Lotto 2005 Sales Flat; 2006 Trending Positive

Lotto Sport Italia S.p.A. 2005 revenues were flat at €257 million ($320.0 mm) in spite of the recession in the Italian market which has curbed growth of the brand. Europe is still the dominant region for the brand, with €172.2 million ($214.4 mm) or 67% of all of Lotto’s sales. Asia and Oceana are the second largest market with 15% of Lotto’s business, or €38.6 million ($48.1 mm) in annual revenues. The Americas account for 13% of the brand’s annual sales, or $41.6 million. The smallest piece of the pie is Africa and the Middle East, which produce 5% of the company’s sales.

In Europe, the brand reported strong results in most regions. Sales in Austria increased 3% while France increased 5%, along with significant expansion in Belgium and Holland which grew 44% and 26% respectively.

Footwear sales were flat at 44% of total sales, or €113.1 million ($140.8 mm); apparel sales were 51% of the total for the company, or €131.1 million ($162.9 mm), and accessories were 5% of sales or €12.9 million ($16.0 mm). Lifestyle sales have grown and now represent “at least 50%” of total sales. The company has also seen good results with licensed products like stationery, underwear and cosmetics, which have reached €6.5 million ($8.1 mm).

In 2006, the company is projecting sales to increase 5% to €270 million ($325 mm). In the second half of the year, the company will add to its head count in order to more aggressively pursue growth in the U.S., an initiative dubbed “The American project.” The company has launched a joint venture in the U.S. and plans a re-launch of Lotto as a lifestyle brand.

Lotto 2005 Sales Flat; 2006 Trending Positive

Lotto Sport Italia S.p.A. 2005 revenues were flat at €257 million ($320.0 mm) in spite of the recession in the Italian market which has curbed growth of the brand. The Company has managed to make up for the slower domestic performance with its exports. 2005’s international momentum resulted in an increase in orders and turnover so far in 2006 – a year in which the company is predicting good recovery in the expansion process.

“2005 was a very intense year for Company activities,” declared Andrea Tomat, President and CEO of the Company. “Inspired by the spirit to contrast the recession with the utmost strength, we have continued along the route to internationalization while at the same time giving light to several projects which are the fruits of our Research and Development department’s work. The most significant was undoubtedly the launch of Zhero Gravity, the first lace-less football shoe in the history of this sport, a veritable technological revolution and a landmark in the developmental processes of products for sports professionals.

“Of equal importance for repercussions in terms of market opportunities, was the start of the high-end leisure footwear and apparel collection named Lotto Leggenda, intended for a selected clientele in the non-sports sector. As regards the increased intensity of our brand presence abroad, we have signed new commercial agreements such as the joint-venture in China and new distribution agreements in Taiwan, Indonesia, Malaysia, Singapore, Vietnam and Australia – a presence which reflects the intense penetration and positioning activity in Asia. At the same time, the setting up of the joint-venture in the USA is part of a project aimed at relaunching our brand in the world of American sportswear.”

In 2005, the most important geographical area for Lotto sales was Europe once again, with Italy being the number one market accounting for 26% of total sales. In the central area, essential maintenance of the market position in Germany and Spain coincided with satisfactory growth in Austria (+3%) and France (+5%), and significant expansion in Belgium and Holland which achieved +44% and +26% respectively. Results were also very good in Greece (+29%) and Turkey (+62%). The countries of Eastern Europe have also been strengthened, with a number of markets exhibiting double digit growth (Romania, Slovakia and and Slovenia).

Europe accounts for 67% of the total sales turnover, Africa-Middle East for 5%, the Americas 13% and lastly Asia and Oceania 15%. As has been explained, over the course of the past two years the foundations have been laid for a progressively increasing contribution of both European countries-and more particularly those in the Mediterranean area-and non-European areas. On this topic, the results achieved in India are satisfying – Lotto has generated a turnover of more than €3 million in just twelve months. Similarly in Japan, excellent results have been achieved with a 26% increase in turnover on the previous period. As regards the Americas, good results have been achieved in Columbia and Chile.

The product category subdivision between footwear (44%), apparel (51%) and accessories (5%) has remained essentially unchanged. Football and five-a-side football are the leading categories, followed by tennis and running. The leisure segment has grown and now represents at least 50% of the total, but as already explained there are prospects for expansion in this segment. Good results (+8%) have been achieved for sales of Lotto brand non-core products (school and stationery, underwear and cosmetics) which have reached 6.5 million euro. The cosmetics line developed by the Italian company Weruska & Joel precisely in 2005, has been particularly successful at the international level.

“Looking at 2006, the signals are positive,” Tomat confirmed. “Orders are clearly growing. In the European markets the 2006 summer season has closed with an increase of 11%, while we recorded +17% for the winter season. Reasons behind this success include the upswing in the Italian market, the further boost given to exports, the World Cup with the Zhero Gravity project, and the strengthening of our offering in the sportswear area.”

In 2006, the Company aims to achieve the threshold value of €270 million by again focusing on innovation, creativity and its Italian image. In the second half of the year, further additions to the Company staff are foreseen in order to strengthen the American project. This particular project is the next challenge area in the Company’s plans, more particularly because of the values which the brand will be able to radiate, not only in performance products but above all in the leisure area.

Tomat continued, “Sportswear is the competitive arena in which we want to grow and carve out an important role for ourselves, by passing the brand value on to the customer just as we have already done with its performance. To this end we are planning synergistic activities in the communication plan. These will see the light as of the second half of the year, with a media campaign in which we aim to make our sports testimonials-and first of all the striker Luca Toni-icons not only of technical products and Italian technology, but above all icons of leisure wear and the Italian lifestyle.”

“Five years ago my objective was to take this brand over the 500 million euro turnover threshold. We have tackled unfavourable circumstances which have caused a slowdown in demand. But at the same time we have continued to work with zeal, and now – more than ever before – I believe that we can look optimistically at this goal as I believe we have all the prerequisites for achieving it by 2010. The current year will give us a first indication of our future capabilities,” concluded Tomat.

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