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TIFFANY AP

Shares of luxury retailer Prada fell 6 per cent, the largest drop in nearly two years, after delivering weak first-quarter results that showed squeezed margins impacted by soft spending from Chinese tourists.
Prada shares closed at HK$53.95 yesterday, down 22 per cent from the start of this year, compared with a 1.2 per cent decline in the Hang Seng Index.
The Italian group reported net income of €105.3 million (HK$1.1 billion) in the first quarter, a drop of 23.8 per cent from a year ago. Wholesale turnover fell 25 per cent as the company withdraws from department stores to improve its image.
"Europe, Hong Kong, Korea, and Singapore were all hit by subdued Chinese tourists, though Macau was solid and Japan, in local currency terms grew 30 per cent," a Nomura report said.

	I think the share price move was warranted given the extent of the disappointment

	GARY PINGE, MACQUARIE BANK
Macquarie Bank analyst Gary Pinge said: "I think the share price move was warranted given the extent of the disappointment."
He attributed the company's woes to overaggressive shopfront expansion. "If you're in an environment where costs are going up quickly but revenues are uncertain, then you can see significant impact on your margins," Pinge said. "That's the real risk for Prada as they continue to roll stores out. The macro environment in China and other emerging markets isn't great so you have a real risk of margins getting crunched."
Selling expenses rose 34 per cent year on year due to rising labour costs and rent expenses.
Luxury brands have been facing headwinds as a result of the economic slowdown and the mainland's anti-graft campaign.
"I think it's a trend for a lot of them. Even Richemont six to nine months ago announced that they were going to consolidate on store additions. Prada continued opening stores even in the face of slipping productivity," Pinge said.
In the first quarter, the group opened 11 stores. The management said its guidance of 80 new retail store openings for the full year may have to be revised.
In January, a Knight Frank study showed that many luxury brands had missed their store-opening targets on the mainland last year, hit by the anti-graft campaign and flagging economic growth.
More than 60 per cent of the 45 international retailers it studied, including Prada, Burberry and Gucci, missed their expansion marks. Prada aimed to open seven stores last year but opened only four while Burberry opened eight stores, instead of 11. Gucci had planned 10 new stores in 2013 and ended up with none.
It is not just on the mainland where Prada continues to roll out stores despite difficult operating conditions. On Tuesday, the company opened a new Prada and a Miu Miu store in Bangkok's Central Embassy mall amid the political upheaval.


Prada shares sold off on earnings slide for first quarter

Prada's sales in Hong Kong have come under pressure as mainland tourists spend less. Rising costs add to the strains. Photo: Bloomberg

Business

Companies

Shares of luxury retailer Prada fell 6 per cent, the largest drop in nearly two years, after delivering weak first-quarter results that showed squeezed margins impacted by soft spending from Chinese tourists.
