Armani’s value goes beyond style

By Elisa Anzolin, Dominique Patton and Mimosa Spencer

MILAN (Reuters) -Armani’s economic value goes well beyond its stagnating fashion business and potential bidders are likely to take a close look at sales generated by fragrances and frames sold under the late designer’s name, industry sources and analysts say.

The fashion house founded by Giorgio Armani 50 years ago reported revenue of 2.3 billion euros ($2.71 billion) last year, down 5% from a year earlier amid a global luxury slowdown and as a turn to casualwear reduces the appeal of its classic suits.

But filings by the Italian company show that figure nearly doubles, to 4.25 billion euros, with the inclusion of sales from beauty and eyewear – made under licence since 1988 by L’Oreal and EssilorLuxottica respectively.

Giorgio Armani’s will, published last week following his death on September 4, named those two companies alongside French luxury giant LVMH as potential buyers of the business.

Armani-branded perfumes and beauty products in L’Oreal’s portfolio generate around 1.5 billion euros a year, industry sources and analysts estimate, while Armani eyewear contributes about 500 million euros for EssilorLuxottica.

Just over one-tenth of that goes to the Armani group as royalties, according to Reuters calculations based on filings.

Sales of licensed products could be fundamental to determining the price of Armani in a possible transaction, according to an industry source who has worked at a potential suitor.

While operating profit for Armani group, which depends largely on fashion, shrank to 3% of net revenue last year, the beauty and eyewear businesses are potentially more lucrative. L’Oreal reported an overall operating profit margin of 20% last year, while EssilorLuxottica’s stood at nearly 17%.

The Armani brand is “great eyewear, great beauty, a great legacy, but the ready-to-wear brand today is not the hottest on the planet,” HSBC analyst Erwan Rambourg told Reuters.

LICENCES CENTRAL TO POTENTIAL SALE

Armani’s licence with EssilorLuxottica, in which the designer owned a 2% stake, was renewed in 2023 for 15 years. And the deal with L’Oreal runs until 2050.

Aware of the importance of these collaborations, Giorgio Armani’s will states that priority for any sale should be given to groups with which his company “already has a partnership”.

EssilorLuxottica and L’Oreal said last week they would assess a possible investment in Armani, which the will says should initially be a 15% stake. A second, larger stake should be transferred later to the same buyer or a listing sought, the will says.