Good day and welcome to the Prada Group Q1 23 revenue conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Mr. Andrea Bonini, CFO. Please go ahead.
Good afternoon, everyone, and thank you for joining the Prada Group's first quarter 2023 revenue update. I'm delighted to be with you again, and with me today is our Group CEO, Andrea Guerra. We will start with some opening remarks and 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, and the actual outcome and returns may differ materially from such statements. Please refer to the disclaimer included on slide two of our presentation. With that, I will hand over to Andrea Guerra.
Hello to everyone. Welcome back to all of you. I will start with an update on business performance and work done in Q1 and the current trading. By definition, we had a solid start of this year, and psychologically and operationally, it's always good to have a strong 1st part of the year. What is also fair to say is that we had an acceleration during these 1st months. We are happy, and we're also happy about our April numbers that has just finished. The performance has been supported by a constant high desirability and strong momentum of Prada on one side and Miu Miu on the other side. We will focus and dedicate our time, our efforts, our investments in nurturing the desirability of our brands. This was, is, and will remain our main focus.
We're happy to report to you that our growth has been basically like-for-like. The growth of 23% is a like-for-like growth. When you grow like-for-like, and I would say that this is probably the third quarter in a row or fourth quarter in a row of a constant like-for-like growth. This means discipline, routines, proper use of all CRM toolings, clienteling, retail activities, everything that really is again, like the desirability, the other big effort of our work in order really to build a stronger retail excellence platform. It will be a long journey. We had a well-balanced growth through the regions.
As you all know, Asia- Pacific has been leading the path with a significant rebound in China, starting not great at the beginning of January, accelerating during the celebrations of the new year, and constantly accelerating up to, I would say, Golden Week, during last days, with, at the beginning, a strong rebound in internal tourism, then the opening of Hong Kong and Macau, and sometimes reporting a three-digit growth in those two cities. During the last weeks, we see a real rebound in, most of Asia region. We are also seeing some, I would yet call some little bit of, rebound in Europe as well by Chinese consumers. If I have to give an opinion, we are expecting a stronger rebound in second half of the year by Asian and Chinese consumers in Europe.
In Japan, a really strong growth, and I think that this is really due to the big work of Prada Miu Miu during the last 24 months. Europe continues also during the spring. If you remember one year ago, we had a quite an acceleration in Europe during these months. Being able to really welcome during spring, I think allows us to think positively about the remaining seasons in Europe. The Americas have to continue to grow moderately. I would say that we're happy to say that Q1 was similar to Q4, yet mid-single digit positive, obviously comping and coming from a 12 and 24 months very, very high comparable.
I think that it's fair to say today that the structural dimension of luxury and fashion American market is today bigger. And, I would consider this as a period of stabilization. If we look to Prada in details, I would say that Prada today is very, very desirable. Shows have been very successful. A number of products and marketing activations had good acceptance throughout the world. This natural positioning of Prada being able to be very agile between drops and novelties on one side, and constant and patient development of iconic products is really paying off really well. We have kept building momentum behind the launch of Eternal Gold.
Eternal Gold fine jewelry collection, to me, is very important as a single product category, on the other side, allowed us to really begin a journey in a number of dedicated events where we had the opportunity, and a really new opportunity, to meet and spend qualitative time with our best clients throughout the world and to experience the best of Prada. This is, I think, something new for us, I think that this will be very important going forward. On the other side, it's good to really being able today to talk a little bit also about Miu Miu. The team has done a great job. I think that Miu Miu is really coming from a 12, 24, 36 months of really hard work, we are seeing the benefit of this. Miu Miu is really positioned in what it is today.
It's naturally an instinctively very contemporary and very actual brand. The fashion shows and the continued collaboration with women artists are particularly well-received. I would say that this brand success has now turned to be visible in a much bigger retail success. The number of people crossing the door, the number of people converting to Miu Miu, the number of people coming back after one, two, three months and repurchasing Miu Miu, I think are important signs for our future. Miu Miu has always had a very iconic presence in ready-to-wear and shoes, and I think that what is also positive about this last period is that we are really seeing a traction in the fundamental leather goods sector. It's a long journey, and we're really happy to be able to build and nurture another very strong pillar to the Group.
