China syndrome hurts Prada in H1, outlook weak too


Hong Kong – Prada’s adopted financial home – Macau and mainland China combined to hit the Italian fashion house hard, as profits slumped in H1. Prada also admitted the near future doesn’t look too bright either.

“The contractions recorded in Hong Kong and Macau had a significant impact on performances for the period, both in terms of sales and margins,” the brand admitted.

“There’s not going to be a huge improvement in the second half,” CFO Donatello Galli told analysts. “But we’re working in the right direction to cut expenses where we can.”

Chief executive Patrizio Bertelli also stressed cost cuts will be strategic so as not to hurt the brand although the rate of new store openings will slow, starting from next year.

New product – especially in the high-margin handbag category – is promised in the run up to Christmas, the brand said.

But for now, H1 results made tough reading. Net profit for the six months ended July 31 fell 23% to €188.6m ($213.7m).

Q2 net income fell to €129.8m from €139.5m a year ago, but did manage to top analysts’ €118.8m forecast. Bertelli also said he expected profitability would improve in H2.

Revenue rose 4.2% year-on-year to €1.8bn, but slipped 5.9% on a currency neutral basis.

In its key Asia Pacific region, which accounts for 36% of total sales, revenues fell 17.5% at constant exchange rates, and were also down 1.4% to €610.3m on a currency neutral basis.

Greater China sales fell 19.3% and were off 1.2% currency neutral.

Hong Kong and Macau “failed to show any signs of recovery”, the Prada admitted said, and expects no improvement is in the short term.

Mazzi told Reuters earlier this month Prada was trying to negotiate lower shop rents in Hong Kong and Macau.

Bertelli told analysts landlords remain tough but believed continuous pressure from merchants would achieve some results: “They wouldn’t want big names to shut down shops in the areas.”

He added Prada remained confident on the market in the long term.

However, the picture was brighter in other regions. Sales in The Americas grew 13.5% to €264.9m, or up 6.1% currency neutral. In Europe, revenue grew 4.9% to, boosted by both tourists and a recovery in domestic demand.

Gross margin for the period rose to 72.7% from 71.8% a year ago, thanks to cost control in supply chains and logistics as well as accounting benefits from exchange rate changes.

STAY UP TO DATE: You want the need-to-know news, right? Our journalists deliver a daily curation of the most important industry happenings. Sound good? Join WGSN.

Know what’s next. Become a WGSN member today to benefit from our daily trend intelligence, retail analytics, consumer insights and bespoke consultancy services.