MILAN — Valentino Fashion Group SpA reported a net loss of 483.1 million euros, or $710.1 million, last year as a result of costs associated with the consolidation of the group and a writedown in the valuation of the company’s brands.
This story first appeared in the September 14, 2009 issue of WWD. Subscribe Today.
The loss compares with a net profit of 29.4 million euros, or $40.2 million, in 2007. Excluding impairment charges and an asset devaluation of 498.2 million euros, or $732.3 million, the loss would have been 67.1 million euros, or $98.6 million, according to the group’s annual report.
In 2008, group revenues grew 2.8 percent to 2.2 billion euros, or $3.2 billion, compared with 2.1 billion euros, or $2.8 billion, the previous year. Dollar figures are converted from euros at the average exchange rates for the periods to which they refer.
The report is to be considered pro forma, as it takes into account the consolidation of Red & Black and VFG under the private equity fund Permira last year.
In the report, the company attributed the rise in sales to a 3.3 percent growth at the group’s Hugo Boss brand to 1.68 billion euros, or $2.4 billion. Valentino brand sales dropped 0.5 percent to 260.3 million euros, or $382.6 million, caused by “changes in creative direction.” Following the exit in 2007 of couturier Valentino Garavani, Alessandra Facchinetti was named creative director of the fashion house. She was ousted in October 2008 after only two seasons and long-standing Valentino collaborators Maria Grazia Chiuri and Pier Paolo Piccioli took the design helm beginning with the haute couture collection last January.
Group earnings before interest, taxes, depreciation and amortization (EBITDA) edged down 3 percent to 320.4 million euros, or $470.9 million, because of costs related to the expansion of the group’s directly operated retail network and investments in production and logistics, said the report.
VFG posted an operating loss of 334.4 million euros, or $491.5 million, compared with earnings before interest and taxes (EBIT) of 186 million euros, or $254.8 million, in the previous year.
Net debt stood at 2.33 billion euros, or $3.43 billion, at the end of 2008. In reference to a recent report that speculated Citigroup is putting pressure on Permira and VFG to repay its $3.5 billion debt, Stefano Sassi, chief executive officer of the Italian luxury goods group, told WWD that “Valentino Fashion Group is holding up well in what is clearly a difficult trading environment. Contrary to recent erroneous media reports, there is no issue with debt repayment as the debt doesn’t mature for several years yet.
“As previously stated we are in regular discussions with our lending banks to find the right capital structure to match both our long-term investment horizon and the current difficult market conditions,” added Sassi. “We are making good progress but there is no further update on that front for the time being as discussions are ongoing.”
In detail, the Valentino brand posted an operating loss of 7.6 million euros, or $11.1 million, compared with an operating profit of 33 million euros, or $168.5 million, in 2007, attributed by the company to the “progressive deterioration of the luxury goods market” in the second half of the year and a “strong discontinuity” within the company, such as Facchinetti’s brief tenure. The designer’s vision “was not in line with the company’s,” according to the report.
The brand’s EBITDA, net of nonrecurring earnings and charges, fell 60 percent to 16.1 million euros, or $23.6 million, hurt by lackluster retail sales and investments of 13.1 million euros, or $19.2 million, in its chain of stores, with 11 stores opening in 2008. The previous year, investments totaled 8.4 million euros, or $11.5 million. Sales at Valentino’s 74 directly operated stores showed a 4.5 percent drop in 2008. Retail sales account for more than 40 percent of Valentino revenues.
Revenues were hurt by the “serious financial crisis that hit most traditional Valentino markets and by the features of some collections that were not favorably received by clients.”
While sales at the Valentino apparel brand dropped 3.6 percent to 130.5 million, or $191.8 million, accessories showed growth for the second year in a row, rising 30 percent to 71.5 million euros, or $105.1 million.
Geographically, a weak dollar affected sales in the U.S., which showed an 11.7 percent drop, balanced by an 18 percent rise in Asia.
Looking at 2009, management took into account the negative outlook for the luxury goods market and said it expected a drop in revenues, despite “positive effects” associated with bringing production of the Red line in-house. While VFG said it is challenging to provide reliable estimates of retail sales given the current uncertainty, it added that, after a first difficult semester, “it expects a recovery in the second part of the year thanks to the new collections that have already had a positive feedback from wholesale clients.”
As reported in March, Hugo Boss net income fell 27 percent to 112 million euros or $164.8 million on a 3 percent rise in sales to 1.69 billion euros, or $2.48 billion.