By Sara Gay Forden
Nov. 13 (Bloomberg) — Bulgari SpA, the world’s third- largest jeweler, scrapped its forecast for increased profit this year as the financial crisis prompted the world’s wealthy to halt purchases of Diagono watches and Elisia necklaces.
Third-quarter net income dropped 44 percent to 23 million euros ($29 million) from 41 million euros a year earlier, the Rome-based company said in a statement today after stock trading ended. That missed the 37.5 million-euro median estimate of eight analysts compiled by Bloomberg. Revenue was little changed at 256.2 million euros, also missing the 270.3 million- euro median estimate.
Chief Executive Officer Francesco Trapani said business is the worst since the Sept. 11, 2001, terrorist attacks and will likely continue to be bad during the holiday shopping season. Net income and operating profit will decline from last year and sales growth will be modest, the company said. Bulgari shares were suspended in after-hours trading in Milan.
The company confirmed it intends to maintain its dividend payout for this year at previous levels.
“This crisis is hitting people’s desire to buy things,” Chief Executive Officer Francesco Trapani said in an interview. “There’s not much we can do about it.”
In August, Bulgari had estimated both sales and profit would climb 8 percent to 10 percent this year, excluding currency fluctuations, the lower end of a previous range. Bulgari relies on the U.S., where the economy shrank in the third quarter, and Italy, which is near its fourth recession of the past decade, for about 30 percent of sales.
Higher Price Points
Chief Financial Officer Alberto Nathansohn said the company’s performance in October was the worst to date this year, particularly in the U.S. and Europe. Trapani noted that the slowdown is hurting sales through other retailers more than the company’s own stores. Bulgari has stopped shipping to wholesalers with poor payment records, he said.
Watch sales also were affected by a shortage of components for the most expensive styles and because Bulgari took entry- level price models off the market as it repositions the business at higher price points, Nathansohn said on a conference call.
“In addition to the general economic crisis, which is affecting everybody, Bulgari is losing market share for its watches,” said Gian Luca Pacini, an analyst at Intesa Sanpaolo SpA in Milan. “They need to find a new strategy.” Pacini recommends investors hold the stock.
Watches, Cosmetics
Sales are contracting in the 175 billion-euro ($219 billion) luxury industry as weaker economies and financial- market turmoil cut into spending by even the wealthiest consumers. Industry sales will retreat for the first time in a decade next year, consulting firm Bain & Co. said last month. Confidence among U.S. buyers of luxury goods is at the lowest in at least four years, researcher Unity Marketing said in October.
Bulgari fell 2 cents, or 0.4 percent, to 5.11 euros in Milan trading today, the lowest in almost a month.
Sales of watches fell 7.4 percent in the period, while jewelry sales rose 1 percent. Revenue from accessories slid 17 percent and sales of fragrances and cosmetics rose 11.4 percent.
Revenue from Japan, the source of about a fifth of the total, fell 2.2 percent, even after the jeweler opened flagship shops in Tokyo last year. Nathansohn said on the call the new stores in Tokyo’s Ginza and Omotesando districts performed well, selling 12 times and five times the amount at other stores in Japan, respectively.
Russian Customers
Sales elsewhere in Asia rose 3.1 percent. Revenue from the Americas fell 15 percent. Sales in Europe rose 4.5 percent but fell 5.1 percent in Italy. Nathansohn said Russian customers continued to be among Bulgari’s top five clients in terms of nationality.
“We remain cautious about Bulgari’s unfavorable geographic mix, continued underperformance in watches/accessories and lower quality of earnings,” Citigroup analyst Thomas Chauvet, who has a “sell” rating on the stock, said in a note issued after the report.
Trapani said he is reviewing all non-essential investments, including information-technology improvements, and has halted store openings beyond next year, when Bulgari plans to open 12 outlets. He said the company isn’t planning to hire new employees and will fill open positions from within.
“Our priority for next year will be efficiency and not growth,” Nathansohn said on the call.
Bulgari had 2007 net income of 150.9 million euros and operating profit of 164.5 million euros.
To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net.
Source: http://www.bloomberg.com/apps/
