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

Good afternoon, and welcome to the conference, 9 months revenues of Casa di Moda Brunello Cucinelli. [Operator Instructions] The participants to this conference call will be Mr. Brunello Cucinelli, Executive Chairman and Creative Director; Luca Lisandroni, CEO; Dario Pipitone, CFO; Moreno Ciarapica, co-CFO Senior; Pietro Arnaboldi, Investor Relations and Corporate Planning Director. Let me now yield the floor to Mr. Brunello Cucinelli, who will begin today's conference.

Thank you. Thank you all very much. Good evening. We now have a different company which is actually organized in this conference call, Borsa Italiana. So it will be their fault if something goes wrong. So welcome, as usual, dear analysts, investors, and reporters. I always say so, you know I love these conference calls. Everybody is here with the only exception of Riccardo, who just went to San Francisco and Silicon Valley 3 days ago to discuss our website, our new Callimachus. I will report about that, too. But we're really, really happy for this new website. Luca is here with me. He just came back from Japan and Korea a couple of days ago, so he will report on that. As to myself, I will leave on Sunday and spend 4 days in China, then stay 2 days at home and then 4 days in New York City, where we'll receive an important award. And I'll be back for 2 days and then spend 3 days in the Middle East. And then in early December, we'll meet again in the U.S. I'm laughing because I'm thinking of managing jet lag. But actually, as I always tell you and my people and everybody, when you travel, be open, be open to innovation, change and get exchanges. And when you realize you don't want to travel anymore, I just leave this business because I think that would be the time to change. So I would like to arrange the call as follows. I will read the data of the first 9 months, then we'll see how we imagine the year as we close it. We're still going a couple of months. And Luca will give you a good outlook on the market. And then we will tell you about big analysis that we have prepared on the current moment. And since -- as we do, like we do every year, tomorrow, we're going to meet at the theater for this called Concilio de Trento, which is not 100 but 120 now, so we'll gather to take stock of the situation. So we did prepare a beautiful analysis and so very briefly, I will report to you about it. I think it's really interesting. And then we will present the plan for 2025, '26, '27, and we'll explain that at the shareholder meeting or general meeting actually we have in December with our employees. Every 3 months, as you may know, we organized a general meeting. Actually, it's just me talking but we still call it a general meeting. So let me read the data to you. Unfortunately, it's printed in a very small type font. I hope I can read it perfectly. So revenues stand at EUR 920.2 million with a beautiful growth, 12.4% at current exchange rates and 12.7% at constant exchange rates. We see these results as excellent and well balanced in the Western markets where Americas are up 17.6%, Europe is up 8%, but we are performing well in the Eastern markets, too with Asia which is up 12.2%. The increase of revenues in both channels with a growth of 13.3% in retail and 11% in wholesale. And actually, we start calling it multibrand. We prefer this definition rather than wholesale. The quality of the results we have achieved in the first 9 months of the year. And this is important, the really good performance of sales in the men and women collection for fall/winter '24 all allow us to fully confirm our budget to grow revenues by about 10% with a healthy and well-balanced profit for the whole of 2024. Just a side note here. We are under the impression that our brand is going through a beautiful time in terms of its style, exclusivity, and arts and skills. And in particular, we are very happy about the way we care for our much beloved clients, and we try to transfer to them our idea of a way of working according to measure in 2 respects of human beings. So we'll discuss this later, too. We do see great opportunities for the time ahead. All of this allows us to look ahead at the future with a lot of trust for the plan period of 2024, '25 and '26, where we imagine we can grow our revenues by about 10%. So we'll get back to this. On September 30, we held at the Borsa di Milano what we call the Cena della Gratitudine, the Dinner of Gratitude, a dinner which was dedicated to all of those who have trusted us and a company does ever since we went public in 2012. Analysts, investors, bankers, journalists, industrialists, be them listed or not, to convey to them our idea of how important it is for us to be listed. We are very, very happy with gone public. And we want to transfer this idea to the other entrepreneurs, beautiful contemporary