Prada sees revival in Hong Kong, China markets after reporting 2016 profit drop

PUBLISHED : Thursday, 13 April, 2017, 2:01pm
UPDATED : Thursday, 13 April, 2017, 10:19pm

Prada SpA said it is now firmly back on track for growth after reporting a recovery of its business in Hong Kong and mainland China last year.

The Hong Kong-listed company also vowed to make all its brands, from Miu Miu to Church’s, ready for order on its new online stores by the end of 2017, and to open Prada and Miu Miu pop-up stores across the world as part of its ongoing business overhaul.

The Milan-based fashion house is the latest among global luxury behemoths to paint a rosier picture on the outlook, on the back of rejuvenation signs in the Greater China market.

On Tuesday, industry bellweather LVMH, the conglomerate that owns Louis Vuitton, Celine and Dior, saw its shares hit a record high in France after it booked a 13 per cent jump in first-quarter revenue, boosted by robust demand in China for its Louis Vuitton handbags and designer coutures.

Britain’s Burberry and Switzerland’s Richemont, which owns Piaget and Shanghai Tang, also said recently that their businesses returned to growth in mainland China at the end of 2016.

A “strong rebound” in mainland China emerged in the third quarter of last year and translated into double-digit sales growth in the fourth quarter, Alessandra Cozzani, Prada’s chief financial officer said in a post-earnings presentation on Wednesday night.

“The trend in Hong Kong and Macau also improved,” Cozzani said.

Net sales in Greater China for the second half of 2016 came in at 333 million euros (US$355.38 million), up 15 per cent from the first six months of the year.

“The stabilisation of some currencies paved the way for a recovery in domestic consumption, as [evident] in China and Russia,” Prada said in a statement to the Hong Kong stock exchange on Wednesday.

For the financial year ended January 31, Prada reported net income of 278 million euros (US$296.6 million), down from 330.9 million euros a year earlier.

Prada’s Hong Kong shares ended at HK$34.1 at midday on Thursday, up 1.73 per cent. Its shares have gained 30 per cent this year.

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While geopolitical tensions in Europe helped to drag Prada’s overall earnings down by 16 per cent last year, the Italian company is confident that its aggressive online push will give a boost to prospects in the longer term.

The first batch of e-commerce platforms will be rolled out across China, South Korea, Australia and Russia by the end of the year, followed by those for other countries in 2018, Prada’s chief executive officer Patrizio Bertelli said a presentation.

CLSA’s head of consumer research Mariana Kou upgraded Prada’s shares to “outperform” from “underperform” with a revised target price of HK$35.80 from HK$31.80.

“We believe the e-commerce initiatives could lift wholesale revenue, while the pop-up store concept could boost the brand and retail productivity,” said Kou.

Global fashion labels are generally faced with a dilemma when it comes to their e-commerce presence. Their target consumers, many of which are tech-savvy millenials, are increasingly migrating online, but there is also a commonly shared belief that selling goods online tends to diminish a luxury label’s deluxe image.

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