Prada shares plummet after disappointing first-half performance

Hong Kong-listed luxury giant has been grappling with declining fortunes since 2015. CLSA downgrades to ‘sell’. Shares end the day down nearly 14pc

PUBLISHED : Monday, 11 September, 2017, 5:11pm
UPDATED : Monday, 11 September, 2017, 10:55pm

Shares in luxury Italian fashion house Prada lost nearly 14 per cent of their value on Monday after the Hong Kong-listed company was downgraded from “underperform” to “sell” by brokerage and investment firm CLSA, as the luxury giant reported disappointing first half sales.

Its price dropped to HK$24.05 (US$3.09) from last Friday’s HK$28 close.

“While we believe Prada is still a one of the top fashion labels in the world, the company has been unable to ride the luxury [sector’s] recovery,” said analysts from CLSA.

“The investments required to capture fast-changing digital-savvy consumers further weighed on the company’s results.”

CLSA called the first half of the Italian maker of luxury handbags and shoes “very disappointing”, adjusting its target price from HK$28.5 to HK$22.

Milan-based Prada has been grappling with declining sales since 2015, when net profit fell by 27 per cent to 330.9 million (US$377 million), to be followed a year later by a 16 per cent fall to 278.3 million.

The company had previously reassured investors things were improving, but an 18.4 per cent fall in net profit for the first half of 2017 last Friday – 115.7 million compared with 141.9 million euros last year – heaped further pressure on the stock when trading reopened on Monday.

“We are in a phase of profound change,” said Patrizio Bertelli, the group’s CEO said.

“Our strategy, built around our brand integrity and value, to return to steady growth is taking longer than expected.”

Affected mainly by store closures and steep declines in sales in Japan, the Middle East and European markets, the company saw its net retail sales fall 8 per cent in the period, despite a 4.5 per cent rise in net sales revenue in the Greater China region.

Tang Xiaotang, founder of luxury retail consultancy Nofashion, said against a backdrop of rebounding luxury goods sales, “the weak performance of Prada will further weigh on its brand name, and might eventually cause the company to be kicked out of top-notch luxury fashion bracket, that includes names such as Gucci”.

CLSA’s analysts went as far as saying the group was going through a fashion downcycle, as much as Gucci was going through am upcycle, adding it hadn’t seen any signs of a turnaround going into the second half of the year.