Brunello Cucinelli S.p.A. (BC) Earnings Call Transcript & Summary

Welcome to the end of the year update of the house of fashion Brunello Cucinelli. The speakers will be Brunello Cucinelli, Executive Chairman and Creative Director, Luca Lisandroni, CEO; Riccardo Stefanelli, CEO, Dario Pipitone, CFO; Moreno Ciarapica, co-CFO Senior and Pietro Arnaboldi, Investor Relations and Corporate Planning Director. [Operator Instructions] Now I'd like to give the floor to Brunello Cucinelli. The floor is yours.

Good evening. Good evening, everyone. So we were talking soccer because there are some matches tonight too. So seriously speaking, we'd like to tell you that we are honored to have you here for this last call of the year. You see this is a practice we started in 2020 during the pandemic. And then honestly speaking, this idea of striking up a contact with you in October 20 and then you see again at the end of March, too much time would elapse. We prefer to organize this end of the year call. We're all here in Solomeo, as is our custom returning from various places in the world. Luca and I particularly have just returned from 3 days in China. And the other day, we were awarded a great award and we will talk about it later. So before listing the topics you would like to discuss, we really would like to thank you from the bottom of our hearts for this wonderful and at least of us, end of the year dinners, where in New York, Luca and Riccardo with their presence, and I joined by a video call Paris. I couldn't go because there was a strike, I went to London and tomorrow night, that's the last one of the series in Milan. And as you know, we met about 100 investors in total, and we find a way to discuss, to meet, to a smile. And sometimes, when we come home, we are no longer a victim or subject to this fear that we usually feel. So -- as I always say to Luca and Riccardo, we should never really miss out on this opportunity. Since there are no data to read out, we would like to conduct this call as follows. So reports of the fourth quarter because we've reached the end basically 10 days are left, then a forecast update of our envisioned closing for this year. This beautiful 2023. We couldn't have expected anything better also with all the surprises. We would like to provide you with quite a lot of visibility -- visible forecast for 2024. We have all the summer orders in-house and we have already come out with the pre-collection autumn/winter 2024. We'd also like to provide you some visibility for 2025, having already in place all the future openings of new stores. Then Luca will basically dwell on the world luxury market today. Then we'd like to mention these awards and also talk about the product taste, creativity, lifestyle, recognizability, craftsmanship. We would like to once again dwell on the great value of manual labor, artificial intelligence, because I'm very fascinated by this and then Riccardo will provide you with the report on sustainability after 2 years of work, and what is for as long as much as pertains to our village and community. And then last but not least, we would like to present you with an outline for the 2024-2030 project, 7 years. We discussed it in the Board meeting. So this morning, we mentioned this during the Board meeting because these Christmas Board meetings are very interesting from the strategy point of view. Now I'll read out this year-end update. Excellent results are expected for 2023. And thanks to the very positive sales. In recent months, we are revising our estimates upwards. Imagining great sales growth for the whole year of between 22% and 23% at current exchange rates. The excellent order intake already completed for the spring/summer 2024 collections and the excellent start to the sales campaign for 2024, well they allow us to envision a solid growth in the region of 10% for 2024. We called this noble international recognitions received in 2023, GQ Designer of the Year awarded to us on December 7 in China. And we like to call -- we like the reason why we received it for distinguishing himself as a trendsetter in fashion and lifestyle, Neiman Marcus Fashion Award in March. This is somehow an Academy Award of fashion, and it was presented to me last March in Paris. In the meantime, we received a Ph.D. in Rome from the La Sapienza University, we didn't include this. Then a prestigious inclusion and we'd like to thank you. So the inclusion of Brunello Cucinelli company in the main index of the Italian stock markets, starting as of December 18, 2023. The significant value of manual and craft labor within our idea of humanistic capitalism and human sustainability, then the forms of sustainability, the contribution to the improvement of our planet's climate and the estimated social return of the major works carried out throughout our history. The important 3-year investment plan for artisanal production, with the expansion of the Solomeo headquarters and the construction of the new men's tailoring factory at Penne in Abruzzo. And this is the Maranello, like Maranello for Ferrari. And then the great project of sustainable and balanced growth maintaining the very same profile of exclusivity of our brand and the very high-quality craftsmanship of our products. My comment was another year that we like to describe as particularly beautiful and noble is drawing to a close. The 2 great international recognitions received this year go to strengthen the idea that the Brunello Cucinelli brand represents a fashion house of absolute exclusive luxury. Amazing Italy business of high craftsmanship with a one-of-a-kind personality in an Italian lifestyle that is in our DNA because it originates from our centuries old culture from an idea of living in harmony between nature and man. We expect to close the year with an increase in sales of between 22% and 23% at current exchange rates exceeding this EUR 1.1 billion. And given the quality of sales, we expect an attractive profit. In addition, taking into account the very good order intake for autumn/winter 2024. We envisage a flattering sales growth for the next year of around 10%. So this last quarter was very robust for us despite the comparison basis that was pretty challenging