country this year. Abroad, there are plans for another 20 franchised stores from Romania to Russia to add to the 17 opened last year. The aim is to have 50 units outside of Italy by 2009.

Coin, meanwhile, narrowed its operating losses to 3.8 million euros, or $5.2 million, from 7.3 million euros, or $9.2 million, the year before. Sales edged up 0.5 percent to 351 million euros, or $481.1 million, from 349.3 million euros, or $440.1 million.

Beraldo said Coin's goal was to break even this year.

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