Prada SpA
HKEX:1913
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
40.95
66.15
|
| Price Target |
|
We'll email you a reminder when the closing price reaches HKD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Prada SpA
Earnings Call Analysis
Q2-2023 Analysis
Prada SpA
Prada Group has started the first half of 2023 with a bang, boasting net revenues of €2.2 billion, marking a 20% increase over the same period in 2022, at constant exchange rates. Retail sales shot up by 21% to €1.975 billion against H1 2022, showcasing a remarkable 54% surge compared to H1 2021. However, foreign exchange rates did put a dent in net revenues, reducing the growth rate to 17% at the current rates.
Prada has maintained a selective approach with independent wholesalers, which balanced the significant growth in the Duty-Free Shop (DFS) channel. The strategy has been especially beneficial for fragrances and eyewear, with royalities growing by a striking 66% year-on-year.
Prada brand, a major contributor with 85% to Group retail sales, experienced an 18% jump in revenues in H1. Meanwhile, Miu Miu went above and beyond, achieving a 50% growth in retail sales for the semester — a testament to the brand's strengthening identity and increasing visibility.
Retail sales saw an uptick across most regions, with Asia-Pacific climbing by 25%— largely due to the performance in Mainland China, Hong Kong, and Macau. Europe also continued its upward trajectory with a 24% increase in retail sales, whereas Japan leads with a significant 49% growth, capitalizing on Prada Group’s strategic investments and strong domestic demand.
All product categories charted double-digit growth, led by Ready to Wear at 36%, Footwear at 20%, and Leather Goods at 12%. The focus on iconic items and enriching collections contributed to this broad-spread acceleration in growth.
Amidst all this growth, Prada Group managed to keep a tight lid on operational expenses (OpEx), which increased by 15% at constant exchange rates. Even so, net income leaped by 62% to €306 million compared to last year, suggesting astute cost management and robust profitability.
The Group has not been shy about investing in its future, channeling €151 million into capital expenditure (CapEx) to enhance retail, IT, and industrial infrastructure, including managing around 70 renovations and relocation projects. Despite these significant investments, net working capital only saw a modest increase of €32 million due to effective inventory control.
Prada concluded H1 with a robust net cash position of €283 million and generated an impressive €509 million from operating activities—a substantial jump from €321 million in H1 2022, painting a picture of a financially secure and operationally effective company.
The company is gearing up to amplify its desirability and reinforce its brands' cultural roots with targeted investments in branding and storytelling. Their approach aims to marry prudence with agility in an ever-changing world. They have already seen a transformation in productivity and brand perception, thanks to initiatives started over the last couple of years.
Looking forward, Prada Group is optimistic, expecting to outpace industry averages thanks to its strategic initiatives. The company is ready to set new milestones for its Prada and Miu Miu brands, which could translate to continued success in the upcoming months.
You don't have any saved screeners yet
Good day and thank you for standing by. Welcome to Prada Group First Half 2023 Results Presentation. [Operator Instructions] And please note that today’s conference is being recorded.
I would now like to turn the conference over to Mr. Andrea Bonini, CFO. Please go ahead, sir.
Good afternoon, everyone, and thank you for joining the Prada Group’s half year 2023 Results Conference Call. I am Andrea Bonini, Chief Financial Officer of Prada Group, and I’m delighted to be with you again. Alongside me today is Mr. Patrizio Bertelli, Chairman of the Board and Executive Director; Andrea Guerra, Group CEO; and Lorenzo Bertelli, Marketing Director and Head of CSR.
Mr. Patrizio Bertelli will start today with Group highlights for the first half of 2023, followed by Mr. Lorenzo Bertelli, who will provide an overview of our marketing and communication activities and an ESG update. Mr. Guerra will then give you a business update, and I will provide details on our financial performance before Mr. Guerra signs off with some closing remarks.
As a reminder, certain information to be discussed on today’s call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. Please refer to the disclaimers including on Slide 2 of our presentation.
With that, I will hand over to Mr. Bertelli.
Good afternoon, and welcome to the presentation of the results for the first half year of the Prada Group in 2023. I would like to start by providing a quick update on the six months we just finished that have posted solid results, thanks to the strong identity of our brands and the careful execution of our strategy.
We followed up the solid performance of the first quarter with a positive trend in the second quarter as well. And the half year was closed in a growth, which was significant and well balanced with net revenues equal to €2.2 billion and retail sales that are up 21%.
We are happy with the quality of our growth, organic and driven by full price sales with Prada on a robust itinerary and Miu Miu in a significant progression throughout the half year. The Group’s profitability is further improved with an EBIT margin outstanding at 22% of revenues. At the same time, we continued to consolidate the attractiveness of our brands and increase our investments to support them.
We accelerated the renovation of our retail network that allows us to improve store experience for our clients and improve productivity. Finally, we increased our industrial investment in order to expand our production capacity and to allow a greater and greater control of quality, sustainability and industrial know-how.
In this framework, we also have to notice the acquisition of a minority stake in Fedeli, another excellent Italian company that we’re very happy to collaborate with for future development.
Let me now yield the floor back to Lorenzo, who is going to illustrate the main initiatives in marketing and sustainability. Thank you.
Thank you, and good afternoon. Our focus on enhancing our brand’s potential through creativity and dialogue with our clients enabled us to maintain excellent brand momentum, both at Prada and Miu Miu. Prada continues to resonate with a strong increase of market share in search engines, fueled by the excellent reception of both Prada Menswear and womenswear shows.
