Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prada SpA (PRDSF, Financial) reported a solid first half of 2024 with net revenues of EUR2.55 billion, up 17% versus H1 '23 at constant FX.
- Retail sales reached EUR2.26 billion, up 18% versus H1 '23 at constant FX, showing consistent growth across both Prada and Miu Miu brands.
- EBIT margin improved to 22.6% in H1 '24 from 22% in H1 '23, indicating better profitability.
- Miu Miu showed exceptional performance with a 93% increase in retail sales, contributing 23% to the group's retail sales.
- The company continues to invest in digital and IT infrastructure, with EUR169 million in CapEx for the first half of 2024, enhancing operational efficiency.
Negative Points
- The macroeconomic environment has become tougher, impacting consumer sentiment, particularly in China.
- Gross margin slightly decreased by 50 basis points to 79.8% due to FX impacts.
- Operating costs increased by 14% at constant FX, driven by higher investments in client-facing activities and other discretionary spending.
- The Americas region showed slower growth, with retail sales up only 7%, indicating challenges in this market.
- The company faces ongoing challenges in recovering market share in Asia, despite good operational teams and infrastructure.
Q & A Highlights
Q: Andrea, if you would be kind enough to please comment on your exit rate and how the third quarter has started. There are talks about demand in China being quite weak. Are you able to offset that with spend by Chinese abroad so far in the quarter?
A: In July, we have seen no major or drastic changes in the trend. China has become a little bit more complicated, while most other regions are a bit easier. In terms of easier or tougher comps, the weekly trend is pretty clear. August could be easier, but September to December were tough in terms of comparison.
Q: On Miu Miu, it looks like you could exceed EUR1 billion of sales this year. Is it possible for the brand to reach EUR2 billion in the medium term?
A: The ambition is always there. There is an opportunity, especially as Miu Miu's initial routes were mostly Asian, and now Europe is competing with Asia. We are also focusing on North America, where we are relatively small compared to the brand's potential.
Q: Could you give us any detail on how to think about growth in terms of volumes versus price versus mix, especially within Miu Miu?
A: Pricing in the first half was in the low single digits, and we expect mid-single digit for the full year. For Miu Miu, the performance of leather goods has been very strong, contributing significantly to growth.
Q: Can you confirm that your rents in China are still variable and that you did not renegotiate them?
A: Yes, I can confirm that there is a significant variable component in our rents in China.
Q: What would make the US market grow double digits? Is it an issue of awareness or network?
A: It's not an issue of awareness but more about the network. We have a lot of demand for Miu Miu in the US, but customers find it difficult to buy easily due to limited store presence.
Q: Can you tell us about the gap in terms of operating margin between Prada and Miu Miu, and where do you see that going in the long term?
A: Miu Miu has seen a significant improvement in profitability due to increased productivity. However, we are focused on making this growth sustainable by reinvesting in the business.
Q: Could you give us an update on the retail footprint, including closures and openings?
A: Closures have been marginal. For 2025, we expect a 10% increase in Miu Miu's footprint, mostly through enlarging existing stores or moving locations. Prada's footprint will grow by less than 5%.
Q: Can you comment on the recent price increases and how you see pricing for next year?
A: We have implemented low single-digit price increases in the first half and another low single-digit increase recently, bringing us to mid-single digits for the full year. For next year, we will see.
Q: How do you see OpEx leverage and EBIT margin expansion in H2 versus H1?
A: We expect more visible operating leverage in the second half due to moderated growth in operating costs. The end result will also depend on top-line development.
Q: What is the current weight of online business on retail sales, and how is it evolving?
A: Online penetration is around 8-9%, varying by market. We focus on full potential, ensuring the best possible service both online and in stores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
