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UPDATE 1-Italian luxury group Prada falls to two-year lows set after disappointing Q1
June 6, 2014 / 4:25 AM / 3 years ago

UPDATE 1-Italian luxury group Prada falls to two-year lows set after disappointing Q1

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HONG KONG, June 6 (Reuters) - Shares of Prada SpA fell more than 6 percent to a two-year-low on Friday after the Italian fashion house surprised investors with a drop in quarterly sales, sparking concern that the brand could be falling out of favour in key Asian markets.

Shares of the company fell as low HK$53.70, down more than 6 percent, lagging a 0.3 percent dip for the benchmark Hang Seng Index.

On Thursday, Prada signalled a possible cut to full-year guidance after first-quarter sales fell in its main European and Asian markets and revenue growth for its signature brand almost ground to a halt.

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. With sales in Prada’s home country of Italy and other European markets still sluggish, the company depends on Asian consumers for growth.

“The market was expecting slower growth in sales, not an actual decline,” said Steve Chow, an analyst at Sunwah Kingsway Research. “The negative (revenue) growth triggered concern over whether the brand has lost its appeal, especially when other luxury brands are doing well despite a relatively weak luxury market.”

In May, British luxury brand Burberry posted forecast-matching results, with an 8 percent rise in annual profit, though it reiterated that if foreign exchange rates remain at current levels there will be a material impact on its 2014-15 profit.

In April, the world’s biggest luxury group LVMH posted much higher than expected fashion and leather sales, boosted by a strong start for the year for its flagship Louis Vuitton brand, with sales to Chinese and European customers improving during in the first quarter.

“Other companies are reconfiguring their products. LV and Gucci are moving away from logo-heavy products ... Prada is still taking market share overall but some of the other brands are catching up with better products,” said Aaron Fischer, head of consumer and gaming research at CLSA.

Fischer added that menswear is a big opportunity for Prada, which he says has a more credible mens brand than its rivals. (Reporting by Donny Kwok and Clare Baldwin; Editing Miral Fahmy)

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