The success of both iconic and new products and campaigns like The Glass Age that creatively interpreted and celebrated the Prada Galleria bag, reflecting on a strong performance during the period. Strategic partnerships were again key to reach new audiences, such as with the Adidas Football for Prada collection.
Throughout the semester, the brand presented a number of successful activation to elevate the brand experience for our clients, including dedicated events to Eternal Gold fine jewellery collection worldwide, consolidate format like Prada Extends which landed in Bangkok, Prada Mode in Tokyo, and the opening of the very impactful Prada Caffe at Harrods.
Moving on to Miu Miu, the stronger identity of the brand, its increasing visibility confirmed by an outstanding performance with plus 39% web search grow in H1 2023 versus 2022 and we support it by target investment in local activation and events that amplify the brand awareness and connected Miu Miu with the constantly growing community at global scale.
The marketing strategy remains focused on reinforcing brand codes with a constant flow of contemporary collection paired with exceptional talent, fueling desirability across all categories. An example can be seen in the last campaign dedicated to the Wander and recently launched Arcadie bags. We celebrated the iconic Matelassé Leather.
Now we’ll turn to ESG, which continues to be a long-term value driver for the Prada Group. Halfway through 2023 we are on track with our strategy and continue to build upon the foundation put in place in the past couple of years. Having strengthened our sustainability governance in the industrial department, the key priority for this period has been progressing on building a responsible supply chain.
To reduce Scope 3 emissions, we also plan to engage a number of selected suppliers to improve their environmental performance alongside a multi-stakeholder global initiative. In addition, I strongly believe that real positive impact needs to come from collective action. This is one of the reason that I’m proud announced today that by 2024, Prada Group will be a signatory of Zero Discharge of Hazardous Chemicals. This aims to eliminate harmful chemicals from the fashion industry global supply chain.
Water conservation is one of the critical challenges facing the world today and the fashion industry has an important role to play in this area. A few weeks ago, we announced a new enhanced partnership with IOC/UNESCO for SEA BEYOND. We pledge to donate 1% of the proceeds from Prada Re-Nylon collection to expand the training program on ocean preservation, support ocean-related scientific research and humanitarian projects.
Thank you. Now, I will now pass over to Mr. Guerra for the business update. Thank you.
[Foreign Language] Let me give you a general comment on this first six months. We are happy of our ability to serve during this first six months of 2023, and we’re very happy to finish at plus 20% on top of a similar trend one year before.
2023 is a strange year. It’s a year where it will remain and has already been challenging from a month-to-month comparison; Asia closing down, Asia reopening. Second half will again, will be a little bit awkward from this point of view. So, we have to guide you, and on the other side, we all need to know that 2002 [Ph] was yet the finishing of that long COVID period with a lot of ups and downs.
If we look to our brands, I would love to start with Prada, obviously. Another great successful six months. We are and we’ve always been and we will always be investing money and brain and heart and focus on what the brand stands for. We will constantly being very careful to well interpretate cultural and social movements worldwide. We think that everything starts from there and everything goes back to that. So, anything we will do will never shortcut the routes, the interpretation, the attitude of our Prada brand.
We had great six months on top of another great 12 months. And obviously, we are leaving today another good period, obviously in front of the biggest peak for 2022. We all remember last summer, a great touristic summer in Europe with, I would say, a huge rich American tourism wave, which is happening again, but obviously, you are going towards that peak.
Everything we have launched so far had great reception. Even our newly launched fall and winter collection that has gone up in the last 10 days across the world, is still receiving very positive reception by our loyal consumers.
On the other side I think that today is also one of those periods where we see the difference of Prada because consumers are also asking to Prada, buy-now wear-now. And yet for the next six weeks, we will be highly focused on this part of the business as well.
Obviously, when we are looking today to the different parts of our business, Miu Miu is really reaching an excellent brand momentum globally. Obviously again comparison is difficult, comparison is complicated, but for sure the beginning six months of 2022 compared to 2023 were easier.
So, we had an easier comparison for Miu Miu, obviously, and this is where we are largely focused today, percentages are important, absolute value sometimes are even more important. We are incredibly happy to see the absolute value of weekly and monthly revenue we’re reaching nowadays, which look very promising for the future.
For Miu Miu, image is sharp. Identity is easily readable, and really all product categories are today very well admired. And the last improving part of the business really improving is our Leather Goods side. So, growth has been balanced globally. We have gone on product range in a very balanced manner across the world, and I would say that the major part today is really getting the team ready for the future milestones of Miu Miu evolution. So, we are closing this first 6 months on a happy note. On the other side, there is a long way to go for 2023.
And please, Andrea take us through the details of this first six months.
Thank you, Andrea. I’d like to start with the key financials on Slide 13, showing the solid growth and improved profitability of the Group over the 6 months period. The Group reported net revenues of €2.2 billion, up 20% versus H1 2022 at constant FX. Exchange rates had a negative impact on net revenues of 310 basis points or circa €58 million for an increase of 17% at current exchange rates.
Retail sales for the period reached €1.975 billion, up 21% versus H1 2022 and plus 54% versus H1 2021 at constant FX. EBIT reached €491 million in H1 2023, with margin of 22%. This is a marked improvement versus the 17.4% of EBIT adjusted in H1 2022 and it has been achieved notwithstanding an increase in discretionary A&P expenses. On cash position, stood at €283 million at the end of June with continued improvement year-on-year.
Next slide, net revenues by channel. Retail continues to be the engine of growth in the semester, up 21% versus H1 2022 at constant FX, driven by like-for-like full price sales and with a positive contribution from both average price and full price volumes.