I think that I have given you a journey through these first three months. As I said, and I would repeat, April was a continuation of this progress, and I will give back the word to Andrea to talk through our revenues in more details.
Thank you, Andrea. Starting with net revenues by channel. In total, the group recorded net revenues of EUR 1.065 billion, up 22% versus the same period of last year at constant effects. Exchange rates had a negative impact on group revenue of 60 basis points during the period. The first quarter saw an acceleration versus Q4 last year, with retail sales up 23% against the same period of 2022 at constant effects. Growth was healthy, driven by like-for-like and full price sales, with positive contributions from both average price and full price volumes. On royalties, the business delivered strong growth of 52%, continuing to enjoy strong demand for both eyewear and fragrances. Turning to the next slide, retail sales by brand.
Both Prada and Miu Miu registered robust performances in the first quarter, with a sequential acceleration in retail sales compared to the previous quarter. Prada grew by 21% at constant effects, with double-digit growth across all product categories, including an excellent performance in men's collections. Miu Miu delivered a standout performance in the first quarter, up 42% at constant effects. In terms of areas of strength, growth was very broad-based, but we would call out Asia-Pacific and Europe for particularly strong growth, and we were also very pleased to see robust performance in leather goods. Moving to the next slide, retail sales by geography. Retail sales growth was well-balanced across geographies and supported by a strong rebound in the Asia-Pacific region, with China benefiting from the easing of COVID-19 restrictions.
Asia-Pacific grew by 22% at constant effects versus the same period of last year, thanks to the acceleration in mainland China, but also notably in Hong Kong, Macau, with continued strength in Southeast Asia. Europe continued to experience a solid double-digit growth. Up 28% at constant effects, supported by both domestic and tourist spending. Southern Europe in particular continued to drive growth. In the Americas, we continued to see moderate growth in the first quarter, up 5% versus the same period of last year. Against more challenging comps, as Andrea said, and after a prolonged period of growth. Nonetheless, the North American cluster continued to register double-digit growth. We continued to see accelerated growth in Japan, + 55% at constant effects, benefiting from the recent retail investments we made in the country, as well as sustained local consumption.
Impact of tourism was still fairly modest in the quarter, but it's increasing. Lastly, the Middle East was up 15% in the first quarter, still solid, but softer in terms of transaction with locals. Turning to retail sales by product. All of our product categories Maintained strong double-digit growth in the first quarter, and in particular, ready-to-wear grew 38% at constant effects and remained the fastest-growing category for the group. Leather goods registered another solid performance, up 14% at constant effects, supported by a combination of new and iconic lines. Lastly, thanks to the performance of both formal and lifestyle collections, footwear delivered 20% growth in the first quarter. With that, I will hand back to Andrea Guerra for some closing remarks.
Andrea. It's fun that Andrea is giving the word to Andrea and back to Andrea. Just to wrap up. First of all, obviously we are very well aware that we live in a world and years where the rule is uncertainty. We know that, and we are trying to be every day more agile and quicker to be able to react to anything else. We are in a position today to accelerate investments, obviously, if conditions remain supportive. And investments, I mean, brand communication, I mean, store refurbishment, store, really creation of new platforms in terms of store designs and store experience. We will continue to work hard on mainly three things. Our brands, their long-term positionings, their identity, and making sure that desirability remains top.
Our people, motivation, training, ability to really craft organizations to be, I think, more agile and more contemporary, and in which each individual can really boost their contribution. Third, retail excellence. Retail productivity remain key drivers of growth yesterday, today, and tomorrow, and in the medium term. This last, I think, will really being a obvious character of what we will do in the next periods and months and years. Thank you for your attention, now we move to the Q&A session. Thank you.
Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. One moment, please, for your first question. Your first question comes from the line of Edouard Aubin with Morgan Stanley. Please go ahead.
Yeah, Good afternoon. Thank you for taking my questions. Three questions from me, please. The first one is, you're 22% growth in Q1. Could you just please provide some color on kind of the breakdown between, you know, pricing, mix, and volume, either at the group or maybe, might be easier at the Prada brand level. That would be really helpful. Andrea, you talked about the, you know, acceleration of Miu Miu, which indeed is really quite impressive. You talk about, you know, contemporary resonating and leather goods and all of that. Could you please elaborate a little bit more on kind of what's driving this impressive? Particularly, are you experiencing a gradual change in your customer profile at Miu Miu?
To finish on Miu Miu, If I'm not mistaken, I think the sales density is about a third lower than that of Prada. Do you see any structural reason for, you know, Miu Miu to have lower sales density? Last one, I promise. I know it's early in the year, but when you look at consensus expectations for the year, the full year, I think consensus is around 17% retail organic sales growth and EBIT margin of about 21.3%. If you could comment on how you feel about these expectations, that would be helpful. Thank you so much.
Hi, Edouard. Andrea Bonini. I'll start with the first one. I mean, we're not, you know, we're not gonna give the exact figures, as I referenced, we had positive contribution both in terms of average price and full price volumes. That makes us satisfied, because that's indeed, I mean, what we want. In terms of average price, I mean, what I would add is that, you know, as average price, I mean, we have three components to factor in. The first one is the run rating of the price increases of last year. I mean, the second one is the mix, and the third component is very marginal so far this year, which is, you know, more recent price increases. That's about it.
I will p ass it to Andrea for the second one.
In terms of Miu Miu, I think that the broader team of Miu Miu has really worked extensively in basically two things. First of all, being very clear on the brand positioning, and I think that this has been cleaned and cleared during the past two, three years. Second, I think based on this, we have repositioned also collections and the products. This brand is well-positioned on last generations, is a younger audience compared to the other brand, and is enjoying quite a successful community-based experience. I would say very actual positioning. Has always been a ready-to-wear, has always been shoes, and I think that the addition of leather goods success can really build this other pillar. In terms of sales density, I mean, I would never compare...
I mean, it's not Prada the benchmark. I think Miu Miu is working as any other luxury and fashion brand in the world, and the density we have today is pretty low compared to where we ought to be. I think that again, like-for-like. This is more than like-for-like, because the growth of Miu Miu is that kind of growth with yet store closures, yet in the cleaning of some mistakes done in the past. I think that, the acceleration is visible, and hopefully we're able to fuel it. In terms of consensus, let me say, we're just at the beginning of the year. Again, I would repeat the fact that this is the century and these are the years where everything can happen every moment.
We know that we have had a good growth in the past three, 12, and 24 months, and hopefully we're able to move this in the long term. Obviously, we have an ambition to deliver to the market a growth which is above average. This is what we have to do, and this is what we will keep on trying to do.
Great. Thank you.
Next question, please.
Your next question comes from the line of Thomas Chauvet with Citi. Please go ahead.
Good morning, afternoon, sorry. I have three questions. The first one on wholesale. Could you comment on the performance of the traditional wholesale in U.S. and Europe, as well as the Asia travel retail and how the, you know, wholesale order books looks like? Secondly, a question on the product mix and leather goods, which have underperformed quite a bit this quarter. I think it was already the case in the second half last year. Now, if I'm not mistaken, ready to wear and footwear combined are for the first time larger than leather goods. Can you comment on why you think you're not yet enjoying the same growth in such an iconic product category like leather goods, particularly given the pricing impact?
You know, what are the key initiatives on product marketing that you're taking? Finally, on the other brands, mainly Church's and Car Shoe, they've become obviously quite small in group context after several years of mixed performance. Any rationale for keeping this in-house? Can you remind us the benefit from the Northampton factory of Church's to the rest of the group? We were lucky to visit this factory, I think six, seven years ago. You know, how does this factory still benefit perhaps the, you know, the greater Prada footwear business that you have? Thank you.
