ARMANI CONTINUES TO INVEST

Byline: Luisa Zargani

MILAN — Giorgio Armani is still in spending mode.
As the designer’s company reported that 2001 net profits dropped 9.1 percent, to $96.7 million, it also announced another move in its mission to more closely control the destiny of its brand and the production structure that supports it.
Armani signed a letter of intent to create a joint venture that will acquire four factories, most notably I Guardi, specializing in the production of men’s and women’s shoes. The acquisitions behind the new venture are expected to be completed by June 2002 with production of the Armani collections beginning with the spring-summer 2003 season.
The latest move comes on top of investments in retailing and acquisitions that totaled $270 million last year, putting a crimp in the firm’s profitability. Yet, earnings before interest, taxes, depreciation and amortization, a reliable measure of operating profitability, rose 4 percent to $216.4 million. Depreciation and amortization totaled $63.3 million, 67 percent above their 2000 level.
As reported in January, sales expanded 23 percent to $1.12 billion. (Dollar figures have been converted from the euro at current exchange rates.)
In a statement, Giorgio Armani, president and chief executive officer, said: “This was a milestone year for the Armani Group with record growth, record investment, a record number of new store openings and the completion of a series of important strategic initiatives, despite the economic slowdown in the United States.”
The footwear venture isn’t the first initiative of its sort this year. In January, Armani announced the acquisition of Miss Deanna SpA, a knitwear production company. Armani said these acquisitions “demonstrate the group’s continuing commitment to becoming a fully integrated fashion and lifestyle products company with all aspects of design, manufacturing, distribution and retail under direct control.”
Last year, Armani invested $155.7 million in acquisitions, which included the purchase of apparel manufacturer Simint SpA, now delisted from the Milan stock exchange, and the creation of two joint ventures, Trimil and Borgo 21, which respectively produce Armani Collezioni for men and the Borgonuovo line for men and women.
In 2001, sales from directly owned retail stores rose 9 percent to $424.1 million. Last year, Armani invested $89.7 million in retailing, opening 33 new stores and renovating 20 existing stores. The openings consisted of five Giorgio Armani boutiques (including Sao Paolo and Moscow), two Armani Collezioni stores, 11 Emporio Armani stores, two AJ/Armani Jeans stores, six A|X Armani Exchange stores, two Armani Junior stores and five Armani Casa stores.
Armani plans to focus on retailing in 2002, as well, with the opening of at least 20 new stores. In particular, the designer is investing in a multibrand Armani location in Hong Kong that will open in October. Additionally, 20 Casa corners carrying soft home furnishings are scheduled for this year, and the products will be distributed through select retail outlets beginning this summer.
“In 2002, we are continuing with our strategic investment program, with a sustained emphasis on the further enhancement of our retail network and the growth and diversification of our existing range of product lines, as we fully capitalize on the power of the Armani brand around the world,” said Armani.
Worldwide wholesale revenues for Armani products, including those of licensees, last year reached $1.4 billion. Of this amount, 52 percent were generated by apparel, 24 percent by accessories and the remaining 24 percent by fragrances and cosmetics.
By region, Italy accounted for 16 percent of wholesale revenues; the rest of Europe, 32 percent; North America, 31 percent; Japan, 7 percent; the rest of the Asia Pacific area, 5 percent; and the rest of the world, 9 percent.
Armani expressed, once again, his satisfaction with his choice to remain an independent, privately held company. Last year, Armani turned down offers from luxury groups such as LVMH Moet Hennessy Louis Vuitton and Gucci, and has made it clear that a public listing is not in the cards for the company he founded more than 25 years ago.
Armani said the company’s performance confirmed “the success of our chosen business expansion strategy” and attributed recent success to “the value we bring to the marketplace with our diverse range of fashion and lifestyle products.”
He noted that “internally generated funds” in excess of $461 million have been expended in the last three years to expand Armani’s retail presence and enhance its manufacturing capacity and expertise.
“Based on the evidence of the first quarter of 2002 I am cautiously optimistic about prospects for the current year,” said Armani. “Our strategic priority is to expand our retail presence and maximize the group’s profitability by leveraging the vertically integrated infrastructure we have been putting in place in recent years and by a wise cost-control program,” he said.

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