Prada Profit Slumps 44%

Prada has posted disappointing results for its first quarter. Net profit was €58 million, slightly more than half of the same period ayear ago and also well below the €85 million expected by analysts. Sales rose 6.5% to €828 million, althoughth is increase is actually due to the weak euro. Excluding the currency effect, revenues would have fallen more than 5%.

The main reason for this decline is the drop of sales in China. This is not an exclusive effect for Prada, as it has affected almost all companies in the sector. However, Prada has been more penalized because it has a greater presence in the region than other industry giants. In particular, sales in the Asia-Pacific region fell a significant 17%, although most of this decline corresponds to its stores in HongKong and Macao.

Looking ahead, the company has shown moderately optimistic, ensuring that expects an improvement of the situation in Asia in the second half of the year. However, it also warned that if the surge fails the unit would be difficult to achieve its profitability targets.

In any case and to try to calm the market, the company has announced several measures such asspeed the scale back given to its expansion. It has reduced its openings this year to a maximum of 26 from the 30 it had planned. Also it plans to focus on products in €1,000 range, which are those that have traditionally worked best for the brand, and reduce costs.

These results have had a bad welcome in the stock market traded. Its stocks fell by almost 5% and it is trading at lowest level since February 2012,well below HK$40 per share. Prada shares loss more than 50% from its record high in 2013. The problem is that with the current results, the value still trading at a PE of about 30 times, above the industry average, so only improving its results can encourage investor´s purchases again.