Bulgari Cautious After 4th-Quarter Profit Drop

Despite posting a 7 percent drop in fourth-quarter earnings, Bulgari SpA still achieved its double-digit profit target for 2007.

MILAN — Despite posting a 7 percent drop in fourth-quarter earnings, Bulgari SpA still achieved its double-digit profit target for 2007.

However, Bulgari chief executive officer Francesco Trapani told WWD he was "very cautious" looking to the current year in light of the economic climate.

On Tuesday, the Italian jeweler reported net profits for the three months ended Dec. 31 of 51.8 million euros, or $75 million at average exchange, from 55.8 million euros, or $72 million, a year ago, below analysts' expectations. Trapani attributed the drop to slower-than-expected sales in North America and Europe and an increase in operating costs.

Full-year earnings climbed 12.4 percent to 150.9 million euros, or $206.8 million, on sales of 1.09 billion euros, or $1.5 billion, just ahead of the company's profit and revenue targets.

"We are very satisfied with the results even if growth in Western markets, particularly America and Europe, has been slow because this has been compensated for by the Middle East and Asia, which are growing in a very aggressive manner," Trapani said in an interview.

Excepting Japan, full-year revenues in Asia gained nearly 32 percent to 197.6 million euros, or $270.9 million. In Europe, which accounts for almost two-fifths of company turnover, sales grew 10.2 percent, and in the U.S. they climbed about 12.1 percent.

Operating costs were up 9 percent for the year, denting operating profits, which increased 4.7 percent to 164.5 million euros, or $225.5 million. Bulgari said these costs stemmed from continued investments in distribution and production, the launch of a skin care line and the opening of three flagships — the accessories-only unit in Rome, and the Omotesando complex and Ginza Tower in Tokyo — at the end of the year. The company said it invested 117 million euros, or $160.4 million, in 2007.

Despite citing "double-digit" growth in the first two months of this year, Trapani said he was "extremely wary" and forecast increases in sales, operating profit and net profit of "at best" between 8 and 12 percent on a comparable exchange rate basis.

"Even if the company is on the right path, it's sailing in a very rough sea," Trapani said, referring to the stock market, where Bulgari's share price has fallen 28 percent in the last three months.
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