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Armani, Luxottica End Deal

MILAN — In an unexpected move, Giorgio Armani said it is ending a 14-year partnership by terminating its licensing agreement for eyewear with Luxottica.<br><br>In a joint announcement from both firms, Armani said it is considering its options for...

MILAN — In an unexpected move, Giorgio Armani said it is ending a 14-year partnership by terminating its licensing agreement for eyewear with Luxottica.

In a joint announcement from both firms, Armani said it is considering its options for future distribution and production of its eyewear collections. Luxottica will stop manufacturing and selling Armani products in the first part of next year.

“I have a lot of respect for [Luxottica chairman] Leonardo Del Vecchio. His strong vision and true leadership has made Luxottica group the world leader in the sector,” Giorgio Armani said. “Being a shareholder of Luxottica has always been very satisfying and the termination of the licensing agreement does not have any correlation with our stake in Luxottica group,”

The designer holds 5 percent of Luxottica and sits on its board with a three-year term expiring at the end of December.

An Armani spokesman wouldn’t elaborate on the company’s eyewear plans. The move is consistent with Armani’s recent history of terminating licensing deals and bringing manufacturing capabilities in-house through acquisitions. Over the past two years, Armani has acquired a knitwear firm, bought out its jeans manufacturer and purchased footwear production facilities.

“During the talks to renew the contract, it came out that we could not work out our strategic differences,” Del Vecchio said in the statement.

Luxottica said Armani decided to radically change his design approach, moving from “classic” products to more a more “trendy” offering. That strategic shift would have translated into “a consistent reduction of revenue for at least three or four years.”

Separately, Luxottica put out a statement warning that the Armani license termination should cause its 2003 earnings per share to land at 75 cents per share, assuming a 1-to-1 euro/dollar exchange rate. A Luxottica spokeswoman said 2002 earnings per share should be above 80 cents.

Luxottica shares closed at $12, down $2, or 14.3 percent, on the NYSE. The stock briefly hit a new 52-week low of $11.60.

Luxottica also clarified that the Armani licenses generated about 7.2 percent of its revenue, which was $2.42 billion in 2001.

Del Vecchio said Luxottica is negotiating with other fashion brands, hoping to recreate the success it has had with Chanel, which Luxottica said has generated in two years more sales than any other brand in its portfolio.

He added the company is mulling possible retail acquisitions and it plans to conclude at least one acquisition in the first half of next year. Such an acquisition would cause Luxottica’s 2003 earnings per share to rise to 88 cents. Luxottica already owns the Lens Crafters and Sunglass Hut chains.

The eyewear group also said Armani wanted to “drastically cut” the number of sales points for Armani eyewear, which would have hurt sales and damaged Luxottica’s image.