Good afternoon, and thank you for joining us to speak about Prada’s results for the first half of 2016. I’m joined by Alessandra Cozzani, our group CFO, who will take you through the financial results in detail, and by Stefano Cantino, our group strategic marketing director, who will provide an update on the commercial progress that we are making. We’ll then be delighted to take any question you may have. Turning to slide three, as you will have seen from the numbers, the condition in all of our major markets remain extremely tough and this has continued to impact upon our trading, with sales figures down year-on-year. The macroeconomic backdrop remains depressed and has not significantly improved compared with last year. In addition, currency fluctuation and geopolitical uncertainty have impacted tourist flows around the world, reducing a key source of sales.
No doubt, also influenced by the economic conditions, spending patterns among international luxury consumers are changing and evolving, and we will say more today about how we are leveraging our unique stylistic identity, heritage of craftsmanship, and manufacturing capabilities to respond to this challenge with new collections in all product categories across our brands. We are also responding to the challenging climate by progressing our action plan and by successfully implementing our cost efficiency program, and the initial results of that are extremely encouraging. We have preserved operating margins with EBITDA at 21% of sales and EBIT at 14%, thanks to an effective program of industrial efficiency. We have managed to deliver a significant reduction in operating expenses year-on-year, and thanks to our strong operating cash flow, helped by more efficient inventory management, we remain financially robust with a healthy net financial position.
We fully self-financed growth and normalized CapEx. With the expansion phase of store network now behind us, our focus is increasingly on store refurbishment rather than growth. We are also reviewing our channels to market and earlier this year launched partnerships with leading e-tailers. The initial results have been encouraging, and we will update partners on progress later in the year. Slide four, I have set out the key elements of the strategy by which Prada is adapting to evolving marketplace, of course, always while leveraging our unique luxury heritage. We have in the past adopted a cautious approach to online sales, but we are now setting ourselves a target of doubling online sales every year for the next three years, albeit from a low base.
We will significantly grow online sales with the rollout of our own e-commerce platform into the most important new territories and aim to achieve coverage of all major global markets within the next two years. Our first target is to launch our online sales platform across China, Hong Kong, and Singapore by the end of 2017, with work on the other major countries continuing. At the same time, our online offer is becoming broader and deeper with improved online services such as click and collect, pre-orders, and so on. We are also working on improved digital engagement with a new generation of consumers, raising the profile of the brand with millennials. As well as refining the product offer, we are strengthening our offer at all strategic price points, enhancing personalized and localized experiences.
Integrated with this, we are rolling out new store concepts that also embrace a more intimate and personal customer experience. As I mentioned, our systematic review of cost is ongoing. We are also looking at every area of our business to create a leaner organization, which is already showing results with enhanced operational flexibility and efficiency. Finally, we expect further rationalization of the retail network with selective closure at Prada in non-strategic location, as well as downsizing the Miu Miu store portfolio and the outlet shop. My expectation is that with all these initiatives underway, 2016 will prove to be a turning point for the business. We are back on a sustainable path to growth. I will now hand you over to Alessandra to talk through the numbers.
Thank you, Mr. Mazzi. Let's begin by looking at the first half results in brief. As Mr. Mazzi has already explained, our sales performance continues to be impacted by tough trading conditions. Net revenue for the half total more or less EUR 1.5 billion, down by 15% year-on-year, 13% at cost and exchange rate. We were able, however, to maintain a stable gross margin at 72%. It is thanks to our efforts to improve industrial efficiency. We made excellent progress on costs during the first half, limited the impact of the decline in sales, and supporting operating margin. EBITDA of EUR 330 million or 21% of revenues, in line with expectation. EBIT of EUR 250 million or 14% of revenues. Net income for the period was EUR 142 million.
Turning now to the balance sheet and the cash flow, our action to reduce inventories helped support strong operating cash flow that in the period reached EUR 276 million. This enabled us to self-finance capital expenditure of EUR around 100 million during the period, to maintain a healthy net financial position, having also distributed EUR 280 million of dividends during the period. Taking a deeper look at the net sales by region and the channel. The retail channel remains under pressure. Sales fell by 18% year-on-year or 16% at cost and exchange rate to EUR 1.3 million. However, wholesale sales were up from last year, benefiting from positive initial results from our recent partnership with leading retailers and double-digit also organic growth at Church's. Turning to each geography, Asia Pacific, which accounts more than 30% of our retail sales, continues to operate against a challenging economic backdrop.
