LONDON — Higher interest expense and softness in Europe and Japan pulled down De Beers Société Anonyme’s 2002 earnings despite a double-digit rise in sales.
Net income declined 17.6 percent to $407 million from $494 million, due to an increase in net interest paid — to $144 million from $65 million — and an unfavorable comparison with the 2001 balance sheet which benefited from a one-off surplus payment of $94 million. De Beers. based in Luxembourg, reports its results in U.S. dollars.
Sales last year rose 11.3 percent, to $6.13 billion from $5.51 billion, thanks to strong demand for rough diamonds and retail growth in markets including the U.S., the Middle East, India, China and the U.K., the company said in a statement.
Sales growth in the period ending December 31 was driven by a 15.7 percent increase in turnover at the Diamond Trading Company (DTC), the sales and marketing arm of De Beers, which generates the lion’s share of parent company sales. Sales at the DTC rose to $5.15 billion from $4.45 billion during 2001.
Gary Ralfe, managing director of De Beers, said in a statement that 2002 was a roller-coaster year and that 2003 would no doubt be challenging.
Last year started with a "promising" first half, although the second half saw an erosion in consumer confidence, especially in the U.S., he said. However, U.S. retail customers staged a late rally, generating stronger numbers during the holiday season.
"In the U.S., jewelry sales outperformed general retail sales and diamond jewelry outperformed the jewelry category," he said, adding that sales in continental Europe were "disappointingly flat" and that Japan continued to decline.
This year, he said, "DTC’s sales prospects will depend on the timing and scale of global economic growth, a recovery in consumer confidence and the level of stocks that the trade pipeline will be comfortable to hold."
While geopolitical uncertainty and economic malaise throughout the second half of 2002 limited annualized sales growth, several firms reporting revenue results last week managed at least modest 2002 increases anyway.
An exception was Swatch Group, which saw sales drop 2.9 percent, to $3.02 billion, as unfavorable currency translations shaved some $123.2 million from its top line. At constant exchange rate, sales rose 1.1 percent. Dollar figures are converted from the Swiss franc at current exchange rates.Swatch is slated to report 2002 profits on March 27, and said only that "favorable sales development in the second half…will have a positive impact on the expected operating and net result for the full year."
Results were broadly in line with analysts’ expectations. Merrill Lynch in Paris expects operating margins of 14.9 percent and earnings per share of $6.24.
Watch sales fell 1.8 percent to $2.21 billion. Swatch, which aims to expand in the luxury segment, noted that brands in top price tiers performed well, particularly Omega. Its stable of brands also includes Swatch, Breguet, Blancpain, Hamilton, Longines and Rado. The firm also noted that results in Germany were disappointing last year "because of high consumer uncertainty and economic recession."
French retailer Groupe Galeries Lafayette said its 2002 operating profits would exceed 15 percent as it disclosed a sales rise of 4.7 percent to $5.95 billion.
By division, Galeries Lafayette’s department store business rang up consolidated sales of $2.75 billion, up 0.2 percent, while Monoprix grocery and variety stores, jointly owned with the Casino hypermarket chain, saw sales advance 1.7 percent to $1.89 billion. Dollar figures are converted from the euro at current exchange rates.
The company noted that sales at department and variety stores last month advanced 5.8 percent, driven by a "dynamic" sales campaign, an improvement from the fourth quarter when sales inched up only 1.2 percent.
The 2002 figures only marginally reflect Galeries Lafayette’s takeover of 18 locations from Marks & Spencer, which exited continental Europe in 2001. The first revamped location, a home and leisure unit, is slated to open in Paris early next year across from the flagship on Boulevard Haussmann.
French companies post sales and earnings separately. Galeries Lafayette is slated to report profits on March 20. In 2001, as reported, net profits grew 8.9 percent to $86.7 million.
In Milan, eyewear group De Rigo’s preliminary 2002 revenue rose 1.4 percent to $553.5 million from $545.6 millionin 2001.
Retail sales grew 0.4 percent to $388.5 million while revenue from wholesale operations grew 6 percent to $152.5 million. Weak market conditions and a reorganization of manufacturing operations hurt sales at U.K. chain Dollond & Aitchison, which saw a 4.6 percent drop to $255.1 million. Spanish chain General Optica fared better with sales growth of 11.6 percent to $133.2 million (123.4 million euro) on improved sunglasses sales and new stores. Eyewear Inter–national Distribution, De Rigo’s joint venture with Prada, saw its revenue drop 2.8 percent to $33.7 million. De Rigo said EID’s unit sales rose 37.3 percent but the average prices of the frames dropped as it shifted distribution to lower-priced sales points.
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