Prada Says 2014 Sales May Miss Estimates on China, Italy

Prada SpA said it may fall short of analysts’ predictions for fiscal-year revenue after unfavorable currency moves and slowing demand for luxury goods in Europe and Asia weighed on third-quarter profit.

“Consensus at the moment is challenging,” Chief Financial Officer Donatello Galli said, without specifying a figure, during a conference call after Milan-based Prada reported quarterly profit today. Before the announcement, analysts were predicting that sales in the year through January would rise to 3.71 billion euros ($5.1 billion) from 3.3 billion euros, according to the average of 32 estimates compiled by Bloomberg.

Prada, whose products include $2,950 leather handbags, joins European luxury-goods makers including LVMH Moet Hennessy Louis Vuitton SA and Gucci owner Kering SA in reporting slowing revenue growth as Chinese demand wanes and the euro strengthens against currencies including the Japanese yen. Fewer Chinese consumers are shopping in Europe, preferring instead to go to the U.S., while domestic consumption remains under pressure in Italy and Spain, Chief Executive Officer Patrizio Bertelli said on the call.

“Unfavorable exchange rates and softening consumption patterns in some regions could weigh on results, and thus will require increasing attention by the management in order to ensure profitability and continue the retail expansion,” Prada said in a statement.

Sales Network

Prada had 516 stores at the end of October. The company plans to open about 80 more a year through 2015, Investor Relations Director Alessandra Cozzani said on the call. Prada got 86 percent of sales from its own stores in the nine months through October.

Net income rose to 132.6 million euros in the three months ended October from 122.1 million euros a year earlier, Prada said. Analysts estimated 153 million euros. Revenue rose 7.1 percent to 848 million euros, also trailing predictions.

Profit was affected by a higher-than-expected tax rate, Prada said. The company, which is in talks with Italian tax authorities on how to interpret legislation related to foreign holdings, said in a separate statement that its holding company will repatriate non-Italian activities.

Third-quarter sales advanced 13 percent, excluding currency shifts, Prada said.

Margins are likely to be stable the coming year, as efforts to widen earnings as a proportion of sales “may eventually jeopardize our commercial penetration,” Bertelli said.

“This will not be well received by part of the market, as consensus implies a further improvement in profitability over the next few years,” analysts at Mirabaud Securities said in a report. “The company has mentioned in the past that as long as sales growth remained solid there would continue to be margin uplift.”