(News Bulletin 247) – The Italian label listed in Hong Kong is favored by many design offices, thanks to a brand dynamic which has accelerated and a strategy which has enabled the group to recover its margins.

Luxury is so dominated by large, long-established players that “recoveries”, i.e. stories of business turnarounds, take a bit of a back seat.

However, this is what the Italian group Prada has been experiencing for several years. Remember that the transalpine company has been listed in Hong Kong since 2011, with the brand wishing to strengthen its influence on the Asian market.

After a difficult period in the middle of the 2010s, the group approached the 2020s much better, with a lightning recovery. “Prada has been one of the greatest turnaround stories in the luxury sector over the past ten years,” says Bank of America.

To the point that the value is prized by analysts in their recent recommendations, at a time when luxury is going through a real downturn on the stock market in the face of a disappointing recovery in China and a normalization of demand.

Barclays and HSBC, although both quite selective in the sector, have confirmed their advice to buy (or equivalent). On Tuesday, Morgan Stanley raised its recommendation from “online weighting” to “overweight”, which amounts to changing its advice from “neutral” to “buy”. Enough to encourage investors to position themselves on this stock which remains in decline on the stock market (barely +4.5% since the start of the year). But which has also seen its price almost double since 2019.

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

An in-depth management team

From the mid-2010s, the company founded in 1913 in Milan by the Prada family, was caught between a rock and a hard place, competing with big names in leather goods such as Saint Laurent or Celine but also less established players. like Kate Spade or Michael Kors. Its sales reached a peak of 3.5 billion euros in 2015 before declining in the following years to fall to 3.2 billion in 2019. This despite a number of stores more than doubling between 2010 and 2019. The operating margin falls sharply, going from 27% in 2012 to 10% in 2019 and even to 0.8% a year later in the midst of a pandemic.

Since then, Prada has completely turned things around: revenues have almost doubled, from 2.4 billion euros in 2020 to 4.2 billion euros last year. The operating margin returned to 22%.

The group has thoroughly reviewed its management and strategy. Designer Ralf Simons became creative director in early 2020, in tandem with Miuccia Prada, granddaughter of the founder, while Andrea Bonini became financial director in 2022, from Goldman Sachs. Most recently, Gianfranco D’Attis took over as Prada brand director in January while Andrea Guerra, a former LVMH and EssilorLuxottica executive became Prada group chief executive at the same time.

The company has streamlined its production process, reducing the number of new product models brought to market by 30%, explains Morgan Stanley. HSBC notes that the company has also restructured its distribution channels, reducing wholesale (multi-brand retailers) which represented 18% of sales in 2018 compared to 9% last year. Prada has also reduced discounts, increased its marketing spending, rejuvenated its digital communication and simplified its collections.

Towards a listing in Milan?

“In our opinion, Prada has finally made the right decisions to increase its size, and the company has already achieved a lot,” says HSBC. The group’s artistic duo has been behind designs that “resonate much better with the end consumer”, and the company’s marketing approach is now “more pragmatic”, appreciates the Sino-British establishment.

“Management has reintroduced product innovation, focusing on retail excellence and creating visibility around the brand. As a result, growth has returned,” summarizes his side Bank of America.

Barclays, for its part, believes that the group is reaping the benefits of its brand elevation strategy.

Obviously, analysts would not advise buying the stock if its momentum did not remain good. For HSBC the group “can do a lot to improve its growth on a comparable basis” and could join “the big leagues”. After 20% in 2023, the bank sees the group achieving an increase in sales of 13% in 2024, compared to 11% the same year for all “soft luxury” (clothing, leather goods as opposed to “hard luxury”). “like jewelry).

Morgan Stanley points out that the company has room to improve its revenue “density.” According to the bank, Prada generated around 26,500 euros per square meter of stores in 2022 compared to 30,000 to 100,000 euros per square meter for the leaders in fashion and leather goods. This should enable it to improve its operating margin. In adjusted data, it would increase from 22.1% in 2023 to 22.9% in 2024 then 25.2% in 2027, according to forecasts from Morgan Stanley. HSBC, for its part, believes that the company could return to its historic peak of profitability in the medium term.

Last but not least: Prada is considering a dual listing in Europe, a bit like Coty. The company acknowledged in July that listing on the Milan Stock Exchange was a possibility but tempered enthusiasm somewhat by ensuring that it was not a strategic priority.

“A dual listing in Europe would open the stock to a new group of investors and potentially increase liquidity if the family was willing to sell a little more of its stake at some point without being diluted,” HSBC said. The company’s current free float is only 20%…