Prada bets on menswear to revert sluggish growth

Friday, 04 April 2014
ANALYSIS_Italian luxury house Prada will bet strongly on menswear to reverse the growth slowdown. Prada SPA has announced its plans to fuel revenue growth by doubling its menswear business in the next three to five years. Prada has reported profits of 627.8 million euros for the year ending on 31 January and said same-store sales would rise at a "low single-digit" pace in 2014. "The continuing strength of the Euro does not help with exports," said Prada chief executive Patrizio Bertelli in a statement, partly blaming currency fluctuations for the dented profits.

The company's revenue growth rate slowed to 9 percent during the previous year, largely because of a slowdown in China's luxury market. Now, Prada is eyeing the men's category, an emerging segment, to boost revenue growth into the double digits. In this vein, Guilio Bruni, Prada's retail director, advanced that "Men will be [the] protagonists in our development." Prada, which generates 800 million from its men's business, plans to open 50 additional stores to bring the total number of Prada stores catering solely to men to 80, reported Reuters.

Prada´s bid for menswear, an attempt to offset luxe growth slowdown

Along with other store openings and an increase in production capacity, the company told analysts and investors it expected the expansion of its menswear business to help return it to double-digit sales growth by 2016. The company forecast a high single-digit percentage rise in sales this year and at least 11 percent in 2015-16. Also, Prada will add four industrial plants to the 11 production facilities it operates in Italy and one in the U.K. The new plants, which will employ 700 staff, will open in Italy by the end of 2015. The company may also make acquisitions to strengthen its manufacturing know-how and capacity.

Prada said the long-term outlook for luxury goods remains strong "despite possible short-term volatility." The strength of the euro "does not help exports," it said. The market will probably grow 3 percent to 5 percent annually to as much as 255 billion euros through 2016, the company said, citing Altagamma estimates. "Fourth-quarter bottom line was significantly lower," Tanuj Shori, a Hong Kong-based analyst at Nomura Holdings Inc., wrote in a research note. The private bank has cut the stock rating to 'reduce' and set its price target at 52.4 Hong Kong dollars. Shares in luxury retailer Prada plunged more than 8 percent after the firm warned that sluggish sales in Europe and a maturing China luxury market could hurt profits. It was the largest dip in two years for the stock.

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