Moncler SpA

MIL:MONC

Earnings Call Transcript 2022-Q4

[Operator]

Good evening. This is the Chorus Call conference Operator. Welcome and thank you for joining the Moncler Full Year 2022 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

At this time I would like to turn the conference over to Ms. Elena Mariani, Strategic Planning and Investor Relations Director of Moncler. Please go ahead ma’am.

[Elena Mariani]

Good evening, everybody, and thank you for joining our call today on Moncler’s full-year 2022 financial results. As usual, let me introduce you to the speakers of today’s call, Mr. Remo Ruffini, Moncler Group’s Chairman and CEO; Roberto Eggs, Chief Business Strategy and Global Officer; Luciano Santel, Chief Corporate and Supply Officer; Gino Fisanotti, Moncler Chief Brand Officer.

Before starting, I need to remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on group current expectations and projections about future events. By their nature, forward-looking statements are subject to risks uncertainties and other factors that could cause results to differ even materially from those expressed in or implied by these statements, many of which are beyond the ability of the Group to control or estimate.

Finally, I remind you that the press has been invited to participate to this conference in a listen-only mode.

Let me now hand over to our Chairman and CEO, Mr. Remo Ruffini.

[Remo Ruffini, Chairman and Chief Executive Officer]

Good evening, everyone, and thank you for attending our call tonight. Let me start by saying that I’m extremely proud of the great results we achieved in 2022. The group reached €2.6 billion of revenues and EBIT margin of 29.8% and the net income of over €600 million. The fourth quarter alone, our Group sales reached over €1 billion, up 19% at constant currencies, accelerating versus the third quarter.

All of these was achieved in a very difficult and complex operating environment, which makes our results even more extraordinary, but this is not just about numbers. 2022 has been a year of full of achievements and key milestones for our two brands.

It was the years of Moncler 70 anniversary and in Stone Island 40th anniversary, during which we celebrate the history of our brands in exceptional way, with results going beyond our expectation.

At Moncler, we started empowering all three dimension of the brand: Collection, Genius and Granoble, which clear brand initiative reinforcing their respective DNA and identities. Stone Ireland is processing in a way that will allow it to express its full potential. We are working to build a DTC business model and culture.

And this year, we internalized the managing of some markets with a great logistic into a single group hub. We also launched a new store concept, a key milestone tone in the development of the distributor network.

Sustainability continues to be a key pillars in our strategy. Among many achievements, in 2022, the Group was confirmed as first in the sector in Dow Jones Sustainability Index, World and Europe for the fourth years in a row. I’m proud to see our sustainability culture spread more and more in the all Group, but we know that more needs to be done to keep up with the challenge the world is facing.

Now as always in Moncler, we celebrate our past achievements, but above all, we plan and think about the future. So moving to 2023, the macro contents remain complex and unpredictable. Our surpluses are very high, but now that we are used to live in a never normal world, we are once again ready to pick up the challenge, with energy and passion.

We are keeping an agile and flexible organization in mind to face these uncertainties and we are confident that, the strength of our brand, our clear long-term strategy and our dynamic execution will allow us to remain on a very solid growth path.

Thank you very much, and let me now leave the floor to Gino, Roberto, Luciano for more comments and more results. Thank you.

[Gino Fisanotti, Chief Brand Officer]

Okay. Hello everyone. Good night. Good afternoon. I think if we go to probably Slide Number 4, just to start. We will start talking about the brand. I think as Mr. Ruffini just mentioned, I think, the year by especially Q4 have been a great example of our renew brand offense in place across a different dimension of the brand.

I want to start just mentioning a bit of the 70th anniversary. As a quick reminder, this was a 70 days execution to celebrate the 70-years of the Moncler brand, that started with kind of an incredible event at Duomo that took place three-days before the last quarter started and we see the incredible results.

I think from day one, from that incredible event with over 18,000 people in the street of Milano, all the way down to all the different work we have done across, I would say, proper end-to-end approach from product to retail to digital two different services and benefits, all around and all connected around the 70th anniversary.

We were able to reach over 15 billion people in the 70-days, something that have been unprecedented for us and more importantly have an engagement from customers around 725 million people.

And this of course, generated a lot of brand energy, a lot of what we believe, strong results that we will see in a second across all the different access points to the brand. So that is the first comment around the 70th anniversary.

Then as we mentioned before, continuing with the key part of the brand in the next slide, we will talk about kind of the reboot of Moncler Grenoble. This is something we discussed before. Think we definitely went back or we are going back to the slopes, we are back to where everything started and where we belong to.

I think this time, of course, we introduced our new high performance collection in December and this was not only introduced new collection into the market, but at the same time, we were able to go back and execute and become a visible brand in key centers around the globe.

We can mention some Maurice, [Corchevel] (Ph) NISEC, or Aspen as a few examples of that. And on top of that, we have some very strong CRM client executions around Crans-Montana as well. And this give us the opportunity again to confirm our desire to be a extremely relevant brand when we start talking about winter sports and the role of renewal within the brand.

If we go to the next page, of course, we are just coming back on the back of a very special week with Genius in London. But we will spend more time probably in the next quarter to talk about that.

But I want to remind everyone that in the last90 days, we were able to launch Palm Angels including a top collaboration featuring Naomi Campbell, we are able to launch the latest Alyx collaboration with Genius with Matthew Williams, HYKE. And then, as I mentioned a second ago, in the last 20-days, we have been very vocal about what will just happen in London. That we will talk later on.

If we go into the, again, next page. I think the other aspect that we have in discussing in the past probably 10-months since Capital Market Day was that our intention to start building a sustainable footwear business model. And I have to share with you that despite that this is a very small base and we are trying to make sure that we build a solid business.

We are pleased to see the results we are getting on the launch of trial group family, especially the trial group, GTX footwear. Who was the most successful footwear launch in the history of Moncler. I think, was the first time we were pleasantly seen even design awards coming from media like Complex or Tech Hunter that were recognizing the product there.

And then on top of that, we believe that we have other products that are coming down the line that they are super strong, including the Gaia Pocket Mid that we believe has all the DNA of the brand including in that design.

And then last but not least, and I think this is something we mentioned before, but now it is real, is when we are talking about Genius collections, everything we do on footwear is on the base of Moncler footwear piece, which allow us to have extra dimension and extra depth in terms of the design of our footwear.

If we move into page number eight now, and we are getting more into the business side I will just comment before, I leave the floor to Roberto a bit of the results around direct online, as we discussed per in the last two, three quarters, we are very clear on the areas we really want to focus our attention when we talk about our own online business.

The first one is if you guys remember, I think when we talk about a login era, and how we want to make sure that we have a strong relationship with our customers in terms of people who sign up with us and have an ongoing relationship, we are seeing a good result in terms of all the efforts, in terms of benefits and services that we are providing to our.com. And that is why you see a growth of 140% year-on-year.

In terms of membership on .com. Traffic, was up 17% for the entire year with a big push during the 17th anniversary. And then again, when we talk about revenues of just moncler.com was 72% year-on-year.

