Bloomberg News

Prada Falls After Forecasting Slowing Luxury Sales Growth

April 03, 2014

Prada Sales

Pedestrians walk past a Prada SpA store in the Causeway bay area of Hong Kong, China. Photographer: Lam Yik Fei/Bloomberg

Prada SpA (1913), the Italian maker of $2,950 leather handbags, dropped the most in nine months after forecasting slowing sales growth this year amid a maturing Chinese market and softer demand in Europe.

Prada fell 5 percent to close at HK$58.65, the biggest drop since June last year, in Hong Kong trading. The benchmark Hang Seng Index climbed 0.2 percent.

Same-store sales will rise at a “low single-digit” pace in the financial year through January 2015, Milan-based Prada said yesterday, less than last year’s 7 percent increase. Growth will be “mid single-digit” the year after. The company also reported profit for last year that missed analyst estimates.

“Fourth-quarter bottom line was significantly lower,” Tanuj Shori, a Hong Kong-based analyst at Nomura Holdings Inc., wrote in a research note today. The brokerage firm cut the stock rating to “reduce” from “neutral”, with a price target at HK$52.4.

Prada’s outlook is in keeping with the broader luxury-goods industry, where growth is being pegged back by softening demand in Europe and Asia, and the strength of the euro. The industry expanded 2 percent to 217 billion euros ($299 billion) last year, the weakest pace in four years, according to Bain & Co.

Prada said the long-term outlook for luxury goods remains strong “despite possible short-term volatility.” The strength of the euro “does not help exports,” it said.

The market will probably grow 3 percent to 5 percent annually to as much as 255 billion euros through 2016, the company said, citing Altagamma estimates.

New Stores

Prada said it will open about 120 new stores under its namesake brand through 2016. Fifty of the outlets will be for men only, adding to 30 it already operates. The company said it sees “strong growth” for the category in the medium term.

The Miu Miu brand will open about 70 stores through 2016, paving the way for “strong future growth,” Prada said. Also, the women’s fashion and accessories brand will introduce a fragrance in the second half of 2015, it said. Miu Miu sales may reach about 800 million euros in 2016, Prada said.

Shoemaker Church’s will expand its factory in England, Prada said. The brand will develop its product range, including ready-to-wear and accessories, with the aim of reaching sales of about 250 million euros in five years, Prada said.

The plans for the Prada, Miu Miu and Church’s brands “should be a relief for investors as the boost from pure wholesale to retail conversion is virtually exhausted,” said Luca Solca, an analyst at Exane BNP Paribas.

Adding Plants

Prada also said it will add four industrial plants to the 11 production facilities it operates in Italy and one in the U.K. The new plants, which will employ 700 staff, will open in Italy by the end of 2015. The company may also make acquisitions to strengthen its manufacturing know-how and capacity, it said.

Prada plans to boost its staff count to about 15,700 people in 2016 from about 11,500 last year.

Net income in the year through January rose 0.3 percent to 627.8 million euros. Analysts predicted 656.3 million euros, according to the average of 28 estimates compiled by Bloomberg.

Revenue climbed 8.8 percent to 3.59 billion euros last year, slowing in the fourth quarter, Prada reported in February.

To contact the reporters on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net; Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net; Celeste Perri at cperri@bloomberg.net Garry Smith, Subramaniam Sharma


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