with 2022 with the wholesale up 53% compared to 2021 and retail up 25%. Of course, all this is the result of the style identity, all the awards and the low and the shortage of products in the -- on the market in general due to production issues. Undoubtedly, you are already familiar with the reasons by now. But we could sum them up as follows: a strong trend of this kind of so-called silent luxury taste. You see, I find this definition somewhat basic because I would rather speak of a return to great craftsmanship, chic products, beautiful luxurious clothing instead of quiet luxury. So if you have a well-cut blazer, it's not really quite luxury, is it? It doesn't really encompass the whole idea of luxury. So it has been a few years that our stores have been turned into kind of meeting places where you can have breakfast and especially for men because men want to get advice. And our sellers are somehow becoming friends with our customers. I always make -- quote the example of the Madison Avenue store in New York. Many people may just turn up to have cappuccino and brioche to have breakfast with us. We are now recognized for our lifestyle, the way we run our business, and this enhances not only the products but also the whole environment. So today, you should view us as a ready-to-wear and lifestyle business. So this was perhaps the reason why we were awarded this prize last week in China. GQ Designer of the Year for Taste and Lifestyle. The awards received in Paris in March which was some sort of Academy Awards of World Fashion basically had the very same reasons, the very same grounds. We held a lot of events this year and they are really great events, where we have between 50 to 100 attendees. And with these people, you can chat. We organized about 100 of them all over the world. And I took part in many of them. But these events really are an important way of disseminating your culture and your message. So you can really learn a lot from the way we speak. So we have been doing this for a couple of years, and we would like to keep on doing it. So much so that you see the incidence is 6.7%, no longer 6%. So we're about to close another important year where we will increase the turnover between 22% and 23% at the current exchange rates with a very, very important EBIT margin and profit which is very significant and relevant for our idea of gracious growth and healthy profits. And you know this down well. I'd like to also underscore that since 2020, we have doubled our turnover, but our growth since the list of our company has been around 13% per year. And since the year 2000 until now, it has been of around 12%. Since our listing in 2012, the stock has grown 10x. And of course, we are very pleased with that. But the we want to convey to you is that of a gracious healthy growth. in the last decade. All the parameters of 2023 are basically in compliance with all that you know. So turnover between 22%, 23% growth at current exchange rates, nice EBIT margins and net profit. Healthy profits and maybe even slightly better, investments between 7% and 8%. Then it might vary slightly. Investments in image, it's usually been 5.4%, 5.3% in the last couple of years. This number has gone up to 6% or 7%. But I -- these are very, very important investments because you need to have new refurbished stores and showrooms, because unless you have new showrooms, then your collection is not displayed properly. Then 26% inventory this year, slightly low. Usually, it is around 28%, 29%. So 26% NFP, not far from parity, but we basically consider as if we carry no debt. Dividends always to be around 50% of profit. So we see this end of the year as a very strong, healthy, solid and balanced one. So we can say to date that our company is in full balance. But in full keeping with the idea of -- the idea of how we want to run the company. I apologize, but the sound is really bad, it's really difficult to hear. So before dwelling on '24, '25, I wanted to thank you, investors and analysts. We have joined the FTSE MIB 40, 36th place, and that honors us. Another important thing, 2023 is the first post-pandemic year of this 5-year plan. It is the 11th 5-year plan 2023-2027 since when we set up our business. So what about 2024. So we see it as a strong year, a healthy year for our fashion house, and we actually want to call it fashion and lifestyle house. We have all orders in the spring/summer '24 in-house with more than excellent results. We started the autumn/winter 2024 sales campaign with excellent results. And I have to say that the season's excellent sellouts also play an important role. So what we are envisioning then for 2024? A sound sales growth of around 10%, slightly better EBIT margin, no longer EBITDA, but rather EBIT in percentage terms, it will be higher. All the very same KPIs and then new store openings, 2, 3 per year. Plus relocations or expansions. That's our usual schedule. 2025, more or less the same as in 2024. Very visible. So healthy sales growth of 10%, healthy EBIT and healthy profit. Now Luca, perhaps you can give us an overview on the markets in general.

With great pleasure. I would like to start from a market analysis. Okay. As I was saying, I would like to devote a few minutes to an initial focus on the main factors, dynamics we have observed during the whole 2023. And then of course, we will go into greater detail and in-depth in understanding and reading our results and performance. We'd like to share with you 3 snapshots that we have pictured in our mind as a memory of the evolution of the markets throughout 2023. The first image, the first snapshot is that of a luxury pyramid that has been elongated out of this act of 2 different forces. So the first is a horizontal force that has been acting on the base of the pyramid and extended it, because of the greater desire and scale of many brands to increase their brand awareness and to adapt their product offerings to suit a more heterogeneous audience. So as this base of the pyramid was extended, it also received an upwards push. So there was a kind of an elevation of buying patents and shopping patents, which rewarded our companies through the key feature for 2023, which is exclusivity.

