By Manuela Mesco
Italian fashion house Prada SpA said its third-quarter net
profit fell by nearly half, far worse than expected, as slower
demand for luxury goods in many parts of the world, especially
Asia, pegged back sales.
Prada said on Friday that its net profit in the three months to
Oct. 31 fell to EUR74.5 million ($92.4 million), compared with
EUR132.6 million posted in the corresponding period last year,
while revenue dropped 5.6% to EUR800.7 million.
The result highlights a progressive slowdown in the company's
performance, which has moved away from stellar growth rates seen in
previous years to a constant decline in profit since the beginning
of 2014.
"This is a significant negative surprise," said Luca Solca,
analyst at Exane BNP Paribas, commenting on the results, which were
well below expectations, as the company itself acknowledged.
Other luxury goods megabrands, such as Kering's Gucci and LVMH
Moët Hennessy Louis Vuitton, have similarly suffered a slowdown
recently due to changing consumers' tastes and increased
competition. A protracted economic crisis in Europe and cooling
markets in Asia--due to general macroeconomic conditions and recent
protests in Hong Kong--have brought even more headwinds to the
heavyweight in the sector.
The Prada brand posted a 7.5% decline in revenue, while sales in
the Asia-Pacific region fell almost 7%. The company's executives
stressed that the third-quarter result was dragged down by a very
negative performance in the month of October, significantly
impacted by lower revenue in Hong Kong and Macau.
"The luxury-goods market is changing," Prada's chief financial
officer Donatello Galli said in a conference call with analysts on
Friday, explaining the sales slowdown. New consumers' tastes and
perception of luxury brands are emerging and each region in the
world has different needs in terms of products and strategic
approaches. Yet the extent of the readjustment "is not entirely
clear," chief executive Patrizio Bertelli said.
Prada said that it has already taken steps to counter the
slowdown, but these only have resulted in lower profitability so
far. It added that more action would be taken, ranging from
changing the product mix to cutting costs.
"Some of these actions will produce effects in the forthcoming
quarters, since they require some time to be implemented," the
company said.
Prada said it would introduce new handbags after a significant
deterioration of sales in that category. Leather-goods sales,
traditionally the growth engine of the firm, fell over 9% in the
third quarter and nearly 6% in the first nine months of the
year.
More bags will be launched in the EUR1,000-EUR1,200 price range,
said Stefano Cantino, head of the marketing, communications and
commercial development. He added that there are opportunities to
increase sales and introduce new handbags in the EUR2,500-EUR2,700
price range.
The company's other main brand, Miu Miu, posted a much stronger
performance than Prada, with sales up 4.8% in the quarter.
The company's operating profit was down 26% at EUR123.3
million.
Write to Manuela Mesco at manuela.mesco@wsj.com
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