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Prada, Miu Miu Show Brand Momentum, Propel Group Sales, Margins

MILAN — Andrea Guerra’s tenure at the Prada Group couldn’t have gotten off to a better start.

Guerra joined the group in January as chief executive officer and on Thursday was among the executives trumpeting the company’s full-year results, which beat analysts’ expectations and achieved margin targets ahead of schedule thanks to a solid performance of the Prada and Miu Miu labels across all product categories.

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In the 12 months ended Dec. 31, net profit soared 58 percent to 465 million euros, compared with 294 million euros in 2021.

Revenues rose 25 percent to 4.2 billion euros compared with 3.36 billion euros in 2021, when the group returned to profitability.

During a conference call with analysts, executive director Patrizio Bertelli touted the brand momentum of Prada and Miu Miu, the group’s retail performance, and its “rigorous strategy execution.”

He introduced and welcomed Guerra as well as Gianfranco D’Attis, the Prada brand’s new CEO.

“Their arrivals mark a fundamental change in the governance of the group, as it continues to evolve and to facilitate the generational handover,” said Bertelli. “Miuccia Prada and I remain fully engaged in the business and we are happy to be able to contribute to this new development phase. The strengthening of the organization will allow us to accelerate the execution of our strategy and to continue the group’s steady and sustainable growth as we work toward the full potential of our brands.”

In his first call, Guerra said he was “so happy to be with the Bertelli and Prada family celebrating a fantastic year at such a wonderful time of evolution and seeing such great energy in the organization.”

He clearly stated that a key focus will be the optimization of the stores’ network, their productivity and “a more meaningful relationship and connection with customers, serving them wherever they are, 24 hours a day. It’s important to give the consumers what they are looking for, animating newness. We have a long highway in front of us that will allow us to pursue retail excellence and make the unbelievable creativity work even better on the floors of our stores.”

He is also aiming to accelerate the group’s digital and omnichannel approach.

He trumpeted the group’s growth potential and industrial strength, planning the expansion of its manufacturing capabilities. “In 2023, we expect revenue growth to remain solid and above the market average. China has restarted to be an engine of growth; however, in this ever-changing scenario, we will remain vigilant and maintain a disciplined approach to costs and capital allocation.”

Responding to an analyst asking to elaborate on his approach, Guerra said, “Cautious is normal, it’s nothing strange. Behind every corner there is a risk and the world is so connected that what happens is reflected somewhere else. But I am not worried, we need to work on our agility, constantly adapt, to be best in class in velocity, flexibility and reactiveness of our supply chain.”

Guerra is viewed as someone who can facilitate the transition until Lorenzo Bertelli, Miuccia Prada and Patrizio Bertelli’s son, will become the leader of the group in a few years’ time.

His parents have given up their shared co-CEO title, while remaining executive directors of the board. Miuccia Prada stays on as creative director of Miu Miu and of the Prada brand, the latter with Raf Simons. Patrizio Bertelli is expected to be named chairman this spring.

“The relationship between Miuccia Prada and Raf Simons from day one has been easy and the natural interaction is more and more visible,” said Guerra, highlighting the constant focus of the group. “We are lucky to have the founders alive and kicking and guiding, connecting style, innovation and product development; it is quite unique in the industry.”

Last year, adjusted operating profit, which excluded non-recurring income and expenses comprising 42 million euros of writedown of non-current assets in Russia, 19 million euros of writedown of the Church’s brand, and 8 million euros for settlement of a litigation, amounted to 845 million euros, up 69 percent versus 2021. This represented a 20.1 percent margin.

During the group’s capital markets day in November 2021, financial targets in the medium range included reaching revenues of around 4.5 billion euros, which implies almost doubling 2020 figures. The company said it was targeting an operating profit of around 20 percent of sales.

In 2022, sales of leather goods rose 18 percent to 1.86 billion euros; ready-to-wear was up 27 percent to 1.08 billion euros, and footwear revenues grew 29 percent to 691 million euros.

Gross margin represented 78.8 percent of revenues, up 30 percent on 2021 and totaling 3.31 billion euros.

Chief financial officer Andrea Bonini said the growth last year was organic, while the group reduced its outlet presence, benefiting from full price sales.

