Prada Slumps After Missing Estimates for First Quarter

Photographer: Lam Yik Fei/Bloomberg

Customers queue to enter a Prada SpA store in the Tsim Sha Tsui area of Hong Kong. Close

Customers queue to enter a Prada SpA store in the Tsim Sha Tsui area of Hong Kong.

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Photographer: Lam Yik Fei/Bloomberg

Customers queue to enter a Prada SpA store in the Tsim Sha Tsui area of Hong Kong.

Prada SpA (1913) fell the most in more than two years in Hong Kong trading after profit missed analysts’ estimates amid subdued Chinese spending in Europe.

Prada dropped 6.9 percent to close at HK$53.45, the biggest drop since October 2011. The stock has lost 23 percent this year, compared with a 1.5 percent decline in the benchmark Hang Seng Index.

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.

Photographer: Lam Yik Fei/Bloomberg

Customers queue to enter a Prada SpA store in the Tsim Sha Tsui area of Hong Kong, China. The luxury-goods industry has become dependent on spending by Chinese consumers, and a decline in tourism led to Prada’s European sales dropping 4.1 percent. Close

Customers queue to enter a Prada SpA store in the Tsim Sha Tsui area of Hong Kong,... Read More

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Photographer: Lam Yik Fei/Bloomberg

Customers queue to enter a Prada SpA store in the Tsim Sha Tsui area of Hong Kong, China. The luxury-goods industry has become dependent on spending by Chinese consumers, and a decline in tourism led to Prada’s European sales dropping 4.1 percent.

Profit Decline

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.

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: Celeste Perri at cperri@bloomberg.net; Stephanie Wong at swong139@bloomberg.net Dave McCombs

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