Prada (OTC:PRDSY) Group (1913.HK) has reported a significant increase in its full-year 2023 results with net revenues reaching €4.7 billion, marking a 17% rise at constant exchange rates. The luxury fashion house saw retail sales climb by the same percentage, with notable performance across all regions, except the Americas.
The group's profitability has also seen an uptick, with an EBIT margin standing at 22.5% of revenues. Prada and its subsidiary Miu Miu both recorded above-market growth, with Miu Miu delivering an exceptional contribution to the group's retail sales. The company's focus on marketing and sustainability, alongside investments in brand, people, and innovation, has been underscored as key drivers for the positive outlook.
Key Takeaways
- Prada Group's net revenues increased to €4.7 billion, a 17% rise at constant exchange rates.
- Retail sales also grew by 17%, with Miu Miu contributing significantly to the group's performance.
- The EBIT margin improved to 22.5%, with cash flow from operations reaching €1.265 billion.
- Double-digit growth was reported across all regions except the Americas, with Asia-Pacific, Europe, and Japan performing strongly.
- Gross margin expanded to 80.4% compared to the previous year.
- The company aims to maintain above-market growth rates into 2024 and will continue to invest in brands, people, and innovation.
Company Outlook
- Prada Group is optimistic about maintaining above-market growth rates.
- Focus on investments in brand development, talent, and innovation.
- The company is working on improving its presence in the US market and expects positive results in 2024.
- Plans to increase square footage for Miu Miu and restructure smaller footwear brands.
Bearish Highlights
- The Americas region's performance remained flat compared to other geographies.
- Specific long-term margin targets were not provided, indicating potential uncertainty.
- The travel retail channel, despite recovering to pre-pandemic levels, does not significantly impact overall success.
Bullish Highlights
- Strong growth in Asia-Pacific, particularly in Mainland China, Hong Kong, and Macau.
- Europe and Japan also reported solid performance, with Japan experiencing the highest growth rate.
- The company's manufacturing and industrial platform's focus on flexibility and innovation has been successful.
Misses
- The company has not provided specific guidance for growth prospects and gross margin expansion.
- No specific percentages regarding the Chinese clientele's contribution to Miu Miu's growth were disclosed.
Q&A Highlights
- The company plans to adjust certain operating expense lines to achieve increased operating leverage.
- Prada Group is satisfied with the current market positioning of Prada and Miu Miu.
- The importance of a balanced product mix and the launch of new products were emphasized.
- Prada Group expressed gratitude and anticipation for the Q1 results, to be announced in April.
In summary, Prada Group's full-year 2023 results reflect a strong performance with significant revenue growth and profitability improvement. The company remains focused on strategic investments and sustainability initiatives, positioning itself for continued success in the luxury fashion market.
InvestingPro Insights
Prada Group's impressive financial year has been further illuminated by real-time data and insights from InvestingPro. The company, known by its ticker PRDSY, has demonstrated robust financial health and market performance.
InvestingPro Data metrics reveal a strong revenue growth with the last twelve months as of Q2 2023 showing a 20.36% increase, amounting to $4.95 billion USD. This aligns with the company's reported net revenue increase, underscoring its successful growth trajectory. Moreover, Prada's gross profit margin stands at an exceptional 80.05%, highlighting efficient operations and a strong market position.
InvestingPro Tips for PRDSY suggest that the company is trading at a low Price-to-Earnings (P/E) ratio relative to its near-term earnings growth, with an adjusted P/E ratio of 28.87 for the last twelve months as of Q2 2023. This could indicate that Prada's stock is undervalued given its earnings potential, providing an attractive opportunity for investors. Additionally, with a PEG Ratio of 0.56 during the same period, the stock may appeal to growth-oriented investors seeking value.
Furthermore, the company's stock is trading near its 52-week high, reflecting strong investor confidence and market sentiment. With a Price % of 52 Week High at 90.54%, PRDSY is maintaining its momentum in the marketplace.
For readers looking to delve deeper into Prada's financials and market performance, there are 12 additional InvestingPro Tips available at: https://www.investing.com/pro/PRDSY. These tips offer nuanced insights into the company's profitability, debt management, and valuation multiples, among other key financial aspects.
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Full transcript - Prada Spa PK (PRDSY) Q4 2023:
Operator: Good day, and thank you for standing by. Welcome to the Prada Group Full Year 2023 Results Presentation. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] And please also 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.
Andrea Bonini: Good afternoon, everyone, and thank you for joining the Prada Group's full year 2023 results conference call. This is Andrea Bonini, Chief Financial Officer of Prada Group. I'm delighted to be with you again. I'm joined by Mr. Patrizio Bertelli, Chairman of the Board and Executive Director; Mr. Andrea Guerra, Group CEO; and Mr. Lorenzo Bertelli, Marketing Director and Head of CSR. Mr. Patrizio Bertelli will start today with group highlights for the year, followed by Mr. Lorenzo Bertelli, who will provide an overview of our marketing and communication activities, and an update on our ESG initiatives. 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, during today's call, we may discuss forward-looking statements, which are subject to risks, uncertainties and factors beyond our control that could cause the actual outcome and returns to differ materially from such statements. Please refer to the disclaimers included on slide 2 of our presentation. With that, I will hand over to Mr. Bertelli.
