Good day, thank you for standing by. Welcome to Prada Group First Half 2023 Results Presentation. At this time, all participants are in listen-only mode. After the speech presentation, there will be a question and answer session. To ask a question during the session, you need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. Please be aware that we'll take and answer one question at a time before moving to the next question. Please note that today's conference is being recorded. I would now like to turn the conference over to Mr. Andrea Bonini, CFO. Please go ahead, sir.
Good afternoon, everyone, thank you for joining the Prada Group's half year 2023 results conference call. I am Andrea Bonini, Chief Financial Officer of Prada Group, and I'm delighted to be with you again. Alongside me today is Mr. Patrizio Bertelli, Chairman of the Board and Executive Director, Andrea Guerra, Group CEO, and Lorenzo Bertelli, Marketing Director and Head of CSR. Mr. Patrizio Bertelli will start today with group highlights for the first half of 2023, followed by Mr. Lorenzo Bertelli, who will provide an overview of our marketing and communication activities and an ESG update. Mr. Guerra will then give you a business update, and I will provide details on our financial performance before Mr. Guerra signs off with some closing remarks.
As a reminder, certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. Please refer to the disclaimers included on slide two of our presentation. With that, I will hand over to Mr. Bertelli.
Good afternoon and welcome to the presentation of the results for the first half year of the Prada Group in 2023. I would like to start by providing a quick update on the six months we just finished that have posted solid results, thanks to the strong identity of our brand and the careful execution of our strategy. We followed up the solid performance of the Q1 with a positive trend in the Q2 as well, and the half year was closed in a growth, which was significant and well-balanced, with net revenues equal to EUR 2.2 billion and retail sales that are up 21%. We're happy with the quality of our growth, organic and driven by full price sales with Prada on a robust itinerary and Miu Miu in a significant progression throughout the half year.
The group's profitability is further improved, with an EBIT margin now standing at 22% of revenues. At the same time, we continued to consolidate the attractiveness of our brands and increased our investments to support them. We accelerated the renovation of our retail network that allows us to improve store experience for our clients and improve productivity. Finally, we increased our industrial investment in order to expand our production capacity and to allow a greater and greater control of quality, sustainability, and industrial know-how. In this framework, we also have to notice the acquisition of a minority stake in Fedeli, another excellent Italian company that we're very happy to collaborate with for future development. Let me now yield the floor to Lorenzo, who's going to illustrate the main initiatives in marketing and sustainability. Thank you.
Thank you and good afternoon. Our focus on enhancing our brand's potential through creativity and dialogue with our clients enabled us to maintain excellent brand momentum, both at Prada and Miu Miu. Prada continues to resonate with a strong increase of market share in search engines, fueled by the excellent reception of both Prada menswear and womenswear shows. The success of both iconic and new products and campaign, like The Glass Age, that creatively reinterpreted and celebrated the Prada Galleria bag, reflecting on a strong performance during the period. Strategic partnerships were again key to reach new audiences, such as with the Adidas Football for Prada collection.
Throughout the semester, the brand presented a number of successful activations to elevate the brand experience for our clients, including dedicated events to Eternal Gold Fine Jewelry collection worldwide, consolidated format like Prada Extends, which landed in Bangkok, Prada Mode in Tokyo, and the opening of the very impactful Prada Caffè at Harrods. Moving on to Miu Miu, the stronger identity of the brand, its increasing visibility confirmed by an outstanding performance with +39% web search grow in H1 2023 versus 2022, and be supported by target investment in local activation and events that amplify the brand awareness and connected Miu Miu with a constantly growing community at global scale. The marketing strategy remains focused on reinforcing brand codes, with a constant flow of contemporary collection, paired with exceptional talents, fully in desirability across all categories.
An example can be seen in the last campaign dedicated to the Wonder and recently launched Arcadie bags. We celebrated the iconic Matelassé L eather. Now we turn to ESG, which continues to be a long-term value driver for the Prada Group. Halfway through 2023, we are on track with our strategy and continue to build upon the foundation put in place in the past couple of years. Having strengthened our sustainability governance in the industrial department, the key priority for this period has been progressing on building a responsible supply chain. To reduce Scope 3 emissions, we also plan to engage a number of selected supplier to improve their environmental performance alongside a multi-stakeholder global initiative. I strongly believe that real positive impact needs to come from collective action.
This is one of the reasons that I'm proud to announce today that by 2024, Prada Group will be a signatory of Zero Discharge of Hazardous Chemicals. This aims to eliminate harmful chemicals from the fashion industry global supply chain. Water conservation is one of the critical challenges facing the world today, and the fashion industry has an important role to play in this area. A few weeks ago, we announced a new enhanced partnership with IOC-UNESCO for Sea Beyond. We pledged to donate 1% of the proceeds from Prada Re-Nylon collection to extend the training program on ocean preservation, support ocean-related scientific research, and humanitarian projects. Thank you. I will now pass over to Mr. Guerra for the business update. Thank you.
Buongiorno! Let me give you a general comment on this first six months. We are happy of our ability to serve during this first six months of 2023, and we're very happy to finish at +20% on top of a similar trend one year before. 2023 is a strange year. It's a year where it will remain and has already been challenging from a month-to-month comparison. Asia closing down, Asia reopening, second half will again be a little bit awkward from this point of view. So we have to guide you, and on the other side, we all need to know that 2022 was yet the finishing of that long COVID period with a lot of ups and downs.