Last but not least, I think we have discussed this before by October represented the formal launch of TMALL. I think we start a soft launch in June, but October with the beginning of 17th anniversary was the formal launch.

And again, despite that TMALL revenues surpassed expectations, I think it is important for us to remind everyone that we are not leveraging TMALL as a source of revenue. We are leveraging TMALL as a source of access point to the brand, especially for Tier 2, 3, and 4 markets in China, which is definitely delivering against that promise. So I think it is important for us to highlight.

That is all for me, and I will leave the floor to Roberto.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Thank you, Gino. We are on the Slide Number 9. I would like to drive you through the results of Moncler, the revenues by geography. I would like to drive your attention also when you are looking at the growth, not only to look at it compared to 2021, but each time also to have a look of the growth or the quarter versus the full-year. And there you will notice that in each single region, we have been accelerating in the last quarter compared to the full-year results.

In total, we reached and we surpassed for the first time the 2.2 billion with the plus 19% versus 2021, which is a plus 36 versus 2019. Q4 recorded the plus 16% growth on 2021 and plus 62% in sequential acceleration in all region.

Asia, that for us includes AsiaPac Pacific, China, Japan, Korea grew at 14% versus 2022 versus 2021. Q4 reached for Asia plus 12%, which is compared to a plus 14% on the full-year. If you make the comparison with 2019, you see that the last quarter at plus 56 is in acceleration compared to the full-year result at plus 45.

Europe grew in all regions double-digit. The growth was mainly driven by Italy, France, Germany, but also Switzerland, Bens, and Spain, where we open a store at the end of - in Madrid, at the end of 2022.

The growth has been of plus 30% for the quarter plus 29% for the full-year. And here also the last quarter was in 2022. The growth has been of plus 30% for the quarter plus 29% for the full-year. And here also the last quarter was in acceleration compared to 2019 with the plus 52% compared to a full-year plus 27 versus 2019. Finally, the U.S., at plus 5% for the last quarter for a total year plus 12% here also, last quarter was a 38, so an improvement versus a per 35, which is a full-year results.

If we look in on charts number 10. 9.8 million total for the full-year in terms of wholesale sales, which is a plus 6% plus quarter was a plus 1%, you probably remember that the last quarter in terms of wholesale former usually a small quarter for the wholesale representing roughly 16% to 17% of the total sales.

The sales of - the D2C channel reached 869 million, which is a plus 18% compared to 2021 for full-year at plus 2022. Here also, you see that there is an acceleration in Q4 versus 2019, which is a plus 55 compared to a full-year at plus 43%.

Let’s move to Stone Island results with a focus on the activity of last quarter, where we had - we celebrated, this was the final part of the celebration, the 14th anniversary. We talked to Gino, talked about the 17th anniversary for Moncler. We had the 14th anniversary for Stone Island.

This was celebrated by and reinterpretation of the iconic [indiscernible] and also a year that was - where we concluded the celebration with a big event in Miami during a Basel, where this was an opportunity to connect with the Stone Island families, friends, and the communities in Miami.

It was also an important quarter because in the my store format, which is the key element of the new retail strategy for Stone Island, this was developed by Rain Coolers, the [indiscernible] design studio based in Amsterdam, successfully open at the end of the year with already a format developed different formats for the corner based on the store of Chicago that was opened in December in Seville, Galleria.

If we move to Chart Number 12, with the Stone Island revenues by geography, you will notice that, for the first time, we reached the 400 mark for the total business of Stone Island. And looking at the result by geography, we have had a plus 21% with a strong double-digit growth in Europe, in the main countries, Italy, UK, Germany and France, which is represented plus 16% on a full-year basis.

Triple-digit growth on the quarter and the full-year for Asia, you remember that, we transformed the business model that we have in Korea at the start in January 2022 and then during the summer, there was also the conversion of the business in Japan from wholesale to retail.

This clearly helped the growth for the region, but even without the transformation, it will have been a double-digit growth. Finally, the Americas with a plus 13% at year-end, on a full-year basis at plus 34%.

If we move to Chart Number 13. Looking at results per channels, you see that, the retail channel is not yet the largest channel, it is the wholesale that is the largest channel. But if we just look at the last part of the year, for the first time, the retail channel was representing more than the retail with 57.6 million and plus 95%.

This is what has been driving the growth of the business at year-end, while the wholesale part grew at plus 8% and plus 7% on a total year basis, clearly impacted by the conversion of Japan and Korea, where you see the results that have been positively impacting the result of the retail channel.

To conclude on the Chart Number 14. On the total number of stores, you know that, we like especially in Moncler to open stores during the last part of the year with our full winter collection. So in total, we have 251 stores for Moncler, 72 for Stone Island.

The big changes occurred in Q4 for Moncler with nine openings. Among them, the new store in Miami Descent District, the opening in China with Shanghai, Swire and Chengdu, second, and we opened also one strong store in Ciogal area and one store in Japan in Niigata Isetan to mention the mention the main openings. Stone Island, I just mentioned the opening of Chicago with the new store with the new format that we are going to roll out and during the course of 2023.

Just some images to highlight, what we mean by openings, you see on Chart Number 15, the Chengdu second place opening. With a concept that is going to be renewed on a symmetrical basis. So to give more strength to the concept, also the new concept on Miami District to a store that is developed on two selling floor.

And finally on Chart Number 17, the new store concept for Stone Island in Chicago, which is a very modular concept that can - where you can move and rearrange the store self also to accommodate events and create and animate communities, we are very cherishing.

I will leave the floor to Luciano Santel for the Group income statement. Thank you.

[Luciano Santel, Chief Corporate and Supply Officer]

Okay. Thank you, Roberto. And hi, everybody, and thank you for attending our call today. We are now at Page 18, where we report our Group income statement. We report the comparison with the fiscal year 2021, but just to remind you in the fiscal year 2021, we consolidated the Stone Island starting from April 1st. So the comparison between 2022 and 2021 is not totally meaningful.

Anyway, talking about fiscal year 2022, we report a very strong set of results. Not only very strong top-line already commented by Roberto, but also a very good operating profitability that barely touched the 30% margin. Notwithstanding, the difficulties we faced in Q2 and Q4 in China which is a very important market for our business.

Also, a very good net result. Thanks also to the tax benefit of 92 million. We discussed about at end of the first half of 2020, due to the tax operation, the tax evaluation of Western Island trademark with a tax benefit and tax benefit that was entirely reported in the fiscal year 2022 numbers of 92 million. So at the end, very good net result over 600 a million.

Okay, let’s go now at next page, Page 19, we report on net CapEx of 167 million, not equally, but almost equally distributed between retail network, distribution network and infrastructure. Important to highlight that with infrastructure.

Of course, we report information technology, logistics, and this is important talking about 2022 production. And something important that happened in 2022 was the construction of a production factory in Romania in the same area where we already had and we still have our production facility.

Now we built a second building, that is already up and running, and we plan to double over the next two years our production capacity in that facility. For 2023, we still expect a CapEx in the region of 6% of our revenues.