Patrizio Bertelli: Good afternoon. Welcome to the presentation of the yearly results of the Prada Group of 2023. 2023 was a year marked by important organizational evolution for our group, which allowed us to strengthen some competencies and brought further improvement in the execution of our strategy. Our main focus was that of further increasing the appeal of our brands through product and communication initiatives, which were designed to strengthen the relationship with our customers. Together with that, we kept improving retail in order to increase the productivity of our stores. Thanks to all those activities combined, 2023 also closed with a significant high-quality growth, driven by double-digit like-for-like growth for the third year in a row, which translated into an increase of retail productivity and profitability. Let's look at numbers. Net revenues stood at €4.7 billion, up 17% at constant exchange rates. Retail sales posted the same increase during this year, plus 17%, with an excellent performance in the fourth quarter as well, which was also plus 17%. All the areas Japan, Asia Pacific, and Europe grew double digits. The Americas closed the year at constant sales versus 2022. Prada is now closing another sustained growth retail year and gained further market shares through a well-balanced product portfolio and the major capability to innovate and interpret contemporary style. For Miu Miu, 2023 was a year of great success in consolidating the brand's image and appeal. The results are the outcome of a number of strategic choices made over the last year that span over product, communication, distribution and human resources. The group's profitability further improved with the EBIT margin standing at 22.5% of revenues. At the same time, we supported our brands through bigger communication and retail activities and overall, we strengthen the group structure. We also increase investments in our stores also in the industrial and technological infrastructures. To wrap it up, I believe that innovation, dynamics and flexibility are always very important in today's market situation, and I'm confident that our strengths and organization will be able to drive the group towards further growth and evolution. Let me now introduce Lorenzo, who is going to talk about the main initiatives of 2023 in marketing and sustainability.
Lorenzo Bertelli: Thank you, and good afternoon. Over the last year, the strength of our brand's creativity has enabled us to continue to capitalize and strengthen the desirability. Prada continues to drive interest with impactful fashion shows, campaigns, collaboration and events that consider enduring success of the brand creative codes. Both menswear and womenswear shows very well received with brand desirability boosted by a strong global talent strategy. Throughout the year, Prada presented a number of distinctive global brand initiatives for its customers. This included the second edition of Pradasphere in Shanghai, which displayed over a century of the brand's history and culture, Prada Mode in Tokyo, and Prada Frames Symposium in Hong Kong. The Prada Caffè continued to grow in popularity with experiences in Shanghai's adding to the success of Harrods in London. Exclusive collaboration and groundbreaking partnership continue to surprise and delight our audiences. We announced to develop with Axiom Space, NASA's lunar spacesuits for the Artemis III mission and we announced the visibility of our Linea Rossa brand with the Adidas (OTC:ADDYY) football for Prada collection. Moving on to Miu Miu. The brand continues its outstanding performance with highly acclaimed fashion shows, new and consolidated partnerships and engaging events that connect with the Miu Miu community on global scale. A product level grow was fueled by iconic and viral lunches, including the successful introduction of the Arcadia and Eve bags, the unveil of a well-received collaboration in footwear with charges, and the second chapter with New Balance and ready-to-wear collection drops. We also established the Miu Miu Women's Days Committee to supporting rising talent in the film industry. It includes film work thought leaders to drive the evolution of the project. Now we'll turn to ESG, which continues to embed it through our strategy. We have continued to build upon the foundation put in place in the past couple of years. And I'm proud to report we have reduced Scope 1 and 2 greenhouses gas emission by 58% compared to our 2019 baseline. We are fully on track to achieve our 2026 size-based target and through several initiatives including significantly phasing down our natural gas consumption, procuring green electricity on a global scale and further investment in both photovoltaic plants and electric vehicles for our company car fleet. To reduce our Scope 3 greenhouse gases emissions, we have set targets to transition some of our key raw materials such as cotton to lower impact alternatives and conducted our first life cycle assessment to measure the impact of some of our iconic products and materials such as Re-Nylon. Most recently, we have invested in SaaS certificates to contribute to the carbonization of the aviation industry. We strongly believe that cross-industry collaboration is key to positively contributing to long-term prima change mitigation. Similarly, collective action is key to positive impact. This is why we're pleased to report today that over 75% of our leather and textile suppliers are involved in the ZDHC program to eliminate harmful chemicals from the fashion industry, global supply chain. We can also report noteworthy statistics or our people initiatives, including the achievement of 44% women presence in our group leadership team. The group's talent is at the core of our strategy, and we'll continue to invest in craftsmanship. As part of the Prada Group Industrial Academy, 143 young people were trained last year and almost 80% of the participants were hired in our production area. We also significant increase funding to support SEA BEYOND, our flagship ocean education program in parting with IOC UNESCO. In July 2023, the program was expanded to include scientific research and humanitarian projects. Thank you. I will now pass over to Mr. Guerra for the business update.
