MILAN — The Miuccia and Raf show appears to be working.
Prada SpA on Monday reported a return to profitability in 2021 after a strong second half, driven by increased sales of handbags, footwear and ready-to-wear, which saw a 53 percent jump in revenues compared with 2020 and a 16 percent increase on 2019. Raf Simons was named co-creative director of the Prada brand in February 2020 and he and Miuccia Prada showed their first codesigned collection for spring 2021.
The strong increase in the brand’s sales last year also was driven by other product categories, including hats, jewelry and a home collection. Prada saw a sharp acceleration across the board in retail sales, including online, especially in the Americas and Asia Pacific markets.
In the 12 months ended Dec. 31, net profit climbed to 294 million euros compared with a net loss of 54 million euros in 2020. In 2019, net profit amounted to 256 million euros, but that figure was lifted by the Patent Box tax benefit.
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In 2021, revenues totaled 3.36 billion euros, climbing 41 percent from 2.42 billion euros in 2020. Compared with 2019, sales rose 8 percent. In the second half of 2021, sales grew 16 percent compared with the same period in 2019.
“The Prada Group’s start to 2022 has been strong,” said chief executive officer Patrizio Bertelli. “Our long-term strategy is on track, focused on distinctive brand identity, product quality and industrial know-how, direct distribution and sustainability at the core of our values. Decisive actions to evolve the business and navigate the changing luxury market drove outstanding growth and increased profitability in 2021.”
Based on these results, Bertelli expressed “confidence to achieve our medium-term targets, even though it is difficult to predict the impact of the Ukraine conflict on the global economy. Our concern is for all our colleagues and their families affected by the war, for the local communities and all people suffering and we will continue to support them.”
As reported, Prada suspended its retail operations in Russia earlier this month.
During a call with analysts, chief financial officer Alessandra Cozzani highlighted “the quality growth on all levels above pre-pandemic” figures and an “excellent start of 2022.”
Executive chairman Paolo Zannoni said 2021 was “a turning point,” reporting strong growth in America, Europe and the Middle East.
The year 2022 started in a “robust” manner and the group is “on track to deliver its medium-term promise” of revenues of 4.5 billion euros and an EBIT margin of 20 percent in the medium term. He admitted “the uncertainty and volatility of the moment does not allow to foresee the impact of current events on the luxury industry, but we are closely monitoring [the situation] to react swiftly to unexpected developments.”
Analysts obviously pressed for more details about Russia and Zannoni said the impact on the country, which accounts for between 1.5 and 2 percent of sales, was “not material,” although he conceded it’s “potentially an important market.” The group’s 13 stores in Russia are all directly operated, and even the business with the Tsum and Gum department stores is made through Prada’s own e-commerce platform.
“We have removed our products from stores and windows, [business] is completely stopped,” he said.
In 2021, global retail sales climbed 40 percent to 2.93 billion euros compared with 2020, and 15 percent compared to 2019. The growth last year was driven by full-price sales and local spending with a strong acceleration in the second half of 2021. The trend further accelerated in the year as the group’s retail sales in the fourth quarter rose 24 percent compared with the same period in 2019.
In 2021, the company opened 80 pop-ups, and 120 stores were partially renovated for both the Prada and Miu Miu brands. As of Dec. 31, the group had 635 directly operated stores.
Online sales accounted for 7 percent of retail sales, growing fivefold compared with 2019. Compared with 2020, they rose 61 percent.
At constant exchange rates, the wholesale channel registered a 41 percent increase to sales of 386 million euros. Compared to 2019, wholesale revenues were down 29 percent, in line with the group’s strategy to rationalize the channel, which is not completed yet.
Operating profit amounted to 489 million euros, or 14.5 percent of revenues, compared with 20 million euros in 2020.
By brand, Prada sales amounted to 2.53 billion euros, accounting for 87 percent of the total. At constant exchange rates, they were up 44 percent on 2020 and 21 percent on 2019.
Miu Miu sales amounted to 347 million euros, up 20 percent on 2020 and down 7 percent on 2019. The company cited the success of the brand’s denim collections and the Upcycled by Miu Miu collaboration with Levi’s.
Sales of the Church’s brand totaled 30 million euros, up 11 percent on 2020 and down 41 percent on 2019, heavily impacted by the unfavorable geographic exposure since around 80 percent of sales is generated in the European Union.