Hong Kong and Macau continue to be under pressure. Compared to last year, the downward trend has stabilized. In the last couple of months, we have seen some sign of improvement. Mainland China, that was also soft during the period, has recently demonstrated encouraging improvement, helped by an increasing trend of repatriation of Chinese consumption to domestic markets. Sales in Japan were impacted by the appreciation of the Japanese yen. The flow of tourists from China has decreased since the beginning of the year, while local spending has remained quite resilient. Europe saw a sharp decline in tourist flows, a trend that has persisted since late last year due to ongoing security concerns. However, sales to domestic consumers in all European markets performed much better.
Within Europe, areas of positive performance were Russia, where we saw double-digit growth in volumes, and the U.K., that has recently turned positive. A fall in tourist flows in North America and the subdued sales to domestic consumers weigh on sales in the region. We did, however, see extremely good performance from our stores in Mexico and Brazil. Our most resilient region was the Middle East, where sales were mainly driven by positive local consumption. As I mentioned before, sales through the wholesale channel were up on last year, driven by positive initial results from our partnership with leading e-tailers, NET-A-PORTER and Mytheresa, which Stefano will talk you through in more detail later. We also saw strong organic growth from Church's over the period. You will find the usual charts with breakdown by region, product, brand in the appendix.
We have taken many action to reduce costs across the business, and the strong progress we have made on cost savings has enabled us to deliver a stable operating margin this half. You can appreciate it in this chart, where you can see the evolution of the EBIT margin. Overall, the reduction in operating expenses, excluding D&A, delivered a 600 basis points margin offset. Total operating expenses reduced by 12% year-on-year. If we exclude D&A, that is a non-cash item, the reduction on cost was EUR 94 million, 11%. We have been very rigorous in our approach to cost reduction in order to create a leaner, more efficient, and flexible organization. Over the first six months of the year, we reduced labor costs, mainly freezing turnover, and reduced significantly general and administrative expenses, and we continue to seek ways to trim this further.
We are systematically meeting landlords to renegotiate rent, and this activity has already resulted in better rent agreements across Asia Pacific. Investment in our brand remains paramount. While our advertising spending decreased in the first half, but this is not indicative of the full year trend, and we will continue to maintain our average yearly advertising spend. We don't want to cut advertising spending, but the mix of our budget, however, will shift from traditional media to digital communication projects. The group has a strong track record of generating a high level of operating cash flow. For the last 12 months, our operating cash flow to EBITDA levels have been above 80%. This has been supported by our effort to reduce the level of inventory to a more efficient production planning and stock management. You can see this trend clearly on the right-hand side of this slide.
Stefano will talk in more detail about the optimization of our store network shortly, but let us turn now to look at the capital expenditure for the first half. As we have anticipated, the phase of retail expansion implying important investment is over, and we have shifted our focus away from store openings to optimization and refurbishment of our stores network. Our CapEx spending has decreased as a percentage of sales to 7% over the period. We have opened in the period four net stores and have refurbished 16 stores. Finally, our strong cash flow generation enabled us to maintain a healthy net financial position, which now stands at EUR 246 million, broadly in line with July 2015. I am now pleased to hand over to Stefano, who will give you our commercial update.
Thank you. Licensing, as well as our digital, e-commerce, and merchandising strategy. First, retail. Our retail network is a core strength of the business. The customer experience is a crucial element of selling luxury. In store, we remain our key avenue to delivering a unique luxury and unequivocally Prada experience. Our store network is, of course, also how we deliver the level of service that customers expect. We are going through a process of resizing the network that will leave us leaner, more strategically placed in key markets, and in optimum position to evolve with our customer needs. As a result of our rationalization, 2016 saw 20 opening and slightly more closing at 25 stores at the group level. In addition to store rationalization, we remain alert to systematic rent negotiation and pursue this avenue carefully, particularly in Asia Pacific region, where we have a higher store presence.
