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China’s slowdown sends Prada’s shares tumbling

By Angela Gonzalez-Rodriguez

18 Mar 2019

New York - Prada reported full-year sales of 3.142 billion euros on Friday, up 6 percent at constant exchange rates and compared with 9.4 percent growth in the first six months. At current exchange rates, sales growth came in at 3 percent, explained the company in a financial release.

Negative impact of macro-economic factors on Prada’s annual results led the luxury goods’ stock price plunge on Monday, causing a 700 million dollars loss in market value. Prada’s shares – listed on the Hong Kong Exchange – have fallen 31 percent in the last 12 months.

Furthermore, data pulled by Bloomberg indicates that Prada has seen a 66 percent profits’ slump over the past four years. The Hong Kong-listed (HKG: 1913) luxury brand attributes this loss to mainland Chinese consumers spending less in Hong Kong and Macau in light of a weaker national currency against dollar and euro.

Additionally, market experts believe Prada hasn’t been able to recover part of its lost sales in mainland China, as opposed to Gucci, used as a case in point by Citigroup analysts. The analysis firm indicates that the main cause is to be found in Prada’s inability to release new products quick enough, especially after its best-selling Galleria series. Commenting on this, Walter Woo, an analyst at CMB International Securities Ltd quoted by ‘Hypebeast’, said: “We haven’t seen significant recovery in its China sales during the first two months this year after a weak fourth quarter in 2018… We still expect the business improvement for Prada will be slower than peers in 2019, as it takes time for the brand to upgrade its product design and retail operations in the country.”

Prada to finish end-of-season promotions to help strategic turnaround

Days before reporting its annual results, Prada said it would stop offering end-of-season promotions at its stores, in a bid to boost margins and protect its brand after achieving revenue growth in 2018 for the first time in four years, reports Reuters. “We decided to stop doing markdowns from 2019 onwards,” Bertelli, who is Prada’s chief executive, told analysts in a conference call.

It’s worth recalling that since the end of 2017, the Milan-based group with Miuccia Prada and Patrizio Bertelli at the reins, has been working to make their change of strategy work and to lift sales. To this point, Luca Solca, an analyst at Bernstein, said the move was a positive one despite the potential hit to total revenue growth in the short term.

In fact, many in the market have read this return to revenue growth as the moment the fashion group turns a corner after their strategic shift started two years ago. Over the past months, Prada has redoubled its focus on store renovation and relocations, new products and digital sales - with the latter set to reach 15 percent of total sales by 2020, according to Reuters. For now, the figures are promising, as Prada said e-commerce grew in the “strong double digits” in 2018.

Bertelli said annual figures showed Prada’s turnaround strategy was starting to bear fruit.

Image:Prada Women’s SS18 Advertising Campaign. Credits: Prada SpA.