April 13, 2017 5:06 pm JST

Prada loses its luster in Asia

Luxury designer marks lowest profit since going public in 2011

KEN MORIYASU, Nikkei deputy editor

A woman cleans the brand logo at a Prada store in Beijing. Despite a rocky earnings report, the Italian fashion house said that sales in the country are recovering. © Reuters

TOKYO -- Italian luxury fashion house Prada has suffered its lowest full-year profit since its initial public offering in Hong Kong six years ago, as sales in China and Japan -- the company's two earnings engines -- slumped.

Prada shares dropped as much as 2.2% on Thursday, as investors refused to buy Chief Financial Officer Alessandra Cozzani's positive take on the outlook, made the previous day.

"Performance in [the] Asia-Pacific [region] was very dynamic in [the second half]," Cozzani told analysts in a conference call on Wednesday. Mainland China recovered in the third quarter and "accelerated significantly" in the fourth to deliver double-digit growth, she said. "We saw improving performance in Hong Kong and a return to positive growth in Macau."

Prada's full-year earnings did not reflect the CFO's excitement. Net profit fell 16% to 278.3 million euros ($295 million). Analyst estimates compiled by QUICK and FactSet had forecast profit to reach 293.2 million euros.

According to the earnings report for the year ended January announced on Wednesday, sales in the Asia-Pacific region declined by 14.2% year-on-year. Sales in Japan, which had seen five consecutive years of growth, fell by 4.5%, as the stronger yen discouraged Chinese tourists from opening their wallets there.

The two markets constitute 44% of the Milan-based company's global sales.

Prada had enjoyed a tremendous tail wind by becoming the brand of choice among young aspiring Chinese women around the time of its IPO in June 2011. As the Chinese increasingly traveled abroad to hunt for bargains through currency advantages, Prada saw its sales grow in Japan and South Korea.

The drop in spending by Chinese tourists has hit Prada hard. "In Korea, we suffered like everybody else, because of the political turmoil," CEO Patrizio Bertelli lamented in the conference call. "Certain governments are even actually actively discouraging their citizens to travel to South Korea because of the elections and because of the situation with North Korea, so political turmoil has a big impact on our market."

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