Prada Eyeing Brand Extension With Beauty
MILAN — Strong brand momentum at Prada and Miu Miu helped parent Prada Group report strong profitability and revenues in the first half, but its management is eyeing further expansion in the long term, including through the addition of new categories and expanding into beauty.
Group chief executive officer Andrea Guerra said during a conference call with analysts on Thursday that the company was “extremely happy” with its license with L’Oréal and that, in addition to fragrances, Prada will “very soon” extend the agreement with “another milestone – beauty,” although he remained mum on details.
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Prada’s license with L’Oréal came into effect in January 2021, prior to which it was licensed to Puig. Prada did launch skin care in September 2000 under the previous license.
Guerra also pointed to the importance of retail excellence, and pointed to the addition of jewelry in stores, as well as art de la table and home collections.
The CEO, who joined the company in January, was upbeat throughout the call, touting the group as among the best in class.
In the six months ended June 30, group net profit soared 62 percent to 305 million euros, compared with 188 million euros in the same period last year.
Revenues amounted to 2.23 billion euros, up 17 percent compared with 1.9 billion euros in the first half of 2022. At constant exchange rates, sales rose 20 percent.
Retail sales increased 18 percent to 1.97 billion euros, driven by like-for-like full-price sales.
Wholesale revenues were up 8 percent to 194 million euros.
During the call, Patrizio Bertelli, Prada Group chairman and executive director, attributed the performance to the brands’ “desirability” and “strong identity” as well as to “careful and disciplined execution.”
He said he was “happy with the quality of the growth,” with “a robust” Prada and “significant progression” at Miu Miu. He pointed to increased retail and industrial investments in the year, an acceleration of store renovations, and “greater control.” Bertelli trumpeted the acquisition of a minority stake in the “excellent” cashmere producer Luigi Fedeli e Figlio with the Ermenegildo Zegna Group, as reported. In 2021, Zegna and Prada first joined forces to acquire a majority stake in Filati Biagioli Modesto SpA, which specializes in the production of cashmere and other precious yarns.
The group’s “globally balanced distribution allows us to capture growth despite ever-evolving industry demand dynamics,” Bertelli continued. “We will remain vigilant and nimble, ready to deal with different macroeconomic and demand scenarios that may materialize ahead. Our brands retain vast growth potential; our strategy is clear, and our reinforced organization is well equipped to execute.”
In the first half, operating profit rose 61 percent to 491 million euros compared with 305 million euros last year, a margin of 22 percent on sales.
Gross profit gained 21 percent to 1.79 billion euros, compared with 1.47 billion euros.
The second quarter, said Guerra, “was another positive quarter on top of a solid” first quarter, although he admitted the year was “strange, remaining challenging month to month, and in the second half it could be a little awkward.”
Despite the strong performance, Carole Madjo at Barclays said the results were somewhat mixed as sales came in slightly below expectations, as the second-quarter sales were 1 percent less than consensus. But in her report she noted that the operating profit was on the other hand “much stronger,” an 8 percent beat versus the consensus. The margin of earnings before interest and taxes “reached an impressive 22 percent vs. consensus at 20.1 percent. We also note that the gross margin also improved significantly, reaching 80.3 percent (vs. consensus of 78.6 percent) notably helped by higher average price, positive channel mix and scale.”
Luca Solca at Bernstein said in his report that top-line growth was about 2 percent short of consensus estimates, underscoring the “divergent progression” at Prada and Miu Miu, while “geographic progression matches what we have seen earlier, as LVMH and Richemont reported,” a slowdown in the Americas, while Japan and Asia Pacific lead. Operating profit by contrast is 7.5 percent higher than consensus, marking “a material improvement.”
Asked about the dual listing expected in Milan after Hong Kong in 2011, Guerra said there was no update. Chief financial officer Andrea Bonini explained that “the technical issues” were completed. “We’ve done the work and tested the infrastructure, but this is not a priority although it’s in our agenda. We are now focusing on strategies and the organization of the group.”
Guerra underscored that the group’s “profitability further increased while we continued to consolidate our brands’ desirability with higher investments. We are still at the beginning of our strategic journey: We need to act with a long-term perspective, continuing to invest behind our brands, maintaining maximum focus on retail execution and productivity. For the current year, we retain our ambition to deliver solid, sustainable and above-market growth,” considering a more challenging comp base in the third quarter and some COVID-19 restrictions during the final quarter of last year.
