Ladies and gentlemen, thank you for standing by, and welcome to the Prada S.p.A. H1 2020 results presentation conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I must advise you that this conference is being recorded today, Wednesday, 29th of July, 2020. I would now like to hand the conference over to your speaker today, Alessandra Cozzani, Head of Investor Relations. Please go ahead, madam.
Thank you. Good afternoon, everybody, and thank you for joining Prada first half 2020 financial results conference call. I hope that you and your families are well and healthy. First of all, I would like to apologize for not speaking with you for the presentation of our full year 2019 results. As you remember, it was March 18th, and we were in the middle of lockdown and all stuck at home. I'm happy today to tell you that since beginning of May, we have been back at the office, both in Milan and in Tuscany, and I'm in Valvigna today with the top management of the company, our Chairman, Carlo Mazzi, our CEO and Founder of the company, Patrizio Bertelli, and Lorenzo Bertelli, our Head of Marketing and Head of CSR for the group.
During the call, Mr. Bertelli will give us an overview of what happened in the semester and how we have navigated during this period. I will go through the financial numbers. Afterwards, Lorenzo Bertelli will update you on our marketing and communication projects, and Mr. Mazzi will share with us some final remarks before the end of the presentation. After the presentation, we will all be pleased to take your questions. I yield the floor to Mr. Patrizio Bertelli.
Good morning to all of you. I want to tell you about the impact COVID had on our business. A number of events affected our business. I'm sorry, I cannot hear Mr. Bertelli speaking. Just a second. Yes, now I can hear him. What we did, we did our best to contain the impact of COVID on our business. We did so both industrially and from a sales point of view. When necessary, we also resorted to state aid, 100% of the salary was paid to the workers, and just as much to the employees, to the white collars. We gave a major financial contribution because we could not have our employees bear the burden of this unexpected situation. We tried to reopen as soon as possible.
On April the 27th, we tried to take steps to work within the factories. The first month, we had shifts, we had reduced working hours, starting from June, basically, we managed to go back to normal, almost, with all of our industrial resources. That, of course, somehow caused delays in deliveries, product deliveries for the fall/winter collection. The market was very responsive. I must say they were very responsive, especially in Asia. When mainland China started to reopen their business on the 23rd of March, then in April they stabilized, they were very responsive. Just as Taiwan and Korea, Singapore was a bit closed, then Australia, New Zealand, Japan was affected by the lack of Chinese tourism, they were very responsive once again.
It's clear that Europe was affected just as much, meaning the lack of tourists, and then the local customers somehow offset this lack of tourism. Indeed, we could not achieve the revenues we had announced for, or that we had in 2019. A country that has been supporting us and working well is Russia and Turkey. The markets, generally speaking, were spending on themselves somehow. They were looking inward, and the brand was correctly distributed at international or global level. We managed to rapidly recoup the lockdown period. What's very interesting to notice is that in July, starting from June, but also in July, we could take in, absorb, almost completely the losses we recorded on the European market and part of the U.S. market for the clear, well, for the reasons we all know.
This is very promising indeed for H2 2020, because indeed, we will not know whether or not we'll be able to fully recoup and have the same revenues as in 2019, because there are a lot of doubts still out there. There's still a lot of unanswered questions, and situations still have to unfold. The market was very reactive and very fast. Having said that, let me say that, we have strengthened our retail network, and we have mainly focused on e-commerce, with respect to the past. We'll give you the figures later, and it will show a good performance through the year.
In 2019, we made a strategic decision, and in the decision we made was, we aimed at downsizing our sales in the wholesale channel, despite the fact that we have a lot of demand coming from that channel, because there are a lot of anomalous platforms out there that caused inadequate end market conditions with different prices in different markets and a proposition that was in conflict with our retail network and especially with our brand position.
Basically from 2019, we completely canceled markdowns from stores, and we've dramatically reduced our sales to wholesalers. The final result, the end result in the Taiwan, Korea, and China, we can state that we are, since July, we have increased. We have had an increase in sales in excess of 50%, five-O. That really makes us hope for the best when it comes to the second half of the year.
