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Sander Brand Numbers Revealed

There's uncertainty over the creative path of Jil Sander sans its namesake designer, but a clearer financial picture is emerging about Prada's unit.

MILAN — While there’s plenty of uncertainty about the creative future of Jil Sander without its namesake designer, a clearer picture is emerging about the Prada subsidiary’s finances.

Hamburg-based Jil Sander Group’s 2003 balance sheet, quietly published last year to comply with stock market regulations, provides fresh figures on the size of the company’s losses and debts. It also states that retail sales were “unsatisfactory” and that members of the supervisory board didn’t get performance-pegged compensation because financial targets weren’t reached.

Among the report’s most salient details are that Jil Sander’s total debt stood at 120.8 million euros, or $164.4 million at current exchange, at the end of 2003. It also states that Prada injected 30 million euros, or $40.8 million, in the German company and explains how Jil Sander made a 6.9 million euro, or $9.4 million, capital gain from the sale of its Milan store on Via Verri as part of a Prada property spin-off.

Jil Sander’s management signed off on the numbers in March 2004, eight months before the namesake designer left her label for the second time in four years, clashing once again with Prada management and prompting the fashion world to question just how viable the brand will be without her. Last month, Prada chief executive officer Patrizio Bertelli told an Italian newspaper he didn’t rule out selling Jil Sander and another struggling business, Helmut Lang, to help pay off Prada’s debts, but the company has since restated its original line that those businesses aren’t for sale.

Back in March, Jil Sander issued a press release showing that its 2003 net loss widened to 28.4 million euros, or $38.6 million, from 26.3 million euros, or $35.7 million, and sales dropped 9.4 percent to 125.7 million euros, or $171.1 million. It blamed the higher loss on a cocktail of the Iraq war, SARS, slumping tourism and a strong euro. But the full balance sheet, which Jil Sander is legally required to publish since a small fraction of its shares are still traded on the German stock exchange, actually discloses details about what comes between those top- and bottom-line figures.

The annual report notes a “strong recovery” in orders in the first part of 2004 and boasts an average 30 percent jump in fall-winter 2004-2005 orders — but it also underscores the fundamental importance of Sander’s homecoming. The document touts Sander’s return as providing the “prerequisites for long-term recovery of the Group.”

In fact, financial results for the first six months of 2004, the first figures to include sales of products designed by Jil Sander since her return, showed an improvement. Released in August, the numbers showed the company narrowed its losses before one-time items to 17 million euros, or $23.1 million, from 20 million euros, or $27.2 million, in the first half of 2003. Sales rose 4 percent to 65.4 million euros, or $89 million.

“Ms. Sander’s return was especially important in terms of overall company image and enhanced brand equity,” Bertelli said in his written introduction to Jil Sander’s 2003 report.

Retailers and customers are concerned about the creative future for the brand after Milan Vukmirovic’s rocky stint as creative director in Sander’s first absence. The 2003 results published in the annual report only account for sales of products before Sander’s widely celebrated return in May 2003.

The report stated that Sander’s homecoming “produced a distinct recovery in the order books and sales with Jil Sander’s collections for the spring-summer and autumn-winter, which will influence the business year 2004.”

Looking once more at fiscal 2003, Prada’s cash injection and the gain from the Milan store sale could only partially compensate for losses. Operating losses for the year widened 10.4 percent to 24.9 million euros, or $33.8 million. Cash flow improved, but was still negative at 17.9 million euros, or $24.4 million. The only subsidiary of the company in the black was the Italian unit, with a net profit of 3.5 million euros, or $4.8 million, boosted by the sale of the Milan store. The company also had to write down its investments in retail subsidiaries Jil Sander America Inc. and Jil Sander Paris Sarl by a total of 8.3 million euros, or $11.3 million.

When asked to further elaborate on Jil Sander’s 2003 balance sheet, a Prada spokesman attributed operating losses to macroeconomic effects such as unfavorable currency exchange rates. Prada executives could not be reached for further comment on the balance sheet’s details during the holiday period.

Prada’s 30 million euro cash injection allowed Jil Sander to pay out a 2003 dividend of 1.30 euros per share, or $1.77, to each of the company’s 120,000 preferred shares for a total of 156,000 euros, or $212,316. The report added that Prada was committed to providing further unspecified capital in 2004.

The document also noted progress on cost management and efficiencies. “We have managed to keep material and production costs under control without affecting the high quality of our collections, and we have managed to adjust goods management essentially to the sell-through realized in our own stores,” it said.

On the cost front, overall investments in fixed assets and expansion fell to 3.1 million euros, or $4.2 million, in 2003 from 19.4 million euros, or $26.4 million, a year earlier. Jil Sander’s public relations and marketing expenses also declined, falling 15.4 percent to 9 million euros, or $12.3 million. A Prada spokesman explained that Jil Sander sustained higher costs in 2002, as the brand opened two major flagships in New York and London that year.

The annual report also breaks down the brand’s 2003 sales mix. Wholesale accounts made up 58.8 percent of the business at 73.9 million euros, or $100.5 million. Retail sales made up 38.9 percent of the total at 48.8 million euros, or $66.5 million, and royalty revenue was 2.4 percent at 3 million euros, or $4.1 million.

Geographically speaking, Europe made up 55.1 percent of sales, while America and Asia accounted for 20.3 percent and 24.6 percent, respectively. At several places in the report, Jil Sander said it suffered greatly from continued weakness in the German market during 2003, but it also noted improving trends there, namely double-digit growth in orders for the fall-winter 2004-2005 collections.

Women’s collection sales still dominated the merchandising mix, making up 74.6 percent of the total, while men’s items constituted 22.1 percent. Ready-to-wear accounted for 80 percent of sales, while shoes made up 10.3 percent and bags and other leather goods contributed 5.8 percent.