Good day. Welcome to the Prada Group Full Year 2017 Results Presentation. Today's presentation is being recorded. At this time, I would like to turn the conference over to Ms. Alessandra Cozzani, Chief Financial Officer. Please go ahead.
Thank you. Good afternoon, everybody. Thank you for joining Prada Full Year 2017 Financial Results Conference Call. I am Alessandra Cozzani, the group CFO. Today, I am here with our CEO, Mr. Patrizio Bertelli, our Chairman, Mr. Carlo Mazzi, and our Prada General Manager and Digital Director, Mrs. Chiara Tosato. During the call, Mr. Bertelli will first give us an overview of 2017. I will then go through the financial numbers, followed by the business update from Mr. Bertelli. Chiara will then talk about our digital transformation. Mr. Mazzi will then share with us some final remarks before the end of the presentation. We all will then be pleased to take your questions. Mr. Bertelli, over to you.
Good afternoon. I am sorry, I did not switch the mic on, so let me start again. I would like to illustrate the activities we performed during 2017. In the first part of the year, we did not successfully and thoroughly implement all the organizational and product-related and communication policies that we had in mind. In the second part of the year, which is quite obvious, we saw the benefits of all the activities we had been performing in the first half. All geographies are trending towards improvement. All the collections of all product groups are also improving. This is true for ready-to-wear footwear and leather goods. Wholesale sales have improved as well. Actually, the activities we performed in the second half are actually going on in the first two months of 2018, too.
We are posting a 7.5% increase of sales in the first two months of this year. The work we did in order to convert products and, most importantly, in order to become more attractive towards our customers, both through our points of sale and through the digital activities we are engaged in. All of those activities are yielding the first and significant results. Now, I would like to ask Ms. Alessandra Cozzani to give you a detailed presentation of this year's financial and economic performance.
Thank you, Mr. Bertelli. First of all, I would like to remind you that our year-end has changed and brought forward to 31st of December. As a consequence, the group's income statement, prepared in accordance with IFRS, is based on an 11-month period. However, for the sake of transparency and to allow performance comparisons, the financial data reported in this presentation is the 12-month pro forma data from January to December, both for 2017 and 2016. Let me now go through the key figures for the group. Net revenues for the year reached EUR 3.1 billion, down 2% year-on-year at cost and exchange rates, but showing an improving trend in the second part of the year, as I will show you in a moment.
Due to the strengthening of the euro, foreign exchange have been headwind, particularly in the second part of the year, with a negative contribution of around 2% for the full year and of around 4% in the second part of the year. Gross margin improved from 72%-73.5%, thanks to the strategic decision to reduce markdowns. We have been able to manage operating expenses very well, despite undertaking major investment in digital and communication, the total level of operating expenses remained broadly flat year-on-year. EBITDA for the full year reached EUR 588 million, 11.2% of revenues. EBIT was EUR 360 million or 11.8% on revenue. Net income for the period was EUR 249 million, broadly in line with last year. Turning to our balance sheet and cash flow. As you can see, our financial structure remains very strong, with equity financing more than 96% of the net invested capital.
We generated good operating cash flow that was sufficient to fully finance all the capital expenditure during the year. Of course, the cash flow generation refers to 11-month period, while last year was 20-month period. Working capital was well under control and broadly in line with 2016. Now, let's look at net sales trend through the different dimension of our business by channel. As I have anticipated, we have seen a sequential improvement across the year, visible in the period of August, December. In the retail channel, sales were down 3% in the second part of the year, improved significantly from the trend seen in the first seven months. I would like to highlight once again that sales volumes continue to be partially impacted by the strategic decision to significantly reduce markdown sales in order to protect brand equity.
Without this impact, the retail trend could have been improved by another two percentage points for the full year and even more for the second part of the year. However, we regard this as an investment in brand equity. Encouraging trends have continued into 2018 with retail sales return to positive growth year-to-date across all product categories and in all the key regions. Implementation of our digital strategy is well on track, with e-commerce growing rapidly. Chiara will provide more details later on. Regarding the wholesale channel, sales were up 19% at constant exchange rates compared with last year, benefiting from very positive results from our partnership with existing and new e-tailers. Looking now at the sales by geography. Most of the key regions saw improving trends in the second part of the year, particularly in Greater China, U.S., and Europe.