Our customer experience within our store network is something we continually review and seek to enhance. Prada is truly innovative in design and interpreting evolution and translating this to the shopping experience is vital to our brand. We have introduced new store concept across our network to create unique shopping moments for all product categories and generate a more intimate and individual shopping experience for our customers. For instance, the new Prada store in the GUM destination in Moscow features a succession of intimate rooms on two levels. With the menswear and womenswear collection surrounded by luxurious furnishing and exquisite materials. This follows successful openings in Plaza 66 Shanghai and Canton Road, Hong Kong. This major store opening was accompanied by a capsule collection exclusively available at the Prada GUM, which revisited the themes developed in the fall/winter 2016 womenswear fashion show.
Miu Miu opened a prestigious new store in Canton Road, Hong Kong, dedicated to bag, accessory, footwear, and ready-to-wear collection. The space expand over two store in which the iconic gold damask fabric, reinterpreted in a pale blue tone to create an atmosphere at the same time harmonious, intimate, and contemporary. Covers the wall together with floor-to-ceiling mirrors. Slide 16. To wholesale, where I'm pleased to report we have developed a strong platform to progressive growth, thanks to two key initiatives that, as you have seen, have already demonstrated encouraging sign of progress. We have now concluded the rationalization of our wholesale network, having honed our best-in-class strategic partners that comprise well-known U.S. and European department stores. We will continue our path of building meaningful relationships with key strategic accounts that truly understand Prada and our customer needs and can be trusted with our iconic brand.
In addition, our strategy of providing limited edition of collection to this partner has been received very well by customers. Our debut on NET-A-PORTER and Mytheresa proved extremely successful. It is still early days, I'm delighted to report early signs are highly encouraging, and we look forward to continuing our work with these two companies and their support of the Prada brand. Our refined wholesale focus will continue with Prada's launch on the renowned MR PORTER for menswear in September. We will also expand our e-commerce negotiation for Miu Miu as strategic opportunities arise. Slide 17. Licensing remains an important strength to our business and brands and continues to show good growth momentum. Our new launches have performed well, particularly the debut Miu Miu fragrance.
The first fragrance for the brand and supporting advertising and social media campaign featuring Stacy Martin embodying Miu Miu playful spirit and character was a resounding success in all geographies. We also launched flagship Prada fragrances, La Femme and L'Homme Prada. They, for the first time in their history, launched an iconic male and female fragrances at the same time. The La Femme and L'Homme Prada collection epitomizes Prada spirit and heritage. The collection has already demonstrated excellent traction with customers. Turning to our glass range, we introduce our latest flagship partnership with Luxottica, the Prada Mod collection. The range is graphic and geometric in its design and was supported by a well-received digital film campaign featuring model Vanessa Moody. The Miu Miu Scenique collection has been supported by excellent digital content, storytelling, and a short movie.
This collection truly embodies the DNA of both our brands. I'm very pleased to report have both overperformed the market. Slide 18. Moving now to digital. True to our iconic global status, we have large following across social media platforms that continue to grow rapidly. As we grow our online presence, we seek to evolve with our customer increased expectation of digital communication and to seize the opportunity to talk with potential new customers, in particular, millennials. Social media is, of course, an important customer engagement avenue that allows us to increase the frequency in which we interact with our existing customers and drive customers to our existing store.
We have continued to focus our attention on evolving our voice across all social platforms to perfectly reflect and drive our unique brand DNA and develop innovative social media campaigns and projects to drive the frequency of our engagement with followers. China demands an highly specialized approach to social media. We successfully launched on Sina Weibo in February 2016, while our WeChat presence continues to expand rapidly. Instagram is an important platform for us. We are working on the potential launch of shoppable content with selected key items. Slide 19. E-commerce remains a big and exciting opportunity for Prada and a strategy we are carefully building to cement our long-term future.
The rollout of our e-commerce platform in all major markets over the next two years represent an important milestone that will enforce our presence across strategic countries such as China, Hong Kong, and Singapore in the first phase and will then expand to countries detailed here from the Middle East to Malaysia. We are well on the path to fully integrating and absorbing e-commerce within the group, all the while maintaining the unique Prada luxury shopping experience. Flowing from the earlier point around the evolving expectation of today consumer, the desire to see and investigate collection and products online and then purchase offline again beneficially increase our touchpoints with new and existing customer, and we will continue to develop our omni-channel offer and deepen the relationship between our digital offering and physical store. Finally, we look forward to continuing to develop our partnership with major e-tailers. Slide 20.