If we look to our brands, I would love to start with Prada, obviously, another great successful six months. You know, we are, and we've always been, and we will always be, investing money and brain and heart and focus on what the brand stands for. We will constantly being very careful to well interpretate cultural and social movements worldwide. We think that everything starts from there, and everything goes back to that. So anything we will do will never shortcut, the roots, the interpretation, the attitude of our Prada brand. We had great six months on top of another great 12 months, and obviously, we are leaving today another good period, obviously, in front of the biggest peak for 2022.
We all remember last summer, a great touristic summer in Europe, with, I would say, a huge, rich American tourism wave, which is happening again, but obviously you are going towards that peak. Everything we have launched so far had great reception. Even our newly launched fall and winter collection, that is, has gone up in the last 10 days across the world, is still receiving very positive reception by our loyal consumers. On the other side, I think that today is also one of those periods where you see the difference of Prada, because consumers are also asking to Prada, "Buy now or now?" And yet for the next six weeks, we will be highly focused on this part of the business as well.
Obviously, when we are looking today to the different parts of our business, Miu Miu is really reaching an excellent brand momentum globally. Obviously, again, comparison is difficult, comparison is complicated, for sure, the beginning six months of 2022 compared to 2023, were easier. So we had an easier comparison for Miu Miu. Obviously, and this is where we are largely focused today, percentages are important, absolute values sometimes are even more important. We are incredibly happy to see the absolute value of weekly and monthly revenue we're reaching nowadays, which look very promising for the future. For Miu Miu, image is sharp, identity is easily readable, really all product categories are today very well admired, the last improving part of the business, really improving, is our leather goods side. So growth has been balanced globally. We have gone on product range in a very balanced manner across the world.
And I would say that the major part today is really getting the team ready for the future milestones of Miu Miu evolution. So we are closing this first six months on a happy note. On the other side, there is a long way to go for 2023. Please, Andrea, take us through the details of this first six months.
Thank you, Andrea. I'd like to start with the key financials on slide 13, showing the solid growth and improved profitability of the group over the six months period. The group reported net revenues of EUR 2.2 billion, up 20% versus H1 2022 at constant FX. Exchange rates had a negative impact on net revenues of 310 basis points, or circa EUR 58 million, for an increase of 17% at current exchange rates. Retail sales for the period reached EUR 1.975 billion, up 21% versus H1 2022, and +54% versus H1 2021 at constant FX. EBIT reached EUR 491 million in H1 2023, with margin of 22%.
This is a marked improvement versus the 17.4% of adjusted EBIT in H1 2022. It has been achieved notwithstanding an increase in discretionary A&P expenses. On a cash position, stood at $283 million at the end of June. We continued improvement year-over-year. Next slide, net revenues by channel. Retail continues to be the engine of growth in the semester, up 21% versus H1 2022 at constant FX, driven by like-for-like full price sales and with a positive contribution from both average price and full price volumes. In the Q2 , retail sales increased by 19%, building on a strong Q1 at +23%. On wholesale, we kept our approach selective with independence, which partially offset the sustained growth we saw in the DFS channel.
Strong growth from both fragrances and eyewear continued, with royalties at +66% year-on-year. Slide 15, retail sales by brand. Prada, which accounts for 85% of group retail sales, delivered +18% growth in the half. In the Q2 , revenue growth increased by 15%, with a more moderate but solid pace compared to the +21% of the Q1 , on a high basis of comparison, with the exception of China. Growth was well-balanced across product categories, and double-digit growth was seen across all regions, excluding the Americas. Miu Miu reported retail sales growth of +50% in the semester, with the Q2 in further acceleration at 57% versus the 42% of the Q1 . An excellent performance also supported by the higher exposure to China and Asia. Slide 16, retail sales by geography.
The group delivered double-digit growth across all regions, excluding Americas, in the first six months of 2023. Asia Pacific saw retail sales up 25% in H1 2023, thanks to the acceleration in Mainland China, Hong Kong and Macau, supported by the low basis of comparison of 2022, when China was affected by heavy restriction in April and May, lifted from June. In the rest of Asia, we saw a softer performance in Korea, where we were also impacted by the temporary closure of our flagship store in Cheongdam, Seoul, and Southeast Asia growth normalized against very challenging comps. Europe continued to register elevated growth in the semester, with retail sales up 24%. Despite the very challenging comparatives, Europe has continued to display solid trends, supported by healthy local demand and high level of tourism. In the Americas, H1 2023 retail sales ended substantially flat.
However, the North American client cluster that has been showing strength for a prolonged period, continued to grow throughout the semester, including in the Q2 . Japan was the best performing region in the six months, up 49%, benefiting from the group's recent investments in the retail network and a strengthened organization, successfully capitalizing on strong brand appeal, solid domestic demand, and increasing tourism flows. Middle East also delivered a solid growth performance, up 14% year-over-year. Page 17, retail sales by product. At group level, we saw continued double-digit growth across all categories, with leather goods plus 12, ready-to-wear plus 36, and footwear plus 20%. In leather goods, the focus on icons and further enrichment of the collections drove well spread growth across new products and classics.
