A fall '05 Versace look.

Gianni Versace drastically narrowed operating losses and debt in 2005, setting the firm on the right track to go public down the road.

MILAN — Gianni Versace SpA is back on the upswing, and so is talk of an initial public offering.

The Italian fashion house on Wednesday issued better-than-expected results for 2005, with a drastic narrowing of operating losses and the elimination of debt setting the company on the right track for a potential stock market listing in a few years, chief executive Giancarlo Di Risio told WWD.

Versace narrowed its 2005 operating losses to 5.5 million euros, or $6.9 million, from 92.4 million euros, or $114.6 million the year before. Last September, when the company released first-half numbers, Versace forecast its full-year loss would be about 15 million euros, or $18.8 million.

The company downplayed the fact that asset sales, including that of the Versace family’s Manhattan town house, actually allowed Versace to post a pre-tax profit of 37.2 million euros, or $46.5 million. All dollar figures are converted from euros at average exchange rates for the period to which they refer.

“We’re still sticking to our goal to turn a [operating] profit in 2007, but we don’t exclude the possibility that it will happen even earlier in 2006,” Di Risio said. The executive stressed any decision to take the company public rests with its shareholders, the Versace family, but he said the firm will be healthy enough to start pondering the IPO option next year.

“This company will have all of its assets and fundamentals in place in 2007 and the shareholders will be able to decide what to do,” he said. “I think Versace will be one of the few companies with all of the right requisites to [carry out an IPO].”

In 2004, Allegra Beck, Donatella’s daughter and Gianni’s niece, turned 18 and inherited full control of her 50 percent stake in the company, marking a shift in power and a new era at the fashion house. Her uncle Santo owns 30 percent and her mother controls the remaining 20 percent.

Versace’s sales for the 12 months ended Dec. 31 slid 4.4 percent to 307 million euros, or $383.8 million, slightly better than the original forecast of 300 million euros, or $375 million. Di Risio said a strategic decision to discontinue some product lines — including the diffusion collection Versace Classic, swimwear, innerwear and children’s apparel — bit into revenues, but sales from the retail and wholesale channels partially compensated.

This story first appeared in the May 4, 2006 issue of WWD. Subscribe Today.

Those phased-out product lines also will cause Versace’s 2006 sales figures to slide, Di Risio said, although he declined to quantify by how much. He was also mum on the future of the diffusion line Versus, except to say that it will be an “independent brand” with its own autonomy from the more luxury-oriented Versace label. Late last year Versace ended its longstanding production deal with IT Holding for Versus.

Sales momentum accelerated in the last four months of 2005 on both a retail and wholesale basis, Di Risio said. The executive noted that U.S. retail sales for Versace climbed 28 percent in the first four months of 2006, thanks in part to a reorganization of the American subsidiary under recently tapped president Patrick Guadagno and the refurbishment of the New York flagship. Versace is currently giving its Los Angeles store a face-lift to the new black and ivory design concept.

Di Risio said the company’s focus on the signature collection and big-ticket items like ceramic watches and limited-edition quilted bags is working. He was particularly boastful about sales growth for accessories, a focal point for several seasons now. Sales of handbags and shoes grew more than fourfold last year to account for 19 percent of Versace’s sales, or about 58.1 million euros, or $72.6 million. This year accessories sales should comprise 30 percent of revenues, he said. The increasing demand has prompted Versace to consider bolstering its production capacity in Burago, a suburb outside of Milan known for quality handbag production. Chanel and Hermès also manufacture there.

Di Risio, who joined Versace just over a year and a half ago, set about a drastic debt-reduction plan, which has since lifted the company into a positive net financial position of 2.1 million euros, or $2.6 million. Versace sold several assets last year, including the Manhattan town house, as well as its beauty and watch divisions. Debt stood at 79 million euros, or $98 million, at the end of 2004.

Paola Leoni, a partner with Milan-based ASI Consultancy, praised Di Risio’s ability to generate financial results quickly, but she said it’s time for the company to ponder its next strategic step since restructuring efforts are now complete.

“Di Risio has been a managerial success, but there’s a lot of interest as to what the future growth drivers are going to be because it’s not clear right now,” said Leoni.