By geographies and at constant exchange rates, sales in Europe stood at 749 million euros, up 35 percent compared with 2020 and down 11 percent compared to 2019. However, the group saw a positive change in the sales trend in the second half, reporting 2 percent growth compared with the same period in 2019.
Sales in Asia Pacific amounted to 1.19 billion euros, up 29 percent compared with 2020 and up 30 percent compared to 2019. There was sustained demand in key markets throughout the period compared with 2019 as sales in China were up 56 percent. Sales in South Korea and Taiwan rose 90 percent and 61 percent, respectively.
Bertelli said China’s new COVID-19 clusters created instability and were unexpected yet despite the complexity derived by the Russian war, “the high level of performance in other countries partially offset China’s and Russia’s contribution.”
The Americas saw a sharp increase in sales throughout the year, amounting to 572 million euros, up 103 percent compared to 2020 and climbing 69 percent compared to 2019. Cozzani said the group “is still growing quite nicely” in the U.S, and finding “additional opportunities.” Asked to comment about the inflation, she said the company will be able to absorb it given its “pricing power.”
Revenues in Japan, impacted by prolonged restrictions related to the pandemic, stood at 297 million euros, up 16 percent compared to 2020 and down 17 percent compared to 2019.
Sales in the Middle East totaled 121 million euros, up 62 percent compared to 2020 and up 43 percent compared to 2019, also thanks to some resumption in tourism.
By category, sales of leather goods totaled 1.53 billion euros, up 31 percent on 2020 and up 7 percent on 2019. Bertelli touted an improved “mix of bags, both iconic and news” at different price points, which resulted in a positive performance.
Sales of rtw amounted to 826 million euros, up 53 percent on 2020 and up 36 percent on 2019.
Bertelli admitted that at some point, “we lost sight but we believe rtw is increasing and improving, which does not mean sales of leather goods and shoes are decreasing. The growth of our handbags revenues is remarkable.”
Cozzani spoke of an expanded offer of Prada products and categories, such as additional accessories, including hats — “one of our bestsellers,” she said — and jewelry, setting up an internal business to develop this division, as well as a home collection. “The pop-up set up at Harrods in November and December was very successful,” she said.
Footwear totaled 521 million euros, up 49 percent on 2020 and 16 percent on 2019.
In 2021, operating cash flow totaled 751 million euros, and Prada reported a gross margin of 75.7 percent, reaching 76.8 percent in the second half. Cozzani said it was feasible to reach a 78 percent gross margin in 2022.
Capital expenditures amounted to 216 million euros.
Bertelli admitted that there had been a price increase in the group’s products in January, but did not expand on its scale, citing the higher cost of raw materials and shipments.
Asked about the potential merger of Compagnie Financière Richemont’s Yoox Net-a-porter platform with Farfetch, building on a partnership forged a year ago and whether Prada would consider making an investment, responding to Richemont’s chief Johann Rupert’s call for collaboration in creating an open e-commerce platform, Lorenzo Bertelli, marketing director and head of CSR key and ESG marketing initiatives, said he could not comment. “Things are moving on, we keep an eye [on this] but the current uncertainty makes us more cautious.”
Both Bertellis emphasized the group’s ability to retain loyal customers while reaching out to new and younger ones, “adapting to the current times,” and through new categories and fresh communication.
In 2021, the group accelerated its commitment to Environmental Social Governance, launching its climate strategy and appointing sustainability experts Pamela Culpepper and Anna Maria Rugarli to the board, formalizing an ESG Board Committee. In the year ahead, the group will further commit on ESG across the business and update on strategy and developments.
Prada, which is part of the Fashion Pact, during its Capital Markets Day in November revealed that its greenhouse gases emissions reduction targets had been approved by the Science-Based Targets initiative and that its goal was to reach net-zero emissions in 2050. In 2022, Prada began its carbon-neutral scope 1 and 2, aiming at a 29 percent cut in GHG emissions by 2026, and a 42 percent reduction by 2029.
The net financial position stood at 238 million euros, significantly improving from a negative 311 million euros at the end of December 2020.
The board is proposing to distribute a dividend of 7 cents per share, equivalent to 179 million euros, with a payout ratio of 61 percent.