Good day, thank you for standing by. Welcome to the Prada Group First Half 2022 Results Presentation Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you'll need to slowly press star one and one on your telephone. You will then hear an automated message advising your hand is raised. Please be aware that we will take and answer one question at a time before moving to the next question. Please also note that today's conference is being recorded. I would now like to hand over to the speaker, Mr. Andrea Bonini. Please go ahead.
Good afternoon, everyone, and thank you for joining the Prada Group's First Half 2022 Results Conference Call. This is Andrea Bonini, Group CFO, and I'm delighted to be talking to all of you for the first time in this role. With me today is Mr. Patrizio Bertelli, our CEO and founder, Mr. Paolo Zannoni, Chairman, and Mr. Lorenzo Bertelli, Marketing Director and Head of CSR. Today, Mr. Bertelli will open with the group's business update. Mr. Lorenzo Bertelli will continue with an overview of our marketing and communication activities and the group's ESG progress. I will then go through the financial review, and to conclude, Mr. Zannoni will share final remarks. After the presentation, we will be pleased to take your questions. Now, I'd like to hand over to Mr. Bertelli.
Good afternoon, everybody, and welcome to Prada Group First Half 2022 Results conference call. Despite the complex macroeconomic and geopolitical context, we are satisfied with the results achieved in the first half, both in terms of revenues and in terms of margins. Thanks to our global presence and to the geographic distribution of sales of the group, we have more than offset the impact deriving from numerous lockdowns in China and from the conflict in Ukraine. I'd like to start by providing you with the most relevant economic data and a summary of our actions in the first six months. We recorded total revenues of EUR 1.9 billion, growing 22% at constant exchange rates compared with the first half of 2021, with the retail channel growing 26%. Gross margin stood at 77.7% and the adjusted EBIT margin at 17.4%.
These results testify to the progress made in the implementation of our strategy and to its efficacy. We kept investing in industrial activity to guarantee sustainable growth in the long term, also in terms of ESG. Finally, I emphasize that these results place the group on an accelerated path towards achieving the medium-term target we have announced last year during the Capital Markets Day. The Prada Group distinguishes itself for a contemporary vision of luxury goods which reflects itself in the identity of its products and brands. We kept investing in creativity and quality to offer higher value products. Our average prices have increased, thus keeping a wider product architecture, and this contributed to a double-digit growth for all categories. Our focus on direct distribution led to a significant like-for-like growth, which is reflected in a similar increase in sales per square meter.
The valuing of our distribution network remains a fundamental pillar of our strategy, and we are accelerating in renovations with important restyling projects, the launching of new pop-ups and selective openings in key markets. The growth of the online channel continues while we keep a selective approach to the wholesale channel. Also, the investment plans in our production in people and technology continues to improve the industrial know-how and allow the group to have tools that will allow it to improve quality, develop products and guarantee productive efficiency. As I said at the beginning of my report, sustainability is core to the strategy of the group and it is ever more integrated into our business logics.
The group recorded a very good first semester with a strong revenues increase and important results in all product categories and in all markets, excluding China due to the lockdown in the second quarter and Russia, where sanctions have come into force last March. The retail channel grew by 26% at constant exchange rates on an annual basis, and by 38% compared to the first half of 2019. The sound growth in sales and operating efficiency have strongly improved profitability, allowing us to reach a gross margin of 77.7% and an adjusted EBIT margin of 17.4%. Extraordinary market conditions in Russia required a write-down of EUR 26 million.
Despite this, we keep supporting our people and we strongly hope in a positive development of this situation which will allow us to reopen our stores and restart our activities there. Our financial structure is sound with a net financial position of EUR 180 million that allows us to keep investing and further accelerating the execution of our strategy. Operating priorities for the second half of the year. Our priorities for the second half of the year are continuous enrichment of the offering by developing products with a strong identity. We want to focus on leather goods, which are recording great results. We also want the contribution of leather goods on the total revenues to increase, reaching 60%. Further investments in the network of our stores and the digital channel to guarantee a shopping experience that will be ever richer and omni-channel.
The strengthening of our industrial supply chain, also with small acquisitions of production realities that we expect to conclude soon. And last, we want to keep a disciplined approach on costs and capital allocation. I will now leave the floor to Lorenzo Bertelli, who will give you the details of the marketing and sustainability strategies. Thank you.
Thank you and good afternoon. A critical driver for Prada Group performance is our relentless focus on our customer and marketing strategy. It's a reflection of our brand distinctive vision on one side, and of the communities we engage with on the other. In the first six months, we have worked to optimize our existing processes, constantly finding new ways to challenge our approaches and assumptions. Maintaining the perfect balance between iconic and new format is key. We strive for creative solution and ideas to create dialogues with the new existing customers that are engaging and rewarding, while also challenging convention. All this requires ongoing investment while remaining disciplined to remain loyal to our DNA. Looking at Prada specifically, we are constantly looking for new ways to develop and extend our marketing and communication initiatives, and we are seeing continued success through our delivery in both iconic and disruptive formats.
