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Giorgio Armani Profits Dip 5.7 Percent in ’04 But Fall Outlook Bullish

Giorgio Armani lifted its 2004 sales by 3.5 percent, but higher advertising spending bit into profits, which slipped 5.7 percent to $156.2 million.

MILAN — Giorgio Armani lifted its full-year 2004 sales by 3.5 percent, but higher advertising spending bit into profits. The firm also boasted double-digit jumps in first-quarter retail sales and fall-winter orders.

Armani said Thursday that net profits for the 12 months ended Dec. 31, 2004, slipped 5.7 percent to 126 million euros, or $156.2 million. Revenue rose 3.5 percent to 1.3 billion euros, or $1.61 billion, but the company said sales would have climbed 6.5 percent at constant exchange rates.

(Dollar figures have been converted from the euro at average exchange rates for the 2004 year.)

“Over the last four years we have learned to manage the business in trading conditions that have never been straightforward,’ chairman and chief executive officer Giorgio Armani said in a statement. “Whether it has been the decline in the U.S. dollar, the absence of tourism, or the inconsistency of the leading world economies, we are constantly tested.’

The company said it spent an additional eight million euros, or $9.92 million, on advertising last year to push new products in accessories, home furnishings and eyewear. Those expenses contributed to a 7.3 percent slide in earnings before interest, taxes, depreciation and amortization of 238 million euros, or $295.12 million.

But Armani boasted a 16 percent increase in retail sales worldwide in the first quarter of 2005, boosted by double-digit increases in China, Japan and the European Union. A spokesman noted that weaker tourist flows to Europe have forced the company to reach out to local customers, a tactic many luxury players are employing.

First-quarter store sales in the U.S. advanced 3 percent, reflecting a slowdown from the 15 percent growth Armani saw in the first three months of 2004.

“The U.S. market continues to be what we describe as ‘cautious,” the spokesman said. “The environment is certainly much improved from its condition two to three years ago and we are once again investing in that market with new freestanding store openings and new shop-in-shops.’

He also noted strong sales of men’s fragrances like Acqua Di Gio and the recently launched Armani Black Code.

The spokesman said global wholesale orders for fall-winter 2005 are up 10 percent. In particular, orders for Armani Collezioni are up 8 percent; AJ Armani Jeans up 6 percent; accessories up 22 percent; Emporio Armani watches and jewelry up 24 percent, and Armani Casa up 17 percent.

“The initial indications are strongly positive, with first quarter wholesale and retail sales showing double-digit growth in the majority of our product categories and geographical regions, indicating that the Armani Group is once again on track for another year of increased growth,’ Armani said in the statement.

Returning to the 2004 numbers, Armani said strategic investments for the year totaled 50 million euros, or $62 million. Of that sum, 35 million euros, or $43.4 million, went toward opening 16 directly owned stores and renovations of 20 stores.

The company also provided a breakdown of its 1.67 billion euros, or $2.07 billion, in wholesale revenues by brand, product line and geographic market.

The top-tier Giorgio Armani label generated 32 percent of wholesale turnover, while Emporio Armani accounted for 26 percent. Armani Collezioni is the third-biggest revenue-generating brand, comprising 18 percent. AJ/Armani Jeans made up 16 percent, while A/X Armani Exchange generated 7 percent.

Apparel accounted for 53 percent of wholesale turnover, while fragrances and cosmetics were the next biggest contributor, making up 27 percent. Eyewear generated 8 percent and watches and jewelry comprised 6 percent.

European countries generate more than half of the more than $2 billion wholesale business. Italy made up 18 percent, while the rest of Europe accounted for 37 percent, North America comprised 24 percent, the Far East made up 12 percent of sales, and the rest of the world accounted for the remaining 9 percent.