By  on September 28, 2007

BERLIN — The Escada Group has revised downward its sales and earnings forecast for fiscal 2007, ending Oct. 31, citing a "difficult start in the fourth quarter" as well as onetime expenses related to compensation and shop restructuring measures and increased tax expenses brought about by German tax reforms.

During a conference call Thursday about the group's nine-month results, Escada chief financial officer Markus Schürholz described the start of the fall-winter 2007 season as "weak. Given that nearly two-thirds of the [fourth] quarter are now over, it was clear we had to revise our estimates."

The Munich fashion group is now expecting consolidated sales and group earnings before interest, taxes and depreciation for the year ending Oct. 31 to be slightly below last year's levels. In June, Escada projected moderate single-digit gains for the current fiscal year.

As announced in June, Escada has adopted a program of structural optimizations amounting to 35 million euros, or $40.1 million at current exchange rates, this fiscal year. At the same time, and also as previously announced in the second quarter, German tax reforms have saddled the group with "strikingly high tax expenses" of 14 million euros, or $18.6 million, for the fiscal year.

In the third quarter, gross profit for the group rose 4.3 percent to 106.9 million euros, or $144.8 million, while group sales were minimally down 0.6 percent at 157 million euros, or $212.7 million. All dollar figures are converted from the euro at average exchange rates for the quarterly period.

On a pretax basis, however, the group fell to a loss of 13.4 million euros, or $18.2 million for the quarter, reflecting in part 6.7 million euros, or $9.1 million, in onetime expenses booked during the period.

Escada brand sales slid 6.7 percent in the quarter to 109.6 million euros, or $148.5 million, largely impacted by the company's pushed-back delivery dates, while EBITDA for the brand rose 11.2 percent in the quarter.

The Primera Group, which includes the brands Apriori, Biba, Cavita and Laurèl, boosted third-quarter sales 9.3 percent to 52.8 million euros, or $71.5 million, and improved EBITDA by 21.1 percent to 4.6 million euros, or $6.2 million.In opening the telephone conference, Escada's chief executive officer Jean-Marc Loubier, who took the position in June, said that while Escada remains a strong international brand and a leader in ready-to-wear, "the short-term drawbacks were stronger than expected." He listed these as "a nonbalanced collection from the previous design team, the voluntary postponement of delivery dates, the handling of the brand's retail renovations and an unbalanced management structure."

The group has reacted by working to clearly differentiate the Escada main line and Escada Sport collections, assembling a new merchandising team to make sure there are no missing categories, completely reversing the delayed delivery dates and restructuring the retail network by "maintaining, resizing, redesigning, relocating or closing sites." The San Francisco store, for example, has been closed, and units in Seattle and on Peking Road in Hong Kong will also be shuttered. In Berlin, on the other hand, the Friedrichstrasse store was redesigned and reopened this month in a smaller format. In China, Escada said it will open a subsidiary to "ensure a strict management of the brand and expand its retail" operations there.

Changes to optimize Primera Group include selling Primera's unprofitable production site in Tunisia, restructuring Cavita by cutting its collection volume by 60 percent and refocusing it toward a specifically "mature" customer and giving Apriori and Laurèl responsibility for their own retail operations.

The group also made several key appointments. Perry Oosting joined the company on Sept. 1 in the newly created role of senior vice president, global commercial operations. Most recently vice president for Liz Claiborne in Europe and the Middle East, he will be in charge of all sales activities for Escada Collection, Escada Sport and Escada Accessories.

Effective Nov. 1, Patrizia Pressimone will become retail design director. Currently retail design director and real estate engineering director at Versace, she will be responsible for the ongoing modernization of Escada's retail network.

Mario Butazzi, whose 35 years of experience in leather goods and shoes includes stints with Salvatore Ferragamo, Christian Dior and Valentino, will become division director of leather goods and accessories as of Monday. Elena Ghisellini joined Escada this month as head designer for handbags, a new position. She was most recently design director for women's leather goods for Salvatore Ferragamo.Julia Hofmann, currently design director at Giorgio Armani, will take over as chief designer for Escada Sport on Monday.

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