Prada Reports Slowing Sales Growth on Weaker Leather Goods Sector
The Hong Kong-listed company Wednesday said sales in the six months to July 31 were up 1% at €1.75 billion ($2.34 billion). Sales in the first half of 2013 grew 12% compared with the same period a year earlier and were 36% higher in the first half of 2012 compared with the same period of 2011.
Chief Executive Officer Patrizio Bertelli said that the company could revise its full-year guidance, following the first-half result. In April, the company said it expected to reach high-single digit revenue increase for the full year, but this result looks challenging now, according to the company.
The stall in growth confirms fears of upcoming weakness for the brand, which analysts raised when the company reported its first-quarter earnings in June. Back then Prada said that its first-quarter net profits dropped almost 24% compared with the same period in 2013 and revenues were down 0.6%.
Handbags and other leather-goods accessories, which have high profit margins and year-round appeal, have propelled the luxury-goods industry for more than a decade. Brands such as Prada, Louis Vuitton and Gucci earn more money from bags than they do from clothing. Yet both Louis Vuitton and Gucci are also suffering from lower sales.
Only last week, Gucci's parent Kering SA said that first-half revenues at the Italian brand dropped 4.5% compared with the previous year.
LVMH MC.FR -0.24% said in July that its first-half sales dropped 4%.
Prada said Wednesday that lower tourist flows are pressuring its leather-goods sales. Handbags are among the top picks among tourist shoppers, the company said in a statement. As a result, sales for the category were down 5% compared with the first half of 2013, down 1% at constant rates.
To overcome the sales decline, Prada will continue to work on new products, especially in the leather-good segment.
The Asian-Pacific region saw the steepest decline in sales in the first half of the year, posting a 2% fall. The company's performance was particularly weak in Singapore, Korea and Hong Kong. Prada said that it saw an improvement in China, which grew 12% at constant rates. The company didn't provide year-over-year changes in current rates, although the currency effect could be around 4%.
Prada says that the Hong Kong market, particularly important for the company as well as for its peers, is affecting hard the overall region's sales.
European sales were also stagnant, due to the economic environment and fewer tourists. The Middle East was the fastest-growing area for the company, with sales up 16% compared with the previous year. Sales in Japan and the Americas were up 10% and 8% respectively.
Sales at the company's wholesale channel were up 1%, signaling a strong recovery in the second quarter compared with a 25% fall seen in the previous quarter.
President Carlo Mazzi said in June that the first quarter was "a transition" but orders were expected to pick up. Mr. Bertelli said Wednesday that the company will continue to control costs to protect margins.