Andrea Guerra: Welcome from my side as well. Happy to be here with all of you today, and thank you, Lorenzo for your words. Let me start by saying, as we stated in our press release headline that a strong Q4 and a year of excellent progress and results. Prada Group is finishing another high-teens growth in retail sales, almost all like-for-like. And I would like to pause on this and repeat it, almost like-for-like, third year in a row. We finished 2023 on a solid base, and as we guided you with a slightly easier comp base in Q4 2022. We had, during 2023 a continuous and solid progress on our strategic journey, which has meant our retail excellence – excellence paramount projects, our constant organization, consolidation and evolution. And I think that this is giving us the opportunity to trade in a world made of constant uncertainties and constant ups and downs. Looking to our two main brands. On Prada, we had a solid and well geographical and product-wise diversified growth with some well-deserved peaks in Asia, Japan and Europe. I would stress the desirability and cultural relevance of Prada remain the two main drivers in everything we do. And everything we have seen through our shows, our exhibitions, our new stores and our events. Consumer, landlords and all our stakeholders are clearly understand this natural multifacet Prada positioning, moving through the style of the day from more relaxed luxury to more absolute elegance. This journey started some years ago to focus mainly and almost only, on full price retail with a slowdown in our wholesale perimeter and closing down our outlet stores. And I would say that, this solid strong decision taken some years ago is totally paying off. Turning to Miu Miu, obviously, a great success during 2023. A lot of hard work, even in darker times during the last years has led Miu Miu to today's success. Creativity, design, boldness, long-term view, even in tough times, without looking for shortcuts has led Miu Miu to where it is today. The growth of the last 24, 36 months is even more than like-for-like, because our net perimeter has less stores than 24 months ago today. We are committed to become even more relevant in this Miu Miu fashion unique positioning. Growth has been throughout the different geographies, throughout all product categories and with a successful, strong, promising growth in the leather goods category. The journey ahead of Miu Miu is long, is wide, and we need to stay humble. We need to stay really, really focused to allow this journey to continue for the long-term. So, happy of 2023 for Miu Miu, but really looking forward to a stronger future in 2024 and beyond. With this, I would now pass the word to Andrea and he will walk us through our numbers.
Andrea Bonini: Thank you, Andrea. I would like to start with key financials on slide 14. The group reported net revenues of €4.7 billion, up 17% versus fiscal year 2022 at constant FX. Exchange rates had a negative impact of 465 basis points on revenues and the increase at current exchange rates is, therefore, plus 13%. Retail sales for the period totaled €4.2 billion, up 17% versus fiscal year 2022 and up 46% versus fiscal year 2021 at constant FX. EBIT reached €1.062 billion in fiscal year 2023 with margin of 22.5%, showing further expansion versus the 20.1% of fiscal year 2022, coupled with substantial investments behind the brands. Cash flow from operations reached €1.265 billion, and our net cash position stood at €197 million, after €759 million of CapEx cash out, including real estate. Moving on to the next slide. Retail continued to be the engine of growth throughout the year, up 17% versus fiscal year 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. The fourth quarter delivered the strong performance of plus 17%, accelerating versus Q3, plus 10%, with solid underlying trends and also reflecting easier comps in China. This marks the 12th consecutive quarter of solid like-for-like growth. On wholesale, we were up plus 13% year-on-year. We kept our approach selective with independents, which resulted in flat performance, while we continue to see sustained growth in the duty-free channel. Royalties were up plus 36% year-on-year with strong growth in both eyewear and beauty. Turning to the next slide, retail sales by brand. Both Prada and Miu Miu achieved above-market growth. Prada delivered a solid plus 12% growth over the year, driven by full price like-for-like sales. Growth was supported by all categories and well balanced across gender and age groups. Q4 accelerated at plus 10% versus Q3 at plus 5%, driven by all categories. Miu Miu reported an outstanding performance throughout the year, plus 58% year-on-year, with a further acceleration at plus 82% in Q4 and supported by higher exposure to China and Asia. Growth was strong and well spread across all categories and regions. The brand now contributes to 15% of the group retail sales versus 12% in fiscal year 2022. Encouraging progress was seen at Church's with positive like-for-like performance for the full year, but there was still a negative impact from the perimeter. In terms of product categories, at aggregate level, ready-to-wear was the fastest-growing category in the year at plus 31% followed by food were at plus 18% and leather goods at plus 8%. All categories accelerated in Q4 versus Q3 for both Prada and Miu Miu. Moving to the next slide. The group achieved double-digit growth across all geographies, excluding Americas, which ended the year flat. Asia-Pacific saw strong growth throughout the year at plus 24% against a volatile basis of comparison in 2022. As expected, we saw an acceleration in Q4 at plus 32%, driven in particular by Mainland China, Hong Kong, and Macau, showing solid underlying trends and also reflecting easier comps. Europe grew by plus 14% over the year, a solid performance supported by strong domestic and tourist consumption. Growth was sustained in H1, particularly in Q1 and remained solid thereafter, albeit normalized on very challenging comps. Americas ended the year with a flat performance, following a sequential improvement in the fourth quarter at plus 4%, supported by some repatriation of spending. Japan was the best-performing region over the year, up 44%, with 38% in Q4, driven primarily by strong local demand and also increasing presence of tourists. And lastly, the Middle East delivered a solid performance at plus 10%, including Q4 at plus 8%, notwithstanding greater geopolitical headwinds in the period. Turning to the next slide. Gross margin reached 80.4% in fiscal year 2023 with 160 basis point expansion versus fiscal year 2022, driven by average price, channel mix, and economies of scale. As expected, the level is substantially unchanged versus H1 and we don't expect meaningful movements going forward. Top line performance and phasing of expenses resulted in a particularly strong H1 in 2023, but we achieved further EBIT margin expansion, reaching 22.5% of net revenues at year end. This profitability improvement was coupled with higher marketing spend. And in general, our organization infrastructure has been strengthened significantly over the past two years, as reflected in the OpEx increase. Going forward, our focus is to moderate growth in most fixed OpEx lines to maintain room for growth in marketing. Net income stood at €671 million, an increase of 44% versus fiscal year 2022. CapEx for fiscal year 2023 was €753 million, including the acquisition of a highly strategic real estate asset at 724 Fifth Avenue in New York. On the retail side, over the period, we completed around 130 renovation and relocation projects, which accounted for approximately 80% of the total retail CapEx. Following 26 openings and 32 closures, we closed the year with 606 directly operated stores. Excluding retail, the remaining CapEx included $48 million for industrial initiatives and €75 million related to IT projects. Moving to the next slide, Net working capital increased by €44 million to reach €735 million and further improved as a proportion of fiscal year 2023 net sales to 16%. And lastly, the group retains a solid balance sheet with a net cash position of €197 million at the end of 2023 the Board of Directors has proposed an increase of dividend per share to $0.137, which compares to $0.11 last year, which would result in a total dividend of circa €350 million and a payout ratio of 52%. With that, I will hand over to Andrea Guerra, for 2024 priorities and closing remarks. Thank you.