Prada's policy to focus on our own channel, retail channel, and on the e-commerce channel is bearing excellent results. In the first half of the year, of course, Somehow we're feeling the lack of wholesale revenues versus 2019. Generally speaking, our results are sufficiently positive. I think that the strategy we are pursuing is really positioning our brand in the high bracket of high-end luxury brands, and makes it possible for us to achieve contribution margins that are those of a luxury margin with a markup and a gross margin in excess of 73% for 2021. In 2021, we think our gross margin will be hovering around 75%. That is the level that you can only achieve if you manage your brand and your distribution network, including DFSs, which are managed at business level fully by the Prada Group.
Let's now crunch some figures. Let's check the figures, and then we'll answer your questions. Thank you very much for your attention. I will start with a picture of our P&L. Net revenues for the first 6 months of the year stood at EUR 938 million, so down 40% year-on-year at constant exchange rate. Of course, the group's strong revenues momentum registered up until the end of January was abruptly interrupted by COVID-19 pandemic.
This has caused store closures around the world at various times since February, with a consequent significant negative impact on revenues. However, we reacted promptly and took effective action to mitigate the impact of these store closures, putting in place a comprehensive program of cost cutting. These actions included renegotiation of lease agreements, canceling or postponing marketing activities, and cutting all possible discretionary costs from traveling to consultancy and external services.
Total operating expenses were at EUR 866 million, down 12% at cost and exchange rate compared to the same period of last year. In order to better understand the impact of the stores closure on our P&L, we have identified all the selling costs pertaining to the stores that have been closed during the lockdown imposed by the governments around the world, this impact amounts to EUR 112 million.
All these costs, representing 18% of our total selling expenses, generated zero revenue because of the forced closure. EBIT net of this amount was negative at EUR 83 million. Including the above cost, EBIT was negative at EUR 196 million. A net loss of EUR 180 million was registered after inclusion of a positive tax contribution of EUR 52 million related to the fair tax asset on carry forward of losses that the group is reasonably certain to recover.
There is an important message that I would like to underline before moving to the next slide. This operating loss was generated during the period from February to May, when we operated with an average 40% of our stores closed. January was profitable, and we are very pleased to say that June is profitable again. Turning to our balance sheet and cash flow, our financial structure remains very solid, with a debt to equity ratio at a very good 19%.
Our net financial position ended negative at EUR 515 million. This is a remarkable result that proved how well we have managed costs and cash outs during this difficult period. Net working capital at EUR 650 million decreased and remained well under control. Thanks to our direct control of our supply chain and the strong logistic platform, the group was able to manage its stock very effectively without generating excess inventory.
Now, let's turn to look at our sales by channel and then by geographies. The retail channel was down 32% at constant exchange rate impacted by the store closure. It's important to underline that these retail revenues are full price sales following the decision we took last year to eliminate markdowns. Likewise, we did not change our policy on wholesale, which was down 71% at constant FX due to our decision to downsize this business in order to focus on retail and e-commerce development, as Mr. Bertelli explained before. This decision has increased the portion of our retail sales to 90%, while wholesale is now less than 10%. This chart shows the monthly trend of the retail channel during the semester, which provides further details to show how the situation has evolved.
As you can see from the slide, the trend was up double digit in Q4 '19 and further accelerated in January to be suddenly interrupted by the pandemic with the consequent lockdown, first in China and then in Europe, Japan, Middle East, and U.S. As a result of the store closures and restrictions on individual mobility, the retail channel sales trend turned negative from February and experienced a significant decline in April with 70% of our stores closed.
Even the stores which remained open were negatively impacted by restriction on individual movement and reduced business hours. However, it was very encouraging to see the signs of recovery following the reopening of our stores, with significant growth seen in Asia, as well as very good signs in all the other markets, driven by local consumption and despite the general lack of tourism.
As you may see from the chart, during the month of June, the trend has significantly improved, and July is trending even better, close to single-digit negative, which is very encouraging considering that we are still operating with an average 5% of the stores closed, and there are still many restriction on travel worldwide. Direct e-commerce is showing an extremely strong performance in all regions, growing sales by triple digits during and after the lockdown, up 150% in H1 with a peak in June and July at 300% increase. Lorenzo will give you more insights in a moment. Looking at retail sales by geography, every region was impacted by lockdowns and restriction on travels. In Europe, following outstanding growth of more than 50% in January and February, retail sales were negatively impacted by lockdowns from mid-March.
