The recent reorganization of its US operations and the addition of new licenses helped the Marcolin to achieve much better results in 2002. The management feels it can improve further by accelerating its development in the USA, in the sports eyewear sector and around the its strongest fashion brand, Dolce & Gabbana. That Italian fashion house still holds a 5 percent stake in Marcolin's equity and its licensed eyewear collection generated last year sales of e63 million, accounting for some 38 percent of group turnover.

The Italian company closed 2002 with revenues up 8 percent to e166.8 million, with an increase of 11 percent in local currencies. The Italian market put up the best performance with a 27 percent sales hike, followed by increases of 6.5 percent for the rest of Europe and 7 percent for the rest of the world, excluding the USA where the currency factor flattened growth. Still, the USA represented 36 percent of Marcolin's total sales, making it the 5th largest player in the market.

The group's profitability improved sharply. The operating margin rose from 9 to 12 percent of revenues before amortizations (Ebitda) and it more than doubled after amortizations (Ebit) to e10.2 million or 6.1 percent of sales. Pre-tax earnings grew fivefold to e5.2 million, or 3 percent of revenues. The decision to pay in 2002 various taxes that had accumulated from previous years was partly responsible for limiting the group's net profit, which still improved from e687,000 to e1.9 million, or 1.1 percent of turnover. The Ebitda expected to grow at a similar rate this year, but the reorganization of the business should hold the Ebit margin from growing until later on.

Marcolin's business plan for the next 3 years calls for compound annual growth of 14 percent, compared with 6 percent for the previous 3-year period, taking annual sales to a level of about e250 million by 2005.

Thanks in part to the acquisition of new licenses, the USA should grow to 40 percent of the total turnover three years from now, whereas Italy's share may fall from 17 to 15 percent and the rest of Europe from 39 to 33-31 percent. The Far East, with Japan in the lead, should grow from 8 to around 12-14 percent of total revenues.

As far as the individual brands are concerned, Dolce & Gabbana should increase from 28 to 40 percent of the group's global turnover while its sports brands ? Cébé in particular ? should jump from 20 to 25 percent. The group's US-specific brands should remain stable at 20 percent sales, while the minor brands should drop from 22 to 15 percent.

The group's brand strategy takes its cues from the recent Armani-Luxottica crisis, with the major brands insisting on greater visibility and more selective distribution. Marcolin has opted to focus heavily on design, with major investments in this area, and to specialize its sales force, concentrating on the most promising brands. That goes especially for Marcolin's lines of Dolce & Gabbana and D&G eyewear, whose compound annual growth rate is expected to rise to 18 percent from the 15 percent level of the past 3 years.

Marcolin's licensing agreement with Dolce & Gabbana still runs through 2005. Its Roberto Cavalli license, which now generates annual sales of e15 million, runs out next December, and negotiations are starting for its renewal. Cavalli is the main component of the of the Marcolin's luxury and fashion division, which includes 6 other brands, and its annual growth is expected to jump from 3 to 10 percent. Marcolin recently extended for 3 years its licensing deal with Fashion Box for Replay frames, guaranteeing higher revenues of e29 million for the 2003-06 period.

For the top brands, which must hold a distinctive image in the eyes of the consumer, the gross margins are not far off 50 percent, while royalties are around 8-11 percent.

Marcolin has invested e1.5 million on its US distribution network for Dolce & Gabbana, with the number of dedicated agents up from 6 to 14 and the line present in 800 store corners around the country. In the USA, Marcolin will continue to cater also to the medium segment of the market, although the number of agents selling its various lines has been cut drastically. With this reduced sales force, Marcolin will be targeting the 52,000-odd American opticians that are being snubbed by the major players, and major chains like Wal-Mart, Costco and Target. It will supply them also with private label items.

Some of the brands that Marcolin sells only in the USA are produced in China, while the European brands are produced entirely in the group's Italian factories, using Italian contract manufacturers in some cases to supply the components. On the other hand, Marcolin is reviewing its American brand portfolio, and this may lead to the elimination of those lines that cannot generate annual sales of more than $10 million.

Its US-specific brands are NBA Eyewear, Mossimo, Cover Girl, Unionbay, Bob Mackie and Essence. Their combined sales have dropped since 1999 by 3 percent a year, but the new business plan should get them to grow by some 6 percent per year. Cover Girl and Mossimo are already above the $10 million threshold. While Essence is currently at $ 6.3 million, it seems to have great potential with the ethnic minorities. By the end of the year Marcolin will have a new US brand.

Marcolin's main sports brand, Cébé, has suffered average sales declines of 2 percent per year since 1999, but with the recent addition of the license for The North Face eyewear this is another major area of future development, led by Andrea Rogg and Philippe Degrenne. Here the business plan calls for annual compound growth of 21 percent, thanks in part to the addition of another non-seasonal sports brand.

The same North Face agents who sell the brand's apparel in the sporting goods stores will also take on the eyewear line. As for Cébé, its 2002 revenues remained flat at e23 million, limited for the most part to ski goggles and sunwear sold mainly in French sporting goods stores, but the brand has started to have a presence in other types of stores as well. The new strategy for Cébé calls for line extension into other sports activities besides snow sports and a development in other markets such as Italy, Germany and Austria. In the USA, Marcolin will push its sports eyewear in the outdoor sector.

Marcolin still has to prove that it can deliver on these multiple projects, but its recent investments on design, logistics and US distribution have indicated that the company is moving ahead with positive results. Interestingly, Marcolin's stock market quotation has been performing better than Luxottica's lately.

In July of 1999 Marcolin was floated on the Milan Bourse at e2.48 a share. After a few months the price started to drop and it never regained the level of the issue price. Last Monday it was at e1.14, but the company claims that it's undervalued and that e1.7-1.8 would reflect more accurately its actual performance. In the past 12 months the share price continued to slip, more or less in line with the general stock index, while Luxottica's share price declined by 59.4 percent, probably because of its loss of the Armani license.