SINGAPORE (June 15): Shares of Hong Kong-listed global luxury retailer Prada plunged over 6% today to a record low of HK$37.30 ($6.48) following disastrous quarterly earnings report. The luxury stock was sold off on heavy trading on the Hong Kong bourse. The fall brings Prada stock, which debuted at HK$39.50 with much fanfare three years ago, to its lowest point since its IPO in early June 2012. The stock has now fallen nearly 60% from its April 2013 peak.
For the fiscal quarter ending April 30, Prada's profits fell a whopping 44% mainly due to what CEO Patrizio Bertelli described as "continuing difficult market conditions in the Asia Pacific area.” Bertelli is the husband of Miuccia Prada, the grand daughter of the brand’s founder. The couple control now nearly 80% stake in the Hong Kong listed global retailer.
The devil is in the details of Prada’s latest financials. Sales in Asia Pacific region fell 17.2% driven by ongoing weakness in Hong Kong and Macau. Greater China sales were down 19.2% over same period last year while sales in the US were down 3.1%. Only Europe, increasingly a smaller part of its revenues, were up slightly in the period or around 5.4%.
Among the biggest decline was in the leather goods segment, mainly Prada’s iconic handbags, which were down 11.4% year-on-year due to brand weakness and plummeting Greater China sales. Leather goods segment now account 63% of Prada’s sales down from over 70% at the peak. “Leather goods (continue to) weigh on gross margins mix,” notes Christopher Walker, luxury goods analyst at Japanese investment banking giant Nomura International. The investment bank is forecasting that Prada’s EBITDA margins could fall to 22.9% this fiscal year compared to 26.9% it had originally estimated for the year.
While the core Prada brand which makes up over 75% of the firm’s revenues saw its sales plunge sharply, secondary brands like Miu Miu have shown resilience in recent quarters. Miu Miu sales grew 19% globally in the last quarter. Prada’s other minor brands liker Car Shoe and Church’s are also growing but they remain a very small part of the group’s total revenues.
As The Edge Singapore reported in its last issue, Prada remains under pressure with most analysts retaining a “Sell” recommendation on the stock even at current low levels. (The Devil May Wear Prada, but should smart investors shun its stock. : The Edge Singapore June 15, 2015) The Edge quoted Andy Macken, portfolio manager of Montgomery Investment Management in Sydney saying that Prada was one of the biggest shorts in his portfolio of global companies.
Prada which has been plagued by mounting inventory is trying to rein in expenses by cutting marketing spend, slashing its aggressive retail rollout in China, introducing more affordable handbags. CEO Bertelli expects stability in its problematic Greater China and Asian region by the year-end.