After the store openings, we are seeing a very good response from local consumption, even though the region is still impacted by the lack of tourists. Asia Pacific was the first market to recover towards the end of March. Above all, China, where we are recording high double-digit growth since April, as I will show in the next slide. South Korea and Taiwan, which were not affected by store closures, also showed a consistent strong double-digit trend throughout the period.
The entire Asia Pacific region reported double-digit sales growth in June, despite Hong Kong and Macau still being negatively affected by the lack of tourists. In July, the region has accelerated also. In America, strong growth above 30% in January, February, was again interrupted by lockdowns in late March. We are seeing an improving trend recently despite the health emergency is still ongoing.
Sustained growth in Canada since stores reopened has been driven by local consumption. In Japan, retail sales were positive in January but were interrupted by lockdowns since February. Resilient trends were shown in the region recently, mainly driven by local consumers. After positive trends in January, February, the Middle East region also entered a lockdown period. As with the other areas after the reopenings, we are seeing better and better trends, and in July, the region resumed growth.
As you can see from this slide, on the right side of this slide, the left, not the right. The consumption appetite was very strong in Mainland China since the store reopening, with a remarkable sales trend since April, which further accelerated to over 50% in June and above 60% in July. Overall, China has already well exceeded the level of 2019 sales.
I have already mentioned that the overall Asia Pacific region reached double-digit growth in June and July, approximately between +15% and +20%, notwithstanding the negative trend of Hong Kong and Macau. Here, I wanted to show you the trend if we exclude Hong Kong. You can see that the growth was up to 30% in June, and in July, it is accelerating to more than 40%, including an amazing +70% in Korea and +80% in Taiwan. Let's have a look at what this all meant for gross margin development. Gross margin proved to be highly resilient and stood at 70.4%, supported both by a more favorable channel mix and effective inventory management. The positive contribution of these two drivers were offset by the under absorption of fixed costs in the supply chain.
Gross margin is expected to improve in H2 '20, given the absence of this deleverage in a scenario of improving sales trends. Let's move to the operating cost slide. Total operating expenses were at EUR 856 million, down 12% at constant exchange rate, a decrease of EUR 120 million during the period. As you can see, effective cost containment measures were taken promptly from the outbreak of the pandemic, with significant cost savings in all areas.
These were particularly the case in selling expenses, which were down EUR 95 million during the period, of which almost 60% was related to rent, mainly as a result of a successful renegotiation of lease agreements with landlords, as well as the reduction in the variable component of rents. Advertising expenses went down 7%, with traditional media spending cut and events postponed or canceled.
All the other costs were reduced, thanks to our effort to contain discretionary costs. As mentioned at the beginning of my presentation, there were around EUR 112 million of selling expenses pertaining to closed stores during the lockdown. The major components of those selling expenses included rental costs, net of COVID-related discount, labor cost, net of social benefit, and other selling expenses.
Please take into consideration that this EUR 112 million cost could not generate revenues during the period. Here we have the EBIT margin evolution. The EBIT margin has been significantly impacted by the negative sales trend caused by the store closure, but due to the effective cost containment measures taken promptly in all areas, we were able to mitigate the negative impact on margin. I would like to reiterate once again that EBIT was negative in the period from February to May, but turned positive in June.
Let's turn to our CapEx slide. CapEx was significantly lower during the period, finishing up at just €49 million as we focused only on essential projects and canceled or rescheduled most of the renovation and relocation projects that had been planned for our retail network. As I mentioned before, our net working capital remained well under control during the half. We have effectively managed the level of our stock without excess inventory building up. Thanks to our direct control of the supply chain and the strength of our logistics platform, which enable us to relocate our inventory effectively across region, even during the lockdown. The lower figure for trade receivables is in line with our decision to downsize the wholesale business. I will close my presentation with the usual slide on net financial position.
Net financial position ended negative at EUR 550 million at the end of June from EUR 406 million at the beginning of the year. Our efforts to contain cost and expenditure and the effective management of networking capital ended with an operating cash outflow of just EUR 26 million. That, combined with a very low level of investment and the withdrawal of 2019 dividends, resulted in a net financial position well under control and in line with that of June 2019, that was EUR 507 million.