The European market was up 6% at constant exchange rate in the second part of the year, mainly driven by wholesale that has benefited from the strong performance of e-tailer partnership. Performance in Asia Pacific region remains strong, particularly in Greater China, where we have seen double-digit organic growth, not only in the second part of the year but also in this first month of 2018. Better trends were also recorded in the U.S. in the second part of the year, thanks to stronger domestic consumption. This improving trend continues in 2018 with positive organic sales growth achieved in North American markets. was improving, albeit still negative, thanks to the recovery of tourism and improving domestic consumption, and this was also the case in the Middle East. Even here, we are seeing signs of turn 2018. Let's turn to net sales by product.
We have seen encouraging trends across all product categories in the second part of the year. This demonstrated that the strategic initiative that we have taken to enrich our offer in all strategic price ranges with the strong support of the digital communication have already seen some concrete results. Performance in leather goods was very encouraging, with Prada leather goods sales turning positive in the second part of the year and also continuing in 2018. This performance was supported by the very good reception of our latest collection and a successful reinterpretation of our iconic products conveyed by strong digital campaigns. Ready-to-wear saw good results for both Prada and Miu Miu throughout the entire period, with the accelerating trend once again seen in the second part of the year. The strong positive performance confirmed the design leadership position of the group brands.
Lastly, performance of the footwear business was progressing well with the successful launch of new sneakers, including Prada Cloudbust, in the second part of the year. Net sales by brand. As you can see in the slide, the Prada brand returned to positive sales growth at 4% in the second part of the year, benefiting from the improving trends of all product categories. Declining sales for Miu Miu was temporarily impacted by store closure and more than 90 renovation projects, which is part of our strategic initiative to position the brand for recovery in 2018. To be highlighted is the trend ready-to-wear for Miu Miu that performed very well. Sales performance at Church's was impacted by the restructuring of the wholesale network, which is just a temporary impact. Turning to slide 11, let's take a look at gross margin development.
The group has a good track record of generating a high level of gross margin, thanks to our continuous focus on industrial efficiencies. Gross margin reached 73.5% of sales during the period, mainly driven, as I mentioned before, by the higher contribution of full price sales. Which positively contributed 80 basis points to the margin, and another 70 basis points from industrial efficiencies, along with some positive impact from foreign exchange. Let's now look at operating expenses. With our effective cost management structure, operating expenses were broadly flat year-over-year, despite having increased our investment in advertising and digital during the year that are visible in the line A&P and selling expenses. We will continue to increase our expenses in this area. Our capital expenditure is strategically allocated to improving the customer experience across our retail network.
During the year, we have opened 25 stores and closed 23, resulting in a portfolio of 625 DOS at the end of December. In addition, we invested around 140 store projects to enhance and refresh the concept for both Prada and Miu Miu stores. CapEx is also allocated to building our industrial capacity in order to strengthen our ability to innovate while maintaining flexibility. As this slide demonstrates, notwithstanding the sales decrease, our disciplined approach to cost, capital expenditure, and working capital allowed us to achieve strong operating cash flow. Please note that in 2016, we achieved an extraordinary level of operating cash flow, thanks to a strong reduction of inventory. In 2017, notwithstanding a higher level of inventory required to better refurbish our stores, we have been able to manage net working capital very efficiently, which slightly decreased compared to last year.
Slide 15 provides an overview of how our net financial position has evolved during the period. As already mentioned, the strong contribution from operating cash flow was able to fully finance capital expenditure. Net financial position turned slightly negative in the period after the payment of EUR 380 million of dividends. Talking about dividends, this year, today, the board of directors has proposed a final dividend of EUR 192 million for the 11-month period ended 31st of December 2017. These represent dividend per share of EUR 0.075 and a dividend payout ratio of 88%. I would like to hand back to Mr. Bertelli that will go through the business updates.
Amongst the elements that have shaped and marked the activities we performed and we are performing during 2018, we should count on what we call a store refurbishing project. What we're doing with this project is reviewing the offer and in particular, the display of products so as to emphasize products better. That means working in-house, in the stores, so as to actually change the static look they had so far. We want our stores to be more dynamic and to provide more dynamic presentation as our customers would expect. What customers do now is that their first approach to products is digital channels. Whenever they walk into the stores, we want customers to find a similar situation instead of being confronted with a totally different display system, which is what we used to have in the stores before.
