Prada profits, sales fall in “challenging” market, leather goods dip to be countered with wider-appeal bag range

Italian luxury fashion house Prada on Friday blamed “challenging” market conditions, particularly in Asia, for a hefty dip in nine-month profits but added it remains confident mid-term.

Earnings for the nine-months to end-October fell 27.6% to €319.3m ($394.9m) while they slumped 43.8% for the August-October quarter to €74.47m, the latter falling short of the €97m analysts had forecast.

Total sales in the nine months slipped 0.9% to €2.55bn with all its products lines seeing increased sales except for leather goods, down 6%. For the quarter, overall sales fell 5.6% with leather goods sales down just over 9%.

Asia-Pacific sales dipped by 3.1%, reflecting the political unrest in Hong Kong as sales in Europe, excluding Italy, slumped 4.9%. The Americas sales rose 2%.

Japan was the star performer with sales up 10.3%.

By brand, nine-month sales of Prada goods slipped 1.5%, sister fashion brand Miu Miu rose 1.5%, Church’s shoe sales climbed 7.1% while Car Shoe plummeted 16.6%.

Gross margin for the quarter narrowed to 72.3% from 75.7%.

Chief executive Patrizio Bertelli, who admitted 2014 turned out to be “more challenging” than expected,
said the period was “characterised also by unfavourable exchange rates trend for most of the nine months period and spoilt by some still enduring geo-political issues.

“On top of the on-going difficult international economic environment, the luxury goods market is undergoing a certain readjustment, the extent and nature of which is not yet entirely clear,” said Bertelli.

However he expressed confidence in the medium-term growth outlook, which combined with the company’s efforts to increase efficiency and the performance of its stores should help ensure Prada achieves satisfactory levels of profitability.

Addressing the dip in leather goods sales, Prada said it will seek to spread its offer across a wider price range.

CFO Donatello Galli admitted: “We lacked volumes and probably also new products in some price ranges,” adding that new products will target the €1,000-€1,200 price bracket as well as the higher end €2,500-€2,700 range.

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