Prada owes China – Asian country cushions preliminary FY16 sales slowdown

Prada SpA reported Monday what some analysts wanted to see as some early signs of a return in consumption in China during the second half of 2016. This trend is being considered as a positive sign, a recovery that cushioned the decline in its preliminary sales data for the last fiscal year.

Although Asia-Pacific sales fell 12 percent in the second half at constant exchange rates, Prada said, the Italian luxury fashion label also noted that the region’s performance was “very dynamic.”

In particular, the company highlighted that the Greater China region reported higher sales in the last quarter of the year, showing early signs of recovery and partially making up for Hong Kong and Macau sales declines. The latter had been less severe than previously, Prada noted, as reported the ‘South China Morning Post’. Japan became the regional laggard in terms of sales, which declined 13 percent after five years of consecutive growth, as a consequence of the reduced flow of tourists from China after the yen’s appreciation, explained the company.

Prada joins thus other luxury big players including LVMH, Gucci-owner Kering SA and Burberry in reporting gains after several years of ebbing demand in China and a slowdown in tourism in Europe. The company identified Europe and Asia as its most dynamic areas, saying France showed “clear signs of recovery” in the last quarter, while China is back to rapid growth. Declines in Hong Kong and Macau are moderating, it said.

"This past year we implemented a profound phase of business process rationalisation, still underway, and identified important strategies to secure the Group's future growth," said chief Executive Patrizio Bertelli in this regard.

Russia and the UK make up for generalised sales slowdown in Europe

Other traditional safe havens for luxury products, such as the Middle East, also reported a decrease, withdrawing 10 percent, it added. Also at the down, the American market, which dropped 12 percent over the period due to the falling tourist flows and generally soft spending patterns.

Meanwhile, “the European market, down 5 percent at constant exchange rates, was adversely affected for most of the year by the reduction of tourist flows, especially in Italy and France, although France showed clear signs of recovery in the fourth quarter,” Prada said in its filing this week. “Particularly positive was the performance of Russia, with double-digit growth, and the UK, which reversed the decline of the first six months to end the year with strong growth.”

In a statement filed with the Hong Kong Stock Exchange, where its shares are listed, Prada reported sales fell 9 percent to 3.18 billion euros (26.26 billion Hong Kong dollars) in constant exchange rate during the financial year ended January, 31. Fall was of 10 percent in current exchange rates, said Prada citing preliminary data.

“Prada’s sales performance was broadly in line with expectations and improving fourth-quarter trends should be evaluated against a sector backdrop where virtually all its peers have beaten fourth-quarter sales consensus in recent weeks,” Rogerio Fujimori, an analyst at RBC Capital Markets, wrote in a note. January sales likely benefited from calendar effects related to the Chinese New Year, he further explained.

Prada to revise digital strategy as main driver for sales recovery

Looking ahead, Prada has “identified important strategies to secure the group’s future growth,” the company’s chief executive Patrizio Bertelli said in a filing. “This included revising our digital strategy with the creation of a highly skilled team with professional experience from the digital technology and new media industries.”

These strategies are based to a great extent on reports showing that Chinese shoppers are returning to their physical and online stores, helping the retail industry recover from a two-year slump in demand. An aggressive push to re orientate merchandise to online stores, from high-cost outlets in malls and department stores, also paid off, add analysts consulted by Bloomberg.

The group’s 620 directly operated stores produced revenues of 2.64 billion euro in 2016, a decline of 13 percent at constant exchange rates and 14 percent at current exchange rates. On the upside, sales across the entire wholesale channel rose to 504 million euro, up by 14 percent at constant exchange rates and 13 percent at current exchange rates. Licensed business also grew, adding 3 percent. Both eyewear and fragrances experienced positive trends, with royalties of 45 million euro, Prada said.

Image:Prada Official web


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