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Hit With $211M First-Half Loss, Prada Sees ‘Recovery’ at Reopened Stores

Prada S.p.A. said the 40 percent of its stores that closed between February and May heavily factored into a second-quarter loss, but strong online sales and local shoppers visiting reopened stores offer reasons for optimism.

In a Nutshell: Prada said it reacted quickly with effective cost containment measures, including reorganizing production to adapt to the impact from the coronavirus, or COVID-19, pandemic.

“I am very proud of the commitment and sense of responsibility demonstrated in these circumstances by all our people. The first half of 2020 saw a temporary interruption of our growth trajectory which, in a situation of progressive control of the pandemic, we are confident will gradually resume from the second half of 2020, when our store network will again be fully operational,” Prada CEO Patrizio Bertelli said.

The luxury firm said it renegotiated some of its leases and cut costs by scaling by marketing activity.

Prada said 21 factories shut down for five weeks, but were able to resume operations in the last week of April.

“The rapid resumption of manufacturing activities mainly concentrated in Italy, made possible by the adoption of the [extensive] safety measures, along with direct control over the supply chain, enabled the Prada Group to provide stores with new seasonal products on time, and to manage stock effectively without excess inventory,” the company said.

In the half, the company said it has revamped the Prada website across all major markets, and launched e-commerce in South Korea and Brazil.

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Prada said it has seen improving digital engagement on Instagram on a sequential basis from the first quarter, and growth in the half on other social media channels, helping the brand rise to third place on Instagram and Facebook, and first place on Twitter, according to customer experience management platform Sprinklr.

In the half, the company added Raf Simons as co-creative director and Massimo Vian as chief of industrial production.

Net Sales: Revenues for the first half fell 40.3 percent percent to 938 million euros ($1.10 billion) from 1.57 billion euros ($1.85 billion) a year ago.

For the period, retail sales fell 32 percent to 835 million euros ($981.4 million) from 1.23 billion euros ($1.45 billion), while wholesale sales were down 71 percent to 91 million euros ($107.0 million) from 314 million euros ($369 million).

By sector at constant foreign exchange, revenues for Europe fell 41 percent to 228 million euros ($268.0 million), hurt by lockdowns that began in May. The region has seen good response to store reopenings from local consumers, but remains impacted by the lack of tourists, the company said. In Asia Pacific, revenues fell 18 percent to 370 million euros ($434.9 million), which strong double-digit sales growth since April in Mainland China, and South Korea and Taiwan R.O.C., although the latter two also didn’t experience store closures. Hong Kong S.A.R. and Macau S.A.R. are still negatively impacted by the lack of tourists.

Revenues in the Americas were down 42 percent to 96 million euros ($112.8 million), interrupted beginning in March by lockdowns. While sales are improving, some stores have not yet reopened as the coronavirus continues to spread. Revenues in Japan were down 39 percent to 113 million euros ($132.8 million), although local consumption has been improving. In the Middle East, revenues were down 44 percent to 28 million euros ($32.9 million), with Dubai still suffering from the lack of tourism but other markets seeing an uptick in local consumption.

Prada said it has seen sequential improvement since the reopening of stores in all regions, and consumer response has been “particularly strong in Asia Pacific.” The company also said it saw a “sharp acceleration online” since the COVID-19 outbreak, with triple-digit growth year-to-date even after the reopening of stores. About 85 percent of its retail network reopened by the end of June, Prada said.

While the pandemic hurt wholesale sales, Prada attributed some of the declines to its own decision last year to pull back on the channel to protect brand positioning and focus on the its own retail channel and e-commerce platform. Sales through the wholesale channel are expected to stabilize next year, it added.

Earnings: The net loss for the six months was 180 million euros ($211.6 million), against net income of 155 million euros ($182.2 million)  in the same year-ago period.

CEO’s Take: “The excellent response of local consumers after the re-openings, confirms the desirability of our products and the strong relationship with our customers, which has been further strengthened by our continued focus on digital technology. The recent positive trends in all markets, combined with our solid balance sheet and financial position, allow us to look to the future with confidence today,” Bertelli said.