Corporate Finance PROJECT

04/20/2015

Prof. Tonova

PRADA
Corporate
Finance project
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Aleksandar
Garlanov
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Corporate Finance PROJECT

04/20/2015

Prof. Tonova

Introduction
Prada was founded in 1913 by Mario Prada, Miuccia Prada's grandfather, in Milan.
Located in the prestigious Galleria Vittorio Emanuele II, Prada was an exclusive,
stylish store selling luggage, accessories and luxury goods, in fine materials and
of sophisticated workmanship.
The Milan store quickly became a firm favourite with the Italian aristocracy and
the most sophisticated members of the European elite. In 1919 Prada received
the warrant of Official Supplier of the Italian Royal Household, and since then

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has been able to display the royal Savoy coat of arms and figure-of-eight knots
alongside the company logo. The luxury group now produces men's and women's
leather goods, clothing and footwear, combining contemporary, cutting-edge
sophistication with one-of-a-kind, sublimely-crafted products. Prada also operates
in the eyewear, fragrance and mobile phone sectors. The Group's distribution
network extends across 70 countries, counting 551 directly-operated stores (at
30 April 2014), which form the backbone of the group's international expansion
strategy, and a selection of department stores and multi-brand retail spaces in
the most significant cities and stylish locations. 1

Capital Valuation Model

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Corporate Finance PROJECT

04/20/2015

Prof. Tonova

Even though in the last several years Prada has been doing pretty well, even having a growth
rate over the industry average, I chose to find the most accurate and current information.
Right now, Prada is experiencing a slowdown, that is why I used the growth rate which is
predicted to apply in the next few years (-6%).2

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Dividend Discount Model

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Corporate Finance PROJECT

04/20/2015

Prof. Tonova

Conclusion and recommendations

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If it comes to giving advice whether the current/future shareholders/investors should buy

shares in the company which has such a long history, I decided to turn to more reliable
sources with more accurate/adequate corporate information than my outdated calculations.
The trend in luxury goods is to drum up same store sales by curbing expansion and wowing
customers with new products, yet Prada continues to pay over the odds to open swanky new
shops and stock them with handbags little changed from previous bestsellers. Prada, say
analysts, now urgently needs to focus less on new stores and more on new handbags. Analysts
estimate same-store sales, which Prada stopped reporting last year, fell year-on-year by 12
percent in the third quarter to Oct. 31 and may have dropped by as much as 9 percent in the
quarter to Jan. 31.Pradas costly retail space, combined with slower growth, has hammered
margins and valuation. The groups share price nearly halved in the past two years and most
analysts still have sell or hold recommendations on the stock. Its operating margin fell to 15.4
percent in the third quarter from 21.3 percent in the first half. Some analysts expect small
margin growth this year, mainly thanks to the strong dollar that will boost reported earnings in
euros. 3 On top of that, the luxury brands current share

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Corporate Finance PROJECT

04/20/2015

Prof. Tonova

price(http://www.bloomberg.com/quote/1913:HK) is still falling down so my final

recommendation whether or not to invest Prada would be not to.

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1 "Prada Group." Prada Group. Web. 20 Apr. 2015.

http://www.pradagroup.com/en/group/group-profile
2 "Is Earnings Growth Sustainable As The Luxury Retail Sector Slows? | Alpha Now |
Thomson Reuters." Alpha Now. 19 Mar. 2015. Web. 20 Apr. 2015.
http://alphanow.thomsonreuters.com/2015/03/is-earnings-growth-sustainable-as-theluxury-retail-sector-slows/
3 "Prada out of Fashion How the Luxury Brand Is Missing Key Trends." Web. 20 Apr.
2015. http://www.biznews.com/global-investing/2015/02/11/prada-fashion-luxury-brandmissing-key-trends/