Ready-to-wear continued to be our fastest growing category, and footwear also saw continued growth, driven by both lifestyle and formal collections. Page 18, on gross margin. Gross margin reached 80.3% in half year 2023, showing 260 basis points improvement on the same period of the previous year, mainly due to average price, channel mix, economies of scale, and a reversal in the trend of logistic costs. More than offset the inflationary pressure on other costs and negative effects impact. Improvement vis-a-vis H2 2022 is more limited, as anticipated. Page 19, EBIT and income. During the semester, the group generated EBIT of EUR 491 million, at 22% of net revenues, up by 49% against the EBIT adjusted margin of 17.4% in H1 2022.
As a reminder, EBIT margin was 16% in H1 2022, whereas there were no adjustment for non-recurring items in H1 2023. This profitability improvement was achieved notwithstanding higher communication and marketing investments. Overall, OpEx increased by 15% year-on-year at constant effects, and our focus going forward will remain on investing behind the brands and at the same time, further moderating OpEx growth in other certain areas. Net income was up by 62% on the same period last year at EUR 306 million. Page 20, CapEx. CapEx for the first half of 2023 was EUR 151 million as we accelerated investments in retail, IT, and our industrial infrastructure. Over the period, we managed around 70 renovations and relocation projects, which accounted for the majority of total retail CapEx.
Excluding retail, of the remaining EUR 56 million CapEx, EUR 22 million related to industrial CapEx, and EUR 27 million was IT CapEx. We plan to further accelerate investments this year, as conditions allow. Page 21, net operating working capital. Good control of inventory meant net working capital increased in absolute value by EUR 32 million, and overall, net operating working capital slightly declined as a proportion of sales to 16%. Page 22, on net financial position. The group retains a strong balance sheet with a net cash position of EUR 283 million as of June 2023. As it was the case last year, we would expect this to be the low point since it follows payment of dividends and taxes, which in June include both a tranche of the deposit for the current fiscal year and the balance of 2022.
Cash flow from operations improved substantially to EUR 509 million, compared to EUR 321 million in H1 2022. With that, I will hand over to Andrea Guerra for his closing remarks. Thank you.
Now, let's look to the remaining part of the year. Thank you, Andrea. Let's look to the next six months. First of all, we're going to invest more on desirability and strengthen cultural roots for our brands. We feel this is the right moment to do it. We have the ideas, we have the dreams, we have the projects, and we will do it in the most appropriate manner. Always vigilant, always agile, as this new world, day by day, folds and unfolds. So, we feel the time has arrived to really commit more to our brands, to our stores in terms of investments, CapEx, and communication. On the other side, as we all know, we are working in many different directions.
We have been discussing frequently on the work that we have to do. We will continue to do on our store network and productivity. Since the day of Investor Day, a couple of years ago, we have begun that journey. On both brands, the journey began. Training, indicators, measurements, improvement of people, incentives, and then going back and restarting from scratch on training, indicators. We have begun all the routines. You have to analyze and observe, and this is easily seen, that the performance and the result of our Prada brand and Miu Miu brand are basically like-for-like for the past 24 months. It's already there. It's not that we have to start a journey.
The journey will be long. And we love the fact that there is benchmark to look at, it's a journey, it's a cultural evolution and w e are all well-equipped. The next six months, or better, the next five months, because July is basically over, we have again, strange comparisons. We had a period of great business throughout the summer, with a lot of rich tourism across the world, mainly from Americans last year. We had a slowing down of United States after three years of great growth. We had Asia or better, China, that closed down in some cities in different weeks. Again, sometimes it's easier, sometimes it's better to look at absolute values to what we can reach in terms of rather than constantly looking to % increases. We are, I think, very well equipped to do another great six months.
We hope, and we think that we will be above, industry average, and therefore, let's live together, and let's try to have other great milestones with, Prada and Miu Miu brand. Thank you for listening up to now, and I would turn now the word to you, and, ready to answer your questions. Thank you.
Thank you. As a reminder, to ask a question, you'll need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one for any question that you may have, and wait for your name to be announced. Please be aware that we'll take and answer one question at a time before moving to the next question. Thank you. We are now going to proceed with our first question. The questions come from the line of Susy Tibaldi from UBS. Please ask your question.
Good afternoon to everybody. I have three questions, and I will ask them one by one, as was requested. The first one, can we spend a little bit of time talking about the growth with the various nationalities? We already heard from many of your peers, so I would like to check if you're seeing similar trends. So, Americans, you said, positive in Q2. Can you be more specific? I would assume it slowed down a bit from Q1. Chinese, what was the growth in Q2 compared to 2021, and was it in line with Q1? And the European locals, are they softening a bit year-on-year? That's my first question. Thank you.
I will ask Andrea to answer to your question.
Hi, Susy. Andrea Bonini. On North Americans, that is correct. It was positive throughout the semester. It was also positive in the Q2 , and I would add that it was in the low double digit in the Q2 as well, fairly consistent throughout the semester. For Asians, and I think that in particular, you're referring to Chinese, what I would say is, once again, very positive, as you know, on last year. And when we look at our growth rate in the APAC region, you can assume that Chinese is well above that rate. And vis-à-vis 2021, we have, once again, solid double-digit growth in the semester.
