Prada’s lacklustre full-year results dampens luxury retail’s positive run

Prada has revealed its lowest full-year profit since 2011, slightly tarnishing the recent positive run of the luxury retail sector lately.

For the full-year period ending January 31, Prada net income stood at €278.3 million (£236.1 million) while net revenues totalled €3.18 billion (£2.69 billion), a decline of nine per cent at constant foreign exchange rates.

Prada‘s retail sales fell 13 per cent at constant exchange rates to €2.63 billion (£2.23 billion), but the company, which is also a wholesaler, said there was progressive improvement in the second half of the year – especially in the final months.

Across Europe, trading conditions were mixed for most of the period and ended the year with a decline of five per cent at constant exchange rates.

However, the UK and Russia were Prada‘s only European markets to experience growth.

In the UK, this was driven by local consumption and tourists taking advantage of the weaker sterling while continued outperformance in Russia generated double-digit growth over the year.#

READ MORE: Louis Vuitton, Marc Jacobs, Bulgari parent company posts 15% sales growth

The rest of Europe was impacted by the decline in tourist flows, particularly in France, although in the final quarter of the year it improved significantly.

Prada was also hit particularly hard because of its over-exposure to China, aggressive store expansion, and a bloated cost base.

The Milan-based company said it was planning to hold its number of outlets steady, except for the occasional pop-up to create buzz.

The company has also significantly cut costs, with operating expenses falling 10 per cent in the year, which in turn helped operating cash flow increase 72 per cent to €632 million (£536 million).

“The Prada Group has delivered a satisfactory set of results in-line with market expectations for 2016, a challenging year of transition for the company,” chief executive Patrizio Bertelli said.

“Our offer has been enriched with products that stand out for their innovative style and quality, while at the same time we have also streamlined and rationalised the cost structure across all business lines.

“The retail strategy has shifted from geographical expansion to network rationalisation and digital integration. We have created new store concepts to enhance customer experiences, with initial encouraging results.

“To integrate the retail and online channels, we will continue to dedicate significant resources to developing an omni-channel offer, through the roll-out of our global digital platform, collaboration with e-tailers, and in-store digital integration.

“With this goal we have built a new team that will bring further expertise to the group‘s digital strategy.

“I am confident that our creative vision combined with investment in online and offline engagement with our customers put us firmly on the path to sustainable growth.”

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