By  on September 17, 2007

MILAN — Unexpected costs and logistical snags hit Jil Sander AG's first-half results, but executives stressed the company is close to breaking even.

Jil Sander's net loss for the six months ended July 31 widened to about 4.7 million euros, or $6.3 million at average exchange rates, from 3.9 million euros, or $4.8 million, a year earlier. Sales for the period fell 7.7 percent to 60.7 million euros, or $81.3 million, on a combination of factors, including unfavorable exchange rates and delayed store openings. Jil Sander's fiscal year ends Jan. 31.

Earlier this summer, Jil Sander warned it might miss its breakeven target this year as it incurred unexpected costs. But if the company does in fact post a loss, it won't be by much, chief executive Gian Giacomo Ferraris and chief financial officer Armin Mueller told WWD. Meanwhile, the company plans to make up some ground during the fall-winter season and post full-year sales growth of about 4 percent.

"This is a signal that the restructuring is really producing the effect that we wanted," Ferraris said, reiterating the importance of rigid financial discipline at both Jil Sander and its owner, Change Capital Partners. As reported, Jil Sander is curbing some expenditures, including on advertising, to boost its margins.

Jil Sander actually broke even on the earnings before interest, taxes, depreciation and amortization level in the first half of the year compared with a slight loss the year before of 300,000 euros, or $372,000.

Specifically, Jil Sander said sales of the fall-winter collection are currently up 10 percent on the year while orders for the spring-summer 2008 show a "significant increase." The company said its resort collection, due to be delivered next month, has doubled in sales volume.

As for the first half of the year, a combination of unexpected costs and logistical snags weighed down corporate accounts. Delays related to the spring relocation of the brand's Paris flagship and the opening of a Frankfurt store bit into top- line growth, Mueller said. Jil Sander's first-half retail sales shed 2.1 percent to 21.8 million euros, or $29.2 million.

The fact the brand has yet to find suitable locations for new London and New York stores will affect second-half retail sales, but the company is still forecasting growth for the full year. Mueller stressed that the arduous hunt for proper locations is essential for long-term development of the brand, which is enjoying critical acclaim under creative director Raf Simons.Mueller said the Avenue Montaigne store, about half the size of the original flagship next door, is registering about 15 to 20 percent more sales than its much larger predecessor. "This store proves 100 percent that the strategy of Jil Sander is absolutely right," Mueller said.

Jil Sander is required to continue publishing financial results as it is still technically a publicly traded company in Germany. The company is engaged in a costly legal battle with a minority investor that has declined to tender a small quantity of shares in the firm.

The company has several projects in the pipeline, including the November launch of Scent 79, a fragrance with a name referencing the year of the debut of the house's first perfume. Jil Sander is also preparing to reveal a new licensing deal for eyewear, presumably with Luxottica Group SpA or Safilo Group SpA, which will boost royalty income significantly for the house.

Ferraris said he thinks the Jil Sander brand has plenty of untapped potential in areas like accessories and sportswear. To wit, the company is planning to launch a line of sneakers. Founding designer Jil Sander famously collaborated with Puma on such an initiative years ago, but this time the company plans to make the shoes in-house.

These new product categories, along with Jil Sander's plans to move into e-commerce next year, are aimed at broadening the consumer base for the brand, Ferraris said, adding the brand might consider a secondary line at some point but it's not on the table at the moment.

"It's not a priority. Our priority is to develop and extend our [product] categories," Ferraris said.

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