Italian fashion giant Marzotto Group on Wednesday reported a sharp fall in 2002 consolidated net profit to $80 million from $126m in the year-ago period.

The company, whose fashion units include Hugo Boss and Valentino, said consolidated net sales rose to $1.89 billion from $1.86bn, of which 81 per cent was generated abroad.

"The sales increase was due to the consolidation of the Valentino Group, which more than offset the decline in the wool textile sector," Marzotto said in a news release.

"Marzotto's clothing sector and Hugo Boss operations were stable at last year's level, despite the ongoing unfavourable market trend."

It added sales in the first two months of 2003 edged up 1.8 per cent to $412m thanks to the consolidation of Valentino but said military action in the Gulf had led to a "new sharp slowdown".

"Due to the highly unsettled conditions, any forecast for the year 2003 must be cautious," it said.

"However the group deems it achievable to post a slight increase in sales and an improvement in the operating margin, with a positive cash inflow."