Shares of Prada Surge Thanks to Demand in China

Prada shares surged by 14% Monday after the maker of luxury goods based in Italy announced that it reversed its sales declines during the second six months of 2017 and was expecting to see a continuation of growth in 2018.

Criticized for being slow in responding to the latest trends, especially for informal clothing and shoes, Prada saw its profit drop since 2014 even as its competitors such as LVMH and Kering boosted their sales. Its core profits fell in 2017 by 7.3% to end the year at €588 million.

New products, which are estimated to be 60% of all offerings, along with a strong demand from consumers in China, helped the company to pull out of its grey area, said an official statement the company released.

The stock, listed in Hong Kong, was up HK$37 on Monday adding over $1.5 billion to the company’s market capitalization.

The company said it enjoyed double digit growth in organic sales across Greater China during the second six months of 2017 and January of 2018.

Prada receives more than 30% of its revenue from consumers from China both home and abroad. It is looking to make its brand even better known in China through a new residence project for exhibitions and fashion shows in Shanghai, and has invested more in its e-commerce business, which is an area that it lagged behind rivals.

It is appointed a new digital director for its global online network in 2017 to help drive sales globally, a change from four years ago; when Patrizio Bertelli the CEO said the company would focus on its brick and mortar stores but since has hooked up with bloggers across China to attract a younger consumer base.

One analyst in Hong Kong said he believes the worst is behind Prada and raised his stock rating to buy noting that the company’s forecast for sales growth of the mid to high single digits for 2018 was above estimates made by the market.

Prada is one of a few luxury goods brand that is available to invest in on the Hong Kong exchange which has helped to spur on its large gains Monday, said on Hong Kong analyst following the stock.

Consumers in China have started to return to making purchases of luxury items as the middle class continues to grow and more and more consumers have more extra cash to purchase the types of luxury items Prada offers.