So we do not want to talk about exclusive luxury too much, though, says Mr. Cucinelli. This might be misleading. We're talking about exclusive luxury in our company because we believe in the quality we provide.

And Mr. Lisandroni is now saying we know that the search for exclusivity has been very strong globally. It has been shared by a lot of different customers in different age groups and nationalities and in different categories in the luxury industry, too. In our eyes, exclusivity today, is more and more sought after and more and more scanty. It's an invisible immaterial element that is likely to have been very fundamental in dictating the performance of individual brands versus some others. And today, we feel there is an even bigger trend towards absolute luxury and a bigger and bigger gap between absolute luxury and all the rest of the market. I was thinking of something this morning, something I said to myself and Riccardo, when speaking of great entrepreneurs words of 20 or 40 years ago when he said, "normally, people don't line too long outside of stores."

Yes, this is a big issue says Mr. Cucinelli, this is something that a great entrepreneur said nearly 40 years ago, and I still think about it.

Now Mr. Lisandroni is speaking again and said, the second big feature we'd like to share with you is that we feel the luxury market has kind of performance that is shared by our regions. So this world in 2023, seems to be going in the same direction in pretty quick and simultaneous manner. We've already talked about the quest for exclusivity pretty much everywhere in the world. But there are some other features that are being shared by all markets, and I'm thinking, for instance, of the importance of ready-to-wear, which is becoming more and more visible. We have discussed this several times. We've seen it last week in China, too. I'm thinking of attention for quality, for the need and the desire to avoid wasting. And also many, many customers seem to be very interested in understanding how products are made, what history, what values it conveys. And last but not least, also the performance of individual brands in all geographies seem to be more and more homogeneous. So because of all those factors, I think it's fair to remember that 2023 was a year when physical retail became even more important. But at the same time, the invisible thread at digital communication, also provided us with the possibility to interact with the world, which is totally interconnected. And the behavior of a digital brand seems to be more and more global these days. So we are now told that 55% to 60% of the people walk into the stores, having seen the images of our products on the websites already. So this is something we need to remember at all times. Then my third and final remark is that customers seem to shift away from products only to embrace a larger content related to our products. They're more interested in what we may call lifestyles. They don't want to purchase individual products. They're more interested in purchasing a whole experience. Brunello was talking about the main events we have organized and attended throughout this year, like we also did in 2022. It's certainly been very demanding for our organization. But at the same time, all those events allowed us to just be on the markets to be close to our customers to understand their sensitivity on some issues to receive their continuous feedback. We nearly completed photo album. It is certainly true. We invested 3% to 4% more than in the past in communication. But actually, this is money well spent because eventually, you have all those Instagrammable pictures, which can be sent over to friends and fans. So physically it was very demanding, but it's been very fruitful. It's been very interesting to meet people globally. It's a form of quiet communication because it's one-on-one communication mainly. It doesn't overexpose the brand. And I have to say this was really, really important in actually helping us to achieve the results we obtained. We didn't really look for visibility. We actually looked for the possibility to spend a nice night, and smile together to help people discover the true nature of our brand. Then each individual picture, it's actually turning out to be like the purchase of a new garment, which is -- this is really important for consumers today. So this is the context. It's a golden year for us, and we're really happy with our results. Also, this year, all of our geographies have produced results that are actually exceeding our earlier expectations. For the end of the year, we expect the geographic mix will be very similar to what we have presented in the first 9 months of the year. And compared to 2022, we are moving in our desired direction. So we are actually having individual continents that contribute similar amounts to our turnover. So if we look at the U.S., the robustness of the U.S. market has helped us get rid of any doubts on the state of health of the American market, especially for the upscale market. We received a very strong demand in large cities in the main doors and stronger market. And the event that has been promoted attacks with the takeover of our store windows. The dinner with the brand's friends in Los Angeles have been very effective in actually drilling down the roots in -- in that market, which is so important for our brand. And it was a good testimony of the affection that surrounds our brand. As to Europe, It's been a full rich year. A round-off year. We as we close 2023, we expect 37% to 38% of our sales to come from Europe, thanks to local customers in particular. The first part of the year was excellent. The summer was excellent and we feel winter is going to be just as good. So the second half is growing and the overall value of revenues will be higher than the first half. As we speak, we have -- we think very beautiful windows at Harrods dedicated to Christmas in white. And we feel these are just speaking of pure lifestyle. And this is actually what we imagine as our lifestyle. Finally Asia, China in particular. Our awareness of the potential, which is progressively coming up there from time to time is increasing. The brand positioning is very clear, very visible. It's fully consistent with the rest of the world. So as Brunello said, we appear to be trendsetters in fashion and lifestyle. So this is my key message for you today. And let me remind you that the day before the awards ceremony at Puyuan again, Brunello had an opportunity to hold the conference on the charm of life and work-life balance. He was speaking in front of top influencers and celebrities from China. So their views, their attention, their sensitivity on these issues made us understand that this world is getting closer and closer to us. Besides China we have visible growth in the Middle East too. Its a pretty young market to us. We just opened in Saudi Arabia. We feel a lot of energy from Korea, loyalty from Japan. So all of this makes us think that the future is rosy and rich. Now sales breakdown by channel. As you know, the fourth quarter is a quarter when normally retail has a higher weight than the previous 3 quarters. However, we imagine that the 72% to 38% retail wholesale mix may see retail gain in a couple of percentage points. But we would like to remind you that the retail sales include about 10% of products sold through concessions. And also, we are particularly satisfied, because even this year, we'll be able to grow double digit in wholesale. So for this we thank all of our multi-brand accounts and clients that are very serious in their connection to us. We want to thank them for the beauty of their locations and their stores that are still a major source of information and for the love and care that they devote to our products even to this day.

Thank you, Luca. So I'll stick for another 6, 7 minutes and then we'll hear from Riccardo, then we'll open the floor to questions. Now the last 2 years have been very special. In 2021, we won the British GQ award. In 2021, we attended G20. This was a major step forward in sustainability. This year, we were given these 2 major awards. All these are particularly important. And all this leads us to support the identity, quality craftsmanship, exclusivity, rarity of the brand and my friend collection is the same pretty much everywhere. So some -- last week in China, we have many things that were produced for the Chinese market only. But personally, I don't agree with this approach. We need to have the same collection with the same taste. Of course, we have different fits, different sizes. We may have different warms for different parts of the market, but it's really important to come up with a single image. So you never imagine we can buy other brands. This is not a possibility. I'm not talking about the supply chain, which is what we did when we acquired Cariaggi together with Chanel. If we do have acquisition opportunities in the supply chain we do go through with them. But we want to manage our company with great respect for those wonderful artists and micro businesses. We want to support them, but we would like these businesses to be run independently, autonomously. So the first theme is the true craftsmanship. But the first thing that true craftsman are concerned about is deliveries. I mean, of course, they are also interested in profit. Of course, profit matters. But we gather our suppliers every Friday in -- we're going to meet them next Friday in a beautiful theater and then we are going to have dinner together to really thank them for everything they did. The factory worker and factory worker is a major theme for us. I had the pleasure to discuss it in the U.S. too. And at the occasion of the award in China, well, we discussed the great value of the fair working hours and another big issue we discussed in China was the connection of young people to work and to their families. And to tell you the truth, as far as, working hours, as we are trying to work on it. And the question of children is always the same everywhere in the world. I mean my granddaughter is so young and she goes out of our home at 7:30 in the morning and comes back at 3 and still has to study. They seem to have no more time to think, to explore their soul. Artificial intelligence is something we work on day in, day out. We love it. We are very curious. Personally, I'm under the impression that in the future, we need more and more people who will think, design and actually make things with their hands. We also discussed this at the Board meeting this morning. So quite possibly, our Craftsman also going to be particularly in demand. Now Riccardo would you please report on sustainability? We have worked in it for 2 years. And do you find information about this in -- on our website in the next days.