The attention to Prada collection co-designed by Miuccia Prada and Raf Simons keeps growing, with Prada Men's SS 2023 mentions up 43,000% versus SS 2022. We have continued to work with highly relevant talent in our latest advertising campaign, including Jeff Goldblum, Damson Idris, Rami Malek with Miuccia's Prada collaboration on Baz Luhrmann, Elvis movie, as well as the presence of the cast dressed in Prada at the last Met Gala generated high visibility for the brand. We continue to push boundaries with Linea Rossa into the extreme sports space through a series of collaboration with Red Bull, which is delivering excellent results and engagement. We're also successfully and creatively approach Web3 with amazing results from our Timecapsule latest drops paired with NFTs and the partnership with Meta featuring Avatar in Prada for the launch of their Avatar store.
The Miu Miu brand continues to go from strength to strength as its visibility increases, thanks to strong focus on communicating its clear identity. The highly successful Fall Winter 2022 fashion show, empowered by its artistic collaborations, saw live streaming engagement up to a third on the last runway show, and for the first time, the brand unveiled a leather goods campaign dedicated to the new Miu Wander bag, which registered a strong performance in terms of engagement and reach. Sustainability runs through all our brands with a key example in the new Upcycled by Miu Miu. Now in its third episode, which was introduced during the last show.
On this slide, you can see the clear impact that we are making across our brand marketing as we continue to build on the brand heat momentum for both Prada and Miu Miu with increased engagement and interest across dot-com, search, share, and brand dynamics. Let me conclude by reminding you of news that was announced at the beginning of this week. After staging a simultaneous show in Milan and Shanghai last September, we are very excited to be showing our Prada Fall Winter 2022 collection in Beijing on August 5, underlining once again the need to build meaningful exchanges, which is at the heart of our vision. With that, I would like to talk in more details on our approach to ESG.
We're ambitious about reducing our environmental impact and improving social sustainability as we recognize the increasing importance of ESG to strengthening reputation and ensure long-term growth. In order to set ourselves up for success, we decided that we had to make some essential and strategic changes within the business to place sustainability at the heart of our approach. The board appointment of Pamela Culpepper and Anna Maria Rugarli, who have extensive experience in ESG, is accelerating our progress in all areas. In the short term, the focus will be on carrying out an approved action plan to improve ESG performance, and in the medium to longer term, identifying the areas where we can take a leadership position within the industry.
Following our introduction of ambitious SBT-approved carbon reduction goal last year, we have put in place a set of concrete actions to meet our scope one and two targets by 2026. While we're pleased to progress in this area, we're also addressing our scope three emissions. It is fair to say, like many in our industry, we have significant work to do here, but we will actively engage with our supply chain and build a plan to help drive down emissions. Prada Group is also committed to circular thinking and responsible materials sourcing.
We have led the way with our work on Re-Nylon, but we recognize that use of leather remains a big challenge for the industry due to its high environmental impact. To tackle this, we have started an internal project on the traceability of leather procurement through closer collaboration with supplier and continued review of environmental standard across our value chain. We're also committed to responsible leather sourcing by 2023, in line with standards set by the Leather Working Group, the world's leading environmental certification for the leather manufacturing industry. Our flagship educational program, Sea Beyond, in partnership with UNESCO, designed to increase awareness of sustainability and ocean preservation, has now trained over 600 secondary school students globally. 10 schools across the world joined the second edition, and the winners were announced at the UN Ocean Conference in Lisbon.
Sea Beyond project also reached our employees at global scale through ocean literacy content, which will continue to be delivered along the year. In addition, we recently launched an open air lesson programming for kids to start in September 2022. While it is vital that we take strong action on climate issues, our progress in terms of social initiatives has also been considerable. We are proud of the project we have undertaken in the United States, and we are now using our learnings to create more opportunities across the group as a whole. Recently, we have launched an internal survey on D&I, and we've put in place robust sustainability training for board members and all employees. We're excited about the progress Prada Group has made so far and look forward to accelerating these momentums as we further integrate ESG commitments and behaviors within the business.
With that, I will hand over to Andrea Bonini, who will run through the financial review. Thank you.
Thank you, Lorenzo. I'm delighted to present a very solid set of results for the semester. Page 16, key financial summary. The group reported net revenues of EUR 1.9 billion, +22% versus both H1 2021 and H1 2019 at constant effects. Exchange rates had a positive impact on net revenues of 4.2 percentage points versus H1 2021 or circa EUR 62 million. Retail sales amounted to EUR 1.7 billion, up 26% versus H1 2021 and +38% versus H1 2019, again, at constant effects. EBIT adjusted is equal to EUR 331 million with 17.4% margin. EBIT adjusted excludes other non-recurring line item income and expenses that, for the semester, consisted of EUR 26 million write down of non-current assets in Russia.
The 17.4% margin in H1 2022 compares with 11.1% in the corresponding period of last year, and therefore shows a meaningful improvement in profitability. Net income, which is not on this slide, but you will find in the appendix as always, stood at EUR 188 million. Moving to net operating cash flow, it was positive for EUR 158 million, and we closed the semester with net cash of EUR 179 million. Page 17, net sales by channel. The retail channel remains our priority and now represents 90% of sales. Retail sales continue to drive growth in the period, up 26% versus H1 2021 and 38% versus 2019 at constant FX. This performance was entirely driven by like-for-like increase with almost nil space contribution.
