MILAN — Prada SpA is in transition — and its profits are feeling the impact.
The luxury fashion house on Thursday reported a 23.8 percent drop in net profits for the first quarter, hit by currency headwinds and the rationalization of its wholesale channel. Chief executive officer Patrizio Bertelli and the group’s management are taking the sharp decline in stride, though, saying it stems from the company’s already-outlined plans for a year of consolidation.
“When presenting our results for 2013, we stated that our objective for 2014 would be to consolidate the position of the Prada Group at the top of the luxury goods segment with industrial, marketing and retail investments, primarily aimed at reinforcing business know-how, the quality of our products and relations with our customers,” said Bertelli.
During a conference call with analysts, chief financial officer Donatello Galli echoed the ceo’s sentiment, saying that projections for the end of the year “will not be very different from 2013,” citing the introduction of new products, a focus on subsidiaries and cost-cutting measures.
“We cannot forget that in the past few years, Prada outperformed the market, with a growth of more than 64 percent in leather goods in the past two years, and now [this category] is broadly in line [down 2.6 percent] with the first quarter last year. We are in a natural consolidation phase,” said Galli.
The leather goods market, the executive noted, is “more crowded than in the past,” and the group is “pushing” and further developing the apparel and footwear divisions, as well as its successful men’s wear. Prada has been aiming at a more balanced product portfolio, pushing innovation across the board, he added. Apparel and footwear in the first quarter showed growth of 14.1 and 16.2 percent, respectively.
In the three-month period ended April 30, the group posted net profits of 105.3 million euros, or $144.2 million, compared with 138.2 million euros, or $181 million, in the same period the previous year.
Revenues decreased 0.6 percent to 777.7 million euros, or $1.06 billion, from 782.3 million euros, or $1.02 billion. At constant exchange, revenues would have grown 3.8 percent.
Figures are converted at average exchange rates for the three-month period to which they refer.
“We do not believe that the current difficult macroeconomic environment, made all the more complex by unfavorable foreign exchange trends, will impact the plans for corporate growth presented to the market as these plans are geared towards the group’s expansion in the medium [and] long term,” continued Bertelli. “The trend of solid growth maintained in the retail channel confirms that we have made the right strategic decisions and encourages us to continue along our current path.”
In the quarter, the 551 directly operated stores generated sales of 697.8 million euros, or $956 million, up 2.8 percent on the same period last year.
Galli said that the strategy of wholesale rationalization, which affected the first quarter the most, will be completed in 2014 and that it has led to a 24.7 percent fall in wholesale sales, in line with expectations, touching all product categories and mostly influencing the Miu Miu brand.
In the period, operating profit dropped 20.1 percent to 156.3 million euros, or $214.1 million, representing 20.1 percent of sales.
Earnings before interest, taxes, depreciation and amortization decreased 11.2 percent to 213.9 million euros, or $293 million, and 27.5 percent of sales.
The contribution to margins of apparel and footwear will increase in the long term, said Galli, who declined to provide a general forecast on margins, saying he needed “more time,” given the limited visibility.
In his first call since his appointment as chairman of the company in February, Carlo Mazzi said Prada will “pick up, in line with 2013,” and pointed to “the reorganization of the firm, with a new global direction for operational, marketing and communication, and all activities of business development.” He reiterated that, last week, the company promoted its communication and external relations director Stefano Cantino to a new position overseeing marketing, communication, license management and new business. He will also be responsible for the wholesale and e-commerce channels.
Mazzi highlighted how the group plans to “improve [its] little brands, Church’s and Car Shoe,” mirroring Bertelli’s comments in April during a meeting with investors and the press. In the first quarter, Church’s, with sales of 10 million euros, or $13.7 million, was up 13.5 percent, while Car Shoe revenues of 1.5 million euros, or $2 million, decreased 4 percent.
Sales of the Prada brand rose 2.8 percent to 584.8 million euros, or $801.2 million, posting “excellent” performances in Japan and the Americas. The company underscored the “excellent” results achieved by all categories of men’s products.
Miu Miu was up 1.9 percent to 101 million euros, or $138.3 million, in all geographical areas except Italy, and logged double-digit growth in relevant markets such as Asia-Pacific, the Americas, Japan and the Middle East. Galli said the evolution of Miu Miu is “still not finished, definitely products have and will be changing, and we have done very effective merchandising. We are more confident. While in some areas it is still lacking the same awareness of the Prada brand, in others it’s doing even better, in Russia, for example.”
Galli pointed to the need for the group to fully understand an evolving market and changing consumer spending patterns, taking “a more comprehensive approach to merchandising, not only in a strictly operational way, but integrating communication and promotion.”
Asked by one analyst about flash collections, Galli said the company is making changes. “They are a very important part — one-third of sales, but even this concept will be new in the future. We are moving towards a continuous, more flexible approach to merchandising. While I’m not saying we invented it, we were the first to extensively do flashes, but now we are working on a concept to differentiate merchandising, which is what markets want; the lifespan [of fashion] is short,” he said.
At the group level, sales in the Asia-Pacific area inched down 1.2 percent to 286 million euros, or $392 million, but would have showed a 4 percent increase at constant exchange rates. The performance of this area was affected by a slowdown in South Korea, Hong Kong and Singapore, while China, Macau and other Asian markets continue to show healthy rates of growth. Galli said Mainland China was still a “ very positive market” for the group, with a high-single-digit growth rate.
“The movements of the Chinese are very important,” said Galli. “We are seeing less tourist spending in Europe, and this is also affecting Hong Kong more than in the past. The composition of travelers and consumer spending patterns are different, raising questions and opportunities for company.”
Also, Hong Kong is “physically changing with new shopping areas, occupancy rates in hotels are declining on holiday occasions, and daily trippers are shopping in a different way,” he noted, adding that increasing competition and the high exposure of brands “can be saturated” in that market.
Singapore and South Korea were affected by drops in Chinese and Japanese spending. “We are largely dependent on what Chinese travelers are doing,” said Galli. Taiwan and Thailand are also performing well, despite political troubles in the latter. Macau is “resilient to any changes, always extremely positive.”
Despite harsh weather conditions, the Americas reported a 9.5 percent gain in retail sales to 82.1 million euros, or $112.4 million.
Revenues in Europe were in line with the same period last year, up 0.2 percent to 213.9 million euros, or $293 million, affected by a slump in tourism due to the further strengthening of the euro and geopolitical problems in Russia.
Despite the weakening of the yen, Japan continued to “perform extremely well” showing 17.1 percent growth to 92 million euros, or $126 million.
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye