Prada (OTC:PRDSY) Group (HKSE: 1913), the luxury fashion conglomerate, has reported a strong first-half performance for 2024, with an 18% increase in retail sales and a significant rise in EBIT margin to 22.6%. The company's success is attributed to the solid performance of its Prada and Miu Miu brands, with Miu Miu's sales expected to surpass €1 billion this year. The Group has also seen double-digit growth across all regions except the Americas, which is showing sequential improvement.
Key Takeaways
- Prada Group's retail sales grew by 18%, with an EBIT margin increase to 22.6%.
- Miu Miu and Prada both reported strong sales, with Miu Miu expected to exceed €1 billion in sales.
- The Group experienced double-digit growth in all regions, with Japan as the best performer at a 55% increase.
- The company is focusing on sustainable growth, with investments in branding, retail excellence, and digital infrastructure.
- Net income for the Group rose by 26% to €383 million.
Company Outlook
- Prada Group aims to deliver sustainable and above-market growth.
- Plans to moderate operating expense growth in the second half of the year.
- Miu Miu's medium-term sales potential is estimated to reach €2 billion.
- The company expects operating costs to moderate, leading to more visible operating leverage.
Bearish Highlights
- The Americas region is showing growth, but at a slower pace compared to other regions.
- The Chinese market remains challenging compared to overseas markets.
Bullish Highlights
- Miu Miu's sales have nearly doubled year-on-year.
- The Group achieved double-digit growth in all regions, with Europe, the US, and Japan accelerating in sales.
- The Group plans to invest in new stores for Miu Miu while maintaining a stable gross margin.
Misses
- No specific performance figures were provided for Mainland China, though it is suggested there was mid-teens growth in the second quarter.
- The shape of operating expense leverage and EBIT margin expansion is contingent on the development of the top line.
Q&A Highlights
- Prada and Miu Miu are becoming more independent, handling 80% of operations separately.
- Investments are being made to support Miu Miu's growth, with a focus on sustainability.
- Online business accounts for 8-9% of retail sales, indicating room for growth in digital channels.
The Prada Group has demonstrated resilience and strategic foresight in its operations, balancing cost control with aggressive marketing and branding efforts. With a focus on sustainable growth and a commitment to environmental, social, and governance (ESG) initiatives, the Group is well-positioned to navigate the changing luxury market landscape. The company's optimism is tempered by a cautious approach to operating expenses and market conditions, ensuring a vigilant and agile response to global market dynamics.
InvestingPro Insights
Prada Group's robust financial performance is further illuminated by key metrics and insights from InvestingPro. The company's impressive gross profit margin of 80.44% in the last twelve months as of Q4 2023 underscores its ability to maintain high profitability in the luxury sector. This figure aligns with the Group's reported EBIT margin increase and reflects effective cost management and premium product pricing.
Another notable InvestingPro Data point is Prada Group's Price/Earnings (P/E) ratio, which stands at 24.36, suggesting that the company is trading at a reasonable valuation relative to its earnings. This is especially relevant given the company's low Price/Earnings to Growth (PEG) ratio of 0.56 in the same period, indicating that the stock may be undervalued when considering its near-term earnings growth potential.
InvestingPro Tips highlight that Prada Group is trading at a high Price/Book multiple of 4.24, which could be indicative of the market's confidence in the company's assets and brand value. Additionally, analysts predict that the company will remain profitable this year, which is consistent with the Group's positive outlook and recent financial achievements.
For readers looking to delve deeper into Prada Group's financial prospects and performance, InvestingPro offers additional insights. There are a total of 7 more InvestingPro Tips available, which can provide a more comprehensive analysis of the company's financial health and investment potential. To access these tips and gain a competitive edge in the market, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at https://www.investing.com/pro/PRDSY.
Full transcript - Prada Spa PK (PRDSY) Q2 2024:
Operator: Good day, and thank you for standing by. Welcome to the Prada Group First Half 2024 Results Presentation. [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 Bernini, CFO. Please go ahead, sir.
Andrea Bonini: Good afternoon, everyone, and thank you for joining Prada Group's first half 2024 results call. I'm delighted to be with you again. Alongside me today are Mr. Andre Guerra, Group CEO; and Mr. Lorenzo Bertelli, Group CMO and Head of CSR. Mr. Guerra will start today with highlights for the first half of 2024 and a business update, followed by Mr. Lorenzo Bertelli with an overview of our marketing activities and ESG initiatives. I will then present our financial performance before Mr. Guerra signs off with some closing remarks. We'll then move to Q&A. Before we start, please be reminded that 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 disclaimer included on Slide 2 of our presentation. With that, I will hand over to Mr. Guerra.