In the second quarter, retail sales increased by 19%, building on a strong first quarter at plus 23%. On wholesale, we kept our approach selective with independents, which partially offset the sustained growth we saw in the DFS channel. Strong growth from both fragrances and eyewear continued with royalties at plus 66% year-on-year.
Slide 15, retail sales by brand. Prada, which accounts for 85% of Group retail sales delivered plus 18% growth in the half. In the second quarter, revenue growth increased by 15% with a more moderate but solid pace compared to the plus 21% of the first quarter, on a high basis of comparison with the exception of China.
Growth was well balanced across product categories and double-digit growth was seen across all regions, excluding the Americas. Miu Miu reported retail sales growth of plus 50% in the semester, with the second quarter in further acceleration at 57% versus 42% of the first quarter, an excellent performance also supported by the higher exposure to China and Asia.
Slide 16, retail sales by geography. The Group delivered double-digit growth across all regions, excluding Americas in the first six months of 2023. Asia-Pacific saw retail sales up 25% in H1 2023. Thanks to the acceleration in Mainland China, Hong Kong and Macau, supported by the low basis of comparison of 2022, when China was affected by heavy restriction in April and May then lifted from June.
In the rest of Asia, we saw a softer performance in Korea, where we were also impacted by the temporary closure of our flagship store in Cheongdam, Seoul. And Southeast Asia growth normalized against very challenging comps.
Europe continued to register elevated growth in the semester with retail sales up 24%. Despite the very challenging comparatives, Europe has continued to display solid trends, supported by healthy local demand and high level of tourism.
In the Americas, H1 23 retail sales ended substantially flat. However, the North American client cluster that has been showing strength for a prolonged period continued to grow throughout the semester, including in the second quarter.
Japan was the best-performing region in the six months, up 49%, benefiting from the Group’s recent investments in the retail network and a strengthened organization, successfully capitalizing on strong brand appeal, solid domestic demand and increasing tour inflows. Middle East also delivered a solid growth performance, up 14% year-on-year.
Page 17, retail sales by product. At Group level, we saw continued double-digit growth across all categories, with Leather Goods plus 12%, Ready to Wear plus 36%; and Footwear plus 20%. In Leather Goods the focus on icons and further enrichment of the collections drove well-spread growth across new products and Classics.
Ready-to-Wear continued to be our fastest-growing category and Footwear also saw continued growth, driven by both lifestyle and formal collections.
Page 18 on gross margin. Gross margin reached 80.3% in half year 2023, showing 260 basis points improvement on the same period of the previous year, mainly due to average price, channel mix, economies of scale and the reversal in the trend of logistic costs, which more than offset the inflationary pressure on other costs and negative FX impact. Improvement vis-a-vis H2 2022 is more limited, as anticipated.
Page 19, EBIT and net income. During the semester the Group generated EBIT of €491 million at 22% of net revenues, up by 49% against the EBIT adjusted margin of 17.4% in H1 2022. As a reminder, EBIT margin was 16% in H1 2022, whereas there were no adjustment for non-recurring items in H1 2023. This profitability improvement was achieved notwithstanding higher communication and marketing investments.
Overall, OpEx increased by 15% year-on-year at constant FX, and our focus going forward will remain on investing behind the brands and at the same time, further moderating OpEx growth in other certain areas. Net income was up by 62% on the same period last year at €306 million.
Page 20, CapEx. CapEx for the first half of 2023 was €151 million as we accelerated investments in retail, IT and our industrial infrastructure. Over the period, we managed around 70 renovations and relocation projects, which accounted for the majority of total retail CapEx. Excluding retail, of the remaining €56 million CapEx, €22 million related to industrial CapEx and €27 million was IT CapEx. We plan to further accelerate investments this year, as conditions allow.
Page 21, net operating working capital. Good control of inventory meant net working capital increased in absolute value by €32 million. And overall, net operating working capital slightly declined as a proportion of sales to 16%.
Page 22 on net financial position. The Group retains a strong balance sheet with a net cash position of €283 million as of June 2023. As it was the case last year, we would expect this to be the low point since it follows payment of dividends and taxes, which in June include both the tranche of the deposit for the current fiscal year and the balance of 2022. Cash flow from operations improved substantially to €509 million compared to €321 million in H1 2022.
And with that, I will hand over to Andrea Guerra for his closing remarks. Thank you.
Now, let’s look to the remaining part of the year. Thank you, Andrea. Let’s look to the next six months. So first of all we’re going to invest more on desirability and strengthening cultural roots for our brands.
We feel this is the right moment to do it. We have the ideas, we have the dreams, we have the projects, and we will do it in the most appropriate manner, always vigilant, always agile as this new world day-by-day folds and unfolds. So we feel that time has arrived to really commit more to our brands, to our stores in terms of investments, CapEx and communication.
On the other side, as we all know, we are working in many different directions. We have been discussing frequently on the work that we have to do, and we will continue to do on our store network and productivity. Since the day of Investors Day a couple of years ago, we have begun that journey. And on both brands, the journey began; training indicators, measurements, improvement of people, incentives, and then going back and restarting from scratch on training indicators.
So we have begun all the routines and you have to analyze and observe, and this is easily seen that the performance and the result of our Prada brand and Miu Miu brand are basically like-for-like for the past 24 months. So, we are already seeing a big and great improvement. So, it’s already there. It’s not that we have to start the journey. The journey will be long, and we love the fact that there is a benchmark to look at. But it’s a journey, it’s a cultural evolution, and we are all well-equipped.
