Morningstar

Morningstar, Inc.

Equity Bottom-Up

Prada is one of the most recognised and best-loved luxury brands and is an important design authority. It has developed a global retail network of over 600 stores for Prada and Miu Miu, many of which are in important travel locations. Although dilutive to returns in the short run (return on invested capital currently at 5.7%, versus 13.6% in 2013), control over distribution strengthened the company's brand moat--showcasing the brand, avoiding excessive discounting, and maintaining strong…

While the luxury sector has been battered over the past few days, we're maintaining our fair value estimates for the firms in this space. We believe the sector valuations are now returning to more palatable levels, after being materially overvalued for most of 2018. While many valuations are still stretched, the sector sell-off has created a few opportunities for long-term investors. We consider wide-moat Richemont a top pick in the space, trading in the 4-star territory at a 20% discount to our…

We are maintaining our HKD 29 fair value estimate and narrow moat rating for Prada after the company reported first-half 2018 sales broadly in line with our expectations (constant currency growth of 9% versus 8.5% expected). Operating margin showed marked improvement to 10.4% from 9.2% level last year. Currency headwinds and increased marketing expenditures should limit the operating leverage for Prada this year, despite growing off largely the same store base (we expect operating margin…

We are retaining our narrow moat rating and fair value estimate for Prada Group after it reported results slightly below our expectations.
Revenue decline came in at 3.6% versus our expectations for 2.7% decline, gross margin was in line (improving from 71.9% in 2016 to 73.5%, supported by higher share of full priced sales). Operating expenses came above our expectations with higher-than-expected investments in marketing, product design, and flat selling expenses (versus our expectations for…

Italy

Prada S.p.A. is an Italian fashion company that designs, manufactures, promotes and sells high-end leather goods, ready-to-wear and footwear through various brands.

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