Italian luxury goods maker predicts a return to sales and profit growth next year after its first-half underlying earnings and net profit dropped by 25 percent, partly dragged down by weak demand in China and Italy. The group, which has been hit hard by the global luxury spending slump, said sales suffered in China and particularly in its home market Italy where net retail revenue dived 21 percent in the six months to June 30.
Prada said in a statement it saw 2016 as "a turning point from where the group will return to growth." The company’s Chairman Carlo Mazzi confirmed that message, telling Reuters in an interview: "We expect growth to come back after this year."
Last time Prada's sales rose on a like-for-like basis, excluding currency effects and a boost from new stores, was in 2014.
Earnings before interest, tax, depreciation and amortisation (EBITDA) reached 330 million euros ($372.6 million) in the first half, down from 440 million euros a year ago while net profit fell to 141.9 million euros from 188.6 million euros.
After having opened more shops than most of its mega-brand rivals in the past few years and raised the price of many of its handbags, Prada is trying to turn itself around by putting out more accessible products and slimming down its retail network.
It has also started rolling out a new store concept in Hong Kong, Shanghai, Zurich and Moscow to entice customers into its shops, creating a different atmosphere for each product category.
However, analysts expect it will take time for Prada's lack of perceived exclusivity to recover as competition becomes fiercer from new Western and Asian brands, while a revived Gucci under new leadership is expected to steal market share.
Most brokers have either a sell or a hold recommendation on Prada which has seen its share price fall nearly 35 percent in the past year. "The key point for the stock is whether the company can return to a path of structural growth, via product innovation and brand buzz (similarly to what is happening at Gucci), which does not seem to be the case at the moment," New-York based broker Evercore ISI said in a note.
The Prada group, which makes the bulk of its sales from the Prada brand, but also owns the Miu Miu, Church's and Car Shoe labels, said spending in mainland China had improved since June, as government measures helped repatriate spending home.