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Prada Nine-Month Net Leaps 50%

Italian luxury firm was driven by growth in its leather goods category and a robust performance of its retail network.

The Prada boutique at Charles de Gaulle.

MILAN — Prada SpA logged another strong nine months, posting a 50 percent gain in net profits to 408.6 million euros, or $523 million, in the period ended Oct. 31.

This compares with 273.2 million euros, or $382.5 million, in the same period last year.

The Italian luxury firm, driven by growth in its leather goods category and a robust performance of its retail network across all geographic markets, registered total revenues of 2.33 billion euros, or $2.98 billion, up 35 percent compared with last year’s 1.73 billion euros, or $2.42 billion.

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Dollar figures are converted at average exchange rates for the period to which they refer.

Chief executive officer Patrizio Bertelli called the period “another extremely satisfactory quarter.” The growth has continued “at a rate that has exceeded our expectations but great care has still been paid to cost control and working capital management,” he said, underscoring the company’s ability to grow despite the tough international economy.

The company saw double-digit growth in all markets around the world, including Europe, where revenues increased 33 percent, boosted by the flow of tourists to the continent. “It’s a sudden movement of tourists, unexpected in magnitude,” said administration and finance director Donatello Galli in a conference call with analysts on Thursday, pointing to a number of existing stores in Europe performing “even better” than new ones in regions such as China, while saying that markets are, “all in all, balanced.”

The executive said the U.S. and Japan “will be a major focus” for the group in 2013 and 2014. “Our positioning in the U.S. has to be improved. We started two years ago but we will accelerate next year covering areas where we are not present,” said Galli.

The company will further develop its retail network in 2013 and 2014 in America. “We are still [behind] our competitors in terms of directly operated stores and the balance with wholesale is not correct at the moment. We are rebalancing retail and wholesale at the expense of the latter,” he explained.

Revenues in the first nine months were up 28 percent in the U.S., although Galli said the third quarter was “softer — we can do a little bit better.”

Sales in Japan climbed 27 percent in the period, and Galli said the market “can deliver even if it is not in great condition. We are doing an operational review in Japan to see if we are correctly placed, we will use different marketing tools, we will keep renovating shops, and [evaluate our] communication and product range to improve our performance. To say that Japan has been stable for the past 10 years is to use a euphemism.”

In line with the group’s strategy, Prada continued to expand its retail network with the opening of 42 stores in the first nine months of the year, entering new markets such as Brazil, Mexico, Morocco, Ukraine and Kuwait. Since the end of October, 13 additional units were opened.

 

In the nine months, sales at directly operated stores rose 43 percent to 1.92 million euros, or $2.46 million. Capital expenditures totaled 203 million euros, or $260 million, mainly aimed at new openings, refurbishments and relocations. At the end of October, the company counted 428 directly operated stores.

The wholesale channel was up 6 percent compared with last year.

Sales of the Prada brand rose 39 percent to 1.87 billion euros, or $2.4 billion, accounting for the bulk of total revenues. The group has been pushing the expansion of the Miu Miu label, which showed a 21 percent gain. Galli said the opening of a Miu Miu store in Beijing last week was “a bold statement,” and that the company has plans “to continue to invest in style, shops and communication, to properly differentiate it from Prada. A brand without identity goes nowhere.”

He referred to “extremely good results” in Kuwait, which Miu Miu has entered for the first time, and to the brand’s pop-up women’s member’s club in London this week that “will be replicated in Europe.” He predicted that Miu Miu “will become one of the biggest brands in the luxury arena.” 

Sales of the Church’s label grew 15 percent and those of Car Shoe by 8 percent.

In terms of categories, leather goods sales climbed 51 percent, which Galli partly attributed to the exposure to Asia and to travel retail, and accounted for 63 percent of consolidated sales. Clothing and footwear each recorded increases of 15 percent. 

Galli said that, in the third quarter, Prada incurred a one-off tax payment of 42 million euros, or $53.7 million, which referred to the 2010-2011 period. “We don’t agree with the tax authority on this, we filed our opposition to this and are claiming our money back. We paid because there was the risk of incurring further penalties,” said the executive, hinting at fashion and digital companies being under scrutiny here at the moment. “This is a dispute on taxation of part of the income generated outside Italy, in reference to our Dutch subholding, which controls our business in some Far East countries.”

On Thursday, Prada shares closed up 2.4 percent at 64.50 Hong Kong dollars, or $8.32 at current exchange, on the Hong Kong Stock Exchange.