Byline: Samantha Conti

MILAN — In the land of luxury, who has the biggest paycheck of them all? Giorgio Armani.
Forget Donna’s $25 million or Tommy’s $22 million. The maestro of Milano blew them all away, pocketing a cool $100 million in 1999 dividends as the sole shareholder of his company.
Buried at the bottom of Armani’s 1999 annual report, which was released this month and reported in WWD, was a sentence referring to the company’s dividend. And while it might have been brief, it spoke volumes about Armani’s 25-year-old business, and the beauty of being private and independent, with control over production and distribution.
Although it’s private, Giorgio Armani SpA releases a full, audited balance sheet every year as a part of routine company practice.
The sentence also made clear that anyone interested in buying Giorgio Armani SpA will have to pay up: Financial analysts said that on the basis of the designer’s 1999 results — revenues climbed 11.8 percent to $840 million — the company could easily command a multiple of at least four times sales.
In fact, multiples in the luxury sector have hit the stratosphere since the battle for Gucci last year. That’s when Bernard Arnault ultimately — and unsuccessfully — offered up to eight times sales, or roughly $8.5 billion, for Gucci. Pinault Printemps Redoute eventually won out with an initial investment of 40 percent in Gucci for $2.9 billion.
With PPR’s alliance, Gucci got into the buying game too, paying slightly over $1 billion, just over one times sales, for Yves Saint Laurent and its parent Sanofi Beaute last year. Meanwhile, Prada Group and LVMH Moet Hennessy Louis Vuitton, after a bidding war with Gucci, paid an estimated $545 million for 51 percent of Fendi, which works out to about four or five times sales.
So Armani could be in the enviable position of virtually naming his price, should he choose to sell.
The key to all those riches?
In addition to making clothes that people — especially Americans — like to wear, Armani runs one of Italy’s most profitable companies. Over the years he has worked hard to pump up his margins by directly producing and selling the clothes he designs.
Analysts say that strategy has paid off grandly. “Armani’s margins are more similar to those in the leather goods and jewelry business,” said John Wakely, an analyst at Lehman Brothers in London, referring to the fact that accessories usually generate much higher margins than apparel. As a result, said Wakely, “If there were to be a sale, Armani would get a multiple more similar to Gucci than to a clothing company.”
Indeed, Armani’s earnings before interest and taxes, including depreciation and amortization, or EBITDA, were 24.6 percent of sales last year. “That’s pretty impressive,” said Claire Kent, an equities analyst at Morgan Stanley in London. “It’s one of the highest margins in the luxury apparel business.”
Success, Armani told WWD last week, has been all about “a consistent design philosophy with organic growth of the brand+ and the ongoing transformation of the group from being royalty-based to manufacturing-based.”
He added, “The group plans to continue to take greater control over all aspects of its business.”
Over the years, Armani has collected manufacturing companies like others would collect fine art. He now owns four production facilities that make every apparel collection from the Le Collezioni right down to Armani Jeans, ties, underwear and swimwear. When he decided last year to launch accessories, he flirted with the idea of licensing the collection to Gucci. In the end, however, he decided to produce the line in-house.
As for distribution, he owns a variety of companies that oversee sales and store operations in the U.S., Italy, Japan and the Far East. Armani is also swiftly buying back franchises and systematically canceling licenses. In the 1999 report, the designer pointed to his net cash position of more than $335 million, noting it has already been earmarked for investments aimed at building the brand.
Even as Armani builds, the question lingers: Will he or won’t he sell his company? Armani turns 66 next month and has no obvious successors. At the same time, he’s tanned, toned and buzzing with energy. Last year, he told WWD he had a good decade of work left in him.
“Does Armani need to be sold? Does he need to go public? No, I don’t think so,” said Wakely. “I do think, however, that the prospect of such a high multiple has to be opening his eyes a bit.”
Armani has held on-and-off talks with both Gucci Group and LVMH about a possible sale of all or part of the company. And while he said last year that he thought LVMH chairman Bernard Arnault was “simpatico,” and would be interested in a joint venture, he appears to be bucking the idea of relinquishing any control of the company.
Although the LVMH rumor has managed to stay alive in the European press, Armani only last week denied to reporters after his men’s wear show that there’s a deal in the works. “No, there is no accord with LVMH,” Armani said.
And he has, for the moment, ruled out going public, although the financial world is still fantasizing about the prospect of a Giorgio Armani IPO.
When he’s not pondering the fate of his company, friends say Armani genuinely enjoys himself and leads the high life in a typically understated manner. Sources close to the designer said he’s planning to buy a 10-seat private jet — his first ever — although an Armani spokesman could not confirm that information. The same sources say Armani is also having a boat built in Pantelleria, the Italian island off the coast of Tunisia where he has a summer home.
And, after the last double-breasted suit of the season has been sold and orders are ready to roll out of the factory, he unwinds in his homes: the villas in Saint-Tropez and Forte dei Marmi; the villa complex in Pantelleria; the big house in Broni, in northern Italy, and the apartment on the Upper West Side of Manhattan.
“He’s not extravagant and never has been,” says a former employee. “At heart Armani is a very simple person.”

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