What's going on?

Fashion house Prada said it made less money than investors were expecting � and the shares got walloped: down 7%. They�re now down more than 40% this year � ouch!

What does this mean?

Luxury goods are experiencing their worst year since the immediate aftermath of the financial crisis (2009). But Prada seems to be doing worse than its competitors. It�s hampered by a high cost structure (Prada, darling, doesn�t scrimp on costs when doing things like opening new stores). It also has hardly any online presence with less than 1% of its revenue generated online. Other factors, like the slowdown in China (which had been a big driver of the post-crisis boom for luxury goods) and a general fashion move away from �status symbol� brands is hurting Prada as well as peers such as Louis Vuitton. It turns out that flaunting an expensive handbag isn�t as fashionable as it used to be�

Why should I care?

For the stock: Is Prada well-equipped for today�s luxury market? In addition to all of the headwinds mentioned above, Prada is still run by founding CEO Patrizio Bertelli (his wife is the eponymous designer Miuccia Prada). While his dedication to the brand, and its high costs, benefitted the company during the fashion boom � it�s unclear that he can lead the company in today�s more challenging luxury environment. The bigger picture: Currency has a big effect � on lots of things. Prada�s products are much cheaper in Europe than Asia. In fact, they�re a record 35% cheaper in Europe - and that�s partly as a result of the recent sell-off in the Euro. Like other luxury goods companies, Prada is going to raise prices in Europe so that European prices more closely match other markets (especially China). It�s one example of how the low Euro leads to higher inflation (rising prices) � which is one of the main goals of keeping interest rates so low.