Prada shares rise as market takes heart from shop opening slowdown

By Astrid Wendlandt

PARIS, Feb 23 (Reuters) - Shares (Frankfurt: DI6.F - news) in Prada rose 4 percent on Monday after the Italian luxury goods maker posted in-line fourth-quarter sales, relieving many investors who had braced themselves for weaker numbers.

Investors also took heart from the fact that Prada opened fewer stores in 2014 than it said it would -- 54 against 80 initially, implying less pressure on margins than expected.

Prada opened 250 shops in three years, many more than its peers, taking on expensive leases and fixed overheads at a time when demand for its products started to fall.

"We see this as being good news," Alessandro Migliorini, analyst at Mirabaud Securities said about the shop numbers.

"Prada needs to get the collections right and get the brand heat back on before they accelerate store openings again."

Prada shares rose more than 4 percent in morning trade in Hong Kong and by 1217 GMT, they were up 3.87 percent.

Prada, which also owns the Miu Miu and Church's brands, has been one of the worst performers of the luxury goods industry in the past two years.

Since Jan. 1, the shares are down 3 percent while the European luxury goods sector has gained 9 percent. Last year, the stock lost 36 percent when the sector was up 4 percent and in 2013, it was down 7 percent while the sector rose 15 percent.

Like rivals LVMH's Louis Vuitton and Kering (LSE: 0IIH.L - news) 's Gucci, Prada has pursued a brand elevation strategy, boosting its offering of bags starting at 1,500 euros and disappointing customers looking for 500- to 800-euro Prada items.

Kering has just changed Gucci's leadership and pledged to strengthen "entry-level" products which he admitted having overlooked.

Many analysts said Prada had invested too much in glitzy new shops and too little on innovation, particularly in leather goods where it makes the bulk of sales and profit.

Customers who can discuss brands far more extensively thanks to the Internet will readily abandon those seen as resting on their laurels in terms of creativity.

Exane BNP Paribas analyst Luca Solca said of Prada: "Remedial action is still in progress and may take more time -- which has prompted Prada to largely miss the recent luxury goods sector share price rebound."

Prada's fourth-quarter sales to Jan. 31 showed a slump in demand in newly wealthy and fashion-conscious cities such as Hong Kong and Macau due to political protests.. (Reporting by Astrid Wendlandt; Editing by Ruth Pitchford)