The share price has tripled in four yearsMegahitpokerPrada (01913) Prada brand growth is declining, does the "Veblen" effect still work?Megahitpoker; Source: Zhitong Financial Network

When people talk more about "consumption degradation", luxury goods are also seen as "safe assets" through the cycle.

The Huazhi luxury industry stock index shows that the index has been in a volatile upward trend since 2016, reaching 273 in March 2024.Megahitpoker.7 points, up from 220 in October 2023Megahitpoker.9 points up 23.9%.

Zhitong Finance notes that while the luxury industry is favored by investors, some stocks have also helped investors achieve "excess returns". Among them, the share price of Prada (01913) reached a 10-year high of HK $65.66 (previous rights) in March 2024, with the biggest increase of more than 50% during the year, compared with the 2020 low of HK $15.4 and the largest increase of more than 300%.

The blessing of "Veblen effect" and the continuous growth of performance

Prada's good share price return is due to the obvious "counter-cyclical" nature of the company's performance over the past four years.

In 2020, affected by the epidemic, the scale of the global luxury market declined significantly. The global luxury market fell 20% 22% year-on-year to 1 trillion euros in 2020, according to the Bain report. Of this total, the personal luxury goods market fell 23% to 217 billion euros, the first contraction since 2009. Against this background, Prada achieved revenue of 2.423 billion euros in 2020, down 24.89% from a year earlier, with a net loss of 54.139 million euros.

However, mainland China's luxury goods market bucked the trend by 45 per cent to 44 billion euros in 2020, accelerating the formation of the world's largest luxury goods market. Since then, with the adjustment of global epidemic prevention and control policies, the global luxury goods market has grown to 1.14 trillion euros in 2021, and Prada has started rapid growth.

According to the financial report, Prada's revenue reached 3.365 billion euros in 2021, 4.125 billion euros in 2022 and 4.726 billion euros in 2023, with net profits of 294 million euros, 465 million euros and 671 million euros, respectively. Revenue grew at a compound annual growth rate of 18.5% from 2021 to 2023, and net profit grew at an annual compound rate of 51.1%. In the first quarter of 2024, Prada achieved revenue of 1.187 billion euros, an increase of 16% year on year at a fixed exchange rate, and achieved 13 consecutive quarters of retail growth.

In terms of brands, among Prada's three major brands, Prada, Miu Miu and Church's, Miu Miu has become the company's "second growth curve". Miu Miu's net retail sales rose from 329 million euros in 2020 to 649 million euros in 2023, with a compound annual growth rate of 40.4 per cent and 15.5 per cent of revenue from 13.8 per cent. In the first quarter of 2024, Miu Miu achieved net retail sales of 233 million euros, an increase of 89.4% over the same period last year, and its share of revenue further increased to 21.8%.

In the process of Prada's income growth, profitability has also gradually improved. The company's gross sales margin increased year by year from 71.96% in 2020 to 80.44% in 2023, an increase of 8.48 percentage points over that period. Prada

It has been mentioned more than once in recent financial reports that one of the reasons for the increase in the company's gross profit margin is the increase in the average sales price of the product.

This further proves that the counter-cyclical attribute of luxury goods lies in that it is different from the growth logic of "price for volume" of ordinary consumer goods, that is, the Van Buren effect unique to luxury goods. The so-called Veblen effect means that the degree of consumer demand for a commodity increases because of its higher price tag rather than lower price. It reflects people's psychological desire for profligate consumption. The higher the price of goods, the more consumers are willing to buy.

The pressure of growth appears

Looking ahead, the Veblen effect is expected to continue to support Prada's performance growth. Prada management said at the results conference that among the three revenue drivers, price, sales volume and product mix, the growth in 2024 will be mainly contributed by the product mix, especially in the clothing and leather goods category, according to the CICC research report. the price increase will be similar to that in previous years.

Prada products continue the trend of rising prices, an important external reason is the continued expansion of the target consumer group of luxury goods. The number of global millionaires (in dollars) reached 69 million in 2022 and is expected to reach 86 million in 2027, with a compound annual growth rate of 8 per cent, according to the PricewaterhouseCoopers report.

With the growth of high net worth people, the global personal luxury market is gradually recovering, and the global personal luxury market is expected to reach 606 billion US dollars by 2030. Among them, China is expected to become the world's largest market for personal luxury goods by 2030, with a market share expected to reach 25%.

It should be noted that the global luxury market is expected to expand steadily, but how long Prada can continue the high growth trend needs to draw a question mark. On the revenue side, the company's revenue growth slowed year by year from 38.92% in 2021 to 12.52% in 2023, mainly due to a marked slowdown in the growth of the Prada brand.

From 2020 to 2023, net retail sales of the Prada brand increased from 2.012 billion euros to 3.488 billion euros, with a CAGR of 31.6%. However, net retail sales of the Prada brand grew by only 7.3 per cent in 2023. In the first quarter of 2024, Prada achieved sales revenue of 826 million euros, a year-on-year growth rate of 1.6 percent.

Prada brand as the main brand of Prada, its brand value, market positioning and consumer awareness can have a positive synergistic effect on other brands of the company, including the sharing and complementarity of various brands in resource allocation, market strategy, design innovation and so on, which helps secondary brands to make use of the resources of Prada brand for market expansion and product development. On the contrary, if the growth rate of the main brand Prada continues to decline, or even negative growth, it may be a drag on other brands such as Miu Miu and the overall performance of the company.

Therefore, Prada may need to find a better balance between the coordinated development of different brands. As Prada management said, maintaining the trend of gradual improvement in profit margins is a balance that the company needs to find. According to Zhitong Financial observation, Prada has achieved balanced development, with many aspects of design, including globalization, category layout, channel optimization, supply chain management, digital transformation, and so on.

　　以优化全球渠道为例，2023年12月，普拉达发布公告，公司全资附属公司作为买方，以代价4.25亿美元收购位于纽约第五大道的大楼。此前，买方自1997年起一直向卖方租赁Prada店。将优质的租赁物业转化为自有物业，有利于普拉达把控优质销售渠道，维护品牌的稀缺性。也因为奢侈品具有品牌价值高、客户群体特定、产品稀缺性强等特点，也导致了品牌难以大规模复制门店，相反，普拉达旗下品牌门店自2020年以来逐步精简中。财报显示，公司在全球的直营门店数量从2019年的641家减少至2024年一季度的594家。

　　此外，普拉达管理层也向市场传达了公司对短期门店扩张保持审慎。管理层预计2024年零售店面只会轻微扩张，2025年，Miu Miu品牌的门店数量将增加10-15%，Prada品牌的门店数量将增加5-10%。

　　由此可以窥知，普拉达的业绩要延续2021-2023年的高复合增长趋势难度不小。中金公司预计，普拉达2024年和2025年收入分别为51.96亿欧元和56.16亿欧元，对应2023-2025年的年复合增长率为9%。招银国际预计2024-2026年，普拉达的营收分别达到50.91亿欧元、54.54亿欧元和58.45亿欧元，对应2023-2026年的年复合增长率为7.3%。

　　在股价处于长期高位的当下，是时候考虑普拉达还有多少值博率了。