And the last point is on, is on Europeans, and Europeans, yes, it is indeed, let me say, normalizing, but very solid. Demand in Europe is, as you know, very much, sustained by, tourists and travelers, but at the same time, we're continuing to see a very solid demand also from the domestic, the locals. Next question, please.
Thanks. The second question would be on the profitability, how to think about it going forward, because Prada, as a group, you are one of the few groups that still has a lot of operational leverage potential. I was wondering if you can help us a bit to understand the equation, because at the CMD, previously was EUR 4.5 billion sales with 20% EBIT margin. Last year, you already achieved 20% with the EUR 4.2 billion. Let's say eventually, when you get to EUR 5 billion in sales, what sort of EBIT margin will correspond to that? Would it be around 25%, a reasonable assumption?
So let's put it this way. Obviously, as you're saying, we have an opportunity of, let's call it a scale effect. And no doubts, as you are seeing us growing, we're seeing the bottom line, and that is pretty clear, and that is in a journey will continue. On the other side, I think that the commitment, as we were saying in our closing remarks, in being and building a bigger infrastructures and bigger communication effort, that will slow down a little bit, that scale effect. But having said so, obviously, if we continue with this kind of growth, we will continue to see a kind of EBIT growth as well.
I always say I am less worried about this, and I'm more into making sure that we have a constant, fantastic, healthy growth in revenues. That is our major focus today. Andrea, do you want to add anything else?
I can add something on the, on the current year. We are, what I would add is that we are pleased with the 2% increase in EBIT margin that we've delivered vis-a-vis the fiscal year, full year 2022. What I would say in terms of how we think about the second half of the year, first, a comment around gross margin, which is at best-in-class level. When you see in terms of increase vis-a-vis the end of 2022, that's much more modest than the increase versus the first half of 2022. That's because average price, the impact of that is moderating. You have a scale effect that is still positive.
You have overall a mix that is still positive, but you have, you know, logistic costs that impacted last year significantly given the, you know, massive increase that we saw that have, at this point, largely normalized. So what I would think is, well, our objective is for the rest of the year to keep it around 80%, and we'd be very pleased with that, because as I said, I mean, we see it as a best-in-class result. So w hen we move from gross margin to EBIT margin, the priority for the second half of the year is investing behind the brands. Which doesn't mean that we would be happy of going backward from, from where we are now, from this 22%, but the priority is to invest behind the brands.
Okay, that is very clear. And one last quick one. I was wondering if you're planning to do another Investor Day or capital markets day at some point this year or next year, or if maybe you're waiting for some news on this dual listing, and if the line of thought is always the same, i.e., the family does not want to dilute or increase the free float?
We got no update on this, so we will... As soon as we got news, we will tell them to you.
Okay, thank you very much.
Thank you.
I'll add one, I'll add just one point on the dual listing, which is, you know, from a technical feasibility standpoint, we've done the work, and I'm sure you've also seen that another company has already tested the infrastructure in Italy. It is in our agenda. We said from day one that it isn't a priority for us at the moment. As Andrea said, you know, the focus is very much on the strategic, organizational, and digital evolution of the group.
Next question, please.
We are now going to proceed with our next question. The questions come from the line of Thomas Chauvet from Citi Research. Please go ahead with your question.
Good afternoon, everyone. Two questions, please. The first one on the retail trends by brand. Could you comment obviously on the sequence between Q1 and Q2? The Prada brand slowed down a little bit. Andrea, you highlighted a few geographies, while Miu Miu accelerated sequentially. Can you comment whether that was also related to perhaps some weakness in the Prada brand leather goods business, which, you know, the overall leather goods business has slowed down sequentially? That's my first question, please.
So I mean, I understand the fact that we got two brands, and so we compare the two brands, but obviously, each brand has its own life, has its own destiny, has its own growth patterns. I would say, and to give you a simple question, there is a difference in geographical coverages and exposures. Miu Miu is much more exposed to Asia, and therefore we got this kind of result. On the other side, if we have another opportunity for products for sure in that part of the world, obviously, I'm talking about China especially. I think that this is really giving us further direction on the work we have to do.
In general terms, I would say that after some years of rethinking, reengineering, repositioning, re-giving an identity to Miu Miu, it's now basically 24 months of a growing and speeding up performance of the brand. The coolness of the brand is there, the contemporary of the brand is there, and I think that we are seeing the performance today, and I think that we have a really an opportunity to have a long-term journey.
Thank you, Andrea. My second question on Japan, I mean, you seem to be enjoying the strongest growth in the sector. Here, it's local demand, it's tourist. You mentioned in the release, recent retail investment, but I see the store count is unchanged versus last year, at 86 U.S. Can you confirm it's all like for like? What is the share of tourists in Japan in the first half? What is the latest price gap also between, let's say, China and Japan? What lessons from the Japan success could you implement to other, maybe slightly weaker markets that you have in Asia to try to benchmark perhaps?