Notably, there was a sequential acceleration between quarters on a three-year stack basis and when comparing the quarters to 2021, notwithstanding the difficult comp in the second quarter of last year, the deceleration is very modest. Online sales increased strongly in all regions during the period, with a growth rate slightly above the physical channel. Online penetration on sales remains stable due to the strong growth of the physical channel. On wholesale, channel rationalization is complete, but we maintain a very selective approach. Therefore, we close the semester with sales at -3% also due to the continued traffic challenges of the DFS channel. Page 18, retail sales by geography.
The results of this semester really show the benefit of our global presence and well-balanced geographical distribution of sales, as we've been able to more than compensate the impact of protracted lockdowns in China and of the sanctions on Russia. Asia Pacific declined by 7% year-on-year at constant FX to EUR 590 million as lockdowns in mainland China from mid-March impacted circa 30% on average of the group's network in that area. This impact was mitigated by the strong performance in Korea and Southeast Asia. Coming back to mainland China, we have seen an improved trend since store reopenings in June. Strong performance in Europe, with sharp growth of 89% year-on-year across the region, driven by domestic sales and an uptick in tourism in Q2 2022.
The Americas also generating an outstanding sales performance of EUR 360 million, up 41% year-on-year and triple-digit growth on 2019. Japan saw an accelerating trend in the semester, generating EUR 161 million of sales, up 28% year-on-year. Middle East also registered a solid performance with sales up 24% year-on-year. Page 19, retail sales by product. All product categories registered double-digit growth. In leather goods, we've seen a substantial acceleration on a 3 year stack basis at +24% compared to +7% in fiscal year 2021. Year-on-year, the increase was +18%. Driving the growth is a very good mix of new and iconic lines of bags and accessories. Ready-to-wear registered +32% growth on H1 2021, and footwear +39%, driven by lifestyle and new collections.
Page 20, retail sales by brand. Turning to retail sales by brand, Prada, which contributed 87% of our sales, registered a 28% increase year-on-year, and an impressive +46% on H1 2019. This result was driven by all product categories and with a balanced growth in terms of gender and age groups. Miu Miu turned positive on a 3-year stack and registered 14% growth year-on-year, thanks to the success of the third episode of Upcycled, Wander bag, and other products and initiatives. Lastly, on Church's and Other, which includes Marchesi 1824 and Car Shoe, these businesses were highly impacted by the pandemic and lockdowns in Europe in previous years, given their footprint. Now we're seeing a recovery. Page 21, gross margin development.
Gross margin reached 77.7% in the first semester, improving by 340 basis points versus the same period of 2021, and by 90 basis points versus second half 2021, when it stood at 76.8%. This significant improvement was mainly driven by average price and channel mix, slightly offset by country mix and cost inflation. Here on the page, we mention logistics costs as an example. Overall, these factors drove an increase of 280 basis points of the total, 340. We also registered a positive FX impact of 60 basis points as we saw strong appreciation in the US dollar and renminbi, among others. Page 22, operating costs.
OpEx on net revenues declined from 63.2% in H1 2021 to 60.3% in H1 2022, a 290 basis points improvement. At constant FX, OpEx increased by 17% year-on-year, driven by the variable component, a significant decrease in COVID contributions, higher discretionary A&P spend, higher labor costs, and a broader normalization of business activities post-pandemic. As a result, EBIT adjusted increased by 99%, and the margin improved from 11.1% in H1 2021 to 17.4% in H1 2022, a 630 basis points improvement, of which 340 from gross margin and 290 from OpEx. Page 23, CapEx. Capital expenditure in the semester was EUR 97 million.
Retail CapEx includes circa 60 renovation projects, with a plan to further step up the effort in the second half. In the semester, the group opened seven new stores, but we also had 15 closures, mainly Church's. Therefore, as of June 30, the total number of stores had declined to 627 versus 635 as of December 31. Excluding retail, of the remaining EUR 35 million, approximately half relates to industrial CapEx, and the rest is for the vast majority, IT. Page 24, net operating working capital. The net operating working capital was stable compared to last year, as a percentage of LTM net sales at 18%. In absolute value, there was an increase of EUR 78 million, mainly driven by inventory, reflecting higher sales volumes. Page 25, net financial position.
Our net cash position decreased from EUR 238 million at 2021 year end to EUR 179 million as of June 30. Notwithstanding the significantly higher operating results, as we saw on the previous slide, net working capital increased in absolute value, and we paid dividends in the semester for EUR 170 million. With reference to the row Other, it includes, as negative items, the delta in taxes between P&L and paid, and prepayments, mainly A&P and other contracts, only partially offset by positive items such as FX benefits on liquidity and other non-monetary items. Now, it is my pleasure to leave the floor to our Executive Chairman, Mr. Paolo Zannoni, for closing remarks. Thank you.
