Benetton faces margin erosion due to higher raw costs

13 May '11

4 min read

The Benetton Group Board of Directors examined and approved the consolidated results for the first quarter of 2011.

Revenue performance by geographic area, brand and collection

Group net revenues for the first quarter of the year were €453 million, slightly down (-0.9% at current exchange rates and -1.7% currency neutral) compared with the same period of 2010.

In the traditional western markets, there was a 5% fall in revenues at current exchange rates, 6% currency neutral, with greater reductions in southern European countries still substantially in recession, and a lower contraction in the important Italian domestic market. On the other hand, positive growth was recorded in Central Europe, due to a very favourable result in Germany. Outside Europe, Japanese sales fell by 13% currency neutral, due also to reduced activity levels in the country following the events of early March.

Developing and high growth markets confirmed the positive trend of recent quarters with an increase of 11% currency neutral and 12% at current exchange rates; particularly worthy of note were Russia (+37% currency neutral), Mexico (+26%) and Korea (+17%). In India (+8%), growth also held up very well, in view of the transfer of 140 previously directly operated stores to partners.

Overall, the Spring/Summer orders collection is drawing to a close in line with expectations, slightly down on Spring/Summer 2010, though with a smaller reduction than registered by previous collections.
Within the collections, the best result was obtained by the children's lines, due also to the growth achieved in international markets.

Outlook for the year

2011 is being characterized, as expected, by: on the one hand, collection of Spring/Summer orders that show a slight improvement compared with recent negative collection performances, and there are signs of growth from the Fall/Winter 2011 collection.

Again, for the rest of the year, the contribution of the more recently developed countries will be fundamental to maintain Group revenues, in the face of a continued uncertainty of demand in western economies. On the other hand, the strong growth in costs, especially of cotton and wool, is leading to a significant erosion of margins, the effects of which will be particularly evident from the second quarter.

The Group is following its 2011 action priorities in a work programme focussed both on development projects and further process efficiency and cost optimization.

This will enable benefits to be increasingly generated over time.

Actions carried out to date, others being planned and the financial strength of the Group allow the continuation of a sustained investment policy. A further reduction of the financial position is expected, compared to December 2010.

Profit and Loss performance

Gross operating profit for the quarter was down at €203 million (€216 million in the corresponding period of 2010), equivalent to 44.7% of revenues (47.1% in the comparative period). The reduction was mainly attributable to strong increases in raw material costs, in particular for cotton and wool, which resulted in a corresponding increase in the cost of goods sold.

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