Andrea Guerra: Thank you, Andrea. Now on one side, as we all said, we're happy about our 2023, but I have to say that we are also happy for our beginning of the year in January, February. Let's talk a little bit about 2024. So some periods and quarters can be tricky in terms of comparison. Asia reopening in early 2023, led to some faster-food shopping. Nowadays, we are finally observed in some international Chinese tourism, while American tourism flies to Europe as they did in the past two years, is this going to happen with all the geopolitical new turmoil. So even 2024 can be a year of some acceleration, -- some acceleration some ups-and-downs. So we have to go through 2024. I'm pretty sure that, it will be a more linear path throughout the year. And our performance for sure, will be above market growth rates. We are all in a more normal market. We are all in a more normal world. So 2024 could be a kind of year where we will observe more clearly some market share shifts that will be more visible. Key drivers for our group during 2024, let me say, are pretty similar to what we have done in 2020, 2021, 2022, 2023 with something more. So on one side, obviously, we will continue to fuel investment, culture, intelligence, CapEx on our brands and their desirability. We will continue to foster upgrade, promotes from internal, our people and really lead our people through 2024 with a strong motivation, obviously, coming out from such a solid period could be a little easier job. We will continue to fuel the market with innovation and new products, something that our brands are pretty easy with. And on the other side, again, all our investments, all our activities, everything we have learned on retail excellence in this past 4, 8, 12 quarters will allow us to trade a 2024 market and industry. We have space to gain and regain some long-standing market share back. 2024 will be another important year to evolve our recognization across the world, always more and more brand-centric and digital savvy. So we are looking to a 2024 that for some means, could be a little bit more complicated in 2023, looking it from an industry point of view, I think Prada Group journey, Prada and new brands could have and hopefully, will have a journey, as I said at the beginning with an over-average growth in all 2024. Thank you, and ready to answer to your questions, if any. Thank you. And I give the word back.
Operator: Thank you, sir. [Operator Instructions] Thank you. We are now going to proceed with our first question. And the questions come from the line of Edouard Aubin from Morgan Stanley. Please ask your question. Your like is open.
Edouard Aubin: Yeah. Hi, guys. Good afternoon. Thank you for taking my question. So just to start with one question, Andrea, you talked about the beginning of the year, which was quite satisfactory despite the more difficult comp base in January and February in China last year. Could you just provide a little bit more color on that? And also, you mentioned the Chinese traveling more. One of your friendly peer in Milan a few days ago, talked about Chinese in Europe being at about 80% of what they were back in 2019. Are you seeing this level of Chinese spend offshore? So that would be my first question. And just sorry, related to that, on the trends you didn't provide, but I guess we can triangulate the sales in the fourth quarter, but would you say that the fourth quarter, the main positive surprise came from Asia and Chinese in particular? Or was it more broad-based than that? Thank you. That's my first question.
Andrea Guerra: Thank you, sir. So what I said is basically what I'm going to repeat now. The first two months of the year have basically moved in a direction similar to Q4. So this is what I can say more. Nothing more, nothing less with the same, let me say, obvious difference in speed between the two brands. Having said so, I would agree on the fact, as I was stating before seeing many more Chinese, in Japan and Europe in the past couple of months. I would say that we are in the ballpark of the 70%, 80% of what we have seen in the past. But most probably, it's a different kind of Chinese and attitude. This is more individual travelers that was more tour operated than group travelers. So there are some differences. So this is how I see it. And I repeat, Q1 last year was a peak quarter for Japan, for Europe and for some crazy shopping in Hong Kong and Macau.
Edouard Aubin: Understood. And my second question is on kind of how you see the year. And obviously, you guys don't provide guidance, which is completely understandable. But just slightly more qualitatively, you talked about on the top line, you talked about above industry growth. I mean some consultant experts assume a mid single digit type of growth. Could you guys potentially still be double digit? Is that kind of what you have in mind? Obviously, you don't have a crystal ball, but based on what you're seeing and expecting today, that's number one on the top line. And then in terms of the margin, Andrea Bonini, mentioned that you expect the gross margin to be at given that it's already record high. In terms of the EBIT margin further expansion, could we have the same magnitude of increase in '24 versus '23 that you had between '23 and '22, i.e. around 200 basis points? Or is that what you have in mind as of today? Thank you.
