MILAN, Italy — Italian fashion house Dolce & Gabbana expects sales in China to fall in the current fiscal year after a slowdown in 2018-19, in a sign the brand is still struggling to shake off the fallout from a controversial advertising campaign in the country.
Chinese customers account for more than a third of spending on luxury products worldwide, and are increasingly shopping for these in their home market rather than on overseas trips.
Dolce & Gabbana's overall revenues in the year ended March 2019 grew 4.9 percent to €1.38 billion ($1.54 billion), more than half of which came from sales in shops and outlets, the group said in a filing to Italy's Chamber of Commerce seen by Reuters.
But the Asia-Pacific market shrank to 22 percent from 25 percent of total turnover and the group expects sales in Greater China to decline in the current fiscal year, ending in March 2020, the filing said.
Dolce & Gabbana, which does not publicly disclose its results, was not immediately available for a comment.
Last November the group was forced to cancel a marquee show in Shanghai amid a spiralling backlash against an advertising campaign that was decried as racist by celebrities and on social media and led to Chinese e-commerce sites boycotting D&G products.
Users reacted angrily to a series of adverts showing a Chinese woman struggling to eat pizza and spaghetti with chopsticks. The blunder was compounded when screenshots were circulated online that appeared to show co-founder Stefano Gabbana making negative remarks about China, even though the designer said his account had been hacked.
Gabbana and co-founder Domenico Dolce later asked for China's "forgiveness" in a video posted on China's Twitter-like platform Weibo, trying to salvage a crucial market for the luxury brand.
The company's results filing does not mention the ad controversy but refers to global trade tensions and a slowdown in China's economy as clouding the overall outlook. Recent protests in Hong Kong have also been cited by global fashion brands as a negative factor.
The slowdown in Asia contrasted with the Americas, where sales increased to 16 percent of 2018-19 turnover from 13 percent a year earlier. Other markets remained stable, with Italy accounting for 23 percent of revenues, Europe 28 percent and Japan 5 percent.
Overall sales are expected to increase slightly in the current fiscal year but with costs at almost 60% of revenues, profitability is suffering.
In the last fiscal year, EBITDA — earnings before interest, tax, depreciation and amortisation — fell by more than 40 percent to €87.2 million, with a contraction in margins to 6.3 percent from 12.2 percent of sales.
However the group said things could improve in the second part of the 2019-2020 year.
"The good start of the Fall/Winter retail season could be the sign of a better than expected second half of the year," it said.
The latest industry 2019 outlook, released by consultancy Bain in June — at the onset of the Hong Kong protests — forecast a 4 percent to 6 percent increase in global sales of luxury goods at constant currencies thanks largely to booming Chinese demand. Mainland China is expected to rise 18-20 percent.
By Elisa Azolin; editors: Silvia Aloisi and Kirsten Donovan.