Continual innovation and vibrant new interpretation of the visionary and iconic Prada brand are essential drivers of our leather collection and business. Novelties, by which we mean new shapes, materials, details, and interpretation of our iconic styles, cover all price ranges and have been received incredibly well by customers. Our localized merchandising policies have progressed well and seen localized campaigns, such as our Charm campaign, featuring iconic bags with fur and embellishment tailored to specific markets, notably China and Japan, launch successfully and demonstrate our deep understanding of our customers and market. In addition, we have continued to increase our price harmonization on new products. Thank you for your time. I now leave you with Mr. Mazzi for his outlook and closing remarks. Thank you.
Thank you, Stefano. Prada is an iconic brand. The measures we have talked about today reposition the business to prosper in the new evolving landscape. We have a clear vision for the future, and our unique heritage means we are strongly positioned to succeed. Indeed, our action plan is underway and already delivering results. 2016 is a turning point, and we are now firmly on the path to sustainable growth in revenues and earnings from as early as 2017. It is our intention to provide more detail on our path to growth at the strategy update later on this year. With that, I would now like to open the call up to Q&A.
Thank you. If you would like to ask a question at this time, please press the star or asterisk key, followed by the digit 1 on your telephone. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star 2. Once again, that's star 1 to ask a question. We will take an opening question from Luca Solca of Exane BNP Paribas. Please go ahead. Your line is open.
Yes. Good afternoon. One question about your digital development. You seemed to be emphasizing in the past that digital for you would be primarily about communication. During the call, you stressed the partnerships that you have with Mytheresa and NET-A-PORTER, for example. I wonder what the logic is of developing digital through wholesale partnerships and what you plan to do when it comes to direct retail online. Whether this is going to be emphasized more in the future, it's going to be a more important part of your activity. Secondly, on an unrelated subject, I see in the report you issued today that you are changing the depreciation policy, which is impacting your results by about EUR 27 million, if I understand correctly. If you could please give us more background on that and what brought you to make this decision. Thank you very much.
Thank you, Luca. I will give you the answer about digital communication. Speaking about the digital communication strategy, we already reinforced our digital communication through our site and through the major social media. This is something that is today visible if you go on all the major social media, and I think that the level of engagement that you can have on our site can be compared to the recent past. I think that the improvement that we have declared in the past is already effective. We will continue to reinforce our digital presence in terms of course, advertising online, as already mentioned by Alessandra, and in all the other opportunities. Speaking about e-commerce partnership, I think that this is more a commercial opportunity. Of course, NET-A-PORTER is one of the key partners, and they are very active in terms of marketing, digital marketing.
Of course, we will build together additional content, and we will develop with them different parts of communication depending on different opportunities. You will see, and it is visible that our partnership is probably the key one for the current year.
I will take the question on Q&A, of course. I think it's quite normal for a company
its life, and it's also requested by the International Accounting Standards to review the useful life of the company, in order to make it more close to the reality. Probably last time we have done this was, I don't recall exactly, 14, 15 years ago. During this long period of time, we have, of course, significantly increased our experience in terms of managing retail, and we now deem that the 10 years limit that we had before was not any more in line with the reality. That's why we have decided to move from 10 years to the lease agreement. That's the main rationale. You can find everything very well explained in the announcement. I also would like to underline that we have done this, of course, in accordance with our auditors.
Thank you very much indeed.
If I can add a little notice regarding the amortization. The point is that we realized that we have a lot of shops at value zero in our balance sheet, still working. The reason is because the most important part of our investment in a new shop is real estate work. For instance, escalators, elevators, and this kind of, let me say, investment, don't disappear in 10 years. Of course, they disappear if the contract of lease is short, but this is still a rule that we are applying. The shortest among the duration of the lease contract and, let me say, the life of the shop. This is very simple, and this is our real experience.
Maybe one additional question on direct engagement in digital retail by Prada. Stefano, if you could expand a bit more on that and what you propose to do on this side.
Yes. I think that we mentioned, actually, the key move will be the shoppable experience via Instagram, that we are working on it. I think that this probably could be the best and the next opportunity in terms of really have a better exchange between online and offline as a unique channel.
Understood. Thank you very much.
Thank you, Luca.
Our next question comes from Janet Kloppenburg of JJK Research. Please go ahead, your line is open.