The next six months, or better the next five months because July is basically over, we have, again, strange comparisons. We had a period of great business throughout the summer with a lot of rich tourism across the world, mainly from Americans last year. Then we had a slowing down of United States after three years of great growth. Then we had Asia or better China that closed down some cities in different weeks.
So, again, sometimes it’s easier, sometimes it’s better to look at absolute values to what we can reach in terms of rather than constantly look into percentage increases. But, we are, I think, very well equipped to do another great six months. We hope and we think that we will be above industry average, and therefore, let’s live together and let’s try to have other great milestones with Prada and Miu Miu brands.
Thank you for listening up to now, and I would turn now the work to you and ready to answer your questions. Thank you.
Thank you. [Operator Instructions] We are now going to proceed with our first question and the questions come from the line of Susy Tibaldi from UBS. Please ask your question.
Good afternoon to everybody. I have three questions, and I will ask them one by one as was requested. The first one, can we spend a little bit of time talking about the growth with the various nationalities? We already heard from many of your peers. So, I would like to check if you’re seeing similar trends. So Americas, you said positive in Q2. Can you be more specific? I would assume it slowed down a bit from Q1. Chinese, what was the growth in Q2 compared to 2021? And was it in line with Q1? And the European locals are they softening a bit year-on-year? That’s my first question. Thank you.
I will ask Andrea to answer to your question.
Hi Susy, Andre Bonini. On North Americans, that is correct. It was positive throughout the semester, it was also positive in the second quarter. And I would add that it was in the low double digits in the second quarter as well, fairly consistent throughout the semester.
For Asians, and I think that in particular you’re referring to Chinese. What I would say is, once again, very positive as you know on last year. And when we look at our growth rate in the APAC region, you can assume that Chinese is well above that rate. And vis-a-vis 2021, we have once again solid double-digit growth in the semester.
And the last point is on Europeans. And Europeans yes, it is indeed, let me say normalizing, but very solid, i.e. demand in Europe is, as you know, very much sustained by tourists and travelers. But at the same time, we are continuing to see very solid demand also from the domestic, from the locals.
And next question, please.
Okay. The second question would be on the profitability, how to think about it going forward? Because Prada as a group, you’re one of the few groups that still has a lot of operational leverage potential. So I was wondering if you can help us a bit to understand the equation because at the CMD previously was €4.5 billion sales with 20% EBIT margin. Last year, you already achieved 20% with the €4.2 billion. So let’s say eventually when you get to €5 billion in sales, what sort of EBIT margin will correspond to that? Would it be around 25% a reasonable assumption?
So let’s put it this way. Obviously, as you’re saying, we have an opportunity of let’s call it, a scale effect. And no doubt, as you are seeing us growing, we are seeing the bottom line and that is pretty clear. And that is in a journey will continue -- on the other side, I think that the commitment, as we were saying in our closing remarks in being and building bigger infrastructures and bigger communication effort that will slow down a little bit that scale effect.
But having said so, obviously, if we continue with this kind of growth, we will continue to see a kind of EBIT growth as well. I always say I am less worried about this, and I’m more into making sure that we have a constant, fantastic, healthy growth in revenues. That is our major focus today.
Andrea, do you want to add anything else?
I can add something on the current year. We are -- what I would add is that we are pleased with the 2% increase in EBIT margin that we’ve delivered vis-a-vis the fiscal year full year 2022. What I would say in terms of how we think about the second half of the year; first, a comment around gross margin, which is at best-in-class level, but when you see in terms of increase vis-a-vis the end of 2022, that’s much more modest than the increase versus the first half of 2022.
And that’s because average price, I mean, the impact of that is moderating, you have a scale effect that is still positive. You have, overall, a mix that is still positive, but you have logistic costs that impacted last year significantly given the massive increase that we saw that, have at this point, largely normalized. So, what I would think is our objective is for the rest of the year to keep it around 80% and we’d be very pleased with that, because as I said, I mean, we see it as a best-in-class result.
So, when we move from gross margin to EBIT margin, the priority for the second half of the year is investing behind the brands, which doesn’t mean that we would be happy of going backward from where we are now, from this 22%, but the priority is to invest behind the brands.
Okay, that is very clear. And one last quick one. I was wondering if you’re planning to do another Investor Day or Capital Markets Day at some point this year or next year or if maybe you’re waiting for some news on this dual listing? And if the line of thought is always the same, i.e., the family does not want to dilute or increase the free float?
We’ve got no update on this. So we will -- as soon as we got news, we will tell them to you.
Okay, thank you very much.
I’ll add one -- I’ll add just one point on the dual listing, which is from a technical feasibility standpoint, we’ve done the work. And I’m sure you’ve also seen that another company has already tested the infrastructure in Italy. It is in our agenda, but we said from day 1 that it isn’t a priority for us at the moment. And as Andrea said, the focus is very much on the strategic, organizational and digital evolution of the Group.
Next question please.
We are now going to proceed with our next question and the questions come from the line of Thomas Chauvet from Citi Research. Please go ahead with your question.
Good day, good afternoon everyone. Two questions, please. The first one on the retail trends by brand. Could you comment obviously on the sequence between Q1 and Q2, the Prada brand slowed down a little bit. Andrea, you highlighted a few geographies, while Miu Miu accelerated sequentially. Can you comment whether that was also related to perhaps some weakness in the Prada brand Leather Goods business, which they’ve all had a good business, is still down sequentially? That’s my first question, please.
