Prada stops end-of-season markdowns to protect brand, margins

Italian luxury group Prada said on Friday it would stop offering end-of-season promotions at its stores, in a bid to boost margins and protect its brand after achieving revenue growth in 2018 for the first time in four years.

The Milan-based group, run by husband and wife team Miuccia Prada and Patrizio Bertelli, aims to cement a sales revival that began at the end of 2017 after a change in the company’s strategy. By scrapping end-of-winter and summer discounts it is following rivals like Gucci.

“We decided to stop doing markdowns from 2019 onwards,” Bertelli, who is Prada’s chief executive, told analysts in a conference call.

“We believe that this decision is actually going to strengthen the brand’s image and in particular, it’s going to guarantee higher margins for us.”

Considered an institution in the fashion world, Prada has lost ground to both new and old rivals in an increasingly competitive industry dominated by cash-rich giants such as LVMH and Kering.

Luca Solca, an analyst at Bernstein, welcomed the move to end the seasonal promotions, even though he said it would hit total revenue growth in the short term.
Prada reported full-year sales of 3.142 billion euros (2.7 billion pounds) on Friday, up 6 percent at constant exchange rates and compared with 9.4 percent growth in the first six months. At current exchange rates, sales growth came in at 3 percent.

The results came out after the market close in Hong Kong, where Prada is listed.
Its share price has fallen 31 percent in the last 12 months.

However, with the return to revenue growth the group appears to be turning a corner after shifting two years ago to focus on store renovation and relocations, new products and digital sales - with the latter set to reach 15 percent of total sales by 2020. Prada said e-commerce grew in the “strong double digits” in 2018.

Bertelli said the results showed Prada’s turnaround strategy was starting to bear fruit, despite a more challenging second half due to the “yellow vest” protests in France, global trade tensions, a strong dollar and more moderate demand in China.

But for all its revenue progress, operating profit continued to slide, with earnings before interest and tax down 10 percent at 323.8 million euros, mostly due to the negative impact of foreign exchange rates.

Analysts had expected revenue of 3.17 billion euros and an operating profit of 377 million euros, according to Refinitiv data.