Let’s go now at Page 20 where we report a networking capital. Honestly still very healthy working capital thanks to very strong credit control and very efficient inventory management. So nothing to add.

Next page. Net financial position, we ended up with 818 million net cash after distribution of dividends for 161 million, share buyback implemented exactly one year ago for 48 million. And the upfront tax payment due to the evaluation of the Stone Island trademark, I told you before for 124 million.

Something important we want to highlight that is planned to happen over the next couple of months is the distribution of dividends. This board has approved today to submit to the shareholder meeting for one €1.12 per share. Last year was €0.60. So we plan - we decided to propose distribution of a double dividend per share for a total cash out of over about €300 million.

Next page, Page 22. We report a balance sheet statement. Honestly, nothing to comment unless you have questions. And page 22, we report a cash flow statement. A cash flow statement of course is the recap of all the economical and financial events. I told you before, something important I want relight is the line change in other assets, liabilities that is deeply negative because it includes the tax assets associated with the evaluation Stone Island trademark equals to 216 million.

Again, 216 million is the tax asset over the next five-years and 24 million is the front tax payment paid in June of 2022, and the net tax asset over the next five years and 24 million is the front tax payment paid in June of 2022. And the net benefit is the difference for 92 million that is reported in the taxes.

Nothing to add, but again, happy to answer your questions, sir. Also on this slide, if any, last but not list as slide reporting, our sustainability activity during 2022 and the key results of the tier. I mean two points, I wanted to alight, the bullet point number three and number four, which express our commitment on the circular economy.

And now in 2022, almost 20% of nylon and polyester utilized in our production came from recycled materials. And we plan for this year, 2023 to double this percent so to touch or to barely touch 40%. And the second point is associated with the nylon scraps that 100% of nylon scraps in our production cycle has been recycled, giving them a second life.

So thank you. I mean, we are done for the presentation, and ready to answer your question. Thank you.

[Operator]

[Operator Instructions] The first question comes from Edouard Aubin of Morgan Stanley.

[Edouard Aubin, Morgan Stanley]

Yes, good evening guys. Thank you for taking my questions. So three questions for me. So, the year ended better than expected by the market in terms of top line, if you could please comment on how the 2023 started, obviously particularly in which obviously quite important for you guys. So that is question number one.

Question number two, which is related. So you had a nice top line beat in Q4 versus market expectation. The flow through in terms of the operating margin was a little bit more limited. You had an EBIT margin compression in H2 versus same time last year of about 250 basis point, if I calculate correctly. So if you could come back on what draw the compression to what extent is related to the spending related to the 70th anniversary. I saw that your marketing spend for the full-year was down, but what about H2 and what about the around 30% mark in you are kind of targeting in the medium term?

And last question on the U.S., which you have been historically under penetrated in this market at the CMD last year. You indicated that, you wanted to increase a bit your share in that market around 20%, if I remember correctly by 2024. So far the under penetration has remained around the same level of 2016, partially because you are doing so well obviously in Asia and Europe. But also because you are underperforming some of your peers in - over the past three-years in the U.S. market. So if you could come back on why the underperformance and how you see the U.S. market going forward? Thank you.

[Roberto Eggs, Chief Business Strategy and Global Officer]

This is Roberto. Hi Edouard. Thank you for the question. I will start. So with the start of the year and now we are trading since a couple of months. We have started very well. I think we had a very strong brand momentum that is extremely solid. We have been growing in all the region.

I will start and as you ask some details and call us on the different region, I will start with EMEA, because it is probably where we are expecting much better than foreseen, very solid demand both from the locals and from the tourists.

I’m saying here tourist and meaning mainly still Americans that are coming and that are explaining also a little bit the lower performance you see in the cluster of the U.S. But the Americans are growing double-digits, still very strong in January this year, a little bit less in February, but still far above the level we have seen pre-COVID in 2019.

The other cluster that is working extremely, but in of tourists in Europe is Korean. Korean are really, really strong. They are also at the level that is higher than the one we had pre-COVID. Still limited amount of Chinese coming to Europe, but we are expecting them to come more in the second half of the year. They are starting to travel and they will clearly extend that one talking about the China, but they are more traveling to Macau to [indiscernible] and to Hong Kong also very solid result on EMEA.

Americas again, if you look just at the result of the region, you have a plus 5%, but if you should include the sales to Americans outside of the Americas, mainly Europe. It is a good double-digit growth that we have seen Americas.

Japanese and Korea, a strong start of the year for both nationality continue to grow double-digits. And let’s say the positive surprise is that China, as you can imagine, and answer a little bit also of your question on Q4. China was a little bit fluctuating, when looking at the result for the first quarter.

We had a very good month of October with Golden Week that was good, then restrictions, so we had some closure in November. And I think the team managed to do extremely well in December, despite the fact that was a spread of the virus where we had more than 90% of our income terminated, but we had a stronger acceleration in December last year that we continue to have in January and February.

January helped by the fact that, this year there is the Chinese New Year that is only positive impacting the month of Jan while last year it was also impacting the start of February. But we always look at the results two-weeks before and one-week after the Chinese New Year and the impact is really positive and it was growing both before and after the Chinese New Year with a very strong base of - strong comparison base.

So this I think is showing that, there is a strong brand momentum and desirability around the brand that is also perceived and still very alive with the Chinese consumer. And as I mentioned, Macao, [indiscernible] and Hong Kong are growing very well since the beginning of year is where we start seeing the first travelers from China now that the restriction have been alleviated, but will take a little bit more time to see them coming to Japan, Korea, and to Europe.

[Remo Ruffini, Chairman and Chief Executive Officer]

Okay. Thank you for your question about the profitability. Profitability second half was slightly lower than last year. First of all, what I said before, the comparison between the two fiscal years are not totally meaningful because the consolidation is not comparable 100%. But in any event, of course you are right. I mean, we spent more in marketing this year than last year in the second half due to a shift of marketing budget from H1 and H2.

And the second point that is quite important is that our business in Q4 has suffered significantly by the COVID institutions in China and the lockdown between mid-October and on November. So that appeal that those six-weeks affected our business and unfortunately a little bit our profitability, because at the end we are talking about honestly, a small difference between last year and this year.

[Gino Fisanotti, Chief Brand Officer]

I thinks, on the U.S. market, I already give some, sorry, I give already some colors by saying that we were trading at plus five in Q4, and an overall positive on the American cluster, the same for the start of the year. If I look at the American cluster, it is also a growth on the double-digit base still with some of the let’s say consumption done by American, especially in January, done outside U.S. especially in Europe.

[Operator]

The next question is from Chiara Battistini of JP Morgan.

[Chiara Battistini, JP Morgan]

Good evening. Thank you for taking my questions. Firstly, if I can come back on China, firstly, clarification on Q4. You mentioned that in December you managed to accelerate despite the fact that the staff was actually sick.