Besides that, we did a lot of work in pop-up stores. We started in 2017. We started on the low key, we went on with very strong projects from April onwards in particular. We did a lot of pop-up stores, which were quite visible and quite impressive aesthetically, and they were extremely successful. I'm referring to the Prada and Miu Miu pop-up stores, in particular, the Prada Sylvilaine concept was very successful. Pop-up stores actually engaged new customers. 50% of the customers who bought in the pop-up stores were new customers for us. In particular, the pop-up stores generated a very positive impact on traffic on existing stores. Having a pop-up store in a space in department stores or mall, ended up increasing our sales in our existing stores for more than 50%. We actually started working again on our lifestyle philosophy.
We are very busy working on all lifestyle products and activities. As we've noticed from the two catwalk shows that we've been presenting in January for men and February for women. A clear example of this is the success of the new Cloudbust sneaker, which we launched in July, which has actually been highly appreciated and very successful both for men and for women. We should also consider that starting in next August, we are going to launch the new Linea Rossa project in a refreshed and revised version. It's going to be a review of the Linea Rossa project we kept in stores up until 2010. Besides all product design activities, we are going to supplement our product presentation with new lifestyle propositions of Linea Rossa.
Linea Rossa is going to be available in our stores on an exclusive basis, and so far at least, we have decided not to sell Linea Rossa to wholesale accounts unless wholesale accounts are prepared to create pop-up stores, which is actually what department stores and wholesale accounts are now suggesting we do. Let me now talk about some complementary activities in communication in particular. Let's remember that we were engaged in the Rong Zhai Residence project in Shanghai, China. This is a historic palazzo that we have restored. We opened the Rong Zhai Residence in October with a fashion show, and we keep using it for exhibitions. Actually, on the 22nd of March, we are going to open an exhibition on Italian paintings in the 1950s. We are going to display works that belong to us, plus some other works that were lent by relevant and important museums.
We are currently developing a whole set of complementary activities to support Prada's business, these activities will definitely have an impact on brand perception and on the new vitality we are communicating about. Another example is The Prada Double Club Miami, which we did in Miami during Art Basel Miami, plus other activities we are going to engage in throughout the year. You may know that Prada is going to sponsor the America's Cup challenge for 2021. Once again, we are going to go back to the Luna Rossa activities. I'm persuaded that we have now exited a gray area, and we're going back to a much brighter spot for the Prada brand and for the Miu Miu brand as well.
We have been able to actually attack our issues from the industrial side first, whereas now we are actually working on our distribution, we do count on the major support from new products. We are posting 7.5% growth actually from the beginning of the year, and I'm sure that this increase makes us hopeful to expect 2018 to post improvements. Now I would like to ask Chiara Tosato to give us an update on communication and digital.
Thank you, Mr. Bertelli. Good afternoon, ladies and gentlemen. I'm very pleased to say that our digital transformation program is progressing extremely well and that it is driving growth across the business. We have made significant steps forward to achieving the targets we set out a year ago, including the successful launch of the new Prada omni-channel e-commerce platform in China. The platform has been highly customized to answer the specific needs of our Chinese clients.
It provides a seamless and smooth shopping experience, thanks to a number of enhanced online services, such as, for instance, the shipping from all the main Prada stores, the possibility for the client to pick up the product directly in store, to book an appointment in the store, to access the live chat option with a personal assistant directly online, to shop the looks with an improved and simpler navigation that is based on a mobile-first approach, to access a wider product choice for all product categories for both men and women, finally, to pay online with both WeChat and Alipay, as well as with UnionPay. Generally speaking, we are on track to roll out the Prada e-commerce platform globally by the end of this year. Besides the Prada brand, we have achieved significant progress also in the development of the e-commerce for the other group brands.
