September 8, 2017 / 1:23 PM / a year ago

Prada's profits fall, warns revamp taking longer than expected

MILAN (Reuters) - Italian fashion house Prada (1913.HK) reported a sharp drop in first-half profits on Friday and warned it would take longer than expected to turn the ailing company around.

FILE PHOTO: A model presents a creation from the Prada Autumn/Winter 2017 women collection during Milan's Fashion Week, in Milan, Italy February 23, 2017. REUTERS/Stefano Rellandini/File Photo

A year ago Italy’s largest luxury goods company by revenue said it expected to return to sales and profit growth in 2017 after being hit hard by a slowdown in its markets.

But the Hong-Kong listed company is still in the throes of renovating its retail network, investing more in e-commerce and digital marketing and refreshing its product range, after losing ground to both new and old competition.

“We are confident that our action plan is the best way to return to steady growth in revenues and margins, albeit aware that benefits may take longer than expected,” Chief Executive Patrizio Bertelli said in a statement.

FILE PHOTO: Italian luxury fashion house Prada's logo is seen at a store in Zurich, Switzerland October 26, 2016. REUTERS/Arnd Wiegmann/File Photo

The group did not give any details on when the restructuring might start to lift the business.

First-half net profit came in at 115.7 million euros ($139 million), down from 141.9 million euros a year earlier, on lower volumes and higher costs related to the restructuring, particularly in the digital business. Prada’s financial year starts in February.

Revenue over the period was down 5.5 percent at current exchange rates, due to weak sales in both Europe and the United States. That followed a 10 percent decline in revenue in 2016.

Consultants Bain & Company expect sales in the luxury industry to grow by 1-2 percent in 2017, and a further 3-4 percent in the years up to 2020.


Industry experts have often attributed the poor performance of the Milan-based group to its bags and clothes losing appeal, comparing it with rival Gucci, whose popularity has soared since it appointed in 2015 new designer Alessandro Michele.

Sales at Gucci, part of French conglomerate Kering (PRTP.PA), were up 48.3 percent in the first quarter of 2017.

Asked by analysts in a post-results conference call, Bertelli dismissed the idea that the group had a problem with its products range and said it had “very strong product design.”

“I believe that unlike what some commentators said, our products have always been the guiding light for other brands,” Bertelli said.

Prada’s share price has more than halved in the past three years, substantially underperforming rival luxury groups such as conglomerate LVMH (LVMH.PA), whose stock is up some 45 percent in the same period.

The Milanese group this year opened six stores and closed 13, while it renovated 76 boutiques. It said that it expected the number of directly-owned stores worldwide - currently 613 - to remain stable this year and next.

In past years the group had opened more shops than most of its rivals but started investing in them later than others, putting it at a disadvantage.

Additional reporting by Farah Master in Hong Kong; editing by David Clarke, Greg Mahlich

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