So I just wanted - I was just wondering if you could expand on the actions that you actually took or to continue to engage with the consumer despite indeed the population’s been sick and the staff been sick, and your peers not being able to deliver this. And then on the current trading comment, you just mentioned ongoing China before and after the Chinese New Year. Just to confirm, we were talking about single digit growth or maybe better trends than that.

My second question on your pricing actions for this year that you are planning, if you could remind us how you are thinking about pricing for 2023? Possibly maybe splitting by regions if possible. And if you could remind us of what you have done already in 2022, when it is analyzing in 2023 as well.

And finally, maybe not beyond the current trading, if I could ask you how you are thinking about your Western consumer, your North American consumer and European consumer as you go into 2023. And possibly that is related also to my question on pricing, but what are you embedding in terms of expectations on the development of your domestic European consumer especially. Thank you.

[Remo Ruffini, Chairman and Chief Executive Officer]

Thank you for the question Chiara. Just on China, let me explain maybe in more details the way we have seen to the end of the year. So we usually, in Moncler, we plan for a strong Q4. So, we take, we recruit people, we train people already starting from the summer to have them operation on the floor since the months of September.

So I think the team was extremely well prepared. This is why we had this very good start of October with the golden week. Then with the lockdowns clearly we suffered for as said, for about six-weeks.

And when the restrictions were stopped, I think we have seen a rate of contamination at a speed that was unseen in the other region. So basically, we have 90%, and I think this is something probably that is valid for the other peers - for our peers.

90% of the retail population was in fact in the months. But we had a very light version of the COVID. So usually people, they were staying out for four to five-days. And because we anticipated the recruitment and we trained the people who were able to operate our store in December, almost normally.

So this is explaining the very good let’s say performance that we had on the month of December. That partially compensated, let’s say the performance of the months of November and this good trend now, the full team is operational since the start of Jan.

So basically in one month time the issue was sold and operationally we were at our best. So January started very well for China. And to answer your specific question on the Chinese New Year - I was talking double-digit growth before and after.

Regarding the pricing strategy, what we have already implemented this year in since the start of the fall, winter is the first 10% price increase where we haven’t seen a negative effect as you, as you see on the results. So this has been in a way well accepted by consumer probably because talking about inflation, now it is - unfortunately, I would say, they are all used to have this type of price increase.

And we continued with the spring summer that we started to sell in at the end of November beginning of December with this past 10% and is also what we are planning, but this is still to be confirmed for the full winter that will be starting to sell in June or July this year. This is to cover the increased cost that we have in production and not is not something that is planned to have additional margin.

Regarding the differentiation that we have amongst the region, I think we mentioned something during the last call where we have a slightly higher increase in Europe, slightly lower in China, and slightly lower in U.S. in order to come back for the full winter season, starting from June July to a price differential that is similar to the one we had pre COVID.

[Operator]

The next question is from Thomas Chauvet of Citi.

[Thomas Chauvet, Citi]

Good evening, thanks for taking my question. The first one, on your plus 15% retail, like-for-like in 2022, how would you split this number between volume price and mix and is it fair to assume the fourth quarter? So something like low teens retail like for like, which is a pretty strong number.

Secondly, after Q3, you commented that some of the more classic higher price points out to where we are outperforming, are you seeing some weakness in the more, at least relatively to lessen the more entry level price points, whether from jackets or sneakers with your younger clientele in markets like the U.S. and Europe, and can you talk about the initiatives you are taking to push perhaps further brand innovation towards a more classic higher-end offering in jackets?

And finally, on Stone Island and the priorities. If I understood correctly, at the end of last year, you said 2022 and 2023 would be yours focused on the takeover of distribution that the new store concept, improving the retail ceremony. Is it fair to assume that, it is only next year that you will stop perhaps to make more important changes to the product or the communication? And could you, Roberto, perhaps remind us the key markets you will take over this year and roughly the size in terms of wholesale sales as you did for Japan and Korea for instance, last year? Thank you.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Thank you for the question. Let me start with the growth like-for-like and how much is driven by volumes and by price. Usually, we have, on a normal year, we have got this strong price increase, we will have 80% driven by volumes and 20 percent driven by price.

Clearly, with this plus 10% that we implemented since mid of this year, is something that is clearly more balanced this year and a part of the - let’s say, a strong part of the growth has been coming from price effect. This is something that we think will be normalized back in 2024, but there will be probably during this year still strong push that will be driven by the price increase.

For the price brand renovation, I will leave it to Gino, but just on maybe on the Stone Island priority, just to conclude. Yes, clearly, 2022 has been a strong year of change of business model, where we have started to take the ownership on the most important markets, starting at the start of 2022 by Korea and during the summer, we took over UK and Japan.

It is still a work in progress, it is something that is not finalized. Yes, we are putting in place all the system, the IT support, the management tool. We have been launching the retail excellence in this free region, I would say successfully, but I’m not completely happy yet on the final results. We are now working also to step-up, which is the omni-channel excellence, really leveraging what we are doing online together with what we are doing on the retail side in a much more integrated way.

We have been working also may be it is less visible from the outside, but I think that our wholesaler have seen also the clarity that has been brought to the different collection, of three dimension. We have also free sub collection in Stone Island with Marina, with the main important collection and we have got and see we have clarified the identity of this collection. And this has been well received by our wholesale account and clearly by our internal team.

For 2023, the focus will be really to make the machine that we have put in place work. Again, we have been summarizing in two-years with the real change of culture internally, something that has been taking three to four-years in Moncler. So we want this year, we need to have the machine that should be really performing before moving to the next step in terms also of communication.

[Remo Ruffini, Chairman and Chief Executive Officer]

Once again, thank you for the question. Just to wrap up the comments from Roberto and regarding Brand elevation. To be honest, we haven’t experienced any downside, neither on the lower price in price product or neither with the young customer.

I will say that for us, especially if we think about examples on Q4 between everything we have done around our iconic product on 70th anniversary, and even leveraging our Maya jacket or even all the way down to footwear, I will say that we have seen the opposite. We have seen bigger acquisition into even new customers across both retail and digital, and sometimes even new customers who came to buy specific items were completely new customers.

So, I think for us, have been all about adding brand meaning and added value to the product and to the proposition we have. So in a nutshell, we haven’t seen that in Q4 or even the beginning of this year.

[Elena Mariani]

And, this is Elena. And just to follow up on one of your questions, when it comes to the impact from the conversions, one thing that I can mention is that excluding these conversions from wholesale to DTC growth would’ve been double digit both in wholesale and in DTC in 2022 and also in Q4.

[Thomas Chauvet, Citi]

Okay. Any markets you will take over this year that would be meaningful at Stone Island?

[Roberto Eggs, Chief Business Strategy and Global Officer]

I think, we have been taking over the most important market. The last one - we leave the best for the world, but also because we are planning now to go and visit this market, which is China, I think we want to have all the rest of the machine completely working and we have planned an important tour of the China, and this is planned for the start of 2024.

[Thomas Chauvet, Citi]

Okay. Well thank you and all the best for year ahead.

[Operator]

The next question is from Antoine Riou of Société Générale.