In particular, we have launched new e-commerce websites for Miu Miu, Church's, Car Shoe, and Marchesi that are performing well. Finally, as said before by Mrs. Cozzani and Mr. Bertelli, also digital wholesale has performed well, driven by the successful collaborations with leading e-tailers such as NET-A-PORTER and Mytheresa. During this year, we have also signed new partnerships with premium luxury retailers such as FARFETCH, Moda Operandi, LuisaViaRoma, and Matches.com. Right now, we are working to ensure that we have a direct presence on all the major marketplaces worldwide, starting from FARFETCH. We remain confident that we will continue to target double-digit growth in digital sales, both direct as well as retailers. In 2016, we outlined the path to retail digital transformation. It is based on three main targets. Offer an omni-channel shopping experience that is tailored to individual specific needs.
Improve customer relationship management by providing our employees with the necessary tech tools to deliver a more personalized service. Finally, optimize in-store operations to increase efficiency. We are successfully working to ensure that these targets will be met. In particular, we have already equipped all of our sales assistants with personal digital tablets and phones to interact with our customers in a more effective, personalized, and trustworthy way. More than 2,000 personal messages are sent every month to our customers to inform them of our latest arrivals or with greetings and updates. It's worth mentioning that in 2018, we are launching a big data project with Microsoft to improve our analysis and business intelligence capabilities. This partnership will allow us to better understand our clients, their needs, and expectations in order to further personalize the shopping experience and their relationship with the brand.
Finally, from a communication perspective, we have significantly improved our digital presence for all brands. The steps we have achieved this year were supported by a greater investment in digital communication aimed at delivering a consistent message across all communication channels. In particular, digital advertising now represents 40% of media spending. Increasing digital investment complements our retail strategy. A good example is the engaging digital content that we created to support our pop-up stores around the globe. We have launched a number of successful digital campaigns. For instance, The Postman Dreams is the most ever viewed video in Prada's history, with millions of viewers. The campaign is designed around the Galleria bag and is a great example of how we presented one of our iconic products in a new space. Similarly, the Prada Black Nylon campaign highlights our heritage with the materials while making it appealing for millennials.
It is also worth mentioning for Miu Miu, the artistic collaborations that have been developed to increase the brand awareness online. In particular, the Women's Tales project, directed by Dakota Fanning. As well as the Miu Miu Whispers campaign, a video starring Miu Miu muses Dakota Fanning, Elle Fanning, Julia Garner, Chloë Sevigny, and Sadie Sink, that was pushed on social media to create buzz around the brand's holiday campaign. Our online communication strategy has contributed to the positive sales results over the past six months, particularly in leather goods and sneakers, by addressing new segments of clients. In particular, we are pleased by the increase in the number of younger customers turning to the brand, particularly below 26, the so-called Generation Y. Thank you very much. I will now hand back the presentation to Mr. Mazzi for the conclusions.
Thank you. Good afternoon from Italy. Good evening to Asia, good morning to America. Our outlook. Recent performance of the group is the result of our strategic initiatives aimed at meeting customer expectations while respecting the iconic heritage of our world-renowned brand. That's the Prada way to compete in the current fast-changing environment. We continue to nurture our creativity with our unique way to observe a contemporary society and to interpret market trends. We focus on improving the productivity of our global retail network partner, strengthening the integration between offline and online, offering a seamless experience. We continue investing in brand equity through unconventional communication tools, conveying our value and vision in a unique experience. 2018 will be the beginning of a new chapter of the group's history with a long-term sustainable growth based, please don't forget, on the best quality of our products. Thank you.
Thank you, Mr. Mazzi. We can now open the Q&A session.
Thank you. If you would like to ask a question at this time, please press the star or asterisk key, followed by the digit one 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 two. Once again, that's star one to signal for a question. We will take our first question from Nikki Chung of Merrill Lynch. Please go ahead. If Nikki Chung, your line is open, please go ahead.
Hi, can you hear me? Hello?
Yes, we can hear you. Nikki? We can hear you, Miss Chung. We can hear you.
Nikki appears to have withdrawn her question. We will take our next question from Elena Mariani of Morgan Stanley. Please go ahead.
Hi, good afternoon all. Thanks for taking my questions. May I start please with your retail performance. Could you please specify, if possible, the like-for-like trend that you had in the second half of 2017, and also confirm that this has turned positive into the new year on the back of the positive comments that you've just made on current trading. Secondly, with regards to your outlook for year 2018, what are your expectations with regards to top-line but also margins? At the moment, consensus is assuming, I think, more than 50 or 60 basis points improvement in EBIT margin. Do you think this would be feasible, assuming positive organic growth, and looking at the evolution of your cost structure? Thirdly, with regards to your digital initiatives, could you confirm the % of sales that you are now achieving online?
