Italian fashion house Prada SpA plans to focus its next retail push on the Middle East and the Americas to offset lower spending in Europe and lessen its reliance on Asia, where booming growth is levelling off. The maker of leather bags and colourful Miu dresses said it expected economic uncertainty to persist in parts of Europe and Asia this year.
Thomas Chauvet, luxury analyst at Citi, said core earnings and margins were slightly below their expectations, despite a boost to margins through a reduced discount sales period and better distribution control. "We would also highlight risks of volatility in tourist flows into Europe and intra-Asia, possibly exacerbated by the recent China bird flu outbreak," Chauvet wrote in a note.
Signs of a slowdown have emerged recently in spending by Asian tourists - the recent driving force in the European luxury market, defying economic recession. "This is the first time since the June 2011 IPO that Prada has not delivered a quarterly earnings beat," Chauvet said.
Prada said revenue in February was strong thanks to Chinese New Year celebrations but bad weather conditions in Europe and political concerns in South Korea weighed on March performance. "The second half of 2013 may be not be characterised by the economic recovery everybody was hoping for," Chief Executive Patrizio Bertelli said in a conference with analysts.
A crackdown on corruption and ostentatious spending in China from the second half of 2012 has dampened sentiment for conspicuous brand names. Chinese economic growth slowed to 7.4 percent in the third quarter of 2012, its lowest quarterly rate in three years, while the total number of billionaires in Greater China fell to 157 from 176 last year, according to research by Exane BNP Paribas.
But luxury analysts say Prada's top product line, which frequently rotates its collections in stores, has remained in vogue and avoided brand weariness among the well-heeled. Prada, which sells over a third of its products in Asia, says it still has ample growth prospects in emerging markets where it has a smaller presence compared to rivals like LVMH and Salvatore Ferragamo.
Prada's net profit in the fourth quarter grew 36 percent to 217 million euros ($279 million), beating an average forecast of 202 million euros by Thomson Reuters I/B/E/S. "Our major focus will be on the Gulf area, South America, and US department stores," Bertelli said.
The group currently has 196 stores in Asia, including Japan, and 185 in Europe with just five in South America and 11 in the Middle East, nine of which opened in 2012. The Hong Kong-listed company said it would maintain its appeal by reducing discount sales and entering new markets."We don't want to glut the market with our products," Bertelli said.