[Antoine Riou, Société Générale]

Good evening everyone. My first question is on cell density. Can you update us on what level you reached at end of 2022. And is it fair to assume for 2023, given you don’t have any more COVID restrictions in any market that you could eventually come out above the 2019 levels, and how confident and what timing do you see to reach the €4,000 per square meter that you mentioned at the capital markets day? So that is my first question.

My second question on the non-outerwear categories, so shoes and network, can you remind us and tell us what levels you reached as a percentage of sales in 2022. You used to be at around 25%. Has that raisin given the success you did mention in footwear, and what do you expect for 2023? Do you expect footwear and given the success you did mention in footwear, and what do you expect for 2023? Do you expect footwear and knit wear to outgrow the rest?

My last question is on the Stone Island margin, EBIT margin. You used to say that a fair level was 27% to 28%,and the objective was to maintain it at 27% to 28%. Are you still comfortable to maintain this level in 2023 even if you seem to be really ahead with the sort of retailization of the business and given the density for the Stone Island storms must not be as high as the one you do have at Moncler. Thanks.

[Remo Ruffini, Chairman and Chief Executive Officer]

Antoine thank you for the question. On the sales density, if you remember, well, last year, we mentioned that we reached 32,400 Europe per square meter. This year, of course, we increased the average size of our stores with the new format that are slightly bigger than the one we had in the past. And we reach 34,200, which is plus 9%, which is in my view very good performance taking into account the current context.

Now reaching the performance back of 2019, as we mentioned, is yes, we mentioned when there would be no more restriction, but we mentioned also that will be when we have also the Asian travelers traveling back in a normal way, which is yet not the case, at least not in Europe, not in Japan, not in Korea.

So I think we will see - if we see a normalization of the travelers in the second half of the year. I think we can, for the last quarter year, probably plan something that is close to what we had in 2019. But this will depend on the ability of Chinese to travel around the world.

Regarding the 40,000, we said it is not a target, but more, let’s say an ambition that we have that we would like to achieve. And we are working very hard on this. So in the need to long-term I think is something that remains - something that we are aiming to achieve. But we need to find really a world that is back to normal for this.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Antwan, regarding need where and other countries. I will say that this is something that keeps growing, of course, at the pace of the growth of the company and what we saw today. I will say more importantly, I think it is important for us to keep growing this different countries in terms of becoming a more all year round brand. Something that we already discussed before, and this is growing across the three different dimensions of the brand. So, that is only need where another countries.

Regarding footwear, I will say that footwear sales were double- digit in Q4 and in the second half of the year, remember that the introduction of our new footwear concepts have been at September.

So, we are really much on the early stages, but we are happy with the pipeline of the products we have for the next fiscal year and after that. So for us, it is more about keep tracking on - not only on the offense we discussed, but even on the midterm ambition that we present our Capital Market Day. So we are on track towards that.

[Luciano Santel, Chief Corporate and Supply Officer]

This is Luan Wan and about your question about operating margin, operating income for Stone Island. Yes, I mean, we have this percent in mind that this what you said about the 27%, but just to make it clear, I mean about Stone Island is a very precious brand, very precious machine, and the way we tend, we try to drive this precious machine is not only targeting and being obsessed by the operating margin, but being totally aware that we wanted to make this brand that is very stronger and stronger.

And so we are more looking at what Roberto said. First of all, this year we will be focused on organic growth to make all the data utilization of the markets and the conversion from wholesale retail on these markets are working, introducing, developing the retail culture. That is what we will make at the end to improve our profitability.

So again, your assumption is reasonable. But again, I want you to understand what our strategy is, so that is right now for Stone Island, the more than ever very qualitative in developing this kind of retail culture that will allow us to achieve better results.

[Antoine Riou, Société Générale]

Thanks.

[Operator]

The next question is from Anne-Laure Bismuth of HSBC.

[Anne-Laure Bismuth, HSBC]

Yes. Good evening. I have three questions, please. The first one is regarding your the marketing expenditure. So should we expect the marketing to sales ratio getting closer to 7% in full-year 2023?.

My second question is about the store opening pipeline for this year. So should we expect probably the same number of openings and same contribution from new space in 2023 than in 2022?

And finally, coming back on the performance in China, would it be possible to quantify what was the performance in China in Q4? Some of your peers were mentioning a performance that was down 23% to 24%. What was - Thank you very much.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Thank you very much again for the question. I think quick one regarding marketing spend. I think we will still remain around the 7% for the entire year, as we always have been shown in the past few years. So that is the plan.

I think what you are seeing from us is probably a very precise focus on the areas we really want to invest on based on the strategy we present last year, and the three dimension that Mr. Ruffini mentioned at the beginning of the call.

[Remo Ruffini, Chairman and Chief Executive Officer]

Good evening, Anne-Laure. Regarding the store opening pipeline, we are going to open a similar number of stores the one we had this year. So if you go around the 15 stores is what we have secured for the Moncler for the time being. We continue to work on it already also saw some openings for 2024. Clearly focusing also on the flagship and on the key and the most important cities.

We have also so planned for some important relocation. For example, in Zurich and Vienna, but also some key openings in China with the China World and with the Platinum 66. Finally, we have got a ground qualification on access from the ground floor. So this is going to be the focus for the year.

And here, for the full-year, we expect the selling space that will grow at mid to high single-digits, as we usually give us a guidance that the one we gave during the Capital Market is also valid for 2023.

Regarding Stone Island, the number of stores were going to open is more in the range of mid single-digit. So really the focus will be also on transformation of some of the location that we have relocation and implementation of the new concept.

Regarding your question on China, our results overall with a good start of the month of October, the lockdown in let’s say November and to restart in December. The result for China for us has been flattish in Q4, sorry, and positive for the year.

[Operator]

The next question is from Louise Singlehurst of Goldman Sachs.

[Louise Singlehurst, Goldman Sachs]

Hi good evening everyone. Thanks for taking my questions. That is a very impressive result for China. And look broadly, you must be delighted with the performance at the end of the year. I wonder if you can just help us think about the customer base. Presumably, you are getting a very nice uptick in new customers to the brand, particularly with all the 70th anniversary engagement activities toward the end of the year. Can you talk about the mix of existing customers? And I know historically, Roberta, you have kind of given us some indications around like the repeat purchase being very strong and the loyal customer base growing, and I’m just trying to think about that as we consider the benefits of the genius and the relaunch into 2023.

And then secondly, just following up on the margin comments that you have already made, thinking about the positives and the headwinds, I suppose on the positives we have got pricing, China recovery, but then we have also got the engagement activities and the marketing. Are we fair to assume that we will see at this plan, at this early stage of the year and a growth in the margins this year? Thank you.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Hi, Louise. Thank you for your question on the clientele. There are - really our priority in the company. I think there are two things we are cherishing. One is the brand, the second one is the clients. The results of the full year have been driven both by good rate of recruitment, where we did number of new clients is above 60%.

So in line with what we have had in the other year, slightly younger consumer that has been accessing to the brand. Also, thanks to all the activities that we have been generating in 2022, around the 70th anniversary.