As a precautionary measure, and in order to provide additional financial flexibility, the group secured a new revolving credit facility of EUR 300 million, that together with the other committed and uncommitted line and available cash, brought group liquidity to a very safe level of EUR 1.2 billion. Now, I would like to hand over to Lorenzo Bertelli.
Thank you, Alessandra, and good afternoon to all. Since the pandemic outbreak, we have adapted our marketing communication strategy to rapidly respond to the changing environment, trying to find new ways to address our audiences and better target our message to satisfy their needs in this particular period. We focused on digital initiative as well as on the empowerment of our e-commerce, which saw an amazing growth across almost all markets in all the three product categories.
Since last year, our e-commerce is experiencing a strong growth that was accelerated by the lockdowns, and has continued to progressively improve in the last couple of months, reaching an amazing plus 300 growth during the months of June and July. I would like also to underline that we had weeks in China, also related to the new, I will say, strategy with four-digit numbers growth.
We hopefully target for the end of this year, a small milestone for us, I mean, a big milestone for us, that is EUR 100 million target with e-commerce that, compared to the past, I think this is a very relevant year for our e-commerce.
This number are the result of a series of investment that we have put in place to enhance our digital shopping experience. We have expanded our online offer, revamped Prada's website across a major market, and launched a new Prada e-commerce in South Korea and Brazil, as well as activated new online initiatives such as the Prada Timecapsule, very well received. All the above has been supported by our efficient logistic capabilities, which proved to be strategic in this context. We rely on a strong sales staff who has built long-lasting relationships with our customer worldwide.
They proved to be fundamental to stay in contact with our clientele throughout the crisis. Thanks to an enhanced omnichannel experience as well as to advanced listening technologies, we are empowering our store professional to provide a more and more personalized customer experience. We firmly believe that the digital and physical shopping experience are meant to exist and nurture each other. Our continued investment in digital platform, including the recent partnership with a leading international company in customer experience management, has proven highly successful as evidenced by Prada's strong accelerating brand heat, as well as the very good recent performance across various social media. For example, Prada 520 campaign hashtag pages on Weibo gained more than 1 billion views in total, thanks to the selected Chinese talent, and to user-generated content initiative.
This is, I will say, has been a record for us and a very good number for the sector. The last Prada Men 21 was ranked as the first in terms of mention with regards to our media during the Milan Fashion Week, of course. Here I would like to highlight to you four marketing initiatives over the next couple of slides that illustrate how we have adapted our communication strategy to rapidly changing times during global lockdown. These are examples of multilayered and multichannel campaigns focusing on products like Prada 520, as mentioned before, and Miu Miu, and group value like Prada Possible Conversations, and Prada Group Remix. That in some cases were also conceived to target local audiences or were enthusiastically received on our channels.
Now I leave the floor to Mr. Mazzi, and thank you to all.
Thank you, Dario, and to all of you. Please let me repeat that Prada's reaction to the health crisis was principally focused on safeguarding the health of our employees and our communities across the world, with initiatives promoted both by the company and the management teams. For example, we dedicated our plant in Montone, central Italy, to the production of 80,000 overalls and 110,000 surgical masks to meet the urgent needs of Tuscany's healthcare system. Top management donated six complete intensive care and resuscitation units to Milan's Vittore Buzzi, Sacco, and San Raffaele hospitals. Prada has been one of the few companies to implement periodical surgical tests to all Italian employees.
At the same time, in addition to focusing on facing the economic impacts deriving from the forced interruption of business activity, we made a commitment to preserve our relationship with customers, for which we have been able to take advantage of the large potential of digital technology recently developed by our department. The positive response of all our local customers where we reopen our stores is testament, in addition to the value of our products, to the strong bond with our customers.
These two factors represent the fundamental reason for which we are confident in the future of the group. Today, our retail sales are equal 90% of the volumes of the same period in 2019, as we already said, despite 30 stores are still closed and the lack of tourist flows and travel restriction caused by the danger of contagion in many important markets.