Obviously, we're discussing about very different markets in, on that side of the world. I think Japan ran on its own. The history, the strength, the equity of the Prada brand in Japan since ever has been incredibly high, incredibly strong, and the feeling about Japanese brands on the brand has always been of great love. The work done in the last 24, 36 months in Japan, in getting some of the pillars back to where they had been, I think proved right, as in Europe, as in Middle East, as in many other different parts of, Asia. Therefore, I think that this is the result. It's not a negative performance in China. I would like to be very, very clear on that.
I mean, you were asking about the difference in growth between Prada and Miu Miu, and I told you that that is the difference between Prada and Miu Miu. Prada is enjoying a fast-growing pattern in China. Then if you ask me, in absolute terms, in strategic terms, do we have further opportunity in China? Yes, we do.
Thank you. What's the share of tourists in Japan in the first half?
Very little.
Very little.
Yeah, maybe, yeah, very little.
maybe if I can...
5%. 5%.
Only 5%?
Yeah.
Maybe if I can squeeze just a follow-up for Andrea Bonini. You commented on the H2 margin outlook that you hope the margin will not decrease year-over-year. If I look at the last six, seven years before COVID, your EBIT margin in the second half is generally actually lower, slightly lower than in the first half. Given what Andrea Guerra said about, in his closing remarks, about investing more in the brand in the second half, I mean, does it make sense to think your EBIT margin in H2 might be lower than 22%, even if you continue to grow in double-digit?
Well, no, I think one, I think it's a little bit more than hope that we're not gonna. The EBIT margin is not gonna decrease, in the sense that what I said is, we wouldn't like it to be, to go backward from where we are. It means that we will do our job to make sure that it doesn't go back. Having said that, as you know, there's a number of variables, including, you know, top line growth and others. Our objective is, our target is not to go back, so it's more than a, it's more than a hope. If you start from that, it also means that we shouldn't go backward to keep it at least at the same level, vis-a-vis the first half.
And historically, I'm not sure I can actually reconcile that point that in the second half, the EBIT margin was lower.
That was the case in, five or six years before COVID, but slightly lower.
Five, six years before COVID, I'm sorry, but I'm not sure that I can recall the numbers also because I was doing something else. Anyway.
Okay.
Again, last year it wasn't the case. And every year is different, also depending on the, again, you know, how much you decide to invest and so on. I've told you what we plan, what we aim to do.
Okay. Thank you very much, Andrea.
Thank you. Thank you. Next question?
We are now going to take the next question. The question come from the line of Edouard Aubin from Morgan Stanley. Please go ahead.
Yeah, good afternoon. My first question is, you know, regarding Q2 sales growth. Most of your peers in the luxury space have posted an acceleration, you know, between Q1 and Q2 as China reopen. You have posted, I, I know it's a small deceleration, but still it's a deceleration sequentially. I think you were fairly upbeat in April about when you reported, you know, Q1 sales. Has the performance in Q2 come in kind of in line with your expectation or was it, you know, a bit below what you were expecting back in April? If so, which geographies were below expectation? Thank you.
As we were saying before, this is a complicated year in terms of performance, sometimes it's also good to look at it absolute values. We are happy of this Q2 of Prada. Obviously, we're very happy about Miu Miu. As I told you, the exposure of the different brands and the different geographies at the end make a mathematical effect, which is this. In terms of, if you take all other geographies, I think we have gone well above industry standards and industry averages.
Thank you. A follow-up for Andrea Bonini, you gave us some indication on, you know, the growth by nationalities, but some of your peers who've commented over the past few days were actually kind of quantify a bit things, specifically on Chinese. Would it be possible to give us a rough idea of, you know, Q1 and Q2 on a two-year stack, if you look at the Chinese nationality, you know, to what type, you know, is that an acceleration, a deceleration? That would be helpful, and South Koreans as well, that would be super helpful. Thank you.
On two, on two-year stack, very consistent between the Q1 and the Q2 , Chinese, but we're not going to quantify it just because we usually don't, and we're not gonna start now. I believe I said before, it's in double-digit.
Your point is that Q1 and Q2, two-year stack was more or less similar in terms of trends?
Correct. Yes, correct.
Okay, understood. And my last question is, you know, on leather goods, you know, I think if I'm not mistaken, it was 47% of your, of your retail sales in, in H1. You've kind of talked about a target long term, about 60%, and I know you've made it clear that it would be, you know, gradual and so on. You know, I, I think if I'm not mistaken, the, the share diminished a bit, you know, in H1, obviously, that's function of ready to wear doing very well. I guess my question is, you know, do you need to create kind of, one or two new pillar, in terms of, you know, bags, you know, in order to achieve your kind of long-term target? You know, can you achieve that with your, with your existing offer? Thank you.
Honestly, honestly, we are happy of our assets. Our offer is proper. And as we said, there are things that can go faster, there are things that will take time. We got no hurry in establishing things which are so critical for us in the long term. We will make it, and we will all be happy about it. Really, there is little anxiety on this.
Okay, thank you.
Thank you. Next question, please.
We are now going to proceed with our next question. The question come from the line of Aurelie Husson-Dumoutier from HSBC. Please go ahead with your question.
Yes. Good afternoon, everyone. My first question is on current trading. Putting the comparison base changes aside, could you comment on the trends that you've seen in July, and how they differ from Q2? Thank you.
