MILAN, Italy — Prada shares fell the most since January as a marked second-half slowdown in China and additional costs to relaunch the brand led to an unexpected drop in annual profit.
The Italian fashion company listed in Hong Kong attributed a slump in Asia mostly to Chinese tourists pulling back spending in Hong Kong and Macau because of the weakness in the yuan. Other luxury brands including Gucci have seen the impact of softer buying by Chinese tourists offset by increased spending on the mainland, but Prada failed to get a similar boost from Chinese spending at home, said Citigroup analysts led by Thomas Chauvet.
Prada’s China sales were flat for the year, a “significant swing” after a first-half gain of 17 percent, Citigroup noted.
Chinese consumers have become more careful in spending amid a slower economy, the trade war with the US, and weakness in the local currency, though luxury goods have held up better than other products such as autos and iPhones. Prada’s results will spark worry that the sector is now coming under pressure.
The company’s operating profit fell 10 percent to €323.8 million ($366 million), falling short of the €378 million predicted by analysts. Prada shares slumped as much as 7.2 percent in early Hong Kong trading Monday. The stock has dropped about 35 percent over the past year.
Prada has seen its earnings tumble for four straight years, falling more than 50 percent since their 2014 peak as the group raised handbag prices and took too long to come up with products to follow up its best-selling Galleria line.
This year, however, revenue returned to growth as the brand rolled out new handbags like the $3,000 Sidonie shoulder bag and fresh shapes in its more affordable black nylon that helped win the favor of younger shoppers. But the cost of investing in e-commerce and social media as well as staging pop-up stores and parties to reignite interest in the brand all incurred additional costs.
By Daniela Wei, Robert Williams; editors: Rachel Chang, Jeff Sutherland.