And without the armor, where does his materia go? In his "comb"?
Well, yeah. If he can't equip any armor ingame, then obviously, there are no materia slots in his armor for him to utilize. But he still has his weapons, which have materia slots for him to make use of.
Removing Red XIII's ability to equip armor will seriously limit him late in the game no matter how high his stats are. Unlike the other characters, he'll never be able to have any elemental resistances or status immunities without the use of Resist or Shield. I don't agree with removing his ability to equip armor, but if you do, it only makes sense to make his stat growths super uber.
What I would recommend is perhaps changing one or two pieces of armor so that they are exclusive to Red XIII. He can have a basic piece of armor that he comes equipped with, and perhaps a better piece of armor that he can acquire later (maybe as a drop from Lifeform Hojo-N, who only drops a measly Power Source by default).