Another point to underline is that we strengthen the organization in this period for the future with the new leadership appointments. Chris Bugg, Director of Group Communication. Benedetta Petruzzo, my new General Manager. Raf Simons, Co-Creative Director. Massimo Vian, Chief Industrial Production. Today, it's very difficult to forecast next month's scenario. In a hypothesis, let me say, a positive hypothesis, if significant outbreaks of the pandemic can be avoided, if we are able to reopen the last stores still closed, if we are able to confirm the most recent retail sales trends, we can expect the group to return to breakeven by the end of the year, and then return to the previous levels of revenues in 2021 with a growing pace in line with the trends seen in the previous months before February 2020. Thank you.
Thank you. We can now open the Q&A session.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. The first question comes from the line of Thomas Chauvet from Citi. Please go ahead.
Good afternoon. Thanks for taking my question. I have three, please. The first one, if I understood the message correctly, you said you turned back into profit in June and July. Could you tell us what roughly the level of profitability was during this month? What was the retail growth in July for the group compared to, I think, -20% in June? Secondly, on wholesale, there was a EUR 220 million shortfall in revenue versus H1 last year. How much of that is due to your own decision to further close doors? How much would you expect that to impact H2 '20 in EUR million and maybe the beginning of 2021? Finally, on spring/summer '21, how are you preparing for that launch when Miuccia Prada and Raf Simons will present their first joint collection as part of the new designer structure.
I guess it will be probably a virtual show. Does COVID-19 affect your ambition for that launch? What are you fine-tuning, changing, to make sure you can still maximize the visual and commercial impact, more importantly? Thank you.
Hi, Thomas. Sorry for the delay. You had many different questions. I will take the first one.
Yeah,
Yeah, Mr. Bertelli is saying that you did too many questions. We need time to reply, okay. Anyway, I mentioned honestly just June profitability. I had mentioned that we came back to profitability in June. I didn't mention July, of course, July should be better than June. It is expected probably to be profitable again. When I say profitable, I'm not including, of course, the contribution of wholesale that we had in June. I'm just talking about the retailer trend. Just talking about the retail contribution, June was profitable. Of course, I will not share with you the number, it's profitable.
The question was how much of the EUR 220 million were from wholesale, were what we wanted to do or were caused by the trend. We were willing to do that, of course, we have to consider the U.S., because in the U.S., you have another factor that is to say, either there were bankruptcies or payments not being made, or of course, store closures. That reduced our position in the U.S. down about EUR 10 million sales-wise.
We'll have to wait and see what will happen there in the U.S. department stores, I mean. I must say that all those who developed parallel platforms, we want to avoid those parallel platforms. The order of magnitude, 70% is something we wanted to achieve with our policy. The rest, if we manage to establish clear relations, we can still work with those wholesalers.
There's a wholesale market with somehow platforms that are not clear in their behavior, and then there's a U.S. department store issue. The other question was on how we geared up when it comes to Asia, how prepared and equipped we are to tackle Asia. They account for 45% of our revenues. We have an insight into the market, the Far East and Japan. We are really focused on those markets, and the growth we are achieving there bears witness to that. However, this is not the only industry we have to look at, or sector we have to look at. When it comes to 2021, everyone is asking about 2021. My answer is always the same. It all depends on when the vaccine will be announced.
The moment in which it will be announced, resources will be released and there'll be a rebound, about 30% rebound on markets, a rally. It will depend on when the vaccine will be delivered to people and countries. The existence of the vaccine will, of course, make the life a lot easier in the markets. We thought the situation could be worse in July, and instead, July and the first days of August, hopefully, seem to be more positive than what we were expecting in April. In April, on the other hand, we were all very much repressed somehow. We saw things worse than they actually were.
Contrary to what everybody says, that society would change, I think values will change indeed, and how the product will be distributed, the inherent product value, what brands express, the type of originality that these brands express. I think the market is growing and not declining. Next question, please.
Thank you. Next question comes from the line of Melanie Floquet from J.P. Morgan. Please go ahead.
Yes. Good afternoon. Thank you for taking my questions. I have a few just technical ones. First of all, I just wanted to get confirmation that there were no meaningful inventory write-downs in what you reported today in your H1. If that is the case, where did the excess inventory potentially that came out of the spring/summer collection end up? Notably, also, could you, on this, tell us maybe whether full price sales were also down around 10% in July? Because July is also the sales period, if I'm not mistaken. My second slight technical question is, I see that the rights of use assets is coming down, if I'm not mistaken, in H1 2020 versus H1 2019. Could you help us understand where that went and what that related to? I imagine stores impairments.