Thank you, Andrea. The Prada Group outlined its strategy in late 2021. Since then, we have improved financial and operating performance across the group, and we will keep doing it. You have seen that our hard work is bearing fruits. Customer like what they see, our numbers get better. All of that makes us highly confident that the Prada Group will achieve its medium-term targets. Yet, as we all know, the global outlook is highly uncertain. There are several dynamics in play that could impact performance negatively in the next six months and beyond. We are aware of the risk, and we'll be vigilant, ready to face them. Yet, we stay focused on striking the right balance between enduring margin improvements and the investment needed to deliver long-term growth. Thank you all for listening to the presentation. We will now take your questions.
Thank you. As a reminder, to ask a question, you will need to slowly press star one and then one on your telephone and wait for your name to be announced.
Please be aware that we will take and answer one question at a time before moving to the next question. Please stand by while we compile the Q&A roster. This will take a few moments. We are going to take our first question. Please stand by. The first question comes from the line of Melania Grippo from BNP Paribas Exane. Please ask your question.
Good afternoon, everyone. This is Melania Grippo from BNP Paribas Exane. I have two question. The first question is in the mainland China. If you could please elaborate on the performance in mainland China during Q2, especially on your exit rate.
Sorry to interrupt, but we cannot really hear.
Yeah. Let me try this way. I would, my question is if you could please elaborate on the performance, on your performance in Mainland China during Q2, and especially on your exit rate, and compared to what you're currently seeing in July, how confident are you that the demand will come back?
I'm sorry. I'm not sure whether this is a problem on our side, but we're really struggling to hear. Can we please try with the next question and then go back?
Yeah. Could you please elaborate on the performance in mainland China during the quarter, and, what are you currently seeing? I mean, your exit, what was your exit rate in June and what you're currently seeing, and how confident are you that demand will come back?
Good afternoon. This is Patrizio Bertelli speaking. During the month of July, the signals we get from China is just what we had in 2021. We do see a recovery. Before that, because of COVID, it was a pretty patchy situation. So, we need to understand what's gonna happen there. This morning, we just heard that a part of the city of Wuhan is back into lockdown. So, when we don't have any pressure from COVID and lockdown, we realized that the market is ready to recover immediately. Thank you.
If I may have a follow-up question is on your store network update. You renovated around 60 stores. Can you tell us what are you planning for the remainder of the year in terms of both the renovations as well as openings? And also, if you open any pop-up stores in the first half, how many? Thank you very much.
Yes, this is Patrizio Bertelli speaking again. We have renovated much, well, actually quite a few more stores than the Prada stores only. We are still busy working on the stores in July and August. Counting Prada and Miu Miu between September and the end of the year, we're gonna open 12 new stores. As far as pop-ups are concerned, we have a pretty articulated pop-up program, and we're gonna have about 20 pop-ups.
Next question, please.
We are going to proceed with the next question. Please stand by. The next question comes from the line of Susy Tibaldi from UBS. Please ask your question.
Thank you, and congratulations for another strong set of numbers. I have three questions, but I will ask them one by one. The first one, so in the previous presentations, you were showing this beautiful chart with the quarterly retail sales growth versus 2019. I was wondering if you could comment on what was the growth at retail in Q1 and in Q2 versus 2019. If I heard correctly, you mentioned there was a small deceleration in Q2. And I guess, I mean, we've seen that for many peers because of China.
It would be great if you could comment on that and maybe also on the U.S., because the U.S., you have been one of the companies to grow the most compared to 2019, and obviously the comparison base is getting very, very tough. So, can you spend some time to talk about the U.S. market? Thank you.
Hi, Andrea Bonini, Group CFO and thank you. On the first question on the retail organic growth versus 2019. So, on a three-year stack, we actually have an acceleration. We go from 34% to 41% in the second quarter. The slight deceleration that I mentioned is, you know, with reference to 2021. As I said, I mean, it's frankly a slight deceleration, because we continue to see, you know, very strong growth in the second quarter as well. The other point, you know, it's in absolute value, clearly our second quarter was, you know, higher than the first quarter.
As we all know, I think in the second quarter, I mean, there's a number of factors impacting from the main one, the lockdowns in China and also, you know, more difficult comp in 2021.
On the U.S., I will leave it to Mr. Bertelli to answer. Please.
As for the United States? Well, the situation is a situation of growth for us. We have seen some slowdown signals, but we've got to be very careful because currently Americans are traveling the world. They're all going around as tourists, and it is the Americans, who have led to an increase in sales in Europe for the whole business. So, I mean, it's difficult to give you financial analysis, because sometimes we tend to forget that North America, but also Central America, came here to Europe for their holidays, and therefore, they have led to a strong increase of sales in Europe. I don't think, you know, this is going to be a problem. We are growing also now in the U.S., but obviously, we'll have to see what the situation will be like at the end of August.
At that point, it will be possible to assess whether the tourist flow has simply helped Europe, and this will certainly be true and see instead if Americans coming back to the U.S. compared to last year's trends will lead to a proper slowdown or will remain balanced with last year's. As for the Prada brand, we are pretty sure we'll be able to grow. Maybe not so strongly, but we're confident we're gonna have a growth anyway.
