Photographer: Chris Ratcliffe/Bloomberg

Prada Sales Slide as Weak Demand Weighs on Luxury-Goods Maker

  • 2016 is ‘turning point from where group will return to growth’
  • Most regions contribute to decline in first-half revenue

Prada SpA reported the first decline in opening-half sales since its 2011 listing as weak demand in China and terrorist attacks in Europe continued to weigh on the Italian luxury-goods maker.

Revenue fell 15 percent to 1.55 billion euros ($1.8 billion), the Hong Kong-listed company said in a statement Friday, missing the 1.65 billion-euro average analyst estimate compiled by Bloomberg. Earnings also declined, though by slightly less than analysts predicted.

As the wider luxury industry struggles for growth, Prada has been hit harder than most. That’s partly because its handbags are too expensive and it’s been slow to invest online, according to Sanford C. Bernstein analysts. The company is seeking to address those issues amid two years of stagnant sales and its lowest profit in five years.

“Retail sales are very weak and the Prada brand is underperforming across multiple regions,” said John Guy, an analyst at MainFirst Bank AG. “Some of the poor performance is sector-related, but Prada’s design and creativity needs to be revised with responsibility being spread across more personnel.”

‘Turning Point’

Prada aims to double its e-commerce sales in each of the next three years, Chairman Carlo Mazzi said on the call. The company is increasing the number of categories it offers online, particularly shoes, and expanding its social media activities. In its statement, the company spoke of “focusing fully on the needs of individual markets and strategic price points,” while stepping up digital communications.

“Management sees 2016 as a turning point from where the group will return to growth by focusing on the values that made Prada the iconic company it is today,” the company said.

Signs of increased demand in major Chinese cities emerged in August, Stefano Cantino, Prada’s marketing director, said by phone. The company remains “prudent of the trading environment,” he said.

Most regions contributed to the decline in first-half revenue. Net sales of directly operated stores slid 21 percent in Italy and the rest of Europe, 22 percent in Asia Pacific and 17 percent in the Americas.

Earnings before interest, tax, depreciation and amortization fell 25 percent to 330 million euros in the six months, according to the statement. Analysts estimated 327.8 million euros.

The results were released after the close of trading in Hong Kong, where Prada shares closed up 2.1 percent at $HK21.75.

(Corrects story published Aug. 26 to fix online sales target in fifth paragraph.)
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