enterprises. There were at least 30 beautiful such companies. And actually, we have strengthened our belief with this well-known expression, which is please do go public but please rely on a healthy and well-balanced growth project, both in terms of revenues and profits. So if you do this, you'll work in a better spirit. So this was my comment. We're particularly pleased with the highly positive momentum our brand is currently enjoying from all perspectives. We've always sought to build an authentic relationship with our esteemed clients, one that allows us to enhance and deepen the special connection that binds us, including through what we like to call artisan events, and we'll discuss them later. So we can clearly feel the genuine trust our clients place in our work. The outstanding results from the first 9 months of the year, the excellent sales of the fall/winter 2024 collections, and you know that this is just the beginning of these collections. We need to see whether people like them or not. And if people don't like them, there's not much we can do at this stage, but people are appreciating them a lot. So this and our ongoing commitment to garments of the highest craftmanship allow us to confidently maintain our revenue growth forecast of approximately 10% for 2024. We see significant opportunities in the exclusive true luxury markets for our brands as well, driven by the appreciation for the style, exclusivity, and craftsmanship embedded by our collections. With the substantial orders already placed for the men's and women's spring/summer 2025 sales campaign, as we told you already, we can reaffirm our plans for healthy, sustainable growth, projecting a revenue increase of around 10% for both 2025 and 2026. So this is our starting point, the idea of the end of '24. So we'll be very concise today so we'll have time for a nice open chat. So the end of 2024, the last quarter was very, very good, just like the other 9 months in the year actually. Also in view of the big growth we experienced in 2023 because actually, in the last 6 months of last year, we had a 20% increase. With an amount of new openings, there are pretty much normal, meaning 3 new stores open in every year and 4, 5 extensions per year. Today, we have a bit more than 2 months till the end of the year, so we are very confident in the continuation of the trend in sales. And we are confident we'll close the year with revenue increases of about 10% and EBIT margins slightly improving versus last year. If it were true, which we certainly hope it will, this will be a great year. Now in the next 3 minutes, we'll try to share with you some info about the survey, the study we did it. We did it in-house, and we are going to discuss it with our people at the meeting tomorrow. But before we do it, I would like to give you a general comment about our observations on this time for luxury. I'd like to convey to you our basic idea on these beautiful companies in our world in our industry. Now in all frankness, sometimes I hear people say that luxury is in trouble and so on and so forth. There are such important companies with lovely brands. We were discussing this morning, too. So there are huge companies in terms of revenues, profit, assets, and market cap. They have a world-class image. They are undeniably robust and solid. So after a time, including pandemics from 2019 to 2023, virtually everybody has doubled their sales and market cap. And the yearly profit is actually increasing by 30% to 40% in the last 4 years. So I don't really believe we can say these companies are in trouble just because for 1 year, growth was virtually flat. I'll be very frank with you. So as my other friends from the industrial organizations normally says, what should remaining 90% of companies do and say if this were being in trouble. So of course, there will always be -- there have always been actually in the 4 to 5 years I've been doing this business, there will always be companies that go through some rough patch. But this is the passing of things, and I've always seen it happening in my story. This is how it works. But basically, we have a lot of beautiful companies. So I'm sure you understand we believe that these are very robust companies. They are charming companies and the whole world is looking at them. So we can close by saying that we're going towards a time of very good rebalancing, a wonderful rebalancing, what I would call tempus novum. So there's this beautiful Greek expression, [Foreign Language]. We are going towards a time of balancing, which is beautiful and good and fully balanced. So Luca, this is actually what we think of our lovely companies around the world today. This is what we think about our data for 2024. Now Luca will give us a general outlook and then we will talk about this beautiful analysis, which is actually going to spur our discussions today.

