Building a Bigger Brand: Dolce & Gabbana Sees Sales Rising 15% in ’05

Construction workers race to renovate an old movie theater into Dolce & Gabbana's new events space in time for the pair's 20th anniversary show.

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MILAN — As the construction workers race to renovate an old movie theater into Dolce & Gabbana’s new events space in time for the pair’s 20th anniversary show on Thursday, the designers are putting the finishing touches on their fourth balance sheet.

Once again, it shows double-digit growth in profits and sales. Net profit for the fiscal year ended March 31 bolted 76.9 percent to 98.2 million euros, or $123.7 million. Consolidated revenue, which excludes that of licensees, for the period advanced 17.3 percent to 686.4 million euros, or $864.9 million.

A combination of winning collections and prudent fiscal management fueled growth for the year, Dolce & Gabbana’s general affairs director Cristiana Ruella said in an exclusive interview at the group’s headquarters here.

“Everything originates from the fact that the products Mr. Dolce and Mr. Gabbana create are consistently products that the consumers desire,” Ruella said, forecasting sales growth of at least 15 percent for the current fiscal year ending next March.

Stefano Gabbana, in a phone interview, said he and business partner Domenico Dolce learned early in life from their families “never to take a step that’s longer than your leg.” Even though the pair’s names generated sales of almost $870 million last year, they are still taking that advice, designating company profits for investments and the repayment of debts rather than dividends for themselves. To wit, the company reduced debt to 21.4 million euros, or $26.9 million, at the end of March, down from 33.8 million euros, or $39.9 million, a year ago.

“Everything is planned with a margin of prudence,” Gabbana said.

It’s a seminal year for Dolce & Gabbana as the company gears up for its third decade of existence. The firm is taking the production of its D&G diffusion line in-house, reorganizing its U.S. division under president Glenn McMahon and expanding into China through a new wholly owned subsidiary.

McMahon’s arrival is not the only high-level management change at the company. Earlier this month, former Gucci executive Giacomo Santucci resigned as commercial, licenses and retail director after only six months on the job. Seemingly unfazed by this development, Ruella said Santucci’s decision was a personal one and he’s not being replaced.

This story first appeared in the September 23, 2005 issue of WWD.  Subscribe Today.

Perhaps the designers’ introductory statement to the annual report is the strongest indication that it’s a new era at Dolce & Gabbana: “We want our brand to live forever.”

Such a phrase indicates that the designers, though both in their early 40s and far from retirement age, have at least started to ponder the future. Gabbana said he and Dolce want their company to remain an independent, privately owned one for now. Although he can’t rule out the possibility of the designers’ changing their minds in a few years about a stock market listing or partnership, their most immediate goal isn’t a financial one.

“My goal is to stay in the fashion history books,” Gabbana said.

Dolce & Gabbana said wholesale revenue, meaning group sales and those made by licensees, jumped 21 percent to 1.05 billion euros, or $1.32 billion. The company uses this figure to break down sales by product, brand and geographic market.

In terms of products, sales of clothing rose 14 percent to 495.4 million euros, or $624.2 million. Sales of fabric accessories increased 18 percent to 52.3 million euros, or $65.9 million, while those of leather goods and footwear rose 35 percent to 93.7 million euros, or $118.1 million. Revenue from fragrances, eyewear and wristwatches grew 28.1 percent to 408.8 million euros, or $482.4 million.

As for the fashion company’s beauty business, there’s mounting speculation Dolce & Gabbana is about to part ways with EuroItalia, its partner since 1990. Both Ruella and Gabbana declined to comment on talk that the fashion group is about to ink a beauty deal with another partner.

The Dolce & Gabbana brand accounted for 58 percent of wholesale revenue, while D&G generated 42 percent of the business.

The recent decision to bring D&G in-house is arguably one of the most significant company developments of late. IT Holding unit Ittierre has produced and distributed the line’s apparel and accessories since the collection’s birth in 1994.

“Directly managing the Dolce & Gabbana and D&G brands allows us to maximize the synergies between the two brands and reduce the risk of cannibalization between them,” Ruella said. “All companies that manage two brands have to do this.”

Taking D&G in-house will have a substantial impact on the company’s balance sheet. The fiscal year ending March 31, 2007 will be the first year to reflect the impact of an in-house D&G, since that will kick off with the spring 2007 season. Had the line been internalized sooner, Ruella estimated the D&G line would have contributed another 158.6 million euros, or $199.8 million, in consolidated revenue for the fiscal year ended this past March.

Gabbana said he and Dolce don’t view D&G as a second line, but rather as a brand with its own eclectic spirit akin to Fiorucci in the Seventies and the Eighties.

“D&G is what Dolce & Gabbana can’t be and Dolce & Gabbana is what D&G can’t be,” he said.

Returning to the company’s annual report, women’s wear and accessories accounted for 60 percent of Dolce & Gabbana’s wholesale business, while that of men’s products rose 2 percent to account for 40 percent of wholesale turnover.

On a geographic basis, Dolce & Gabbana said sales decreased slightly in Europe, its largest market. Italy accounted for 30 percent of sales, while other European countries generated 40 percent. The U.S. continued to generate 12 percent of the business, while sales from Asia gained 3 percent to account for 12 percent of wholesale sales.

Investments included 17 million euros, or $21.4 million, for the expansion of the Legnano and Val d’Arno production facilities, and 32 million euros, or $40.3 million, for new stores.

As for the Metropol cinema, which the company is converting into a show and event space, the company projects a total investment of 15 million euros, or $18.9 million. Of that, 3.5 million euros, or $4.4 million, were booked for the fiscal year ended in March.

As of March 31, Dolce & Gabbana had 41 freestanding stores and 78 shop-in-shops. D&G freestanding stores totaled 23 and shop-in-shops came to 26. Significant store openings during the fiscal year included the Milan women’s flagship, a men’s store in Beverly Hills and flagships in Hong Kong and Hangzhou, China.

As for the future, Dolce & Gabbana is looking East in terms of stores. In Japan, where the company recently ended former franchising partnerships and converted to directly managed retail, the company is planning two new Tokyo stores in the Omotesando and Ginza districts to open over the next couple of years.

Turning to China, a large Shanghai flagship is slated to open next summer. Meanwhile, a historic store at Beijing’s Palace Hotel will be renovated as it reverts to direct company ownership. It, too, will reopen next summer.

“We think this is the right moment to enter the country,” Ruella said.

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