Another Luxe Boom? Armani Figures Fuel Sector’s Optimism

Giorgio Armani added a few more numbers to the uptick in luxury Friday as his company showed profits rising around 7 percent for 2002.

MILAN — It’s starting to sound like the good old days in the luxury sector.

Giorgio Armani added a few more numbers to the uptick in luxury Friday as his company released financial data showing net profits and earnings before interest and taxes each rose around 7 percent for 2002, and overall profitability soared 14 percent over the past five years. And Armani is continuing with his retail renovation and expansion plans, a sign of his confidence that the appetite for luxury product shows no signs of abating.

This story first appeared in the November 10, 2003 issue of WWD.  Subscribe Today.

In Armani’s opinion, “there are no shortcuts to success.”

In publishing his company’s 2002 annual report, which confirms preliminary financial data released in April, Armani said this “holds true more than ever before.” In the report, Armani cited “a disciplined approach to growth,” vertical integration and cost-cutting as his guidelines, and expressed his pride in the group’s results, which, he said, “show an increase in all profitability indicators and have led to a compound annual growth rate of 14 percent over the last five years.”

In 2002, the company reported a 7.1 percent growth in net profit to $133.9 million, or 117.4 million euros, from $125 million, or 109.6 million euros, the previous year. EBIT grew 7.2 percent to $211.4 million, or 185.3 million euros, from $197.1 million, or 172.8 million euros, the year before. As reported, sales advanced 2.3 percent to $1.4 billion, or 1.3 billion euros, compared with 2001. Dollars are converted from euros at current exchange.

The report said the designer sits on a potential cash pile of $1.3 billion, or 1.2 billion euros. In addition to the company’s net financial position, amounting to $121.2 million, or 106.3 million euros, Armani can rely on financial reserves of $729 million, or 639 million euros, real estate assets and other properties totaling about $536.2 million, or 470 million euros.

In a separate development, a company spokesman said Armani is extending the Emporio Armani reach through distribution in selected, high-end department stores — a new direction for the designer, whose strategy until now for this line was to sell only through freestanding, branded boutiques. The first step is to open a corner in Paris at the Printemps store in spring 2004. That said, the designer also will inaugurate a two-story, 10,800-square-foot Emporio store in Munich, Germany, in December. Modeled on the Milan Via Manzoni megastore here, the boutique will sell the Emporio and Jeans lines, and includes a café, a bookstore and a flower shop.

Last year, Emporio Armani accounted for 27 percent of wholesale sales, which were $1.9 billion, or 1.7 billion euros, following the signature line, which accounted for 33 percent of wholesale sales. “Within the Emporio world, watches and eyewear represented two of the fastest- growing product lines over the last couple of years,” said the spokesman. This fall, the company launched a new Emporio fragrance called Night for Him and for Her.

In 2003, Armani also signed a license with Safilo for production of its Giorgio and Emporio Armani eyewear lines, ending its 14-year license with Luxottica. While Armani presented the Emporio eyewear line for fall with an ironic ad campaign featuring owls, the spokesman said Milla Jovovich will be the face of that campaign for next spring.

As for the spring Giorgio Armani ad campaign, it once more will be shot by Mert Alas and Marcus Piggott and will not be celebrity driven.

“We maintained our commitment in advertising this year, above the level of 2002, and did not reduce our budget,” said the spokesman.

In 2002, the company invested $98.1 million, or 86 million euros, partly aimed at expanding its retail network. Last year, Armani opened 30 boutiques and renovated 16. In 2003, the company opened 30 boutiques and renovated 11, among them, the boutiques in London and Rome. The spokesman said the company has invested, over the last five years, $745 million, or 653 million euros, of internally generated funds to expand its manufacturing capacity, to grow and diversify its product portfolio and its retail network.

The company now registers more than $4.5 billion in retail sales in 121 countries.

Armani’s strong performance last year continues the good news from the luxury sector over the last few weeks. Prada chief Patrizio Bertelli on Thursday forecast a 45 percent rise in profits for the year, while American high-end retailers registered a solid comparable-store sales performance in October. As reported, Saks Fifth Avenue led the pack with a 14.2 percent gain, followed by Neiman Marcus logging a 9.7 percent hike — and that was after Neiman’s posted a 13.6 percent rise in September. Gucci president and chief executive officer Domenico De Sole last month said his company is seeing growth rates it hasn’t registered since Sept. 11, 2001, and he projected that Gucci would continue to experience a strong upturn throughout the third and fourth quarters.

Many analysts and designer houses, after facing challenges in the first half of 2003 from SARS, declining tourism, the weak yen, the Iraq war and other economic malaise, predicted the second half would see a rebound.

Eric Beder, a retailing analyst with Northeast Securities, said, “The second half of 2003 has been incredibly strong and it will continue throughout Christmas. We are seeing the effect of tax cuts and people waking up from the 9/11 doldrums after two years, and at the end of the day, we are seeing really good fashion. Put all that together and people are spending away.”

Bear Stearns luxury analyst Dana Telsey said the second half has improved steadily, especially in areas such as leather and jewelry. “The war and SARS are over, the comparisons are getting easier and the stock market is doing better,” she said. “People feel better about their future.”

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