Andrea Guerra: It's a great pleasure to be here with you. On one side, it's by definition, tougher. Current macroeconomic situation is no longer so positive as it has been for a long time. And I think it's also worthwhile not to forget what kind of an incredible decade this industry has gone through. So for sure, current macroeconomics is a little bit tougher, maybe tougher, but there is a lot of opportunities in the market yet. As Prada Group, we continue 2024 on a positive stance, and we finished a solid first half of 2024, top line and bottom line. Month after month, we have been leaving a similar growth rate and we finished the semester with retail sales of plus 18% and an EBIT percentage increasing to 22.6%. Both Prada and Miu Miu have moved through Q2 with same velocity as Q1. So this means that the 2 brands are strong and have a voice in this specific period of the world. As a group, we're continuing to work on sharper position in capturing unique identity on Prada Miu Miu. For sure, this is a period where identity position, desirability of brands make the difference. We have substantially increased our branding investments as well. We're constantly trying to elevate, motivate, upgrade, train our people in our organizations across the world. We think that this is critical, and we feel that this is even more critical in this period of time. We discussed about our journey in retail excellence. We are happy to remark and to say that we reached today a different level. We still have a huge gap comparing with the best in the industry, but we are improving. And we are proud of our improvements, and we feel that the most difficult part of the job, which was the beginning of this, the creation of the toolkits, the creation of everything that was needed for this journey is over. Now we need to keep on doing it and doing it well. Last but still pretty important, we kept on with our CapEx on digital infrastructural IT evolution of the group. And we are happy of our progress, of our efforts in this field. And again, at the end of this year and next year will be another big chapter of evolution. A couple of comments on Prada and a couple of comments on Miu Miu before going with Lorenzo in a more specific manner. On Prada, I would say that what has happened so far is really a great long-term journey on a brand strategy, uniqueness and creating bigger and more solid routes in the cultural world. And these routes are stronger day after day. Collections are strong. Products are strong. And we keep on having this strong traction on ready-to-wear and footwear on one side, and we keep on evolving and we keep on getting stronger on our Leather Goods. On Miu Miu it's tough to say something specific because when you have such results, it's tough to say this was good. This was better. This was excellent. So what is important is that this is not just something that popped up. I would say that this is a result of many years of work on the brand, on the products, on the people. And today, the strength of Miu Miu, it's obviously the brand. It's obviously the silhouette. It's obviously the look. Team effort, teamwork to be able to serve clients growing at this significant rate is, for sure, one of the most important things happening in this last couple of years, and we've got no shortcuts in front of us. We remain humble. We remain noncomplacent, and we know that once we go over and over, the like-for-likes will become even more difficult to face. But we are positive and we feel the responsibility. Now let me give the stage to Lorenzo, and I will come back for the closing remarks.
Lorenzo Bertelli: Thank you, and good afternoon. I will start with a brief update on Prada marketing communication activities. Over the last year, our focus on creating impactful initiatives has cemented the brand desirability and fostered engaging with our audiences. Prada continues to drive interest with the climate fashion shows. Both menswear and womenswear collections were very well received, confirming the brand's creative energy. New campaigns featuring celebrities such as Scarlett Johansson, Emma Watson and Benedict Cumberbatch further boosted the brand influence. Prada collaborated with renewed Pradaness to amplify the brand values and widen its audience fostering engagement. Distinctive events and activation nurtured Pradaness its global reach. This includes exclusive #3 edition of Double Club in Los Angeles and another successful iteration of Prada Frames held during Milan's Salone del Mobile and curated by FormaFantasma. Moving on to Miu Miu. Excitement continued to grow amongst this community, thanks to highly successful fashion shows, impactful collaboration and engaging worldwide events. The launch of the brand's 2024 Leather Goods campaign staring Gigi Hadid, supported iconic Arcadie and Wander, while 2 other evocative campaign Endless Summer and L'Ete were met with a positive reception. Special projects such as the new fifth edition of the Miu Miu Upcycled collection in denim and the partnership with New Balance and Church's continue to attract strong attention and contributed in further elevating the brand visibility. Miu Miu first Literary Club and Miu Miu Summer Reads were 2 new cultural initiatives launched by the brand which reinforces its commitment to nurture the contemporary debate with a distinctive voice. Now we'll turn to our ESG commitment, which continues to be a key driver to the group long-term growth. As part of planet commitments, we are pleased to have set ambitious targets for a transition to lower impact raw materials with an implementation plan progressing well. Other areas of focus in H1 include chemicals management, material traceability and water risk management. More in data. Over 80% of raw material suppliers are engaged with Zero Discharge Hazardous Chemical program. 70% of leather procurement is now covered by traceability system, and we have recently launched a water risk assessor for key supplier with a target of 80% of engagement. Recognizing our responsibility to reduce environmental and social impact across the supply chain we have also trained procurement teams and strategic supplier on our key sustainability objectives. As part of people commitments, we have accelerated the implementation of our 3-year DE&I roadmap. We are also linked managing the remuneration to meeting ESG targets for a wider number of our senior executives. As part of culture commitment, we are pleased to continue our work on SEA BEYOND in partnership with UNESCO, we successfully launched the first international conference dedicated to Ocean education, where the Venice Declaration for ocean literacy was finalized by UNESCO, delegates and ocean expert. We also established the first SEA BEYOND education module involving almost 35,000 students in 56 countries, and we committed to spread the values of SEA BEYOND through the dedicated Docu Series produced by National Geographic Creative Works. Moreover, we launched the second cycle of the Forestami Academy, the reforestation project of Milan focused on educating and involving citizen on the subject of urban forestry. Thank you. I will now pass over to Andrea for the financial review.
