LONDON — Four European luxury players checked in with earnings results Thursday, all in some way bearing the scars of a difficult 2003 as well as high hopes for the holiday season and year ahead.
On a day when Bulgari, Tod’s and IT Holding also posted results, profits at Compagnie Financiere Richemont SA dropped by nearly half in the first six months of the fiscal year, but Johann Rupert, like others in the upscale market, has begun to see a pinpoint of light at the end of luxury’s black tunnel.
“All other things being equal, it appears that the worst problems that the luxury goods world has faced in recent months and years may be behind us,” said Richemont’s executive chairman in a statement Thursday.
“If economic recovery continues, and the world does not face any further crises, we may see the upturn in consumer confidence gaining further momentum.”
The group — which counts Cartier, Van Cleef & Arpels, and Dunhill among its portfolio of brands — reported that in the six months ended Sept. 30, net income declined 49.2 percent to $78.4 million from $154.4 million as revenues fell faster than costs. Dollar figures are converted from the euro at current exchange as Richemont reported net income of 67 million euros versus a year-ago mark of 132 million euros.
Operating profit dropped 56.2 percent in the period to $94.8 million, or 81 million euros, from $216.5 million, or 185 million euros, although the company said it managed to slash operating expenses by 12 percent compared with the corresponding period last year.
Sales dipped 14.5 percent to $1.79 billion, or 1.53 billion euros, from $2.1 billion, or 1.78 billion euros, in the period, which Rupert attributed to the strengthening of the euro against the dollar and the yen, and the impact on consumer confidence of the SARS crisis and the Iraqi war. At constant exchange rates, sales would have dropped 6 percent during the six-month period.
Costs in the period included a onetime charge of $12.9 million, or 11 million euros, from the restructuring of certain watch manufacturing operations in Switzerland.
“When, as now, trading conditions are difficult, these investments result in a disproportionately adverse effect on operating profits,” said Rupert. “However, these initiatives do provide the group with a competitive advantage, which I am confident will contribute to improved results in the years to come when we see a return to more normal trading conditions.”
Andrew Gowen, equities analyst at Lehman Brothers in London, said, “The first half was appalling, but the results were significantly better than feared, and I think you have to take your hat off to management for being more in control of the business.
“They are doing a great job of cutting costs and managing cash flow. They have made a huge effort to cut costs — which they had not done in the past,” he added.
Although Rupert declined to offer any full-year projections for the Swiss luxury group, he said Richemont’s October sales continued to show growth of 1 percent, in constant currency terms, a trend that began in June.
During that month, he added, the regions of Asia-Pacific, the Americas and the Middle East generated double-digit growth, while Japan and Europe remained “difficult.”
Separately, the company named Richard Lepeu, currently chief operating officer of Richemont, and formerly chief executive of Cartier, to the post of chief financial officer. He replaces Jan du Plessis, who, as reported, has been named non-executive chairman of British American Tobacco.
By category, textile, leather and other businesses were the worst hit during the period with sales dropping 19.1 percent to $203.6 million, or 174 million euros, from $251.6 million, or 215 million euros.
Jewelry sales dropped 16.1 percent to $967.6 million, or 827 million euros, from $1.2 billion, or 986 million euros. Writing instruments were off 11.1 percent to $186 million, or 159 million euros, while watch revenues receded 9.4 percent to $428.2 million, or 366 million euros.
Bulgari saw little sales growth in the third quarter but ongoing cost cutting boosted its profits for the period.
Net profit for the three months ended Sept. 30 rose 35.7 percent to $22.1 million, or 19 million euros, from $16.3 million, or 14 million euros, the year before. Sales for the quarter rose 0.9 percent to $211.7 million, or 181.9 million euros, although the company said they would have risen 8 percent at constant exchange rates.
Bulgari chief executive Francesco Trapani was bullish on market prospects going forward, although he added the fourth quarter will face tough comparisons with an especially strong prior-year period.
“For 2004, we think it’s realistic to expect that we’ll be operating in a better environment than that of 2003, which was characterized by events such as the war and SARS,” he said.
Trapani said Bulgari’s full-year 2003 sales growth should be in the “mid-single digits” in constant currency terms, while profit growth should come in “a little bit higher.” Again stripping out the effects of currency fluctuations, Trapani estimated Bulgari’s top line should increase by about 10 percent next year, while profits should swell by about 11 percent.