Yeah, I'll stop with these two question, and I'll come back later if I need to. Thank you.
Hi, Melanie. Talking about the write down on inventory, we didn't do anything extraordinary this period, the usual devaluation, because our stock, as you have seen from the slide, didn't increase significantly. We have not accumulated an excess of inventory. The quality of our stock is absolutely high, the same as the previous year. We didn't do anything extraordinary on that point of view. Not sure to have understood, your second question is related to the retail trend in July. I mentioned before in the presentation that in July, the trend was better than in June. That is around single-digit negative.
Around single-digit negative. Does that just not mean down 10%, down 9.5%?
Maybe not far from 10%, but single digit.
Okay. Thank you.
The third one, honestly, I have not understood well.
Okay. Can I go back on Didn't July include the sales period? How did full price sales fare in the period? Standard sales rather than anything. You had some, and we saw some as clients.
Melanie, can you rephrase your question because even the translator cannot understand, sorry.
I cannot hear you clearly, that's why.
Okay. Yeah.
I cannot hear you properly. Can you hear me now?
Yes. Slightly better, yes.
Slightly better. Okay. I was saying July normally is a sales period. I know you're doing a lot less of it, but you're still doing some. As clients, we did get sales period for July. Could you tell us within this July number, how full price sales fared compared to this nearly -10%? Thank you.
Okay. I may reiterate what I said before. Retail trend in July was single digit, let's say, close to 10%, slightly less. The wholesale, of course, it is not a major month for wholesale, July, but it is possible that we can recover something that we didn't ship in June, as Mr. Bertelli said, if the financial condition of our counterparts is fine, and they can grant good condition for us, we may recuperate something in July, sorry.
Okay. Thank you.
Next question, please.
Thank you. Next question comes from the line of Susy Tibaldi from UBS. Please go ahead.
Hi. Thank you for taking my question. Very good trends in June and July. I wanted to check if you are able to give an assessment on how the local clients globally are doing, because of course we still have the impact of tourism. Whether you have any data on how just the local tourists are doing, and I think maybe that's even more relevant for Europe. Secondly, I can see from your figures that you are still spending quite a lot in advertising and promotion. Compared to last year, it was just a very small decrease. When it comes to the second half of the year, do you also expect this number to be broadly in line with last year? Thirdly, when it comes to e-commerce, you clearly had a very strong growth.
Can you talk about the level of profitability of the online channel, if it is accretive to your margins at EBIT level? Thank you.
Laura.
This is Ms. Bertelli speaking. As far as local sales are concerned, we've had a very positive performance from local customers, not just in Far East, but also Turkey. I said Russia as well, Germany, everywhere. I would say that a lot more than we expected. The difference in the negative results in Europe is mainly only driven by lack of tourism. Locals bought more than in the previous years. This is the certain fact. Local customer, China, Japan, et cetera, they buy in their territory, so they're local. Same applies to the U.S. There's no tourism in the U.S. We never sold to tourists in the U.S. We are a brand that in the U.S., we sell to locals, to Americans. The U.S. account for Well, the foreigners maybe are in California, in L.A., New York.
They account for, I don't remember the figure exactly, but they account for not more than 10% of our sales.
I will take the question on the advertisement. It's Bertelli speaking. First of all, I would like to say that you say that the reduction of budget for advertising was not big, in my opinion, it was big enough. Actually, as you know, most of the budget that you spend in communication, you pay in advance, especially if you think about newspaper. When you reduce, you can reduce until a certain point in the short- terms. We believe that, especially for Prada, we will invest a bit more in the lower part of the funnel compared to Miu Miu, that needs more of a brand awareness. We try to do not, let's say, disappear from the radar, and keep the presence of our brands relevant to market, and we have indicators to monitor that. Answer to the question.
We believe that the amount of budget we keep during this crisis was correct to keep the position between the other competitor in the market. For the second semester, in line with the provision, with what we are budgeting for closing the year, we already done a plan that is really want to focus and don't lose visibility during the Christmas period and the really end of the next part of the year. We expect at the moment to follow the plans and to do not, let's say, do any surprise in terms of cut or invest in more.
We expect to follow the plan and do not lose visibility, and maybe take the opportunity to increase it during the last part of the semester and to do not miss the opportunity in the Christmas. I hope that I answered to your question.