Andrea Bonini: Thank you, Lorenzo. I would like to start with the key financials on Slide 12, showing the solid growth and improved profitability of the group over the 6 months period. The group reported net revenues of €2.55 billion, up 17% versus H1 '23 at constant FX. Exchange rates had a negative impact on net revenues of 330 basis points, leading to an increase of 14% at current exchange rates. Retail sales for the period reached €2.26 billion, up 18% versus H1 '23 at constant FX. EBIT reached €575 million in H1 '24 with margin of 22.6%, showing further expansion versus 22% in H1 '23, notwithstanding an increase in client-facing activities and other investments during the period. Cash flow from operations reached €652 million and net cash position stood at €265 million at the end of June. Moving to the next slide. The retail channel confirmed a solid trajectory of growth in the semester with sales up 18% versus H1 '23 at constant FX, driven by like-for-like full price volumes. In the second quarter, retail sales maintained the same pace of growth of the first quarter at plus 18%. Wholesale was up 8% versus H1 '23 and up 14% in the second quarter. We kept our approach selective with independence, while we continue to see sustained growth in the duty-free channel. Royalties were up 28% in the semester with growth supported by both eyewear and fragrances. Turning to the next slide, retail sales by brand. We're pleased with Prada and Miu Miu's performances as both brands continue to register above-market growth. Prada delivered a solid plus 6% growth in the first half of the year, driven by full price like-for-like sales and supported by our categories and genders. The second quarter registered a solid performance at plus 5% year-on-year despite a tougher comparison base in Asia Pacific. Miu Miu continued on its strong growth trajectory, reporting plus 93% retail sales growth in the semester. Growth was well spread across all categories and regions. And the brand now contributes to 23% of the group retail sales versus 14% in H1 '23. Good performance also Church's up plus 15% in the semester. Moving to the next slide. In H1 '24, the group achieved double-digit growth across all geographies, except Americas, which, however, improved sequentially quarter-on-quarter. Asia Pacific progressed well during the period, with retail sales up 12% in the semester with the second quarter up 8% on a tougher basis of comparison and increasing spending outside the area. Europe was up 18% with continued solid growth of plus 19% in the second quarter, supported by healthy local demand and high level of tourism. In the Americas, retail sales were up 7%, with Q2 showing a further slight sequential improvement at plus 9%. Japan was the best-performing region, up 55%, accelerating in the second quarter at plus 65% driven by solid local demand and increasing presence of tourists. And lastly, the Middle East also delivered a solid performance, up 20% in H1 '24, showing acceleration in the second quarter. Turning to the next slide. Gross margin was 79.8% in the semester, 50 basis points lower on the same period of last year, stable if we exclude the FX impact. During the period, the group generated an EBIT of €575 million, reaching an EBIT margin of €22.6 million in further expansion versus 22% in H1 '23. The incidence of operating costs on net revenues declined by 110 basis points, notwithstanding higher investments, and we had a drag from FX on EBIT too. OpEx increased by 14% at constant FX, mostly driven by discretionary client-facing initiatives as our primary objective remains to invest in our brands. The increase is reflected both in the higher incidents on sales of advertising and communication, adding selling costs, which include retail activations like in-store events, for example. G&A incidents on revenue grew from 6.6% to 7%, reflecting the step-up in OpEx and G&A from digital and IT investments we've been making, and it also reflects some nonrecurring items. Overall, looking at the second half of the year, we continue to expect OpEx growth to moderate. First, AMP (OTC:AMLTF) should be less second half weighted than last year. Second, we'll start annualizing some investments made in the second half of '23. Finally, net income reached €383 million, an increase of 26% in the same period of last year. CapEx for the first half of 2024 was €169 million as we continue to invest in retail, IT and our industrial infrastructure. On the retail side, over the period, we completed 9 openings and 36 renovations and relocation projects, further elevating the in-store experience of our clients. Excluding retail, the remaining CapEx included €50 million for industrial initiatives as we continue on the path of vertical integration, strengthening our manufacturing capabilities and €32 million related to IT projects. Moving to the next slide. Net working capital increased by €45 million to reach €780 million and overall remains stable as a proportion of net sales at 16%. Net financial position -- last slide, the group retains a solid balance sheet with a net cash position of €265 million as of June 2024. I would note that we benefited for circa €67 million in a shift in the tax payment deadline in Italy from end of June to beginning of July. And with that, as I said in my last slide, I will now hand over to Andrea Guerra for his closing remarks.
