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Prada Hurt by Euro’s Strength as Profit Misses Estimates

Prada Store in Hong Kong
Prada’s first-half revenue growth slowed to a third of the rate in the same period last year as demand for luxury goods cooled in China, the world’s second-largest economy. Photographer: Lam Yik Fei/Bloomberg

Prada SpA, the Italian owner of the Miu Miu and Church’s luxury brands, said the euro’s strength will weigh more heavily on full-year earnings than some analysts anticipate after first-half profit missed estimates.

The currency’s appreciation against the yen and the dollar “may be possibly not fully considered in some of the forecasts that we have seen coming from the market at the moment,” Chief Financial Officer Donatello Galli said on a conference call.

The euro has gained about 4.6 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The advance is taxing companies such as Prada, which got more than half its revenue outside of Europe in its last financial year. Amid an economic climate described by Chief Executive Officer Patrizio Bertelli as “uncertain and extremely volatile,” sales growth at the Milan-based company has slowed in September, Prada said.

The company’s comments “might be taken negatively near-term and delay Prada’s share price recovery,” said Thomas Chauvet, an analyst at Citigroup Inc.

Prada fell 2.1 percent to HK$77.95 at 3:15 p.m. in Hong Kong trading. The benchmark Hang Seng index lost 0.1 percent.

First-half net income rose 7.6 percent to 308.2 million euros ($412 million), Prada said yesterday, less than the 321 million-euros average of five estimates compiled by Bloomberg.

The slowdown in sales this month followed a “fairly good” August, Prada said. The weakness was most noticeable in some parts of Europe and the Middle East as the situation in Syria hurt tourist flows, Galli said.

Slowing Growth

Prada, which plans to open as many as 80 stores this year, said it will keep “close attention” to be able to respond to a “possible sudden change of conditions.” The 100-year-old company had 491 directly-operated stores at the end of July.

First-half revenue growth slowed to a third of the rate in the same period last year as demand for luxury goods cooled in China, the world’s second-largest economy. Sales in the period gained 12 percent to 1.73 billion euros.

Sales at stores open at least a year rose 7 percent and will gain at least that amount in the second half, Galli said.

Earnings before interest, taxes, depreciation and amortization advanced 17 percent to 551.1 million euros, widening as a percentage of sales as Prada adjusted its product mix and increased prices, it said yesterday.

The company has “substantial margin upside potential across both flagship brands, Prada and Miu Miu,” said Allegra Perry, an analyst at Cantor Fitzgerald. “We see a significant opportunity in Asia, where the group is underpenetrated.”

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