Thank you. Very clear. My second question would be for Mr. Bonini. You have now joined Prada for a few months and so I was wondering if, I mean, if there was any initiative that you're planning when it comes to the way that the business is managed from a cost perspective, and also your thoughts about the profitability of the group, like what are your key priorities? And at the moment for this year, we are seeing EBIT margin consensus of 17.5% for full year. Also your thoughts on this would be great. Thank you.
Sure. Thank you. It's early days, but I've been able to visit, you know, some of our key markets. First impressions, I mean, I think it's a very exciting time for the group. You know, people have positive energy. I mean, there's clear momentum, and the size of the business is, I think, just catching up with the size of the brands. You know, we are lucky because we have, you know, visionary founders still involved in the business, and, you know, we have a clear succession plan. The group is investing in all the right areas, retail renovation, manufacturing, digital, talent, ESG and the digital transformation plan, in particular, really goes to the core of the entire business.
And together with the systems, we will also rethink the processes, and this should really drive productivity and efficiency. So, in summary, I do believe there is significant potential for growth, for productivity, efficiency. It's not really about, you know, cost-cutting per se. I think it's finding this type of productivity and efficiency and also maintaining the right balance between margin improvement and investments for the long term, which we're really focused on. So, that's on the first question. I think on the follow-up question around profitability, what I would say is the following. The group has made investments in the supply chain that are really crucial for the development of our brands in the long term.
They may have impacted profitability in the short term, but, you know, we will increasingly benefit from these investments, generating also more operating leverage. That's, you know, as a general comment. Then I think we're happy with the current level of the gross margin, which is close to the 78% target that was communicated before. On OpEx, in the second semester, we don't expect a different dynamic from H1. So assuming, you know, we keep growing, and that's our plan, we do see some further and higher operating leverage in the second half compared to the first half. Bottom line is, you know, when we look at the consensus EBIT margin for 2022, that stands at 17%.
In light of our H1, you know, we think that it may be conservative. There are also uncertainties, as we said, on the macro front, and margin development is also a function of growth. Thank you.
Okay. Yeah. That makes sense. Thank you. Last one, on the product strategy, and especially focusing on the leather goods, it has obviously been growing very well, but still a little bit below what the ready-to-wear category is growing. So, I was wondering, you mentioned also you have a target to reach 60% of sales for leather goods. So, what are your plans for this category? Are you thinking of introducing more products and also expanding your pricing architecture? Because one thing that I noticed when I go to the stores is that, you know, in terms of pricing, you're probably more at, like not super entry-level.
Compared to some of the brands that have now raised price very, very significantly, you're definitely perceived as being a little bit more affordable. And if we go into a slower macro environment, typically, you know, the more exclusive, more high-end brands tend to do better. So, I was wondering what you're thinking on the leather goods portfolio and what you see as the ideal price point for the Prada brand. Thanks.
No, this is Patrizio Bertelli speaking again. So, yes, we did work on leather goods, because we want to grow it up to 60%, which means, of course, we'll have to introduce new products. However, we have raised the floor for the whole product category of leather goods. At the same time, we always wanted to keep some entry price points. Growth, the growth we have recorded so far is not just thanks to the increase of prices, but also we increased the amount of products sold. We raised prices, and we raised the quantities sold, so this is really important. We are busy working to improve that even further. I think today we stand at 51% of leather goods sold over the total products sold.
We want to go up to 60%, so this is quite demanding, which doesn't necessarily mean that we will actually steal market share away from ready-to-wear. Ready-to-wear and footwear will keep growing, too., though we want to grow the overall group results. Of course, if leather goods become 60% of everything we sold, you just do your math and understand immediately where we want to get in terms of total revenues in 2023. Thank you.
Thank you so much. All the best.
Next question, please.
We are going to take the next question. Please stand by. The next question comes from the line of Silky Agarwal from Citi. Please ask your question.
Hi, good afternoon. Thank you for taking my questions. I have two questions, please. I'll start with the first one and then come back for the second. Firstly, on your production in Italy, I want to understand how much of your production is currently based out of Italy. Related to that, how much gas are you using in your production process? Do you feel that at some point the fashion industry, including Prada, need to rethink about production to reduce the gas consumption as part of its efforts, you know, to rationalize gas? That's my first question.
Patrizio Bertelli speaking. Our production is more and more made in Italy. By this, I mean that the very few things that we have manufactured outside of Italy is semi-finished products. 90% of our production is in Italy, except for a few things, as we've explained very many times, such as special processing of certain items that cannot be manufactured in Italy because we don't have specialized people. And then the second question was about gas, if I'm not mistaken. Well, this doesn't have any impact at all. Obviously, we'll pay more in electricity because electricity is increasing in price. But gas, I mean, the incidence, the most negative incidence we got doesn't come from gas, but maybe from oil, and it's because of transportation costs have increased.
As for electricity, the incidence will be, say, between 25-30% more we'll have to spend on electricity. Anyway, your question about production, we do luxury. It's made in Italy. We invest in Italian plants and therefore, you know, this is absolutely strategic for Made in Italy. Thank you.
Thank you, and sorry, I have another question on pricing. So, can you just recap on what are the pricing actions you've taken so far, and how do you feel about the price existing price gaps currently you have between different markets? With tourism picking up in Europe, do you think you need to readjust prices across geographies to balance the price gap architecture? Longer term, I want to understand in terms of how do you think the aggressive pricing that's been ongoing on the industry is sustainable? I know some of it has been done to offset the inflationary environment, but is there a limit to pricing in luxury? Thank you.