Andrea Guerra: As the slide says, we are reiterating our ambition to deliver solid, sustainable and above-market growth results. I think that this solid lines says it all. This is our commitment. This is our effort. This is our work day after day. Priorities are clear, and let me say at the end, boring, they are always the same, no changes on our priority. Markets are not easy. Therefore, we are every day more vigilant on one side. And on the other side, we are training ourselves to be even more agile week after week, day after day, month after month. So I think that we have a long journey in front of us, and we're ready and responsible in delivering what we have to deliver. Having said so, I thank you for having listened to us. And I think now we move to Q&A. So I give back the word to operator.
Operator: [Operator Instructions] The questions come from the line of Edouard Aubin from Morgan Stanley (NYSE:MS).
Edouard Aubin: And congratulations for the solid set of results. So first question for me, Andrea, if you would be kind enough to please comment on kind of your exit rate and how the third quarter kind of started their talks about demand in China being quite weak. Are you able to offset that with spend by Chinese abroad so far in the quarter? And sorry, just one question related to that is your comp base is getting a bit easier in the second half. So for example, if we look at the product brand, you grew 18% in H1 last year and 8% in H2. Should that therefore lead to some acceleration or that's not the way to think about it in terms of the year com base? So that's my first question.
Andrea Bonini: When you ask Andrea to answer there is always some concern. So let me take it. So the first part of your question, I would say that in this -- in July, basically, we have seen no major or drastic or whatever change in the trend. I would add that China has become a little bit more complicated and most of the other regions a little bit easier. So this is how I would position it. In terms of easier comps or more complicated comps, I think that 2023 was referring to a year where closes -- closing and openings of Asia and China created easier or tougher comps. So I think the trend today, the weekly trend is pretty clear. I would agree that August could be an easier month, but September, October, November, December were pretty tough in terms of comparisons. So I wouldn't go there.
Edouard Aubin: And my second and last question is a relatively long one, so just one. On Miu Miu, so it looks like you guys could -- should exceed €1 billion of sales this year. If you look at some of your peers, the Fendi, Chanel and Balenciagas of the world, they are kind of around €2 billion, some of them a bit more, some of them a bit less. So if you look at the heritage of Miu Miu kind of the aesthetics, the credibility for the brand to expand its product range, is that within the realm of possibility in the medium term, €2 billion? Obviously, I'm not going to tie you up to any date. But as the brand -- the potential to reach that type of sales within the medium term?
Andrea Guerra: The ambition is always there. So whatever number -- big number is in our heart not necessarily in our brain. I think there is an opportunity. I mean, if you look to Miu Miu initial routes were mostly Asian. Today, Europe is competing with Asia in terms of #1 region. And we began to focus on North America as well, where we're really relatively small compared to the brand. So I would say that there is a long path and long journey in front of us. Obviously, when you got this kind of growth the year after will be a little bit more challenging.
Andrea Bonini: Next question please.
Operator: The questions come from the line of Chiara Battistini from JPMorgan (NYSE:JPM).
Chiara Battistini: So the first one, I was wondering if you could give us any detail, any color on how to think about the growth in terms of volumes versus price versus mix? And notably, within Miu Miu how much pricing and mix contributed and how you see the penetration of Leather Goods within Miu Miu progressing going forward?
Andrea Bonini: Hi Chiara, it's Andrea Bonini, thanks for your question. And on price and volumes; pricing, pure pricing. What we've done is first half of the year is in the low single digit. And we discussed this before that the expectation and of course, we may maneuver around that, but the expectation for the full year is around mid-single digit. We would also expect a positive, if not very significant impact from the mix and the rest is volume. On the second question, which is the second -- the Leather Goods, specifically, I believe your question was specifically in relation to Miu Miu. It was a very strong result across the board, frankly, I mean, across product categories, but the performance of Leather Goods make us really, really pleased and its success I mean continued success of the Arcadie and Wander, but also success with the newer introductions in the range. And so it's a contribution from Leather Goods that is progressively increasing. That is exactly the direction that we wanted to go to.