Thank you, and good evening, everyone, from my side too. So in my contribution today, first thing first, I'd like to provide some brief numbers on the 9 months' results and what we expect for the end of the year. And at the same time, I'd like to share more quality-oriented remarks on the market situation. Brunello says please do not speed up because we are -- you are being translated. So the target, the aim is always the same. So first of all, we want to give you as much visibility as possible, visibility in terms of our plans, our targets. And at the same time, we also want to share 2 or 3 arguments and that are really the reasons underlying our great trust and confidence. So let's start from results. So we can say that today, we are precisely at the situation where we were wishing for that we wish we would be in the past. So in the first 9 months, so what do we see there? And great growth in the company as serene. We would like to call it a nearly natural growth in the company, definitely not stretched with the very same number of openings that have always featured in our retail growth. And it is a growth that is happening that is driven gradually. And we are very happy with this gradual growth. So, so far, we have been able to really follow on the tracks that we set right at the beginning of the year, at the end of the first quarter. So the idea was to have the first 3 quarters very similar to each other in absolute value. And that actually happened, all quarters are around EUR 300 million revenues, well perhaps slightly more in the last from Brunello comments. And then this basically provided robustness to our final view of a 10% growth at the end of the year. Then if we take a look at the 12.4% growth in the sales at the end of September, this in absolute values means EUR 100 million revenues. So we are particularly pleased with this because, first of all, this drives us closer to our target for the full year. But we are very pleased also with the way this growth happened. Because if we break it down by geography, you will see that EUR 50 million came from North America, and the remaining EUR 50 million were broken down between Asia and Europe, EUR 25 million and EUR 25 million. So 2 things here. The first thing first, we really like that we are enjoying a well-distributed and healthy growth. And then there is also -- we believe that no job in the world is mature and this is our conviction. The third -- in the third quarter, growth was 9.2%. Growth in retail was 10.5%. And across all regions, China included, contributed very positive results. And in our third quarter 2023, we grew by nearly 22%, so last year. So the last comment on the first 9 months results concerns the synergy between retail and wholesale. We are fully convinced that it is very important to be close to our customers. And because these customers, they have a great relationship with the people staffing the stores, and we consider this to be extremely important nowadays. Fourth quarter and end of the year, we expect a fourth quarter still underscoring growth in absolute values, slightly higher than the first 3 because this is our usual seasonality, yes, of course, because of cashmere in winter in the winter season. In percentage terms, we expect a slightly milder growth compared to the first 3 quarters. But once again, you should bear in mind that in the fourth quarter, we grew by 60% with a retail that was particularly buoyant, up 22% last year. Then in terms of geography and channel mix, well, retail is always great because you see the wholesale results are more half year results. So in terms of geography, we believe that today's figure, 37%, North America; 37%, Europe; Asia, 26%, this is very close to our expectations for the end of the year. Then in terms of channel, we expect for the full year a result that is very similar to last year. That was 65% retail and 35% wholesale. And we really encourage you to read it as monobrand and multibrand, which is 55% and 45%, respectively. So what's the outcome of all this? A very positive feeling, the fact that we are solidly present domestically across all markets. And also, we enjoy a great relationship with all the multiple customers, also thanks to the artisan events that we organized all over the world. Let's take a look at the scenario. There is one unquestionable fact. There is a decreased traffic in the large malls, especially in China. But it is a contingent situation for us, and we have 2 remarks concerning this. A few days ago, Pietro shared with the team a sector-related research highlighting that if the growth of the industry is 100% between 2019 and 2023, and we are talking about years featuring buoyant growth, the contribution of the Chinese customer was only 10%. Over 50% of growth was contributed by American/European customers, and 25% is Middle East and South Korean. This is to say that we do not believe that the fortune of our industry does not depend on the speed at which China grows. Of course, this does not mean that we don't believe in China, which we believe in China very much. We are very much charmed by its culture. And we are fully convinced that the growth in China is a huge opportunity, not just for us but for the whole of mankind. But if it is true that in the last period, China grew slightly less than expected, it is also true that many other countries, and I'm thinking of Thailand, Vietnam, Indonesia, Saudi Arabia, well, Mexico, they are accelerating. They are coming closer and closer to the luxury world at a much higher speed than what we expected. And we are fully convinced that these countries will [indiscernible] or jewelry. So this means that well-off, wealthy people are more willing to spend. So on the one hand, there is a reduced shrinking footfall. But at the same time, there is a lot of disposable income. And the 3 key words are trust, ability to engage, and authenticity, 3 watch words that have always driven our idea of entertaining a great relationship with our customers, the mood inside our stores. That's why we started building our Casa Cucinelli across the world. And we believe that we were particularly rewarded by the trends in the market. So we keep looking ahead with confidence and we see great opportunities ahead for us and the exclusive luxury.