How that would be split between your own e-commerce, and other retailers, so third parties, and would you have an objective in terms of % of total sales for the future? Thank you.
Sorry, Elena. Talking about the like-for-like in the second part of the year, of course, the like-for-like recently has never been really different from the organic since we have not opened many stores. In any case, I would like to mention that, particularly talking about regular sales, in the second part of the year was of course positive. Coming to your second question related to the 2018 guidance. We see a reasonable target in terms of top-line growth from mid to high single-digit organic growth. The rules of thumb is always the same that we have already mentioned many times. With mid to high single-digit top-line growth, we will have an increase in operating margin from 50 to 80 basis points. On top of this, of course, you have also to consider the impact of the exchange rate fluctuation that for 2018 is, of course, forecasted negative.
Chiara, if you want to answer about digital.
Yes. Overall, digital sales represent 4% or 5% of our total revenue. We target to bring this number to 15% by 2020.
Thank you. This is very clear. Maybe just one follow-up on the like-for-like. My apologies because I didn't really get your answer. You were saying that in the second half of 2017, it was broadly in line with your a constant currency retail sales, it was down low single digits, this turned positive in 2018. Is this correct?
I have also mentioned the fact that even during the second part of 2017, regular sales, if I exclude, of course, markdown, regular sales, like for like, turned positive.
Perfect. Thank you very much. Thank you.
Thank you, Elena. Next question, please.
We will take our next question from Thomas Chauvet of Citi. Please go ahead.
Good afternoon. Thanks for taking my question. Three question, please. The first one, a follow-up, Alessandra, on your guidance for 2018. You're assuming mid to high single-digit organic sales growth for the group, including double-digit growth in wholesale, if I understood Chiara correctly, and an underlying EBIT margin increase of 50 to 80 basis points. How are you going to counterbalance the negative impact of FX? Can you maybe elaborate on how well you will be protected, what decisions you've made, maybe on pricing, or any efficiencies you can derive to offset the currency headwinds? Secondly, on handbags, there's been some hits and misses over the last couple of years, but it feels in the last six months that some of your product launches have been a bit more successful, looking at the underlying improvement of the leather goods business in H2.
With these launches, with a focus on entry-level product, the lower weight of Galleria lines, can you give us now a split of Prada handbag sales by price points? I think in the past, you used to split it between 3 segments, EUR 1,000-EUR 1,500, EUR 1,500-EUR 2,000, EUR 2,500, and above EUR 2,500. Are you happy now about the split, and could you provide us with that split? Finally on Miu Miu, the brand had obviously a difficult year in both halves, partly self-inflicted with store closures and renovation. Do you feel you've now done everything from a product development, distribution, communication standpoint to return to profitable growth in 2018? I know you don't split profitability by brands anymore, you used to, but could you give us maybe an indication of EBITDA margin for Prada and Miu Miu in fiscal 2017? Was Miu Miu loss-making last year? Thank you.
Good afternoon. Of course, there are two things that need to be done. First of all, we'll have to systematically check and review prices on the several markets, and then, of course, efficiencies for specific cost-related activities, so that we can reduce the negative impact of exchange rates. As for product segmentation, what we've done starting from the end of 2016, and also in 2017, led us to a better price segmentation. In point of fact, the results in our sales come from this new strategy. In Galleria, the share, which is about 800 bags per week, I believe. 700, in point of fact, 700 bags per week.
The price points, the price point segmentation and distribution of our products in the 1,400 to 1,600 price point is the one that gave us a positive result for the current sales. There is nothing we need to change. All we have to do is increase the share of product that is most successful right now. As for Miu Miu, true, we were negatively affected by a decision to renovate our stores. From the beginning of this year, we've seen a turnaround, and Miu Miu too, I believe, will go in positive territory. It is positive already, in point of fact. Of course, with the arrival of the new products that we have launched, we will see what type of improvement we can obtain.
As for your other question concerning profits or profitability or the margins of the two brands, unfortunately, I do not have the information at hand. This is not that useful either because we tend to have a comprehensive approach to our profitability. I think I have taken all your questions. Have I? Please confirm, or perhaps you would like to have some more information.
