Chinese sales helps Prava turn the corner

Shares in Prada surged 14 percent after the Italian luxury goods maker signalled further growth this year after it stemmed a slide in sales in the second half of 2017.

A model wears a creation part of the Prada women's Fall-Winter 2017-18 collection, that was presented in Milan, Italy, Thursday, Feb. 23, 2017. (AP Photo/Luca Bruno)

Criticised as slow to respond to new trends, particularly for informal clothes and shoes, Prada has seen profit fall since 2014 even as competitors such as Kering and LVMH boosted sales.

Core profit dropped 7.3 per cent last year to €588m.

Sign up to our daily newsletter

The i newsletter cut through the noise

New products, estimated to be about 60 per cent of its total offerings, as well as robust demand from Chinese consumers, had helped to pull the company out of a ‘grey area’.

The Hong Kong-listed stock jumped to HK$37, adding $1.5 billion to its market capitalisation.

The firm saw double digit organic sales growth in Greater China in the second part of last year and the first month of 2018, Alessandra Cozzani, Prada’s chief financial officer told Reuters.

Prada generates over 30 per cent of revenue from Chinese consumers at home and abroad. It is seeking to burnish its brand in China with a new residence project in Shanghai for fashion shows and exhibitions, and is putting more effort into e-commerce, an area where it has lagged rivals.

It also appointed a new global digital director last year to drive online sales globally - a change from 2014, when CEO Patrizio Bertelli said it would focus on physical stores - and has since been forging tie-ups with bloggers in China to attract young consumers.

“We believe the worst is gone,” said Walter Woo, analyst at CMB International Capital in Hong Kong, who raised his rating on the stock to a ‘buy’ and noted that the firm’s forecast for mid to high single digit sales growth in 2018 was above market estimates. Prada is one of the few brands available to invest in Hong Kong said Alex Wong, director at Ample Finance Group.