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

Good evening, and welcome to the presentation of the full year 2024 Results of the fashion house, 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, Interrelations and Corporate Planning Director. [Operator Instructions]. Now I would like to give the floor to Brunello Cucinelli. Please, the floor is yours.

Good evening, and thank you. So it is great now. The bells are ringing and it's always the right time of the day to hear the bells tolling away. So it is always a personal pleasure to hear from you again, and welcome analysts, investors and journalists. It is that it's always so much to take away from these calls if one has the courage to listen. This morning, we had a wonderful Board of Directors meeting where we first discussed the high-level 10-year plan from 2024-2033, a high level one, where we are focused on high craftsmanship and tailoring and also the production because this is an important topic. And we ended Board meeting by saying that we see great opportunities in the offing for our brand for the coming 3 years and beyond. As always, we are all gathered here. I have to say that 2024 has ended on a high note. One thing that we are certain about, we are convinced of what we must not do because it's important to always outline what someone has -- should never do. What we must do, on the other hand, always stays unchanged. We must uphold the value of exclusivity in craftsmanship product-wise, and it needs to be contemporary because otherwise, the company does not function and then we need to manage growth. This is a crucial point for the life of our company. We need to manage growth if we are able to do that, then our company could last more than a century. That perhaps will not happen, but we want -- we are set for that. So I will read out the press release, then Dario, our CFO, will go into the details. Riccardo will discuss artisanal and tailoring productions, factory expansion, employee numbers and demographics. I will take the floor again to comment on the 2024 closure, and then we will begin discussing 2025, where we are -- the first quarter is drawing to an end. And then will talk about taste, overall style. And so let me read out the press release. Revenues, [ EUR 1.2785 ] billion with an excellent growth of 12.2% at current exchange rate and 12.4% at constant exchange rates. As usual, for us, current and constant are always very close. Then we have EBIT EUR 211.7 million growing by 12.9% with a margin of 16.6% compared to 16.4% in 2023. Net profit of EUR 128 million, up by 19.5% to 2023, net of the effects of an extraordinary capital gain last year, with a sales incidence of 10.1%. Major investments amounting to EUR 109 million -- EUR 109.5 million to be precise. And 2024 marked the beginning of a 3-year period of significant investments focused on expanding our factories -- facilities here and also the other factories and that thing is expected to be completed by 2026. And this project is part of the major 10-year plan, 2024-2033. Aimed at doubling the production, that -- and this will cater for 2033. Solid financial structure with a net financial debt of EUR 103 million, more or less. So the Board of Director will submit to the General Assembly scheduled -- General Meeting scheduled for [ April 2025 ], distribution of a dividend of EUR 0.94 per share payout ratio of 50%. Now very, very positive sales in the nearly completed first quarter, along with an excellent order intake for the Fall/Winter 2025 collection. And the strong enthusiasm we perceive around our brand. All this allows us to confirm for 2025 an expected revenue growth of approximately 10%. We also anticipate equally healthy, balanced and sustainable growth of around 10% also for 2026. Of course, we always like to highlight this number the British Fashion Council with honor Brunello Cucinelli on me with a prestigious outstanding achievement awards next December in London during the Fashion Awards 2025. And my comment was the following: Another year has come to close one which we have described as enhancing for our fashion house with revenue growth of 12.4% and profit growth of 19.5% compared to 2023. It has been pivotal year for our brand's image crowned by the prestigious American awards called WWD John Fairchild Honor. And the reason why we were granted this accolade for [indiscernible] constant dedication to mastery, creativity, craftsmanship, exclusivity and human dignity. I have to say that it's always very pleasant to receive accolades like this. Then 2025. First thing first, I would like to mention that in December, on December 1, I will receive from the British Fashion Council. I will receive the prestigious Outstanding Achievement Awards that has been previously awarded to great fashion figures such as Karl Lagerfeld; Ralph Lauren; Miuccia Prada; Giorgio Armani; Tommy Hilfiger; Tommy Hilfiger; Valentino Garavani, who is always very kind, he always asks for a discount in my stores; and then Tom Ford. But here to please do listen for the reason why this award was granted to be for the innovation in the world of Cashmere and for how the Solomeo-based fashion house has transformed the industry's possibilities alongside its ethical vision of humanistic capitalism and sustainable humanity, setting a model for the fashion industry and business at large. So this is what they wrote about us. So thus, we see 2025 as a particularly important year. We have concluded our full winter 2025 men's and women's sales campaign with excellent results, and this is also key. We have closed it with highly flattering reviews from the international press regarding style and lifestyle vision. So the first quarter of the year is also wrapping up with very -- in about 10 days with very, very strong results. And by the way, spring/summer 2025 collections last September were met with great appreciation. Because when the collection is beautiful, you broach the semester with a different attitude regardless what happens across the market. So for 2025, we see significant commercial opportunities ahead and with gracious awareness, we want to reaffirm and restate the importance of managing growth to ensure a healthy plus 10% revenue increase for the current year as well as for 2026. Now Dario, go ahead. You are not used to being translated. So please read slowly.