Chiara Battistini: Sorry, I meant it as part of the first question in terms of the volume growth, but I appreciate it's 2 separate questions. And sorry, the second question I had, if I may. Just a confirmation in terms of your rents in China, there has been a bit of a debate during this reporting season. Can I just confirm that your rents are still variable in China and that you did not renegotiate them?
Andrea Bonini: I can confirm that. There's a significant variable component, yes. Next question.
Operator: The questions come from the line of Erwan Rambourg from HSBC (LON:HSBA).
Erwan Rambourg: And well done on being so relevant and so strong in these tough times. Maybe one market I'd like to come back on, which is the U.S. You mentioned it's the only market where you're not growing double digits, even though you are improving quarter-on-quarter. I'm wondering what would make it grow double digits. Is it an issue of awareness? You mentioned to Edouard that your new exposure was maybe lower there. How can you look at maybe accelerating the U.S.? And what can we hope for in the back half of the year for this very important market.
Lorenzo Bertelli: I'm taking the question, is Lorenzo Bertelli. Generally speaking, I would say, is not absolutely a problem of awareness for sure, the fact that the network of Miu Miu in the market, the penetration is maybe the smallest. And so as Andrea was saying before, in terms of growth for Miu Miu, U.S. is a great opportunity. So you see part of that point reflected in the growth on the U.S., actually is where we have somehow a lot of complaint or not having enough store and product in U.S. of customers that are looking for Miu Miu that they cannot, let's say, buy easily in U.S. So I would say it's not a matter of awareness. It's more a matter of network. And you see, generally speaking, that Europe is going extremely well because the awareness is there from the Western consumers as the traveler American citizen that is buying U.S. Miu Miu. So it's not the point of awareness, is just a point of network.
Erwan Rambourg: And maybe a follow-up for Andre Bonini on the P&L structure of Miu Miu relative to product, given Miu Miu sales are quasi doubling year-on-year. Can you tell us a bit about the gap in terms of operating margin between the 2 brands, where we stand today? And where do you see that going maybe in the long term?
Andrea Bonini: I won't comment specifically on the gap. But I think the trajectory is easy to guess, meaning Miu Miu, we've seen a very significant improvement in the profitability in terms of brand EBIT as a result of the very significant increase in productivity. As you know, the growth is like-for-like and therefore, there's a very, very material impact on that. We discussed this before that, however, when we look at the structure of the P&L of Prada and Miu Miu, we need to bear in mind the need for investment and reinvestment in the sense that Miu Miu is certainly in a phase of very significant growth. And therefore, we are very focused on making that growth sustainable, which also means investing and reinvesting in the business in terms of people, in terms of infrastructure and at some point, also more into new stores. And when we look at Prada, it's a different situation in the sense that we're certainly at a point where there's more maturity, right, in the status of things. So that's where we are. That's where we are, and that's where we are going. I think the significant improvement of Miu Miu also allows us to reinvest even more in the business as a whole, and that's another positive of being a multi-brand group.
Operator: The questions come from the line of Antoine Belge from BNP Paribas (OTC:BNPQY) Exane.
Antoine Belge: I've got two questions. First of all, I'd like to come back to the spectacular growth of Miu Miu. I was in Malaysia and Kuala Lumpur not so long ago. And when I asked the store manager, which were the best sellers. I mean I think she was specifically mentioning all of them. So my question here is a bit with a lot of viral stuff going on, on almost all products. How can you sort of control that you've seen born in the past that some time you couldn't control that and then faced some issue later on. So I know it's a difficult question. You not wanting to sell sometimes, but I think you understand where I'm coming from. The second question more relates to the Asia performance, not mainly companies reported Asia up, I think it was 8%. So Japan was up 65%. So quite reluctant to the figures about China, but was Mainland China still positive within that 8% and the Chinese cluster in tourists, would it be fair to say that it was maybe at least mid-teens in the second quarter. And of course, if you want to give a figure that will be even more welcome.
Andrea Guerra: So at the end, it's more two comments than two questions. I have taken them a little bit like this. In terms of quality of sales of Miu Miu, I think we are putting the maximum of effort to define, to put quotas, to analyze the consumer base. I think it's -- I mean, in certain remarks, I would say that in this period, maybe we could have sold the double. So it's for sure that the brand is very hot. And on the other side, we need to manage things properly and plan the future properly. So we are doing the best effort from that point of view. In terms of Asia, I would say that in general terms, we, as a group, we need to recover market share over there. We have good teams. We have good operations. So it's time to -- that we recover some shares in that part of the world, always considering what I said at the beginning that obviously, China was tough and has become a little tougher in the past, I would say, 30 days. Next question.