Thank you. Thank you very much.
Next question, please.
We will take our next question from Nikki Chung of Merrill Lynch
Apologies for the tech glitch earlier. Thanks for taking my questions. I've got a couple of questions, please. The first one on selling cost. How should we think about the evolution of selling cost in 2018? Because it was very well-managed in 2017, almost slightly on year. If you could help us on the dynamics around store refurbishment, is it still ongoing, or you are done with most of the refurbishment? And also, considering some FX savings, is there any possibility for OpEx to be down on a reported basis for 2018? My second question is on the 7.5% year-to-date growth you mentioned. Is that on an organic basis at the group level? And also on wholesale, could you talk about the performance of online DOS compared with third-party online sales? And what should we expect for 2018 in wholesale?
Because the figure has been quite volatile for the past quarters. Thank you very much.
I will take the question related to the like-for-like of 2018 that Mr. Bertelli mentioned before. The 7.5% or 8% is referred to the retail growth at cost and exchange rate that we are seeing so far. As to selling cost, we will continue the policy we implemented in 2017. There will be no significant changes on this level. We will be very careful when it comes to this type of cost. As coming to your other question concerning what we do in our stores, very often we call it renovation or refurbishment, but in point of fact, above all, we are talking about something that we do in order to change the way we display things. It is not total renovation of a store, but mostly aimed at better enhancing or showcasing our products as compared to others, including because the public needs to see changes in our stores.
It is like with your home, furnishing a home. The atmosphere that customers must perceive when they walk into a store evolves according to taste, expectations, and the possible options we can provide. We want to update our customer experience, also we want to enhance the specific products vis-a-vis others. We have quite a wide network, we are making a major effort so that by year-end, we can actually transform the way we present our products in our stores. First and foremost, our stores in airports. The shopping experience in airports has changed completely, we have to update our stores in airports, too. The same holds for all the other areas that we are looking into. Thank you. Next question, please.
We will take our next question from Francesca Di Pasquantonio of Deutsche Bank. Please go ahead.
Yes. Hi, good evening, everyone. I have a couple of questions. The first one is regarding the 7.5% growth that you mentioned, I was wondering whether you could provide colors as to how much of the growth is driven by price mix and how much by volumes. The second question is regarding your full price policy strategy. How much more upside do you think you have going into 2018? I guess you have done a lot already in 2017. Third question is, if you could maybe give some indication of how much the new products, especially in handbags, represent of your total sales at the moment, and where you would like this number to be in one year, two years' time. Finally, going back to the question on wholesale, which I am not sure I heard an answer on it.
Are you planning for your wholesale to grow double digits in 2018? Thank you.
Okay. Sorry, Francesca, we need some minutes to
Okay, no worries.
Okay. Talking about your first question related to the 7.5% of like-for-like in the first part of 2018, it's more volume than prices. I could say probably 60% volume, 40% prices. I would also add that is really across more or less all geographies. All products, of course. Mr. Bertelli would add something more in terms of full price policy and the other questions.
What we certainly want to have more full price sales and reduce the share of markdown. We want to remain with markdown at below 10%. In 2017, we were at 14%-15% for markdown sales, and this had to go down to 10%. As for your other question, the one concerning products. New products account for I don't have the exact number, but I believe I'm quite reliable if I say that they account for about 60% of the total offering. Sales have grown, thanks to the better performance of our new products, which account for 60% of total sales. Ready-to-wear accounts for 80%, footwear 80%, and for leather goods, it's 60%, both for Prada and for Miu Miu. Coming now to our wholesale policy, we don't want to be punitive vis-à-vis wholesalers. In fact, we might even improve and grow our sales there.
There is a problem, however, the problem of how to manage all the activities that wholesalers carry out in terms of digital, the internet. There are rules and regulations that need to be enforced. As was done by the Coty Court on the 6th of December 2017. The Coty decision on limitations to reselling through web and third-party platforms. We have to work with wholesalers to see whether they're willing to accept the restrictions that we would like to propose in order not to be attacked on the market unconditionally, because this is a real problem. Thank you. Next question.
Thank you.
We will take our next question from Erwan Rambourg of HSBC. Please go ahead.
