Prada Spa Ord

Good day and thank you for standing by. Welcome to the Prager Group First Health 2024 results presentation. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be aware that we'll take and answer one question at a time before moving to the next question, and please also know 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, and thank you for joining Prada Group's first half 2024 results call. I'm delighted to be with you again. Alongside me today are Mr. Andrea Guerra, Group CEO, and Mr. Lorenzo Bertelli, Group CMO and Head of CSR. Mr. Guerra will start today with highlights for the first half of 2024 and a business update, followed by Mr. Lorenzo Bertelli with an overview of our marketing activities and ESG initiatives. I will then present our financial performance before Mr. Guerra signs off with some closing remarks. We'll then move to Q&A. Before we start, Please be reminded that during today's call, we may discuss forward-looking statements which are subject to risks, uncertainties, and factors beyond our control that could cause the actual outcome and returns to differ materially from such statements. Please refer to the disclaimer included on slide two of our presentation. With that, I will hand over to Mr. Guerra.

Buongiorno a tutti. It's a great pleasure to be here with you. On one side, it's by definition tougher. Current macroeconomic situation is no longer so positive as it has been for a long time. And I think it's also worthwhile not to forget what kind of an incredible decade this industry has gone through. So for sure, current macroeconomics is a little bit tougher, maybe tougher. but there is a lot of opportunities in the market yet. As Prada Group, we continue 2024 on a positive stance, and we finished the solid first half of 2024, top line and bottom line. Month after month, we have been leaving a similar growth rate, and we finished the semester with retail sales at plus 18. and an EBIT percentage increasing to 22.6%. Both Prada and Miu Miu have moved through Q2 with same velocity as Q1. So this means that the two brands are strong and have a voice in this specific period of the world. As a group, we're continuing to work on sharper position and capturing unique identity on Prada and Miu Miu. For sure, this is a period where identity, position, desirability of brands make the difference. We have substantially increased our branding investments as well. We're constantly trying to elevate, motivate, upgrade, train our people in our organizations across the world. We think that this is critical and we feel that this is even more critical in this period of time. We discussed about our journey in retail excellence. We are happy to remark and to say that we reached today a different level. We still have a huge gap comparing with the best in industry, but we are improving and we are proud of our improvements And we feel that the most difficult part of the job, which was the beginning of this, the creation of the toolkits, the creation of everything that was needed for this journey, it's over. Now we need to keep on doing it and doing it well. Last, but still pretty important, we kept on with our CAPEX on digital infrastructural IT evolution. of the group. And we are happy of our progress, of our efforts in this field. And again, at the end of this year and next year will be another big chapter of evolution. A couple of comments on Prada and a couple of comments on Miu Miu before going with Lorenzo in a more specific manner. On Prada, I would say that what has happened so far is really a great long-term journey on a brand strategy, uniqueness, and creating bigger and more solid roots in the cultural world. And these roots are stronger day after day. Collections are strong. Products are strong. and we keep on having this strong traction on ready-to-wear and footwear on one side and we keep on evolving and we keep on getting stronger on our leather goods. On Miu Miu it's tough to say something in specific because when you have such results it's tough to say this was good, this was better, this was excellent. So What is important is that this is not just something that popped up. I would say that this is a result of many years of work on the brand, on the products, on the people. And today, the strength of Miu Miu, it's obviously the brand, it's obviously the silhouette, it's obviously the look. Team effort, teamwork to be able to serve clients growing at this significant rate is for sure one of the most important things happening in this last couple of years. And we got no shortcuts in front of us. We remain humble. We remain non-complacent. And we know that once we go over and over, the likes for likes will become even more difficult to face. But we are positive and we feel the responsibility. Now, let me give the stage to Lorenzo and I will come back for the closing remarks.

