Analysts Still Don't Wear Prada

The road ahead for Prada SPA PRDSY looks bumpy, with the company highlighting an ever more demanding consumer and investments ahead required to drive organic growth.

UBS recommend investors to sell the stock. Analyst Helen Brand said, "We expect continued LFL weakness to disappoint particularly in the context of the stock's cal 2016E P/E of 20.8x sitting at >20 percent premium to the European luxury average."

The notable areas in the latest quarterly results include 6 percent drop in retail organic sales implying like-for-like sales (LFL) decline of 7 percent. Like for like (LFL) growth is a key metric for retailers as it measure of growth in sales, adjusted for new or divested businesses.

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Wholesale growth declined 21 percent. By region at retail, the main improvement was in Mainland China with fourth quarter flat. In Europe, the growth was slow as tourism spending was less supportive.

For 2015, revenues were €3.54 billion, almost flat with last year. The company plans to step up the contribution of the retail network, while reducing the wholesale channel.

Brand wise, Prada recorded a 1 percent sales increase for the year to €2.49 billion, driven by the exchange rate effect. Meanwhile, Miu Miu enjoyed revenue growth at both current exchange rates (10 percent) and constant exchange rates (1 percent).

Lux Peers

Luxury goods companies such as Prada, Coach Inc COH, Tiffany & Co. TIF face risks in the form of terrorism pricing pressure, political changes and foreign exchange rates. The companies have had to deal with an economic environment characterized by extreme volatility in currency markets, as well as by the deteriorating geopolitical situation in many regions. These two factors have made prices fluctuate widely and diverted tourist traffic.

Coach reported better-than-expected earnings for the second quarter. Net sales increased 4 percent to $1.27 billion for the second quarter from $1.22 billion a year ago. On a constant currency basis, total sales increased 7 percent for the period.

Tiffany set to report its quarterly numbers on March 18. Analysts expect earnings of $1.41 a share on revenue of $1.22 billion for the fourth quarter.