Most Recent Articles In Business
Latest Business Articles
- Sears in Joint Venture With Simon Property Group
- Marc Jacobs and ImagineX Form Joint Venture
- Aéropostale Narrows Q4 Loss, but Q1 Outlook is Weak
More Articles By
MILAN — “I’m here because I think we need to be more serene and less hysterical.”
So said Patrizio Bertelli, Prada’s chief executive officer, as he took part in a conference call with analysts Monday to calm their nerves over the state of the luxury market.
“I want to reassure you, with a minimum of caution, that I don’t see the market as so disastrous,” said Bertelli. “We are all too aware of political troubles on the southern shores of the Mediterranean, but this has been going on for years and we must be proactive. Brands that have always had a serious way of working have always seen their business increase.”
Bertelli was speaking from a position of strength, for Prada Monday reported a 59.5 percent leap in net profits in the first half to 286.4 million euros, or $369.4 million, powered by growth in all product categories and brands across all geographic markets. This compares with profits of 179.5 million euros, or $231.5 million, in the same period last year.
In the six months ended July 31, revenues gained 36 percent to 1.54 billion euros, or $1.99 billion, compared with 1.13 billion euros last year.
Dollar figures are converted at average exchange rates for the periods to which they refer.
Prada’s first-half numbers were keenly awaited by industry observers, speculating whether Prada would be affected by the signs of a slowdown in China and increased market volatility, also in light of Burberry’s profit warning for the full year issued earlier this month.
Asked by one analyst why Prada was “doing so much better than Burberry,” Bertelli, who clearly expected the question, responded calmly and smoothly that he was “not in the habit of commenting on competitors’ figures and method of operating. It’s unfair because you need to know the issues behind the strategies. What I can tell you is what we think should be done. It’s wrong to level the markets, it’s important to accept the differences between the habits and needs of each market.”
Bertelli dismissed any notions of changes in positioning. “We have every intention to remain a luxury brand through our shows, style and communication,” Bertelli said firmly. “Entry products are not a benefit, they are actually detrimental to the margins. You think you took a shortcut, but it’s actually damaging. You can have a few items just for fun, but it can’t be the basis of your business.”
Bertelli explained that, over the years, Prada has considered flexibility a priority in order to cater to individual market needs. “It helps that we are owners of the whole chain, from the plants that produce anything from apparel to footwear, onwards. This helps us to be more flexible and tackle changes quickly. People tend to forget that we all used to work for the Northern Hemisphere before, now we work also for the Southern one; it’s wrong to work for summer or for fall. We work for single markets and different weathers. Each time we do business plans, this is our path,” said Bertelli.
During the first half, the Prada brand saw sales rise 40 percent, while Miu Miu gained 23 percent. The group has recently been further developing the label with more directly owned stores. Car Shoe was up 16 percent and Church’s 15 percent. Sales of leather goods climbed 52 percent, accounting for 61 percent of revenues. Clothing and footwear were up 17 and 14 percent, respectively.
The company has been investing in its retail chain, which showed a 47 percent gain, accounting for 80.7 percent of sales.
In the period, the Asia-Pacific region recorded a 44 percent spike in sales. It is an area that has undoubtedly contributed to the expansion of the group, but Bertelli put growth opportunities into perspective. “There is a big public that is approaching luxury and it’s not only Chinese. When I read articles in the papers, it all seems excessive. There are many countries where the concept of luxury is developing. Let’s not make the same mistake as in 2005, when people would only perceive China as a producer of low quality goods. China is a modern, developed country with quality products,” he remarked.
Bertelli touted “balanced” investments through all markets. “We must be consistent, have a selective strategy for China. We don’t want to open too many stores and then have to step back.”
He pointed to additional BRIC, or Brazil, Russia, India and China, countries, including Brazil, as contributing to the lion’s share of sales, as did the Gulf countries. Administration and finance director Donatello Galli chimed in, pointed to the Caribbean, Argentina, Mexico and Indonesia, which “has a growth rate that is comparable with China, if not higher,” and Africa.
Despite the lackluster economy in Europe, the increasing number of tourists helped the region post a 31 percent growth in revenues. Bertelli said he refused to take advantage of currencies and that he actually wanted to “reward our traveling customers. I find it psychologically restrictive for shoppers coming to Europe and feel exploited. We must not be selfish, this is our point of view.” He did not forecast any significant increase in prices, except for a 5 percent rise at the most, to make up for currency fluctuations.
Sales in the Americas were up 30 percent and 34 percent in Japan.
In the period, the company opened 28 stores in new markets such as Morocco, Brazil, Mexico and Ukraine. As of July 31, the company had 414 directly operated stores, including 263 Prada boutiques, 102 Miu Miu units, 43 Church’s shops and six Car Shoe stores.
Total capital expenditures in the period stood at 122.7 million euros, or $158.3 million, of which 74 percent were devoted to the group’s retail network expansion.
“The network of shops is a pillar of our growth strategy,” said Galli, who conceded that “there are political problems around the world, but there is not an absolute slowdown. August numbers were in line with the first six months. There is more volatility in September, but we are not so pessimistic. We have tough comparables and you cannot expect us to deliver a 20 percent like-for-like store growth for the whole of 2012, but we think a good double-digit growth is really feasible.”
Bertelli said the performance in August and September was in line with July. “We don’t want to test our luck, we want to be cautious and employ our common sense, but the numbers are the same as in July. Based on first-quarter figures and those from August and September, we are convinced that we will reach our budget goals and that we can further improve our EBITDA [earnings before interest, taxes, depreciation and amortization].”
Bertelli went on to say that the market always rewards those that “are engaged in the short term, those that focus on the markets and the needs,” adding that growth is taking place while reducing stock of finished goods and raw materials, which “is not easy.”
Cash flow allowed the company to pay dividends of 126 million euros, or $162.5 million, to shareholders and improve the group’s net financial position which, as of July 31, stood at 82.5 million euros, or $106.4 million, compared with a net debt of 135.2 million euros, or $193.3 million, at the end of July last year.
On Monday, Prada shares closed up 1.18 percent at 59.95 Hong Kong dollars, or $7.73 at current exchange, on the Hong Kong Stock Exchange.