By  on February 8, 2006

MILAN — Italian brand Malo is staging its first runway show in New York today in a bid to generate buzz and win over new customers in the U.S. market.

Just as Malo aims to convert itself from a sleepy knitwear brand into a luxury label, its parent company, IT Holding SpA, is undergoing a transformation of its own. Last year, IT Holding lost its biggest and most lucrative license, for Dolce & Gabbana's D&G collection.

IT Holding ascended as a manufacturing power in the Nineties, pioneering the concept of diffusion lines such as Just Cavalli, Versus and Versace Jeans, but since has faced a series of setbacks, including lost licenses, a debt pile amassed from a past acquisitions binge and the ongoing restructuring of its unprofitable Gianfranco Ferré business.

D&G's departure prompted inevitable changes at IT Holding, including a new five-year licensing pact for a John Galliano diffusion line and a renewed focus to grow wholly owned brands such as Ferré, Malo and Exte. IT Holding also witnessed the launch of a new minority shareholder, Monte Carlo-based jeweler Alberto Repossi, who wants to make Ferré-branded baubles for the group.

"I don't know if it is because we are very good or also just a bit lucky, but after Dolce & Gabbana, we got the number-one designer in terms of creativity and notoriety," IT Holding president and chief executive officer Tonino Perna said of Galliano during an exclusive interview at company headquarters here. "Galliano will need time to grow, to reach large-scale volumes. But we have also planned for internal growth with all of the other lines, so I would say that we have compensated [for D&G] well."

Galliano alone won't fill the void D&G's departure has created, however. D&G generated about 200 million euros, or $240 million, in sales for IT Holding, nearly 30 percent of its consolidated revenue. Galliano and IT Holding expect their new venture to generate about 100 million euros, or $120 million, in wholesale revenue over the next three to five years. Perna said IT Holding will make up the rest of the lost D&G revenue through growth of other licensed lines such as Just Cavalli, Versace Jeans Couture, C'N'C Costume National as well as in-house labels Ferré, Malo and Exte.Replacing the revenue stream from D&G isn't the only financial hurdle for the company. It has yet to turn a profit at Ferré, which Perna bought in 2000. It's also facing debts amassed from its acquisitions in the Nineties and a junk bond rating from Standard & Poor's. IT Holding posted a net loss of 10.5 million euros, or $12.6 million, on sales of 518.3 million euros, or $622 million, for the first nine months of last year.

Still, the company is quick to defend its financial stability. A spokesman clarifies that a recently refinanced bond issue for 185 million euros, or $222 million, isn't due until 2012. Those bonds account for about 59 percent of IT Holding's total debts, which were 315 million euros, or $378 million, as of Dec. 31.

Perna stressed the company is strong and producing cash flow and said he takes pride in the fact that a company of IT Holding's size has even registered on the radar of international financial institutions like Standard & Poor's. He also lamented that financial costs, including amortization, are generating the losses.

"This is a characteristic of transparency, of clarity and of stability," said Perna, a stocky man, whose affable, southern Italian style stands apart from the formal business climate that dominates Milan.

Perna said IT Holding has been so focused with its internal growth strategies, including the launch of diffusion brand GF Ferré and a foray into accessories, that he was hesitant to take on a new licensing deal, but he couldn't say no to Galliano.

"There's a great enthusiasm at [our] company that hasn't been there for years, because at the end of the day, this name is really the most desirable right now in terms of international retail," Perna said. "This seemed like too good of an opportunity for us."

Market observers concerned with IT Holding's future can't help, but agree with that statement.

"Galliano by itself is not going to be enough," said one of the few analysts who still covers IT Holding's stock and declined to speak on the record. "They have to work to add other licenses."Perna said his team and Galliano are still outlining a plan for the new brand, which has yet to be named. Distribution will focus on "very, very selective" wholesale accounts initially, Perna said, adding pricing will mirror that of lines such as Just Cavalli, D&G, GF Ferré and Versace Jeans Couture.

But Galliano is just one of many areas of potential growth for the company, Perna said. This year, the company will use franchising agreements to open new boutiques including 18 Ferré stores in China and at least 20 IT Plus multibrand accessories stores around the world, especially in the Middle East and Eastern Europe.

Meanwhile, the company has to turn around Ferré and Perna is optimistic. Although he declined to specify a precise breakeven target for the house, he said things are proceeding well.

"Ferré is doing well in every way, perhaps even better than what one could have envisioned a few months ago," he said.

There are a different set of challenges awaiting at Malo, which IT Holding bought in 1999. Over the past few seasons, the company has attempted to transform the knitwear brand into a fashion and lifestyle player, expanding its product range into accessories and tapping Eva Herzigova for its ad campaign.

Perna said Malo's product range was too limited and pricy, a problem that's been rectified with entry-level accessories and sportier outerwear ranging from 250 euros, or $298.75, to 300 euros, or $358.50. He said the lower prices will win over new customers to the brand.

"Malo is emerging out of its niche as a cashmere label and is starting to be a global brand," he said. Perna said Malo will post sales of 60 million euros, or $72 million, this year; the goal is to double that turnover in the next three years.

Perna also is reviewing the image and product range at Exte, a brand the company invented in the mid-Nineties. The collections have earned mixed reviews and struggled to find an identity throughout the tenures of designers Antonio Berardi, Sergio Ciucci and the current team.

But Perna said sales of Exte sunglasses and fragrances, both of which are licensed out to third parties, indicate the strength of the brand. Sales of Exte clothing, accessories and licensed products should reach more than 80 million euros, or $96 million, this year, an IT Holding spokesman said.The brand's store on swanky Via Della Spiga has been shuttered to make way for a GF Ferré shop later this month. Meanwhile, IT Holding is pondering an Exte store in Milan near the city center or on the edgier Porta Ticinese strip. Exte will no longer stage a runway show as IT Holding considers a different way to present the collection.

Perna said Exte has to focus on innovative materials and denim rather than try to be a designer label. "It is the antibrand and instead we tried to make it a brand," Perna quipped.

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