Good evening, everyone, and thank you, Brunello. I would like to start with the analyst presentation starting up from Slide 25, analyzing the performance -- economic and financial performance of 2024. So the revenues values confirm the preliminary results presented on January 13, with an increase of revenues at current exchange rate of 12.2%, constant at 12.4%. Now I'd like to move on to other items in the income statement. On Slide 27, this confirms a balanced margin and cost structure with EBIT at the end of 2024 rising by 12.9% vis-a-vis 2023 and margins that moved from 16.4% up to 16.6%. The first margin raised by 15.4%, and it accounts for 74.5% of revenues vis-a-vis 72.5% last year. This increase which basically confirms what has already been said about the half year figures, in this 2024, it can be ascribable to the positive contribution from the sales mix in terms of geographies, channel mix and product mix, but it is also down to the increase in in-house production and expansion of production, as I was saying. And by that, we mean the start of in-house production targeted at making a suits and outerwear and men's wear jackets, jackets like the ones we make in Penne and Gubbio that will start opening -- they started -- opened in second half of '23 and 2024. So this outsourcing of some workmanship is reducing external production costs, which is offset by the increase in some operating costs, mailing the staff-related or personnel-related costs. Now moving on to the operating costs, we can say that the increase by 17.8% in these costs mirrors the in-sourcing process as well as the target growth of our network, the development of new commercial and technological initiatives as well as the significant investments in communication. On Slide #29, we basically provide the income statement highlights and also we dwell on the personnel costs, the investments in communication and the rent-related costs. So the first item, personnel costs, EUR 233.5 million, up by 19.8% with an incidence of 18.3% vis-a-vis 17.1% incidents on sales vis-a-vis last year. As of 31st December '24, the number of human resources amounted to 3,101 full-time equivalents plus 478 FTEs which is 50% down to the strengthening of laborers linked to the increase in in-house artisanal production and especially down to the development in our commercial network. As to the investments in communication, EUR 92.3 million, up by 17% with an incidence on sales of 7.2%, slightly higher than 6.9% the previous year. The cost of rents net of the IFRS 16 amounts to EUR 183.2 million, 14.3%, up by 18.2% vis-a-vis the EUR 155 million and 13.6% relating to the previous year. This increase is mainly down to the new selected openings, the contract renewals and the extensions that were performed during the year. And then finally, still on the income statement highlights, D&A amounted to EUR 153 million vis-a-vis EUR 138.8 million last year. As a result of all this, EBIT went up, amounting to EUR 211.7 million, up by 12.9% with operating margin amounting to 16.6% compared to 16.4% last year. And now I would comment the total net financial expense details on Slide 30. As of December 31, 2024, the financial charges were EUR 31.9 million versus EUR 14.1 million last year. 2023 was sharply affected by the extraordinary capital gain of about EUR 17 million, which was due to our selling of the minority stake in Lanificio Cariagg to Chanel. The total breakdown shows a component, which we can call ordinary and recurring, which is EUR 27 million of charges, which is separated from the component, which is more strictly connected to exchange rate fluctuations. The ordinary recurring component shows an increase of EUR 4.8 million, which is mainly due to financial charges on leasing liabilities from EUR 12.9 million to EUR 20.2 million because of our underwriting new rental agreements, which pertain both to new slide openings and to the renewal of contracts of existing stores. The exchange rate fluctuation component decreased by EUR 3 million, and it includes the unrealized effects of profits and losses from exchange rate fluctuations. To complete the analysis of our income statement. Tax rate was 28.5%, which is pretty much in line with 28.6% year before, which is a healthy level for an Italian company. And net profit, as Brunello said, stands at EUR 128.5 million, i.e., 10.1% of revenues. Slide 31 and the following pages show some comments about our main items in the financials. In particular, we'll talk about net working capital investment and financial debt. The net working capital is EUR 246.3 million with an impact on turnover of 19.3% versus 15.7% last year. If we look at the individual items that make it up, the inventory is EUR 370 million with a percentage of 28.9% of sales, which we consider to be ordinary for our group which is manufacturing 85% ready-to-wear. As of December 31, 2023, the unsold inventory was EUR 287.3 million, i.e., 25.3% of the sales level. And this level is really limited. Also, thanks to the great sales performance we achieved during the year, which is actually even higher than we originally expected. Trade payables are increasing slightly by EUR 3.9 