Andrea Guerra: Yes. Sir, let me answer it this way. You stated that we don't give the guidance, but at the end, you are asking for a guidance. So, I think what we said is more than enough. I mean, you can read our attitude. You can listen to, I mean, everything qualitative, we have been trying to say. I think, it's fair today, it's February. As I said, last year was a very -- another peculiar year of ups and downs because of opening reopening and slowdowns. Let us work -- let us go through the year. As I said, I mean, already to say that the first two months have been in line, in the trend of the Q4, I mean, it's a big one. I do not know if we are able to keep this velocity, but this is what is happening after now.
Edouard Aubin: Okay. Thanks everyone.
Andrea Guerra: Thank you.
Patrizio Bertelli: Next question, please.
Operator: 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. Your line is open.
Luca Solca: Thank you very much, indeed for taking my questions. The first question would be on -- of price and its contribution to retail. You said, Andrea, that you took a courageous decision in the past to close factory outlets. Are we correct in assuming that the price contribution to sales today is less than 10%? Or would we -- would that estimate be what the wrong when it comes to how important factory outlets remain in the business?
Andrea Guerra: I think that the number you stated is more or less where we are today.
Luca Solca: Thank you very much, indeed. When it comes to the growth by nationality, we definitely saw in the fourth quarter quite a significant rebound in American consumer demand growth, at least when we looked at some of your peers. I wonder from a nationality specific viewpoint, what you are seeing at the moment, is there anything important to note. There's a sense, for example, the Chinese demand is very polarized with more of the high end and less of a contribution from the middle class. Anything that we could potentially learn from your observatory on demand by nationality?
Andrea Bonini: Hi, Luca, it's Andrea Bonini. So what I would say on nationalities is starting with the Chinese cluster is we've seen very good numbers, very good growth on two-year stack, which is more meaningful and stable, I'd say, in Q3, Q4 predominantly local, as you know, but travelers -- travel transactions growing faster and in particular, with the acceleration that we talked about in Q4, but also beginning of the year. American cluster positive overall in fiscal year 2023. It was flattish, I'd say, and stable in Q3, Q4. Again, no big shifts year-to-date. We are seeing, as one would expect higher growth in local transactions versus traveler transactions, because of the very different comp basis as well. And lastly, on European cluster, again, very solid throughout the year and solid in Q4 and year-to-date as well with no significant changes.
Luca Solca: Andrea. And maybe my last question on Miu Miu. The performance of this brand in the most recent past is exceptional. Anything that you've learned in terms of how you managed to energize consumer interest for this brand that could potentially be transferred to Prada, so as to replicate or at least in part, replicate this vigor in the product performance?
Andrea Guerra: Let me argue on this. So I think that what Miu Miu is doing today is a long-standing journey that Miu Miu has done. So we had -- and this happens to many different brands. We had a couple of years, maybe three years of slowdown. And now we are recapturing our journey, our women and our trajectory. I think that there is no exceptional things happening. And this is also the moment where if you don't stick your feet on the ground where you're not humble, that is where you begin to make mistakes. Prada doesn't need vigor. I mean, the growth of Prada in the last three years is basically like-for-like something around 75%. So this is a steady strong growth, and this is what we are expecting from a larger brand as well. I think Miu Miu is really going back to where it has to be.
Q – Luca Solca: Understood. Thank you very much, indeed.
Andrea Guerra: Next question, please.
Operator: Thank you. We are now going to proceed with our next question. And the questions comes from the line of Thomas Chauvet from Citi. Please ask your question. Your line is opened
Q – Thomas Chauvet: Good afternoon, everyone. Thanks for taking my question. The first one on gross margin, over 80%. I mean that’s remarkable, it's up by nearly 10 percentage points versus 2019 recorded. So we haven't seen that kind of trajectory at any of your French or Italian peers, perhaps there were a few low-hanging fruits, but clearly, the price mix and volume growth has helped. Do you see Andrea a cap to gross margin from here? And how do you ensure the gross margin not going backwards. I'm not talking about 2024, but do you feel that that's the new bar now for the company, for the group? And I'll let you answer that and follow up.
Andrea Bonini: It's -- thank you, Thomas. It's Andrea Bonini, It’s a level as we said, that we are very happy about. It is best-in-class or you know close to best-in-class. We also said that going forward, we don't anticipate meaningful movements, meaning we wouldn't anticipate meaningful increases, because from a mix standpoint, channel mix standpoint, as you know, we've done a lot also from a prices standpoint, we are in a different environment from the one over the past three years. At the same time, we're working not to go backwards. It's a very good level and a level that again, with the ambition to maintaining it, we can then work some basis points up or down also to continue to focus as the company has always done on quality. And that's point number one. I think point number two, in particular this year, right, we've also seen some specific factors contributing positively to the gross margin increase. I mean, the most notable, I think, in -- on the cost lines, I mean in certain logistics that I've mentioned before.
Q – Thomas Chauvet: Thank you. My second question on -- a follow-up on Miu Miu and this extraordinary growth. You said it was mostly like-for-like, I guess, volume and price/mix. Any indication whether the EBIT margin is now not quite at the Prada level, but maybe close to 20%? And then how do you manage growth from here? I mean, do you have more ambitions to actually open store to try to scale this? Have you protect that brand from perhaps overheating. We've seen Miu Miu historically quite volatile in the decade or two ago. I'm just curious to hear you on how you manage Miu Miu from here? Thanks.
