Prada Group: Sales Growth Still Solid Supported by Stellar Miu Miu Performance; Shares Fairly Valued

We maintain our fair value estimate for narrow-moat Prada Group 01913 at HKD 48 per share as the company reported solid sales numbers for the first nine months. Like other luxury peers, Prada Group has seen a meaningful deceleration in the third quarter with 10% growth (broadly in line with peers like LVMH with 9% growth for its fashion and leather goods division and 9% growth for Moncler), compared with around 20% growth delivered in the first half. We believe Prada Group should be among the top luxury performers over the near term on strong brand momentum. That said, we see shares as fairly valued at current levels.

Regionally, there has been some sequential improvement in the Americas region, where sales were down 2% in the third quarter versus a 6% decline in the second quarter. Sales growth in Europe decelerated markedly from 22% growth in the second quarter to 6% in the third quarter. Unlike LVMH, sales to local clients in Europe remained in positive territory year on year. Sales in the Asia-Pacific region were up 13%, also a marked deceleration from 28% achieved in the previous quarter on a tougher comparison base. The Miu Miu brand significantly outperformed on strong brand momentum, growing 48% in the quarter at constant exchange rates and 49% for the first nine months. The profitability of the brand still lags that of the Prada brand, but the gap is closing quickly on strong sales numbers. Sales growth for the Prada brand, which accounts for over 80% of revenue, was 5%. The ready-to-wear category outperformed with 25% growth, but leather goods lagged with 1% growth in the quarter. The strong continued performance of ready-to-wear increases Prada Group’s sensitivity to fashion cycles in the longer term in our view and may result in a more volatile performance. The company implemented 4%-6% price increases during 2023 for its main brands and is planning the same magnitude of price increases for 2024.