Hi, good afternoon, everyone. Thanks for taking my questions. I had a follow-up with Chiara Tosato on e-commerce. I was wondering if you could talk about what your initiatives are as regards to the Chinese market. What do you think could be the split between your own website, your own .cn activities on WeChat, potentially, and then the emergence of multi-brand retailers like Toplife or Luxury Pavilion, VIPLux, and others. How do you think about these opportunities? Who do you want to partner with? Secondly, a question for Alessandra. Looking at an indication from mid to high single-digit organic sales growth for the year, can you give us a contrast by regions? Presumably with a strong euro, it could be the case that Europe will be weaker than, say, Asia, and notably China. Can you contrast that, and does that have an incidence on your margins overall?
Just to follow up on the markdown reduction question, I think you mentioned, just wanted to double-check, that you were at 14%-15% two years ago, in terms of markdown. What were you at last year, and do you believe that going to this 10% level could be achieved this year in 2018 already? Thank you very much.
For what concerns our e-commerce activities in China I would say that our website, our e-commerce platform, remains our primary focus. In this respect, we have been progressively investing more and more in terms of digital marketing activities, as well as on the development of special products, especially sourced for e-commerce, that will be e-commerce exclusives that we will launch in the coming months. At the same time, our subsidiary in Hong Kong, our local team in China, has been starting conversations with some of the marketplaces you were mentioning before. We are willing to take into consideration the possibility to work with them as a means to further widen our online product distribution in China.
May I go back to what I was saying about markdowns? I said it was 14% in 2017, I was mistaken, it was 12%. We only have to change from 12% to 10%, which means just a 2% reduction for next year. It actually was 15% back in 2016, it was lower than I said. You were asking about whether growth will happen more in China or Europe, or what geography and so on. I have to say that the mobility of tourists really depends a lot on contingent situations and opportunities. I don't really think there's this particular crisis in any given country or another, unless there are special political or geopolitical challenges happening in any given location. For instance, some regulations were applied on Chinese tourists.
They traveled more locally for a while, they changed again, there's more and more people traveling as tourists, it's quite hard to provide a careful mapping on tourist flows. What we do understand is that many changes may happen because of local festivities, like when Ramadan happens in Dubai, we sell a lot before the Ramadan. Chinese New Year brings about a lot of sales during the Chinese New Year period, when more people travel. Next year, Chinese New Year is going to be at the end of January as against 15th of February this year. The Year of the Pig is going to start at the end of January. There is going to be another Ramadan-connected festivity in August this year. There's a kind of Valentine's Day in August for some geographies.
The local festivities, religious or celebrating festivities, do create a lot of opportunities and a lot of local situations that actually translate into higher sales connected to festivities. Tourist mobility and everything that goes with festivities like traveling. I do know from Asia, people travel to Australia and Europe and lots of other places. All these things have to be managed and followed very carefully. Thank you.
We have time for the last question. Thanks.
We will take our final question from Rogerio Fujimori of RBC Capital Markets. Please go ahead.
Hi. Thanks for taking my question. I have two quick ones. I think Ms. Chiara just said that more younger consumers are now attracted to the Prada brand. I was just wondering if you could give us an idea of the growth that you are enjoying now among millennials, and what is your current percentage of sales to millennials versus your core 30-55 age group? My second question is on your tax rate guidance for 2018, considering the recent U.S. tax reform and expected patent box savings. Thank you.
I will take the last question on tax. For next year, the tax rate is expected to, of course, normalize, taking into account the U.S. tax reform. Please bear in mind that this year, I know that could be counterintuitive, but the U.S. tax reform had a negative impact on our tax rate because the effect of the tax assets that are related to the temporary fiscal differences in U.S. I have always to remember that we have not yet called by the Italian tax authority to discuss the method of calculation of the patent box that is expected to happen in 2018. 2018 could be strongly positively impacted by this event, because in this case, we will be allowed to take the positive effect of three years in a row.
Yes. To answer your question, on average, we can say that 60% of our sales revenue can be attributed to millennials. Of course, in some regions like Asia, this percentage is even higher.
Thank you.
Okay. Thank you for your attention. Next event will be the presentation of the first half 2018. That will happen end of July, beginning of August. Thank you very much.
Bye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.