Political and economic struggles in Hong Kong and Macau weight Prada's H1

Prada SpA reported a 23 percent fall in first-half net profit on Tuesday, hurt by a slowdown in Asia Pacific, particularly in Hong Kong and Macau. Likewise, net income fell to 188.6 million euros or 0.07 euros per share in the six months ended July, 31.

Explaining the whooping drop in key growth indicators, Prada said in a statement that "The contractions recorded in Hong Kong and Macau had a significant impact on performances for the period, both in terms of sales and margins."

The depreciation of the yuan has made imports to China more expensive and the incentive for Chinese shoppers to travel abroad for luxury goods has become less appealing.

Net income was substantially lower than that of the same period a year ago (244.8 million euros.) Net profit stood at 188.6 million euros for the six months ended July 31. Analysts predicted 175.4 million euros, according to the median of six estimates compiled by Bloomberg.

Revenue rose 4 percent from a year earlier to 1.8 billion euros, but was down 5.9 percent at constant exchange rates, underscoring the support that came from currency fluctuations during the period, explained the company.

Asia Pacific, where the pain is...

In the Asia Pacific region, where Prada´s sales accounts for 36 percent of total sales, revenue was down 1.4 percent at current exchange rates and 17.5 percent lower at constant exchange rates. In Greater China, sales were down 1.2 percent at current rates and 19.3 percent lower at constant rates.

This is mainly because Hong Kong and Macau “failed to show any signs of recovery,” the company said, and no improvement is seen in the short term. In fact, Macau has been hurt by the Chinese government’s anti-bribery campaign, while Hong Kong has fallen out of favour with Chinese tourists since the democracy protests of last year.

Actually, the company´s outlook does not look really bright, as “there’s not going to be a huge improvement in the second half,” according to Chief Financial Officer Donatello Galli. The latter, however, told analysts that “we’re working in the right direction to cut expenses where we can.”

The first-half results came in as somehow expected but still affected Prada´s shares trading on Tuesday, with the stock closing up 1.8 percent at 31 Hong Kong dollars. Despite the humble gain, it is worth of remembering that the Italian fashion house´s shares have fallen 29.5 percent this year compared with a 9.1 percent slide in the benchmark Hang Seng index, stressed the ‘Wall Street Journal’.

The "strong beat" on second-quarter earnings and "limited margin compression, albeit on low expectations, could support the shares near-term," Citigroup Inc. analyst Thomas Chauvet wrote in a note. August was volatile for Prada, reflecting the impact of the global stocks correction on markets such as Hong Kong and the U.S., while Macau "remains very difficult," he wrote.

Several analysts say the Italian luxury house has also suffered from a lack of innovative products. To overcome the problem, Prada is working on the launch of new handbags.

"You cannot expect us to skip the turbulence we have seen so far on the markets," Galli said. "In some places consumption patterns are linked to the behaviour of financial markets more than in some others."





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