million in absolute terms. Even we have excellent results for the wholesale channel, 8.8%. And we have a healthy profile with the credit losses that are really, really limited and less than 1.1% of the overall turnover. And we have a healthy profile with the credit losses that are really, really limited and less than 1.1% of the overall turnover. The turnover grew by double digit and the trade receivables increased slightly by 1.2% last year from EUR 176 million to -- sorry, EUR 166 million to EUR 169 million with payment terms that have not changed. Other net credits and debits have negative balance of EUR 33.6 million, which is higher than EUR 20.9 million last year. And this variation is mainly due to the assessment at fair value of derivatives to hedge exchange risks. As to investments, Slide 32. They account for EUR 109.5 million, which is about 9% of sales, 8.6%, versus about 7% last year. And this is connected to the major investments we've made to support the image of our Casa di Moda and its contemporary feel and the boutiques and the allocations. We also invested the loss in technology. And in the consolidation, as Brunello said, of our artisanal production capacity within the 10-year plan, which will lead us up to 2033. To conclude, the characteristic net financial debt, Page 33, is EUR 103.6 million as of December 31, 2024 versus EUR 6.1 million the year before. This is due mainly to the good economic performance over the last 12 months. The variations of the net working capital and investments we just described and the payout of dividends for a total of EUR 66.1 million with the payout ratio, which was confirmed to be 50%. So thank you all for your attention. Brunello, that's all for me. I hand the floor back to you.

Thank you. Now Riccardo will give us a general picture, and then I'll do some conclusions.

Thank you, Brunello. Good evening, everyone. I'll try and give some color to the 5-year -- or the 10-year plan that we've discussed so far. I'll start with the general principles. As you know, this is our guiding light and it will be in the future, too. And we basically have five guiding principles. The first most important one is we hold true to the rule by which if we need to produce twice as many products, we need twice as many tailors and production capacity. So this is our fundamentals. There is no way out. For this top quality production, it takes time. It takes manual skills. Every single project we manufacture has over 60% of its content, which is handmade, which is not replaceable by any kind of machine. Secondly, artisan skills need to be protected and nurtured. So our big challenge is not really who are we going to sell to, but who is going to manufacture these garments with this quality and made in Italy. Another important principle for us is that if you want to do beautiful products, you need to places of work that are just as beautiful and the right working conditions and salary conditions. Another principle is to get a quality product, it takes time. We all know that to train a tailor properly, it takes anywhere between 3 and 5 years, and it takes competencies and skills. We do have them in Italy, but many times, these competencies and skills are concentrated in specific local clusters, and they can only be found there and this is a big asset for the country. Another very important final principle is we do not want to change our production system. It's based on our in-house factories. And of course, this is always very important for us, but also it's based on those 400 small artisanal companies in Italy that employ 8,000 people. So the average is 20 to 22 artisans per small company. With those people, we do have a direct relationship and authentic one. It's never intermediated by any kind of platform, and this is absolutely very important for us, and they do a healthy profit to added Brunello. So 3 years of important investments, 9%. 2024, '25 and '26 are going to be years of major investments so that we can really consolidate our artisan production capacity, which will lead us all the way up to 2033. So what is this consolidation plan all about? First of all, we are doubling the size of our Solomeo factory. Also we'd like you to know that in August this year, we are going to open the first part of this and the second part will be opened during 2026. And so we -- hopefully, it will be enough for us up until 2033. Then we have another project, which is the Penne production factory. It started operating in 2024, as you know. But here again, during August here, we're going to open its extension. And I have to say that as far as Penne is concerned, we now understand how deeply rooted and strong the know-how and competencies on shoulder pieces and men suits and it is quite rare and unusual. We also have another factory in Carrara. I want to mention it here because it's not just a precious production factory, but it's also an example of how we can really revamp and redevelop a very old industrial factory and make it very functional and contemporary. So this is another important cluster for men's suits. Finally, a recent investment in Gubbio. It opened in 2024. And there, we are already completing