Italy Luxury Group Pradaspa Prada Reported Sharp Decline In Performance

Prada Prada's medium-term earnings plunge. Let's look at what impact it will have.

Italy is constrained by the extremely weak demand in the Greater China region.

Group PradaSpA Prada group (1913.HK) profits in the first half of the year, as expected by the market, have fallen sharply, but the situation is not as bad as market expectations. However, it is far worse than the European luxury peers whose profitability is still rising despite the same factors.

Prada Prada flagship store, Prada Road, Guangdong, Tsim Sha Tsui

In the first half of this year, the net profit of PradaSpA Prada group decreased by 23% to 188 million 600 thousand euros compared with the previous year, which was better than the 175 million 400 thousand euros expected by the market. It mainly benefited from the cost control measures and the implementation of the optimization of industrial and business process measures, which eased the further pressure on profit margins due to the Asian Pacific market retrogression, and the net profit last year was 244 million 800 thousand euros.

The two quarter net profit of 129 million 800 thousand euros is also better than the market expectations of 118 million 800 thousand euros.

EBIT's pre tax profit was 293 million 200 thousand euros, a 21.4% decline over the same period last year, and the EBIT profit margin fell to 21.3% from 21.3% in the same period last year to 16.1%.

The core profit of EBITDA4.401 billion euro was 10.7% lower than that of 492 million 800 thousand euro last year, and the EBITDA profit margin was 24.1%, down 400 basis points from the same period last year.

Gross margins rose by 90 basis points to 72.7% because of the improvement in industrial costs and the positive impact of exchange rates.

In the semi annual report, Prada group pointed out that both sales and profits were greatly affected by the continued recession of Hongkong and Macao.

At fixed exchange rates, sales of Hongkong and Macao dragged down 19.3% in the Greater China region in the first half of the luxury industry, which led to a sharp plunge of 17.5% to 610 million 300 thousand euros in the Asia Pacific region, benefiting from the weakening of the euro and a 1.4% decline in the real exchange rate.

PradaSpA, chairman of Prada group, told Reuters during a visit to Reuters earlier this month that it was seeking to reduce rent in Hongkong and Macao, but the local market owners were quite tough. He also lamented that the Chinese market was no longer "Huang Jinguo".

The growth in Europe and Japan partially offset the weakness in the Asia Pacific region, which accounts for up to 40%.

At fixed exchange rates, sales in these two regions increased by 2.5% and 4.9% respectively. The overall sales decline in the first half of the group narrowed to 5.9%, while the real exchange rate rose by only 4.2% to 1 billion 824 million 400 thousand euros per annualized rate.

According to the results of many luxury companies such as LVMH, Hermes and Burberry, the rebound in Japan and Europe is still mainly due to the consumption of Chinese tourists.

The situation in the Americas is also not optimistic. The fixed exchange rate has fallen by 6.1%. The growth rate of real exchange rate of 13.5% indicates a sharp slowdown in the two quarter than the 18.8% growth in the first quarter.

Retail channels showed a 3.3% decline in fixed exchange rate, while the real exchange rate rose by 7.6% to 1 billion 552 million 400 thousand euros. The exchange rate advantage rose completely from the euro and 11 new stores in the first half of the year increased. Although the sales data of the same store were not disclosed, the negative growth was positive.

The decline in sales of wholesale channels based on fixed exchange rates has also been selectively covered by PradaSpA Prada group. However, the drop in the real exchange rate of 13.8% has already been able to estimate the severity of the situation.

According to the fixed exchange rate, the sales of Prada Prada brand in the first half of the year decreased by 7.9%, and the fixed exchange rate increased by 2.1% to 1 billion 431 million 100 thousand euros.

In addition to the retrogression in the Asia Pacific region, MiuMiu has grown in all other regions.

At a fixed exchange rate, the increase was 3.3%, and the fixed exchange rate increased by 14.8% to 293 million 900 thousand euros.

PradaSpA Prada (1913.HK) reported a HK $30.9 on Tuesday, an increase of 1.81% against the market, which has fallen by 29.5% in 2015 and is far behind the 9.1% decline in Hang Seng Index.