Prada AW15 advertising

At last – some good news for Prada. The investment specialists at Morningstar.co.uk said today that the company still has a competitive advantage despite all of its recent woes.

Morningstar’s conclusion is that it “shows high margins and returns on capital” and “possesses one of the most visible luxury brands in the world [with] long-term growth prospects.”

Well that’s a relief because times have been tough for the fashion star of late. Its last earnings report made tough reading and send its shares down, while two recent reports on digital excellence showed that it’s not getting it right online and in many ways is getting it very wrong.

So what does Morningstar see as hope for the future? Its highly-visible luxury brands and good margins (high-margin leathergoods represent around 62% of total revenue) are key. Operating margins have run “historically at more than 20% and returns on invested capital in the mid-teens.” And the analysts still see potential improvement as the store base and operating margins grow.

Prada’s strategy of focusing on retail rather than wholesale is also having a positive impact on gross margins, while “a long-term shift from Europe to emerging markets should also positively influence the overall cost structure.”

Miu Miu AW15 advertising

Despite its recent earnings blip, Prada’s uber profitability compared to others is driven by gross margins of more than 72%, mainly due to its strength in leathergoods. It’s also helped by it getting about a third of its sales from Asia, excluding Japan. And even though Asia has been a problem lately, it WILL recover.

Also, the store opening programme may have been scaled back but it’s still continuing and the company will see growth from those new stores.

What Morningstar’s analysts didn’t mention is the strength of Prada’s Miu Miu brand. The little sister brand’s growth is still outpacing that of Prada itself (albeit not as fast) and its has lots of potential to expand further.

Of course, the next few months will be crucial. Next month Prada shows its latest menswear offer and usually sends out its equivalent of women’s pre-season at the same time. Then it follows up with the Prada and Miu Miu collections for AW16. Will they be seen as must-have influencer collections full of It bags, It shoes and It-everything-else? We’ll have to wait and see.