Prada SpA (1913) dropped the most in four months in Hong Kong after the company said it may fall short of analysts’ projections for fiscal-year revenue following unfavorable currency moves and slowing Europe and Asia demand.
Prada fell 4.2 percent to close at HK$68.5, the biggest loss since Aug. 20. It has dropped 7.4 percent this year, compared with the 1.2 percent gain in the benchmark Hang Seng Index.
“The normalized growth trend of Chinese tourist flow and the Chinese government’s continued discouragement of luxury spending has been taking an increasing toll on Prada,” Phoebe Wong, a Hong Kong-based analyst at Bocom International, wrote in a note to clients today. The unfavorable start in the fourth quarter “with its core European market seeing further slowdown in November and December to-date, is a rising concern,” she said.
Wong maintained a “neutral” rating on the stock.
The Milan-based company said on Dec. 20 third-quarter net income rose 8.6 percent to 132.6 million euros ($181.5 million), lagging an average estimate of 153 million euros from eight analysts compiled by Bloomberg.
Prada, whose products include $2,950 leather handbags, joins European luxury-goods makers including LVMH Moet Hennessy Louis Vuitton SA (MC) and Gucci owner Kering SA (KER) in reporting slowing revenue growth as Chinese demand wanes and the euro strengthens against currencies including the Japanese yen. Fewer Chinese consumers are shopping in Europe, preferring instead to go to the U.S., while domestic consumption remains under pressure in Italy and Spain, Chief Executive Officer Patrizio Bertelli said during the Dec. 20 conference call.
“Consensus at the moment is challenging,” Chief Financial Officer Donatello Galli said on the call, without specifying a figure. Before the earnings announcement, analysts were predicting that sales in the year through January would rise to 3.71 billion euros from 3.3 billion euros, according to the average of 32 estimates compiled by Bloomberg.
“Unfavorable exchange rates and softening consumption patterns in some regions could weigh on results, and thus will require increasing attention by the management in order to ensure profitability and continue the retail expansion,” Prada said in a statement.
Prada had 516 stores at the end of October. The company plans to open about 80 more a year through 2015, Investor Relations Director Alessandra Cozzani said on the call. Prada got 86 percent of sales from its own stores in the nine months through October.
Profit was affected by a higher-than-expected tax rate, Prada said. The company, which is in talks with Italian tax authorities on how to interpret legislation related to foreign holdings, said in a separate statement that its holding company will repatriate non-Italian activities.
Revenue for the three months ended October rose 7.1 percent to 848 million euros, also trailing predictions. Sales advanced 13 percent, excluding currency shifts, Prada said.
Margins are likely to be stable the coming year, as efforts to widen earnings as a proportion of sales “may eventually jeopardize our commercial penetration,” Bertelli said.
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