Morgan Stanley has released a research report indicating that although PRADA (01913) experienced an 8.5% year-on-year increase in sales for the third quarter when measured at constant exchange rates—slightly exceeding market consensus—retail sales were in complete alignment with market expectations, growing by 7.6%. This outperformance was primarily driven by the more volatile wholesale channel. PRADA remains one of the fastest-growing groups during this fiscal reporting period, with growth nearly on par with Hermès, significantly outpacing French luxury giants LVMH and Kering.

Morgan Stanley has lowered its earnings per share forecast for PRADA for the fiscal years 2025 to 2026 by 0.6%, while maintaining its target price at HKD 53. Despite recognizing investment opportunities in other luxury goods sectors, Morgan Stanley has retained a "Market Perform" rating on the stock. However, it anticipates that market reaction will be relatively muted, as PRADA's revenues "barely" met market expectations in contrast to most peers.

Given PRADA's currently attractive stock price, Morgan Stanley expects the stock to oscillate within a range over the coming days or even months, amid three main concerns. Firstly, with a surge of new creative directors, competition in the creative field is intensifying, and Miu Miu, known for its genuine innovation and differentiation over the past two years, may face the risk of losing its competitive edge. Secondly, with a potential shift in fashion trends from minimalism to maximalism, both PRADA and Miu Miu may be at a disadvantage, as more intricate brands like Gucci seem to resonate better with consumers.

The first two factors may limit PRADA's stock re-rating. Finally, the acquisition of Versace is projected to dilute the group's profit margins for at least the next few years. Morgan Stanley estimates a projected operating loss of EUR 150 million for Versace in fiscal 2026, followed by an expected operating loss of EUR 120 million in fiscal 2027, indicating virtually no profit growth for the group in fiscal 2026, with earnings before interest and taxes expected to remain flat in euro terms.

For 2025, Morgan Stanley has downgraded the group's revenue growth forecast to 6.6% (down from a previous estimate of 8.5%), while anticipating an earnings before interest and taxes margin to hold steady at 23.4%. Brand-wise, PRADA's revenue in Q4 is projected to decrease by 1.3% year-on-year, while Miu Miu's revenue growth is expected to be slightly adjusted down to 30%.