*

Armani's economic value extends beyond fashion to beauty

and

eyewear

*

Licences with L'Oreal and EssilorLuxottica crucial for

Armani's

valuation

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Armani revenue at over 4 bln euros including sales from

beauty,

eyewear

*

LVMH could incorporate all strands of Armani business

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Long duration of licences creates a challenge

By Elisa Anzolin, Dominique Patton and Mimosa Spencer

MILAN, Sept 17 (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.

LVMH, controlled by French billionaire Bernard Arnault, said

it was honoured to be named as a potential partner.

Maintaining control of the sizeable Armani licence through a

large stake purchase would be more significant for L'Oreal than

for EssilorLuxottica.

A bid by L'Oreal for Armani may follow the precedent set by

beauty group Estee Lauder, which purchased fashion label Tom

Ford in 2022, keeping the fragrances but granting long-term

licences 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'Oreal

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'Oreal.

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

stressed 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 licences.

Boss Arnault would also have to cohabit with a foundation

set up by Armani that will hold de facto veto powers.

"LVMH and L'Oreal are like chalk and cheese," said Rambourg.

($1 = 0.8474 euros)