Patrizio Bertelli’s Strategies Are Leading to Strong Growth at Prada

MILAN — Patrizio Bertelli could easily tout Prada’s first-half figures with a resounding, “I told you so.”

Reporting a return to profit and a 60 percent jump in revenues in the first half of the year, the strategic moves that Prada’s chief executive officer began to implement years ago are proving to be fueling the growth of the luxury group — despite the impact of the COVID-19 pandemic. These include raising Prada’s luxury positioning, slashing wholesale accounts, endorsing full-price sales by canceling markdowns and investing in online sales, marketing and communication.

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As the group also reported an “encouraging” month of July, Bertelli said during a conference call with analysts on Thursday that he was “confident in the second half,” barring “traumatic” events, and that he was planning to continue to invest in the direct control of Prada’s supply chain, “which gives us a competitive edge” — leading observers to believe additional acquisitions of specialized manufacturers could be in the cards.

As reported, in June the Prada and Ermenegildo Zegna groups joined forces to acquire a majority stake in Filati Biagioli Modesto SpA, which specializes in the production of cashmere and other precious yarns. Prada has, over the years, structured its own supply chain and today has 20 production sites in Italy and three in Europe.

Prada returned to the black in the first half of the year, lifted by a strong performance in its retail business, triple-digit percentage growth in its online channel, and solid gains in the Asia Pacific and U.S. markets.

In the six months ended June 30, the group reported a net profit of 97 million euros, which compares with a loss of 180 million euros in the same period last year.

Revenues amounted to 1.5 billion euros, up 60 percent compared with 938 million euros in the first half of 2020.

Operating profit amounted to 166 million euros, compared with an operating loss of 83 million euros in the same period last year. In the first half of 2019, operating profit totaled 150 million euros.

Also signaling Bertelli’s determination, the executive once again expressed his confidence in the growth of the Miu Miu and Church’s brands, as he has on several occasions before, defending their value when analysts often compare them with the Prada label, which continues to account for the lion’s share of revenues, representing 86 percent of the total.

“In the first half, we reached break-even with Miu Miu, which is going through a turnaround, adapting products to different requirements, and it has a huge potential to express,” Bertelli said. “I strongly believe in the second half it will increase its margins and that we will see strong results in two years. Miu Miu is extremely successful in China and [South] Korea and we will extend this positive [business] to other markets.”

Bertelli also underscored the success of the Upcycled by Miu Miu project in collaboration with Levi’s, which was launched in May and gives new life to pre-loved denim.

Sales of the Prada brand climbed 64 percent to 1.1 billion euros compared with the first half of 2020. Compared with 2019, its revenues rose 13 percent. Miu Miu represented 13 percent of total revenues and grew 43 percent to 166 million euros. Compared with 2019, sales were down 8 percent versus 2019.

Sales of the Church’s brand amounted to 11 million euros, down 1 percent compared with last year, but falling 52 percent compared with the first half of 2019.

Bertelli defended the “know-how and industrial capability” of Church’s Northampton plant and said the brand suffered in the first half due to a dependence on the European market — 90 percent of its business — and the store closures in the U.K. “After the pandemic, it will return to pre-COVID-19 levels,” he predicted.

In any case, he told analysts that “the smaller brands are not a fundamental factor to examine,” and emphasized how their expertise is “translated and incorporated into the bigger brands.”

By category, the group reported “outstanding” growth in ready-to-wear, which saw a 71 percent increase in revenues to 334 million euros, accounting for 26 percent of total sales. Apparel was up 24 percent compared with the same period in 2019.

“Ready-to-wear is fundamental for the development of the brand,” said Bertelli, while still supporting the growth of leather goods.

Leather goods remained the group’s core business, representing 55 percent of sales, and this category was up 51 percent to 703 million euros. Compared with 2019, sales were up 4 percent.

Revenues of shoes, which account for 17 percent of sales, grew 77 percent to 224 million euros. Compared with 2019, they were up 5 percent.

Bertelli touted the “extension of high value products in all categories, improving brand equity and identity.” He also underscored the importance of avoiding differentiating the product depending on the geography.

Sales in Asia Pacific amounted to 599 million euros, up 65 percent compared with the same period last year, and a 35 percent gain versus 2019. The region accounted for 47 percent of the total. Compared with 2019, sales in China climbed 77 percent; in South Korea, they soared 108 percent, and in Taiwan, they were up 74 percent.

Sales in the Americas rose 163 percent to 232 million euros, and gained 53 percent compared with 2019. The region in the first half of 2021 represented 18 percent of total revenues, and shopping was driven by locals.

Europe was up 19 percent to 263 million euros but was still down 29 percent compared with 2019, although sales improved with local customers.

Russia showed strong growth, Bertelli said.

Japan was up 25 percent to 129 million euros, but compared with 2019 sales were down 24 percent due to the pre-Olympics lockdowns. The country is now showing “good signs of recovery,” the executive said.

The Middle East grew 129 percent to 59 million euros and was up 28 percent compared with 2019.

The company did not expand its retail network in the period but is investing in 76 renovation projects and has secured a new location in Athens.

During the first half of 2021, an average of around 17 percent of stores were closed, but retail sales nonetheless climbed 60 percent to 1.28 billion euros compared with the first half of 2020, accounting for 90 percent of the total. At constant exchange rates and compared with the first half of 2019, they were up 8 percent, showing strong acceleration in the second quarter. The latter showed double-digit growth compared with the second quarter of 2019. Bertelli said the group had invested in consumer engagement in stores and in special pop-ups within its own network. He also pointed to more jewelry presented in the boutiques.

“It’s very simple, to improve sales you need to improve product and positioning,” he offered.

Wholesale revenues decreased 37 percent to 196 million euros compared with the first half of 2019, in line with the group’s selective approach to the channel. Compared with the first half of 2020, wholesale was up 119 percent.

E-commerce has grown at a triple-digit rate for five consecutive quarters, said chief financial officer Alessandra Cozzani. The online channel now accounts for 7 percent of retail sales.

Lorenzo Bertelli, marketing director and head of CSR, trumpeted the successful launch of Prada and Miu Miu flagships on Tmall and the increased visibility of the brands on digital platforms.

Prada’s men’s spring 2022 video garnered 2.9 million views and was ranked first on IGTV Men’s Fashion Weeks, up 53 percent compared with fall 2021. It also ranked first in fashion weeks’ reach and engagement rate.

Miu Miu’s fall 2021 fashion show video on YouTube scored 2.1 million views, up 950 percent compared with spring 2021.

He also said the Prada Cup generated the most audience engagement of all the tournament phases, defining the Luna Rossa sailing boat as “a longstanding element of the activewear identity of the Prada brand.”

The company has also doubled down on its inclusive strategy, engaging talent from diverse backgrounds and different sectors, from music to sports. The group will announce its Sustainability Roadmap in the fall, further embedding ESG in its strategy, he concluded.

Cozzani said gross margin of 74.3 percent was at “the highest level since the IPO” in 2011 due to the successful channel mix and product elevation, as well as full-price sales.

Capital expenditures amounted to 75 million euros, compared with 49 million euros last year.

The net financial position stood at a negative 102 million euros, improving from a negative 311 million euros at the end of December last year.

Bertelli revealed a Capital Markets Day in the fall.

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