Okay. Thank you, Brunello. I would like to start by giving an update on our commitment towards the environment. Let me tell you that we are complying with the emission reduction commitments we made in 2021 as we adhered to the targets we set out -- actually, we have made a commitment to reduce our emission our emissions by 60% by 2028, and we are in line for that goal. So despite the fact that out revenues grew more than we originally expected. The commitment of all of our people and our artisans too, have made sure we could contain the environmental impact of that growth because it grew less than proportionately to our results. But as Brunello said earlier, today, we would like to update you on the findings of study that has been very demanding for us in the last 2 years because we started working out a method to measure all of the great works. We have implemented in the history of our fashion house. So this survey was originally started thanks to your stimulus, your encouragement, throughout the year, throughout roadshows, every time we met we discussed this with you. And many times, you prompted us to question the right metrics for measuring our idea of sustainability. In all possible forms, we may think of spiritual, environmental, economic, cultural, technological and moral sustainability. And many times, some of these pools of sustainability are pretty hard to measure. It's hard to find the right metrics.? But at the end of our study, we decided -- we understood actually, there is a method and one of the most reliable methods to give an adaptive value to everything we do is the so-called social return on investment. Technically, this is defined as a measurement and communication of social, environmental and economic values generated by an organization. And the purpose is that of reviewing and examining in qualitative and quantitative terms, these process by which we can generate social value to the company. So for this, we need to thank Ernst & Young for accompanying us, for supporting us, for suggesting this analysis method and providing us with these values, which I'm trying to list for you here. So as Brunello said earlier, we always divided our great works in 3 major areas. Solomeo, our borough, our territory of Umbria and everything that concerns our international commitments. In all of those areas, we tried to analyze the actual value of the most important values -- activities we completed and everything where we were involved both as managers and as the entrepreneurial family. Let me remind you that maybe 90% of all the great works have been completed through our foundation because we always believe it's the responsibility moral and economic responsibility of the foundation and not of the listed company to enhance the local community it works in. So I try to list them in individual clusters. So in Solomeo, we restored over 50 buildings dating from the 1300s till the 2000s. And in practice, this helped make Solomeo the borough of Cashmere in harmony, as you know it. The artisan school for the arts and crafts is something which we consider to be one of the best feeding elements of our artisan production capacity with a high employability level, actually, 85% of graduates land the job immediately. The project built in the industrial park is another great work. So at the same time, we restored over 700 cubic meters of industrial buildings, and we destroyed to give it back nature, another 400 something cubic meters of industrial sheds that have been destroyed to go back to nature. And last but not least, the planting activities, 220,000 trees in the 200 sectors of our park. So looking at our region of Umbria, we want to recall the restoration of the Etruscan Arch of Perugia. It's very important to not just history of the city, but also to testify to the Etruscan roots the 2,300 years ago. Then with the restoration of the Cathedral and also the theater dating back to the 1800s. And then 2 symbols of the Norcia town, the theater and the tower. As you know, we have always been very strictly tied to this town because of the Benedictine monks -- the Benedictine monks that keep inspiring many of the founding values of our fashion house. And then as far as our international commitments are concerned. First of all, we'd like to record the great relationship we have enjoyed with Malawi, for 15 years, and we support this nonprofit organization whose aim is to improve the health conditions of population of one of the poorest countries in the world. Then the initiative that was set up during the pandemic, by Brunello Cucinelli for humanity. And this is already part of our way of interpreting the longevity of our products. We donated new unsold items to the poor. Then the latest project with the King of England, very high value from the civil and moral point of view, not an economic commitment though, not a high economic commitment. The way we have, we are following a regenerative re-culture project in one of the villages there. And which is one of the regions of the finest Cashmere. And we renewed the commitment for the coming 2 years during the last COP28. So what is the result of this? All of these great works. They have an individual social return and impact on the communities that is measurable according to objective criteria. And we decided to give a weighted average of these investments and the value is EUR 2.1, for each euro invested, EUR 2.1 are the return benefited by the community. As Brunello was saying in the coming years, we will publish the results of this report website. And both myself, Luca and Pietro are, of course, available for you. Should you have any questions?

Thank you, Riccardo. Great explanation. Just 1 minute. So this morning's Board meeting, we discussed how we would like our company to look like in 2030. We want nothing to change. In the valley we have a land for the next 100 years. We want still be exclusive rare artisans. We see then in as far as economic terms are concerned, we'd like to double our turnover with a balanced profit. We'd like to work to set up -- sorry, to train new craftsman for the 2030, 2040 decades because honestly speaking until then, we think that we are already all set. Then we are expanding our factory in Solomeo, and also there is a production facility in Penne, Abruzzo for men's clothing. To conclude, this is a very positive momentum for the brand. And hopefully, God will help us. Personally speaking, I am very pleased with Luca, Riccardo, Moreno and Dario, very, very happy with them, but especially I am really pleased with your moral responsibility. My time, well, 90% of it is devoted to product together with the 66 style and lifestyle people. So I don't want to hide from you for me that I would really -- I want to be considered a co-senior in style. Thank you very much to you all, you analysts, investors, members of the press. But a really big thank you also to our workers and laborers who with their skilled hands enable us to be where, who and what we are. We want them to be sure that we look at you with a very special eye, which is the eye of the soul. So thank you very much. I apologize for being so long, but we wanted to tackle many topics. I expect especially sustainability and market.

[Operator Instructions] First question from Andrea Randone, Intermonte.

I have 3 questions. Short ones. The first one is to do with the shortage of exclusive products. You already commented on this. And on this opportunity. So I'd like to know whether you still consider this shortage an opportunity for you in 2024. Secondly, curiosity. So since from the outside, we see you hiring new people for the Penne factory. To what extent is it easier today, thanks to your reputation to set up a new initiative like this compared to a few years ago. I'd like you to comment on this. And thirdly, the idea of the duration -- durability of your garments which you mentioned quite often. And you also talked about darning and mending. Is this out of the initiative of customers? Or do you think you could develop this a bit more in terms of communication?