I will take the question on e-commerce profitability. As you can easily imagine, of course, the profitability of the e-commerce is higher than the profitability of any other stores, particularly for us, because we manage everything internally. We have developed in-house all the IT platform, and we are using our logistics platform. These are really additional sales with a level of cost attached that are not comparable with any other store.
Thank you very much.
Next question, please.
Thank you. Next question comes from the line of Erwan Rambourg from HSBC. Please go ahead.
Yeah. Hi, good afternoon, everyone, and thanks for taking my question. Three follow-ups, please. First for Alessandra. I think you said July to date was down single digits negative. I believe you said Asia was up double digits, the Middle East was back to growth. I'm just wondering if you can continue the panorama and maybe tell us about the U.S. and Europe and other relevant regions. Secondly, Mr. Bertelli, Patrizio, made a comment around gross margin next year being back to 75%.
Is this just linked to better absorption of fixed costs, or is it also linked to the fact that maybe contribution of wholesale continues to go down? How do you see the balance? Are you done with restructuring wholesale, or is there more to come next year? Lastly, just following up on a comment from Mr. Mazzi on EBIT being potentially at breakeven by year-end.
I'm just wondering what's needed in terms of growth assumptions in H2 for the group to be at breakeven by the end of this year. Thank you.
This is Mr. Bertelli speaking. The markets in the U.S. and Europe in July. As to the U.S., the market is not doing so poorly because the lockdown issues in the U.S. were somehow offset by an e-commerce performance. The U.S. are the number 1 country for e-commerce, that helped a lot somehow for sales. Clearly, here, what also really matters is the ability of a brand to be attractive. We are in a good positioning from this perspective. As to Europe instead, as I said before to your colleague, Europe responded really well. Local consumers, country by country, they responded really well with very strong increases, especially in Russia, for instance. The main difference is given by the lack of foreigners, the lack of tourists. As to sales, the locals are better than the sales of 2019.
As to the other question you asked concerning the gross margin. Gross margin is composed of different factors, industrial efficiency, ability to manufacture, and product mix that you actually feed into the retail channel. We've decided to shift our focus to luxury products more and more, and this decision will definitely lead to an improvement in gross margin. The average sales price for all products will be increased.
Carlo Mazzi. Regarding the expectation for EBIT. As I said before, it's difficult to, let me say, make a forecast today. If our retail sales could be in the second half at the same level of the last year, we can join the breakeven. Of course, it depends on the general situation, the pandemic, I repeat, the possibility to reopen our last 30 shops. Is an hypothesis, of course, an hypothesis, not impossible.
Thank you very much.
Next, please.
Thanks. Good luck.
Erwan.
Yes.
Next question, please.
Thank you. Next question comes from the line of Jeffrey de Mendes. Please go ahead.
Yeah. Thank you for taking my question. I have two questions, actually. The first one is just to come back. You gave a lot of granularity on July numbers for a number of countries and region, and we're trying to do the math to get to the single-digit negative growth for July, given we don't know the U.S. and Europe. I understand that the question was asked, but we didn't really get a number. If you can just share with us an approximate number for the decline in the U.S. and Europe, that would be greatly appreciated. The second question is more on the comment that was made on the level of sales that you're expecting for 2021.
I think you mentioned, or you compared it to 2019, and I just wanted to make sure we got it correctly, if it was you expecting it to be at the level of 2019 or above 2019. Thank you very much.
Hello, Jeffrey. I will take your first question, trying to be more precise on July trends. Okay. I have mentioned strong double digit in Asia Pacific. I have to say strong double digit in Middle East, because Middle East resumed growth in July. Double digit negative Europe, because of the lack of tourism, as we have reiterated many times. Slightly negative U.S., so U.S. is recovering. Low double digit negative Japan, that is still recovering. Russia, that is growing, is growing strong double digit, and Turkey as well. Hope it's enough.
Laura.
Mr. Bertelli speaking. As to 2021, if you'd asked the same question in May, I would have answered as follows. I would have told you that for 2021, at least we had to factor in the Hong Kong situation, at least down 10%, minus 10% versus 2019. Now, given the current situation, if the vaccine is found by year-end, we could think in a more proactive way to have the same revenues in 2021 as we had in 2019. I think that we have time just for two questions or two analysts.
