Prada Charts Retail Growth

Spurred by a 33.4 percent increase in its retail channel, the Italian fashion house posted a 74.2 percent jump in net profits in the half.

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MILAN — Prada SpA plans to open 80 stores a year over the next three years as investments in its own retail network drive the company’s growth.

This story first appeared in the September 20, 2011 issue of WWD.  Subscribe Today.

Spurred by a 33.4 percent increase in its retail channel in the six months ended July 31, the Italian fashion house posted a 74.2 percent jump in net profits to 179.5 million euros, or $256.7 million, compared with 103 million euros, or $131.8 million, in the same period last year. Retail sales accounted for 74.8 percent of revenues, which rose 21.1 percent to 1.13 billion euros, or $1.62 billion in the period. Prada said the company invested 134.7 million euros, or $192.6 million, mainly aimed at the expansion of its retail network.

And that expansion will continue for the foreseeable future: Prada aims to have about 550 directly operated stores by the end of 2013.

“This plan is destined to extend the group’s presence both in countries that experience a high growth in the luxury industry, and in areas where the group’s brands are still under represented,” said the company.

At the end of 2013, Prada expects that about half the new stores will be in Asia, with around 50 in China. Investments are also earmarked for Russia, the Gulf region and Latin America, which were previously served through franchising agreements.

During the last six months, the group opened 29 stores, with an additional 15 units in the following weeks, bringing the number of directly operated stores to 358.

In addition to its own retail, Prada pointed to gains in its core leather goods division and advancements at both the Prada and Miu Miu labels for the performance in the first half. The Prada brand grew 21.3 percent, accounting for 78.6 percent of revenues, while Miu Miu gained 24.9 percent, accounting for 17.8 percent of total sales. The group also controls the Church’s and Car Shoe labels.

“I am particularly satisfied with the results obtained in these six months, that confirm our expectations based on the group’s expansion strategy, which was presented to the investors during the road show leading to the IPO on the Hong Kong Stock Exchange,” stated Patrizio Bertelli, chief executive officer of the company. “Achieving these results confirms the soundness of our decisions and, in perspective, lies the foundations on which we will base our trust in the future growth of the group.”

Prada made its debut in Hong Kong on June 24, and the results reported Monday are its first as a public company. However, there was no conference call with analysts and press interview requests were declined.

Despite the increase in profits, Prada’s shares fell 3.7 percent on the Hong Kong Stock Exchange to close at 41.30 Hong Kong dollars, or $5.30 at current exchange. The decline came amidst a generally tough day for global stock markets, which fell sharply on fears over the Greek debt crisis.

Earnings before interest, taxes, depreciation and amortization rose 39.9 percent to 315 million euros, or $450.4 million.

Operating profit increased 47.1 percent to 253.4 million, or $362.3 million.

Dollar figures are converted from euros at average exchange rates.

As of July 31, net debt stood at 135.2 million euros, or $193.3 million, compared with 408.6 million euros, or $555.7 million, at the end of January. The company said it reduced its debt through a capital increase of 206.6 million euros, or $295.4 million, reserved to the market and operations-driven free cash flow. Prada raised about $2.14 billion from the IPO, with a majority of shares coming from existing stock owned by Bertelli’s wife, designer Miuccia Prada, and others in the company. Another major shareholder was Italian bank Intesa Sanpaolo SpA, which sold 102.25 million shares of Prada, representing about 4 percent of the fashion firm’s capital upon the listing, retaining 25.6 million shares.

Asia-Pacific continues to be the group’s largest market with sales of 368 million euros, or $526.2 million, up 35.4 percent compared with the same period last year.

All geographical markets showed gains, with Europe and the U.S. posting 17.2 percent and 16.4 percent growth, respectively. At constant exchange rates, revenues in the U.S. would have risen 26 percent. Sales in Japan were up 8.2 percent.

Prada’s core leather goods business grew 35.3 percent, accounting for more than 55 percent of sales. The company said ready-to-wear was stable, while the footwear division was up 13.3 percent.

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