So I would not say that there are major differences in the trend. Again, there are some changes here and there because of some festivities that are moving around, especially in China. But I wouldn't say that there is a significant difference in terms of trend. In terms of absolute values. We have, and we have a little improvement in United States as well, consider the fact that the deceleration of United States began at this time last year, basically. So I wouldn't, there is no major differences. In absolute terms, in absolute terms, I would add that obviously we are now in the middle of a huge European comparison, yet we are, in absolute terms, happy about it.
So, and really, if you look, especially in terms of, two years comps, because I always say that two years comps never lie, I would say that we see no difference between Q2 and Q3 or July or June and July.
That's very clear. Thank you very much. My second question is, you mentioned that you believe and you expect to grow above industry average in H2. May we have your guesstimate for the luxury average growth that you expect for the industry?
Hi, Aurelie, Andrea. What I would say on that is, it means to us growing above market, growing above average, it means that we look at the market share, that we take. It means that, you know, we want to gain scale in a healthy way, but at a faster pace than the average. It doesn't mean we're going to outperforming each single month or quarter, but in the year and beyond, that's, that's the objective.
Okay, thank you. And my last question will be on Church's. I know it's a small business, but I'd like to know what is the strategy behind this brand because it seems that you're closing more and more stores. Are you now moving to a wholesale business model here? What is the strategy behind this brand? Thank you.
As we said in February, March, we have restarted from scratch. I think that there are moments in life when you restart from scratch with brands and activities. In the couple of last two years, a lot of restructuring is going on. A lot of stores, as you're saying, has been closed, and a number of not useful accounts have been closed. I think that, as we said, at the beginning of the year, we were in a position to restart. This is what we're doing. First of all, we are, we have discussed and being very clear on the position and identity of the brand.
We have decided to have 25-30 stores across the world, to have around 140-150 wholesale accounts around the world. I can tell you that we had a couple of last months where our like-for-like on non-closing stores were positive. By the end of this year, I think that we can give you some hopefully some more promising ideas and performance. We're working hard. We're really working hard.
Thank you very much.
Next question, please.
We are now going to proceed with our next question. The question come from the line of Luca Solca from Bernstein. Please ask a question.
Yes. Hello, good afternoon. My first question is about growth mix. You were indicating that the growth we've seen in the most recent two years has been primarily from Like-for-like. I wonder if you could break this down to some extent between volume, price increases, and mix, if you could give us a broad estimate of the various components in this growth.
Obviously, this depends on the different periods where you are comparing and benchmarking. In this last six months, I would say that quantity has been an important side of it, and between price and mix and quantity, we have seen in the last six months a shift between price and mix to quantities. So, we had the last big price increase more than a year ago, so that has been fading out as an effect, and the volume and mix is kicking in. Obviously, it will depend on the different moments. We have done a slight price increase recently on Prada and Miu Miu, but it's a small adjustment, and we will continue to keep it balanced.
That is one of the most important equations for us, to keep the volume, the mix, which is the most complicated things to be done, and the price balanced and obtain that like-for-like growth, which I feel that if we keep those three balanced, it's pretty healthy. But I mean, it is. What you're saying is correct. I mean, we had basically some store opening, some store closing, closure. So, If you go back 24 months, basically all growth inches of Prada Group, Miu Miu, and Prada, it's all like-for-like. We're discussing about a kind of 60% increase in productivity.
Understood. Thank you very much indeed, Andrea.
Yeah.
When it comes to the goal of increasing retail space productivity and possibly doubling it in the next three years, have you had a chance to assess what the various component parts of this path could be? What is going to come on the back of brand desirability? How much is going to come from more efficient processes, replenishment, higher self-serve on the back of more agile operations? Whether there's any part that is potentially going to come from right sizing some of the stores that may be too large. I'm thinking, for example, of the store where I live in Geneva, which seems to be very big for what Geneva is as a city and as a tourist destination. Thank you.
The only thing. First of all, productivity is the result of an equation made by different addendums and different factors, as you were saying. Traffic is not an issue. Desirability of the brands is not an issue. I think there is an issue in being able to manage the consumer properly. Is it outreach? Is it welcoming? Is it routines? Is it rituals? Is it being able to close the transactions in different moments, in different times, in different locations? So, really, it's a question of retail excellence, as people would say.
And what about right sizing? Any any point on.
No. I mean, yes, there is an opportunity sometimes to do it, I would say that in reality today, the real thing in most of our stores, I honestly, sorry, I do not know exactly the Geneva case myself, but soon I will. The real thing is to use our space properly. I mean, now, fine jewelry is a real other leg of our business. We will be soon with Art de la Table and home in our stores. Really, it's our ability and also creating properly some private spaces in order to allow people in a very different manner to, to enjoy and to, to have their experiences with us. I really think that we do not have an issue of right sizing.
That, in any case, at the end, could count for a 5%-10% in efficiency, but that's not what the opportunity we have today. The opportunity we have today is much bigger than that.
Understood. That's very clear. Thank you, Andrea. Maybe my last question is a bit broader and more strategic. We've seen a lot of pricing exuberance in the industry in the most recent two years, as consumers have come back post-COVID with a certain euphoria and clearly determination to live well. Price increases have gone down very well. As we see normalization, and we're starting to see that in the U.S., I, I wonder, you know, and to some extent, you were starting to answer that before, saying that going forward, you don't see price increases as a major lever. But more broadly, I would ask you, where do you feel you stand with Prada, with the brand, relative to your peers?
