De Rigo's net income declined by 9.6 percent to €8,458,000 in the 1st half of this year, going down from 3.4 to 3.1 percent of sales, but the operating margin (Ebit) improved from 6.9 to 7.1 percent and the results should be better in the 2nd half thanks to several factors. In particular, advertising expenses will be lower and De Rigo will get a one-time gain of about €8.2 million from the sale of its controlling interest in EID, the joint venture with Prada, which took place last July 3. This should also contribute to a further reduction of about €15 million in the company's net debt, which was down to €44.6 million on June 30 from €63.2 million last Dec. 31.

Operating results improved at EID in the 1st half, moving from breakeven to a profit of €1.7 million and offsetting slight declines in the retail and wholesale segments of De Rigo's business. General Optica suffered a 17.4 percent drop in operating income to €11.9 million, or 8.5 percent of sales, mainly because the management decided to anticipate certain advertising expenses that were previously carried out in the 2nd half. As previously reported, the Spanish optical chain raised its sales by 4.6 percent to €66.1 million in the 6-month period, but this came on top of a strong gain in the same period a year ago, and a sales decline in the 1st quarter was offset by an 8 percent increase on a comparable basis in the 2nd one.

The bottom line improved instead for the group's chain in the UK, Dollond & Aitchison, as its sales grew by 5.5 percent on a comparable basis, in spite of a flat market, thanks to aggressive pricing, better supplies from its former laboratory and other initiatives. D&A managed to win over many new customers through an agreement with Tesco, the UK's largest supermarket chain, which allowed holders of its fidelity card to obtain points at D&A stores entitling them to discounts at Tesco. An additional boost came from the chain's introduction of Nikon lenses, which came to represent some 70 percent of all the customers' lens purchases at D&A, and the management is laying strong hopes in a more designer-oriented store concept being tested in Birmingham's new Bullring Centre.

The strong discounts offered by D&A in the 1st quarter led to a decline in the gross margin for the chain, but cost-cutting and greater operational efficiencies allowed it to record an 18.2 percent improvement in operating results in pounds sterling. The stronger euro dampened the gain, leading to an increase of only 9.1 percent to €1.2 million, or 1.0 percent of sales.

In the wholesale and manufacturing division, the operating margin rose from 12.8 to 13.4 percent thanks to improved efficiencies in the production process and to a more favorable sales mix, partly reduced by writeoffs of unpaid bills. Sales of premium-priced brands in high-margin geographical areas increased in absolute terms and as a percentage of total revenues. Instead, low-margin sales to EID declined.

Sales to the EID joint venture with Prada fell by 64 percent in the period as De Rigo was getting ready to wind out the business and prepare it for its transfer to Luxottica, contributing to an overall sales decline of 5.1 percent in wholesale revenues to €79.9 million. Sales fell mainly in Italy and France, but also in regions affected by the Iraq war and by the SARS epidemic like the Middle East and Hong Kong.

Sales of sunglasses declined, but the company is now predicting sales increases in this segment for 2004, in view of expectations of a more positive economic environment. De Rigo will now support more strongly its own Police and Sting brands. After signing up Michael Schumacher as its testimonial for Sting glasses, the company is likely to announce shortly other initiatives to raise the global visibility of the Police brand.