HONG KONG/MILAN Sept 17 Prada is
seeing green shoots in Europe and feels confident about China,
its biggest market, even though sales slowed in the first half,
the luxury Italian fashion house said on Tuesday.
The Hong Kong-listed group, whose first-half net profit fell
short of expectations, said appetite for its colourful
1,500-euro leather handbags in China, particularly in
second-tier cities where it was opening shops, was showing no
sign of abating.
"China is performing in a very good way and growth is still
very high," Chief Financial Officer Donatello Galli said on a
conference call on Prada's first-half results. He said
investment plans in the country remained unchanged.
Sales growth in Greater China, including Hong Kong, slowed
to 20 percent in the first half from 35 percent a year ago.
Chinese luxury spending has been hit by a government
crackdown on gift-giving and conspicuous spending, affecting
luxury goods, including upmarket watchmakers and designer
Greater China, including Hong Kong, makes up 21 percent of
In Italy, which accounts for 18 percent of total sales,
Prada said the sales decline at its shops had slowed down but it
was too early to say its home market had turned a corner.
"In terms of domestic demand in Italy I think it is too
early to say if we reached a bottom," Galli said.
For Europe as a whole, Galli said the brand had seen an
increase in tourist spending and the economy was showing signs
of a very gradual recovery.
Galli said summer trading was good and sales growth in
August was actually better in like-for-like terms than during
the second quarter. But he noted that demand in the first 10
days of September proved softer in both Asia and Europe and
suggested events in Syria and elsewhere in the Middle East were
affecting tourist travel.
Prada, which had 491 directly operated stores at end-July,
plans to open around 80 shops in total this year and next, and
enter new markets such as Kazakhstan after Morocco and Qatar.
The Prada brand, which generates more than 83 percent of
group turnover, had a 12 percent rise in second quarter sales,
while revenues from smaller brand Miu Miu were up 3 percent.
An improved product mix together with solid growth in Asia
and fewer mark-downs helped Prada lift its operating margin to
26.5 percent from 25.5 percent in the first half.
The company's 15 percent second-quarter net sales growth at
constant exchange rates puts it on par with French luxury peer
Hermes which reported a 16 percent jump in its own
second quarter sales.
Prada reported a near 8 percent increase in net profit for
the six months ended July. The 308 million euros profit slightly
lagged a 321.3 million euros average forecast by five analysts
polled by Thomson Reuters.
Its shares have risen 8 percent so far this year,
underperforming the luxury sector average which gained 18
percent, partly because the stock's relatively high valuation.
Prada, at 23.6 times forward earnings, is more expensive
than Burberry and LVMH but earnings growth expectations
are higher: on average, analysts expect Prada's earnings to grow
a fifth next year, or about 50 percent faster than LVMH or