So the last question -- thank you, because we can tell you that our garments are designed with the precise aim of lasting over time. In -- when you define quality, quality means durability. It is a must. Also because over 50% of our production process happens by hand. And this is not -- can be replaced by any machine. So the product is designed with the idea of lasting over time. This is something that perhaps we have not communicated enough, but there is a repair service that looks after this durability. And this is always there -- has always been there because we have always believed that products must be handed over to future generations. Well, customers know, although we did not communicate it, you basically send us your garments and we recondition it. As to discuss the shortage of products. You see in the last 2 years, the production facilities were in difficulty. And when you have fired people in the production is much more difficult to hire them back. So -- and the new factory, it is like opening a car factory in Maranello. We started with 80 people. We have 1,200 applications. The only issue is space, but we believe that it can be definitely a very serious business for men's outerwear. And in Umbria, we specialize in shirts, knitwear and trousers. But men's jackets and blazers, well, it's like Naples. Naples has more limited production and these are the locations for men's suits, [indiscernible] men suits. Thank you.

Next question from Flavio Cereda.

Since you are all there, Riccardo, Luca, Dario, Moreno. First of all, best wishes for the festive season. What a year after 2022, once again a revision upwards of your KPIs. Just two issues I'd like to mention. China, and where luxury is going. China, you've just been there. So what's your -- what was your impression there because you haven't been there for quite a while, your general impression on China? And then also on specifically to your business? Because in the past, we -- you have shown that you have many strengths like the no logo and your style. So I'd like to know how this is perceived in China? Then on luxury in general. The distinction, very often -- that you very often make between an exclusive product and a desirable one, this dichotomy that keeps happening with an emphasis on the rarity, quality, supply chain. So perhaps this difference between true luxury, absolute luxury and the rest is becoming more and more striking. What's your opinion on this?

Very interesting. We would have never imagined to receive an award. You see 12% of our revenues only is in China, and we are awarded such a fantastic prize. You see this makes us understand a lot of things. But what I'm very pleased with is that due both during the meeting and the grounds of the prize. The underlying topic exclusivity rarity, uniqueness of the products and where do you make your products? How much do your employees make? So we have gone back -- we have come back very fascinated by this. I think that for the coming 50 years, China will really yield great results, but there will be a clear-cut distinction. So the only thing I saw is that everybody is always online. So I don't know how many million people were online during the ceremony, the award ceremony. So they know everything. They know if your product is massified. The only thing I noticed there is that there are products that are designed specifically for the Chinese taste. And this is something that we should never do. The shop window we have in Shanghai is the same as we have in other cities worldwide. So we make a distinction between true identity of the product and not. But there is a clear distinction between true luxury, absolute luxury and you see average product. This is very strongly perceived, but this is also the way we want to see it. Because you can't buy a suit for $10,000. And then with the very same brand, you can't have a bracelet for $96. This is my take. And during that great dinner with the Chanel managers, we discussed precisely this topic. We believe in true luxury. You see we all have an iPhone, but we can't really say that it is exclusive. It is desirable, but we can't say that it is exclusive. So I felt this has lots of attention to these topics in this market, too.

Yes, very clear. Thank you.

So we had this event. There were so many young attendees. But one thing I want to say is the following: so 2, 3 years ago, young people were wearing specific brands, and now they've changed completely. So I don't believe the very young consumers will use the [indiscernible] brand for more than a couple of years. And a very famous man told me, if you see a queue outside your store, you should be worried. Out of our 400,000 customers this year, well, I would prefer them to buy just a couple of items per year so that they do not get tired of our brand. For example, when I was in Los Angeles, there was a very famous brand right on the sugar bag that I had with my coffee. And this is something I cannot conceive. It could be [indiscernible] codes by [indiscernible] cost $27,000. And I don't think that you should ever be able to buy a [indiscernible] bracelet for $25, then that would mean sales, but image would mean -- it would go down the drain. We truly want to defend what we believe in.

Next question by Oriana Cardani, Intesa Sanpaolo.

I have two questions. About 2024, where do you see more growth? What products, categories or geographies. Secondly, I'd like to go back to China. You were presented with this prestigious prize. In the past, the awards that you received actually contributed to the growth in sales. Do you expect this latest recognition in China might support the brand for next year? And what will be the percentage of sales in China in the coming 2 years?