In terms of the first, I would say that department stores, I would say are enjoying this journey of Prada and Miu Miu. We had a good order book. We are a little bit late on some on some delivery, but that I would say is not an issue at all. On the other side, we are obviously cutting the landscape of independent wholesale across the world. I think that this is really giving to the numbers that we have been able to achieve a little bit of another solid step. In terms of travel retail in Asia, you can imagine what kind of growth we could have seen in in many of these travel places in in Asia nowadays.
It's one of those cases where we've also seen in some weeks some triple-digit growth. Obviously, we were comparing to some figures that were sometimes very close to zero. In terms of product mix, I would say we're happy. This is the first answer I would give you. We are growing, I think that we had also an acceleration during this quarter compared to the quarters below, before. I think that this is one of the cases where we have done better than the market. Obviously, nowadays, there is this image ready-to-wear success of Prada, leather goods is a iconic, symbolic part of our business, of our history, and about our future. In terms of Church's, I mean, we will dedicate some times to talk about Church's in the...
Church's in the next, let me say probably two or three quarters. We're working hard. We're doing our homeworks. I think there is a lot of work to be done, and we're all aware of it in terms of brand, product positioning, stores, people motivation. I think that we are trying to do all of this. We'll take time. I think Church's is an important addition to our brand portfolio, is a valuable brand, will never be a volume brand. I think that there is an opportunity to really enjoy life with Church's in the mid long term.
Thank you.
Next.
Next question, please.
Thank you. Your next question comes from the line of Charles-Louis Scotti with Kepler Cheuvreux. Please go ahead.
Hello. Good afternoon. Thank you for taking my question. I have three. The first one, you said that the Q1 growth was primarily like-for-like. Can you remind us what should we expect in terms of stores opening this year? Would you consider streamlining your store network as part of your retail excellence strategy, or are you happy with the current setup? Second question, your growth was pretty solid in footwear, +20% in Q1, whereas some of your competitors pointed out to a softening of the demand in this category, especially in the U.S. How do you expand your outperformance in footwear? If you could be a bit more specific on which subcategories perform best during the quarter, it would be very helpful.
Third question, more midterm, I would say. You have already achieved your midterm growth margin and EBIT margin objectives last year. Well, obviously, it's hard to imagine no further operating gearing this year in light of the strong top-line growth. Should we expect you to release new midterm objective anytime soon? What level of profitability would you consider as reasonably achievable in the midterm? Thank you.
Thank you. On the first question on the like-for-like and expectations in terms of space growth and volumes, I'd say for the year I mean, we expect modest growth, very modest growth. The third question, then I'll leave it to Andrea for the second one. I mean, the third question on around gross margin, I mean, first of all, you know, these are revenue updates, we like to keep it to, you know, to the revenue topic. Top line. What I'd say is, I mean, nothing different from what we said at the full year. In the sense that we've achieved, yes, the objectives that were given at the Capital Markets Day.
You know, going forward, you know, at the gross margin level, I mean, what we expect in terms of expansion is modest, more modest considering where we are. At that EBIT margin level, you know, if we deliver top line in line with our targets, with our objectives, I mean, we have certainly operating leverage. You know, we came to reinvest in the business, but, you know, we should also be able to continue to deliver margin expansion. I'll pass it to Andrea for the second point.
What is good to report about this solid start and solid growth in ready-to-wear and footwear is that it was pretty across the board through categories and through regions.
I would only highlight one thing, that men ready-to-wear was probably something to highlight in terms of, obviously men is Prada, in terms of, success. Always keep in mind that, what I was saying at the beginning, I think, is helping Prada in a very different world scenarios. Prada has this very natural positioning on being able to deliver products to the highest luxury part of the market, but also to a more, lifestyle world. I think that this natural, dance and movement between these worlds is allowing Prada to really go through every kind of season. I would note these two points. On one side, men, on the other side, the Prada's positioning. Next question, please.
