Prada posts 28% drop in profit amid slowdown in China

PARIS (Bloomberg) - Prada reported a 28 per cent drop in full-year profit as fewer Chinese shoppers splurged on US$2,950 leather handbags and other luxury products.

Net income in the year through January fell to 450.7 million euros (S$673 million), Milan-based Prada said Monday in a statement. Analysts had predicted 468 million euros, according to the average of estimates compiled by Bloomberg.

Prada plans to open fewer stores and introduce more bags priced in the range of 1,000 euros to 1,200 euros as it seeks to revive revenue that fell last year amid a slowdown in China. The moves are designed to redress errors such as having an overly expensive product mix and a lack of novelty that have led shoppers to spend elsewhere, according to Exane BNP Paribas.

"There has been a major overhaul of certain internal production processes, the effects of which will be visible from next year," Prada said in the statement.

Revenue fell 1 per cent to 3.55 billion euros, the owner of brands including Miu Miu said in February. Prada's shares climbed 3 per cent to HK$51.85 as of 9:38 a.m. in Hong Kong trading, while the benchmark Hang Seng Index advanced 1.3 per cent.

Global economic uncertainty and political and social tension have affected several markets, while fewer tourists have also weighed on sales, the company said.

Sales in the Asia-Pacific region - the group's largest market, contributing 36 percent of the total - dropped 3 percent, driven by poor performance in Hong Kong and Macau, the company said. Revenues in Europe were down 5 per cent, it added.

Chinese President Xi Jinping's crackdown on corruption and official extravagance have damped Chinese tourists' demand for luxury goods and kept high rollers away from Macau, the world's largest casino gambling hub.

Mainlanders accounted for 78 per cent of Hong Kong's visitors last year, and their changing habits have rippled through the economy and dragged down luxury companies. Sales of luxury goods plunged 14 per cent last year, when the city saw its first annual drop in retail sales since 2003.

Revenues in the Middle East surged 14 per cent, helped by demand for footwear and Miu Miu-branded products. Sales rose 8 per cent in Japan and 1 per cent in Americas, the company said.