Prada’s results struggle to turnaround

Worldwide
Published:  12 September, 2017

Despite good market acceptance for its new leather goods’ collection, the luxury Italian fashion brand has posted disappointing first-half results, with net revenues totalling €1,469 million; down 5.5% year-on-year.

According to the report released on September 8, gross margin remained high and stable at 72%, attributed to “relentless focus on industrial efficiencies”. Prada says the cost structure is under control despite major investments in digital and communications. EBITDA in the first half of 2017 amounted to €279.6 million at 19.1% of net revenues (21.2% in H1 2016), while EBIT was €166.8 million at 11.4% of net revenues (13.8% in H1 2016); considered low by industry standards. Net income stood at €116 million at 7.9% of net revenues (H1 2016: 9.1%). There was a strong operating cash flow generation of €208 million (from €267 million in H1 2016), while net working capital in line with 2016 levels, according to the report.

“The complex task of restructuring our operating processes, which is aimed at providing the Group with the tools needed to access an increasingly competitive market, is progressing well; however, more remains to be done”, said Patrizio Bertelli, CEO, Prada.

Revenues in the Asia Pacific region was up 0.4% (-0.6% at constant FX), in line with the first half of 2016, while Greater China delivered a positive performance, with sales up 5.2% at constant exchange rate, and growth was also seen across Macau and Hong Kong. Prada says market conditions in Japan remained unchanged, with sales declining 14.2% at current and constant exchange rates, “highlighting weak consumption by both domestic customers and tourists”.

Sales were down 3.7% in the Americas (-5.8% at constant), while a positive performance was seen in both Mexico and Canada. In Europe, sales are reported to have declined 7.7% (-6.6% at constant), “penalised by the strength of the euro, especially in the second quarter, as well as the stabilisation of the UK market”. The Middle East registered a negative trend, -11.7% (-13.1% at constant FX), attributed to ongoing geopolitical tension which impacted tourist flows within the region.

Some fashion analysts claim Prada struggles to compete with fashionable Italian rival Gucci and is not considered as timeless as French Louis Vuitton, suggesting the leather handbags are overpriced for the quality obtained. The brand has also been criticised for being late to invest in online sales.

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