Prada not only surviving this global economic downturn, they’re thriving.
Prada announced yesterday that it had a great quarter this summer, exceeding Wall Street’s expectations. Anyone who bet against the luxury brand is now chastised. Even in the worst economy in a generation, plenty of people are apparently going to buy those $2,000 handbags.
Not on these shores. Even though Prada saw U.S. sales growth of 16% in the half, it also enjoyed a 35% sales rise in Asia. Revenues grew 24% overall. A full 50% of total sales growth came courtesy of Asia, mostly from spending in stores in China itself. One hundred and ten of the company’s stores are in Asia—more than in all of Europe (104) and many, many than in the entire United States (40). In the end, the Chinese really will buy everything.
Or, in more general terms, the rich will buy everything while the poor will buy nothing.
The simple conclusion: don’t buy stock in those companies that sell simple discretionary items, except if you’re going to go deep discount. That means that Quiksilver (ZQK) and Columbia Sportswear (COLM) could be at risk. Quiksilver, for its part, is a mature brand and also in the midst of a turnaround. And don’t focus on companies that have too much of a domestic focus since, as Prada shows, much of the growth potential right now is coming from China. That would include U.S.-centric companies like Limited Brands (LTD) and Under Armour (UA).
The results were surprising. Prada opened 26 stores in the first half of the year, bringing its total to 358. One of the reasons it beat the mark was that it wasn’t forced into discounts as it had been in recent years. So does this mean the pain is actually over?
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