Andrea Bonini: I'll start, and then I'll let Andrea Guerra to continue. So on the margin, Miu Miu had an excellent like-for-like performance in the past three years, and that translated into significant uplift in productivity and brand profitability. From a sales density standpoint, we're getting in line with Prada, and that's also because of the stores that are more or less, typically for Miu Miu. Margins are still below Prada, but that's just a matter of scale, relative size and operating leverage, but it's making big, big step forward that on margins, and I'll let Andrea comment on the trajectory forward.
Andrea Guerra: Yeah, I think that it's time looking to -- especially to 2025 and 2026 that we have as a commitment to increase the number of square meters, which not necessarily mean to have more stores, but it can also mean to have a little bit larger stores in important places of the world. So we are committed to really keep this growth balanced between products and the incredibly good news has been 2023 around leather goods, and finally having a complete great offer on leather goods. And on the other side, really focusing on a correct balance between all geographies of the world. So this will be our main objectives and main behaviors, and we will have some square meters more in 2025 and 2026 for sure.
Q – Thomas Chauvet: Thank you, Andrea. And maybe one last quick one on Car Shoe and Church’s, I understand they're very small -- these two footwear brands have shrunk steadily over the years. I think less than €50 million in sales combined for 2023. Isn't this a bit of a distraction? What's the ultimate plan? I mean, I see your rationalizing the store network, but surely, you must have a plan to either reboot them or perhaps divest? I mean, they seem increasingly tiny in group context, but I'm sure they take a bit of your energy, both of you Andrea and Andrea.
Andrea Bonini: I think that it's step by step. So the last -- almost two years, as you know, we have been undergoing a proper restructuring of Church’s business and Church’s network. I can tell you that 2023 has been a like-for-like growth year for Church’s. And now it's a question of working. We all feel that it's untold jewel, we need to work, work hard on the products, on the brands, on the people, on the network. I think we proved that with the work done on Miu Miu. And I hope that soon we will come back to you dedicating time to talk to you about Church. Once we have finalized this work, we will move to the cash flow.
Q – Thomas Chauvet: Thank you. And best of luck.
Andrea Bonini: Next question, please.
Operator: Thank you. We're 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.
Louise Singlehurst: Hi. Good afternoon, everyone. Thanks for taking my questions. I'll stick to two. I wonder, firstly, if you could just go back to the US. I'm thinking about obviously the improvement that we've seen from Q3 into Q4 and whether you think, obviously, we're on a more positive trajectory now for that market? We've got Mr. Guerra on the telephone, who knows the US incredibly well. So I wonder if there's any comments with regards to entry, high-end apparel versus leather, just to help us understand what you're currently seeing? And then my second question, I wondered if we could just check the comments just to make sure I'm understanding correctly with regards to the first couple of months of the year. I know it's very early, and we've still got March to go. But I think you talked about a magnitude, which was similar to Q4, Andrea, if I'm correct. And I just wondered if we could break that down. Is that including China or presumably there's a deceleration with China given the reopening. But I just want to make sure we're referencing against that kind of teens growth that we saw in Q4? Thank you.
Andrea Bonini: So regarding this, we were talking about the group. So obviously, we're talking about a few weeks. I mean, we're talking about, what is it, nine weeks. And we're talking about group trends, not Chinese or nothing else. This is a group trend across the nine past weeks. In terms of USA, I think this is the most complicated question that we should have to answer. That is I really hope that USA, North America will be the fantastic good surprise for 2024. I think there is a lot of reasons why we should see this. And let me say, more than 50% of the answer is on us. That is we are underrepresented in the United States. We have not always curated all the aspects of North America efficiently. We are putting a huge ton of work even our real estate CapEx has been there. So I think that United States have to be a kind of leading wagon for us in our next years. And hopefully, it will be a good news in 2024. Today, I have to tell you that it's a lot of mixed feelings, more positive in a negative, but it's mixed feelings. One week bad, one week good. One side is East Coast, one side is West Coast. Onetime is more accessory driven. Sometimes is something else. So we are yet in a kind of nervous momentum. Let's see what happens.
Louise Singlehurst: Thank you.
Andrea Bonini: Next question, please.
Operator: We are now going to take our next question. And the questions come from the line of Charles-Louis Scotti from Kepler Cheuvreux. Please ask your question.
Charles-Louis Scotti: Yes. Good afternoon. One question on your store network. You said that the scope effect has been negative over the past two years. What is the outlook in terms of stores opening, net store openings in 2024? What should we assume in terms of scope affect? And if I recall well, part of the negative scope impact was due to the closing of outlets. Can you give us an update on the number of outlets you are still planning to close down in the coming years? And what would be the growth impact on scope coming from the closure of outlets? And second question on price increases. You have been more, let's say, cautious than peers over the past few years. Considering how desirable are your brands and how strange is the momentum? Do you see room to further elevate the price positioning of both Prada and Miu Miu in the coming years? Thank you.
Andrea Guerra: So regarding outlets, I think that we are on a journey, and the journey has started some years ago. Obviously, there is also a question of allowing the contracts to come to the right point, and we will continue. So we feel that we still have some more of what we need, and this will happen in the next at least two, three years. because, obviously, there is also contracts and relationships. So the road is there, the road will continue. And I think that in two, three years, we will come to our final point. In terms of branding, positioning, pricing opportunities, I would ask Lorenzo to give an answer.
