By and  on July 28, 2005

MILAN — Domenico Dolce and Stefano Gabbana, celebrating their fashion company's 20th anniversary, are giving themselves a gift — control of their successful diffusion line, D&G.

The Italian fashion house announced Wednesday the termination of its 12-year license for the production of D&G with Italy's IT Holding, which owns Ferré, Malo and Exte and holds licenses for jeans and diffusion collections, including Just Cavalli and Versus.

The last IT Holding-produced D&G collection will be for fall-winter 2006-2007. Dolce & Gabbana will take production in-house starting with the spring 2007 collection.

Dolce & Gabbana said in a statement it decided not to renew the license, first signed in 1993, as part of its strategy to exert greater control over the brand. That process began in 2000 when the company took over production and distribution of previously licensed lines, such as knitwear, underwear and swimwear, among others.

"We are very grateful to [IT Holding] for the work done during these years, as well as for carrying out this project with enthusiasm and professionalism," Cristiana Ruella, Dolce & Gabbana's chief operating officer, said in a statement. She said the line had achieved "excellent results."

Relations between Dolce & Gabbana and IT Holding began to cool in 2002 when the company renewed the D&G license but changed its dynamics by taking control of D&G's distribution. The loss of the D&G license is a setback for IT Holding, which has recently had to reevaluate its strategy, selling non-core assets and concentrating on areas like accessories.

IT Holding said the termination of the D&G license would not affect 2005 and 2006 financial results. However, the firm said it anticipated revenue would fall 16.2 percent to 570 million euros, or $685 million, in 2007 from its 2005 estimate of 680 million euros, or $817.2 million. The license generated an estimated 200 million euros, or $240.4 million at average exchange rates — 30 percent of IT Holding's 2004 revenue, a company spokesman said.

"The plans to expand our licensed brands continue and we do not exclude the possibility of being able to take advantage of new market opportunities to enrich our portfolio of licenses," Tonino Perna, chairman and chief executive officer of IT Holding, said in a statement.On a positive note, IT Holding said that in the next three years it would have about 90 million euros, or $108.5 million, more in cash flow to dedicate to other projects.

The freed-up capital comes from what would have been spent on the D&G license. The company also said sales should rebound in 2009 to around 670 million euros, or $805.2 million, because of growth in accessories and its other brands.

Although sales at Ferré have increased since IT Holding acquired the brand in 2000, the publicly traded company has struggled to revitalize the fashion house's image and make it more competitive with other luxury brands. The launch of the younger street-oriented line, GF Ferré, hasn't generated the same kind of buzz as other diffusion lines.

Faced with a debt load estimated at 365.5 million euros, or $439.3 million, in 2004, IT Holding has had to shed many of its subsidiaries over the past year, including the Romeo Gigli brand, its fragrance division, ITF, and its eyewear manufacturer, Allison.

In terms of its licensing division, IT Holding was able to generate a new source of revenue when it added the C'N'C Costume National license in 2003 to its stable of collections that include Just Cavalli, Versus and Versace Jeans Couture. However, Versace, in the middle of its own restructuring plan, is said to be evaluating the future of the Versus line. Once a seasonal presence during the Milan collections, Versace stopped showing Versus on the runway last year.

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