So, I mean, I understand the fact that we have to -- we got two brands and so we compare the two brands. But obviously, each brand has its own life, has its own destiny, has its own growth patterns. I would say, and to give you a simple question, there is a difference in geographical coverages and exposures.
Miu Miu is much more exposed to Asia, and therefore, we got this kind of result. On the other side, if we have another opportunity for Prada, it’s for sure in that part of the world. Obviously, I’m talking about China, especially. So I think that this is really giving us further direction on the work we have to do.
In general terms, I would say that after some years of rethinking, re-engineering, re-positioning, re-giving an identity to Miu Miu, it’s now basically 24 months of a growing and speeding up performance of the brand, the coolness of the brand is there, the contemporary of the brand is there. And I think that we are seeing the performance today, and I think that we have really an opportunity to have a long-term journey.
And my second question on Japan. I mean, you seem to be enjoying the strongest growth in the sector. Here, it’s local demand, it’s tourists. You mentioned in the release, recent retail investment, but I see the store count is unchanged versus last year at 86 U.S. So can you confirm it’s all like-for-like? What is the share of tourists in Japan in the first half? What is the latest price gap also between, let’s say, China and Japan? And what lessons from the Japan success could you implement to other maybe slightly weaker markets that you have in Asia to try to benchmark perhaps?
Obviously, we’re discussing about very different markets in -- on that side of the world. I think Japan run on its own the history, the strength, the equity of the Prada brand in Japan since ever has been incredibly high, incredibly strong and the feeling about Japanese brands on the brand has always been of great love. The work done in the last 24, 36 months in Japan in getting some of the pillars back to where they had been, I think, proved right as in Europe, as in Middle East, as in many other different parts of Asia, and therefore, I think that this is the result.
And it’s not a negative performance in China. I would like to be very clear on that. I mean, you were asking about the difference in growth between Prada and Miu Miu. And I told you that, that is the difference between Prado and Miu Miu. But Prada is enjoying a fast-growing pattern in China. Then if you ask me, in absolute terms, in strategic terms, do we have further opportunity in China? Yes, we do.
And what’s the share of tourists in Japan in the first half?
Very little.
Very little.
And maybe you -- yeah very little, 5%.
Only 5%?
Yes.
Maybe if I can squeeze just a follow-up for Andrea Bonini. You commented on the H2 margin outlook that you hoped the margin will not decrease year-on-year. If I look at the last 6, 7 years before COVID, your EBIT margin in the second half is generally actually lower -- slightly lower than in the first half. Given what Andrea Guerra said about in his closing remarks about investing more in the brand in the second half. I mean, does it make sense to think your EBIT margin in H2 might be lower than 22%, even if you continue to grow in double digits?
Well, no. I think one -- I think it’s a little bit more than hope that we’re not going to -- the EBIT margin is not going to decrease in the sense that what I said is we wouldn’t like it to be -- to go backward from where we are, so it means that we will do our job to make sure that it doesn’t go back.
Having said that, as you know there’s a number of variables, including top line growth and others. But our objective is -- our target is not to go back. So, it’s more than a hope. And if you start from that, it also means that we shouldn’t go backward to keep it at least at the same level vis-a-vis the first half. And historically I’m not sure I can actually reconcile that point that in the second half, the EBIT margin was lower.
That was the case in 5 or 6 years before COVID, but slightly lower.
5, 6 years before COVID, I’m sorry, but I’m not sure that I can recall the numbers also because I was doing something else. But anyway, it’s -- again, last year it wasn’t the case. And every year it’s different, also depending on, again, how much you decide to invest and so on. But I’ve told you what we plan -- what we aim to do.
Thank you very much Andrea.
Thank you. Next question.
We are now going to take the next question and the questions come from the line of Edouard Aubin from Morgan Stanley. Please go ahead.
Yes. Good afternoon. So my first question is regarding Q2 sales growth. So most of your peers in the luxury space have posted an acceleration between Q1 and Q2 as China reopened. You have posted -- I know it’s a small deceleration but still it’s a deceleration sequentially. I think you were fairly upbeat in April about when you reported Q1 sales. So, has the performance in Q2 come in kind of in line with your expectation or was it a bit below what you were expecting back in April? And if so, which geographies were below expectation. Thank you.
As we were saying before, this is a complicated year in terms of performance. So sometimes it’s also good to look at absolute values. We are happy of this second quarter of Prada. Obviously, we’re very happy about Miu Miu. As I told you the exposure of the different brands in the different geographies at the end make a mathematical effect, which is this. But in terms of -- if you take all other geographies, I think we have gone well above industry standards and industry averages.
Thank you. And if you -- and a follow-up for Andrea Bonini, you gave us some indication on the growth by nationalities, but some of your peers who’ve commented over the past few days were actually kind of quantifying a bit things, specifically on Chinese. Would it be possible to give us a rough idea of Q1 and Q2 on a 2 year stack, if you look at the Chinese nationality to what type is that an acceleration, a deceleration that would be helpful and for Koreans as well, that would be super helpful. Thank you.
On 2-year stack, very consistent between the first quarter and the second quarter, Chinese. But we’re not going to quantify it just because we usually don’t and we’re not going to start now. I believe I said before, it’s in double digits.
Okay. But -- so your point is that Q1 and Q2 2-year stack was more or less similar in terms of trends?
Correct. Yes, correct.