Well, the award was certainly this award like the Neiman Marcus Award gave a major impact to our sales. This is for sure. And we see growth coming from men's and women's. So we don't want to add any more products. We have eyewear, fragrances, [indiscernible] wear, as you know. So we need to get the collections right, but we see a great potential in what we have already. Then, of course, we see potential in China. If we sell 12.6%, 12.8% today, when we may easily sell 16% or 18% in 3 years' time. So we told you we are supposed to sell about 36% in the US, 37% in Europe, the rest in Asia, but I can't help thinking that China is going to grow in the next years. The ideal breakdown -- geographical breakdown would be 33% each, but we still have a great potential in China. I've seen major celebrities, actors and some were really interested in fashion, in the exclusivity, analysis and quality of the product. This is for sure. And also, there is a big issue. They want to start dressing like the Europeans. Of course, they have accessories and everything, but you know Oriana, as soon as they land in Milan or London, they want to be dressed just like Europeans. So there were people who were dressed in a way that's very pleasurable for us. It's really conducive to what we do. So we see a lot of potential for growth in the next years, but we want to keep true to the brand image for sure. But as we said at the Board meeting this morning, as Luca said, we did some forecast last year in December, and many brands did. And I think everything is really increasing compared to what we originally expected. So we start -- we would do 22%, 23% instead of 12%, but many others had budgeted something that is going to be exceeded. So Oriana, I'm talking about the November, December budget.

Next question from Chris Huang, please.

This is Chris Huang from UBS. First of all, congratulations on the GQ Award and deposit update today. I have 3 questions, please. Firstly, on your sales guidance for this year, can you just maybe comment a little bit more on what is driving the upgrade for 2023? We know that it's been 2 months since your last Q3 reporting. So maybe can you comment on where are you seeing an acceleration versus what you previously expected? Secondly, on wholesale, specifically for 2024, you mentioned earlier, excellent order intake for spring/summer and then also very excellent for fall/winter 2024. Can you provide a bit of color on how strong is the order book? Maybe is it growing at double digit, high single digit? Any color on that would be super helpful. And my third question is on the European and American consumers. I know you commented briefly earlier as well, but can you just provide some thoughts on those consumers. I'm asking about this because most of your peers in the sector have been saying they are seeing some slowdown of these nationalities, but it seems to me that you are kind of not observing the same slowing trends. So I would be interested to hear your thoughts on those European, American consumers.

Luca why don't you speak about that first?

Yes, Chris, I can confirm we see no slowdown in the U.S. But once again, let me go back to what you were saying earlier. So we see a big gap between the upscale part of the market and all the rest of the market. So the top end of luxury is performing much, much better than the rest. So today, for the upscale part of the market, we see American demand is very robust. It's well distributed geographically throughout the U.S. And it has some structural features that let us think about very good expectations for our performance next year.

So Chris, for the order intake of 2024, we have already said that we have completed the orders for spring/summer. The fall/winter orders are doing very well, too. So this is why we find it encouraging. And so for this year, we still have 10 days to go. So we raised our guidance because we've experienced the last 2.5 months were really, really interesting. And so we are only left with like 10 more days. So there's not much room for making mistakes in our estimates. So because of this, we decided to increase our estimates because we didn't want to get to the end of the year with results that were different from what you may imagine. So you know we always like to tell you what we think, but we don't want to take you by surprise because taking people by surprise is not necessarily something we like. So we -- of course, we had a beautiful quarter. We still have 10 days to go, and so we can easily imagine that we are going to follow along the very good performance we expect. So it's a very accurate estimate, Chris.

The next question is from Antoine Belge of BNP.

It's Antoine Belge at BNP Exane. I've got 3 questions. First of all, with regards to the revised guidance and what it means for Q4. So last year, you had a very strong increase in wholesale. So is it fair to say that currently whole sale would be more growing like a mid-single-digit pace, whilst retail would be quite substantially above 20% versus the quarter before. So have you seen maybe more than this mid-single-digit increase in wholesale, maybe because I don't know there have been advanced deliveries or anything like that? Then with regards to the margins, usually, when a company increased the top line guidance, they could also increase the margin guidance. The previous one was more that H2 would more than would be roughly in line with H1, but it could be have an EBIT margin that would be closer to 17%, 1 7 rather than 16%. And finally, so when you look at this look for the year next year, especially with regards to tourism. I mean do you expect that we could see a bit more Chinese coming back to Europe. Thank you very much.

Okay. So as to tourists from China back to Europe, well, in these last 2 or 3 years, they have shopped so much back in China that we were -- we would be very happy to continue like this. But apparently, everything is going to open again. And so they are very positive and welcoming them back to Europe as tourists. As far as margins are concerned, we imagine there will an improvement from 16% upwards. So we can easily imagine that to happen. Then for the guidelines on the fourth quarter, Luca will answer.

Yes. For the fourth quarter guidance, we expect a double-digit growth. And the channel breakdown makes us think that considering that we grew by more than 50% in wholesale, as Brunello said, we should imagine we'll have a positive quarter with a mid single digit growth. As far as retail is concerned, retail is doing very, very well in all geographies. And so we confirm we expect a lovely double-digit growth, a strong robust growth.

Okay. But just on the margin, no -- and that's more...

Next question from Alberto D'Agnano, Goldman Sachs.