Thank you and good afternoon. I will start with a brief update on Prada marketing and communication activities. Over the last year, our focus on creating impactful initiatives has cemented the brand's desirability and fostered engagement with our audiences. Prada continues to drive interest with acclaimed fashion shows. Both menswear and womenswear collections were very well received, confirming the brand's creative energy. New campaigns featuring celebrities such as Scarlett Johansson, Emma Watson and Benedict Cumberbatch further boosted the brand's influence. Prada collaborated with renewed partners to amplify the brand values and widen its audience fostering engagement. Distinctive events and activation neutralized Prada-ness at its global reach. This includes the exclusivity third edition of Double Club in Los Angeles and another successful iteration of Prada Frames held during Milano Salone del Mobile and curated by Forma Fantasma. Moving on to Miu Miu. Excitement continued to grow amongst its community. thanks to highly successful fashion shows, impactful collaboration and engaging worldwide events. The launch of the brand's 2024 Leather Goods campaign, starting with Gigi Hadid, supported iconic bags Arcadie and Wander, while two other evocative campaigns, Endless Summer and L'été, were met with a positive reception. Special projects such as the new fifth edition of Miu Miu Upcycle collection in denim and the partnership with New Balance and churches continue to attract strong attention and contribute in further elevating the brand's visibility. Miu Miu First Literary Club and Miu Miu Summer Reads were two new cultural initiatives, launched by the brand which reinforces its commitment to nurture the contemporary debate with a distinctive voice. Now we turn to our ESG commitment, which continues to be a key driver to the group's long-term growth. As part of planning commitments, we are pleased to have set ambitious targets for the transition to lower-impact raw materials with an implementation plan progressing well. Other areas of focus in H1 include chemical management, material traceability, and water risk management. More in details, over 80% of raw material suppliers are engaged with zero discharge Azardus chemical program. 70% of leather procurement is now covered by traceability system. And we have recently launched a water risk assessment for key supplier with a target of 80% of engagement. recognizing our responsibility to reduce environmental and social impact across the supply chain. We have also trained procurement teams and strategy suppliers on our key sustainability objectives. As part of people's commitments, we have accelerated the implementation of our three-year D&I roadmap. We have also linked management remuneration to meeting ESG targets for a wider number of our senior executives. As part of a cultural commitment, we are pleased to continue our work on SeaBeyond, in partnership with UNESCO. We successfully launched the first international conference dedicated to ocean education, where the Venice Declaration for Ocean Literacy was finalized by UNESCO. Delegates and ocean experts. We established the third SeaBeyond education module involving almost 35,000 students in 56 countries. countries, and we committed to spread the values of Cibion through the dedicated docuseries produced by National Geographic Creative Works. Moreover, we launched the second cycle of the Forest Academy. The reforestation project of Milan focused on educating and involving citizens on the subject of urban forestry. Thank you. I will now pass over to Andrea for the financial review.