Okay. Understood. And my last question is on Leather Goods. I think if I’m not mistaken, it was 47% of your retail sales in H1. You’ve kind of talked about a target long-term about 60%. And I know you’ve made it clear that it would be gradual and so on. I think if I’m not mistaken, the share diminished a bit in H1. Obviously, that’s a function of Ready-to-Wear doing very well. And I guess my question is, do you need to create kind of a 1 or 2 new pillar in terms of bags in order to achieve your kind of long-term target or can you achieve that with your existing offer? Thank you.
Honestly, we are happy of our assets. Our offer is proper. And as we said, there are things that can go faster. There are things that will take time. We got no hurry in establishing things which are so critical for us in the long term. We will make it, and we will all be happy about it. Really, there is little anxiety on this.
Okay, thank you.
Thank you. Next question, please.
We are now going to proceed with our next question and the questions come from the line of Aurelie Husson-Dumoutier from HSBC. Please go ahead with your question.
Yes, good afternoon everyone. My first question is on current trading. Putting the comparison base changes aside, could you comment on the trends that you’ve seen in July? And how they differ from Q2? Thank you.
So, I would not say that there are major differences in the trend. Again, there are some changes here and there because of some festivities that are moving around, especially in China. But I wouldn’t say that there is a significant difference in terms of trend, in terms of absolute values. And we have a little improvement in United States as well, considering the fact that the deceleration of United States began at this time last year, basically.
So, I wouldn’t there is no major differences. In absolute terms, I would add that obviously we are now in the middle of a huge European comparison. But yet, we are in absolute terms happy about it. So -- and really, if you look especially in terms of two years comps because I always say that two years comps never lie. I would say that we see no difference between Q2 and Q3 or June and July.
That’s very clear. Thank you very much. My second question is, you mentioned that you believe and you expect to grow above industry average in H2. So, may we have your guesstimate for the luxury average growth that you expect for the industry?
Hi Aurélie, Andrea. What I would say on that is it means to us growing above market, growing above average. It means that we look at the market share that we take. It means that we want to gain scale in a healthy way, but at a faster pace than the average. It doesn’t mean we’re going to outperform in each single month or quarter, but in the year and beyond. That’s the objective.
Okay, thank you. And my last question will be on Church. I know it’s a small business, but I’d like to know what is the strategy behind this brand be, because it seems that you are closing more and more stores. So, are you now moving to a wholesale business model here? What is the strategy behind this brand? Thank you.
So as we said in February, March, so we have restarted from scratch. I think that there are moments in life when you restart from scratch with brands and activities. In the couple of -- last 2 years, a lot of the restructuring is going on, a lot of stores that you’re saying has been closed, and a number of not useful accounts have been closed.
I think that, as we said at the beginning of the year, we were in a position to restart and this is what we’re doing. First of all, we are -- we have re-discussed and been very clear on the position and identity of the brand. We have decided to have 25, 30 stores across the world and to have around 140, 150 wholesale accounts around the world.
And I can tell you that we had a couple of last-months where our like-for-like on non-closing stores were positive. And by the end of this year I think that we can give you some -- hopefully some more promising ideas and performance. We’re working hard. We are really working hard.
Thank you very much.
Next question, please.
We are now going to proceed with our next question and the questions come from the line of Luca Solca from Bernstein. Please ask your question.
Yes very good afternoon. My first question is about [Indiscernible] You were indicating that the growth we’ve seen in the most recent two years has been primarily from like-for-like, I wonder if you could break this down to some extent between volume, price increases and mix, if you could give us a broad estimate of the various components in this growth?
Obviously this -- and benchmarking. In this last six months, I would say that quantity has been an important side of it. And between price and mix and quantity, we have seen in the last six months, a shift between price and mix to quantities. So, we had the last big price increase more than a year ago. So that has been fading out as an effect and the volume and mix is kicking in.
Obviously, it will depend on the different moments. We have done a slight price increase recently on Prada and Miu Miu, but it’s a small adjustment, and we will continue to keep it balanced. That is one of the most important equations for us, to keep the volume, the mix, which is the most complicated things to be done and the price balanced and obtain that like-for-like growth, which I feel that if we keep those three balanced, it’s pretty healthy.
But I mean it is -- what you’re saying is correct. I mean, we had basically some store opening, some store closures. So, if you go back 24 months, basically every -- all growth inches of Prada Group, Miu Miu and Prada, it’s all like-for-like. And we’re discussing about a kind of 60% increase in productivity.
Understood. Thank you very much Andrea. When it comes to the goal of increasing retail space productivity and possibly doubling it in the next three years, have you had a chance to assess what the various component parts of this parts could be? What is going to come on the back of brand desirability? How much is going to come from more efficient processes, replenishment, higher sell-through on the back of more agile operations, and whether there’s any part that is potentially going to come from rightsizing some of the stores that may be too large. I’m thinking, for example, of the store where I live in Geneva, which seems to be very big for what Geneva is as a city and as a tourist destination. Thank you.
So the only thing -- so, first of all, productivity is the result of an equation made by different addendums and different factors, as you were saying. Traffic is not an issue. Desirability of the brand is not an issue. I think there is an issue in being able to manage the consumer properly. Is it outreach? Is it welcoming? Is it routines? Is it rituals? Is it being able to close the transactions in different moments, in different times and different locations? So really it’s a question of retail excellence as people would say.
And what about rightsizing any point?...
No, I mean yes, there is an opportunity sometimes to do it, but I would say that, in reality today, the real thing in most of our stores, I do not -- honestly, sorry, I do not know exactly the Geneva case myself, but soon I will. The real thing is to use our space properly. I mean now fine jewellery is a real other leg of our business. We will be, soon with [Indiscernible] and home in our stores. So really, it’s our ability and also creating properly some private spaces in order to allow people, in a very different manner, to enjoy and to have their experiences with us.
