Prada says shop closures to offset openings in 2016/17

Mon Apr 11, 2016 3:09pm EDT
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MILAN (Reuters) - Italian fashion house Prada (1913.HK: Quote) will offset new shop openings with selective closures this year and the next in an effort to shield profit margins from weaker demand.

The Milanese group reported on Friday a larger-than-expected drop in full-year profits. Earnings before interest and tax fell 28 percent in the 12 months through January to 14 percent of revenue from 20 percent a year before.

"I don't see a real change in the market trend," Prada Chairman Carlo Mazzi told an analyst call on Monday.

"The problems of the market in terms of the world's economic situation and of consumers, especially the new generations...are quite clear for everybody."

Prada embarked on a breakneck retail expansion after listing on the Hong Kong bourse in 2011. It has been hit by China's economic slowdown and a crackdown on extravagant gift-giving in the country, where it reaps more than one fifth of its sales.

Luxury goods industry leader LVMH (LVMH.PA: Quote) on Monday posted first-quarter sales below forecasts as tourist shopping in key markets including Hong Kong remained low.

Alessandra Cozzani, who took over in February as Prada chief financial officer after the sudden exit of long-standing CFO Donatello Galli, said Prada would balance new openings with closures and work to keep operating expenses flat.

"The retail network ... will remain the same for sure in 2016 and probably also 2017. We're working on increasing the productivity of stores," she told analysts.

Prada had 618 directly operated shops as of Jan. 31 after 22 net openings in the year. Expensive shop leases have fed its cost base as sales stagnated.   Continued...

A Prada company logo is displayed outside its shop at the financial Central district of Hong Kong, China November 10, 2015. REUTERS/Bobby Yip