Spring is in the air and two Latin beauties are about to make their debuts as listed compa-nies on the stock market catwalks of Milan and Madrid. Both are family-based fashion businesses and both are expected to float in May, but here the similarities end. One, Italian luxury goods group Prada, specialises in setting fashion trends and manufacturing its exclusive and pricey accessories for the well-to-do. The other. Spain’s lnditex, the par-ent company of cheap-and-cheerful fashion chain Zara. is known for its success in taking upmarket trends to the high Street.
Inditex’s expansion has been stunning. From fine stores in 1995, the company has grown to more than 1,000 stores in over 30 countries. Almost half of its $2.43bn turnover is generated outside Spain, and between 1996 and 2000, the group’s net income grew at around 39 per cent annually.
The secret of this meteoric rise is in Inditex’s unique business model. The group manufac-tures 60 per cent of its merchandise in directly-owned factories, mostly in Spain, giving shorter time to store. Zara’s designs change at an unprecedented rate with the stores restocked about twice a week Inditex’s owner, Amancio Ortega. is selling 26 per cent of his successful business because his children are not interested in taking it over.
Italy’s Prada, owner of the MiuMiu, Helmui Lang and Church brands, is an altogether different animal. It is an old leather accessories business. which has only recently positioned itself as a luxury goods company From near-bankruptcy in the 1970s, Prada now controls 9 per cent of world’s high-end leather goods market — a fast-growing niche with operating margins reaching 25 per cent. Last year, Prada’s sales grew by 57 per cent, to $1.6bn. while earnings jumped by 37 per cent. Chief executive Patrizio Bertelli plans to expand into luxury watches, and part of the funds raised at the flotation — of a stake of up to 30 per cent —will go towards further acquisitions.
Although the economic climate may be chilly for market newcomers, both IPOs are likely to attract significant interest. “The market is unstable now, but there is always good appetite for good stories — as long as they are priced appropriately,” said J.P. Morgan’s Sagra Maceira. “It’s about how much upside for investors they will want to leave.”
Ms Maceira expects that Inditex will be priced below its biggest rival, Swedish high-street chain HEtM, even though Inditex is more profitabIe. Inditex is a great company, but it doesn’t have a track record. I think it will have o be priced between $8bn-$9bn.” she says. That would put Inditex on about 34 times prof-it it compared with H&M’s 44 times profit. Fewer details are known about Prada’s offering. but valuing it in me with its peers. such as recently floated luxury shoe designer Tod’s, would give ta market capitalisation of about $8bn — or five times its sales.
However, according to Carlo Pambianco, of Pambianco luxury goods consultancy in Milan, the current market sentiment may mean that Prada will have to price its shares Iower to attract investors.