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Benetton Profits Rise in First Half

A diversified and higher-end product offering and the development in countries with growth potential helped Benetton post a 2.5 percent increase in net profits.

MILAN — A diversified and higher-end product offering and the development in countries with strong growth potential helped Benetton post a 2.5 percent increase in net profits in the first half to 72 million euros, or $110.1 million, on a 2.9 percent growth in sales, which reached 996 million euros, or $1.52 billion. Currency conversions were made at average exchange rates for the period. At constant exchange rate, sales would have grown 5.1 percent.

Benetton said in a statement it attributed its performance to the consolidation of operations, particularly in the U.S. market; cost cutting derived through a streamlining of operations and the supply chain, and significant depreciation and amortization caused by the implementation of significant IT investments.

Operating profit grew 8.5 percent to 116 million euros, or $177.4 million, and EBITDA rose 8.4 percent to 156 million euros, or $238.6 million.

The company said enriching individual product categories boosted business. For example, shirts registered a growth of about 40 percent over the past two years at the Benetton brand. Sales of accessories grew about 50 percent over the same period, with 10 new openings of dedicated stores under the Benetton and Sisley brands. In the first half, the group focused on its underwear business, launching its Baby Under line for fall/winter, which completes the Undercolors collections: “garments for baby boys and girls and unisex garments, which, drawing on adult nightwear themes, update traditional new-born babywear,” said the company in the statement. This product line will be distributed in specific corners in around 500 Undercolors stores. In addition, the group also created a new Sisley Underwear line for men and women, which will be launched for Christmas. Dedicated stores are also in the works.

Benetton said first half results were heavily influenced by strong exchange rate fluctuations, and listed Russia and the former Soviet Union countries, Turkey, India, Great China and Latin America as its main emerging markets. These grew 25 percent, in line with expectations and accounted for 11 percent of total sales. Despite the temporary block on shipments that occurred at the end of the first six months, more established markets also performed well, which “confirmed the effectiveness” of the group’s strategies and its “ability to take advantage of the various opportunities in local markets,” said Benetton.

In May, the company signed an agreement with Sears, which is owned by the multinational Grupo Carso (Slim family), for the development of United Colors of Benetton in Mexico. Benetton’s goal is to reach a total of 250 points of sale in three years. With a desire to strengthen its presence in other Latin American countries, Benetton opened offices in Miami, which manage all U.S. retail activities previously based in Washington, and which supervise the commercial and sourcing activities of the area.

In India, the first Benetton Man store opened in New Delhi, and a new United Colors of Benetton store opened in Kolkata.

The company is also focused on initiating activities for the direct management of services, logistics, transport and imports in Russia, to further strengthens its presence in the area.

In the first half, the group’s net operating capital expenditure totaled 102 million euros, or $156 million. Investments of around 82 million euros, or $125.4 million, were aimed at the group’s commercial network for the purchase and renovation of stores in selected geographic areas. Another 24 million euros, or $36.7 million, were invested in production and logistics, in particular in Tunisia and for the distribution hub in Castrette, Italy.

In light of first half results, the company confirmed its 2008 full year objectives, while taking into account the “uncertainty associated with the unfavorable economic situation and the risks introduced by the increase in raw material prices and the acceleration of inflation in Asian countries.”

Benetton said revenues are expected to grow around 6 percent and EBITDA and income at least 7 percent compared with 2007.

Capital expenditure in the year are slated to reach around 250 million euros, or $382.5 million, with projects to double the size of Italy’s Castrette logistics hub and to complete the production facility in Tunisia. Other investments include the opening of new stores in markets considered to be strategic for the group and implementing business support IT systems.