The Napa-based Chalone Wine Group reported a 37% increase in operating income in the nine-month transition period to the end of December 2001. The company is changing its fiscal year-end from March 31 to December 31.

Gross profit at the company, which owns and operates a large number of wineries in the Napa, Sonoma, Monterey and Washington State wine regions, reached $17.7 million for the transition period, 10% higher than the same period in 2000. Diluted earnings per share were unchanged at $0.15.

While total case sales fell by 8%, the cost of wines sold was 15% lower. This was the primary reason behind the net income and gross margin improvement. The lower cost of sales was a result of the 2000 harvest being back to normal levels after the shorter crops of 1998 and 1999.

Chalone's president and CEO, Tom Selfridge said: "The US fine wine industry has been hurt by the downturn in the economy, by discounting caused by the large 2000 harvest from newly producing vineyards, and by the flood of imported wines due to the strong dollar and excess supply overseas. These factors will increase the pressure to offer discounts, and this could affect our margins, compared to last year."