Prada profits feel the pinch of consumer slow down in China

Prada has reported first-half profits that beat analysts' estimates as the luxury-goods maker took steps to curb rising costs, helping mitigate declining sales in Asia.

Net income fell 23 per cent to €188.6 million ($213 million) in the six months through July, the Milan-based company said on Tuesday.

Analysts predicted €175.4 million, according to the median of six estimates compiled by Bloomberg.

Too many new stores and not enough new products have hurt Prada as demand for luxury goods slows in greater China following a clampdown on extravagance.

In a bid to reignite sales and reverse a slump in its share price, the company introduced the Inside bag in July, with prices starting at about €2,000.

Prada has also slowed this year’s expansion, pledging to open about half the number of stores it did last year.

“The global economic environment is still volatile and recent instability in Asia has not helped ease the situation,” Prada said.

Still, the company said it’s “confident” in its ability to adapt as it streamlines operations and reduces costs.

The latter include cuts to "discretionary expenses," according to the statement. Prada contrasts with Hermes International and LVMH Moet Hennessy Louis Vuitton, which reported higher first-half profits despite some difficulties in Hong Kong, Macau and mainland China.

Both companies have benefited from perceptions that their products are more exclusive, with Hermes limiting supply and LVMH revamping Louis Vuitton’s handbag offer.

Prada shares rose 1.8 per cent to HK$30.90 in Hong Kong. The earnings were released after the market closed.

Revenue rose 4.2 per cent to €1.82 billion, Prada said last month.

- Bloomberg