Weaker sales in China and Europe hit Prada profit

Italian luxury goods company Prada reported its first drop in annual net profit since it listed in Hong Kong four years ago, as growing retail sales in the Americas and Japan failed to offset declines in Greater China and Europe.

The company reported on Monday its 2014 net profit fell 28 per cent to €450.7 million, slightly below forecasts, as overall annual sales dropped 1 per cent.

Asia Pacific sales, which accounted for more than a third of the Milan-headquartered company’s business, also fell 3.1 per cent.

Like other luxury goods makers, Prada has seen weaker sales in China and Hong Kong amid a government crackdown on corruption, including bribery which often takes the form of lavish gifts to officials.

Rival LVMH, which sells a wide range of luxury goods including Louis Vuitton handbags, also noted weakness in China and Hong Kong when it announced its annual results in February.

In a statement, Prada, which listed in Hong Kong in 2011, said there was still uncertainty in the international luxury goods market due to local issues and currency volatility.

“The group is working to contain costs in the short-term and on broader measures that will increase the overall efficiency of the business,” it added.

In its preliminary sales results which it reported last month, Prada highlighted Hong Kong and Macau as major markets where conditions had deteriorated “significantly”.

Pro-democracy protests shut down major roads in Hong Kong for 79 days at the end of last year and the number of mainland Chinese tourists fell off sharply. Macau, the world’s biggest gambling hub, has also seen a drop in wealthy Chinese tourists.

Many of those Chinese tourists are now visiting South Korea and Japan, and Prada said that higher visitor numbers to South Korea had boosted wholesale there.

Prada’s 2014 net income of €450.7 million was lower than the €627.8 million it reported a year earlier and slightly below analyst forecasts of €475.9 million, according to Thomson Reuters SmartEstimate.

Prada shares had gained 14.6 per cent this year as of market close on Friday, compared with a 3.7 per cent rise in the benchmark Hang Seng index. The stock was up 0.4 per cent compared with a 1.5 per cent rise in the Hang Seng index in early afternoon trade on Monday.

Reuters