And do you see that your pricing position is buttoned up, or, potentially subject to pressures, in terms of consumer demand, potentially, reacting to higher prices?
I think we have, if we list the opportunities we have, I think we can fill up an entire book. I think there is opportunities all across the world. We got really strong pillars on certain markets, and we can do even better. We have some under representations in some other markets, and we need to understand how to do a better work on different aspects. We have today an opportunity to use even better our unbelievable supply chain. I think we can be even more flexible and more agile and quicker in certain moments of market changes. I think we have that opportunity. I think we are one of the best brands in buy now, wear now. So that is another aspect which I think we can cultivate even better.
Then there are bits and pieces of higher segments of the market where we need to build some infrastructure, some rituals, some products, and really activate some other higher segments of the market that are waiting for us. I mean, each time we do something higher than what we're used to with our consumers, vroom! Sell out immediately. I think we have a number of opportunities. As I always say, the most important thing is that you put one after the other and all together, so that we can have some of these projects to be delivered during one, two, three, four, five years, and at the end, you turn back and you say, "Okay, I've built another big part and big strategy of our brands." So really, opportunities are huge for Prada and huge for Miu Miu.
Thank you very much, indeed.
And we are one of the few brands, especially with Prada, that sits naturally in a different segments of the market, more chic and more elegant and more lifestyle. That brand knows how to capture the cultural evolution and the social evolution of the market since 40 years. I think we, we have the assets to do it. Grazie. Next question, please.
We are now going to proceed with our next question, and the question comes from the line of Antoine Belge from BNP Paribas. Please ask your question.
Yes, hello, everyone. I've got three question. I will do them one by one. The first one is about this notion that, you know, it was maybe investing even more than what you thought before.So I'd like to understand, is it more the results of the, you know, many people have joined the group recently, and, you know, is it a bit of a, you know, the results of this? Or is it a bit driven by the, I would say, the competition? I mean, we already saw LVMH, you know, mentioning, you know, a lot of investment, this Pharrell Williams event generating 1.1 billion, you know, hits.
So yeah, I'd like to understand a bit the, is it because the leader in the industry, is increasing the cost of doing business, or is it, also, because, of your own more internal, thinking? That's the first question.
It's a trajectory of what we have seen in the last, two, three years. No changes.And I think it's part of it. I mean, we have been able to increase, basically 300-400 basis points on our EBIT, increasing a couple of 100 points our communication efforts. And this will continue. I mean, no difference from the past.
Okay. My second question is regarding the gap between the Americas growth that you reported for 2Q, which was -6%. And you're mentioning that the American cluster still in Q2 was up low double digits, so that's at least an 18% delta, which seems huge. I wanted to make sure I understood correctly. If that's the case, I would imagine that Americans are mostly going to Europe. So, I would like to know in Q2 or H1, what was the weight of non-Europeans within Europe compared to the previous year?
Hi, Antoine. Andrea. Your point is correct, so the -6. But in terms of the American cluster, indeed was positive and double-digit. Fair to say that they are a very large component of the traveler spend in Europe, and it's also fair to say that spend of travelers vis-à-vis the locals has been accelerating farther in the semester. Yeah, that's it.
Yeah. Okay. No willingness to share the evolution of the tourist number within Europe. Yeah, if you can give it, that would be better. I'm moving already to the final question. A bit boring, I know, maybe on the gross margin. I think there is a slide on page 18, where you show that the effects and hedging combined actually has a negative impact on gross margin. Which, you know, sounds a bit surprising if... I mean, you should have had hedging gains from you benefiting from the, what you hedged last year when the dollar was below priority.
So, if you could maybe comment on that, and you know what, when you gave this outlook of maintaining an 80% margin for the full year, within that, you know, what sort of, you know, effects impact, is it positive or negative, embedded in the for H2? Thank you.
That is the combined. So you have an FX, you have an FX impact that is negative, and then you have a hedging impact, which is positive, but is not enough to compensate, you know, the negative FX impact. You know, in the first half, it's not so much related to the dollar, the impact that we're seeing, but is mostly related to Asian currencies, and so the Yen and the Won. Thank you.
Thank you very much.
Thank you. Next question?
We are now going to proceed with our next question. The question comes from the line of Louise Singlehurst from Goldman Sachs. Please ask your question.
Hi, good afternoon, Andrea and Andrea. Thank you for taking my questions. I wanted just to get back onto the U.S. for my first question, please. I think you mentioned a small improvement in July. Now, I realize it's incredibly early in Q3, but I suppose if we could just get some clarification, if we're now comping that softer momentum that started, as we know, in the second half of 2022? As some of the peers have highlighted, that the weakness has been very specifically or concentrated in that aspirational consumer entry price point, has that been the same for Prada, and has there been any weakness in the high end?
And if I just stick on the U.S., if there's no change in the macro from here on in, would it be fair to assume that Q2 could mark the trough in performance for this year? Thank you.
