Prada shares hit record low after profit plunges 38% on China woes

Prada said it would reduce price gaps for its products across regions to discourage tourists from travelling to countries where goods can be bought more cheaply.
Prada said it would reduce price gaps for its products across regions to discourage tourists from travelling to countries where goods can be bought more cheaply.PHOTO: REUTERS

HONG KONG (REUTERS, BLOOMBERG) - Shares of Prada plunged 6.4 per cent on Wednesday (Dec 16) after the Italian luxury goods maker posted a 38 per cent plunge in quarterly profit to 46.5 million euros (S$71.6 million), weighed down by slumping sales in Greater China as economic growth slowed.

The stock slid to HK$24.9, the lowest level since the company listed in June 2011. That compared with a 1.7 per cent rise in the benchmark Hang Seng Index.

Prada said it would reduce price gaps for its products across regions to discourage tourists from travelling to countries where goods can be bought more cheaply. It will also consider selective shop closures in the coming year and limit the number of openings to 10 to protect margins.

In making changes to its pricing, Prada follows Chanel and Swiss watchmaker TAG Heuer, which said in March they will adjust the amounts they charge globally because of currency fluctuations. At the time, a weakening euro had widened the gap between the price of items sold in China and Europe to a record high, with soft luxury goods such as handbags costing as much as 70 per cent more in the Asian country, according to Exane BNP Paribas.

"We want to flatten the spread as much as possible," co-chief executive officer Patrizio Bertelli said on a conference call. The gap between Europe and China will narrow to 10 per cent to 15 per cent from 35 per cent, he said. The policy will also apply to markets including Japan and the Middle East.

"If we have buyers in Hong Kong or China, we don't want them to go to Korea," Mr Bertelli said.

Prada is struggling to deal with the weakest market for luxury goods in six years. Less than 1 per cent of its revenue is generated online, where most of this year's industry growth will come from, and Prada's lineup of handbags has struggled to attract shoppers from New York to Nanjing. To make matters worse, the luxury-goods maker has to contend with fewer tourists in Europe following the terror attacks in Paris last month.

Prada posted revenue fell 5.3 per cent to 758.1 million euros, also missing estimates.

Sales in Prada's own stores fell in all main markets, except Italy and Japan, in the quarter. In Hong Kong and Macau, the situation worsened and the weakening of the yuan in August and September weighed on spending by Chinese travelers.