FX and increased selling costs are taking their toll on net margins
Store & Gallery costs are being expensed rather than capitalized wherever possible. This should be seen as an investment in the company�s future.
Tax rate for �04 likely to be in the range 23-27%
Corporate tax rate in Italy to drop from 34% to 33% + 4.5% output.
Aim for branded stores is first year break even, then turn profitable in following years
Aiming for 40 more stores and 100 new galleries in �04
Selling expense likely to remain constant and should drop as a margin as sales pick up
5.4m Euro loss on sale of corporate jet
Currently reviewing manufacturing ops benefits to start showing in 2005
2004 Capex in the range 40-45m Euro on manufacturing, new stores and galleries
Savings in 2004 likely to be 20-25m Euro will be swallowed in FX and selling expense
Sales for first 4 months are up substantially in the US according to Fred Starr. He was reticent to give too much information but did say that sales/sq ft were up by approximately 30%
They are currently working on another deal similar to the highly successful David Jones gallery roll out in Australia.
Bottom line was a shocker and disappointing. HOWEVER this company is being run in exactly the manner that I would like it run. Investing in the future of the company through brand building and then expensing these costs rather than capitalizing it makes a lot of sense to me. It reduces the tax burden immediately and hence is a highly efficient way of reinvesting the company�s free cash.
Looking ahead if sales grow from the current base by 5% I get for FY2004
$US Earnings @1.2 Euro = 59.4m EPS per ADR = $1.09
Share price target 14x�s FY04= $15
Certainly not the earnings I expected when I purchased the company a couple of years ago. However despite the poor performance in the company�s bottom line it is definitely a better proposition now than when I bought it back then at these levels. The strategy that the company is employing is sound and will produce a good return.