Thank you, Lorenzo. I would like to start with the key financials on slide 12, showing the solid growth and improved profitability of the group over the six-month period. The group reported net revenues of €2.55 billion, up 17% versus H123 at constant effects. Exchange rates had a negative impact on net revenues of 330 basis points, leading to an increase of 14% at current exchange rates. Retail sales for the period reached $2.26 billion, up 18% versus H123 at constant effects. EBIT reached 575 million in H124, with margin of 22.6%, showing further expansion versus 22% in H123, notwithstanding an increase in client-facing activities and other investments during the period. Cash flow from operations reached 652 million, and net cash position stood at 265 million at the end of June. Moving to the next slide, The retail channel confirmed a solid trajectory of growth in the semester, with sales up 18% versus H123 at constant effects, driven by like-for-like full price volumes. In the second quarter, retail sales maintained the same pace of growth of the first quarter at plus 18%. Wholesale was up 8% versus H123 and up 14% in the second quarter. We kept our approach selective, with independence while we continue to see sustained growth in the duty-free channel. Royalties were up 28% in the semester with growth supported by both eyewear and fragrances. Turning to the next slide, retail sales by brand. We're pleased with Prada and Miu Miu's performances as both brands continue to register above market growth. Prada delivered a solid plus 6% growth in the first half of the year. driven by full price, like-for-like sales, and supported by all categories and genders. The second quarter registered a solid performance at plus 5% year-on-year, despite a tougher comparison base in Asia-Pacific. MiuMiu continued on its strong growth trajectory, reporting plus 93% retail sales growth in the semester. Growth was well spread across all categories and regions. And the brand now contributes to 23% of the group retail sales versus 14% in H123. Good performance also at churches, up plus 15% in the semester. Moving to the next slide, in H124, the group achieved double digit growth across all geographies, except America's, which, however, improved sequentially quarter on quarter. Asia-Pacific progressed well during the period, with retail sales up 12% in the semester, with the second quarter up 8% on a tougher basis of comparison and increasing spending outside the area. Europe was up 18%. We continued solid growth of plus 19 in the second quarter, supported by healthy local demand and high level of tourism. In the Americas, retail sales were up 7%. with Q2 showing a farthest light sequential improvement at plus 9. Japan was the best performing region, up 55%, accelerating in the second quarter at plus 65, driven by solid local demand and increasing presence of tourists. And lastly, the Middle East also delivered a solid performance, up 20% in H124, showing acceleration in the second quarter. Turning to the next slide. Cross-margin was 79.8% in the semester, 50 basis points lower on the same period of last year, stable if we exclude the DFX impact. During the period, the group generated an EBIT of 575 million, reaching an EBIT margin of 22.6 in further expansion versus 22% in H123. The incidence of operating costs on net revenues declined by 110 basis points. notwithstanding higher investments, and we had a drag from FX on EBIT2. OPEX increased by 14% at constant FX, mostly driven by discretionary client-facing initiatives, as our primary objective remains to invest in our brands. The increase is reflected both in the higher incidence on sales of advertising and communication and in selling costs, which include retail activations like in-store events, for example. G&A's incidence on revenue grew from 6.6% to 7%, reflecting the step up in OPEX and DNA from digital and IT investments we've been making. And it also reflects some non-recurring items. Overall, looking at the second half of the year, we continue to expect OPEX growth to moderate. First, A&P should be less second-half weighted than last year. Second, we'll start annualizing some investments made in the second half of 2023. Finally, net income reached $383 million, an increase of 26% in the same period of last year. CAPEX for the first half of 2024 was $169 million, as we continue to invest in retail, IT, and our industrial infrastructure. On the retail side, over the period, we completed nine openings and 36 renovations and relocation projects, further elevating the in-store experience of our clients. Excluding retail, the remaining capex included 15 million for industrial initiatives as we continue on the path of vertical integration, strengthening our manufacturing capabilities, and 32 million related to IT projects. Moving to the next slide, Networking capital increased by $45 million to reach $780 million and overall remained stable as a proportion of net sales at 16%. Net financial position, last slide, the group retains a solid balance sheet with a net cash position of $265 million as of June 2024. I would note that we benefited for circa 67 million of euros in a shift in the tax payment deadline in Italy from end of June to beginning of July. And with that, as I said, my last slide, I will now hand over to Andrea Guerra for his closing remarks.

As the slide says, we are reiterating our ambition to deliver solid, sustainable, and above-market growth results. I think that this Saba Alliance says it all. This is our commitment. This is our effort. This is our work day after day. Priorities are clear. And let me say at the end, boring. They're always the same. No changes on our priority. Market are not easy. Therefore, we are every day more vigilant on one side And on the other side, we are training ourselves to be even more agile week after week, day after day, month after month. So I think that we have a long journey in front of us and we're ready and responsible in delivering what we have to deliver. Having said so, I thank you for having listened to us. And I think now we move to Q&A, so I give back the word to Operator. Gracias.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone 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 Edward Aubin from Morgan Stanley. Please ask your question.

Yeah, good afternoon and congratulations for the solid setup results. So first question for me, Andrea, if you would be kind enough to please comment on kind of, you know, your exit rate and how the third quarter, you know, kind of started. There are talks about, you know, demand in China being quite weak. Are you able to offset that with, you know, spend by Chinese abroad so far in the quarter? And so just one question related to that is, your comp base is getting a bit easier in the second half. So for example, if we look at the Prada brand, you grew 18% in H1 last year and 8% in H2. Should that therefore lead to some acceleration, or that's not the way to think about it in terms of the easier comp base? So that's my first question. Thank you.

Hi. When you ask Andrea to answer, there is always some concern. Sorry. So let me take it. So the first part of your question, I would say that in July, basically, we have seen no major or drastic or whatever change in the trend. I would add that China has become a little bit more complicated and most of the other regions a little bit easier. So this is how I would position it. In terms of easier comps or more complicated comps, I think that 2023 was referring to a year where closing and openings of Asia and China created easier or tougher comps. So I think the trend today, the weekly trend is pretty clear. I would agree that August could be an easier month, but September, October, November, December were pretty tough in terms of comparison. So I wouldn't go there.

