Global luxury goods makers have increased their reliance on spending by Chinese tourists vacationing in Europe, leaving them vulnerable when a stronger euro damps travel demand. Prada’s European sales dropped 4.1 percent in the first quarter. Adjusted for currency swings, sales growth was 3.8 percent at the luxury goods maker, compared with 11 percent in the previous quarter and 15 percent the second quarter last year, Credit Suisse Group AG said, citing company figures.
“The biggest disappointment came in Europe and Asia ex-Japan,” Karim Salamatian and Rebecca Kwee, analysts at Credit Suisse wrote in a research note today. “The sequential decline in Prada’s constant foreign exchange sales growth has worsened over the past four quarters to a level where growth is now considerably below the global luxury sector,” they said. Credit Suisse lowered Prada’s price target to HK$59 from HK$63, while maintaining its recommendation at neutral.
Net income fell 24 percent to 105.3 million euros ($144 million) in the first quarter, Milan-based Prada reported yesterday. The result lagged the 129.7 million euro average of seven analyst estimates compiled by Bloomberg. The regional currency averaged 1.370 to the dollar in the first quarter, 3.8 percent stronger than the 1.320 average a year earlier.
Europe “was mainly penalized by the decline in the tourist flows resulting from the further strengthening of the euro currency,” Chief Executive Officer Patrizio Bertelli said yesterday in a statement.
Sales fell 0.6 percent to 777.7 million euros as the euro’s strength against other currencies wiped out growth. Analysts predicted 812.1 million euros, according to the average of estimates.
Revenue was also affected by a program of closing some wholesale accounts to improve its image and stagnant domestic demand in some parts of Europe, Prada said.
“For the following months the management will be focused on the improvement of the shop performances both with strict control on costs and actions to sustain sales,” Bertelli said in the same statement.
Wholesale revenue will decline by less than 5 million euros this year, Chief Financial Officer Donatello Galli said on a conference call. Pressure on margins will ease during the year, Prada also said.