Good morning, everyone. Oh, good afternoon or evening to you. Forgive me. I wanted to ask a couple of questions on the trends we talked about in Asia. You said that you saw some encouraging trends in Hong Kong, and I believe mainland China, and I'm wondering if that means that the declines are moderating and if we should expect that to continue in the second half or what the outlook is there. Also on marketing, I just wanted to confirm that marketing expense would be up in the second half year-over-year. I think you said flat for the year, but maybe increased in the second half versus last year. I wondered if you could talk a little bit about performance of the fall line across categories.
I've seen the upgrades you've made and the opening price points, and I'm wondering if you're seeing progress across leather goods, footwear, and apparel. Thank you.
Hello, Janet.
Hi.
I will take the first two questions. In terms of trend in Asia, we mentioned that I think if I have to talk about Hong Kong and Macau, for example, even at the beginning of the year, the trend was negative but not deteriorated. A kind of stabilization was already seen across the six months. Recently, I'm in July and August, even if it's a bit early to say, we have seen real sign of improvement in all Greater China. I mean Hong Kong, Macau, and also Mainland.
You're saying it's too early, Alessandra, you're saying it's too early to say that there is going to be further improvement?
I think it's a bit too early.
Okay
To understand if it is a real trend, sustainable. Of course, we do believe that we are seeing probably, of course, a sort of repatriation of shopping. They are probably spending less traveling the world, and they are buying more at home. This is, of course, probably a trend in the sector, but we are quite convinced that these are also the signs of all the activities that we are doing in terms of product and in terms of enhancing services that are delivering results.
Okay.
In terms of marketing expenses, what I said is, let's say that we are not cutting marketing expenses, advertising, and promotion. The decrease that you are seeing in the first half is just a phasing. We are going to spend more in the second half. For the whole year, the marketing expenditure will be more or less in line with last year. What we are doing, that's probably something that Stefano has already mentioned, we are allocating more budget to digital, to events, rather than traditional media.
Hi. Sorry, you want to say something, Janet? No.
No, thanks.
Speaking about merchandising, I think that in price ranges, the key point is that we have to cover all the price ranges. We cannot miss any one of them because there are a lot of opportunities at each price range, on the highest one and also at the entry one. What is key, as I already mentioned before, is to have novelties for each price range, and even on the iconic bag to have embellishment, new addition, new materials, and of course, that give to the product a new flavor and a new image.
Okay. Are you seeing progress across all categories? Or can we-
Yes, sorry. I missed the second part. Yes. Speaking about categories, we have seen, especially during August, an amazing reaction for ready-to-wear in general, and more specifically in China for the Miu Miu brand, as for shoes, and of course, our Prada shoe business remains strong, and also the fashion show was very well-received for Prada as well.
Okay. Well, lots of luck going forward. Thank you.
Thank you.
We will take our next question from Antoine Belge of HSBC. Please go ahead. Your line is open.
Yes. Hi, it's Antoine Belge at HSBC. Three question, if I may. First of all, given that there were not many store opening in the first half, can we assume that the same-store sales growth was close to the -16% that you reported for retail at constant currency? My second question relates to your comment about improvement in July and August in Asia. You're talking about a sort of repatriation of spending from Chinese. Does it mean that overall, on a worldwide basis, your sales are still trending more or less like in H1, or are you still on balancing an improvement sequentially? My third question relates to the EBIT margin.
If we take into account notably the change in depreciation policy, which is going to help you also over the full year, do you think that an EBIT margin of, let's say, 15% can be achieved over the full year? Actually, I've got just a clarifier on the previous question, because I think regarding marketing, you said that marketing would be stable over the full year. Are you talking as a percentage of sales or in EUR term? Because just in H1 only, marketing expenses were down 22% in EUR term. Thank you.
Thank you, Antoine. Your first question. Yes, your assumptions are reasonable since we have not opened many stores, just a couple. The same-store sales growth is more or less in line with our organic growth. Exactly. Talking about trends, yes, I have to mention that we have seen also a sort of sequential improvement during the period, with the second quarter better than first quarter. More or less, August is trading close to probably what we have seen in the second quarter. Your third question was the EBIT that we are expecting for the rest of the year. Of course, it's difficult in this moment to make a reasonable forecast in terms of sales because there are a lot of uncertainty everywhere. What we have under well control are the costs.
