De Rigo: results for the first six months of 2005

De Rigo has announced its unaudited results for the first six months of 2005. Notwithstanding a strong improvement in the profitability of Dollond & Aitchison (D&A), the Group's British retail chain, and in the Group's net financial position, De Rigo's overall sales and earnings were both down from the same period last year, primarily due to weaker results from the wholesale & manufacturing business segment.

Net sales amounted to Eur 267.5 m1, a decrease of 3.0% from the Eur 275.9 m posted in the same period last year.
Income from operations before depreciation and amortization amounted to Eur 30.6 m, a decrease of 13.8% from the Eur 35.5 m posted in the first six months of 2004, and represented 11.4% of net sales, as compared with 12.9% in the same period last year.
Income from operations amounted to Eur 18.8 m, a decrease of 17.9% from the Eur 22.9 m recorded in the first six months of 2004, and represented 7.0% of net sales, as compared with 8.3% in the same period last year.
Net income amounted to Eur 10.0 m, a decrease of 18.7% from the Eur 12.3 m recorded in the first six months of 2004 and represented 3.7% of net sales, as compared with 4.5% in the same period last year.
At 30th June 2005, the net financial position3 of the De Rigo Group was positive and amounted to Eur 14.3 m, as compared with the Eur 6.2 m recorded at 31st December 2004. The improvement in net financial position reflected the Group's use of cash flow from operating activities to reduce the level of its bank borrowings.

Sales of the wholesale & manufacturing segment amounted to Eur 79.4 m, a decrease of 4.1% as compared with Eur 82.8 m posted in the first six months of 2004. Wholesale & manufacturing sales in the first six months of 2005 continued to be impacted by the expiry of the Group's license agreement with Fendi as of the end of 2004. Management expects that the negative impact on the segment's sales of the expiry of the Fendi license will eventually be more than offset by increased sales under the new license agreements De Rigo signed with Chopard, Ermenegildo Zegna, Escada and Jean Paul Gaultier during the last quarter of 2004 and first quarter of 2005. However, deliveries of Chopard and Escada-branded eyewear have only started recently, while those of Ermenegildo Zegna and Jean Paul Gaultier products have not yet started. As a result, sales of the new brands contributed less to the segment's sales during the first six months of 2005 than those of Fendi-branded eyewear during the first six months of last year.
The segment's results also reflected a significant reduction in gross margin, primarily due to a higher degree of inventory obsolescence (largely attributable to higher inventories of slower moving products) and an increase in selling expenses due to an enlargement of the segment's sales department. As a result, income from operations before depreciation and amortization amounted to Eur 11.0 m, a decrease of 39.9% from the Eur 18.3 m recorded in the first six months of 2004 and represented 13.9% of sales, as compared with 22.1% in the same period last year; income from operations amounted to Eur 9.4 m, a decrease of 42.3% from Eur 16.3 m in the first six months of 2004, and represented 11.8% of sales, as compared with 19.7% in the same period last year.

Sales of the retail segment amounted to Eur 195.0 m, a decrease of 1.9% from the Eur 198.7 m posted in the first six months of 2004. The decrease was primarily attributable to a decline in sales at D&A, the Group's British retail chain, that reflected a general downturn in the British optical market in both value and volume terms. The impact of the sales decline in Great Britain on the retail segment's overall results was partially offset by a 4.3% increase in sales at General Optica (GO), the Group's Spanish retail chain, that reflected both the opening of new stores and an increase in same store sales. Income from operations before depreciation and amortization and income from operations improved sharply at the retail segment, primarily due to significant improvements in D&A's results. Income from operations before depreciation and amortization for the retail segment as a whole increased by 14.0% to Eur 19.6 m from the Eur 17.2 m posted in the first six months of 2004 and represented 10.1% of sales, as compared with 8.7% in the same period last year. Income from operations for the segment as a whole increased by 42.4% to Eur 9.4 m from the Eur 6.6 m posted in the first six months of 2004 and represented 4.8% of sales, as compared with 3.3% in the same period last year.
These results reflect the contribution of the Group's two retail chains. D&A's sales amounted to Eur 120.5 m, a decrease of 5.3% as compared with sales of Eur 127.3 m posted in the first six months of 2004. Sales declined by 2.9% in Pound Sterling terms, reflecting the decrease of the Pound Sterling's value against the Euro during the period, while same store sales per working day decreased by 3.8%. Notwithstanding the weaker sales results, D&A posted a significant improvement in earnings, as gross margin increased as a result of an improved mix of products sold and operating expenses decreased as compared with the same period last year. Income from operations before depreciation and amortization increased by 56.9% to Eur 8.0 m from the Eur 5.1 m posted in the first six months of 2004, and represented 6.6% of sales, having represented 4.0% in the same period last year. Income from operations more than quadrupled to Eur 3.8 m from Eur 0.8 m, and represented 3.2% of sales, having represented 0.6% in the same period last year.
GO grew sales by 4.3% to Eur 74.5 m, from Eur 71.4 m in the first half of 2004. Same store sales per working day rose by 1.1%, with the overall increase also reflecting GO's opening of 7 owned and 7 franchised stores during the last 12 months. GO's earnings were negatively affected by higher operating costs due to the expansion of the company's sales network, which more than offset the positive impact of the growth in sales. Income from operations before depreciation and amortization amounted to Eur 11.6 m, a decrease of 4.1% from the Eur 12.1 m posted in the first six months of 2004, representing 15.6% of sales, as compared with 16.9% in the same period last year. Income from operations amounted to Eur 5.6 m, a decrease of 3.4% from the Eur 5.8 m posted in the first six months of 2004, representing 7.5% of sales, as compared with 8.1% in the same period last year.