No problem. Next question comes from the line of Luca Solca from Bernstein. Please go ahead.
Yes, good afternoon. I personally find the retail performance quite impressive. In order to get a better sense of what has been driving it, I would like to check on three potential drivers. Looking at the first half of the year, and if you want to add commentary on contributions in July, that would be also very useful. First, I see a very significant decline in wholesale. Was there any contribution to the retail performance that you produced coming from so-called retailization of some of the wholesale accounts? It's not producing any mechanical improvement in the retail performance you provided. The second, was there any disproportional contribution to the broader retail performance coming from the factory outlets channel, knowing that you've been moving all discounts and promotions from the flagship stores to the off-price channel?
Third, I would like to ask your confirmation that there was no discounting activity or no material discounting activity going on in the flagship store locations. Thanks very much.
This is Mr. Bertelli speaking. As to markdowns and discounts, no, not at all. We increased prices on the event. Let's clarify this once and for all. One thing we decided upon was that lockdown and to somehow comply with the commitment we've taken up with our factories, we cannot hide behind the fact that costs have gone up. Not increasing prices, that is to say, the minimum required, would have been folly.
We actually increased prices, being confident that we have valuable products, and even with a slight increase, they're still competitive. No discounts. We are very careful that no action, no activity of this kind was run in any way. As to wholesale, you're asking about wholesale. It's not that the store performance is given by the fact that we've cut the distribution downside, the distribution to wholesalers.
There are a number of activities that we'd already started in 2019 that came to an abrupt stop end of January 2020. Having cut sales of certain products or reduced sales of certain products that are in high demand in the market, those sales to wholesalers led to a stronger focus of local customers on our local stores. The actions we've undertaken were not just that of partly downsizing our business with wholesalers. We didn't say we're not going to sell to wholesalers anymore.
We just cut the shares or the amount of products that are sold to certain wholesalers. Some platforms are coming up with some markdowns on our products, as they do with all other products from competitors or other brands as well. That is something different. That is a remark that is valid for the market at large, not for Prada alone.
Brands that have no wholesale distribution of the brands are those who, at a time of critical issues, were best in defending their brand equity in the market.
Last question, please.
The last question comes from the line of Elena Mariani from Morgan Stanley. Please go ahead.
Hi, good afternoon. Just a few clarifications, please. First, I wanted to go back to the price increases you have mentioned. Would it be possible for you to be a bit more precise? Have you raised prices across the board? By how much? Was it just on leather goods? Was it on existing products, or are you actually increasing also your average price mix, given you mentioned that you expect this to continue also into next year? The second question, going back to your outlook comment. If I understood correctly, your overall assumption is that you can get to break even by year-end if your sales in the second part of the year are going to be sort of flattish year-on-year. That probably was related to retail sales.
What's the underlying assumption related to wholesale development and the cost side of the business, so gross margin and OpEx? The third and final one, sorry to go back to the July trends. I think I probably missed your mainland China figure for July. I see from your presentation that in June, retail sales were up almost 60%. What was the July figure, please? Thank you.
We need you to put the last question again, because we had a blackout, and we missed the last portion of your question.
The last one, it was a quick one. Going back to the July trends, could you be more precise about mainland China? I could see from your presentation that sales in mainland China in retail in June were up almost 60%. What was the July trend? Thank you.
Mr. Bertelli speaking. Price increase. It was a scientific exercise on all products and different price points. It was not across the board. It was thinking about the product, its performance, its positioning, but we did it on all products. That's for clarification. The other question was on breaking even. I hand it over to Patrizia.
I will take what Mr. Mazzi said. Of course, there are a lot of ifs to reach the break even, given the circumstances. Anyway, what we need to reach the break even for the full- year is a retail sales trend, almost flattish in the second part of the year on average. Of course, the wholesale trend is still expected negative. Less negative than H1, still negative. Your last question on China. Yes, I mentioned that in July, China reached almost 60%, and in July we did better. That is about 66%.
Okay, great. Thank you very much.
Okay. Thank you to all to join us today. Of course, Alberto and Cinzia will remain at your disposal to reply to your additional questions, and see you soon, hopefully. Bye.
Bye. Goodbye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.