Thank you. Andrea Bonini again.
Thank you, Andrea Bonini. So, on pricing, when we look
When we look at our stores, we have a very in terms of, you know, the evolution of prices and average price, I mean, we have a very healthy balance in our stores in the semester of average price growth and volumes. Average price growth is, you know, price increases, but it's also the mix. You know, we do believe we have pricing power, but for the second half, I mean, we'll monitor market conditions and, you know, and respond appropriately. As to the, you know, regional pricing potential distortion also created by effects, you know, effects fluctuate a lot so we constantly monitor, but, you know, we don't rush any move. Thank you.
Next question, please.
We are going to proceed with the next question. Please stand by. The next question comes from the line of Flavio Cereda from Jefferies. Please ask your question.
Hi, yes, good afternoon. I also have two quick questions. I'll ask them one at a time. My first question was going to pick up on the question that's just been asked on pricing. Specifically, so if you forget FX for a second, your target pricing architecture. I'm particularly interested in prices in Italy benchmarked against prices in China, benchmarked against prices in the U.S. What is the comfortable price architecture for you at this moment in time? Forget the FX distortion. What would be your normal target here?
This is Patrizio Bertelli speaking. This is a very interesting question at any given time. Let me simply think about one thing. When we prepare prices, we don't prepare an architecture and then convert them for exchange rates or whatever. We actually look at the market, individual markets, and we see what level of price would be correct for those clients in those markets. So, it's not necessarily said they are connected to one another in different markets. It's a different approach. It's a Prada style approach, so to speak, but it's much closer to the individual situation and for individuals in the markets. Thank you.
Okay. And my second question, if I may, was again related to a question that was asked earlier about your store refurbishment and the new store openings, and I appreciate you've given us a number there. Can I ask you specifically for store refurbishments and openings in second half of the year and potentially for 2023 as well. Are you focusing on a particular area or, is this a global approach?
Thank you. This is Patrizio Bertelli speaking again. We did prepare a store renovation plan, and hopefully we'll be able to renovate them all by the end of 2023. For this year, we are opening 12 new stores, 8 Prada, 4 Miu Miu. Besides that, we're still renovating quite a few stores, but we will stop at October 30 because we don't want to have renovation going on during the Christmas season. It doesn't make sense to interfere with the Christmas selling season. We take a break from the renovation work from November 1 till December 30, and then we will start being very busy in renovation again starting in January 2023. Thank you. Next question, please.
We are going to proceed with the next question. Please stand by. The next question comes from the line of Louise Singlehurst from Goldman Sachs. Please ask your question.
Hi. Good afternoon, everyone. Thank you very much for taking my question. You must be absolutely delighted with the performance in the first half, particularly the gross margin achievement there, so thank you. My question relates to the potential risks of a slowdown ahead. I think Mr. Zannoni highlighted that there are risks, but you're certainly prepared. I wonder if you can share with us the key risks that you perhaps do see, but more importantly, how better equipped the business is today to adapt and deal with any changes given the experience of prior cycles. Thank you.
Hi, Louise. Andrea Bonini. I think in terms of risk, look, I think it's a very, as we said, I mean, it's a very uncertain, you know, macro environment. Developments in the second half and beyond, I mean, we monitor China. As Mr. Bertelli said, I mean, we are, you know, pretty confident that demand will come back when, you know, restrictions will be lifted. But that's the question mark, right? I mean, how the COVID situation will develop, given also, you know, the policy. I think in the U.S., you know, we're not that gloomy about the outlook, but, you know, there are signs, and there are concerns also vis-à-vis the U.S.
We continue to see, as we said, I mean, solid, you know, solid growth. Frankly, also, we look at our specific situation, and we think that, you know, we have multiple opportunities to grow in the region. So it's an uncertain environment. I think what, you know, in terms of the levers we've got, I mean, first of all, the point I make is, this semester really shows that I think having a, you know, balanced regional mix, it's a key strength. Because we were able to more than compensate, you know, the weakness of China with, you know, with growth in other areas. Russia, I mean, the impact of Russia as well.
I think, you know, that's a significant strength, having this balanced, you know, contribution from a geographic standpoint. In terms of levers, right? If we were to face, you know, a significant slowdown, yeah, we have levers. I mean, we can act on, you know, OpEx, we can act on discretionary OpEx. You know, we would, you know, it would be up to us to be, you know, quick and act on the costs in general. I think we look at the CapEx too, but frankly, you know, we have a strong balance sheet, and we act, as we said before, with a long-term view. You know, we wouldn't want to stop investing.
An important point is also that if there was a slowdown, I mean, you want to be ready to capture then the re-acceleration and the recovery. Because I think, you know, history tells that, you know, when we've seen these type of slowdowns, I mean, this is a sector that historically, again, have been very quick in in rebounding. We would want to be, you know, we would want to be ready. Thank you. Is there a follow-up question or next question? Thank you.
We are going to take the next question from Luca Solca from Bernstein. Please ask your question.
