MILAN — Despite the uncertain economy, Prada SpA saw profits and sales soar in the first quarter, lifted especially by growth in the Asia-Pacific region and Europe, and a strong performance in leather goods.
This story first appeared in the June 8, 2012 issue of WWD. Subscribe Today.
In the period ended April 30, the Italian luxury firm’s net profits climbed to 121.7 million euros, or $160.6 million, up 111 percent from 57.7 million euros, or $80.7 million, in the same period the previous year.
Revenues gained 47.9 percent to 686.7 million euros, or $906.4 million, from 464.3 million euros, or $650 million.
Dollar figures are converted at average exchange rates for the periods to which they refer.
Chief executive officer Patrizio Bertelli said he was extremely pleased with the performance, especially in light of the “uncertain and very unpredictable international environment.” Bertelli touted Prada’s global “balanced geographical presence” and the strength of the group’s brands. “We remain confident of our ability to achieve our objectives and shall closely monitor the economic situation in the countries where we operate to ensure that our strategy of medium-term growth is compatible with requirements on the various markets,” concluded Bertelli.
Earnings before interest, taxes, depreciation and amortization climbed 77.2 percent to 200.1 million euros, or $264.1 million, and operating profit gained 105.6 percent to 164.8 million euros, or $217.5 million.
All the group’s brands showed growth, led by the Prada label, where sales rose 53.2 percent to 541.5 million euros, or $714.8 million. Miu Miu was up 30.8 percent, totaling 107.3 million euros, or $141.6 million, and, during a conference call with analysts on Thursday, administration and finance director Donatello Galli reiterated Bertelli’s comments in March about further developing the label. “We are well on track for the brand to reach sales of 700 million or 800 million euros [$1 billion or $1.2 billion at current exchange] by 2013 or 2014,” said Galli. “Miu Miu has a lot of potential in China and other emerging markets.”
Footwear labels Car Shoe and Church’s gained 44 and 19 percent, respectively.
Sales of leather goods increased 58.2 percent and now account for more than 62 percent of consolidated revenues, which Galli also attributed to the fast-growing markets in the Far East and more consumers from that region traveling. Clothing and footwear grew 29.7 and 36.3 percent, respectively. Shoes accounted for 20 percent of sales, while apparel, 17 percent.
Geographically, Europe showed 55.5 percent growth, boosted by the rising number of tourists, and accounted for 22 percent of sales. On the domestic front, which accounted for 16 percent of sales in the quarter, Galli said he “cannot think it will surge in the second half; it will stay weak.” He remarked that “Italians are buying less food, can you imagine them buying more bags? The mood is not good.”
Galli quoted Bertelli saying that this year in particular calls for “a look [at the business] on a day-to-day basis.” Prada’s chief, said Galli, has also hinted at a possible “gradual increase of prices, up to 10 percent over the next month if the euro stays weak, although the company is not dependent on euro spenders.” Without being specific, the executive pointed to “very important appointments” over the next few months, meaning the economic situation in Greece and Spain.
Sales in the Asia-Pacific region increased 46.9 percent, and represented 38 percent of revenues; the Americas grew 34.1 percent and the U.S. accounted for 13 percent of sales. Japan, which accounted for 10 percent of revenues, was up 38.7 percent. Galli said the geographic balance, which has been “key and over the years served [the company] well, is becoming more and more crucial.”
In the quarter, sales from directly operated stores totaled 569.7 million euros, or $752 million, up 49 percent compared with the same period last year. Wholesale revenues, which accounted for 15 percent of sales, grew 41.5 percent, which the company partially attributed to delayed deliveries from the previous year.
International expansion in the quarter included the opening of eight directly operated stores in Paris, London, Moscow (two), São Paulo, Mexico City, Hangzhou, China, and in Sardinia’s resort town Porto Cervo. Seven more units were unveiled in the weeks following the end of the first quarter, for a total of 402 directly operated stores.
Galli said the company is “well on track” in terms of store development, with more openings expected in the second half. “We have 50 percent of contracts signed, there is a possibility to slow down if something very negative should happen,” said Galli. He underscored that the company is not changing its expansion plans even with the uncertain global economy. For example, with its 26 stores in China, “there is no overexposure” in that area, said Galli, adding that the region is expected to count 50 boutiques by the end of 2013.
Generally speaking, the executive said he was neither “too optimistic” nor “too pessimistic,” and that the group’s strong results in the first quarter were “even a little unexpected.”
Cash flow helped finance the group’s capital expenditure for the period, which totaled 55.3 million euros, or $73 million, compared with 45 million euros, or $63 million, last year, and was mainly aimed at the expansion and renovation of its retail chain. Prada channeled about 10 million euros, or $13.2 million, into the acquisition of industrial facilities.
As of April 30, Prada’s net financial position stood at 122.4 million euros, or $161.5 million, compared with a debt of 375.8 million euros, or $526.1 million, at the end of April 2011. Prada’s initial public offering in Hong Kong last summer and the high level of operating cash flow enabled the group to finance its capital investment during the fiscal year ended Jan. 31 and achieve a positive net financial position of 15.8 million euros, or $21.9 million as of Jan. 31.
On Thursday, Prada shares closed down 2.36 percent to 45.45 Hong Kong dollars, or $5.85 at current exchange.