PRDSY Prada Spa (PK)

By Manuela Mesco 

MILAN--Italian fashion group Prada SpA saw sales and profit decline sharply in the first half of the year as a company reorganization and new products have yet to bear fruit.

The firm's first-half revenue fell 15% on the year, to EUR1.5 billion ($1.69 billion), declining in all geographical areas. Net profit fell almost 25% on the year to EUR141.9 million, while operating profit fell 27% to EUR213.7 million.

Leather goods, once the growth engine of the company, saw the sharpest slowdown in the first half, as sales fell 22% on the year.

Sales in the Far East fell 22%, while in Europe they declined 20%, pulled down by a fall in tourists in the wake of terror attacks.

One exception was the U.K., where sales were boosted by the decline in the pound following the British referendum in June to leave the European Union.

After years of double-digit annual sales increases, the Hong Kong-listed house has seen revenue growth slowing in the past two years, culminating in the decline seen Friday.

This has prompted a strategic review at the Milan based house, resulting in fresh efforts to attract younger customers, cost cuts, refurbished stores and an overhaul of its product lineup.

But new bags introduced in recent months in an attempt to revive customers' interest--the Prada Cahier and the Miu Miu Dahlia, for instance--have yet to revive sales. Meanwhile, cost-cutting measures in areas such as advertising, sales and overhead weren't enough to support profit.

As the firm tries to attract younger customers, it is also finally embracing e-commerce--a shift after years in which Prada expressed skepticism about online sales. According to Luca Solca, analyst at Exane BNP Paribas, online sales make up less than 2% of Prada's total.

The first steps to strengthen e-commerce have recently been adopted with new partnerships with e-tailers such as Net-a-Porter and mytheresa.com.

"We're now setting a target of doubling online sales every year for the next three years," Chairman Carlo Mazzi told analysts. In particular, an online sales platform will be launched in China, Hong Kong and Singapore by the end of 2017.

Prada, which also owns the Miu Miu and Church's brands, is additionally planning changes in its store network. While some stores in less desirable locations will be closed, new ones will be refurbished to refresh the company's image and offer a better shopping experience to customers. For instance, new stores will have rooms dedicated to individual customers who want more privacy, the company said.

The fashion firm is also revising its price structure, particularly for handbags. It recently had focused mainly on the higher price range--above EUR2,000--but sales weren't growing enough to offset the lagging popularity of its less expensive bags, where the competition is particularly harsh.

"We have to cover all price ranges," said Stefano Cantino, head of marketing at the firm, "because there are a lot of opportunities in each of them."

Despite the profit and revenue decline, the company plans to return to growth by the end of the year as it continues to work on cutting expenses and increasing sales.

Write to Manuela Mesco at manuela.mesco@wsj.com

(END) Dow Jones Newswires

August 26, 2016 11:41 ET (15:41 GMT)

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