Thank you. Your next question comes from the line of Thierry Cota with SG. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you for taking my questions. Three questions for me. First, on China, you highlighted, and thank you for doing that, the acceleration, month by month along the quarter. I suppose it's on a year-on-year basis. Can you tell us whether on a two-year basis you also still saw an acceleration along the quarter? Secondly, I know it's a revenue call, as Andrea mentioned, but I'd like to know about the possible Hong Kong-Milan dual listing. I understand that you are or have been working on the resolution of technical issues. I was wondering if there was any timing on where you think that you will be done with resolving these issues, and then you'd be in a position to decide or not to move ahead.
Lastly, on brand upscaling, you have implicitly referred to many times in your, in your comments today again. Can you give us some idea of where today, your sales exposure is to what you would call, very important clients today versus three or four years ago? I mean, how different it is or higher it is, and how close you would be to sort of targets there. Actually, if we could have a sort of indication of how you define or you would define this upper end of the client base, that would be great. Thank you.
Regarding China and Chinese consumers, as I said, it's a journey through the quarter, but in average terms in the quarter, we are up double-digit on the Chinese cluster. We don't see any signal today of movements or decelerations. I will allow and listen to Andrea regarding dual listing. In terms of VIC, I think again, this is a great journey for Prada. I was alluding to this and talking about this with the launch of our Eternal Gold, that how we're using this new product category to being able to host different kind of events, different kind of activities.
We had a fantastic two-week sales in our mansion in Shanghai, downtown in Rong Zhai, where we were able to really host, spend time, and offer the most precious Prada in all categories to the best Chinese clients we have. I think, compared to others, we have just begun that journey. We're happy, but it's a long journey. Dual listing, Andrea?
Dual listing is a short answer, meaning I'll just say that, you know, we're not in a position today to give an update, in terms of timing. Next question, please.
Thank you. Your next question comes from the line of Luca Solca with Bernstein. Please go ahead.
Yeah. Good afternoon. This is Luca Solca from Bernstein. Ciao, Andrea. I have two questions, primarily of a strategic nature. When we talk about the retail excellence, when you talk about retail excellence, I seem to see from the outside looking in a very significant opportunity for improving retail space productivity. I wonder whether you could potentially say if you agree on that and what your ambition in order of magnitude terms could be. Is it that you are at 80% of the retail space productivity that you would want to achieve, or is it that you see a potential for increasing this retail space productivity substantially, say by 50% or even doubling it just to get, let's say, an order of magnitude sense?
When you look at retail space productivity ambitions, what contribution do you expect from like-for-like growth, if 100% was the retail space productivity improvement that you anticipate? What role, if any, would play the right sizing of the average store footprint? Again, from the outside looking in, my impression is that possibly some of your stores are a bit too big, but I wonder whether you share this view and if you see that there's low hanging fruit from relocating some of the stores and if there's further opportunity for that.
On pricing, when I look at Prada in some of the product categories, especially in handbags, I see that the brand has taken quite a lot of pricing, or at least it seems in my perception that this has been the case. Do you see further potential in this, in this area, or do you see that going forward, we should expect mid-single price increases or thereabouts going forward? Last but not least, your remaining exposure to off-price factory outlets and off-price would potentially dent the good work that you've done in terms of brand equity enhancement. What is your current exposure, and do you plan to reduce it further going forward? Thank you very much indeed.
Thank you, Luca. In terms of productivity, I think that from day number one, I am arguing and talking about productivity. Obviously, when we talk about like-for-like growth, at the end, that is all productivity. I would argue that going forward from today to the next four quarters, any like-for-like growth you're seeing is basically another step in that direction. We have a lot to be done. The ambition is to double it. Is it three, four years? It's really doubling the amount. Again, it's not a short-term job. It's culture, it's people, it's routines, it's every day, it's using CRM properly, using clienteling properly, having the proper way of meeting consumers. It's a 360 degrees work.
