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Dolce & Gabbana Profits Climb

Dolce & Gabbana Holding Srl's net profit rose 79 percent to 105.7 million euros, or $150 million.

MILAN — Net profit at Dolce & Gabbana Holding Srl rose 79 percent to 105.7 million euros, or $150 million, in the fiscal year ended March 31 on revenues that fell 5 percent to 1.2 billion euros, or $1.7 billion.

This story first appeared in the February 11, 2010 issue of WWD.  Subscribe Today.

The significant increase in net profit compares with income of 58.9 million euros, or $83 million, at the end of fiscal year 2007-08, which was dented by extraordinary charges, group managing director and board member Cristiana Ruella told WWD. These are most likely attributed to the costs associated with taking the production of the D&G line in-house starting with the spring 2007 collection. In comparison, net profits at the end of fiscal year 2006-07 totaled 149.7 million euros, or $191.6 million.

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

In its annual report, the company said revenues were affected by slowing retail sales in “the markets which were hit the hardest by the crisis, such as the U.S. and Japan, areas where the brands can boast a historical presence.”

Sluggish performances in those areas were counterbalanced by a growth in emerging markets, specifically in the Asia-Pacific region.

Breaking down sales by business area, “industrial management” accounted for 60 percent of total revenues and direct distribution and licenses for 31 and 9 percent of sales, respectively.

Wholesale revenues, representing all products with the Dolce & Gabbana and D&G names sold by the group and licensees, fell 3 percent to 1.59 billion euros, or $2.26 billion. The signature brand generated 55 percent of total wholesale revenues, while D&G accounted for the remainder. The women’s collections generated 52 percent of sales, with men’s generating the remainder.

“The year 2008 will be specifically remembered not only because of the recession, but also because of the structural changes, which affected the global economic and social systems,” said designers Domenico Dolce and Stefano Gabbana. “While times have changed, our desire to capture the spirit of the times and interpret it through everything that we create has not changed. We continue to look ahead with optimism, experiencing this time of general uncertainty as a stimulus for increasing and expanding our creativity.”

Considering the rest of the calendar year, Ruella said in 2009, the fashion industry and “the global economy in general metabolized the recession that began in 2008.” For this reason, “it would not have been prudent to expect a real turnaround in such little time.”

Ruella pointed to Dolce & Gabbana’s “financial solidity,” which allowed it “to face this difficult moment for the economy in general more serenely compared to other companies.”

Ruella said sales began to pick up in September, especially at retail, followed by “excellent results with the fall-winter 2010 sales campaign.”

The group continued to expand its store network for the Dolce & Gabbana and D&G brands in established and emerging markets, investing a total of 26 million euros, or $36.9 million, in retailing last year. The stores total 308 globally.

As of March 31, net debt stood at 8.2 million euros, or $11.6 million, compared with a net financial position of 19.8 million euros, or $27.9 million, the previous year. The company said operating activities generated a cash flow of 83 million euros, or $117.8 million, but technical investments and the annual payment for acquired brands absorbed about 107.3 million euros, or $152.3 million, which led to a negative cash flow of 28 million euros, or $39.7 million.

In the fiscal year, the company cited among its highlights the launch of Dolce & Gabbana’s makeup line and two new fragrances, The One for Men and L’Eau the One, licensed to Procter & Gamble Prestige Products. Wholesale revenues of licensed products have grown over the last 10 years at an average annual rate of 20 percent and, as of March 31, accounted for 47 percent of total sales, or 746.1 million euros, or $1.05 billion.

Personnel costs grew 9 percent, linked to a 3 percent increase in staff for a total workforce of 3,705, accounting for 14 percent on total revenues. Expenses for advertising and promotional events were in line with the previous year, accounting for 8 percent of sales.

The Italian parent company Dolce & Gabbana Holding Srl controls Gado Srl, which owns the Dolce & Gabbana and D&G brands, and Dolce & Gabbana Srl, to which the operating divisions, production, distribution and licenses report.