Prada's profit falls 20%, hit by fall in leather goods sales

Prada models Image copyright EPA

The Italian fashion house Prada has reported a drop in profit, hit by a fall in leather goods sales and currency fluctuations.

First-half net profit fell 21% to 244.8m euros (£192.5m; $314m), the company said.

It said the strength of the euro had hurt sales as well as a "difficult economic" environment.

Ahead of the announcement, Prada shares fell 1.3% in Hong Kong, to their lowest level in more than two years.

Prada expects profits in the second half of the year to be broadly in line with the first half, however "margins will continue to be under pressure with some marginal improvements deriving from the costs-cutting actions," the company said in a statement.

"We remain confident that the luxury goods market - especially the high-end segment where the Prada Group operates with success - will continue to offer interesting growth prospects in the medium-term," said Prada's chief executive Patrizio Bertelli.

Revenues from sales of leather goods, a category with a high profit margin, decreased by 1.4% , mainly because of a decrease in tourist footfall in the main shopping destinations in Europe and Asia, Prada said.

Sales in shoes and ready-to-wear clothes rose, as did menswear, which saw sales rise 19% in the first half of the year as men become more fashion conscious.

'Not a sin'

Rahul Sharma, a retail analyst at Neev Capital said the company had become less exclusive as a brand, but more exclusive in price, and as a result was losing out to competitors.

"There used to be lots of reasons to shop there, with limited editions and so on. Now there is much less 'newness'. Not only that but the company has put prices up. A customer used to be able to go in and buy a leather bag for about £1,000. Now it's more like £1,500 - £2,000," he said.

However Alex Migliorini, luxury goods analyst at Mirabaud Securities said he thought re-positioning itself as a higher end brand was a good thing, because it helped to protect the brand.

There has been concern about the strength of demand in China throughout the luxury goods industry.

"There's no doubt that the Chinese market has slowed...but there has also been a change in purchasing patterns," said Mr Migliorini.

"Chinese consumers usually spend most of their money abroad, but that trend is gradually shifting. So far the spending at home has not made up for the spending abroad," he said.

The clampdown on corruption in China has also had an effect, he continued. "People need to feel like spending big is not a sin."

On a conference call the Italian firm also said it had had a supply chain issue with some of its newer and better selling leather collections.

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