Well done, Luca. Brunello congratulates Luca. So a couple of words on the major events. We organized one mid-September here in Solomeo, where we invited 200 major multibrands perfume and fragrances worldwide. We officially presented and showcased the second collection of our fragrances with excellent results. And there, we had a chance to realize the value of the multibrands. Then it's really true dialogue. We already told you about the Dinner of Gratitude, September 30, particularly great. Many companies are there that could go public, but together, we need to be brave enough to convey less fear. You see we should not be frightened by going public. Then a couple of words on what Riccardo told me over the phone about Callimachus, our project and our website. So they met all the top management of the Silicon Valley starting from Salesforce. And I have to say we are very pleased with our business with them. And it seems that we have done something important. We have collected extremely positive feedback. And we had a confirmation that the ideas on which Callimachus rests, which platform runs, which is building pageless websites going beyond the usual look, looking, chasing the desire of users and designing what users see real-time is a true novelty. So our website, brunellocucinelli.ai, thanks to these features, was considered pretty special by everybody, specifically for the way in which it presents content and guides and leads our users to the discovery of our philosophy. Well, everybody was agreed in saying that they never saw anything similar. So we deal in ready-to-wear mainly but we understood really what kind of potential lies in this website. Visitors spend more time surfing. And in a few months, perhaps you can join us online. You have an important event ahead, and you can ask for tips on what to wear for your major event. So now for 5 or 6 minutes, I'd like to walk you through this great deep dive or research we carried out about fashion. So what is luxury? In the Italian dictionary, luxury is a refined way of living. So it means craftsmanship, quality, exclusivity. And here, I'd like to point out something important. Very often, I do happen to read desirability. You see, to desire something does not mean that it is per se luxury to its own right. It is something that is not easy to find that is not overly distributed, is not commoditized and also, you can't possibly buy a Cucinelli suit for $7,000, and at the same time, a bracelet for $100. They don't go together. We organized about 50 artisan events. I attended 20 of them. You see there's usually between 80 and 120 guests and you speak to everybody. And usually, it is well-off, wealthy people. So you talk to each and every single one of them. And we think that we do have the brand of trust. You see, I've always maintained since when I was very young that there is always a lot of trust in luxury because luxury means dream. It means exclusivity. Well, of course, this is life. Some brands are losing out in terms of customer trust. But this is the result of your corporate policies. You see a very important topic that I want to broach here is how customers are welcomed in the stores. You see I stepped into the Milan store. So I think that the lady there did not recognize me, and she said, What would you like? And I said, well, would you want me to -- of course, I want to buy something. And she said, "Well, you have to wait for 10 minutes. And I said, Well, but there's no one here. Well, so of course, this was another store by another brand and I was not treated well, and I will never go back to that kind of store. You see our salespeople, they are not hassling our customers because 80% of their wages is fixed, it's not variable. So they are not driven to steal customers mutually. So I have a very important Indian friend who was in the U.K. the other day and he sends me a text. And he say, I'm enjoying a great macchiato coffee in your store. He did not mention anything about shopping or buying any suits. He just said that he was enjoying coffee. So I believe that we need to rediscover some kind of love because some customers have become disenchanted somehow. And if you fall out of love with the brand, you will stop shopping, buying that brand because in that store where I was treated poorly, I will never step into the store again. Because I don't know if you agree with that, but what you don't like, others don't like either. And this is something that also is part of our 10 golden rules for the company to survive to centuries. Greed, greed should never go -- appear in your company. If you have a greedy company, greedy business, you would not survive for long. So I talked about this. So what about product? We had a great meeting today on the collection. And you see the thing is, generally speaking, there are too many evergreen items. And you know who on the other hand, talks about products a lot, multibrand, the multibrand team, they are always able to give you a feedback on your collection, whether it's too basic, whether it's too outdated. In the last Fashion Week in Milan, which was charming because we were talking about this, we had guests from all over the world, American, Far East, Brazil. It was truly successful. But you can see that everybody is in the lookout for novelty in terms of brands, in terms of taste. They're always seeking new things. And I very often repeat that marketing should never have a say in style because it could help but it's also risky because it's very easy to always have an evergreen. But as you know, we never have any evergreen items because a blazer can be 75 centimeters long 1 season and 76 the year after and it's not an evergreen. Now going back to the Treccani dictionary or encyclopedia, listen to what it wrote about fashion. So a fashion that has become trendy quickly, a fashion that will be out of fashion quickly. It is the fashion of the time, of the moment. These are already gone. So unless you are contemporary, if your brand is overexposed, that's the risk you run, that you just become a trend. So we can say that everything goes by. And actually, this happens to brands, too. And then there is yet another important topic, prices. You see we do -- we view it as the most important, most relevant one. And as you know, we have pretty high prices. What I say is that multibrands are really good at analyzing prices. And this year I would say that customers have started complaining about high prices, which means that there's a new awareness around. I said it last time. I went to a restaurant and I was presented with a huge bill. You see, the cigar that I smok used to cost EUR 30 and now it's EUR 70. So today, for the first time, final end customers, in our view, they feel somehow conned, cheated because you see they say they do have this desire to wear special garments every day. But they need to be treated accordingly. You see we are talking about wealthy customers here. And I was saying to my daughter the other day, prices have skyrocketed. And next time, instead of staying at that hotel, I will sleep in my car because prices have really gone through the roof. So we really need to redress the balance. So one last thing I want to say, in 2019, our friend Louis Ferla came to visit a former CEO of Vacheron Constantin and currently, Cartier. So he came here and Luca, Riccardo, we are always -- we have always been fascinated by Vacheron Constantin because they will be celebrating 270 years of heritage with just a few units manufactured every year. And he said, we can't over-raise prices because then you can't go backwards. And the market can forget about you very quickly. So whereas we, you see for us, for this reason, pricing has always been a very important theme. And the way we treated prices really had a positive impact on our business. So to conclude, we believe that there is still a lot of desire for luxury, for exclusivity. Even more so, we are always overexposed through the social media and everything. So this, we will come out of this time with a new vision of true luxury of how to believe and what to communicate. So everything that we have been telling you so we want to confirm. As to 2025 and 2026, well, you're already familiar with it. We envisage 10% growth in revenues and a healthy profit. As to the rest, you already know it and we don't want to change anything. You know about investments, you know about openings, EBIT. This is an idea for the coming 2 years. So this is what we wanted to tell you. Of course, we need to be contemporary cutting edge in terms of product, communication, way of working. And last thing investors did As it is custom, we will be holding a dinner with investors in Paris, 26th of November, then London, 28th of November, then early December, New York and then Milan this around December 8. And if you can, if you have a chance, do turn up at these investor dinners because we consider them extremely important. So this marks the end of my presentation. We have all the time available for you, for your questions. Hopefully, we did not offend anyone in our statements. But you see, for us, we see it as a tempus novum for mankind. Thank you.

