Prada First-Half Sales Growth Slips as China Luxury Demand Cools

Prada F/W 2014 Campaign | Source: Prada

MILAN, Italy  — Prada SpA’s first-half sales growth fell to a third of last year’s as China luxury demand cooled amid a slowdown in the world’s second-largest economy.

The shares of the luxury handbag maker declined as much as 2.4 percent to HK$69.70, before trading at HK$69.90 at 10:13 a.m. in Hong Kong. The benchmark Hang Seng Index rose 0.4 percent.

Prada’s revenue rose 12 percent to 1.73 billion euros ($2.3 billion) in the six months through July, the Milan-based company said yesterday in a statement. The growth slowed from 36 percent for the same period last year. Analysts predicted revenue of 1.75 billion euros, according to the average of three estimates compiled by Bloomberg.

“Revenue growth came in marginally lower than our full- year forecast of mid-teens percentage growth, as second-quarter sales momentum slowed,” Candy Huang, a Hong Kong-based analyst at Barclays Capital Asia Ltd., said in a research note today. Huang has an “equal weight” rating on the stock with a 12- month price target of HK$75.

The luxury goods industry is rebounding after a stuttering start to the year, with LVMH Moet Hennessy Louis Vuitton SA and Gucci-owner Kering SA last month reporting accelerating sales. Prada, which aims to grow without making acquisitions, said in June it is confident of high single-digit percentage growth for sales in stores open more than 12 months this fiscal year as it opens as many as 80 stores.

Store Expansion

“The increasingly normalised growth of Chinese tourist flow will cap Prada’s sames-store sales and earning upside,” Phoebe Wong, a Hong Kong-based analyst at Bocom International said in a note today. Wong has a “neutral” rating on the stock.

Prada had 491 directly-operated shops at the end of July. The Italian retailer said it will continue to open stores in a “balanced” way. In the six months ended July sales advanced 15 percent, excluding currency moves, while same-store sales rose 7 percent.

Sales gained 19 percent in the Asia Pacific region and 16 percent in each of Japan and the Americas, excluding currency swings, Prada said. European sales grew 6.7 percent, boosted by double-digit growth in Prada’s own stores, the company said.

“We shall continue to base our long-term growth strategy on the balanced international expansion of our retail network,” Prada Chief Executive Officer Patrizio Bertelli said in the statement.

Wholesale revenue fell 3 percent, excluding currency moves, as Prada reduced the number of third-party accounts by more than 100, it said. Sales in Prada’s own stores climbed 20 percent.

By: Andrew Roberts, Vinicy Cha Editors: Greg Ahlstrand, Kenneth Maxwell