MILAN — Many luxury stocks have been having a tough time of late, but Bulgari seems to be especially hard hit.

Once a high-flying market star with sought-after multiples, Bulgari has hit a stall. Slumping demand for watches, compounded by Bulgari’s reliance on flashy, fashion-driven collections — which have shorter shelf life than those of its competitors — have also sliced into sales at the family jeweler, some analysts said.

"It looks like Bulgari is lagging the rest," said Melanie Flouquet, an analyst with JPMorgan. "They have more stock in the pipeline at third-party retailers."

Unsold watches could mean a disappointing 2002 for the company. Chief executive Francesco Trapani said it is reasonable to expect net profit growth of 10 to 11 percent, falling short of some analysts’ projections of almost 20 percent over 2001 net profit of $69 million. Trapani said revenue this year should advance 5 percent on 2001’s $775.6 million. (Dollar figures have been converted from the euro at current exchange rates.)

A poor showing in watches contributed to Bulgari’s worse-than-expected first-quarter results. The company’swatch sales plunged 29 percent, compared to a slide of 15.6 percent for lower-priced Gucci-brand watches.

Watch sales, which made up 34 percent of revenue in the first quarter, pushed overall volume down 5 percent to $167 million and net profit down 60 percent to $9.1 million.

"The watch market, compared with the past, is in a bit of a crisis," acknowledged Trapani. Back in the days of the free-spending Internet boom, "there were people who loved watches and came into the store and bought six or seven at a time. These people are not there anymore," he said.

Bulgari shares have lost more than half of their value over the past year and are reaching new lows on concerns about the watch business, along with euro-dollar parity worries and fears that Bulgari will slip out of Milan’s blue-chip stock index, the MIB30, come September. The stock market recalculates the 30 biggest companies on the Milan Bourse in terms of market capitalization twice a year.

Bulgari has suffered more than some other competitors because its watch collection is too-trend driven, some analysts said. "They have to replace style on a regular basis," as one put it."[Consumers] aren’t still buying watches as accessories that they can do without. Instead, they are buying a watch," said one analyst.

And although Bulgari has been making watches since the Seventies, some analysts noted that Bulgari finds it hard to compete with more established brands steeped in technological innovation like Cartier or Patek Philippe.

"Bulgari is one of my favorite stocks, but I would never buy a Bulgari watch," said one analyst. "It is seen more as a fashion product or jewelry than as a real watch."

Flouquet of JPMorgan said Bulgari suffered in the United States because its flashier fashion image attracted a younger clientele. Those were among the first consumers to curb spending in the downturn after Sept. 11.

"The golden boys and golden girls — they were hit pretty hard," she said.

Still, Trapani denied that Bulgari’s watch collections are overexposed to fashion’s whims, noting a wide variety of timepieces, ranging from the intricate white-gold-and-diamond bangle Trika watch to the sporty Diagono made of matte yellow gold and black rubber.

"What has always helped Bulgari’s watch results and will help us a lot in the future is a big glamour component," said Trapani, who boasts of Bulgari’s latest product placement: In "Minority Report," Tom Cruise sported a futuristic Bulgari timepiece that was custom-crafted for the film.

Andrew Gowen, an analyst with Lehman Brothers, said Bulgari is suffering more because it experienced such a boom in the past and grew more than competitors.

He explained that back in the go-go years of the Nineties, Cartier’s sales grew in the single digits while Bulgari’s ballooned in the double digits. So when the market turned, stores found themselves with that many more Bulgari watches.

Trapani said Bulgari struggled in the past as third-party retailers ordered fewer watches to give them time to deplete unsold stock in the back room. But he said orders should pick up in coming months and the flow of watches between Bulgari and its retailers should return to normal starting in August. Backed-up inventory was a problem until 15 months ago, but slowly it is depleting, he said.The situation is improving, but a real rebound isn’t seen until next year at the earliest, said analysts with one forecasting a second-quarter slide in Bulgari watch sales of 20 to 22 percent, although comparables in the second half of the year should improve, since sales in the latter part of 2001 (after Sept. 11) were especially weak.

"The question is whether these third-party retailers have clean inventories," said Flouquet, who predicted that stores will probably take a more conservative route to avoid restocking the back room. "In U.S. stores, it looks like it is improving. Will they reorder? Yes, but probably not en masse."

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