UPDATE 1-Prada signals possible guidance cut as Q1 sales fall

Thu Jun 5, 2014 12:49pm EDT

* Prada blames forex, wholesale division for sales dip

* Chief Executive says made right strategic decisions

* Sales of Prada brand, leather goods slow (Recasts lead, adds detail, analyst comment)

By Isla Binnie and Sabina Suzzi

MILAN, June 5 (Reuters) - Italian luxury group Prada signalled a possible cut to full-year guidance on Thursday after first quarter sales fell in its main European and Asian markets and revenue growth for its signature brand almost ground to a halt.

Prada said on Thursday its performance in the three months to April 30 had been hit by unfavourable exchange rates, declining wholesale deliveries and a tough comparison with the previous year.

Sales fell 0.6 percent to 777.7 million euros ($1.06 billion), below analysts' forecasts of around 813 million euros according to Thomson Reuters data. At constant exchange rates, sales rose 3.8 percent.

The group, known globally for its high-end fashion brand founded as a leather goods company by designer and co-chief executive Miuccia Prada's family in 1913, said it could review its guidance.

"The management is closely following the development of the markets... in order to update, if appropriate, the guidance on the 2014 results," Prada said in a statement to the Hong Kong stock exchange.

Bernstein analyst Mario Ortelli said the group could make a cut, partly depending on external factors. "(Prada) left open the opportunity to revise the guidance, most likely down, during the year, partly depending on foreign exchange," he said.

In April, Prada said it expected sales to grow 9 percent this year, with an operating profit margin in line with 2013 and like-for-like sales growth of at least 3 percent.

"We do not have enough visibility at the moment to give a more precise prediction for the end of the year; it would be better to wait a bit longer," Chief Financial Officer Donatello Galli told a conference call.

Chief Executive Patrizio Bertelli said in a separate statement that higher retail sales - up 2.8 percent - assured the company it had made the right strategic decisions.

Bertelli had said in April the group would focus on Prada-branded menswear, the Prada retail network, growth of the Miu Miu and Church's brands, boosting like-for-like sales and investing in communication.

The Prada brand, which mainly sells leather goods and makes over 80 percent of sales for the group, limped up 0.3 percent in the quarter.

Sales growth slowed across the board for luxury groups in 2013 as once red-hot demand in China cooled, but Prada's French peer Louis Vuitton, owned by LVMH enjoyed comparable sales growth of 9 percent in the first quarter of this year.

Louis Vuitton, along with Prada's compatriot Gucci , have been offering more expensive leather handbags and fewer logo-embossed canvas bags in a bid to move upmarket.

"It is possible that a repositioning at brands like Louis Vuitton has created more competition in the area of leather goods," Ortelli said.

Prada's sales from high-margin leather goods excluding shoes slumped 4 percent in the first quarter.

Core earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 27.5 percent of sales, from 30.8 percent in the same quarter of 2013, but the company said it expected pressure on margins to ease throughout the year.

Prada's sales fell 2.6 percent in Asia Pacific, where it makes 40 percent of its income, and 4 percent in Europe, its second biggest market with a 20 percent share.

LVMH, on the other hand, said in April that Louis Vuitton's sales to Chinese and European customers had improved in the first quarter.

Prada shares closed 1 percent lower on the day, versus a 0.2 percent fall on the Hang Seng Index.

($1 = 0.7341 Euros) (Editing by John Stonestreet)

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