Prada to Focus on Cost Control After Profit Growth Slows

Prada SpA, an Italian maker of $3,500 pony-skin totes, reported first-quarter profit growth that decelerated to the slowest pace in at least a year and said it will focus on cost control as it opens more stores.

Net income rose 14 percent to 138.2 million euros ($183.5 million) in the three months through April, Milan-based Prada said today in a statement. That fell short of the 141 million-euro median of seven analysts’ estimates compiled by Bloomberg. Revenue also climbed 14 percent to 782.3 million euros, trailing the average estimate of 790.3 million euros.

Luxury-goods makers have reported a slowdown in recent months. PPR SA reported first-quarter revenue in April that missed analysts’ estimates as Gucci posted its weakest quarterly growth in more than three years amid a weak European economy.

The international economic environment “remains extremely volatile and uncertain,” Prada Chief Executive Officer Patrizio Bertelli said today in the statement.

Prada has said it plans to open as many as 80 stores this year as it seeks to sell more $310 sunglasses and $750 wedges, particularly in Asia. The company, which aims to grow without making acquisitions, remains confident of a high single-digit percentage increase in like-for-like sales this year, Finance Director Donatello Galli said on a call today. Sales on that basis advanced 8 percent in the quarter, Prada said.

Prada’s same-store sales growth “seems pretty healthy in this market,” said Luca Solca, an analyst at Exane BNP Paribas. Still, the Miu Miu brand’s 5 percent gain in revenue “is not as bright as one could have hoped.”

Miu Miu

Prada’s earnings were released after the close of the Hong Kong stock market, where the stock trades. The shares fell 1.4 percent to HK$73.25 today, giving the owner of brands including Church’s and Car Shoe a market value of HK$187.4 billion ($24 billion).

Prada doesn’t expect Miu Miu’s revenue growth to deteriorate if market conditions remain stable, Galli said. The company attributed the brand’s underperformance to economic volatility and a lack of penetration in fast-growing markets.

“Prada continues to say they believe in the brand and demands investors to be patient,” said Solca. “As long as we have growth, this is fine.”

Sales in the company’s own stores advanced 19 percent in the quarter. Sales via third-party distributors declined about 9 percent. Prada expects wholesale revenue to decline by a high single-digit percentage this year, Alessandra Cozzani, an investor relations director, said on the call.

“New accounts and signs of recovery in the U.S. market mitigated the shrinkage in the channel” in the quarter, Prada said.

Sales in the Asia-Pacific region increased 25 percent, with stores open at least a year posting 6 percent growth. In Greater China, sales gained 24 percent. European sales advanced 7 percent, dragged down by weak domestic demand in Italy, while sales in the Americas advanced 23 percent.

Prada expects gross margin, which widened to 73.6 percent in the quarter from 72.3 percent, to increase 50 basis points to 100 basis points in the full year, Cozzani said.

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