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Prada’s Sales Growth Slows on Weaker Asia, Europe Demand

Patrizio Bertelli, chief executive officer of Prada SpA, said in the statement that The group has operated in a more difficult political and macroeconomic environment than expected with unfavorable exchange rates and a general fall in consumption. Photographer: Jerome Favre/Bloomberg
Patrizio Bertelli, chief executive officer of Prada SpA, said in the statement that The group has operated in a more difficult political and macroeconomic environment than expected with unfavorable exchange rates and a general fall in consumption. Photographer: Jerome Favre/Bloomberg

Aug. 7 (Bloomberg) -- Prada SpA the Milan-based luxury handbag maker, posted the slowest half-yearly sales growth in three years as demand weakens in some Asian countries and in Europe amid economic and political uncertainties. Shares fell.

Prada’s revenue climbed 1 percent to 1.75 billion euros ($2.34 billion) in the six months through July, according to the company’s preliminary figures filed to Hong Kong’s stock exchange yesterday. That compared with the median estimate of 1.74 billion euros from four analysts compiled by Bloomberg.

Prada’s full-year guidance “looks unachievable” after “disappointing” sales, Stephanie D’Ath and Ashley Wallace, analysts at Bank of America Merrill Lynch, wrote in a note yesterday. “We expect the stock to remain under pressure as more earnings downgrades come through after second-quarter results,” they said.

Italy returned to recession in the second quarter and German factory orders dropped the most since 2011 as slowing global growth and political tensions including the crisis in the Ukraine threaten the euro area’s recovery. LVMH Moet Hennessy Louis Vuitton and Hermes International SCA have also reported slower sales growth amid weaker consumption in Asia.

The sales growth was the weakest half-yearly figure since the company listed on the Hong Kong Stock Exchange in June 2011, according to data compiled by Bloomberg. Sales rose 11.6 percent in the same period last year and fell 0.6 percent in the first quarter.

Prada dropped 1.3 percent to close at HK$53.65 in Hong Kong. The city’s benchmark Hang Seng Index declined 0.8 percent.

Cost Controls

“The group has operated in a more difficult political and macroeconomic environment than expected with unfavorable exchange rates and a general fall in consumption,” Prada Chief Executive Officer Patrizio Bertelli said in the statement. The company will implement “rigorous” cost controls to protect its margins, he said.

In April, Prada forecast same-store sales will rise at a “low single-digit” pace in the financial year through January 2015, less than last year’s 7 percent increase. Growth will be “mid single-digit” the year after, it said then.

The company will announce its interim results on Sept. 19.

Sluggish Demand

Retail sales in the first half rose 1 percent to 1.44 billion euros, while sales at the Italian retailer’s 566 directly operated stores climbed 5 percent. Prada’s wholesale channel posted a 2 percent sales increase at constant exchange rates.

In Europe, sales fell 1 percent led by a fall in tourism with poor economic environment affecting domestic demand.

Sales increased 19 percent in Japan and 14 percent in the Americas, excluding currency swings, Prada said. Sales in the Asia Pacific region rose 2 percent with weak performances in Korea, Hong Kong and Singapore. China sales accelerated to 12 percent, the company added.

Hong Kong retail sales tumbled 6.9 percent year-on-year in June, the fifth straight decline. Sales of watches, jewelry and high-end products plunged 28.2 percent, probably reflecting anti-extravagance measures and slower economic growth in mainland China, according to Bloomberg Intelligence.

LVMH last month reported first-half profit from recurring operations fell 5 percent, trailing estimates amid weaker consumption in Asia that was led by slower Chinese spending at home and abroad.

Hermes, the maker of Kelly handbags, reported a sales increase of 5.8 percent in the second quarter to 963.4 million euros, lagging behind estimates, as the weakness of the yen and a higher Japanese sales tax weighed on growth.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Daryl Loo

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