Prada sees no slowdown but is cautious

Prada says it has yet to experience a significant slowdown in demand growth, despite recent fears that the luxury sector has finally succumbed to the softening of the global economy.

"The numbers were quite good up to the first three weeks of September but we don't want to push our luck. It's common sense to be cautious right now," said Patrizio Bertelli, chief executive. The Milan fashion house's update came as it announced a better-than-expected 59 per cent growth in interim net profit from a year ago, to ?286.4m. The strong results further confirmed that a general pattern has yet to emerge for luxury demand, especially in emerging markets. Galli Donatello, Prada's chief financial officer, warned, however, that investors could not expect the company to deliver last year's 25 per cent growth in annual sales, given that the eurozone crisis remained a concern, among other reasons for market volatility. He said the group's current estimate was about15 per cent growth. Earlier this month, British label Burberry issued a profit warning which wiped a quarter off its stock price. Its same-store sale growth hit zero recently. In sharp contrast, Herm�s International raised its full-year targets just a few days earlier, on the back of strong demand in China. Prada's same-store sales growth at constant exchange rates was 19 per cent. Sales growth in greater China fell from 48 per cent for the same period last year to 35 per cent. But this was offset by higher demand by tourists, mainly from China, when they travelled to Europe. European sales were up 37 per cent from a year ago, compared with last year's 19 per cent. "In China, overall luxury demand has slowed with the overall economy but not at the top end. The super wealthy are still willing to spend, and they prefer Bottega Veneta, Herm�s, and Chanel. Prada comes close to that group in terms of brand positioning. They tend to avoid Burberry and Louis Vuitton, which are considered not as exclusive," said Shaun Rein, managing director of the China Market Research Group. Torsten Stocker, consumer analyst at the Monitor Group, said Burberry's profitability was also affected by heavy investment in its digital platform, on which brands such as Prada were doing less. Mr Bertelli said one reason why the company had out-performed some rivals was because it owned its factories, which gave it the flexibility to react more quickly to changes in fashion trends. He added that the brand would not react to the global economic gloom by launching more "cheaper, fun products" which would damage the brand's market position. Prada's share price in Hong Kong has risen 74 per cent so far this year, compared with a 10 per cent rise in the benchmark Hang Seng index.

More News From Financial Times
Luxury sector fears Burberry has set trend
Richemont upbeat on half-year profits
Hays warns on jobs market as fees drop
Chow Tai Fook adds to luxury gloom
Luxury goods show signs of losing lustre