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Dolce & Gabbana hits €1.9b revenue as losses widen; pivot to beauty, ME

Bottom Line Impact

Revenue growth is being driven by beauty and wholesale, but margin compression and higher leverage threaten sustainability; decisive cost resets, a pivot to beauty and Middle East retail, and disciplined vertical integration are required to stabilize profitability and protect brand equity over the next 12 months.

Key Roles Affected

CFOCEOCMOCOO

Executive Summary

Dolce & Gabbana delivered €1.9b FY2025 revenue (+4% reported, -0.2% cc) while profitability deteriorated sharply, with net loss widening to €116.8m and net debt rising to €453m. The mix is tilting toward wholesale and fast-growing in-house beauty (+30% to €603m), with Middle East strength offsetting softness in Europe and China; urgent cost, capital, and channel resets are required to stabilize margins and preserve brand equity.

Actionable Insights

Immediate Actions (Next 30-90 days)
Execute a 2-quarter cash war room: cut non-essential capex by 25-30%, reduce Opex by 8-10%, and target -10 days inventory reduction
Rationale: Net debt at €453m and widening losses heighten covenant and liquidity risk; rapid cash release protects optionality and rating
Role affected:CFO
Urgency level:immediate
Reallocate 20-30% of brand and performance spend toward beauty hero franchises and Middle East activation; expand travel retail doors by 10-15%
Rationale: Beauty is comping +30% and Gulf demand is robust; concentrating spend where elasticity is highest drives faster cash breakeven
Role affected:CMO
Urgency level:immediate
Short-term Actions (6-12 months)
Pause new retail openings outside the Middle East and initiate a footprint review to close or resize 10-15% lowest productivity stores in Europe and China
Rationale: Retail comps are negative and store Opex is inflating; focusing on high-ROI geographies preserves margin and brand elevation
Role affected:CEO
Urgency level:short-term
Integrate the Fabi/Barracuda unit with a 6-month plan to reach >70% factory utilization and shift 20-25% of footwear volume in-house
Rationale: Verticalization can add 150-250 bps to gross margin and improve speed-to-market if utilization and sourcing mix are optimized
Role affected:COO
Urgency level:short-term

Strategic Analysis

Next 30-90 days require liquidity defense and margin triage: slow discretionary capex (non-critical ICT and store fit-outs), rephase marketing to beauty and Middle East doors, tighten Opex and negotiate rent relief in underperforming European and Chinese locations, and manage wholesale orderbook quality for Spring-Summer assortments to protect price integrity and cash conversion.

Over 6-12 months, the brand must rebalance toward higher-velocity, higher-margin beauty and selected Middle East retail while rationalizing the European and China footprint; vertical integration via Manifatture Italiane can add 150-250 bps to gross margin on footwear by FY2026 if utilization exceeds 70%, but working capital discipline is critical. A cost program targeting €40-60m annualized savings (8-10% addressable Opex) could lift EBITDA margin from ~1.6% to 4-5% by FY2026 alongside mix improvements.

Peer houses face China softness and are leaning on beauty resilience and Gulf demand; D&G's 46% wholesale mix offers near-term cash but risks brand dilution versus DTC-led competitors. Accelerating beauty scale narrows the gap with peers building beauty engines, while Middle East flagships can capture luxury outperformance where competitors are intensifying investments.

Verticalized footwear reduces supplier dependency and lead times but increases inventory and labor commitments; wholesale partners will push for extended terms amid retail softness, pressuring working capital. Landlords in Europe may concede rent adjustments to retain footfall anchors; beauty distributors and travel retail can absorb incremental volume if marketing and pricing are aligned.

Risks & Opportunities

Primary Risks

  • Liquidity and leverage risk from -€453m net financial position and rising interest costs
  • Brand equity erosion via deeper wholesale reliance and potential markdowns in weak markets
  • Integration risk of acquired footwear operations leading to cost overruns and inventory build

Primary Opportunities

  • Scale beauty globally to sustain double-digit growth and margin mix uplift
  • Middle East expansion with high productivity flagships and localized assortments
  • Gross margin gains from verticalized footwear and tighter SKU productivity management

Market Context

China's luxury demand remains uneven with negative to low-single-digit comps for many houses, while the Middle East outperforms on tourism and local wealth; beauty is the most resilient luxury sub-sector with sustained double-digit growth and strong travel retail recovery. D&G's elevated wholesale mix contrasts with top-tier peers' DTC focus, raising near-term cash but medium-term brand control risks; accelerated beauty and Gulf focus align with sector tailwinds, while European store rationalization addresses structural traffic softness.

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