Armani Profits Expected to Fall

MILAN — The international financial crisis and heavy investment hurt Giorgio Armani SpA’s bottom line in 2008, and it is expected to see a further decline this year.

The company reported a 41.4 percent drop in net profits last year, to 128.1 million euros, or $188.3 million, from 218.7 million euros, or $299.6 million, the previous year. Consolidated revenues in 2008 rose 1.5 percent to 1.62 billion euros, or $2.38 billion. At constant exchange, the sales increase stood at 2.4 percent.

“The economic crisis has slowed down, rather than interrupted, the Armani Group’s growth,” said Armani, president and chief executive officer, in his letter published in his company’s 2008 annual report. The designer added that “the first few months of 2009 have not been easy and the forecast for the rest of the year sees a further profit reduction in 2009 versus 2008.”

Earnings before interest, taxes, depreciation and amortization slipped 14.6 percent to 303.2 million euros, or $445.7 million. Operating profit (earnings before interest and taxes) dropped to 225 million euros, or $330.7 million, from 288.5 million euros, or $395.2 million, the year before. In the report, the company said this is shown net of amortization, depreciation and impairment losses, which totaled 78.2 million euros, or $114.9 million. Dollar figures are converted from euros at the average exchange rates for the periods to which they refer.

“The downturn in both indicators is partly due to the group’s conservative policy, which included the recognition of prudent provisions given the forecasts for 2009, when analysts foresee a further decrease in global demand and consumption,” said the company.

However, leveraging on his “usual enthusiasm and energy,” the designer, who in recent months has been recovering from hepatitis, showed confidence in the future expansion of his brand “by continuing to pursue our initiatives and concentrating ever more firmly on our strategy.” Armani added that cost cutting and production efficiencies will help the company achieve further growth.

Noteworthy is the company’s financial strength, with net cash at the end of 2008 totaling 371.8 million euros, or $546.5 million.

“I am often asked what is our secret? There is only one, really, I reply: the coherence of our strategy, which focuses our efforts on our long-term future,” said the designer. “That is the real challenge which we renew every day.”

Retail investments were among the company’s top priorities in 2008, with 50 store openings globally, of which 15 were directly managed. The group’s investments last year totaled 177.1 million euros, or $260.3 million, compared with 94.7 million euros, or $129.7 million, in 2007. The firm opened an Emporio Armani flagship in Moscow; Giorgio Armani and Emporio Armani boutiques in New Delhi, through a new joint venture with DLF Retail Brands Private Limited, and one Giorgio Armani and two Emporio Armani banners in Beijing in time for the Olympics in China, to name a few. The largest Giorgio Armani boutique in the world opened in via Montenapoleone in Milan in September 2008. The company also further developed its A|X Armani Exchange label, opening a 28 record stores, strengthening its market share in the U.S., Japan and the U.K., where it opened a flagship on London’s Regent Street. Last year, Armani acquired a further 25 percent interest in Presidio Holdings Ltd., the joint venture that controls A|X Armani Exchange.

Armani Casa stores opened in Moscow, Istanbul, Kuala Lumpur and Kuwait City.

At the end last year, the company counted 539 boutiques, of which 171 were directly owned.

Among other 2008 initiatives, the company launched an e-commerce site in Europe, its Emporio Armani Samsung mobile and the Emporio Armani Women’s Underwear line in the U.S., fronted by Victoria Beckham.

Including licensed products at wholesale value, sales grew 6.6 percent to 2.5 billion euros, or $3.6 billion, compared with the previous year, or 9.5 percent at constant exchange.

Apparel, Armani’s biggest revenue generator, saw sales rise 8.2 percent to 1.4 billion euros, or $2 billion, accounting for 56 percent of sales. Eyewear was the category most hit by the economy, showing a 10 percent drop, while watches and jewelry grew 0.7 percent. Sales of perfumes and cosmetics inched down 0.9 percent, accounting for 26 percent of sales. Sales of home furnishing accessories, mobile phones and home entertainment products were up 234 percent, reaching 108.2 million euros, or $159 million.

By brand, the signature Giorgio Armani and more fashion-driven Emporio Armani made up 64 percent of total wholesale sales. The first grew 0.5 percent to 874.9 million euros, or $1.28 billion, while the latter rose 12.7 percent to 729.8 million euros, or $1.07 billion. The A|X Armani Exchange brand grew 14.8 percent to 231.8 million euros, or $340.7 million. Among others, sales at Armani Junior rose 36.1 percent to 47.9 million euros, or $70.4 million.

Geographically, revenues in the U.S. dropped 1.2 percent, accounting for 22 percent of sales, but grew 1.5 percent at comparable exchange rates. Europe grew 7.7 percent, accounting for 37 percent of sales. The Far East and the rest of the world grew 17.1 percent and 13.9 percent, respectively. China and Hong Kong showed a 29.7 percent rise.

Armani plans to continue its store-opening program, following the firm’s unveiling of its fifth concept store, Armani/Fifth Avenue in New York, in February. Giorgio Armani boutiques will open in Tokyo; Dubai; Doha, Qatar, and Singapore, while Emporio Armani stores will open in Berlin, Singapore and Perth, Australia.