Operator: The questions come from the line of Thomas Chauvet from Citi.
Thomas Chauvet: I have three. The first one on the retail footprint. Could you perhaps come back on the closures next -- this year and the openings next year, I think you've closed 10 Prada DOS and 4 franchise stores in the first half mainly in Europe and the U.S. Can you give us how much was the negative sales contribution of these closure in the first half? And then can you come back to your plans to resume store openings more aggressively next year both at Miu Miu and Prada, how many openings and where? That's my first question, please.
Andrea Guerra: So in terms of closures, I would say it's marginal. In terms of opening, I would say it's marginal, 2024 as a whole. In 2025, we will have something like probably a 10%, 15% on Miu Miu, I would say, more 10% than 15%.
Thomas Chauvet: You're talking about square footage or just the number of stores?
Andrea Guerra: Yes, yes. Yes. Sometimes it's not all [indiscernible] but it's enlarging actual stores or moving from a place to another in a mall or in a department store. With Prada, I would say that next year will be yet marginal lower than 5%.
Thomas Chauvet: Second question on pricing for the product brand. It looks like you've increased prices a few weeks ago by about 3%, 4% in China, Europe and the U.S. and a little bit higher in Japan, understandably. Is this, Andrea, I mean on top of the low single-digit percent you mentioned earlier, and you talked about this mid-single-digit percent. Is this the kind of pure price increase you think of for next year given the states and the good desirability of both of your brands.
Andrea Bonini: Low single-digit first half on top of which there's another low single digit, which is the one that you're referring to in the past few weeks and that brings you to the mid-single digit for the full year that we've been talking about. And then for next year, we will -- we shall see.
Thomas Chauvet: And very finally, on the OpEx and the OpEx leverage. So advertising and general and admin expense due to IT and digital investments were the 2 cost lines that grew well above sales growth in H1. You said you expect this to moderate in the second half, also y anniversary some investments in H2 last year, if I understand well. So with that maybe scenario of improved revenue growth at the product brand, the pricing you've mentioned and that cost moderation. I mean, are you expecting a very, very different shape in terms of OpEx leverage and general EBIT margin expansion in H2 versus H1? Obviously, consensus is expecting a much different shape that the -- a slight margin expansion you've had in H1.
Andrea Bonini: Much different shape. I think it depends on perspective. So it's hard to say. It's a much different shape. I mean I won't -- what I would say is what we already said is, indeed, I mean, we do expect more visible operating leverage in the second half as -- what we can control is indeed on the cost side. And for the reasons that I already mentioned, I mean, we do expect operating costs to -- the growth in operating costs to moderate. And then as you know, the end results is also very much a function of the development of the top line. The bigger picture is the one that we've been talking about for a while, which is priority is growth. We certainly see an opportunity -- a significant opportunity in the medium and longer term to continue to expand margins, and that's where we want to go, to be with the best-in-class. And ideally, notwithstanding the fact that the priority is growth, we'd like to continue on the path of progressive margin expansion, which we've delivered so far. Next question?
Operator: The questions come from the line of Louise Singlehurst from Goldman Sachs (NYSE:GS).
Louise Singlehurst: Just two follow-up for me, if I could do, please. Firstly, just on the cluster performance. You've touched on the U.S. and a little bit on China. But I just wondered, obviously, Europe saw a little bit of an acceleration versus Q1 as well in Q2. And I wonder if you could talk about the Japanese as well. And I didn't know whether I missed it, whether it's a natural number for the Chinese cluster overall, particularly for Prada brand or a relative shape versus Q1 would be very helpful. And then secondly, my question for Andre Bonini, if I could do, please. Obviously, you've got the tough job probably having to say no to certain projects, particularly when you've got such high growth at brands like Miu Miu. But in terms of Thomas' question and thinking about that cost shape and the slowdown in G&A in the second half versus the first half, is that just a reflection of the timing of projects and store openings? Or is there a little bit more of a graph on costs on how you're viewing things into the second half than when we spoke to you back at Q1.