I really think that we do not have an issue of rightsizing. That, in any case, at the end could count for a 5% to 10% in efficiency, but that’s not what the opportunity we have today. The opportunity we have today is much bigger than that.
Understood. That’s very clear. Thank you, Andrea. Maybe my last question is a bit broader and more strategic. We’ve seen a lot of pricing exuberance in the industry in the most recent two years as consumers have come back post-COVID with a certain euphoria and clearly a determination to live well. Price increases have gone down very well.
As we see normalization and we’re starting to see that in the U.S., I wonder -- and to some extent, you were starting to answer that before saying that going forward, you don’t see price increases as a major lever. But more broadly, I would ask you, where do you feel you stand with Prada, with the brand relative to your peers. And do you see that your pricing position is buttoned-up or potentially subject to pressures in terms of consumer demand, potentially reacting to higher prices?
So I think we have -- if we list the opportunities we have, I think we can fill up an entire book. I think there is opportunities all across the world. We got really strong pillars on certain markets, and we can do even better. We have some under representations in some other markets, and we need to understand how to do a better work on different aspects.
We have today, an opportunity to use even better our unbelievable supply chain. I think we can be even more flexible and more agile and quicker in certain moments of market changes. I think we have that opportunity. I think we are one of the best brands in buy-now, wear-now. So that is another aspect, which I think we can cultivate even better.
Then there are bits and pieces of higher segments of the market where we need to build some infrastructure, some rituals, some products and really activate some other higher segments of the market that are waiting for us. I mean, each time we do something higher than what we’re used to with our consumers, vroom, sell out immediately.
So I think we have a number of opportunities. As I always say, the most important thing is that you put one after the other and not altogether, so that we can have some of these projects to be delivered during 1, 2, 3, 4, 5 years. And at the end, you turn back and you say, Okay I’ve built another big part and big strategy of our brands. So, really, opportunities are huge for Prada and huge for Miu Miu.
Thank you very much indeed.
And we are one of the few brands, especially with Prada that fits naturally in different segments of the market, more chic and more elegant and more lifestyle, that brand knows how to capture the cultural evolution and the social evolution of the market since 40 years. So, I think we have the assets to do it.
[Foreign Language] next question please.
We are now going to proceed with our next question and the questions come from the line of Antoine Belge from BNP Paribas. Please ask your question.
Yes, so hello everyone. So I’ve got three questions and I will do them one by one. The first one is about this notion that it was maybe investing even more than what you thought before. So I’d like to understand, is it more the results of many people have joined the group recently and is it a bit of a -- the result of this?
Or is it a bit driven by the, I would say, the competition? I mean we already saw LVMH mentioning a lot of investment. This Pharrell William event generating 1.1 billion hits. So -- yes, so I’d like to understand a bit the -- is it because the leader in the industry is increasing the cost of doing business or is it also because of your more internal thinking? That’s the first question.
It’s a trajectory of what you’ve seen in the last two, three years, no changes. And I think it’s part of it. I mean, we have been able to increase basically 300 basis points, 400 basis points on our EBIT, increasing a couple of hundred points our communication efforts, and this will continue. I mean no difference from the past.
Okay. And my second question is regarding the gap between the Americas growth that you reported for 2Q, which was minus 6%, and you’re mentioning that the American cluster still in Q2 was up low-double-digits. So that’s at least an 18% delta, which seems huge. So I wanted to make sure I understood it correctly. And then if that’s the case, I would imagine that if Americans are mostly going to Europe. So I would like to know in 2Q or H1, what was the weight of non-Europeans within Europe compared to the previous year?
Hi Antoine, Andrea. So, your point is correct. So the minus 6%, but in terms of the American cluster, indeed was positive and double digit. Fair to say that they are a very large component of the traveler spend in Europe. And it’s also fair to say that, that spend of travelers vis-a-vis the locals has been accelerating further in the semester. So yes, that’s it.
Okay. Yes, no willingness to share the evolution of the tourist number within Europe. So yes, if you can give it that would be better. And I’m moving already to the final question, a bit boring, I know maybe on the gross margin. I think there is a slide on Page 18, where you show that the FX and hedging combined actually had a negative impact on gross margin, which sounds a bit surprising if I mean, you should have had hedging gains from -- you’re benefiting from the what you hedged last year when the dollar was below priority.
So, if you could maybe comment on that? And when you gave this outlook of maintaining an 80% margin for the full year, within that, what sort of FX impact, either positive or negative, embedded in the for H2? Thank you.
That is the combined. So you have an FX impact that is negative. And then you have a hedging impact, which is positive, but it’s not enough to compensate the negative FX impact. And in the first half, it is not so much related to the dollar, the impact that we’re seeing, but it’s mostly related to Asian currencies. And so, the yen and the yuan. Thank you.
Thank you very much.
Thank you. Next question?
We are now going to proceed with our next question and the questions come from the line of Louise Singlehurst from Goldman Sachs. Please ask your question.
Hi, good afternoon, Andrea. Thanks for taking my questions. I wanted just to get back on to the U.S., for my first question, please. I think you mentioned a small improvement in July. Now I realize it’s incredibly early in Q3. But I suppose if we could just get some clarification if we’re now comping that softer momentum that started as we’re now in the second half of 2022.