Understood. That makes sense. And my second and last question is a relatively long one, so just one. On MiuMiu, it looks like you guys should exceed 1 billion of sales today. This year, if you look at some of your peers, the Fendi, Celine and Balenciaga of the world, they are kind of, you know, around 2 billion, some of them a bit more, some of them a bit less. So if you look at, you know, the heritage of Miu Miu, kind of the aesthetics. the credibility for the brand to expand its product range, you know, is that within the realm of possibility in the medium term, you know, 2 billion? Obviously, I'm not going to tie you up to any date, but, you know, as the brand, you know, the potential to reach that type of, you know, of sales within the medium term. Thank you.

You know, the ambition is always there. So whatever number, big number is in our heart, not necessarily in our brain. I think there is an opportunity. I mean, if you look to Miu Miu, initial roots were mostly Asian. Today, Europe is competing with Asia in terms of number one region. And we began to focus on North America as well, where we're really relatively small compared to the brand. So I would say that there is a long path and long journey in front of us. Obviously, when you got this kind of growth, the year after will be a little bit more challenging.

Okay, thank you.

Next question, please.

We are now going to proceed with our next question. The questions come from the line of Chiara Battistini from JP Morgan. Please ask your question.

Hello. Hi. Thank you very much for taking my questions. So the first one, I was wondering if you could give us any detail, any color on how to think about the growth in terms of volumes versus price versus mix, and notably within new meal, how much pricing and the mix contributed, and how you see the penetration of leather goods within new meal progressing going forward, please. Thank you.

Hi Chiara, it's Andrea Bonini. Thanks for your question. And on price and volumes, pricing, pure pricing, what we've done is first half of the year is in the low single digit. And we discussed this before that the expectation, and of course, you know, we may maneuver around that, but the expectation for the full year is around mid single digit. We would also expect a positive, if not very significant impact from the mix and the rest On the second question, which is the second, the leather goods, specifically, I believe your question was specifically in relation to Miu Miu. It was a very, very strong result across the board, frankly, I mean, across product categories, but the performance of leather goods make us really, really pleased. And it's success and the continued success of the Arcadie and Wonder, but also success with the newer introductions in the range. And so it's a contribution from leather goods that is progressively increasing. That is exactly the direction that we wanted to go to. Thank you.

Sorry, I meant it as part of the first question in terms of the volume growth. But no, thank you. I appreciate it. Two separate questions. And sorry, the second question I had, if I may, just a confirmation in terms of your rents in China, as there has been a bit of a debate during this reporting season. Can I just confirm that your rents are still variable in China and that you did not renegotiate them?

I can confirm that.

Thank you very much.

There's a significant variable component, yes. Thank you. Next question.

We are now going to proceed with our next question. The questions come from the line of Juan Rambo from HSBC. Please ask your question.

Yeah, thank you. Good afternoon, gentlemen, and well done on being so relevant and so strong in these tough times. Maybe one market I'd like to come back on, which is the U.S. You mentioned it's the only market where you're not growing double digits, even though you are improving quarter on quarter. I'm wondering what would make it grow double digits. Is it an issue of awareness? You mentioned to Edward that new exposure was maybe lower there. How can you look at maybe accelerating the U.S., And what can we hope for in the back half of the year for this very important market? Thank you.

Hi, I'm taking the question. It's Lorenzo Bertelli. Generally speaking, I would say it's not absolutely a problem of awareness. For sure, the fact that the network of MU in the market, the penetration is maybe the smallest. And so, as Andrea was saying before, in terms of growth for MIMU, U.S. is a great opportunity. So you see part of that point reflected in the growth on the U.S. actually is where we have somehow a lot of complaint on not having enough store and product in U.S. of customer that are looking for MIMU that they cannot, let's say, buy easily in U.S. So I would say it's not a matter of awareness, it's more a matter of of the network. And you see, generally speaking, that Europe is going extremely well because the awareness is there from the Western consumers as the traveler American citizen that is buying the U.S. Mule Mule. So it's not a point of awareness, it's just a point of network.