Watches remained weak in the quarter, with sales off 23 percent in local currencies, while jewelry revenues were up 21 percent on the same basis. Fragrance revenues were up 48 percent, aided by the launch of Omnia, and accessories barreled ahead 39 percent.
Bulgari said the watch division suffered from tough year-ago comparisons when the launch of the B.zero1 watch collection caused sales to jump 14.6 percent. The company also said sales in Bulgari stores fared much better than those through the wholesale channel and noted sales of watches in its stores have been stable each quarter of this year so far.
Trapani said an aggressive plan for watch launches in 2004 and 2005 should help Bulgari in an overall stagnant and competitive market for timepieces.
Bulgari did not break down sales by category, but watches are its second-biggest revenue generator after jewelry.
For the year to date, net income grew 20.5 percent to $51.2 million, or 44 million euros, while sales dropped 1 percent to $596 million, or 512 million euros.
The company specified that in the third quarter, as it looked to boost margins, it cut operating costs by about 4 percent. At the same time, communications expenses grew by about 1 percent, both for the third quarter and the nine-month period. Advertising and promotional expenses were 9.7 percent of nine-month revenues this year compared with 9.4 percent in the same period of 2002.
Tod’s third-quarter net profits suffered a double-digit drop on higher costs and investments. The sales trend, hit hard by currency fluctuation, also weakened from the first six months of the year.
Net profit for the nine months ended Sept. 30 dropped 23.9 percent to $22.7 million, or 22.9 million euros, from $35.1 million, or 30.1 million euros, the year before. Earnings before interest and taxes dropped 27.6 percent to $43.71 million, or 37.6 million euros.
Sales for the period were practically flat, rising 0.4 percent to $333.4 million, or 286.4 million euros, from $332.1 million, or 285.3 million euros. Tod’s said sales would have grown by 4.4 percent at constant currency rates.
Tod’s did not break down third-quarter numbers, but subtracting figures from the first half of the year shows that net income for the three months fell 30.6 percent to $14.1 million, or 12.1 million euros, while sales dropped 4.4 percent to $131.5 million, or 113 million euros.
Tod’s said its margins suffered, as it invested in its retail network, production facilities and product development. The company also said its labor costs increased, as it beefed up staff at its stores. Total investments for the nine-month period came to $40.9 million, or 35.1 million euros.
The company’s emerging clothing label, Fay, was the only brand to see revenue growth in the nine-month period. Sales rose 29.2 percent to $60.1 million, or 51.6 million euros.
Unfavorable exchange rates hit the Tod’s brand hard. Sales at the brand dropped 3.6 percent to $188.2 million, or 161.7 million euros, but would have risen 2.6 percent at constant exchange rates.
Revenue at Hogan fell 8.6 percent to $80.9 million, or 69.5 million euros. Tod’s attributed this decline to “tough foreign markets” and said sales would have fallen 7.2 percent had currency rates stayed the same.
Sales growth in Italy and Asia helped compensate for weakness in other markets.
Sales in Europe, excluding Italy, fell 9.3 percent to $96.3 million, or 82.7 million euros, while those in North America dropped 9.5 percent to $46 million, or 39.5 million euros. Italy, Tod’s biggest market by far, saw revenue growth of 6.1 percent to $164.8 million, or 141.6 million euros. Sales in Asia and the rest of the world advanced 32.4 percent to $26.3 million, or 22.6 million euros.
IT Holding said strong advertising investments caused its nine-month profits to drop despite higher sales.
In the nine months ended Sept. 30, earnings before interest, taxes and goodwill and trademark amortization fell 2.3 percent to $49.8 million, or 42.5 million euros, from $51 million or 43.5 million euros. Sales for the period rose 2.8 percent to $610.1 million, or 520.9 million euros, from $593.4 million, or 506.6 million euros.
IT Holding said revenues would have risen 8 percent excluding changes in exchange rates and corporate structure.
Gianfranco Ferré revenues grew 7.7 percent to $104.2 million, or 89 million euros. The brand’s licensees generated another $105.4 million, 90 million euros, in sales.
IT Holding said it has invested $37.5 million, or 32 million euros, in its business so far this year, mainly in the development of Ferré and the launching of new fragrances and eyewear lines.
“We confirm our full year objectives to reach consolidated sales growth in line with that of the nine-month results,” president and chief executive officer Tonino Perna said in a statement.