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Jil Sander Brand Sees Financial Improvement in 2006

Raf Simons’ appointment as creative director of Jil Sander AG two years ago is proving to be pivotal in the turnaround of the German brand.

MILAN — Raf Simons’ appointment as creative director of Jil Sander AG two years ago is proving to be pivotal in the turnaround of the German brand, which is on track to break even this year.

In an interview to discuss year-end financial results, Armin Mueller, chief financial officer of Jil Sander, said feedback from the market and consumers was “very encouraging,” and that the brand was expanding its points of sale and its customer base.

“We added 18 new clients in one season, and sales of the fall-winter 2006-2007 collection grew 10 percent,” said Mueller.

The company said that in the year ended Jan. 31, earnings before interest, taxes, depreciation and amortization rose to 4.3 million euros, or $5.8 million, compared with a loss of 19.8 million euros, or $24.9 million, in the 2005-2006 period.

“EBITDA is a fundamental indicator, a management target we set out for 2006 and delivered. In 2007, we will focus on the net position and we are close to breakeven, but we are not setting silly targets,” said Mueller.

The company posted a net loss of 14.1 million euros, or $19 million, reducing its debt by 60 percent compared with the previous year.

Sales amounted to 129 million euros, or $174.6 million, a slight drop compared with 130 million euros, or $163.8 million, reported in the previous fiscal year. Dollar figures have been converted from the euro at average exchange rates.

Mueller said changes in distribution and unfavorable exchange rates affected revenues. Also in 2006, the company closed three factory outlets, relocated two flagships and closed the London boutique. The company will open a London store at another location in the fall.

Jil Sander is investing in creating a worldwide retail network, although Mueller was quick to point out the company has no intention of becoming a retailer and will continue to rely on its wholesalers as well. Retail sales account for 40 percent of revenues.

In March, the company opened a flagship in Frankfurt and three shops-in-shops in Japan. In a partnership with Bosco dei Ciliegi in July, Jil Sander will open two new stores in Russia, in Moscow and St. Petersburg, and its first accessories-only boutique in Moscow.

By yearend, the company expects to have 40 stores globally. Simons’ new store concept is slated to bow in the second half of the year, but Mueller said the designer had already been evolving the existing one. “Strategically, we want to downsize the stores, have a more intimate feel and less of a cathedral mood, choosing the right space in the most appropriate areas,” said a spokesman.

Geographically, Germany accounted for 20.7 percent of sales and the rest of Europe for 31.9 percent. The Far East and the U.S. accounted for 27.8 percent and 19.6 percent, respectively.

The company plans to close its Fifth Avenue store in New York and open two new stores in the city, one in uptown Manhattan, the other downtown, although no dates have been set. There is also a store in Chicago. “This market has the potential to grow in 2007 to account for 22 percent of sales,” said Mueller. In the U.S., in one season, sales of handbags grew more than 100 percent and shoes, 40 percent, according to Mueller.

Last June, the company tapped Balenciaga executive Michele Sodi to be president of Jil Sander America, a new position. “Sodi and his team are taking Jil Sander into the next phase of development in the U.S.,” said Mueller.

The company is also banking on the growth of the new accessories division. Sales of handbags and footwear grew 35 and 25 percent, respectively. In September 2006, the company tapped Giuseppe di Nuccio, formerly at Burberry, as manager of the accessories department.

In 2006, the category accounted for 19 percent of sales. In 2005, accessories accounted for about 15 percent of sales, or $23.4 million. Last year, women’s apparel accounted for 60.8 percent of sales. Men’s ready-to-wear accounted for 18 percent of sales, and licenses contributed to the remaining 2.2 percent. The company today has one license, with Coty, for fragrances. A new men’s fragrance, the first scent supervised by Simons, will bow in July and be available in September. A new women’s fragrance is slated for next year.

While the company is looking at expanding its product categories and is working on a possible eyewear license for next year, Mueller said there were no plans to underwrite a significant number of licenses.

The company, which London private equity group Change Capital acquired from Prada Group in February 2006, is still listed on the German Bourse. In September, Jil Sander’s minority shareholders approved a “squeeze out” plan that would de-list the company from the Frankfurt and Hamburg stock exchanges and allow Change Capital to own 100 percent of the company. However, Mueller said there was still one shareholder rejecting the deal and this was enough to stall the procedure.