Prada pins growth hopes on China's luxury sector

Italian group says a strong euro and a higher tax charge are blamed for flat profit increase

PUBLISHED : Friday, 04 April, 2014, 1:14am
UPDATED : Friday, 04 April, 2014, 1:22am

The Chinese market for luxury fashion products will be the main driver of growth at Italian group Prada, the company said yesterday after reporting stable profits last year.

Prada played down talk of a slowing luxury sector in China, after reporting almost flat net profit of €627.8 million (HK$6.7 billion), up just 0.3 per cent year on year.

It said on Wednesday that the results had been held down by the strength of the euro and an increased tax charge.

As part of a crackdown on corruption, the mainland has imposed restrictions on lavish entertainment and the giving of expensive gifts.

Some luxury product groups, which had experienced booming sales to a new middle class in China, have reported signs of a slowdown in their activities there, blaming in part the crackdown and in part a slowing economy in the country.

The option of looking into placing 5 per cent in the future should not be written off

But in remarks to French business newspaper Les Echos yesterday, Prada chief executive Patrizio Bertelli said China would be the key market for the company and forecasts of sharp slowdown in the country's luxury market were mistaken.

"I do not really believe that the Chinese market has yet reached maturity," he said.

The company reported 2013 sales up 9 per cent, but net profit dropped 13 per cent year on year in the fourth quarter amid a broader slowdown in the luxury sector as once-voracious demand in China cooled.

Prada intends to open 120 shops around the world in the next three years and retail locations in its sights include China, in contrast with Gucci, which has pulled out of some locations in the world's biggest market for luxury goods.

"Even if we open the shops we are going to open in the next two to three years [in China], we will still be lower than most of our direct competitors," finance chief Donatello Galli said.

The Prada brand has 146 directly operated stores in Asia including Japan. Sales in Asia-Pacific last year rose at more than double the rate in Europe.

Bertelli, who owns a controlling stake in Prada alongside his wife, creative director and co-chief executive Miuccia Prada, said they could put a further 5 per cent on the market. Prada listed in Hong Kong in 2011.

"We have not evaluated selling another stake but the option of looking into placing 5 per cent in the future should not be written off," Bertelli said.

Shares in Prada dropped 5 per cent yesterday, the most in nine months, to close at HK$58.65. The benchmark Hang Seng Index climbed 0.2 per cent.

Agence France-Presse, Reuters, Bloomberg