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Optimism at Armani: Profits Up 17%, Growth Rolls On in 2008

Size matters to Giorgio Armani, who expects global expansion to offset consumer caution in 2008.

MILAN — Size matters to Giorgio Armani.

After his fashion empire registered a 17 percent increase in operating profits in 2007, the 73-year-old designer said Thursday he expects further retail expansion worldwide will fuel growth this year and ease any market-specific downturns in consumer spending.

“Although 2008 will not be an easy year given the more challenging global economic climate, I am nonetheless excited about the important plans we have under way,” Armani told WWD, following the release of his company’s full-year results.

Last year, earnings before interest and taxes at Giorgio Armani SpA grew 17 percent to 289 million euros, or $396.1 million at average exchange, driven by sales increases across all brands, product categories and geographic areas.

Consolidated revenues for the 12 months through Dec. 31 rose 8 percent to 1.6 billion euros, or $2.19 billion, while EBITDA gained 18 percent to 354.9 million euros, or $486.5 million. Cash on the balance sheet totaled 373 million euros, or $511.3 million.

The company did not release net profit figures.

“These financial results for 2007 reflect a company that has been consistently growing for 30 years and that has built an innovative and winning business model under the Armani brand,” said the designer, who also serves as his group’s president and chief executive officer.

“Today, with no borrowings and one of the world’s most respected brands, I would say that the future looks certain and bright.”

Armani also issued an upbeat forecast for the current year, touting a 7 percent increase in wholesale orders for the group’s fall collections.

He added the company was “extremely well-placed to weather a more challenging trading climate” on the basis of an “increasingly well diversified” brand portfolio worldwide.

“Although we often say that the world is a small place these days, it still offers enormous scope for the Armani portfolio of brands,” the designer said. “Our medium-term strategy is to continue to pursue our unique multibrand strategy, expanding and strengthening our brands and product lines in both mature and emerging markets.”

To that end, the group will forge ahead with 50 new store openings worldwide this year, including its first two stores in India and the first Emporio Armani flagship stores in Moscow and Beijing, “underscoring the significance of the world’s key emerging markets,” Armani said.

The designer said the company would open stores in more mature markets, “where opportunities still exist for expansion.”

Armani added 49 stores to its 471-strong retail network last year, including the 12-story Armani Ginza Tower in Tokyo, the group’s fourth multibrand concept store. A fifth is set to open on Fifth Avenue in New York in early 2009.

“These concept stores reflect the new way that fashion consumers are shopping today by offering an integrated mix of my collections in one location,” Armani said.

Financing that expansion and improving manufacturing processes cost Armani 95 million euros, or $130.2 million, in 2007. The group’s capital expenditure is expected to be a similar amount this year.

While big may be better, Armani commercial and marketing director John Hooks said the challenge for the group’s individual brands was “to act like a small, agile company.”

“The important thing is not to standardize anything,” Hooks said, adding that Armani would not let that happen. “Mr. Armani is very detail-oriented.”

Armani said its global “wholesale turnover” figure, which tallies up the group’s wholesale business to third parties as well as wholesale values of merchandise sent to Armani’s own stores and licensed products, rose 15 percent to 2.4 billion euros, or $3.29 billion. Armani uses the umbrella figure to break down the size of its business in terms of brand, product category and geographic market.

The company reported revenue growth in all product categories, with watches, jewelry and eyewear the star performers.

Wholesale sales of watches and jewelry jumped 20 percent, while eyewear revenues gained 19 percent. Apparel, Armani’s biggest revenue generator by product, was up 12 percent, while fragrances, cosmetics and skin care rose 13 percent.

Armani did not break down its accessories business, as it is “relatively small,” Hooks explained.

“It’s still in the incubator,” he added. “The base is small but it’s growing. It has massive potential.”

By brand, the signature Giorgio Armani and more fashion-driven Emporio Armani labels generated the bulk of wholesale revenues. Giorgio Armani gained 13 percent to 870 million euros, or $1.19 billion, while Emporio Armani increased 20 percent to 647 million euros, or $886.9 million.

Growth was slower at the Armani Collezioni diffusion brand, where wholesale sales increased 8 percent to 300 million euros, or $411.2 million. Armani Jeans rose 5 percent to 291 million euros, or $398.9 million.

Meanwhile, the more affordable A|X Armani Exchange and the market specific Armani Junior and Armani Casa brands showed impressive gains. Wholesale revenues at A|X Armani Exchange jumped 25 percent to 201 million euros, or $275.5 million, after the group beefed up the brand’s presence internationally.

“Having opened flagship stores in London and Tokyo, we are now seeing that my fast-fashion line is being enthusiastically received in new markets, which bodes well for the aggressive growth plans we have for this brand in the year ahead,” Armani said.

Wholesale revenues at Armani Junior, which includes Armani Teen and Armani Baby collections, spiked 47 percent to 35 million euros, or $48 million.

Revenues at Armani Casa, the group’s home furnishing unit, soared 52 percent to 38 million euros, or $52.1 million, following the expansion of the retail and wholesale businesses and the increasing number of projects undertaken by its interior design service. [For more on Armani Casa, see sidebar.]

The brand is set to expand further this year and next with the opening of the first Armani Hotels & Resorts and the sales of the first Armani Residences, the company said.

“The sales of the first phase of Armani Residences at the Burj Dubai have been tremendously successful and are really the first evidence of the intense work that I have been involved in over the last three years as we prepare for the opening of the first Armani Hotels in Dubai and Milan,” Armani said.

The Dubai hotel is slated to open in 2009, followed by another on Via Manzoni in Milan in 2010.

Geographically, wholesale sales grew 24 percent in Greater China; 19 percent in Europe excluding Italy; 13 percent in Italy; 7 percent in North America, and 4 percent in Japan. In the rest of the world, these revenues increased 18 percent.

Hooks said China continued to perform “fantastically well” and attributed the growth there to retail expansion and organic growth at existing stores. “We’ve accelerated our business in China and become more courageous in opening directly owned stores,” Hooks said. He added Armani would open two Emporio Armani and one Giorgio Armani store in Beijing in the fall, as well as two other directly owned stores in the northeast of China.

He said there was a “definite fall in traffic” in Japan and the U.S. but that the retail market was “tough for everybody. We’ll see how retail does in the next few months,” Hooks said.

As if emblematic of his plans for the company and despite a whirlwind year ahead, Armani said he would still find time to cruise his new 213-foot custom designed yacht, which, not surprisingly, is bigger than his last.

“On a personal note, I am looking forward to launching my new boat, the hull and interior of which I have enjoyed designing,” he said.

Looking to the longer term, the designer said he had no plans to retire and ruled out floating his empire on the stock market or selling a part or all of it to a third party — at least for now.

“There is no immediate pressure to make such decisions,” Armani said. “My main concern has always been and will always be to maintain the fundamental philosophies upon which I have built this company.”