Prada loses half of its profit because of Asia

Prada loses half of its profit because of Asia

Weaker Asian sales have impacted Prada's results quite a bit as the Italian luxury goods manufacturer had to deal with a 44 % net profit drop in the first quarter of its fiscal year 2015/2016, down to 58.7 million euro.

Chinese have Prada in a headlock

Prada's Asian / Pacific turnover in the February - April quarter would have dropped 17 % if exchange rates had remained level. "The situation has not improved over the past few months, particularly in Macau and Hong Kong", the group said.

 

The drop is the result of lower economic activity, but also probably because of the anti-corruption measures the Chinese government has taken. It no longer allows its employees to receive gifts to ease transactions.

 

Prada now wants to tackle the crisis by opening fewer stores than previously planned. It would normally have added 30 new stores to its 603 stores, but it will now attempt a 24 - 26 net store growth. Alongside that decision, Prada will launch cheaper collections of hand bags, among other things.

 

Non-Asian sales are going strong

Prada does well outside of its Asian markets with European turnover up 10 % compared to the same quarter in 2014, if exchange rates remained level.  Keeping the same frame in mind, Japanese sales would have grown 6 %, despite increased sales in 2014 because of a planned 1 % VAT increase. American sales grew 16 %, while Middle Eastern sales went up 13 %.

 

The weak euro has also helped Prada, because the group's total turnover grew 6.5 % in the first quarter, up to 828.2 million euro. If the exchange rate fluctuations are ignored, this would have been a 5.4 % drop.

 

Financial officer Donatello Galli says he expects improvement for the second half of the year. If that improvement does not come, the group will face challenging times, he added.

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