June 12, 2015 / 4:19 PM / 4 years ago

China weakness hits Prada, threatens profit margin

People walk past Prada's fashion store in downtown Milan February 4, 2015. REUTERS/Stefano Rellandini

MILAN/HONG KONG (Reuters) - Italian luxury goods group Prada (1913.HK) warned on Friday its profit margin could fall this year if weak consumer spending in Asia persisted, after posting a 44 percent drop in net profit for the three months ended April.

Prada, which has scaled back its retail expansion plan in response to tough trading conditions, said it would further cut its goal for net shop openings this year to 24-26 from 30 in a bid to shield margins.

The weakness of the euro helped the maker of Miu Miu handbags achieve a 6.5 percent rise in first-quarter sales to 828 million euros ($929 million). But revenues were down 5.4 percent when stripping out the boost from currencies.

In particular, they fell 17 percent in the Asia-Pacific region, the group’s largest market, due to weak Chinese consumer spending as economic growth slows.

“Performance in this area has been affected mainly by the market conditions in Greater China, especially in Hong Kong and Macau, where the decline in Chinese tourist numbers, already seen in the second half of 2014, shows no signs of abating,” Prada said in a statement.

Chief Financial Officer Donatello Galli told an analyst call he expected a rebound in China in the second half of the year. But if current trends persisted, previous “indications of flat margins (in the full-year) could be a bit challenging.”

Weakness in the region that in recent years has been the luxury sector’s growth engine is a headache for other big brands too. Sales at Gucci’s own shops in Asia-Pacific fell 10 percent in the first quarter, the Italian brand’s owner Kering (PRTP.PA) said in April.

Prada’s net income fell to 59 million euros or 0.02 euros per share in February-April. Analysts polled by Starmine had forecast earnings of 0.04 euros per share.

Shares in Prada closed up 1.15 percent at HK$39.75 on Friday. The shares are down 9.6 percent so far this year compared with a 15.6 percent increase in the benchmark Hang Seng index over the same period.

Reporting by Valentina Za and Clare Baldwin; Additional reporting by Tripti Kalro; Editing by Keith Weir and Mark Potter

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