Okay, thank you. And maybe a follow-up for Andrea Bonini on the P&L structure of Miu Miu relative to Prada, given Miu Miu sales are quasi-doubling year on year. Can you tell us a bit about the gap in terms of operating margin between the two brands, where we stand today, and where do you see that going maybe in the long term?

Hi, Eduard. I won't comment specifically on the gap, but I think the trajectory is easy to guess, meaning we've seen a very significant improvement in the profitability in terms of brand EBIT as a result of the very significant increase in productivity. As you know, the growth is like for like and therefore there's a very material impact on that. We discussed this before that, however, when we look at the structure of the P&L of Prada and Miu Miu, we need to bear in mind the need for investment and reinvestment in the sense that Miu Miu is certainly in a phase of very significant growth and therefore we are very focused on making that growth sustainable, which also means investing and reinvesting in the business in terms of people, in terms of infrastructure, and at some point also more into new stores. And when we look at Prada, it's a different situation in the sense that, you know, we're certainly at a point where there's more maturity, right, in the status of things. So that's where we are. That's where we are and that's where we are going. I think the significant improvement of MiuMiu also allows us to reinvest even more in the business as a whole. And that's another positive of being a multi-brand group.

Thank you so much. Best of luck. Thanks.

Thank you, Eduardo. Next question, please.

We are now going to proceed with our next question. The questions come from the line of Antoine Bej from BNP Paribas. Exan, please ask your question.

Yes, good afternoon or good morning. It's Antoine at BNP. I've got two questions. First of all, I'd like to come back to the spectacular course of NUMU. I was in Malaysia in Kuala Lumpur not so long ago, and when I asked the store manager which were the best seller. I think she was specifically mentioning all of them. My question here is a bit with a lot of viral stuff going on on almost all products. How can you control that? We've seen in the past that sometimes you couldn't control that and then face some issue later on. It's a difficult question. You're not wanting to sell sometimes but I think you understand where I'm coming from. The second question more relates to the Asia performance. Not many companies reported Asia up. I think it was 8%. Also, Japan was up 65%. You're quite reluctant to give figures about China, but what's the name of China? positive within that 8%. And the Chinese cluster, including tourists, would it be fair to say that it was maybe at least mid-teens in the second quarter? And of course, if you want to give the figure, that would be even more welcome. Thank you.

So at the end, it's more two comments than two questions. I have taken them a little bit like this. In terms of quality of sales of MiuMiu, I think we are putting the maximum effort to define, to put quotas, to analyze the consumer base. I think it's, I mean, in certain remarks, I would say that in this period, maybe we could have sold a double So it's for sure that the brand is very hot. And on the other side, we need to manage things properly and plan the future properly. So we are doing the best effort from that point of view. In terms of Asia, I would say that in general terms, we as a group, We need to recover market share over there. We have good teams. We have good operations. So it's time that we recover some shares in that part of the world. Always considering what I said at the beginning, that obviously China was tough and has become a little tougher in the past, I would say, 30 days.

Thank you very much. Next question, please.

We are now going to proceed with our next question. The questions come from the line of Thomas Chevet from Citi. Please ask your question.

Good afternoon. Thanks for taking my questions. I have three. The first one on the retail footprint could you perhaps come back on the closures this year and the openings next year? I think you've closed 10 Prada DOFs and four franchise stores in the first half. You're mainly in Europe and the U.S. Can you give us how much was the negative sales contribution of these in closure in the first half? And then can you come back to your plans to resume store openings more aggressively next year, both at EMU and... Prada, how many openings and where? That's my first question, please.

So in terms of closures, I would say it's marginal. In terms of opening, I would say it's marginal, 2024 as a whole. In 2025, we will have something like probably a 10%, 15% on MiuMiu. I would say more 10% than 15%.

You're talking about square footage or just the number of stores?

Yes, yes. Yes, sometimes it's not all in one store, but it's enlarging actual stores or moving from a place to another in a mall or in a department store. With Prada, I would say that next year will be yet marginal lower than 5%. Okay, thank you.

Second question on pricing for the Prada brand. It looks like you've increased prices a few weeks ago by about 3%, 4% in China, Europe, and the U.S., and a little bit higher in Japan, understandably. Is this, Andrea, on top of the low single-digit percent you mentioned earlier, and you talked about this mid-single-digit percent, is this the kind of pure price increase you think of for next year, given the state and the desirability of both of your brands? Thank you.

