Prada (HKSE:01913), the Italian fashion and luxury goods brand, was a top detractor for the quarter, declining 19%. The company reported fiscal third-quarter results that disappointed investors, as revenue and earnings figures fell short of analysts’ expectations. Sales in China, particularly of leather goods, continued to decline, and the company has struggled to find the right product offering to generate top-line growth. Management believes that Chinese customers are transitioning from just wanting global products found in the West to wanting bespoke products. The company’s plans to tailor clothing by geographic region should appeal to Chinese consumers, whose propensity toward travel should help them be aware that these products are exclusive to them. Prada’s lean and efficient distribution network will enable the company to move new product offerings from the design stage to the retail floor quickly—approximately four to five weeks’ time. We think that while Prada may face some short-term obstacles, its long-term outlook is promising and it is trading at a meaningful discount to its intrinsic value.
From David Herro (Trades, Portfolio)'s Oakmark International Fund fourth quarter commentary.