So if we look to United States, I think the patterns are similar. I would consider what I told you before as something that doesn't represent a standard or a trend. Could we consider that Q4 United States will be easier than a year ago? Obviously, yes. Q3, it depends on how we see the, the, the usual end of summer and beginning of September. That is the usual turning point of the season. So, similar patterns to, to, to, to benchmarks, and on the other side, an expectation of a Q4, which improves compared to last year.
Thank you. Do you think Q2 could mark the weak spot of the year? If I could just follow up with my second and last question. And on the European side, can I just check with you that you haven't seen the same dynamic? I know, Andrea, you did highlight that the local domestic European consumption remains very solid in the period. Has there been any change in demand by price categories that we've seen in the U.S.? Thank you.
I would say and consider that the position of Prada in Europe is really strong. We have seen a good performance all across. If I had to look at different markets, I would say that U.K. was the slowest for a number of reasons that we all know. I wouldn't observe very different trends from higher to lower, I would be honest.
Thank you.
Next question.
We are now going to proceed with our next question. The question's come from the line of Liwei Hou from CICC. Please go ahead with your question.
Good afternoon, gentlemen. Congratulations on the great results. Really one of the best so far. This is Levi from CICC. I have three questions. I'll ask them one by one. The first one is, apparently, we have gained a lot of new customers. Given that we have done quite a lot of successful crossovers with brands like Adidas and New Balance, I assume our customer clientele will be younger than before. Could you please give us an update as of today, our customer mix by age? That'd be very helpful. Thank you.
So we normally don't disclose these numbers. I would say that with the great activities done on the two brands in the past 36 months, I would say that we have rebalanced extensively the different generations. I would say that today Gen Z is probably one of the strongest in the sector, I would argue.
Great. That's very helpful already. And my next question is actually to build up on your previous response on how to improve retail density. In my understanding, the main lever we have is to serve our clients better. I happen to see in the closing remarks, there was specific line about a better training of our staff. Could you elaborate a bit more on that? Where are the areas of improvement for our staff, who are really the front and foremost, you know, serving clients in the stores? Thank you.
Are you sure you want an answer here? Because I would be pretty boring on this. So I will try to make it as short as possible. This is, this is routines.
Mm-hmm.
This is the ability to, to, to never give up, on the other side, never prove wrong in with any customer, spontaneous traffic, appointments done, people that want to buy huge tickets, people that are for the first time in the pipeline, people that at the end do not want to buy but are in love with the brand. It's really ability of having proper teams on the floor, having proper number of people at the right time, having the right skills, getting the incentives to the right focuses. We want it's boring routine over and over stuff.
Understood. It's worth a shot. Thank you. My last question is straightforward on the beauty sector. Could you tell us more about where is our current standing with L'Oréal? Going forward, how would that business contribute to our revenue and impact our margins? Anything to share at this moment? Thank you.
So I mean, obviously, this is a license. This is a royalty. It's incredibly improving compared to the past. We are extremely happy of this relationship, and very soon, we're going to add another milestone with Prada. So we will deliver the 360 degrees. Not only fragrances, but we will be in the beauty. We're starting soon with a big representation and show in a very specific city, and we will start in the next month, month and a half. It's behind the corner, and I think this is the first real year. When the year finishes, I think we can draw some initial conclusions, but we are extremely happy of this relationship, as we are with eyewear.
That's great to hear. Thank you very much.
We have time for a last question or a last set of questions. Thank you.
We are now taking our last question. The question's come from the line of Charles-Louis Scotti from Kepler Cheuvreux. Please ask your question.
Hello, good afternoon. I have two questions, please. The first one, you said you will invest more on brand desirability. How shall we read it in terms of A&P spendings? You spent 5% of sales in 2014, rising to 8.5% last year. Is it fair to assume a continued increase to, what, 9%-10% going forward? Same question for product designs and development costs that fell for 4%+ to 3%+ recently. Should we expect the budget to bounce back as well?
In terms of marketing communication, I think that the evolution we had is a trend that for the next two years we will keep. We will over-invest in communication compared to our growth. Nothing crazy. We feel it's an important statement we do. It's not just a quarter or a half a year, but it will be one, two, three, four years next, especially in certain parts of the world. Asia will be one of our focus points. In terms of style and design, I do not expect major changes in the next future.
Okay, thank you. And my second question is on Miu Miu, that is experiencing a very strong momentum. Will you be able to share with us, with which nationality the brand is resonating the most at the moment? And if you could also remind us, the breakdown of sales by category, and by region, if it differs greatly from the group's average. Thank you.
So when you look to a brand growing at that kind of rate, everything is going well, all across the world, on all product categories, on all the, on all year generations. So, the real thing about Miu Miu is that we have an ambition, and the ambition is big. So this has to be a real distinct pillar of growth of the group. We're nurturing it. The team is there. The, the, the, the assets are there. I think that on Miu Miu, we have the opportunity in the next 12, 24, and 36 months to enlarge the perimeter of the number of stores.
And I would say that the positioning of Miu Miu is so easy to be read, that it's also quite consistent with the different growth patterns that the brand is holding during the past 24, 36 months.
Okay, thank you very much.
So thank you, everyone, and talk to you soon. For people who will, as Italians, will rest during August, have a great rest. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.