Prada Outperforms During Downturn Thanks to Strength of Miu Miu

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. Control over distribution strengthened the company's brand moat—showcasing the brand, avoiding excessive discounting, and maintaining strong negotiating clout with wholesalers. As the retail infrastructure has been built out and new demand comes from existing stores, operating costs should be leveraged. Management's initiatives, such as rationalization of wholesale channels, discount reduction, increased digital investments, and investments in marketing, as well as increasing vertical integration and streamlining manufacturing, are putting the brand on a stronger footing and reinforcing its moat. The effect of these actions, alongside improved brand momentum, is showing in improved sales and profitability trends from 2021 through 2025, in our view. We believe the company is well positioned to grow revenue by 4%-5% over the next 10 years, accompanied by operating margin expansion to the low- to mid-20s, thanks to its brand strength, and general luxury industry expansion (helped by a rise in global incomes), as well as operating leverage, as its store densities improve. We do expect recent brand momentum, which has been helping performance over the past five years, to cool, as brand appeal is cyclical. In our experience, it lasts around five years, and started in 2020 for Prada.