We have a clear idea of the level of cost that we will reach in the second part of the year. Let's say that probably with the slightly improving trend in second half and same successful action on cost, we will be probably more in line with last year rather than close to 2015, maybe.
Okay.
One other question.
Sorry, just maybe a clarification on that. You mean on last year on a reported basis or updated for the change in the Depreciation & Amortization?
I'm probably more referring to the EBITDA margin. We are quite confident that with a slight improvement in sales trend, we are not diluting the EBITDA margin. Let's put it this way.
Okay. 22.6%, if I'm correct.
Sorry, what?
The EBITDA margin last year was 22.6%. What you're saying is that you think that if all the elements that you've mentioned are proven true, then you can reach 22.6% EBITDA margin this year.
22.6 is a bit too precise.
22.
Let's say around 22%.
Okay
is reasonable.
Okay. Thank you.
Okay.
We will take our next question.
I think 22.65. No, your proposal is not very much challenging, we can accept, no? We can accept your challenge proposal, we'll work in order to reach this goal. Okay.
Thank you.
We will take our next question from Melanie Flouquert of J.P. Morgan. Please go ahead. Your line is open.
Yes. Good afternoon. Thank you for taking my question. Just a confirmation that from the restatement, we should expect a similar impact on depreciation and amortization of around EUR 27 million in H2. My second question is whether there was any timing we should be aware of on CapEx. Maybe if you can update us on CapEx expectation for this year. Third question, sorry. Current trading, you mentioned July and August improved in Asia. Again, I go back to this question, you said Q2 was better than Q1, but in July and August, which you seem to be highlighting as an improvement in Asia, was that also true worldwide, to be precise? Sorry, fourth question. You mentioned on the call, Mr. Mazzi, that you expect a return to sales and earnings growth in 2017.
By the sound of the guidance you're just giving on EBITDA, this may actually happen already in H2. Is this your expectation? Thank you.
Hello, Melanie. Yes, more or less the effect of the change in the depreciation will be similar to H1, probably something less, which will be around EUR 50 million on the whole year. In terms of CapEx, as you have already seen in the first half, we are, of course, spending less because the expansion phase is over. For the whole year, I would expect the level of CapEx to be in the range of EUR 200 million-EUR 250 million, more or less, depending on probably how many stores we will be able to refurbish under the new concept. The question on trend in Asia, can you rephrase them? Because I'm not sure-
Yes. You mentioned, sorry, on the call that quarter two was better than quarter one sequentially, you also highlighted in the presentation that July and August seem to have trended within Q2. July was better, and August also sounded better, even if it's not part of Q2. This is in Asia, that comment. I was wondering whether worldwide you're also seeing this, or whether more specifically you've seen a deterioration in Italy and the repatriation accentuating towards China and Hong Kong in July and August. Thank you. Tourist flows seem to have deteriorated quite recently in Italy. I wondered whether you were seeing this, and your comment of the better Hong Kong and China was also encompassing a higher degree of repatriation.
Of course, I cannot be very precise. The signs that we have seen in Hong Kong, mainland China are, let's say, quite specific to that region. I cannot see that we have seen any big changes in the other region during the last couple of months. No.
Did you see a deterioration in Italy by any chance in July and August, or not at all?
Not really, no.
Okay.
Not a deterioration, no.
Sorry, H2, could that be in growth in sales and earnings?
Growth in sales and earnings in H2 is quite challenging. Of course, I repeat, even if it's too early, we are seeing some sign of improvement. We are expecting a better H2, of course. It's difficult to think that second part of the year will have a positive trend, honestly.
I'm sorry, I'll venture a last one. How big do you think third-party e-tailers can be as a percentage of your total sales? Maybe next year and in the next five years. Is this really meaningful, or is this helping you to enhance the brand financially?
If the question is related to-
Yes
wholesale in general, including-
No. To e-tailing, third-party e-tailing, since this is quite a big part of your-
Specifically to e-tailers, right?
Yes. Third-party e-tailers.
Of course, it is our decision because there are a lot of opportunities, the growth can be between, in term of percentage, I would say between 15%-20% in general, in order to keep the image and, of course, the brand position at the right level. Yeah.
Sorry, is this 15%-20% of what? Sorry. Of wholesale?
You asked for how much will be the increase. This was the question, right?
