Prada's capital investments in the first quarter ended April 30 were up sharply to €178.0 million from €55.0 million a year earlier partly due to the purchase of the premises of its London store on Old Bond Street and for a future location in Saint Petersburg.
In a conference call, the company explained that the acquisition of the Old Bond Street store was a defensive move to avoid having to abandon the location when the lease expires. Prada's chief financial officer, Donatello Galli, added that the investment is also justified by the fact that Old Bond Street has a track record of continuously increasing rents. He said that the Saint Petersburg move was the “only way” to enter the city (with a directly operated store). Prada stressed that these acquisitions do no herald a new real estate development strategy. No further acquisitions of this kind are planned.
The company confirmed it policy of opening more directly-operated stores (DOS) under the Prada and Miu Miu brands in the next couple of years to reach “much more than 500” locations compared with 462 at the end of April. A further 17 stores have been opened since the end of the first quarter.
First-quarter revenues rose by 13.9 percent for the group to €782.3 million, thanks in part to higher sales through the company's own stores. At constant currency rates, sales were up by 15.2 percent. Retail sales grew by 19.1 percent to €678.7 million, an increase of 20.8 percent in constant currencies, with an 8.0 percent rise in same-store sales and the addition of 67 more stores to the retail network. Prada is forecasting high single-digit growth in comparable store sales for the full year, barring a significant worsening of market conditions in the second half.
In the meantime, wholesale revenues decreased by 9.4 percent, or by nearly 10.0 percent on a currency-neutral basis, down to €93.9 million. They were positive in the U.S. and the Far East but suffered a double-digit rate decline in Europe due to the company's more selective distribution strategy, a tough comparative basis, a shift in deliveries and weak local demand. For the full year, wholesale revenues are expected to drop by a high single-digit rate.
The group's sales were lifted by leathergoods, up by 29.0 percent to €538.4 million, while footwear instead declined by 12.0 percent to €118.2 million and clothing decreased by 5.0 percent to €108.1 million. Leathergoods were underpinned by the increasing importance of tourists, who seem to prefer them to footwear and apparel because they are easier to transport, do not have size and fit issues and are often bought as gifts. Apparel and footwear were affected by the downsizing of the wholesale channel and by bad weather conditions in Europe and the U.S.
By brands, sales showed an 18.0 percent increase to €638.8 million for Prada, a 5.0 percent rise to €112.7 million for Miu Miu, a 3.0 percent gain to €16.8 million for Church's and a 41.0 percent drop to €3.7 million for Car Shoe, which suffered from its exposure to the wholesale channel.
Miu Miu performed below expectations but the company will continue to invest in the brand. Galli added that there are no plans to dispose of Church's or Car Shoe, which remain opportunities for future expansion.
Reported sales were down by 8.0 percent in Italy to €101.4 million due to the wholesale channel, but Prada's sales in its directly operated stores were up by 8.0 percent on a comparable basis thanks to tourists. Revenues increased by 7.0 percent in the rest of Europe to €158.3 million, by 23.0 percent in the Americas to €94.2 million and by 25.0 percent in the Far East to €315.6 million, but dropped by 2.0 percent in Japan to €79.0 million.
Japanese sales were affected by the weaker yen and actually rose by 12.0 percent in the local currency. This was “the real surprise” of the quarter after years of sluggish sales. Same-store sales in Japan were up by 11.0 percent after the group relocated about 30-40 percent of its store network over the past five to six years. Sales in Greater China, which are included in the Far East tally, were up by 24.0 percent to €200.9 million, with comparable store sales up by 9.0 percent.
On a currency-neutral basis, revenues were up by 9.0 percent in Europe, excluding Italy, up by 6.0 percent in the Far East and up by 7.0 percent in the Americas.
The group's gross margin rose to 73.6 percent in the first quarter from 72.3 percent a year earlier. The expansion in retail and growth in Asia are expected to bolster the gross margin further, causing it to widen by 0.5-1.0 percentage points for the full year.
The group's gross operating margin (Ebitda) rose to 30.8 percent from 29.7 percent and the operating margin after amortization (Ebit) increased to 25.0 percent from 24.0 percent. Prada's net profit increased to €138.2 million from €121.7 million, while the net cash position surged to €360.5 million from €312.6 million at the end of January.