Prada shares soar as China demand spurs return to sales growth

Shares in Prada surged 14 percent on Monday after the Italian luxury goods maker said it had stemmed a slide in sales in the second half of 2017 and it expected to see growth continue this year.

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 have boosted sales. Core profit dropped 7.3 percent last year to 588 million euros.

New products, estimated to be about 60 percent of its total offerings, as well as robust demand from Chinese consumers, had helped to pull the company out of a 'grey area', it said.

The Hong Kong-listed stock jumped to HK$37 in Monday trade, adding $1.5 billion to its market capitalisation. At one point it climbed as high as HK$40.

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, said in a conference call on Friday.

Prada generates over 30 percent 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 luxury brands available to invest in Hong Kong which helped spur its dramatic gains on Monday, said Alex Wong, a director at Ample Finance Group in Hong Kong.

“We are quite bullish on luxury segment overall, particularly when China continues to lead the growth,” he added.