Low single digit first half, on top of which there's another low single digit, which is the one that you're referring to in the past few weeks. And that brings you to the mid single digit for the full year that we've been talking about. And then for next year, we shall see.

Okay, thank you. And very finally on the OPEX and the OPEX leverage, so advertising and general admin expense due to IT and digital investments were the two cost lines that grew well above sales growth in H1. You said you expect this to moderate in the second half, also anniversary some investments in H2 last year, if I understand well. So with that maybe scenario of improved revenue growth at the product brand, The pricing you've mentioned and that cost moderation, I mean, are you expecting a very, very different shape in terms of OPEX leverage in general, you know, EBIT margin expansion in H2 versus H1? Obviously, consensus is expecting a much different shape than the slight margin expansion you've had in H1. Thank you.

Much different shape. I think it depends on perspectives. So it's hard to say it's a much different shape. I mean, what I would say is what we already said is indeed, I mean, we do expect more visible operating leverage in the second half as what we can control is indeed on the cost side. And for the reasons that I already mentioned, I mean, we do expect operating costs to, the growth in operating costs to moderate. And then, as you know, the end results is also very much a function of the development of the top line. The bigger picture, is the one that we've been talking about for a while, which is priority is growth. Um, we certainly see an opportunity, significant opportunity in the medium and longer term to continue to expand margins. And that's where we want to go to be with, uh, with the best in class. And, uh, and ideally, uh, not to stand in the fact that the priority is growth. We like to, you know, continue on the path of the progressive margin expansion, which, uh, which we've delivered so far.

Thank you, Andrea.

Thank you.

Next question.

We are now going to proceed with our next question. The questions come from the line of Louise Singlehurst from Goldman Sachs. Please ask your question.

Hi, good afternoon to you all. Thank you for taking my questions. Just two follow-ups for me, if I could do, please. Firstly, just on the the cluster performance. You've touched on the US and a little bit on China. But I just wondered, obviously, Europe saw a little bit of an acceleration versus Q1 as well in Q2. And I wondered if you could talk about the Japanese as well. And I didn't know whether I missed it, whether it was an actual number for the Chinese cluster overall, particularly for Prada brand, or a relative shape versus Q1 would be very helpful. And then secondly, my question for Andrea Bonini, if I could do, please. Obviously, you've got the tough job probably having to say no to certain projects, particularly when you've got such high growth at brands like Miu Miu. But in terms of Thomas's question and thinking about that cost shape and the slowdown in G&A in the second half versus the first half, is that just a reflection of the timing of projects and store openings, or is there a little bit more of a grasp on cost on how you're viewing things into the second half than when we spoke to you back at Q1? Thank you.

Okay, hi Luis. Starting with the different clusters. Well, first I'm gonna state in the obvious, if we look at the group performance, very, very good across all clusters, including China. If we just look at Prada, We're also generally satisfied with the performance. We've got overall in the first half the Chinese cluster that is in the mid single digit. As you know, we talked about low double digit in the first quarter and it means that Chinese were flattish for the Prada brand in the second quarter, and that reflects the softer consumer sentiment. There's an element certainly of demand normalization following the years of very strong demand. And there's also the uneven comparison base due to the lockdown reopening dynamics that we know about. North Americans slightly positive and improving versus Q1. European, we're quite impressed. Back in low double-digit rate in Q2. And Japanese is also a very good trend in line with Q1. And on Japanese, to add a little bit of color, I would add that roughly we see a split of 65%. Locals, 35% traveler, and tourists are growing stronger, but locals are holding up extremely well. So overall, I mean, the other comment I would make on the cluster is that if we look at the evolution of sales by nationality since pre-COVID, it is more balanced. because we've got sales to Europeans and Americans as a share of the total that have increased. And so it makes it vis-a-vis Chinese in particular, and that makes it more balanced. On the G&A and the costs, it's not just timing. We discussed that in particular, starting from the second half of of last year, we've been very focused on controlling GNA growth, GNA development, and we've been seeing the results of that work. That is focused primarily to have more resources to invest in consumer-facing initiatives and activities and marketing, and we'll continue along these lines. If we look at the GNA dynamic in the first half, excluding the IT impact that we talked about, excluding a few non-recurring items, the GNA that I'm talking about, I mean, we're already in single digit territory in terms of growth.

