By  on July 5, 1994

LONDON -- Vendome, the luxury goods group whose businesses include Cartier, Chloe, Karl Lagerfeld and Alfred Dunhill, reported a 1.6 percent drop in after-tax profits to $259.2 million (345.7 million Swiss francs) at current exchange on a 5.1 percent rise in sales to $1.94 billion (2.59 billion Swiss francs) for the year ended March 31.

In the year-earlier period, the company had profits of 351.1 million Swiss francs on sales of 2.46 billion Swiss francs Vendome was formed last year from the merger of Cartier SA and Dunhill Holdings PLC. The drop in profits was a result of exceptional charges totaling $36.4 million (48.6 million Swiss francs) related to costs associated with the merger and a $45.9 million (61.2 million Swiss francs) charge to cover losses on currency trading in the former Dunhill group.

Vendome said profits were further distorted by the inclusion of other nonrecurring elements, including royalty income on the transfer of Dunhill's tobacco trademarks to its sister company, Rothmans International PLC, and interest earned on former cash holdings that were distributed to shareholders as part of the reconstruction.

Excluding these nonrecurring items, operating profits fell 0.6 percent to $324.9 million (433.2 million Swiss francs).

Vendome said the economic background for luxury goods in Europe was mixed last year, with a slight upturn in the U.K. offset by difficult conditions in continental Europe. There was little or no growth in Vendome's key markets of France, Germany and Italy, but a small increase in volume in the second half in the Far East. The U.S. volume also increased following an improvement in consumer confidence there, Vendome said. The group did not break out profits for its various product categories, but did reveal sales. It did not break out total women's wear sales, lumping these small operations into an overall category that also includes tableware and other accessories, such as eyeglasses. This division had a 15.7 percent rise in sales to $304.8 million (406.5 million Swiss francs).

The group's strongest performer was its jewelry operation, which had a 15 percent rise in sales to $286.7 million (382.3 million Swiss francs). Jewelry accounted for 15.1 percent of group sales, compared with 13.9 percent the previous year.Sales of gold and jewelry watches were flat last year, as were sales of steel ones. In value terms, gold watches totaled $399.1 million (532.2 million Swiss francs), while sales of steel watches were $315.1 million (420.2 million Swiss francs).

Writing instrument sales increased 11.2 percent to $265.1 million (353.5 million Swiss francs), and revenues for leather goods rose 7.1 percent to $186 million (248 million Swiss francs) following the introduction of new styles.

Perfume sales fell 10.8 percent to $80.1 million (106.8 million Swiss francs) as a result of pressure on margins, said Michael Bennett, the group's finance director.

"We were not prepared to become involved in the price-cutting taking place in the industry, and so profits declined as a result," he said.

In men's wear -- which includes Alfred Dunhill, Hackett and Sulka -- sales rose 0.8 percent to $109.9 million (146.5 million Swiss francs).

Vendome said there have been indicators in the current year that the worst of the recession is over, but it remains cautious about a durable recovery.

Bennett said the recent instability in the financial markets and other unstable situations worldwide make it difficult to predict the group's performance this year.

"But while we see no major improvement, we do see something a bit more positive than last year," he said.

Vendome further said it remains in a strong position -- with net liquid funds of $289.5 million (386 million Swiss francs) -- to make additional luxury goods acquisitions and investments in its current operations.

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