I just have two if possible. The first one would be, could you please comment on the resilience from the higher spending cohort? Have you seen any increase in the proportion this year versus last year have you seen any differences between geographies? And then my second question, is there anything that you have seen recently that makes you feel different about 2024, especially with regards to China, for example, or to the U.S. market. I know it's not an easy question to answer, but I would love to have your thoughts on your expectations and outlook for next year.

Okay. As to the high standards, well, we are seeing more and more that they are really important for us. But we are talking about just 400,000 customers globally. So apparently, 100,000 new customers get to know us every year. So hopefully, in the future will be less known than today because we still want to be exclusive, but we want to talk to these people more and more. So we want beautiful things to reach our customers only. That's the most important thing. And as to the expectations for China and the U.S. as usual, for 2024, and 2025 as well. We expect to have well-balanced growth across all regions. So we expect Asia and China, in particular, to grow more quickly than the rest of the world for us. But this is not a reason for us to consider the European or U.S. market as mature. As to the connections between the 2 countries. This of course, is outside of our responsibilities, but we do believe in a world which is going to become more and more united. And to give a common interpretation and the behavior of different brands.

Next question from Paola Carboni of Equita.

I have 3 questions. So the first would be on the 10% growth to be expected for 2024. I would like to understand what the underlying assumptions are for wholesale, if you can share it. I think you have better visibility than we have. And actually, I'm curious to know about this continuous surprise in 2023, the original guidance was about 20%. And I would like to understand whether the ongoing changes due to wholesale or retail only? Or what kind of room for growth we can expect in 2024 to accommodate stronger and more robust demand than the 10% increase we seem to expect today. Should I ask you -- my other questions now or later?

No, it's good.

Okay. So my second question is once again on tourism. In the last 2 quarters, the strength of tourism in Europe has been driven mainly by Americans and Middle Eastern tourists. So these are the nationalities where you have a very strong level of penetration. So I was wondering whether the breakdown of your sales in Europe has changed in terms of exposure to pre-pandemic tourist flows. So can you give us an update on your exposure to tourism in sales through Europe? Finally, the press release and the introduction mentioned investments in Penne and the extension of Solomeo, so over the short term, do you think this may bring about an increase of the 7% to 8% CapEx on turnover ratios? And what kind of time line do you have in mind for these investments?

Well, let me answer you, Paola, on investments straight away. This is not going to make major changes because we are likely to have 7.2% this year. We thought it would be 8%. So that 0.8% is likely to be invested in January next year. So there is no big major change in terms of investments. As far as tourism is concerned, Luca will help me here. But even the tourism picks up again, they are likely to shop less in their home countries. So there's a lot of attention on that. So the only big difference we would like to see is we need to keep a very clear distinction between absolute luxury and whatever is not exclusive, regardless of geographies. I mean I've seen it recently in China, there is a lot of attention for things that are rare, unique, well done, well executed. And then of course, we are starting from a slightly lower sales in some geographies. But Paola, once again, we cannot really imagine we sell coats for a few thousand euros and then sell bracelets for a few dozen euros, we never do this. And so Paola for next year, the same we have same project as last year. Last year, we expected growth to be around 12%. And because of quiet luxury, because of the awards and everything, we actually exceeded our expectations. We'd be very happy to have this beautiful result in terms of growing revenues and EBIT next year, too. So we imagine that in 2024, EBIT might be slightly better as a proportion.

So as tourism is concerned, I -- well, if we have more tourists, so it's not necessarily said the same people are going to shop one day they're back home. So we've seen it in the last few years. We all had much bigger results in local markets because fewer tourists were traveling. Well, something which was really pleasant for us in the last few years is to see a very strong connection between our clients and their local boutiques. There was a strong personal connection to individual sales associates too in many, many cases. So definitely, when we look at the whole world, Europe receives a lot of demand from the U.S. and China. In the U.S., nothing much is expected to change versus this year. And for next year it's likely that more tourists will travel to Europe or clients will come to Europe. But it's quite unlikely we'll see this big shift of demand from China to Europe, we had before pandemic. And so Paola, you know most of our customers have homes pretty much everywhere globally. So I don't think this would be too much of an impact on that. The really important thing is being exclusive, doing beautiful collections. So if we have beautiful exclusive products, that's the main issue, the main thing for us. I keep insisting on this. So that's my thinking, that's my idea.

No more questions are expected.

Okay. So thank you very much for this conference call just before Christmas. So let me use this opportunity to wish you a merry, merry Christmas. Don't be misled. We want to talk to you about exclusive luxury. That's what really matters to us. This is our testimony. Our future projects are going to be in the exclusive luxury space. Don't mix it up with anything else. We don't really want to mislead you in any way. So all the best for Christmas. I'll see many of you next -- well, tomorrow in Milan and whatever question, just give us a call, we'll be happy to answer you. And remember our products to be beautiful, modern, contemporary. Thank you. All the best, Merry Christmas.

The conference is now finished. You can disconnect. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]