Andrea Guerra: Okay. Louise, starting with the different clusters. Well, first, I mean, stating the obvious, if we look at the group performance, very, very good across all clusters, including China. If we just look at Prada, we're also generally satisfied with the performance. We've got overall in the first half the Chinese cluster that is in the mid-single digit. As you know, we talked about low double digit in the first quarter, and it means that Chinese were flattish for the Prada brand in the second quarter, and that reflects the softer consumer sentiment. There's an element certainly of demand and normalization following the years of very strong demand. And there's also the uneven comparison base due to the lockdown reopening dynamics that we know about. North America is slightly positive and improving versus Q1. European, we're quite impressed back in low double-digit rate in Q2. And the Japanese is also a very good trend in line with Q1. And on Japanese, to add a little bit of color, I would add that, roughly, we see a split of 65% locals, 35% traveler and tourists are growing stronger, but locals are holding up extremely well. So overall, I mean, the other comment I would make on the cluster is that if we look at the evolution of sales by nationality since pre-COVID, it is more balanced because we've got sales to Europeans and Americans as a share of the total that have increased. And so it makes it vis-a-vis Chinese in particular, and that makes it more balanced. On the G&A and the costs it's not just timing. We discussed that in particular, starting from the second half of last year, we've been very focused on controlling G&A growth, G&A development. And we've been seeing the results of that work that is focused primarily to have more resources to invest in consumer-facing initiatives and activities and marketing and we'll continue along these lines. If we look at the G&A dynamic in the first half, excluding the IT impact that we talked about, excluding a few nonrecurring items, the G&A that I'm talking about, I mean, we're already in single-digit territory in terms of growth. Next question.
Operator: The question comes from the line of Rogerio Fujimori from Stifel.
Rogerio Fujimori: I just have one question about how should we think about gross margins in H2, the main puts and takes? You reported a 50 bps FX headwind in H1 and channel mix also helped. So how should we think about H2, especially the FX hedging component and any other major tailwinds or headwinds we should take into account versus the 80.5% in the second half last year.
Andrea Guerra: So I think that all our introduction and conclusion was about this period, how we are in a period where there is changes, turbulence, things that can be controlled up to a certain limit. So I wouldn't answer to your question. We answered or basically, we committed saying that we will be vigilant on one side and agile on the other side in order to take home our results and trying to be above market growth. I think that this is the maximum we can say today in terms of a general journey. In terms of margins, in terms of industrial margins, I think this is what you were referring at. I don't see major differences. Yes, there is some negative FX. Yes, there is. But I would say that we do not foresee for the end of the year, any kind of relevant change on our industrial gross margin.
Rogerio Fujimori: And I was just hoping if you could share with us the Chinese onshore versus offshore mix for the Prada brand in Q2?
Andrea Guerra: So I think that we said it over and over. Chinese in China are a little bit tougher. Chinese abroad are a little bit easier. In general terms, I think Andrea gave a very clear picture, but I would say like that. It's easier for the Chinese to buy abroad, more in Asia than anywhere else. I think that this is the clean and honest picture of what we are observing today.
Rogerio Fujimori: I was just wondering about the mix. If the mix is 60:40, 65:35, mainly in China versus outside Mainland China?
Andrea Guerra: So we're going to the details of the details of the details is fine, it's 70-30.
Andrea Bonini: Group level, not Prada. Next question, please.
Operator: The questions come from the line of Luca Solca from Bernstein.
Luca Solca: I have two or three questions, if I may. Some of your peers, for example, Hermes were reporting a slower demand, especially in the entry price point of their offer. And this was visible, for example, looking at sales growth in the silk category. I wonder if you're experiencing a similar trend with aspirational consumers being on the back foot and the higher end of the offer trading better. You have a different category mix and a different fashion position. So I was wondering what you are experiencing on this front when you look at different price cohorts of your offer?
Andrea Guerra: Hello. First, thank you for telling us that we are competing against Hermes. It's good to have the same kind of customers of Hermes. No I would say that today, in general terms, we are not observing an issue in our enterprise. Always keep in mind that most of our competitors increased significantly their entry prices in the past 1, 2, 3, 4, 5 years. Maybe we came from a lower entry price. Therefore, today, our enterprise are still, I would say, competitive. So I don't think that we suffered on -- in that segment. I hope I was clear.
Luca Solca: Absolutely. That was very clear, Andrea. Maybe a different question about sourcing. There's been news flow from Italy about subcontractor problems that, again, some of your peers have been experiencing, I'm thinking about Dior and Armani. As I understand, you're only partially upstream integrated like most of the companies in the sector, how have you been implementing any changes, if at all, to make sure that you are sort of perfectly buttoned up as well as controlling subcontractors and sub subcontractors in the market.
Andrea Guerra: So the first comment I would do is that this kind of news flow is never positive. I think that in general terms, this kind of news are kind of signals to be able to tie better your management, your organization and your systems. I would like to stress one point here that the group -- the Prada Group was born as we are seeing it today, 40 to 50 years ago, on 3 routes, which were brands, the brands, the products and in industrial soul. From day #1 the industrial soul of Prada Group has been pretty evident. We manage, we own more than 20 factories in Italy. So I think that the industrial characteristic of Prada is pretty strong. So I would answer like this to your question.
