Prada and Tod's both released disappointing results for the past financial year, adding worryingly poor outlooks for 2019, while Salvatore Ferragamo reassured observers that its turnaround is bearing fruits thanks to a positive start to 2019.
The Prada Group suffered a decrease in its gross profit margin to 72.0 percent in 2018 from 73.5 percent in 2017, but this was blamed on adverse currency rates. The margin was broadly unchanged at constant exchange rates. The Ebitda margin dropped to 17.5 percent from 19.2 percent and the Ebit margin slipped to 10.3 percent from 11.8 percent, missing market expectations. Net income dropped to €205 million from €249 million. Prada cut its full-year dividend for the second time in as many years to 6 cents per share from 7.5 cents the previous year.
Prada's revenues totaled €3,142 million in 2018, rising by 2.8 percent on a reported basis and by 6 percent at constant exchange rates. The top line marked a slowdown in the second half of the year, compared with a currency-neutral increase of 9 percent in the first six months, but was nevertheless in line with market expectations. The group claimed that its return to revenue growth stems from a positive consumer reaction to its recent initiatives.
Among the various product categories, sales of leathergoods were up by 6 percent at constant currency rates, reaching €1,756 million, while footwear slipped 1 percent on a reported basis to €616 million but rose by 2 percent at constant currency rates. Shoes benefited from the exceptional performance of sneakers for both men and women.
By brand, Prada contributed sales of €2,558 million, up by 7 percent on a currency-neutral basis. Miu Miu stood at €453 million and was up by 2 percent in local currencies. Church's' sales reached €69 million, down by 3 percent in euros and by 2 percent at constant currency rates as a reorganization of wholesale operations offset a positive retail performance.
Net sales excluding royalties were up to €3,098 million from €3,008 million. Retail sales grew by 7 percent at constant currency rates to €2,532 million driven by full-price sales as the company reduced promotions. The negative impact on sales of this policy was more pronounced in the second half than in the first six months of the year. The group plans to continue reducing markdown sales in 2019 with a view of erasing them completely, a move which it expects will provide good results in the medium to long term.
According to the broker Equita, same-store sales grew by 4 percent in the second half of 2018 against a 10 percent rise in the first half, due to the lower markdowns, which currently represent 7 percent of sales.
Prada's retail division enjoyed a “strong” double-digit growth in online sales and benefited from nine net store openings after opening 29 units and closing 20 during the year.
Wholesale revenues totaled €566 million, up 1 percent in local currencies, driven by third-party e-tailers. Prada kept a selective approach to wholesale clients, especially in Europe.
Overall, net sales in Europe reached €1,189 million, up by 3 percent at constant currency rates, despite social unrest in France and a negative impact of the wholesale channel in the second part of the year.
In Asia-Pacific, excluding Japan, sales totaled €1,035 million, up by 10 percent in local currencies, with Greater China contributing €675 million, up by 8 percent. The group also singled out South Korea as an outperforming market in the region. In Japan, sales of €350 million were up by 7 percent in yen thanks to higher tourist flows and domestic spending.
In the Americas, sales grew by 4 percent in local currencies, coming to €426 million, driven by domestic consumption as tourism weakened in the second part of the year due to the dollar's strength. Middle East revenues reached €94 million, increasing by 5 percent in constant currencies.
The group's net debt expanded to €309 million at the end of 2018 from €104 million a year earlier, while Equita had been expecting it to fall to €77 million. Capital expenditure rose to €284 million from €251 million, with €136 million spent on the retail network, up from €110 million a year earlier. On top of the 29 openings in 2018, the group renovated or relocated 120 stores, of which 90 were under the Prada brand. Other capital expenditure, which increased to €148 million from €141 million, included investments in information technology and a new logistic hub in Tuscany.
The group said it expects an “progressive return to volume and margin growth” and pointed out that same-store sales at constant currency rates were positive in January and February. Equita forecasts a 3.5 percent gain in same-store sales for the group this year.
Prada is also confident of reaching an agreement with the Italian authorities regarding a tax relief program for its intellectual property, the so-called Patent Box, which could have a positive impact of €80-90 million on its annual results.