He did not elaborate on price increases in the year and said that the group is taking a long-term view. “We continue to monitor the market to remain competitive.”

Last year, both Prada and Miu Miu grew strongly, with positive contribution from both average-price and full-price volumes. Prada retail revenues rose 25 percent to 3.25 billion euros and Miu Miu sales were up 20 percent to 432 million euros, recording a sharp acceleration in the second half.

The two brands helped retail sales climb 28 percent to 3.73 billion euros.

The group is reorganizing the Church’s business, which reported a 2 percent decrease in sales to 29 million euros, from manufacturing to retail, aimed at further integration and higher productivity.

Food investment Marchesi and Car Shoe sales rose 39 percent to 24 million euros.

It was underscored that in the last quarter the group was the only luxury company to feature its two main brands within the top five of the Lyst Index: Prada ranked first, and Miu Miu fourth. Lyst also nominated Miu Miu its “brand of the year.”

In 2022, wholesale revenues amounted to 388 million euros compared with 386 million euros in 2021.

Online sales recorded double-digit growth, following investments in the channel, including to improve the omnichannel experience. Penetration remains stable at 7 percent of retail sales.

By geographic markets, sales in the Asia-Pacific region rose 3 percent to 1.23 billion euros, but were down 2 percent at constant exchange rates, impacted by multiple lockdowns in China. This was offset by the strong performance in Korea and Southeast Asia. The region returned to moderate growth in the second half, with sales up 3 percent.

In Europe, revenues jumped 59 percent to 1.18 billion euros, thanks partly to an uptick in tourism throughout the year.

Revenues in the Americas rose 37 percent to 782 million euros, normalizing in the second half due to the strong comparatives and outbound tourist flows.

Japan grew 24 percent to 369 million euros, accelerating in the second half, and the Middle East advanced 38 percent to 167 million euros.

Bonini said that “current trading has improved since the last quarter and remains strong in all geographies.”

Compared with the second half of 2022, Europe’s growth is normalizing, while Asia Pacific and Japan accelerated, with Mainland China, Hong Kong and Macao reporting gains, as did Southeast Asia. He acknowledged a deceleration in Korea, compared with double-digit growth, but attributed this to the refurbishment of a store in Seoul. The U.S. is showing single-digit growth, but the cluster of Americans continue to register a double-digit increase.

“The year finished well and started well,” Guerra echoed. “China is back and we see the Chinese starting to come back to Asian regions and traveling internationally. China since the beginning of the year has been progressively positive, with an exceptional Chinese New Year.” He said there have been “more new customers than repeat ones in China after the reopening.”

Barclays analysts in a note on Thursday described the results as “strong,” noting that the group will now start reporting quarterly updates, starting on May 11, instead of just half-year updates. Coinciding with the arrival of Guerra, this was seen as positive as it will provide more visibility to the group. “Overall, we think that Prada continues to go in the right direction and remain comfortable with our [overweight rating].”

Bernstein rated shares “outperform” and defined the results as “a strong beat, as expected.”

Capital expenditure last year totaled 276 million euros compared with 217 million euros in 2021. Bonini said the group is earmarking around 300 million euros in capital expenditure for 2023 to “further accelerate retail, improving the existing stores, investing in IT, supply chain and the expansion of our plants.”

The group reported a net cash position of 535 million euros compared with 238 million euros in 2021.

Asked about the metaverse and NFTs, Lorenzo Bertelli, head of corporate social responsibility, said “it’s just the beginning of the journey, it’s not a big element but it’s key to explore. We are making our own know-how. It’s an important element of conversation; we continue to experiment and find our own perspective.”

Bertelli said the group further strengthened its ESG governance to accelerate progress and in 2022 it focused on reducing Scope 1 and 2 emissions, with investments in renewable energy, the electrification of industrial sites’ heating systems, a green company car fleet and self-produced energy from owned photovoltaic systems.

Last year, Prada launched a jewelry collection made using recycled gold, “leading the world to a new way to look at” the category, said Guerra.

Bonini said there was “no news” on a potential double listing in Milan, which was mentioned last year. The group is publicly listed on the Hong Kong Stock Exchange.

The group is to pay a total dividend of 281 million euros.

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