By  on August 6, 2014

MILAN — Strong sales growth in some Asian markets and the Americas wasn’t enough to offset currency headwinds and a negative economic environment in Europe, which tempered Prada Group’s sales growth in the first half of the year.

The Hong Kong-listed company said Wednesday that consolidated net revenues in the six months ended July 31 rose 1 percent versus the same period a year earlier to 1.75 billion euros, or $2.4 billion. At constant exchange rates, the growth in revenues was 4 percent.

Figures are converted at average exchange rates for the periods to which they refer.

In a note released after the results, Citi analysts calculated that Prada, which didn’t publish separate second-quarter figures, saw sales in the three months ended July increase by about 5 percent, in constant currencies, on the year-earlier period, to 927 million euros, or $1.26 billion.

The performance was in line with its and consensus figures, Citi said.

Prada said turnover in the Asia-Pacific region in the first half was up 2 percent in the period at constant exchange rates, but results were mixed on a country-by-country basis. In South Korea, Hong Kong and Singapore, performance was weak, while China, which accelerated in the second quarter, notched up 12 percent growth in the first half, Prada said.

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“Other markets [in Asia] managed steady rates of growth,” the company added, with revenues in Japan jumping 19 percent at constant exchange rates.

In the Americas, Prada said the positive trend continues, with sales up 14 percent at constant exchange rates, sustained by both strong domestic consumption and tourist spending.

In Europe, turnover was down 1 percent — at both constant and current exchange rates — as the market was “penalized primarily by a fall in the volume of tourism and by the negative general economic environment, which has hit domestic consumption,” it said.

In the Middle East, sales jumped 21 percent at constant exchange rates.

In terms of channels, Prada said that wholesale recovered in the second quarter, growing 2 percent at constant exchange rates to 288 million euros, or $391.7 million.

Meanwhile, “in a market environment characterized by a general fall in consumption,” the retail channel, which represents more than 83 percent of the firm’s total sales, “held up well,” with revenues in the first half up 1 percent to 1.44 billion euros, or $2 billion. At constant exchange rates, revenue growth in the 566 directly operated stores was 5 percent, Prada said.

In terms of brands, the Prada brand saw sales increase 5 percent at constant exchange, and Miu Miu sales grew 7 percent. “Except in Europe, the [Miu Miu] brand continues to achieve high rates of growth in all markets,” Prada said.

Church’s and Car Shoe registered an expansion in sales of 12 percent and 3 percent at constant currencies, respectively.

The fashion house said clothing and footwear performed “extremely well,” registering revenue growth of 18 percent and 23 percent at constant currencies, respectively. Leather goods showed weakness, with sales decreasing in the period by 1 percent at constant currencies following “the fall in the number of tourists whose spending is more oriented towards this product category,” Prada said.

Chief executive officer Patrizio Bertelli said that, against the unfavorable economic backdrop in the first half of the year, the company has continued “to focus our efforts on medium/long-term growth.”

Bertelli added that “in the coming months, our priority commitment shall be towards monitoring market trends and performance without, however, interrupting the implementation of our plans for growth. At the same time, we will implement a rigorous cost-control program with the aim of protecting margins.”

Prada is scheduled to report full first-half results in September and Bertelli said that the company might also update its full-year guidance “in light of the results achieved in the first half of the year and with a clearer view of the outlook for the months ahead.”

In a meeting with investors and press in Milan in early April, Bertelli said guidance for 2014 included 9 percent sales growth, like-for-like growth of at least 3 percent and operating profit margins in line with 2013. Guidance for the 2015-16 period included 11 percent top-line growth, 5 percent like-for-like growth and improved operating profit margins.

In its note, Citi said that Prada’s current guidance “looks potentially ambitious in light of weak sales and earnings development” in the first half of the year.

However, Citi expects the group to be able to deliver a compound aggregate growth rate of 9 percent in sales over the 2013-16 period and said that it expects “best-in-class gross margin to improve further, to just over 75 percent by calendar year 2016 owing to favorable mix.

“In our view, the current share price probably represents an interesting entry point for any long-term investor looking for solid earnings growth, upside potential from Miu Miu and strong balance sheet/potential for capital returns,” Citi said.

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