Lorenzo Bertelli: So thank you for your question. I think, generally speaking, about elevation, I will say that already today, brand Miu Miu are in a top spot overall in the market. We cannot complain. I think it's more about to how keep going with this elevation and becoming more efficient and becoming, let's say, more relevant with the offers of product and with the marketing strategy. But I think already today, we are super satisfied with what we are achieving. So it's just a matter of keep doing that. We don't do mistakes. And take the opportunities. And I think of already, I think, especially Prada show something at the end of last year of which are our commitment in terms of real estate for elevating the brand in the future. So it's part of a long-term strategy. And focusing, we have a very clear idea where we have to go.
Andrea Guerra: Next question, please.
Charles-Louis Scotti: Thank you very much.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the line of Chris Wang [ph] from UBS. Please ask your question.
Unidentified Analyst: Hello. Thank you for taking my questions. I have three questions, please. Firstly, just on leather goods. The Q4 leather goods performance was very solid at 8% growth on an [indiscernible] basis. We've been seeing on various channels that you've been launching many initiatives, including leather goods dedicated campaigns and also bringing back some models from the brand's archives. So maybe can you just comment on how you have been seeing latest trends in this category? Are you seeing any acceleration in how are consumers responding to the latest launches? That's my first question, please.
Andrea Guerra: So first of all, I would love to tell you what I feel about what happened in leather goods across the industry and then ourselves. I think leather goods in the industry have had a wonderful journey for many years with a huge double-digit increase, volumes and prices. And I think 2023 has been, for many, a kind of year where that kind of pattern was not valid anymore. For us, I think 2023 overall has been for both brands, a solid positive year, rather with its dual positioning in the exclusive Re-Nylon positioning and iconic leather. And as I was saying before, for Miu Miu with a kind of completion of an offer that could cover different moments of the day and the night, and different ladies and attitudes. So, we are entering a 2024 with the usual our approach, which is novelties on one side and the rhythm of novelties has already been seen in the market with a strong launch at the beginning of the year for Prada and a couple of launches for Miu Miu in the past 10 weeks. On the other side, as you're saying, we are also pushing on our icons on both brands with specific activities, specific animations, specific campaigns, nothing incredibly different from what's going in the world. And I think that being able to continue this balance between novelties and iconization of certain products, we can really go back and conquer and reconquer our given market shares.
Unidentified Analyst: Okay. That's super helpful. And secondly, just on the wholesale, a little bit of clarification, because your wholesale in Q4 was super strong. So, I just wanted to check if there are any impacts from change in delivery times we should bear in mind?
Andrea Guerra: No. It's just a question of deliveries. No. There is nothing there.
Unidentified Analyst: Okay. And then lastly, I think previously, you're on another call, like Q3 or earlier, you're saying pricing is expected to be around mid-single-digit for this year. Can you confirm this? And together with this, how do you think -- how much do you think pricing will contribute to your growth for 2024 as a whole? Is it 50-50 pricing and volumes? Or how should we think about this? Thank you very much.
Andrea Bonini: So, when we think about volume, when we think about pricing, there is a third aspect, which is either halfway between the two or the most complicated of the two, which is the mix. And I think that our pricing activities will continue as usual as we have done in the past years. On the other side, we are really working hard, especially on ready-to-wear and leather goods in order to play a mixed game. So, being able to invest in more valued products, having the proper story behind them, having the proper sessions behind them in the stores and with consumers, and being able to shift a little bit the mix of our products and our sales during the year on, I would say, on both brands. So 2024, I think it's much more a mix year than anything else.
Unidentified Analyst: Okay. Thank you.
Andrea Guerra: Thank you. Next question, if any.
Operator: Thank you. We're now going to proceed with our next question. And the questions come from the line of Li Yihao from China International Capital Corporation. Please ask your question.
Li Yihao: Congratulations on the excellent results. I have two questions. The first one is on leather goods. I've seen that our Miu Miu launch of the Buckle (NYSE:BKE) bag was belt has been successfully received in China, and it has a price point over €4,000. I remember around a year ago, Mr. Guerra mentioned, leather goods will be a key for product. So I just want to understand, with €4,000 be a Miu Miu benchmark for us to build our next generation of leather boots around? Or is this more of one-off creation. This is my first question. Thank you.
Lorenzo Bertelli: Hi, good evening. This is Lorenzo Bertelli. I answered to I'll answer to your question saying that, of course, leather goods is at the core of the brand Prada, and is becoming more and more relevant also for Miu Miu. I think it's part of our, let's say, merchandising strategy to making sure we cover all every price point level within the offer. So I think the buckle you mentioned it is a very clear example of that strategy, and there's always been, I would say, so far, we're very satisfied in terms reception from the market, and also from the customers. So -- so far, we are satisfied, but it's just the beginning of the launch.
Li Yihao: Thank you very much, Lorenzo. My second question is on the vertical integration. I see that as part of Mr. Guerra concluding remarks, so I wonder how is the internalization going? Which direction are we going to focus on? Because I think we have seen successful examples of more innovative products coming out, I believe, with our thanks to the internal capacity. So I wonder if you could share some light on our internal production contribution to our overall -- and how will that evolve going forward? Thank you.
