Prada Bullish on Year Ahead

The luxury brand, which reported a 44.9 percent increase in net profits in the year ended Jan. 31, forecasted single-digit growth in 2013.

MILAN — Prada SpA had a strong 2012 — and expects the momentum to continue this year.

This story first appeared in the April 8, 2013 issue of WWD.  Subscribe Today.

The luxury brand reported a 44.9 percent increase in net profits in the year ended Jan. 31, touted confidence in the medium-term outlook and forecasted single-digit growth in 2013, despite challenging market conditions. During a conference call with analysts, chief executive officer Patrizio Bertelli stood by the company’s retail strategy, expressing confidence in the flow of tourists shopping globally and in further growth in China while underscoring the need to continue to make interesting product.

Net profits last year totaled 625.7 million euros, or $800.9 million, compared with 431.9 million euros, or $587.4 million, in the year-ago period.

Group revenues gained 29 percent to 3.29 billion euros, or $4.24 billion.

Dollar amounts have been converted at average exchange for the periods in in question.

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Bertelli trumpeted “new records in terms of revenues and earnings” last year. “Based on these results and a sound equity and financial structure, we will proceed along our path of growth with further investment on retail network expansion, confident that, general economic uncertainty notwithstanding, the work that has been done over the past few years has laid the foundations for the future success of our business,” he said.

The company last year continued to expand its network of directly operated stores, opening 78 units, along with the refurbishment and extension of existing stores, strengthening its position in established markets while also entering into new ones. Units opened in Moscow, Houston, Paris, Japan’s Nagoya, Morocco’s Casablanca, Dubai, Ukraine’s Kiev, São Paulo and Kuwait City. The company now has 461 directly operated stores. Directly operated stores showed a 35.6 percent increase in revenues to 2.66 billion euros, or $3.4 billion, accounting for 81.8 percent of sales. “For us, the strategy is retail. Full stop,” said administration and finance director Donatello Galli during the call.

Wholesale revenues grew 6 percent to 592.2 million euros, or $758 million, despite the reduced number of third-party points of sale.

In the year, earnings before interest, taxes, depreciation and amortization rose 38.6 percent to 1.05 billion euros, or $1.34 billion, representing 31.9 percent of total sales.

Operating profit gained 41.5 percent to 889.8 million euros, or $1.14 billion. Earnings per share increased by 41 percent to 0.24 euros, or 31 cents, in 2012.

Royalties gained 26.4 percent mainly thanks to the launch of the new Prada Phone by LG cell phone, which sold more than 500,000 units.

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The leather goods category grew 42.7 percent, while apparel and footwear increased by 9.9 and 11.7 percent, respectively.

The Asia-Pacific area continued to be key for Prada, showing a 32.9 percent increase and reaching 1.16 billion euros, or $1.48 billion.

“In 2013 we will start looking at China with even greater attention,” said Bertelli. “We have fewer stores in China compared with our competitors. We’ve opened more slowly and now we have to catch up.”

Galli chimed in, saying that although the general “market conditions are mixed, we are comfortable with Chinese spending and confident on the driving force of Chinese consumers.” At the same time, Bertelli stressed that he has “no intention of flooding the market [with merchandise]. The right amount is crucial for a luxury product.”

Despite the lackluster economy in Europe, the continent was up 28.6 percent. The Americas showed a 23.3 percent increase. The company noted that Japan remained a relevant market, growing 14.2 percent.

Looking ahead, Galli said he was “comfortable with a high-single-digit increase in the year, it’s feasible,” although he pointed to a “challenging context in the year, nasty weather in Europe in March, and Korea causing concerns,” among some of the issues. “We have good expectations for the whole year, but we will have a clearer idea and more elements at the end of May or June.”

Prada closed the year with a positive net financial position of 312.6 million euros, or $400 million, at the end of January, compared with 13.6 million euros, or $18.5 million, on Feb. 1, thanks to strong cash flow.

Asked about future pricing adjustments, Bertelli said he was “interested in growing in terms of volumes and not in terms of pricing, which should not be a leverage, and we should make changes only when there is a real need to balance or [for] fine-tuning. The price is not an end.”

In a Citi Research note, analyst Thomas Chauvet said there was “no clear message around [Prada’s] pricing strategy and recent price increases; generally we think Prada is less concerned than most peers by the impact of currency fluctuations on regional price gaps.”