Prada sees no revenue growth this year, to open fewer stores

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Reuters

HONG KONG/MILAN: Italian luxury good company Prada SpA cut its 2014 revenue guidance on Friday due to weaker than expected consumer demand as it posted a 21 per cent fall in net profit for the first half.

The maker of luxury leatherware and Miu Miu-brand dresses said it was hit by sluggish consumer demand amid an uncertain economic outlook and unfavourable exchange rates.

Prada’s revenue this year is expected to be flat compared with 2013, the company said in an email to Reuters late on Friday. In April Prada said it expected to see growth in sales this year in the “high-single” digits.

Earlier on Friday it forecast a second-half broadly in line with the first six months to end-July, without specifying if it was referring to sales or profit.

The company said it would open fewer stores than previously planned this year, as it did not see significant improvements in the luxury market in the coming months.

“We will have net openings of 65 stores against 80 planned,” Prada Chief Financial Officer Donatello Galli said in a conference call on the financial results.

The move is part of a cost-cutting effort aimed at protecting margins at the fashion house, which in the six months to end July posted a drop in net profit to 244.8 million euros (Dh1.16 billion).

Net revenue rose 1.3 per cent to 1.75 billion euros. The company forecast second-half sales broadly in line with the first six months to end-July.

“Investors will focus on the second-half outlook, suggesting continued retail same-store sales growth and margin pressures,” Thomas Chauvet, an analyst at Citibank, said in a note to clients.

“This does not appear fully factored into consensus expectations, which should put further pressure on the shares near term.” Prada’s shares were hovering at their lowest level in more than two years on Friday.

Prada also suffered from a mismatch between customers’ demand and the products available in stores, Galli said, adding that some organisational changes were underway to tackle the problem that had affected mainly the leather goods segment.

“You will see the positive effects of these [changes] from mid-November,” he said.

Net sales for leatherware, which accounts for almost 70 per cent of revenues, fell 5 per cent year-on-year in the first half. Sales in the footwear and ready-to-wear segments were up 19 and 14 per cent respectively.

Cost-cutting and organisational changes should marginally improve Prada’s gross margin by the end of the year, Galli said.

The company also had weak retail sales in some countries in the Asia Pacific area such as Korea, Hong Kong and Singapore, once considered the growth engine for the luxury goods business.

 

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