Andrea Guerra: I think our manufacturing and industrial platform is one of the secrets or non secrets of Prada Group success. This is giving us credibility, quality efficiency and what I think is the most important characteristic flexibility. I think this is what we have built in the last 50 years, and this is what we have to build in the next period. So anything we do is related to having the opportunity to innovate some processes, having the opportunity to safeguard some unbelievable know-how in some of our suppliers, constantly readopting and growing our internal manufacturing capacity to correct level. And more and more, if you ask what you prefer a supply chain that gives you $1 more on one week more before to the market, I will always repeat, I want to be one week before in the market. So this is the way, we're working, and this is the way we will continue to work.
Li Yihao: Thanks very much indeed.
Patrizio Bertelli: I think this is the last question, is it correct? Okay. So we're going to take another two questions please.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the line of Thierry Cota from Societe Generale (OTC:SCGLY). Please ask your question. Your line is open.
Thierry Cota: Yes. Good afternoon, gentlemen. I had a follow-up question actually on the margin. You show and generate a very high sales growth well above competitors, but we do see the EBIT margin 22%, 23%, which is well lower than some of your peers, including some with a lower growth margin. And when you look at the details of last year's P&L, we see no operating leverage on E&P, on G&A, and on design and development. So I was wondering, what do you expect and you plan to see in terms of margin profile going forward for the group, what would be a fair long-term target for the group as a whole in the long term? And do you think at some point that you will prioritize margin over sales growth and market share?
Andrea Guerra: Hi, Thierry, Andrea Guerra.
Thierry Cota: Hi, Andrea.
Andrea Guerra: So look, I think first of all, I mean, I start reiterating the point that, the priority is growth. I mean, to achieve, as we said, solid above market growth. We like to keep a nice trajectory of progressive margin expansion, but that very much depends on revenue growth. And it's secondary vis-a-vis investing behind the brands to support our growth objectives. The ambition longer term is certainly to achieve what the best-in-class in the sector are achieving. And so in conclusion, we won't be focused on the short term. We said it many times already when it comes to profitability. But there's no doubt that we have room for further margin expansion. The other point, specifically related to 2024, to 2023, sorry, is that on A&P and marketing, I mean, that's indeed, I mean, as I just said, it's a strategic choice, right, to support the brand in a certain way. And if we look forward, I mean that will continue to be the strategy. So if we look forward, I mean in terms of marketing, we would anticipate to maintain a similar incidence on net revenues to 2023 if not slightly above. The aim for the rest of the OpEx is to reduce OpEx growth. In 2022 and 2023, there's been a significant acceleration in recruiting, including at top level, selling and G&A also seen a normalization post-COVID when some expense levels were very low. There are some cost lines, IT for example, where we will continue to see more meaningful increases but others, on other cost lines, I mean, we aim to change the trajectory this year.
Thierry Cota: Okay. Thank you. So what you're saying is that the setup now is more mature and broad enough and you can leverage that into a higher margin going forward. Do you understand well?
Andrea Guerra: What I said is, we intend to change the trajectory this year for other OpEx lines. And therefore, we would expect to see operating leverage to continue to come through.
Thierry Cota: Okay. Okay. This is clear. Thank you very much.
Andrea Bonini: Thank you. One last question, please. Thank you.
Operator: Thank you. We are now going to proceed with our last question. And the questions come from the line of Chris Gao from CLSA. Please ask your question.
Chris Gao: Thanks for taking my questions, management and congratulations on the great results. This is Chris Gao from CLSA. I have two questions. So firstly, about Miu Miu, can we have a sense of Miu Miu Chinese clientele growth in the year of 2023? And how much does this clientele contribute to Miu Miu sales now? And how does the Chinese clientele growth look like versus other clientele like American and European. So I'll ask the next question after a kind of answer? Thanks.
Andrea Bonini: So what was good about Miu Miu and this is what I was saying before, is that, especially when you have a growth of the kind of growth we had cannot be one nationality, cannot be one product, but what it's good about is that we had a really balanced growth with the highest velocity in Europe in the past periods. And I think this is also very important for our progression and our future. We are not giving percentages specifically on consumers behind the brand. But what you have to know is that we really had -- this is what makes me happy and also comfortable about Miu Miu growth. It was well-balanced between geographies and well-balanced between products. So this is my answer. Thank you.
Chris Gao: Thank you. For thesecond question is related to your travel retail channel. So may you ask from a group perspective, how does your travel retail channel grow in 2023? I believe this should be helped by the China reopening as well as the continuous other APAC countries reopening. And just wondering, how does this channel look like versus 2019, the recovery rate magnitude of recovery. And right now, how much does this channel contribute to yourselves? Thank you.
Andrea Bonini: So what I can tell you is that, obviously, in 2023, we can say that travel has got really back to the levels of 2019 with all the ups and downs we had during 2020, 2021 and 2022 and has been one of the drivers, obviously, of the growth. But I wouldn't say that this channel is big enough to influence the overall success.
Chris Gao: Okay. Thank you very much.
Andrea Bonini: Thank you.
Operator: Thank you. We have no further questions at this time. I will now hand back to Mr. Andrea Bonini for closing remarks.
Andrea Bonini: Thank you, everyone for joining, and we're looking forward to speaking again for our Q1 results at the end of April. Thank you. Bye-bye.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you, and have a great day.
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