That's really helpful. Thank you very much for the color. It's great.

Thank you. Next question.

Thank you. We are now going to proceed with our next question. The questions come from the line of Rogerio Fujimori from Stifel. Please answer your question.

Hi, good afternoon, everyone. I just have one question about how should we think about gross margins in H2, the main puts and takes. You reported a 50-bps FX headwind in H1, and channel mix also helped. So how should we think about H2, especially the FX hedging component and any other major tailwind or headwind we should take into account versus the 80.5 in the second half last year? Thank you.

So I think that all our introduction and conclusion was about this period, how we are in a period where there is changes, turbulence, things that can be controlled up to a certain limit. So I wouldn't answer to your question. we answered or basically we committed saying that we will be vigilant on one side and agile on the other side in order to take home our results and trying to be above market growth. I think that this is the maximum we can say today in terms of general general journey in terms of margins in terms of industrial margins I think this is that what you were referring at I don't see major differences yes there is some negative effects yes there is but I would say that we do not foresee for the end of the year any kind of relevant change on our industrial gross margin.

Thank you. And I was hoping if you could share with us the Chinese onshore versus offshore mix for the Prada brand in Q2.

So I think that we... said it over and over. Chinese in China are a little bit tougher. Chinese abroad are a little bit easier. In general terms, I think Andrea gave a very clear picture, but I would say like that. It's easier for the Chinese to buy abroad, more in Asia than in anywhere else. I think that this is the clean and honest picture of what we are observing today.

Thank you. I was just wondering about the mix, if the mix is 60-40, 65-35, mainland China versus outside mainland China.

So we're going to the details of the details of the details. It's fine. It's 70-30. Thank you very much. Thank you.

Group level, not Prada. Next question, please.

Thank you. We're now going to proceed with the next question. The questions come from the line of Luca Forca from Bernstein. Please ask your question.

Yes. Hello. I have two or three questions, if I may. Some of your peers, for example, Hermès, were reporting a slower demand, especially in the entry price point. of their offer, and this was visible, for example, looking at sales growth in the silk category. I wonder if you're experiencing a similar trend with aspirational consumers being on the back foot and the higher end of the offer trading better. You have a different category mix and a different fashion position. I was wondering what you are experiencing on this front when you look at different price cohorts of your offer.

Hello. First, thank you for telling us that we're competing against Hermès. It's good to have the same kind of customers of Hermès. No, I would say that Today, in general terms, we are not observing an issue in our enterprise. Always keep in mind that most of our competitors increased significantly their enterprises in the past 1, 2, 3, 4, 5 years. Maybe we came from a lower enterprise. Therefore, today, our enterprises are still, I would say, competitive. So I don't think that we suffered in that segment. Hope I was clear.

Absolutely. That was very clear, Andrea. Thank you very much indeed. Maybe a different question about sourcing. There's been a news flow from Italy about subcontractor problems that, again, some of your peers have been experiencing. I'm thinking about Dior and Armani. As I understand, you're only partially upstream integrated like most of the companies in the sector. How have you been implementing any changes, if at all, to make sure that you're sort of perfectly buttoned up as far as controlling subcontractors and sub-subcontractors in the market?

So the first comment I would do is that This kind of news flow is never positive. I think that in general terms, this kind of news are kind of signals to be able to tie better your management, your organization, and your systems. I would like to stress one point here, that the group, the Prada Group, was born as we are seeing it today, 40 to 50 years ago, on three routes, which were brands, the brands, the products, and an industrial soul. From day number one, the industrial soul of Prada Group has been pretty evident. We manage, we own more than 20 factories in Italy. So I think that the industrial characteristic of Prada is pretty strong. So I would answer like this to your question.

Understood. Yes, of course. I think that Patricio Bertelli's proficiency on the manufacturing side is proverbial. Maybe a different question. to basically ask about the same point. I realize that you're now experiencing very robust growth, especially with MiuMiu, and that you have significant efforts underway to grow the top line. Do you have in mind a number when you are including altitude in terms of growth that you would require in order to be sort of keeping SG&A cost inflation at bay? So is there a sort of a growth level looking forward the next two or three years that you think above that level we would be producing operating leverage?

