Armani’s value goes beyond style

Armani’s business value extends far beyond its roots in luxury fashion. With the late designer’s name attached to high-performing beauty and eyewear licenses, analysts say these categories could prove crucial for any potential buyers.

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

However, filings by the Italian company show that figure nearly doubles to €4.25 billion with the inclusion of sales from beauty and eyewear — products made under license since 1988 by L’Oréal 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’Oréal’s portfolio generate around €1.5 billion annually, according to industry sources and analysts, while Armani eyewear contributes approximately €500 million to 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 a fundamental factor in determining the price of Armani in a potential transaction, according to an industry source who has worked at a possible suitor.

While operating profit for the 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’Oréal 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.

Licenses central to potential sale

Armani’s license with EssilorLuxottica — in which the designer held a 2% stake — was renewed in 2023 for a 15-year term. The deal with L’Oréal 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’Oréal said last week they would assess a possible investment in Armani, which they will initially hold as a 15% stake. A second, larger stake should be transferred later to the same buyer or a listing sought, the will says.

LVMH, controlled by French billionaire Bernard Arnault, said it was honored to be named as a potential partner.

Maintaining control of the sizeable Armani license through a large stake purchase would be more significant for L’Oréal than for EssilorLuxottica.

A bid by L’Oréal for Armani may follow the precedent set by beauty group Estée Lauder, which purchased fashion label Tom Ford in 2022 — keeping the fragrances but granting long-term licenses to other players for apparel and eyewear.

Armani is “highly regarded” as a beauty brand, said Morningstar analyst Dan Su. It is also one of the best-known names in men’s fragrances, a segment that is booming. L’Oréal CEO Nicolas Hieronimus told Reuters in July that its “Stronger With You” fragrance was a “phenomenon” among younger men.

Managing a fashion label in addition to beauty could add complexity for L’Oréal.

And despite their long collaboration, Armani would be a tough nut to crack for EssilorLuxottica, which dipped into fashion by acquiring streetwear brand Supreme in 2024, but has emphasized its aim to become a med-tech group.

LVMH, with its depth and breadth of luxury expertise, would have the ability to manage a full acquisition that brings in-house the full suite of Armani’s sprawling businesses, several industry experts said.

The French conglomerate could manage eyewear via its Thelios unit, while beauty is already a core business.

But LVMH may struggle to bring Armani beauty and eyewear in-house any time soon, given the existing long-running licenses.

Boss Arnault would also have to cohabit with a foundation set up by Armani that will hold de facto veto powers.

“LVMH and L’Oréal are like chalk and cheese,” said Rambourg.

($1 = €0.8474)