Prada braces for a tough year ahead after coronavirus outbreak wreaks havoc in China and home market Italy
- Net profit of €255.7 million for 2019 beats analysts’ estimates of €255.2 million
- Months of anti-government protests in Hong Kong caused sales to fall by 1.7 per cent in Asia-Pacific, the most in the world
Italian luxury brand Prada Group’s outlook is negative for the year ahead, blindsided by the outbreak of coronavirus, despite posting better-than-expected results for 2019.
The fashion house said on Wednesday that it had a “very positive” start to the year until the coronavirus outbreak erupted in China, one of its key markets, before later spreading to its home market of Italy.
“Although it is difficult to forecast the evolution of the epidemic, we are expecting a negative impact on this year’s results and we are implementing a comprehensive contingency plan to mitigate it, relying on our flexible supply chain and lean organisation,” said chief executive Patrizio Bertelli, in a filing to the Hong Kong stock exchange, without giving figures.
On Monday, the company announced that Bertelli, his co-CEO Miuccia Prada, and chairman Carlo Mazzi, had donated six intensive care and resuscitation units to three hospitals in Milan, including a children’s hospital. They joined a number of fashion labels who have recently donated millions to treat those affected, and help prevent the spread of the virus.
Net profit for the Hong Kong-listed designer – which owns brands including Miu Miu and Church’s – was €255.7 million (US$279.5 million) for 2019, up 7.9 per cent compared to the previous year, and coming slightly above estimates of €255.2 million by analysts polled by Bloomberg.
Revenue was €3.23 billion, up 3 per cent compared to 2018, and higher than the estimated €3.21 billion, or 2.3 per cent gain.
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The luxury label said a strengthening of brand desirability, an elimination of markdown sales in stores, and a cut in Prada’s wholesale channels, helped to increase full price sales by 6 per cent compared to 2018. The second half of 2019 alone saw a 10 per cent rise, despite a hit to its operations in Hong Kong because of the social unrest.
Months of anti-government protests in the city meant sales in Asia-Pacific — Prada’s second largest region by number of owned shops — dropped the most worldwide, by 1.7 per cent. Sales in Japan jumped over 10 per cent, nearly 7 per cent in the US and just over 3 per cent in Europe.
Meanwhile, its 15,000 square foot flagship store in Hong Kong’s Causeway Bay that was set to close in June, after its seven-year lease expires, is already boarded up.
Analysts polled by Bloomberg were cautious, with 13 of the 27 recommending to “hold” the stock, while seven said to “buy”, and seven to “sell”.
Its share price rose 2.28 per cent on Wednesday to HK$19.72, recovering from an all-time low of HK$19.28 a day earlier. It still, however, sits 29.9 per cent below its 12-month target price of HK$25.62 set by analysts.
Separately, in a note late on Wednesday night, British designer Paul Smith said it had closed some of its stores temporarily.
According to its website, the brand has temporarily shut 25 per cent, or some 27, of its 107 outlets worldwide. Only one outlet each in the US and Italy are open, and all in France and Germany are closed. Meanwhile, its four outlets in China, and 12 in South Korea – the two Asian countries with the most confirmed virus cases – remain open. Only one of its 22 stores in its home market of the UK is shut.
The announcement came alongside a handwritten message by founder Sir Paul Smith. “My thoughts are with everyone during these difficult times. I send you all my love and friendship. Please keep strong and remain positive. Paul x.”