And some of the peers have highlighted that the weakness has been very specifically or concentrated in that aspirational consumer entry price point. Has that been the same for Prada and has there been any weakness in the high end? And if I just stick on the U.S., if there’s no change in the macro from here on in, would it be fair to assume that Q2 could mark the trough in performance for this year? Thank you.
So, if we look to United States, I think that patterns are similar. I would consider what I told you before as something that doesn’t represent a standard or a trend. Could we consider that Q4 United States will be easier than a year ago? Obviously, yes. Q3, it depends on how we see then the usual end of summer and beginning of September. That is the usual turning point of the season. So similar patterns to benchmark and on the other side, an expectation of a Q4, which improves compared to last year.
Thank you. But did you think Q2 could mark the weak spot of the year? And if I could just follow up with my second and last question. On the European side, can I just check with you that you haven’t seen the same dynamic? I know Andrea, you did highlight that the local domestic European consumption remains very solid in the period. But has there been any change in demand by price categories that we’ve seen in the U.S.? Thank you.
I would say and consider that the position of Prada in Europe is really strong. We have seen a good performance all across. If I had to look at different markets, I would say that U.K. was the slowest for a number of reasons that we all know. And I wouldn’t observe very different trends from higher to lower, I would be honest
Thank you.
Next question.
We are now going to proceed with our next question and the questions come from the line of Liwei Hou from CICC. Please go ahead with your question.
Good afternoon gentlemen. And congratulations on the great results, really one of the best so far. This is Liwei from CICC. I have three questions, and I’ll ask them one by one. The first one is, apparently, we have gained a lot of new customers and given that we have done quite a lot of successful crossovers with brands like Adidas and New Balance. I assume our customer clientele will be younger than before. Could you please give us an update as of today, our customer mix by age? That would be very helpful. Thank you.
So, we normally don’t disclose these numbers. I would say that with the great activities done on the two brands in the past 36 months, I would say that we have rebalanced extensively the different generations. And I would say that today, generation Z is probably one of the strongest in the sector, I would argue.
Great, that’s very helpful already. And my next question is actually to build up your previous response on how to improve retail density. In my understanding, the main lever we have is to serve our clients better, and I happen to see in the closing remarks, there was a specific line about better training of our staff. And could you elaborate a bit more on that and where are the areas of improvement for our staff who are really the front and foremost serving clients in the stores? Thank you.
Are you sure you want an answer here? Because I would be pretty boring on this. So, I would try to make it as short as possible. This is routines. This is the ability to never give up. And on the other side, never prove wrong with any customer, spontaneous traffic, appointments done, people that want to buy huge tickets, people that are for the first time in the pipeline, people that at the end do not want to buy but are in love with the brand. It’s really ability of having proper teams on the floor, having proper number of people at the right time, having the right skills, getting the incentives to the right focuses we want. It’s boring routine over and over stuff.
Understood. And it’s worth a shot. Thank you. And my last question is a straightforward on the beauty sector. Could you tell us more about where is our current standing with L’Oreal? And going forward, how would that business contribute to our revenue and the impact on margins? Anything to share at this moment? Thank you.
So I mean, obviously, this is a license, this is a royalty. It’s incredibly improving compared to the past. We are extremely happy of this relationship. And very soon we’re going to add another milestone with Prada. So we will deliver the 360 degrees, so not only fragrances, but we will be in the beauty.
We’re starting soon with a big representation and show in a very specific city, and we will start in the next month, month and a half. So it’s behind the corner and I think this is the first real year. When the year finishes, I think we can draw some initial conclusions, but we are extremely happy of this relationship as we are with eyewear.
That’s great to hear. Thank you very much.
We have time for last question or last set of questions. Thank you.
We are now taking our last question and the questions come from the line of Charles-Louis Scotti from Kepler Cheuvreux. Please ask your question.
Hello, good afternoon. I have two questions, please. The first one, you said you will invest more on brand viability. How shall we read it in terms of A&P spendings? You spent 5% of sales in 2014, rising to 8.5% last year. Is it fair to assume a continued increase to what, 9%, 10% going forward? And same question on project designs and development costs that fell from 4% plus to 3% plus recently. Should we expect the project to bounce back as well?
In terms of marketing communication, I think that the evolution we had is a trend for the next couple of years we will keep. So we will over invest in communication compared to our growth, but nothing crazy. We feel it’s an important statement we do and it’s not just a quarter or half a year, but it will be 1, 2, 3, 4 years next especially in certain parts of the world and Asia will be one of our focus points. In terms of selling design I do not expect major changes in the next future.
Okay, thank you. And my second question is on Miu Miu, and that is experiencing a very strong momentum. Would you be able to share with us with which nationality the brand is relating to the most, resonating to the most [Indiscernible] and if you could also remind us the breakdown of sales by category and by rejun [Ph] if it is tricky from the goods average? Thank you.
So when you look to a brand growing at that kind of rate everything is going well all across the world on all product categories on all the -- on all year generation. So the real thing about Miu Miu is that we have an ambition and the ambition is big. So this has to be a real distinct pillar of growth of the Group. We are nurturing it. The team is there. The assets are there.
I think that on Miu Miu, we have the opportunity in the next 12, 24 and 36 months to enlarge the perimeter of the number of stores. And I would say that the positioning of Miu Miu is so easy to be read that it’s also quite consistent with the different growth patterns that the brand is holding during the past 24 and 36 months.
Okay, thank you very much.
So thank you everyone, and talk to you soon and for people who will, as Italians will rest during August. Have a great rest. Bye-bye.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Thank you.