Prada First-Half Profit Jumps 74% on New Stores, Demand for Luxury in Asia

Prada SpA, the Italian luxury goods maker that had Hong Kong’s biggest initial public offering this year, boosted first-half profit 74 percent as it opened more stores and demand in Asia surged.

Net income rose to 179.5 million euros ($245 million) in the six months through July from 103 million euros a year earlier, the Milan-based company said in a Hong Kong stock exchange filing yesterday. That compares with the company’s forecast of not less than 150.7 million euros in its fiscal first half.

The maker of Miu Miu bags and Church’s shoes added 26 own stores in the six-month period, while sales in the Asia-Pacific region excluding Japan grew 35 percent as spending on high- priced items surged. Rival LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s biggest maker of luxury goods, is also increasing its retail business in Asia.

“Asia is our No. 1 market,” Prada Deputy Chairman Carlo Mazzi said in a phone interview late yesterday from Milan. “The top luxury market is with Asian customers today. Our confidence in the Asian market is quite strong for the future.”

Prada has gained 1.8 percent from the IPO price since its June 24 listing, beating the benchmark Hang Seng Index’s 13 percent slump in the same period. The stock fell 2.7 percent to HK$40.20 at the 4 p.m. close of trading in Hong Kong.

New Stores

“We expect Prada’s earnings growth to be driven by store expansion, Asian demand, expanding leather goods sales, as well as ramp-up of Miu Miu,” Aaron Fischer and Mariana Kou, analysts for CLSA Asia-Pacific Markets, who recommend buying the stock, said in a note to clients. “The company continues to move toward these directions, which support higher margins.”

Prada, whose gross margin widened to 71 percent from 65.5 percent, has added 44 stores so far this year, of which 15 were in Asia, Mazzi said. Fifteen stores were opened since August while two were closed, according to a company presentation.

“Greater China made the greatest contribution” to Prada’s sales growth in the first half, according to the statement. Sales in Asia excluding Japan grew to 368 million euros while total revenue increased 21 percent to 1.1 billion euros.

Gucci, Celine

China is the biggest market for the luxury division of rival PPR (PP) SA, according to Francois-Henri Pinault, chief executive officer of the French owner of Gucci. Pinault said this month he doesn’t see any sign of weakness in luxury spending anywhere in the world.

LVMH, the maker of Celine bags, Moet & Chandon champagne and TAG Heuer watches, sees no “signs of slowing down” for the luxury market worldwide. “People want to treat themselves,” Yves Carcelle, who runs the fashion and leather goods unit, said in Singapore Sept. 17.

Prada plans to open 35 more stores this year, Mazzi said. The company, which traces its beginnings to 1913, said in June it planned to open about 80 outlets annually over the next three years, with as many as 12 in China and about 25 in Asia.

About 75 percent of the company’s IPO proceeds will be used to build outlets, increase retail floorspace and renovate stores, according to its IPO prospectus. The proceeds amounted to 206 million euros, Mazzi said.

Miu Miu Growth

Prada “will continue to pursue growth” in its fiscal second half, investing in new stores and brand promotion, it said in its statement.

Sales of luxury items in China, including clothes, handbags, watches and fine jewelry, are expected to increase to about 180 billion yuan ($28 billion) in 2015 from 80 billion yuan last year, McKinsey & Co. said in a report in March. The 2015 estimate would be equivalent to 20 percent of global luxury spending, the consulting company said.

Miu Miu, the maker of 595-euro patent-leather clutches, was Prada’s fastest-growing brand in the first half, with sales climbing 25 percent to 199 million euros, the company said. Prada said in June it plans to increase the number of Miu Miu’s directly operated stores in the region to 55 from 25 by Jan. 31, 2014.

Leather Goods

Chairman and President Miuccia Prada, the granddaughter of founder Mario Prada, created Miu Miu, using her nickname for the brand, with the idea of attracting younger customers.

Sales for the Prada brand grew 21 percent to 878 million euros. Church’s, the Northampton, England-based maker of 375- euro leather brogues, saw revenue increase by 15 percent to 27 million euros.

Prada’s leather goods sales rose 35 percent to 616.6 million euros in the fiscal first half and footwear revenue gained 13 percent to 275 million euros. Clothing sales declined 0.8 percent to 212 million euros.

The luxury goods maker had 375 stores, of which 30 were franchises, as of July 31, compared with a total of 352 at the end of January. Prada brand outlets comprised 242 of the total, Miu Miu had 88, Church’s 40 and Car Shoe had 5.

Like-for-like sales, which compare shops open for more than a year, grew 22 percent at Prada’s owned stores, with China showing the fastest expansion at 37 percent, the CLSA analysts said, citing data from the company.

First-half earnings per share increased to 0.071 euro from 0.041 euro a year ago. Prada didn’t declare any dividend for the period.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Sandy Hendry at shendry@bloomberg.net

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