Features

Prada turns retail focus to Middle East, Americas

April 06, 2013

Runway looks from Prada’s spring/summer 2013 ready-to-wear collection for women.Runway looks from Prada’s spring/summer 2013 ready-to-wear collection for women.HONG KONG, April 6 — Italian fashion house Prada SpA plans to focus its next retail push on the Middle East and the Americas to offset lower spending in Europe and lessen its reliance on Asia, where booming growth is levelling off.

The maker of leather bags and colourful Miu Miu dresses said it expected economic uncertainty to persist in parts of Europe and Asia this year.

Thomas Chauvet, luxury analyst at Citi, said core earnings and margins were slightly below their expectations, despite a boost to margins through a reduced discount sales period and better distribution control.

“We would also highlight risks of volatility in tourist flows into Europe and intra-Asia, possibly exacerbated by the recent China bird flu outbreak,” Chauvet wrote in a note.

Signs of a slowdown have emerged recently in spending by Asian tourists — the recent driving force in the European luxury market, defying economic recession.

“This is the first time since the June 2011 IPO that Prada has not delivered a quarterly earnings beat,” Chauvet said.

Prada said revenue in February was strong thanks to Chinese New Year celebrations but bad weather conditions in Europe and political concerns in South Korea weighed on March performance.

“The second half of 2013 may be not be characterised by the economic recovery everybody was hoping for,” Chief Executive Patrizio Bertelli said in a conference with analysts.

A crackdown on corruption and ostentatious spending in China from the second half of 2012 has dampened sentiment for conspicuous brand names.

Chinese economic growth slowed to 7.4 per cent in the third quarter of 2012, its lowest quarterly rate in three years, while the total number of billionaires in Greater China fell to 157 from 176 last year, according to research by Exane BNP Paribas.

But luxury analysts say Prada’s top product line, which frequently rotates its collections in stores, has remained in vogue and avoided brand weariness among the well-heeled.

Prada, which sells over a third of its products in Asia, says it still has ample growth prospects in emerging markets where it has a smaller presence compared to rivals like LVMH and Salvatore Ferragamo.

Prada’s net profit in the fourth quarter grew 36 per cent to €217 million (RM857 million), beating an average forecast of €202 million by Thomson Reuters I/B/E/S.

“Our major focus will be on the Gulf area, South America, and US department stores,” Bertelli said.

The group currently has 196 stores in Asia, including Japan, and 185 in Europe with just five in South America and 11 in the Middle East, nine of which opened in 2012.

Keeping the appeal

The Hong Kong-listed company said it would maintain its appeal by reducing discount sales and entering new markets. “We don’t want to glut the market with our products,” Bertelli said.

Ferragamo, Hermes and Gucci have reduced discounts and tightened control on wholesale partners to avoid risks of late payments and non-authorised sales.

A stricter discount policy boosted margins at Prada but hit sales volumes, which were up only 5 per cent in the fourth quarter, if excluding contribution from new stores.

Prada confirmed a guidance of a high-single digit growth in sales at its existing stores for this fiscal year.

The company, which opened 78 shops last year for a total of 461 directly-managed stores, confirmed plans to open up to 80 new stores this year, including four or five in South America.

Sales in Europe have continued to grow but at a weaker clip than in Asia. Overall revenue climbed 29 per cent to €3.3 billion in 2012.

The greater China region, which includes mainland China, Hong Kong and Macau, generated net sales of €735.6 million, up 35 per cent from 2011, the company said.

Prada’s shares, which more than doubled in 2012, are up 4 per cent so far this year, outperforming a 4 per cent fall in the benchmark Hang Seng Index. The company has a market value of about US$26 billion.

For 2012, total net profit came to €625.7 million, up 45 per cent from €431.9 million a year earlier. That was slightly below an average analyst forecast of €639 million by Reuters I/B/E/S.

Prada said it would pay a dividend per share of €0.09, above Citi’s forecast of €0.07. — Reuters 

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