I think we have started, and it's not with my arrival that this was started, but I would say it has started in the past couple of years, so we are already into it. It's the biggest like-for-like opportunity we have. In terms of pricing, I think that observing Prada segments, I would say that in the upper part of what we sell, I think we still have some pricing opportunity, and we will work on that. In terms of off price, again, during 2023, we're closing another, I would say, double-digit number. We are, we closed almost 20 in the past 24 months, and we will close almost 30 in the next couple of years. At the end, we will really remain with a small number.
If we want to have a long-term journey of desirability, it's obvious, and it's an equation, that part has to be reduced. Again, it's not a journey we're starting today, but a journey the group started, two, three years ago. Grazie.
Grazie mille.
Last question, please.
Once again, if you have a question, please press star one on your telephone keypad. Your final question comes from the line of Liwei Hou with CICC. Please go ahead.
Good afternoon. This is Liwei from CICC. Thank you very much for taking my question. I have two, actually. The first one is on the product category. I remember in the last earnings call three months ago, we have made plans to increase leather goods sales as one of the key focus of the year. Now, with our obviously success in Miu Miu's leather goods category, is there any lessons to learn to empower Prada in further ramping up that leather category? This is the first one. The second one is on the Prada menswear. You know, I have a personal anecdotal evidence of seeing female customers eager to buy Prada's menswear. I was just wondering, with the strong performance in menswear, is it because of our gender-neutral attraction, or is it really that we have penetrated into the actual male customer cohort?
Thank you very much.
Regarding leather goods, I would not import lessons from Miu Miu towards Prada, but I would only repeat that selling leather goods and selling bags has to be an obsession. The more we will be able to jump and move and dance between this wonderful characteristic and tradition of Prada to be very quick with novelties, and on the other side, nurture our classic and our iconic bags such as Galleria, I think that we will we will reach our objectives. It will probably take sometimes a little bit longer, sometimes it will be a little bit more successful, but our obsession is there. In terms of menswear, I think this is a long story, and I'm not able to sort it out today. How much is it gender fluid? How much is man? How much is women?
I have got no idea, but when you see that kind of growth, I would say that there is a style, there is an image of Prada which is really, having success in the market, and, we're really making sure that this success remains in the long term.
Very helpful indeed. Thank you very much.
I think we have another question, or not?
No.
Okay. We take this last question.
Your next question comes from the line of Paola Carboni with Equita SIM. Please go ahead.
Yes. Hello. Hi. Good afternoon, everybody. Yes, a couple of questions. First one, is about Korea and the Korean cluster. If you can remind us, how much does this account for you, and what trends are you seeing, and you expect going forward from this cluster of consumers? Secondly, if you can elaborate a little bit more on the American cluster. You said it's still growing double digit. Just wondering if you are seeing some, any kind of changes compared to the previous quarter in terms of speed or in terms of attitude and price points and so on. Thank you.
Yes. This last question was about Americans, and Americans are, as I was saying during the presentations, first of all, they're keeping up. I mean, obviously, they cannot be as dynamic as they have been during the past years, but they're keeping up. As I was saying at the beginning of the conversation, they are buying, especially in Europe, where they have some small advantages here and there in terms of currency and some tax returns. We don't see a weakening from that point of view. Locally, I would say that United States is, you know, it's one of those things where you got some weeks up, some weeks down, nothing special, moderate, nothing excitement, but nothing to worry about today.
In terms of Koreans, I would say that we had a double-digit contribution by Koreans in these first three, four months. We have seen a good increase even outside Korea. Travelers have helped in this initial part of the year, where Miu Miu had a very strong acceleration in the domestic market as well.
Okay. Thank you very much.
From the two Andreas, thank you very much, and have a wonderful day. Thank you.
This concludes today's conference call. Thank you for joining. You may now disconnect your lines.