Hi, Luca. It's Andrea Bonini. I wouldn't look at it that way, meaning it's a constant work, the one we do on the OPEX line and of which I'm in the GNA. And we adapt. And when we say we want to be vigilant and reactive and nimble, I mean, it means that the extent to which we are on the front foot within the priority that you know about growth and continuing to gain market share, but the extent to which we remain on the front foot on the marketing spent on the retail initiatives and so on, of course, takes also into consideration the environment and how we perform on the top line and therefore, you know, on debt and also the speed at which we act and we move on GNA and on other investments. has to reflect that. And if we continue to perform as we've been performing, we have to worry a little bit less about slowing down the pace of investments. And should we find ourselves in a situation with a different and lower top line, we would act more aggressively on GNA as well. So I don't look at it in that way, meaning there's a specific number below which we act. And up to that point, I mean, we do less. I mean, it's progressive, if you see what I mean.

I understand. Thank you very much, Andrea.

Thank you. Next question.

Thank you. Our next questions come from the line of Oriana Cardani from Intesa San Paolo. Please ask your question.

Yes, good afternoon. Thank you for taking my question, which is on online business. What is the current weight of online business on retail sales, and how is this business line evolving? Thank you.

Hi, it's Lorenzo speaking. Today penetration is around 8-9%. It depends, it changes a lot from market to market, like in the US it's much higher. But honestly, we don't look anymore like in terms of online penetration. We generally talk about full potential, then it's always a consumer choice according to mix of the category price point and so on so for me for us is more about full potential of online so making sure that the consumer the customer is served in the best ways possible in the stores and the best ways possible online then it is behavior making the choice thank you very much next question thank you

Our next questions come from the line of Chris Wong from EBS. Please ask your question.

Good afternoon. Congratulations on the results. I have two questions. Firstly, on the category performance at group level, I know you shared a bit on the strong traction at ready-to-wear and full-wear in Prada, but also if you can comment on what you're seeing with the jewelry launches you've recently been pushing into. Secondly, on the wholesale growth in Q2, the double-digit growth definitely came stronger than expected. Within this number, are there any impact from shift in delivering timings we should be aware of? Thank you.

In terms of wholesale, it's purely a quarter one overfloating on Q2. So I would say that that is the only reason for that. In terms of category, I think that what we said, again, during the introduction is what we would love to say that is for sure our great strength in ready-to-wear and footwear in Prada is even in a period where the category leather goods in general for the industry is not at its maximum and better shape to keep on attracting consumers to our stores. And on the other side, it is also allowing leather goods to be strong and positive. So I would continue to answer like this.

Thank you.

We have time for one more question or one more set of questions, if there's more than one from one person.

Thank you. We're now going to proceed with our next question from Charles-Louis Scotti from Kepler-Chevreau. Please ask your question.

Yes, good afternoon. I have only one question, please. It seems that you need to step up your investment on MU-MU to support the strong growth, but at the same time you sound confident that the group's OPEC scores will moderate going forward. Is it fair to assume that you are able to leverage the whole setup and infrastructure in place at Prada to support the growth of MiuMiu as well. And if you could also remind us how do you manage the two brands in terms of supply, production, logistics, design, marketing, and what kind of synergies you are able to unlock, this would be very helpful.

Thank you. So, since a couple of years, we are moving in a direction in verticalizing the two brands with some very special recipes. So in terms of brand image, not necessarily always totally vertical. So having said that, more and more and more and more the two brands are acting independently. And I would say that today it's 80% independently. And this is the way forward. In terms of Miu Miu, commenting on profitability and margins, always keep in mind that Prada is the main brand. Therefore, it's taking it all in terms of all those support costs that then we divide between the two brands. But at the end, Prada is taking most of it. So if Miu Miu was independent, what kind of margin would that have is a kind of philosophical question. In terms of investments for the future of Miu Miu, here we are. I think that in 2024, we are already behind the brand fueling what is necessary to have the next level infrastructure. I think that that is what we're working on. I was saying at the beginning that we are working heavily on next spring Himalayas in terms of like for like. because that is where we are going to prove ourselves. So this is what we're doing behind Miu Miu Brand. Thank you very much. I think that this was our last question. So we thank you all and we're always available for any catch up you need. and see you soon. Thank you very much.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.