At constant exchange rates, in the first half retail sales of the Prada brand grew 18 percent to 1.66 billion euros, with a more moderate but solid pace compared to the 21 percent increase of the first quarter, on a high basis of comparison, with the exception of China.
Miu Miu reported 50 percent growth in retail sales in the semester to 285 million euros, with the second quarter up 57 percent compared with 42 percent in the first quarter, lifted by the higher exposure to China and Asia.
At group level, sales of leather goods were up 12 percent to 925 million euros; ready-to-wear rose 36 percent to 609 million euros, and footwear gained 20 percent to 374 million euros.
Guerra underscored that Prada logged in “another great six months,” highlighting how the brand is a “careful interpreter of cultural and social movements,” and that there are “never shortcuts” with this attitude. He touted the “great reception” of the fall collection over the past 10 days and the brand’s strength with the buy now, wear now offer.
“Miu Miu is really reaching excellent brand momentum, with a sharp image, a readable identity and all products and categories are growing, leather goods are improving, and the growth is balanced globally,” said Guerra. “We are getting the team ready for future milestones and the evolution of Miu Miu.”
Guerra cautioned against comparing Prada, designed by both Miuccia Prada and Raf Simons, with Miu Miu, which is helmed only by the Italian designer, each with their “own life, destiny and growing pattern, and difference in geographic coverage.” Miu Miu, he said, is more exposed to Asia, which led him to point to the additional opportunities for Prada in China in particular.
“After years of rethinking , repositioning and re-engineering Miu Miu” and growing over the past 24 months, he believes there is still a substantial opportunity long-term.
Prada “remains on a sound trajectory and Miu Miu is reporting a remarkably strong performance, thanks to a strengthened identity and increasing visibility,” he said.
At current exchange rates, in the first half retail sales in Asia Pacific gained 21 percent to 716 million euros, thanks to the acceleration in mainland China, Hong Kong and Macao, boosted by the low basis of comparison of 2022, when China was affected by the lockdowns in April and May, lifted from June.
Japan was the best-performing region in the quarter, up 38 percent to 224 million euros, benefiting from the group’s recent investments in the retail network, a strengthened organization, solid domestic demand and increasing tourism flows. Guerra noted that Japan has always been “very strong for Prada historically, running on its own, there is great love for the brand.” He clarified that Prada is “not registering a negative performance in China”; on the contrary, “it is enjoying a fast-growing pattern, and proves there is further opportunity for the brand in the region.”
Group sales in the Middle East grew 15 percent to 92 million euros.
Retail revenues in Europe rose 20 percent to 582 million euros despite the very challenging comparatives, driven by healthy local demand and high levels of tourism.
Retail sales in the Americas amounted to 361 million euros, compared with 360 million euros in the same period last year, although the North American client cluster continued to grow throughout the semester, including in the second quarter, Guerra said, noting an improvement in the U.S. now.
Bonini said capital expenditures totaled 151 million euros in the first half, compared with 97 million euros in the same period last year. Of this amount, 27 million euros were channeled into IT and 22 million euros in industrial investments, while the main chunk was spent on the store network and communication and marketing.
The group continued to invest in its retail network upgrade with around 70 renovation projects completed to elevate customer experience and increase productivity
Guerra in fact noted that management was “obviously” eyeing operating profit growth, but touted the importance of investments and that he was more focused on “constant and healthy, fantastic revenues growth.”
Asked about owned brand Church’s, Guerra said “we have restarted from scratch and restructured it over the last two years, closing stores and accounts that were not useful and we now have a very clear positioning, with 25 to 30 stores and 140 to 150 wholesale accounts. We have been working really hard and by the end of the year, we will have more promising ideas and performance.”
Lorenzo Bertelli, marketing director and head of CSR, said that the group has become a signatory of ZDHC Zero Discharge of Hazardous Chemicals by 2024, it has launched an ambitious water conservation program, and announced a new partnership with IOC-UNESCO for the Sea Beyond project to expand training on ocean preservation. Prada Group is donating 1 percent of Prada Re-Nylon collection revenues.
As of June 30, the group’s net cash position stood at 283 million euros.
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