[Operator Instructions] The first question will be asked by Flavio Cereda of GAM.

So you travel all the time. So I take advantage of this opportunity to ask you a question, don't travel too much.

And Mr. Cucinelli is saying, well, I want to cry if I think of my travel implants. It's a bit too much, but actually, it's a real pleasure to go all over the place. So please, Flavio, go ahead.

Now I'd like to understand your opinion about this. Over the medium term, there are 3 options here. So either consumers are a bit tired of buying things and objects, especially in some countries, or people are trying to buy what is real luxury, considering prices, as you said. So in terms of products and services, which is different from the past. Or maybe we go backwards and we go back to the starting point with consumers' trust. So speaking of your consumers and speaking of what you see of the industry, where do we stand now?

Now the answer is we've been discussing this a lot, of course. And so we do not feel there's a lack of love towards luxury. Actually, if you don't behave well enough, I'll stop buying from you. So Flavio, I'm not going to buy from that store in Milan where people told me I have to wait for 10 minutes and no one was there. I'm not going to buy there. I'm not going to shop there. However, people love to wear beautiful things because they're connected, because they have a zillion events every single day. So I'm not concerned about high-level luxury. But then if I'm well-off, if I'm a wealthy person, do you think it makes sense for the person sitting next to me at the bar to wear the same brand? I don't think it does. What do you think about this, Luca?

Well, Luca says, I agree with you completely, Brunello. I do believe that today, top-notch clients are looking to buy products that do have authentic value but also they want to be absolutely exclusive. They look for recognition. They look for being treated as gently and kindly as possible.

