Prada’s Turnaround Efforts Overshadowed by Deep Sales Slump

(Bloomberg) -- Prada SpA’s sales slumped in the first six months of the year as the coronavirus pandemic shut stores and dealt a blow to the Italian luxury brand’s turnaround efforts.

Net revenue dropped 40% at constant exchange rates to 938 million euros ($1.1 billion), the company said in a statement on Wednesday. Analysts had expected 1.01 billion euros.

Prada joined luxury rivals LVMH and Kering SA in reporting plunging demand as the pandemic forced stores to shut down in key countries such as China and the U.K. As many as 70% of the company’s shops were closed in April, but Prada pointed to “ongoing recovering sales trends, with significant growth in Asia as well as encouraging signs in other markets” as they reopened.

The Covid-19 outbreak overshadowed the Italian brand’s efforts to reduce its sales via wholesalers in order to better control pricing for its Prada and Miu Miu handbags. The company is also ending seasonal discounts in a bid to improve the desirability of its products in the eyes of the consumer, measures meant to boost the company’s margins.

Luxury brands are finding it difficult to slash costs as fast as revenue is falling because of their heavy fixed-cost base. Prada reported a first-half loss of 83 million euros before items including interest, taxes and expenses related to the pandemic store closures.

Investors will be watching signs of the recovery trends. Prada said it experienced double-digit growth in the Asia Pacific region in June.

Some of Prada’s turnaround measures are already paying off, notably when it comes to social media engagement with shoppers. Data from Instagram shows a “meaningful inflection” with likes per post up 24% year on year which is accelerating the brand’s momentum, UBS analysts wrote in a note on July 3.

©2020 Bloomberg L.P.