Profits at Prada tumbled 28 per cent last year as sales took a hit in Europe and Asia-Pacific, prompting the luxury Italian fashion house to implement cost-cutting measures.
Net income at the company fell from €628m to €451m in the year ended January 31, missing analysts’ estimates of €468m. This was the first time Prada reported a drop in annual net profit since it listed in Hong Kong four years ago. Revenues fell 1 per cent to €3.55bn.
Prada blamed the “ongoing economic uncertainty” for the slowdown. Sales grew in the Americas and Japan, but the gains in the world’s third-largest economy were not enough to fully offset declines across the region, with sales in Asia-Pacific, its biggest market accounting for 35.7 per cent of sales, dropping 3.1 per cent. They fell 4.9 per cent in Europe.
Chinese president Xi Jinping has been cracking down on political graft, waste and ostentatious lifestyles, causing large sales declines in Hong Kong and Macau. Greater China sales fell 6.3 per cent.
After several years of soaring revenues and profits, a sales slowdown in the wake of dampening Asian consumer enthusiasm, volatile exchange rates and geopolitical instability is taking its toll on the once unstoppable luxury sector. French rival conglomerate LVMH, which owns luxury brands such as Louis Vuitton and Christian Dior, also noted weakness in mainland China and Hong Kong when it announced its annual results in February.
Prada was also hit by its tax rate, which rose to 31.2 per cent last year from 30.9 per cent.
Analysts at Barclays said the figures capped a challenging year, which saw the group miss “all its initial targets owing to a difficult retail environment and increasing competition in leather goods”. Sales of leather goods fell 4.9 per cent to €2.2bn.
To prop up margins, Prada said it was conducting “a major overhaul” in certain production processes, “the effects of which will be visible next year”, cutting costs in light of the slowdown in growth, including those also associated with opening new stores.
Shareholders reacted positively, with Prada’s Hong Kong-listed stock rising 2.2 per cent in early trading.
The Barclays analysts, however, retained an “underweight” rating, noting Prada trades at a 20 per cent premium to its peers “despite the lower earnings growth potential.”
Prada shares had gained 14.6 per cent this year as of market close on Friday, compared with a 3.7 per cent rise in the benchmark Hang Seng index. The stock was down 1 per cent at HK$50 during afternoon trading in Hong Kong on Monday.