an extension, which will be fully finished by 2026. So to recap, these 3 years of big investment will allow us to finalize 2 big projects in 2025. The first major expansion and extension of Solomeo and Penne. And in 2026, we'll finalize two projects, which is the final enlargement of Solomeo and the extension of Gubbio. So we believe these places will represent the ideal place for us to host the growth of the amount of artisans who will work for us in the next 5 years, which is perfectly in line with what you know very well, which is our project to grow gradually and sustainably over time. I'd like to say a couple of things about our third-party suppliers. We are not going to change our production system. We have our suppliers. We have in-house production facilities, of course, but the connection with our suppliers is very robust and solid. We keep reviewing them. They actually are robust in their own right. So they are in good shape and good health, as Brunello said. We also believe they have fair and just profit and healthy profit. We have a direct connection. There's no platform in between. The average age, which we think is important is the average age of the owners of our production suppliers is 49 years old, which means that many of them have completed generation hand over already. And the average age of the artisans working for them is 43 years which also shows quite well and clearly that the hands that process our products are young and experienced at the same time. Another important and interesting piece of information I'd like to share with you is that we keep communicating our knowledge and teaching artisans through our academies. As we speak, this is actually the main source where we find and hire and train new artisans. We started a lot of young people off on the professional skills. Many of them now work for our Casa di Moda, whereas others decided to become entrepreneurs by themselves. So we do believe these activities are going to grow progressively and proportionately to accompany the growth of the company itself. One comment on prices. As Brunello anticipated, we believe that this year, the price increase is going to be 3.5%. So it's a natural organic increase of costs that will be mirrored in price increases. And the second component of the price increase, which we are pretty happy with since we are 100% Italian, is that we actually accommodate the salary increases that have been negotiated as a collective bargaining procedure. So for 6 years, nothing much has changed. Whereas now we have more fair and a bit higher salary for our artisans and factory workers. So it hasn't changed for 6 years, and now it's been updated. As Dario said, we closed 2024 with 3,100 FTEs, the average age is 38. It's pretty stable over time. We are a key reference for many young people who actually joined the group and the Casa di Moda. But also, we would like to point out, there is a continuous relationship and continuous side-by-side teaching and learning between younger people and the masters. So we can actually see them conveying their know-how very, very practically. It's not something you read in the books. You need to live and breathe it day in, day out. Now to complete our pricing when Europe is 100; America is 121; in Asia, it's 128. And we consider this is a well-balanced price proportion. So that's all for me, Brunello. Back to you.

So how to conclude 2024. So this marked the first year of a 5-year plan, '24-'28 and it actually has been a very, very important year where we enjoyed strong revenue growth of around 10%, healthy EBIT between 16% and 17%, healthy net profits around 10%, healthy inventory at 29%, which is consistent with our history. We have healthy debt levels that are proportionate to the major investments we are performing. Important, communication investments at around 7% because now it is the norm in modern times. So every year, we have been investing 7%. But this '24, '25 and '26, we will rise up to 9% because this project will be about -- because of the project that has been mentioned before. Then by the October, we will also be online with our new AI-powered website, yes, applied to the online boutique. That's what we mean. So we will double our factory. And so this will -- should cater, secure production and workspace needs until 2033. By 2027, investment levels will return to normal around 7%. Then we pay -- we have a dividend payout ratio of 50% and we think we can keep this. So before my final thoughts on 2024, we would like to highlight the importance of product creativity and contemporaneity. And this is something that really ranks high on our agenda because there is the value of the brand and the value of the product. Sometimes the brand is thriving that the product is not of vice versa. So to conclude, you know fully well that we have no interest whatsoever in acquisitions because our focus remains on a special focus on quality, craftsmanship and exclusivity and the Brunello Cucinelli brand management. And we want to really always dwell on these items: quality, craftsmanship and exclusivity. So now let's talk about 2025. This is the end of the first quarter. We are very pleased. Luca?

