Prada - $956 million in debt

[sbw4224]

Apparently a company needs more than handbags and a household name to pull themselves out of the red. Anyone care for a 20 shares of stock to go along with their newest Prada clutch?

By Suzanne Kapner, writer
August 26, 2008: 11:59 AM EDT



5 Prada fashion hits
Once a dusty old family luggage business, Prada is now of haute couture's most influential voices. Here's a look at the label's top industry-shaping designs. View photos
Sharp eye: Miuccia Prada's knack for creating the next hot style helped turn her grandfather's Milan store into a fashion juggernaut.

Power-house: At their Milan offices, Miuccia Prada handles design while her husband, Patrizio Bertelli, works to expand the business.
Photos

The sultans of style
Fortune's second annual Luxury Portfolio features the moguls, merchants and master craftsmen who are defining the business of luxury.
View photosPhotos

World's most expensive streets
Every city has one - a retail thoroughfare that houses the most exclusive stores. Real estate slowdown or not, these luxury corridors are still thriving - for now, at least. View photos
• Mickey Drexler doubles down
• Luxury market loses its luster
• World's most expensive streets
• Prada goes shopping - for money
• The sultans of style
Wal-Mart it isn't: Prada hired iconic architect Rem Koolhaas to design its Manhattan store.

What women want: Prada launched its first women's line in 1988 (left). This year's fall collection (right) presents a lacy look that can be had for $4,545.
More from Fortune
Dell bets on a small laptop

A flier strikes back

Green Gold?


FORTUNE 500
Current Issue
Subscribe to Fortune

(Fortune Magazine) -- When the world's top fashionistas make their biannual pilgrimage to the Milan shows, Miuccia Prada, the house's oracle-like designer, is the one they come to see above all others. Known for her minimalist designs - embodied by her iconic black nylon bags - Miuccia, or Mrs. Prada, as her staff calls her, sets the pace of fashion.

A year ago she showed blousy tops and loose-fitting pants. This season the pajama-like looks have been popping up on runways all over Europe. "She is the designer that other designers look to for inspiration," says Ron Frasch, the chief merchant at Saks Fifth Avenue (SKS).

On a recent June evening, moments before Prada is to unveil its latest men's collection, the anticipation is palpable as buyers, artists, filmmakers, and publicists mingle in an old warehouse, part of a former industrial complex that houses the company's Milanese headquarters. By the time the last model takes his boyish steps down the runway wearing a polo shirt elongated to mid-thigh and a coat with a portrait collar and holster-like straps, a hush descends on the audience, who sit blinking in the half-light. Once again, Miuccia, 60, seems to have altered the course of fashion.

Prada's sleek fashions were not the only thing turning heads. Earlier this year, the private company reported that net profits in 2007 (the latest numbers available) had risen 66%, to $187 million. Sales had grown 17%, to $2.5 billion. Moreover, Prada had recently completed a reorganization in which it sold underperforming businesses, and in the past year it strengthened its management team with the addition of a handful of seasoned executives.

Missing out in Asia
Yet not all is well in the world of haute couture. With economies stalling around the globe, growth in the luxury industry has slowed to a crawl (see "Haute couture hits hard times"). More worrisome is that by some measures, Prada lags behind its peers. Cash flow as a percent of revenue is 19%, lower than many of its competitors'. At the Italian fashion house Dolce & Gabbana, for instance, the same measure of profitability stands at 28%.

Federico Lalatta, a Milan-based partner with the Boston Consulting Group, worries that Prada is missing out on the hordes of newly minted millionaires in the developing world. India, for instance, boasts three Louis Vuitton stores and two Gucci shops. Prada has yet to set foot in the country. "Prada has also been one of the latecomers to China," Lalatta says. "As a result, they don't enjoy nearly as good a reputation there as companies that entered the region early, such as Louis Vuitton (LVMHF) or Giorgio Armani."

To compete, Prada needs cash badly, not just to expand but also to pay down debt, much of it incurred in an ill-conceived acquisition spree. To raise money, Prada CEO Patrizio Bertelli, Miuccia's husband of 21 years, has indicated that the fashion house will list on the Milan stock exchange by year-end, pending market conditions.

While there has been no official comment, Prada is likely to sell about one-third of its outstanding shares in an offering that could raise as much as $1.5 billion. Control of at least 60% of the shares would still rest with Bertelli and the Prada family, who today own 95% of the company. (The Italian bank Intesa Sanpaolo owns the remaining 5%.) It's a formula other fashion houses are experimenting with. Salvatore Ferragamo plans to go public this year, and Versace may not be far behind. The Prada offering will be an important bellwether.

the rest can be found here:

http://money.cnn.com/2008/08/26/lifestyle/prada_goes_shopping.fortune/index.htm

[reborn]

sadly typical

I happens all the time...up or out. So, now that Prada is meandering in the middle of the "luxury" market, they need to "grow." I used to love Prada. I still have a few Prada pieces, but I don't think of it as a luxe brand any more. I think they should re-think their growth strategy.

[Faust]

Does the reporter have any idea what haute couture is?
And, iconic black nylon bags? What year is this, 2000? How many of these have you seen on the streets?

Anywa, Prada is not a label that "the newly minted millionaires" go for - it's not flashy enough. I am sure at this point it would do very well in Russia, where tastes have moved forward a bit. In five years they will be doing just fine in China and India.

I have to say, the idea of Bertelli doing this is pretty appealing.

[rach2jlc]

Prada has a lot of problems, but I still think they'll make it. Their debt is still from their massive purchases in 99/2000, much of which went south after 2001. So, I don't blame them or this debt on stupidity... in 1999/2000, Prada was at the top of the world and who would have thought that anything would change in just a year?

Anyway, I still like some Prada, though, for reasons that often still bewilder me. In Miuccia and Bertelli, though, there is a good team dynamic for making a great fashion brand. I think she's clever and creative, not necessarily as a designer, but perhaps in the same way I think Tom Ford is creative and clever. And, with her, she has Bertelli to focus on the "nuts and bolts" of being a company, which gives her more room to "do her thing."

Nevertheless, they've gotten away from their roots that made them desirable and this has created the image problem; initially, they made superlatively constructed, ultra minimal items. My mid-90's PRada items are going strong; the same can't be said for the $395 made in Vietnam sneakers and shittily constructed bags made in Turkey from more recent seasons. People will pay for quality and some will pay for brand, but the consumer isn't THAT stupid. I think this is one reason Prada has lost MUCH of its clout in Japan; six-seven years ago, they were huge. But now, not so much.

Versace, Gianfranco Ferre, etc. has similar problems with expanding too much and diluting their image during "glory days," and it nearly killed them.

[Fade to Black]

saw this coming for a while...i'm actually surprised it's still in business after so long. Really Prada has got to be my least favorite of all these luxury conglomerates.

strangely enough when i last walked into a Prada store about a week or so ago, none of the crazy stuff presented on the runway was there. Disappointing, I was curious to how some of that avant garde shirting worked out in person. Instead it was all basics - $400 plain button downs, cotton blazers and what not. Really quite boring.