WWD.com/business-news/business/prada-net-profit-up-76-in-first-half-7160803/
government-trade
government-trade

Prada Stays Cautious Despite Strong First Half

International volatility impacted sales late last month and may further complicate results in the second half.

MILAN — Prada SpA had a strong first half — but is more cautious about the second.

Lifted by sales at its directly operated stores and led by double-digit growth in Asia-Pacific and the Americas, Prada reported a 7.6 percent rise in net profit to 308.2 million euros, or $400.6 million, in the six months ended July 31, compared with 286.4 million euros, or $369.4 million, in the same period last year. Revenues climbed 11.7 percent to 1.73 billion euros, or $2.25 billion, compared with 1.54 billion euros, or $1.97 billion, last year.

The growth came despite the strength of the euro against the U.S. dollar and Japanese yen, continued weak economies in some regions and tough comparisons from a year earlier. All figures have been converted at average exchange rates for the period in question.

On Tuesday, Prada shares closed down 0.7 percent to 79.40 Hong Kong dollars, or $10.23 at current exchange, on the Hong Kong Stock Exchange.

RELATED CONTENT: WWD Earnings Tracker >>

“We are satisfied with the results achieved in the first half of 2013,” said Patrizio Bertelli, chief executive officer of Prada SpA. “Revenues have increased in all geographical areas where the group operates and we have further improved our operating margins.”

The executive said Prada’s business model has enabled the company “effectively to face the challenges thrown down by an international economic environment which remains uncertain and extremely volatile. The objectives achieved to date, the flexibility of our organizational structure and constant monitoring of the markets mean we can look ahead with confidence to the near future.”

The international volatility Bertelli referred to impacted Prada’s sales late last month and may further complicate results in the second half. “It was a fairly good August organically and like for like, but international tension affected the last couple of weeks and retained tourists from shopping,” said chief financial officer Donatello Galli during a conference call with analysts. He demurred from any projection, in light of “mixed market conditions.”

“We cannot be more precise, we need some more weeks to see where the market is going and if it is going in the right direction. The company will require a prudent approach to operations and cost control but we are not pessimistic. Generally the economy is showing signs of gradual recovery, even in Italy,” said Galli. “We keep investing in the long term, luxury is positive and I feel comfortable now in consolidating the organic growth in the first half.”

During the call, Galli pointed to the increasingly crowded market. “Smaller brands have attained dimension — Céline, Yves Saint Laurent, for example, are much bigger than three or four years ago, now they are reasonably dimensioned and the level of competition has increased. Part of our competitors have pushed on smaller brands. Nobody is standing still, but the market is growing.”

Galli also pointed to currency volatility and “heavy” devaluation of the American dollar and the Japanese yen against the euro, which had a “strong impact” on first-half results.

In the first half, revenues generated by directly operated stores rose 15.7 percent to 1.42 billion euros, or $1.85 billion. As of July 31, the company counted 491 units. Retail accounted for 83 percent of sales. There have been 77 new openings since Aug. 1, 2012.

The wholesale channel showed a 3.3 percent drop in revenues to 285.1 million euros, or $370.6 million, as a result of the selective strategy implemented by the group for the last several years.

Asia-Pacific — and Greater China, in particular — showed a 17.9 percent growth. Asia accounted for 37 percent of sales.

Revenues in Japan accelerated in the second quarter, showing a 16.4 revenue growth in the first half at constant exchange rates, though the ongoing weakness of the yen meant that euro revenues actually fell. Japan accounted for 9 percent of sales. The group is investing in retailing in the region, too, and opened “a very important store” in Kobe three days ago, said Galli.

The Americas rose 13.4 percent, representing 14 percent of sales. In the U.S., the group has been converting 13 shops in department stores in the first six months into concessions to “have better control over different propositions and product flow,” said Galli.

Europe was up 5.6 percent, accounting for 2 percent of sales.

The Prada brand continued to grow, showing a 14.3 percent gain, while Miu Miu was up 4.1 percent. Responding to questions regarding Miu Miu’s lower growth, Galli said the group has “always talked about a medium term [project], brand building takes time, especially in these market conditions.” Galli said the company continues to invest in Miu Miu’s international footprint, having recently introduced the brand in the Middle East, for example. “We cannot put a date, the label is still growing, its ready-to-wear for example is growing more than Prada’s, and apparel is much more difficult, so we pursue with confidence, investing in stores, more communication, and other activities and events,” he said.

Sales at Church’s grew 5.4 percent. However, Car Shoe revenues fell 33 percent, largely because of the decline and reduction of its wholesale channel.

“Car Shoe and Church’s are an opportunity, but we don’t think this is the right moment to launch leather offers,” said Galli. “We are sticking with the larger brands,” he noted, adding that two Church’s units recently opened in China. Asked by one analyst if the group had plans to expand the brand along the lines of Berluti, Galli said: “We cannot exclude anything, but this is not on the table.”

Leather goods accounted for 68 percent of sales, footwear for 16 percent and rtw for 15 percent.

Galli said Prada’s men’s category is growing and now accounts for 30 percent of sales, “in some cases for 40 percent.”

Capital expenditures in the period totaled 293 million euros, or $380.9 million, mainly invested in retailing. In the period, the company purchased venues in Old Bond Street in London and in Saint Petersburg, Russia.

As of July 31, the group’s positive net financial position stood at 195.6 million euros, or $254.3 million, compared with 82.5 million euros, or $106.4 million, last year.