So let's start from reading out 2024 final results as premises for the new year. So besides the results that we described, what about last year? So for us, well, we are placed right -- positioned right at the top of the luxury pyramid. So we have to talk about markets and 2024 marked a very healthy market. On -- overall, in 2024, we grew by 12%. I have to say that ForEx had a negligible effect during the year and as well as in this first quarter of 2025, and we grew by 18% in the U.S.; 7%, Europe; 12%, Asia; and 11% in China. So for us, the markets are doing well. Then we closed 2024 with 130 direct boutiques, which is an exclusive network if you take a look at the number. It is a young network, and we have the feeling that it is also very fresh. As to our distribution. As you know, there are also 400 very important multibrand accounts, which basically represents deepest -- that deeply rooted in the different geographies. At the end of 2024 as well, we have a number of final customers that is on the rise constantly due to the combined effect of the loyalty of existing customers and the appealing factor for the new customers. And this does testify to the soundness of this brand. But as Brunello was saying, perhaps the most important feeling we have about 2024 is that we have a strong product on the one hand and brand appeal on the other hand. And it is not always the case that in the life of businesses, these two factors go hand-in-hand, product and brand. So for all these reasons, we have the feeling that we have started 2025 with -- in the best way possible. And we feel that we are experiencing a momentum, a time of great opportunities. As Brunello was saying between 2019 and 2024, we doubled our revenues, but we have the feeling that today, there is still room for growth. Yes, we doubled our revenues, but you should still bear in mind that there was the pandemic in between. Yes, we keep focus -- we see a lot of attention around our brand, all the awards and accolades that Brunello is being bestowed upon testified to this, but this brand inspires trust and we are receiving a range of important location proposals in the main luxury high streets and also in Asia, and this is really unprecedented. And this offers us a huge privilege, meaning the ability to be -- to pick and choose where to implement our growth. And as Brunello was saying, we can manage our growth accordingly. So now talking about the first quarter 2025, two very important highlights. The first one, the sales in the first quarter were very satisfactory. Growth for us is very balanced, we believe, in the three continents: America, Europe and Asia. And there is an excellent contribution coming from both retail and wholesale channels. And we're also very pleased with this continuity, also because the first quarter 2024 had been a time when we had delivered a growth of 16.5%. So pretty solid. Then second highlight, the end of the full winter 2025 sales campaign was extremely good for men's and women's, both alike. And this bodes well for the second half of the year for our direct network. And taking a look at the results of the sales campaign, what becomes a parity is that we have a large number of multi-brand accounts that we consider the true guardians of the brand, and they are allotting to us growing spaces. You should know that at this moment in time, we have the feeling that the specialty store atmosphere in particular, well, this atmosphere, this ambiance is very modern and up-to-date because by nature, these are stores where you perceive more proximity and closeness to the customers and also the way in which they mix and match, Brunello adds innovation and existing brands. Now let's take a look at this scenario. What about the market in 2025. We see continuity there. We envisage a market that is as demanding and receptive as it has been in 2024. Continuity also in the striking distinction between absolute luxury and the rest of the market between brands that are healthy and thriving and others that are not so much. And it's always been the case, Brunello says. And -- so the markets are very strongly correlated and perhaps we can -- we will go back to this later. And all customers regardless of geography, they all seem to look for emotions and experiences. Today, we very much focus on the execution of our plan, and we would like to describe it to you. First of all, we reconfirm our openings and the planned openings that we had already anticipated in October last year. So we had one store in Asia; one in Middle East, Abu Dhabi; one in North America, Vancouver; 2 important extensions in Europe, Geneva and Vienna; and also the Mexican branch. An important novelty is the opening of a boutique by the end of the year in a beautiful building in [indiscernible] in Paris. And this is one of the most apparent examples like Geneva last year, of the opportunities we mentioned before that are being really supplied to us and offered to us. Another important element for us when planning the year are the events. So this year, we have the following. In May, there will be an event in Miami. With the Formula 1 in June, there will be a great summer part in Forte dei Marni, attracting friends