Yes, good afternoon, and thank you for taking my questions. I have a few. I will start with a question about retail space productivity. I wonder if you could share with us what is the current level of retail space productivity in terms of euros per square meter, and whether that is satisfying you at the moment. I'm asking this question because I thought that increasing sales per square meter would probably put you well ahead of the 20% EBIT margin target that you had shared with us at the end of 2021.
Thank you. Thank you, look, Andrea Bonini again. So look, it's not a number that we disclose, but I think, I mean, you know, you and other colleagues, I mean, do an excellent job ultimately in calculating that. Look, we are seeing, indeed, given the, you know, as I said, I mean, this growth is like for like. I mean, we're seeing a significant improvement, right, in productivity. Are we satisfied? I mean, frankly, we're not. Meaning that, you know, we think that we have, you know, much more potential, and how that translates into operating leverage, into margin expansion. You know, at the moment, we're not changing our target, you know, that we've given at the Capital Markets Day.
We just said that we think we are on an accelerated track. I want to remind again that it's not only about, you know, margin expansion. It's also balancing, you know, that margin expansion with, you know, continued investment as the company has done so far for, you know, long-term sustainable growth. Thank you.
Thank you, Andrea. Maybe a very brief question about gross margin. You mentioned a number of drivers that have brought gross margins higher. You didn't mention an improvement in full price sell-through, which I wonder, is that at the level where you want it to be, or was that also a contributor to the gross margin performance that you have produced this semester?
Thank you, Luca. As you know by now, I mean, we don't discount. Are we satisfied? It's in a good place. Could we do even better? Yes. That's the short answer. Thank you.
Wonderful. You mentioned that you're investing for the sustainability of the business, and you mentioned operations if I am correct. Can you elaborate a little on that investment and what this means? Have you been investing in expanding manufacturing logistics or what other areas?
At the top of your priorities at this point when it comes to this operation's investment.
Thank you. Thank you, Luca. Just wanna make sure that we understood your question correctly. If there are sort of, you know, two parts in the question, meaning how we are investing in general, right? I mean, supply chain, manufacturing. The second part is, it's about more specific around, you know, ESG. I'll address, you know, the first part, which is yes, we've continued to invest. I mean, as you can see in our CapEx, we continue to invest, expand, build, I mean, vis-a-vis, you know, factory or manufacturing plants. We also have, you know, I'll say a pipeline of small bolt-on acquisitions, I mean, to continue to expand and integrate, vertically integrate. As Mr. Bertelli said, you know, we're very, you know, focused on made in Italy.
So that's, you know, that's the first part. Lorenzo will add on to ESG in particular.
Yes. Thank you, Andrea. Good evening. I will add on this that on every investment that we do on the supply chain and plant, we work closely with the ESG team, making sure that the plant and the future investment are also stay future-proof in terms of ESG. We analyze deeply every single investment also from that point of view so we're quite confident that all the things that we are doing always have by nature now an ESG lens, let me say. and we work very closely with industry.
Thank you very much. My last question, if I may. Online, you mentioned about strong double-digit growth of digital distribution. I wonder if you could share the level of online sales at the moment, and if we are right to understand that brand.com is your overwhelming priority relative to being present on marketplaces and e-tailers.
Thank you. This is a very good question. I would say like always, as we are a direct channel company, we have 90% direct and temporary is in the overall channel strategy's fundamental to have the right orchestration between every channel. For sure, there are differences between the Western world and the Chinese world, not because the consumer behavior is different so we adapt all the strategy according also to the consumer. The dot com is for us, the strategic channel.
Next question, please.
We are going to take the next question from the line of Carole Madjo from Barclays. Please ask your question.
Hello. Yes, I have two questions, please. The first one, I've seen some headlines in the press that you could be considering a secondary listing of the Prada Group in Milan. Can you maybe just come back on this, if possible? That's the first question.
Yes. This is Paolo Zannoni. You know, we've commented on that question quite a few times before. And given the heritage and the brand identity, a dual listing on the Milan Stock Exchange has always been an option on the table for Prada. It is still an option, but it is not a priority, and no decision has been taken at this stage. I will also add, and I'm sure you realize that there are no precedents of a double listing between Hong Kong and Milan and as of today, we are in no position to confirm. While it has always been on the table, and it is still being on the table, no decision has been made, and the feasibility of it is still unclear. Thank you.
Okay. Very clear. Thank you. The second question, just a quick one on ESG and more specifically on material innovation. I think you mentioned that of course leather goods is a key source of focus and that you're partnering with some groups like the Leather Working Group to think about new initiatives. Can you maybe talk a bit more about what you're doing at the moment? Can you share some new products you are thinking about at the moment, just so we can understand what are the key focus on how to tackle the leather good material in the future? Thank you.
Yes. Thank you for the question. Yeah, we are working closely with all our partners, one of them and one of the most important is the Leather Working Group. And at the moment the strategy is work with all our partners to make sure first of all that we have a full traceability of the raw material through the whole supply chain. So, let's say this is the first step, and we're working with all the partners. For sure, we also have an outlook to the future, so the next decade and more, to see how the environment will change, how the behavior of the consumer will change.