And regarding the loyalty, we continue to increase the loyalty rate. This has been driven partially by the fact that let’s say thanks to the COVID, thanks in bracket, we have been - our team have been able to focus much more on the local clients. So we continue and this is going to be one of the focus for 2023, is don’t lose all the work that has been done in this past few years to develop the loyal clientele. While of course, welcoming all the opportunities that we will have, thanks to the travelers that will - especially coming from Asia that will restart to travel to Asian destination to Europe and to U.S.

So capitalize on what we have learned and what we have been doing successfully. Also, the new way of selling where more than 20% of the sales are distance sales, omni-channel sales, clientele activities. And this is something that is starting also for Stone Island. All these are clientele activities very strongly now. We know better our consumer. We know there is this culture coming from - adapted to Stone Island. That is starting to work also, and we hope that we will start seeing the benefit of it.

[Gino Fisanotti, Chief Brand Officer]

One, thing to add to Roberto’s point. I think, definitely we are seeing current and new customers connected to the brand. I truly believe that the way we are approaching the different dimension of the brand with a very clear customer, consumer target in mind is working for us. I think this is allowing us to reach and engage in a more meaningful way customers.

And last but not least, to reinforce Roberto was saying, I think we are seeing this effect in different ways, but the idea of going omni-channel where digital is playing a critical role, even to engage with new communities as well is very important.

So, the answer of course to your question is yes, we are seeing that. I think, the idea of having a more precise approach to different customer base is helping us to reach out to new and more customers.

[Remo Ruffini, Chairman and Chief Executive Officer]

Okay, about margin in Luis. I mean, first of all, the clarification when you mentioned pricing, I mean, our price, strategy and decision to increase the prices in 2023 total due to the production cost increase. So there is no margin effect coming from the price increase in 2023 as well as in the second half of 2022.

About China. China is of course, a big question mark. I mean, you may be right. I hope you are right that, I mean, China may be a nice surprise, but the problem is that right now we don’t know. I mean, just to remind you and to remind everyone that only in mid-October, we were extremely excited by the results in China, right after the event we ran in Milan the 70th anniversary because business started to take off - literally to take off.

And then for six weeks, business was totally down because traffic was down because of the COVID stations and so that situation has not been solve yet. And I mean, we are totally aware that we live in a very uncertainty world, and so we have to plan our business being aware of this situation.

And so, again, we are - we hope that China may be a good surprise in 2023, but honestly, I can’t write now tell you that we plan for this for this possible hopeful upside not at all Right now. I mean, the way we run our business is to be, as always, very, very prudent on one side, but also very flexible and reactive on the other side, because should the marketed demand be higher and better than what we plan on now, I mean, we have the capability to react in the two meter the marketed demand.

Of course, the margins right now, we don’t plan any higher margin than the 2022. Also because margin, operating margin, the region of 30%, as we said, since ever is a good operating margin. We are not obsessed by increasing that margin, but we want to protect that margin for many, many years.

So, whatever, maybe the uplift whatever may be the upside, I mean, we are totally aware that we have to keep investing in our brands, both of them in product design, marketing, and in organization and in the infrastructure because strategy is very important. But execution is important as well.

And in order to execute the strategy, you need some people, tariff people. So, I mean, long story short we don’t know margin. I mean, our ambition is still the 30% very well. Honestly. We don’t aim to do more.

[Operator]

The next question is from Luca Solca of Bernstein.

[Luca Solca, Bernstein]

Yes, good evening. My first question is on Stone Island. You presented Stone Island as the Moncler of 10-years ago. It seems to me that, in order to fulfill this mission, it has to become very strong in both international appeal and retail execution. You mentioned the development of retail culture at Stone Island. I wonder where you stand on that front. And what is the retail space productivity in terms of sales per square meter gap between Stone Island and Moncler at this point?

A broader question is on the apparent shift that we are seeing in the market. If we have to take note from what was presented at the Milan Fashion Week, with a sense that many of the top brands are veering towards more of a timeless and demure approach.

I think Gucci changing designers, the fashion show that Prada staged and so on. And also the sense that some of the best selling products that we had seen in the market recently like sneakers would seem to be losing some of their shine. I wonder what the strategic impact for Moncler would be from all this, both in terms of brand equity and in terms of product offer.

And talking about product offer, my third question is about the branching out of the Moncler brand into other product categories. My impression is that so far irrespective of the percent of sales that come from knit wear or footwear, these product categories are tagging along, sales of down jackets and they are not attracting traffic in their end.

But I wonder if I’m wrong. And if indeed, you have some home run successes of a note that you could potentially mention and that you are starting to see consumers coming to the Moncler stores to buy the Moncler shoes, for example, or any of the other products that are not in the core of your DNA like denim jackets? Thank you very much indeed.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Good evening, Lucas. Roberto speaking. Regarding Stone Island, yes, what we launched is a very broad project. Again, as a reminder, what we started to implement is something that is touching on which we talk about change of culture is not only about the people, the change of mentality, not only about putting the right tools in their hands, about training.

It is also a different sequence in terms of how we bring product to the stores, what is the animation we are going to bring to the stores, what are the different drops. So it is a full set. It is a full ecosystem that we are putting in place to really start activating this brand as more of a D2C brand.

The changes we have put there in place, changing some type of manager, putting people with the right attitude, people able to animate and creating communities in the store is something that is something of a very large good magnitude. So I think we are not yet ready to share figures regarding sales density.

The aim that we have on the long run is to get as close as possible to Moncler, but we are not there yet because we have seen some elements that we need to put in place one of these being also the omni-channel. So linking what we are doing online with what we are doing in the stores in a seamless way, there is still a lot of effort in training to be put in place.

I was mentioning the three different product categories that we have redefined. So now we need to push them with the right moment to animate those category in the store. So, let’s say the agenda for 2023 is more than full.

I think, in one year time we’ll be able to share more regarding the KPIs performance. I think one of the things I’m looking now is the number of action that we are - that our client advisor in Stone Island are doing on the weekly basis. How many clients are there able to get the data from and we are starting from really, really far, even more far than Moncler back in 2015.

And we have now data collection that are not far, already enough far from Moncler. We are 80% for first nine, which is a figure that is absolutely amazing. And this is the starting point from where we are going to start building on this.

On top the other change is what we call the realization of the world cells now is not only retail action, but also how can we elevate let’s say the visibility, because still more than more than 60% of the business is done with the wholesale channel.

They are also - we are working with the team elevating the - let’s say the brand positioning in the stores, finding better location when we talk about [sharp] in shop, working also to have different drops in an animate the wholesale like we are doing in Moncler, but of course in the Stone Island way.

So I think, the route is - the roadmap is clear for us. I think 2023 will be a year on of consolidation where we are starting to leverage all the investment that we have been doing in this past two years including all the part of the supply chain.

