September 24, 2012 / 10:41 AM / 7 years ago

Prada reassures against "hysteria" over luxury slowdown

HONG KONG/MILAN (Reuters) - Italian fashion house Prada SpA (1913.HK) dismissed talk of a sharp slowdown in spending on luxury goods, posting a 59.5 percent jump in net profit and saying its sales in the past two months were on track with expectations.

A model displays a creation from the Prada Spring/Summer 2013 collection at Milan Fashion Week in Milan, September 20, 2012. REUTERS/Stefano Rellandini

“I think we must stay calm and be less hysterical. I don’t see such a dramatic market,” said Patrizio Bertelli, chief executive of the maker of minimalist dresses which competes with the likes of Louis Vuitton (LVMH.PA) and PPR SA’s (PRTP.PA) Gucci.

His comments on an analyst conference call come after Britain’s Burberry Group Plc (BRBY.L) said on September 11 its sales growth in China was far slower than expected, spooking luxury investors and raising concerns that the entire sector was in danger of stumbling.

China’s luxury market, on which global luxury powerhouses have become increasingly dependant, has been hit by weaker demand than expected due to slowing growth and a crackdown by Beijing on conspicuous consumption.

But Milan-based Prada, also popular for its colored Miu Miu dresses and leather handbags, said it expected “good double-digit growth” in 2012 at shops open more than a year.

“Today, looking at numbers in August and September, we are convinced that we will meet the targets indicated in our budget,” Bertelli said without giving details.

Asked about Burberry, Bertelli declined to comment on its competitor, but said Prada benefited from a “flexible” offer which was responsive to conditions in its different markets.


“We think that considering all markets at the same level is wrong. We must accept markets’ diversity and adapt to different needs and traditions,” the CEO said, adding Prada was reducing inventories to keep costs under control.

Bertelli said he expected Prada’s earnings before interest, tax, depreciation and amortisation (EBITDA) to improve this year. He said he would raise prices only to adjust for currency trends.

The group’s net profit for the six months through July reached 286.4 million euros ($372 million) compared with a forecast of 290.3 million from six analysts polled by Thomson Reuters.

First-half EBITDA rose 49 percent to 469.4 million euros, or 30 percent of consolidated net revenue.

The company’s own brand and Miu Miu have been the main drivers of growth, posting revenue up 40.4 percent and 23.7 percent respectively.

The Asia Pacific market delivered the highest growth rate, accounting for more than a third of Prada’s total net revenue. Greater China sales rose 50.2 percent to 334.6 million euros.

Analysts said Prada’s leather goods sales tend to be more resilient than apparel during an economic downturn and expect the company to outpace its competitors due to its strong positioning in handbags and its smaller store network.

Prada said it would continue to focus on expanding its own retail network, which it sees as essential to long term growth, even if market conditions remain challenging.

Prada, which reported revenue of 1.55 billion euros for the first half of the year on August 6, has opened 28 new stores while closing two, taking the total number of directly-operated stores to 414 at the end of July.

Listed in Hong Kong, Prada’s shares have gained 71 percent so far this year, substantially outperforming the benchmark Hang Seng Index which is up 12 percent. The company’s earnings were released after the Hong Kong market close.

($1 = 0.7699 euros)

Additional reporting by Sabina Suzzi; Editing by Matt Driskill and David Holmes

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