Let's say, for now is too early to say something about this, but right now there is still a lot to be done and to let's say, sensibilize the supply chain and making sure that we have the traceability and on all the raw material. Thank you.
Thank you.
Next question, please.
We are going to proceed with the next question from the line of Liwei Hou from CICC. Please ask your question.
Good afternoon, management. Thank you for taking my question. I've got two questions. The first one is on, you know, our fashion show in Beijing coming August. It might probably be the only fashion show physically in China this year, so I really appreciate your connection with China, and I just wanna understand, is this part of a rotation of global fashion shows, or does it mean more of a permanent tie and connection with China going forward? Thank you.
Hi. Good evening. It's Lorenzo. This is Lorenzo. Like part of our marketing strategy, we have to make sure to reach every market and every country in the world. For sure, China, particularly now in this moment where it's more isolated compared to other countries, we need to talk with the Chinese consumer. Not sure, as you are saying, that it's going to be the only show or it's a big, major event, of the sector. I'm not sure about this for the end of the year. Yeah, for us it's strategic to stay in touch with our consumer and for sure China is more isolated, the Chinese consumer are more isolated than the others at the moment, so we need to go there.
Got it. Thank you very much. My second question is on, you know, if we look at the revenue growth by category, ready-to-wear outperformed, which is a testament to the success of our design. That also brings a lot of questions as in how long the enthusiasm for product will last. So, are we, you know, having any contingency plan in case, you know, the heat for product wears off, and how do we look at this, you know, fashion risk, internally? Thank you.
This is Patrizio Bertelli speaking. Yes, the increase of products ready-to-wear is quite significant also because we have gone back to our roots. We are back into a synthesis, which is perfectly mirroring the brand image we have in mind. So, it's very likely that as we grow, the percentage of ready-to-wear will decrease next year. Even though the percentage will decrease, the absolute values are not likely to decrease. Actually, they are gonna increase next year, too.
Got it. That's very clear. Thank you.
Next question, please.
The next question comes from the line of Paola Carboni from Equita. Please ask your question.
Hello. Hi, good afternoon, everybody. I have three questions, starting with the first one. Can you comment possibly about current trading? You were referring in the press release it's remaining pretty strong. Actually, I would probably expect even an acceleration compared to Q2 given the improvement in China and probably a better and higher seasonally importance of tourism to Europe, so c an you confirm this and elaborate a little bit on the current trading for the month of July? Thanks.
Thank you, Paola. We just gonna say that it's strong. We confirm it's strong for the month of July. I think in terms of, you know, how it's shaping up, yes, we've seen some progress in mainland China, which is indeed improving. I think, you know, as we said, I mean, we're far from being back to normal trading, normal market conditions. I mean, there's still lots of restrictions and they vary from city to region. But we've seen an improvement since the reopening in June, and that's helping current trading. U.S., as also Mr.
Bertelli said before, we've seen a slowdown. It's still growing double digits, but we've seen a slowdown and we think, you know, in part is also due to tourist flows that are benefiting Europe, which, you know, continues to be really, really strong.
Sorry, were these comments on a 3-year stack, just to be consistent?
On a monthly 3-year stack, we're not, you know, discussing that number at this stage. We never.
Okay. Can I go ahead with the second question?
Of course. Thank you.
Yes, that was about Miu Miu in particular. It seems to be back on positive trajectory. So I was wondering if you can comment specifically on that, also for the current trading, and on the level of profitability the brand has today, and what would be your reasonable target consistently with the medium-term target you provided for the group.
On Miu Miu, yes, we're seeing. You know, we see from the results, I mean, we're seeing an improvement and it's back to also positive versus pre-pandemic, you know, with the plus 5%, so turn positive on that 3-year stack. You know, we see it's very encouraging because, I mean, there's growing visibility. You know, that continues to augment the. Look, we're also encouraged by the consistency of the trend. In terms of profitability, you know, we said it before that it's also on a positive trend. We're not going to disclose specific targets.
Okay.
Thank you.
My last one is instead on the FX. Can you help us modeling for the second half, should we expect a similar impact from FX on gross margin based also on your hedging, and on known spot rates at the moment? Thank you.
Sure. We still expect a positive impact on top line, but you know, net of hedges, therefore at margin level, we don't expect the positive impact that we had in H1. Thank you.
Thank you very much.
Next question.
We are going to proceed with the next question. It's from the line of Mavis Hui from DBS. Please ask your question.
Hi, management. Thanks very much for taking my questions, and congratulations on very strong performance. I have 2 questions. First one is that we mentioned about our target to lift leather segment to about 60% of our group revenue. Actually, is it possible to share more color with us in terms of our latest margins by product categories, please? Thank you.
Thank you for your question, but I mean, it's not an information. We disclose the margin by product category.
Right. Okay. Thank you very much. And my second question is that.
We have lost connection. We may want to move to the next question. Is there any more questions?
We have no further questions at this time. I'll hand back the conference to you for any closing comments.
Okay. This is Patrizio Bertelli speaking. We can close our conference here. We can wish you all a happy summer, and hope to see you again with another performance, which is just as good as this one. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect your line.