Luca Solca: I think that the budget for [indiscernible] is proficiency on the manufacturing side is proverbial. Maybe a different question to basically ask about the same point. I realize that you're now experiencing very robust growth, especially with Miu Miu and that you have -- and that you have significant efforts underway to grow the top line. Do you have in mind a number when you are in cruising altitude in terms of growth that you would require in order to be sort of keeping SG&A cost inflation at base. So is there a sort of a gross level looking forward the next 2 or 3 years that you think above that level, we would be producing operating leverage.
Andrea Bonini: Luca, it's Andrea Bonini. I wouldn't look at it that way, meaning we -- it's a constant work, the one we do on the OpEx line on the end of which, I mean, the G&A and we adapt and when we say we want to be vigilant and reactive and nimble, I mean, it means that the extent to which we are on the front foot within the priority that you know about growth and continuing to gain market share by the extent to which we remain on the front foot on the marketing spend on the retail initiatives and so on. Of course, it takes also into consideration the environment and how we perform on the top line and therefore, on that and also the speed at which we act and we move on G&A and on other investments, has to reflect that. And if we continue to perform as we've been performing, we have to worry a little bit less about slowing down our pace of investments. And should we find ourselves in a situation with a different and lower top line, we would act more aggressively on G&A as well. So I don't look at it in that way, meaning there's a specific number below which we act and up to that point, I mean we do less. I mean it's progressive, if you see what I mean. Next question?
Operator: Our next questions come from the line of Oriana Cardani from Intesa (LON:0HBC) Sanpaolo (OTC:ISNPY).
Oriana Cardani: My question which is on online business. What is the current weight of online business on retail sales? And how is this business line evolving?
Lorenzo Bertelli: It's Lorenzo speaking. Today, penetration is around 8%, 9%. It depends and change a lot from market to market, like in the U.S. is much higher. But honestly, we don't look any more like in terms of online penetration. We just -- we generally talk about full potential then is always a consumer choice according to mix of the category, price points and so on. So for us, it's more about full potential of online, so making sure that the consumers, the customers served in the best ways possible in the stores and the best ways possible online than it is before making the choice.
Andrea Bonini: Next question.
Operator: Our next questions come from the line of Chris Huang from UBS.
Chris Huang: Congratulations on the results, I have two questions. Firstly, on the category performance at group level. I know you shared a bit on the strong traction on ready-to-wear and fall wear in Prada. But also, if you can comment on what you're seeing with the jewelry launches you recently been pushing into. Secondly, on the wholesale growth in Q2, the double-digit growth definitely came stronger than expected. Within this number, are there any impact from shift in delivering timing we should be aware of?
Andrea Guerra: In terms of wholesale, it's purely a quarter 1 over flooding on Q2. So I would say that that's the only reason for that. In terms of category, I think that what we said again during the introduction is what we would love to say that is, for sure, our great strength in ready-to-wear and footwear in Prada is even in a period where the category Leather Goods in general for the industry is not at its maximum and better shape to keep on attracting consumers to our stores. And on the other side, this is also allowing Leather Goods to be stronger and positive. So I would continue to answer like this.
Andrea Bonini: We have time with -- for one more question or one more set of questions if there's more than one from one person.
Operator: Our next question from Charles-Louis Scotti from Kepler Cheuvreux.
Charles-Louis Scotti: I have only one question, please. It seems that you need to step up your investment on Miu Miu to support the strong growth, but at the same time, you sound confident that the group's OpEx growth will moderate going forward. Is it fair to assume that you are able to leverage the whole setup and the infrastructure in place at Prada to support the growth of Miu Miu as well? And if you could also remind us how do you manage the 2 brands in terms of supply, production, logistics, design, marketing and what kind of synergies you are able to unlock, this would be very helpful.
Andrea Guerra: So since a couple of years, we are moving in a direction in verticalizing the 2 brands; with some very special recipes. So in terms of brand image, not necessarily always totally vertical. So having said that, more and more and more and more of the 2 brands are acting independently. And I would say that today, it's 80% independently. And this is the way forward. In terms of Miu Miu, commenting on profitability and margins. Always keep in mind that Prada is the main brand, therefore, is taking it all in terms of all those support costs that then we divide between the 2 brands. But at the end, Prada is taking most of it. So if Miu Miu was independent, what kind of margin would it have is a kind of philosophical question. In terms of investments for the future of Miu Miu, here we are, I think that in 2024, we are already behind the brand fueling what is necessary to have the next level infrastructure? I think that, that is what we're working on. We're seeing at the beginning that we are working heavily on next spring Himalayas in terms of like-for-like because that is where we are going to prove ourselves. So this is what we're doing on behind Miu Miu brand. This was -- I think that this was our last question. So we thank you all, and we're always available for any catch-up you need and see you soon. Thank you very much.
Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.
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