[Gino Fisanotti, Chief Brand Officer]

Look at regarding your second and third comment. I try to follow all the comments and fill in, when we talk about Brand first, it is not necessarily about one item or one specific collection, is we are trying to make sure people see who we are, what we stand for and allow people to interact more with the brand.

And I know this could sound very conceptual at some point, but it is true in terms of everything you have seen from seventh anniversary, from Renovo, from probably what you seen or heard last week. And I think what that is doing for us is making Moncler more culturally savvy and more culturally relevant, beyond a specific item or beyond a specific product.

Then that I think is the first caveat to the third point you make about if we are seeing customers connecting with us beyond a jacket or beyond a buffer jacket. And the answer is yes. I think we mentioned this before. I think, you can do that around - you can see that around knit wear. You can see that around -. So you can see that around footwear.

And there is two aspects of that. One is that probably loyal or current customers are the ones who are adding more into their consumer or their purchasing behavior with us. But more importantly, we are seeing a lot of new customers as well, not only from the retail standpoint, but dot.com as well is helping us there.

And I will say this is what we are seeing so far is on top of the existing kind of business we have on our winter more traditional product spectrum, not taken from that. So all in all, I think, I want to go back to the first point. I think what we are trying to do is to elevate the brand when we see that we have a strong brand momentum, because people have a different level of connection and they see a different cultural relevancy of the brand.

I think what we can do is of course, push for more of the traditional product that people used to buy, but I think people are seeing the opportunity to go beyond that because the brand is starting to mean more than before.

[Luca Solca, Bernstein]

Thank you very much indeed.

[Operator]

The next question is from Susy Tibaldi of UBS.

[Susy Tibaldi, UBS]

HI good evening, thank you. First question for Roberto, if you can give us an update on the retail KPIs such as the average transaction value, the repair transaction, the traffic that you have been seeing over the past year.

Secondly on the new Genius that you launched last week, are you - I mean, in terms of concept we have seen that you have been branching out beyond just Russian designers when it comes to the distribution is it going to be similar to what we have seen for the previous Genius chapters and maybe can you also touch on the rationale of some of the new collaborations, what type of customers you are trying to attract?

And then lastly, on wholesale, if you can comment on your order backlog and what growth we should be expecting or you expect for 2023, both for Moncler and Stone Island.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Hi, Susy, I start with the KPIs and then leave the floor to Gino for the genius question regarding the KPIs, I must say they are positive. On here, we are already commenting on the sales density. Also, we had the positive space contribution linked to the 14 stores we open, and also the slightly bigger average surface that we have the average surface, the move up to 187 square meters. So it is a plus 3% compared to the year before.

The traffic went up double-digits. The conversion went slightly down, which is normal when usually you increase your traffic, you lose a little bit in terms of conversion, but more in the range of low, mid single digits.

Overall, let’s say the conversion rate thanks to the higher traffic was positive. And then we have had thanks to a strong full winter season and strong Q4 a good increase in terms of average selling price and average selling transaction was positive also.

Regarding the whole wholesale, I think indication we gave during the Capital Market Day, which is a mid single digit is something we are always aiming to. This always will depend on the amount of conversion that we will be able to drive.

To give you some color also on the Q4 let’s say, performance that we have had in world regarding Montclair. If you take into consideration the fact that we stopped completely selling to Russia and Q4 was a stronger Q3 and Q4 was strong quarter for the Russian market. That for us was at 70% wholesale market. We had only one store that we are managing and that we have closed is the one in go.

You could have had it five percentage points on the performance of the whole sale. So completely in line with the performance we are expecting, we had also conversion this year with the - whichever aroma that were converted into a concession and - model. And we had some also store that have moved from wholesale into retail like La Samari in Paris that is performing really well since we took it over as a retail business.

So I think the indication is there. It will depend, if we are able to still continue to convert. So we plan with this mid single-digit and depending on our ability to transform the business model, it may vary a little bit, but this remains the indication that we have.

[Gino Fisanotti, Chief Brand Officer]

Susy, thank you for your question. Again, regarding Genius, I think we have been expressing this for the past few months, I think, in the opportunity for us to evolve a model that have been extremely successful for the brand.

And this is why I think last week we started talking about this sort of moving from a collaboration platform that was basically focused on fashion and luxury to a platform of co-creation. This idea of how we can award with these different entities that allow us to create something new or something that we didn’t exist before.

And probably I think following Moncler you heard this line, multiple times about the area of push in the brand beyond fashion and beyond luxury even we see others using the same line. I think for us Genius is that is about how we can open up ourselves on the brand to go for real beyond fashion and luxury. And that is a little bit of what you saw last week.

For us, it is a big opportunity to inspire, not only to inspire but to inspire and invite almost a new generation of luxury customers to the brand, I think we really want to leverage the power of the brand to not only connect, but to influence other industries.

I think we want to talk about cultural relevancy, the opportunity to have a brand who can influence other industry is very, very important. And this is why you have seen us last week moving just from luxury into art, entertainment, music design et cetera. And we always believe in a company where creativity is very, very important.

The creativity leaves at the intersection of what is possible. And I think Genius is at the core of that idea of creating something new or create a label of what we call the unexpected that. So that is the intention.

Again, of course, we will talk probably in the next quarter about last week. We are extremely proud and happy of not only the results, but the way we present these evolution of Genius to the market and we are extremely happy with the response we got so far.

I think the last comment probably the caveat here in terms of distribution, of course, working with different industries allow us not only to sustain what we have down the time in terms of distribution of Genius, but open up new opportunities for us because at the very end distribution play another critical role in terms of connecting and interacting with new customers and this is everything that Genius is all about.

[Susy Tibaldi, UBS]

Thank you. And so, on the wholesale comment for the mid single-digit, this is also applied to Stone Island?

[Roberto Eggs, Chief Business Strategy and Global Officer]

In Stone Island, we are still in this transformation phase. So yes, as an indication, this is what we have broadly. But here, we have still working really to redefine the distribution. So yes, you can take it as an indication, but this may vary a little bit depending on the opportunities that we have and the way we are going to transform the business. We are still some conversion that are possible with the Stone Island business. So it will depend, but as an indication, yes, mid single-digits.

[Susy Tibaldi, UBS]

Okay. Thank you.

[Operator]

The next question is from Charles-Louis Scotti of Kepler Cheuvreux.

[Charles-Louis Scotti, Kepler Cheuvreux]

Hi. Good evening. Three questions from my side. The first one, some of your competitors are pointing out the moderation of demand from younger customers, especially below 30 as well as more accessible in very SKUs. Do you see this pattern with your customer base at the moment?

Second question on the price gap between China and Europe. It seems that it is one of the highest in the industry if I’m not mistaken, how confident are you to be able to narrow the gap before H2, and what will be the risk if you are not able to do it before Chinese regime traveling fully in the second path of the year?

And third question, is there any relevant foreign exchange or aging impact we should have in mind when forecasting your gross margin and EBIT margin for 2023? Thank you.

[Roberto Eggs, Chief Business Strategy and Global Officer]

Good evening, Charles. I think, I commented, and I think it was also restated by Gino on the fact that now we have not seen a decrease in the consumer demand from younger audience, just the opposite.

