Pedestrians walk past a Prada SpA store in the Tsim Sha Tsui area of Hong Kong
Prada SpA plunged to a record low in Hong Kong trading after the company reported third-quarter profit that missed analyst estimates as sales in the HKSAR and Macau continued to weaken.
The shares fell 7 percent to HKD24.75 by the end of trading yesterday, the lowest close since their Hong Kong debut in 2011. The benchmark Hang Seng Index rose 2 percent.
Prada reported Tuesday net income fell to 46.5 million euros (USD51.1 million) in the three months through October from 74.5 million euros, lower than the average estimate of 60 million euros from six analysts compiled by Bloomberg.
The luxury-goods maker’s poor third-quarter results considerably under-performed global peers and “signify Prada’s structural problems are likely to be more intense than expected,” Bocom International analyst Phoebe Wong wrote in a note Wednesday, citing in particular the company’s loss of market share to younger and more affordable rivals.
Wong downgraded the stock to a “sell” from “neutral” rating, and cut the target price to HK$20, from HK$28. The company also said it will increase prices in Europe to compensate for slumping sales in Asia and the U.S., and will continue to seek savings without sacrificing spending on products and marketing. Price increases in Europe are designed to narrow a gap with China, where luxury goods are more expensive, partly because of import duties.
In making changes to its pricing, Prada follows Chanel and Swiss watchmaker TAG Heuer, which said in March they will adjust the amounts they charge globally because of currency fluctuations. At the time, a weakening euro had widened the gap between the price of items sold in China and Europe to a record high, with soft luxury goods such as handbags costing as much as 70 percent more in the Asian country, according to Exane BNP Paribas.
“We want to flatten the spread as much as possible,” Co- Chief Executive Officer Patrizio Bertelli said on a conference call. The gap between Europe and China will narrow to 10 percent to 15 percent from 35 percent, he said. The policy will also apply to markets including Japan and the Middle East. “If we have buyers in Hong Kong or China, we don’t want them to go to Korea,” Bertelli said.
Prada is struggling to deal with the weakest market for luxury goods in six years. Less than 1 percent of its revenue is generated online, where most of this year’s industry growth will come from, and Prada’s lineup of handbags has struggled to attract shoppers from New York to Nanjing. To make matters worse, the luxury-goods maker has to contend with fewer tourists in Europe following the terror attacks in Paris last month.
Prada posted revenue fell 5.3 percent to 758.1 million euros, also missing estimates. Sales in Prada’s own stores fell in all main markets, except Italy and Japan, in the quarter. In Hong Kong and Macau, the situation worsened and the weakening of the yuan in August and September weighed on spending by Chinese travelers. Andrew Roberts and Stephanie Wong, Bloomberg
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