Mr. Cucinelli is saying, Flavio, when we publish our numbers, our financials, these people look at them. And if your profits are too high, well, you should know what they comment. I mean, our customers have their own companies many times so they know how to read numbers. Between '19 and '23, our profits increased by 36% to 38%. So considering prices, we may actually say -- we used to say in the past that we can increase price as much as we want. People would buy and shop anywhere. But Flavio, I'm not that sure, but I see huge opportunities about that. So going back to the issue of prices, there's a price sensitivity even in the top range of the market. And of course, this is even more important in the medium part of the market, so to speak, because some clients have really been expelled from the market. The Czech editor-in-chief said, well, something that costs EUR 9,000 to me now costs EUR 14,000. And of course, for obvious reasons, I've lost some of my customers. I mean, there's no problem with the top, top end of the market, the upscale part of the market, but the mid-market is pretty much in trouble.

And as far as exclusivity is concerned, Flavio, there is a lot of stores, the network is full of advertising and everything. And also, Brunello, we've seen this at the fragrances presentation. This is a very topical issue for the whole industry.

It is very topical indeed because, I mean, people say, if the fragrance cost $150 some weeks ago, why should it retail for $200 now? What for? So you see, Flavio, we do attach a lot of value to pricing, and we do sell at pretty hefty prices, of course.

That's very clear. Thank you, so enjoy your traveling.

The next question will come from Andrea Randone of Intermonte.

I have 3 questions on distribution. First is very easy because you said you are going to open a couple of stores in September, plus you're planning some other openings for 2025 at your, let's say, steady pace. But I'm curious, where are you opening new stores? And what kind of thinking is behind choosing individual locations? Then my second and third questions are about multibrand because this is a topic that has been widely discussed many times with you because you're doing something which is really different from what the rest of the industry seems to be doing now and especially so in this last quarter and this last year. So my question is, so the first question is about the state of health of your multibrand clients. I know you care for the state of health of your manufacturers, and they are a suitable compensation for future sustainability. But what about the multibrand stores you work with? Of course, business with you is good. We can see that from your financials. But what about the rest of the business? Can they actually manage a healthy business or do you think someone is a bit more fragile, so to speak? Third question on multibrand again. Just like for retail stores, what kind of initiatives are you planning for 2025? Are you opening in new regions or new contacts? Where are you planning to expand your customer base in the future through multibrands?

Thank you for your question, Andrea. I'll take it from the beginning. So the principles we adhere to is always the same. We want to keep exclusive positioning, and we want to obtain growth through extremely selected openings, but still looking for balance, balance by geography and balance between strength in developed established markets and opening new markets. So looking at the current year, we have completed our activities. We have opened Miami stores. We have opened in 1 at the SKP Department Store, which is beautiful. We opened in Toronto. We are going to open in Vail later in the year. So we have also prepared 2 extensions in Venice. And in the next 2 days, we are going to relocate our second store in London from Square to lose Bloom Street next to the Millennium Hotel. As for 2025, we are going to open the new mall, which appears to be very promising in Vancouver, Canada. We're going to open at The Four Seasons in Macau, which is maybe the most important resort in the area. We're going to open in Abu Dhabi. And we'll have 2 major extensions in Vienna and Geneva. Then maybe we'll discuss Geneva later because it's one of those examples of the major opportunities we're going to have in the future. So we were saying earlier, we are convinced, we are persuaded this time, these can provide us with great opportunities, and one has already become true. So you know that as far as Geneva is concerned, there's just 1 luxury street, actually so there's not much physical space available there. So we've been looking for a bigger location for our store for years and we haven't found it yet. So at the beginning of the year, for the first time after 25 years, their beautiful store became available on the market. We expressed our interest immediately. And we've only finalized the deal a few days ago just because we exploited the hesitations of another brand that initially made an offer, which was higher than ours, but actually, the landlord called us and said, I'm tired of their ups and downs. So if you want, the store's yours. So we are sure we'll have similar opportunities again in the future because look at our brands because of our ready-to-wear position in accessories, lifestyle and also for the way we behave and the relationships we can create. So for '24, '25, everything is planned. '26 is virtually all completed, too. We're going to open a little subsidiary in Mexico, kind of the company of the U.S. subsidiary because we see an opportunity there, as Brunello said.