Prada Q3 Profit Misses as Sales Slow in Asia, Europe

In Industry News, What's New by Jeff Prine

Prada jewels

Prada jewels

Milan/Hong Kong—An 8.6% profit rise would be a pretty good third quarter earnings for most companies. But when you are Prada SpA used to double digit increases propelled by the growing luxury market in Asia, it is considered to be disappointing.

Following similar slowdowns in earnings from LVMH and Kering, Prada said today that growth in overall group revenue was slightly slower “following a general market trend,” as sales in Western Europe and Asia slowed.

For the quarter ended Oct 31, net profit was 132.64 million euros (about $181.7 million), compared with 122.1 million euros a year earlier. But that was less than analysts had expected: 154 million euros.

Expansion of Miu Miu Planned

Net revenue increased 7.1% to 848 million euros from 791.9 million euros a year ago.

At its Prada brand sales were up 9.5% compared with a 14% increase in the first half of the year.

The company’s other brands showed mixed results, with Miu Miu and Church’s both recording small declines in sales and Car Shoe posting a 10% drop in revenue.

By region, sales growth in Greater China, which normally accounts for about 25% of total sales, moderated in the third quarter, Prada said, partly because its flagship stores in Hong Kong and Macau were undergoing renovation work. Moreover, Prada, and other luxurygoods brands, have had to contend with a crackdown on conspicuous consumption by Chinese government officials. Though apparently they still buy while traveling.

“The Chinese consumers tend to be strong travelers and they shop a bit everywhere,” CEO Patrizio Bertelli said. “We see a lot of Chinese shoppers in other places like New York, for example.”

Prada said the strength of the euro against other currencies, in particular the Japanese yen and U.S. dollar, also had weighed on its earnings. And the company said it had been hit by high taxes in Italy.

“Net income was slightly impacted by exchange rates and a higher tax rate due to the ongoing discussions with Italian authorities on controlled foreign company legislation,” chief financial officer Donatello Galli said on the conference call with analysts.

Going forward, Prada plans to build its Miu Miu brand.

“We are going to invest more in communications and marketing for the Miu Miu brand,” Bertelli said. “We are confident that the results will show next year.”

That move was applauded by some analysts. “The development of Miu Miu is an important plank to extend growth dynamic into the future,” said Exane BNP Paribas analyst Luca Solca.