So I think it is probably linked to the fact that we have been able to create these communities around the brand, and to push the brand and elevating the brand and desirability of the brand that is driven.

And we have seen that, especially with the Genius in the crowd that we have had in London last week was really amazing, and it was really a young crowd, the one that we want to attract to the brand.

Regarding the price gap, we have the ambition to come back to the price gap that we had pre COVID by increasing more the prices in Europe with the arrival of the for winter season is with the spring team, spring summer, the price gap is already, is narrow. We had higher price gap for the full winter, lower for the spring summer season.

So we are already now with the spring summer not so far from what we have pre COVID, and we want to realign the price of the full winter starting from June by increasing higher the price more in Europe, a little bit less in China.

Now, if as you mentioned, you would have Chinese traveling to Europe before the H2, they will be pleased to get prices that are even more attractive. So, I don’t see that as something that is going counterproductive regarding the increase of the Chinese cluster.

But what we want in all the nationalities we are working with is to increase the local demand. This is why we want to reduce the cap in order to be able to leverage and develop more of the local clientele clearly, if Chinese will start to travel before that in Europe, of course they are modern welcome, and it will be even more interesting for them. But this is the objective to realign with the pre COVID figures with the June delivery with the full winter.

[Gino Fisanotti, Chief Brand Officer]

Okay. Your question about margin and our hedging activity, I mean, just to make it clear, to make sure I understand your question. I mean, our hedging policy is aimed to neutralize any effects impact, which is by definition unpredictable.

And so, we don’t target any change in our gross margin based on our hedging policy. We target to protect our gross margin, at the time we implement our pricing strategy, because we normally implement the pricing activity about six months before we start selling the product.

So in order to make sure that at the time we will sell the product, gross margin will still be what we have defined strategically six months before, we implement our hedging activity, not the most important occurrences. So no impact on gross margin, but protection of the gross margin. But again, let me understand, if I correctly understood your question. Thank you.

[Charles-Louis Scotti, Kepler Cheuvreux]

Thank you.

[Operator]

The final question registered is from Flavio Cereda of Jefferies.

[Flavio Cereda, Jefferies]

Thank you very much. Hi you will be reassured to know, given the time that I actually only have one question, and it is for Luciano, and it was about work networking capital and the mix of networking capital. Now, I appreciate it is a snapshot in time, but it does show an uptick in your inventories as percentage of sales. And seems that accounts payable particularly aggressive on that one as well. Is there anything that we can, I mean, this could be read either way - can you give us a sense of how to interpret these two metrics in particular? Thank you.

[Luciano Santel, Chief Corporate and Supply Officer]

Yes. Thank you Flavio for your question. The networking capital overall is very good, but you are right. Inventory is significantly higher than last year, than the year before. This is due to several different factors.

One policy factor is that we anticipated the production of the follow winter 2023, and so we anticipated also the acquisition or raw materials, whatever. Second factor is due to the conversion of western island business from wholesale leisure distribution business in some markets to retail business and this implied an increase in inventory.

And last but not least, honestly, the fact that at the end of the year our finished product inventory was higher than the year before, mostly due to the difficulties of the problems we discussed about before in China in Q4.

The good news is that considering the stronger business trend in all the regions, that in China as well, in January, February, that inventory, let’s say not a problem, but a higher amount of inventory has been absorbed by the good business in January, February. But I mean, your point is correct. Inventory is quite a higher for these reasons I told you.

[Flavio Cereda, Jefferies]

And anything on the payables?

[Luciano Santel, Chief Corporate and Supply Officer]

Yes, payable, I mean, this is more timing Flavio is due to the fact that, I mean, of course again, there are many different factors, but one is associated with the fact that we opened the majority of the stores in 2022 in Q4, and in more, many of them in December and so part of that expenditure that is reported under CapEx was in our payable, not paid yet.

[Flavio Cereda, Jefferies]

Thank you. Thank you all.

[Operator]

We have another question registered this time. It is from –

[Elena Mariani]

Yes, yes. We have timer for one last question.

[Operator]

Thank you, madam. It is from Piral Dadhania of Royal Bank of Canada.

[Piral Dadhania, Royal Bank of Canada]

Thank you, good evening. Thanks for fitting the in. So just two quick ones. The first one is just on the tax rate, obviously, you have a tax saving coming through this year and your tax rate has been up and down over the last years. Could you just help us understand how we should model the effective tax rate for 2023 and going forward? That was the first one.

And second one is just on the way that you are planning the business in terms of growth for 2023. So historically around the of the IPO and for a good few years after that, you always talked about mid single-digit like-for-like is how you plan the business from a conservative standpoint. The bigger you get, the faster you seem to be growing. And with 15% like-for-like delivered in 2022 and obviously 10% pricing coming through in 2023 expected. Should we expect a similar level of like-for-like growth in terms of the way that you are planning and expecting to grow in 2023, please? Thank you.

[Luciano Santel, Chief Corporate and Supply Officer]

Okay. Relative to your first question. I mean, the tax rate has been very volatile for several different reasons, most associated with tax opportunities in some of the jurisdictions where we operate our business at first in Italy and this was the case in 2019 and in 2022 for the evaluation of the Stone Island segment.

Having said that, the 29% more or less of tax rate is our guidance of for the future for 2023 and also for the following years, unless something you make a note. But again 29%, about 29% is, let’s say, the standard tax rate.

About the second question. The way we plan our business, I mean, you are totally right and you remember very well. This is the way we plan our retail business, which is mid single-digit, of course.

I understand your point, considering the price increase, should we implement achieve a mid single-digit growth of course, this was implying a decrease in volumes. And the problem is that we don’t know.

And the reason why we keep planning our business at mid single-digit is that exactly we don’t know what the future may be. And consider that the situation in the world is still very certain, we prefer to be very prudent.

But on the other side, as I said before, over the years, we have developed a pretty flexible and reactive supply chain that will be able to meet the market demand, if the market demand will be higher, and not only due to the pricing, it is not also due to additional volumes.

And so this is something that will allow us, hopefully, to react to the market demand. But again, the reason why we plan our business very prudently is that, again, planning the business prudently means that we produce less product.

Again, this is something that belongs to our strategy, but even more to our line sector. We don’t want to run the risk to end up at the end of the season with too much inventory. We prefer to run the risk in order to have enough inventory.

In any event, of course, so we aim to offset the loss ratio to have the right amount of inventory, and that is why we plan our supply chain in order to be ready, if the demand of the market will be higher than what we plan to meet that demand. I hope I answer your question.

[Piral Dadhania, Royal Bank of Canada]

Yes. Thank you, Luciano.

[Elena Mariani]

Okay. Thank you very much, everyone for participating in this call. Let me just give you a quick reminder of the next release. Our Q1 2023 interim management statement will be released on May 4th after market close, and our quiet period will start on April 5th. Thank you again for all your questions, for any follow-ups do not hesitate to contact the IR team any time. Thank you and have a fantastic evening.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.