No, I don't know the base. No, I'm asking how big it can be, in other words. If you can give it as a percentage of wholesale or of your total sales just to have an idea of
In terms of volume? You are referring to the weight?
Yes.
Okay. The actual, let's say, proportion is Yes, I need to give the weight on the total. The percentage of the e-tailer distribution is actually around 10%.
Around 10% of wholesale today?
Of the actual sale. I think that 10% of the total wholesale channel. I think that we can say that can remain at this level or, let's say, between 10% and 20% for the next few years.
Perfect. Thank you. That's very clear.
This could be the right percentage. Maybe a bit higher for the Miu Miu brand, if I have to be very specific, because of course, there are probably more opportunities for this brand.
Thank you very much.
Thank you.
We will take our next question from Andrea Felsted of Bloomberg. Please go ahead. Your line is open.
Hello. I just wanted to ask, you're talking about the change in the depreciation policy from where you are to the lease term. What's your average lease term, please?
Average duration of the rental agreement is not the data that I can answer exactly, but is about eight years.
Around eight years.
Eight years, because there are many shops with a duration of five years, and some shops with a duration six plus six means 12 years.
Yes.
On average, it's my personal estimation.
Okay. That shouldn't be that much different to where you are at the moment, yet you've got quite a big benefit. Could you explain how that's come about, please?
This difference is not so enormous.
Yes.
When you say that is big, you are right. You have to consider that
Some of our shops' rental agreement were near end. We amortized in the past time for the usual. We are spreading the rest of the value of the investment in the residual portion of the amortization. Let me say an example. A shop with a rental agreement that expired in one year.
Yes
We had to amortize the full residual value in this year. Now, if we decide to Excuse me. I am wrong. A shop, we have an expiring date of 12 years.
Yes.
until now, we amortized for nine years.
Yes.
In the past method, we had to amortize the residual value in just one year. In this new, let me say, rule, we have-
Yes
to divide the residual value in the last three years. I don't know if I was clear.
you get-
The immediate impact is higher than the impact that we'll have, let's say, in the next year.
Right.
It is a calculation also verified by our
Right.
There is no wrong calculation. I can understand that this is a new point, but in my personal opinion, it's not so important because what is important is EBITDA. EBITDA is not impacted by this decision. EBITDA is not impacted.
Sorry, what do you mean by EBITDA?
Cash flow is-
Cash flow.
Eh?
Sorry, what do you mean by EBITDA?
EBITDA is earning before-
Yeah, EBITDA.
EBITDA.
Yes.
EBITDA. Okay.
Yes.
EBITDA is a very important margin because it's the base of the cash flow. This is very important. In my personal opinion.
Right
The only thing that is important in result of a company is cash flow.
Right.
EBIT, earnings, every gross margin, in my personal opinion, is no matter.
Right.
The only thing very, very important is cash flow because the problem is that we are judging a company with the result of one year. It's important in the universe perspective to judge a company in a landscape of maybe 100 years, from the beginning to the end.
It's-
In this case, we need a bigger help.
It's still pretty helpful.
The real result, cash flow.
It's still pretty helpful to get that boost to the bottom line, isn't it? Particularly with sales under pressure. Hello?
What do you mean?
It's very useful to get that boost from the lower depreciation charge when sales are under pressure.
Yes, we think that this is the point.
Yes.
What is the right approach? It was the old one, or it is better the new one? This is the point. In our opinion, this new method is more, let me say, representative of the reality. This is the only reason because we changed, because I repeat, in my opinion, the EBITDA is the only margin very interesting.
Right.
I don't want to say that I am right. I could be wrong, but I think to be right.
Okay. Thank you very much. Thank you.
Thank you. Thank you to you.
We will take our next question from Paola Carboni of Equita SIM. Please go ahead. Your line is open.
Yes. Hi, good afternoon, everybody. I have a few questions. Very quickly on the Chinese cluster, if you can comment specifically about that on a worldwide basis. Whether the improvements that you have seen in July and August is true not just for Greater China, but also for the Chinese cluster overall. What's your perception in this respect? Secondly, in terms of categories and still on the improvements seen in the last couple of months, I was wondering if you can elaborate a little bit with us about the timing of the new product launches in handbags, which hit stores, in order to understand how much they helped this improvement of July and August