MILAN — Despite a progressive improvement in the second quarter and sales picking up at directly owned stores, Bulgari SpA was hit by poor sales in the U.S. and continued slow demand for watches and jewelry, reporting net losses of 40.5 million euros, or $53.8 million, in the first half ending June 30.
This compares with net profits of 54.2 million euros, or $82.9 million, in the first six months of last year. Revenues fell 21.7 percent to 396.4 million euros, or $526.6 million, compared with 506.4 million euros, or $774.7 million, in the same period last year. At constant exchange rates, sales would have dropped 28.9 percent.
Dollar figures are converted at average exchange rates for the periods to which they refer.
Chief executive officer Francesco Trapani said second-quarter results were an improvement over the first three months of the year and “particularly encouraging in terms of growing performance of the directly owned stores.”
But penalized by extensive destocking in the wholesale channel, Bulgari showed a net loss of 11.2 million euros, or $15.2 million, in the second quarter compared with a net profit of 31.4 million euros, or $48.9 million, in the second quarter of 2008. Sales in the second quarter dropped 20.5 percent to 218.3 million euros, or $296.8 million, or 27.7 percent at comparable exchange rates. Sales in directly owned stores recorded a “definitely stronger performance” than the wholesale channel, seeing a 3.3 percent increase.
In the first quarter, the company posted a net loss of 29.3 million euros, or $38.3 million, compared with net profits of 22.8 million euros, or $34.2 million, in the first three months of last year.
Trapani touted Bulgari’s “cost-control strategy, investment and working capital goals.” The executive said in a conference call he anticipated the market to be “difficult for the next two or three years” and Bulgari was working on improving efficiencies and closing between 11 to 13 “loss-making or nonstrategic” stores in the next 12 months.
The ceo also pointed to the revamping of the firm’s worldwide organization, which will be completed by the end of the year in order to “make the company more effective, streamlined, efficient and thus less costly.” Corporate costs are expected to be “considerably lower than in 2009.” In March, Bulgari said it was cutting jobs, reducing the number of products and closing unprofitable stores after the company’s earnings fell 45.1 percent in 2008.
Bulgari also is working on stimulating demand with new products inspired by the brand’s 125th anniversary, and is focused on improving customer service and reinforcing its brand image.
“What with the positive sales signals recorded in our stores in July as well, I am therefore convinced that Bulgari is tackling this difficult economic situation in the right way, and when it has ended, the company will be even more solid and competitive,” said Trapani.
All product categories suffered in the first half. Revenues of jewelry, which accounted for 44.5 percent of sales, showed a 23 percent decline. Accessories sales were hit hardest, however, posting a 40.9 percent drop. In the conference call, Trapani described the watch market as “the toughest” now, and this category showed a 36.8 percent fall, but the executive said performance in “June was better than May.” The perfume division also was affected as revenues declined 25 percent, but the company said the category “recorded a significant increase in orders from third-party distributors, to such an extent that the division’s turnover at current exchange rates in the month of June 2009 went up over June 2008.”
Trapani said he expected the performance of perfumes in July to be “similar” to that of July last year.
By region, sales in the U.S. were down 41 percent in the first half. Trapani said the U.S. was “the only market that is suffering an awful lot, a catastrophe, compared to all the others that are improving.” The executive said Bulgari is working on strengthening its position in Greater China, defining it as “the most important opportunity.” Asia represents Bulgari’s main market, accounting for 43 percent of revenues, and, in the first half, this market showed a 17 percent drop in sales.Europe posted a 24 percent decrease in revenues, while the Middle East/other markets area posted a 4 percent gain.
In the second quarter, the Middle East and other regions recorded a 27 percent increase in sales, compared with a 24 percent decline in the first quarter. The company attributed the turnaround to “Australia’s outstanding performance.”
As of June 30, net debt increased to 351.6 million euros, or $467.6 million, compared with 292.2 million euros, or $447 million, a year earlier. Bulgari said the debt was entirely covered by long-term loans and committed lines of credit with expiry dates greater than 24 months.
Bulgari’s shares closed up 4.68 percent to 4.02 euros, or $5.67 at current exchange, on the Milan Bourse.
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