from all over the world; in July at Harrods with the Wimbledon Tennis tournament; and then in October, we will go towards the East. This year, we have an event in Japan, one in Korea and something we really appreciate to travel the world, be close to our staff, our customers and across all the different geographies. And then the year will end with a beautiful celebration in London with the awards that Brunello will be presented with from the British Fashion Council and it is very likely that some more surprises will be in store for you. So we are very confident that 2025 will mark yet another year full of satisfaction for our brands and for our staff. Now 3 minutes with conclusions and then that will be it. So we are really experiencing a very good momentum. The product is being considered extremely young, fresh, high quality. That's what -- that was the comment at Pitti Immagine and Milan. We have important orders and important feedback. And I have to say that this is also confirmed by all the gifts or awards in the past few years. And actually, they always mentioned the idea of style and way of working. And perhaps these are precisely the most important thing that we need to safeguard. We have to safeguard our style, not because we need to change to sell more. We have 85% apparel, and this was the same in 2019. So revenues have doubled, but not the percentage. Well, of course, the brand bears my name and this also adds a lot. And another thing I want to mention is in April, I will be presented with an honorary PhD in architecture and my daughters tease me about this. But true, at the Vanvitelli Faculty University in Naples. Vanvitelli was the architect who designed the [indiscernible] in Caserta. And I'm honored because they say -- well, I've always maintained that Vitruvius, the architect, said that every building you make must be a sound, useful and beautiful. And that's what we have tried to do also for our factory to make it sound, robust and solid, to make it useful and to make it beautiful. And then in December, we will celebrate my -- this prize, which is somehow the Fashion Academy Awards for fashion you see because the British always bestow important awards. And then in a couple of months, we will also announce something nice, beautiful that we can't disclose today. So before we end, what about the 2025 forecast. So we can anticipate today, as usual, our growth project is around 10% revenue growth with a slightly improved EBIT and a healthy net profit of around 10%. The currency impact remains negligible. This has always been the case for us. And then at the end of it all, what really matters is the current figures. So to conclude, of course, the brand bears my own name, and all this goes to support the brand itself. And then last but not least, we work with balance and serenity. And we really want to make that clear to you because this really impacts the creativity because human beings can be creative when everything is in balance around them. Let's now open to the Q&A. Do not worry, it's quarter to 7. We still have time. One last thing. In April, we will have the figures of -- we will communicate together with Moncler on the very same day. So we will hold a call at 5:45 and Remo Ruffin at 6:30. So we want to thank Remo Ruffin and Moncler for postponing the call by half an hour. Thank you. So here we are.

Thank you. So here we are. Thank you. This is the Chorus Call operator. We will now start the Q&A session. [Operator Instructions]. The first question will be asked by Andrea Randone of Intermonte.

Your presentation is always very rich in details. But I'd like to go back for a second to the United States. Some players said there is some volatility on the market, which doesn't necessarily mean a negative impact. But I'd like to know whether you noted some volatility, too. Second question about the U.S. again. I'm thinking of what the Wall Street Journal wrote about Sachs. They asked for different payment terms for longer payment terms, in particular, you've shown numbers that are totally under control from this viewpoint. So I'd like to know how you manage that? And my third question more generally is about taste. You are particularly good at understanding people's taste. This is actually at the core of your business. So at this time, there are -- so full of surprises, at least every single day, we actually see eventful changes. I'm wondering whether that is also mirrored by any kind of change in taste. Do you see any new trends emerging?

Andrea, this is Luca answering you. So as far as the U.S. is concerned, I have to tell you, we have very beautiful results there. We're really satisfied with the work we're doing there. And as I told you, we expect the first quarter to be very good, with a very good balance between different regions. Now speaking of Saks and Neiman, they -- we met them for lunch at home. And the idea is that Saks, Neiman, Goodman, the best players globally in real luxury. We discussed with them. We see no big challenges also because Mark Daniels, who's a friend Jeff Bezos is there. So there's -- the truth is that at times, they want to maybe review and rediscuss payment terms and so on and so forth. But frankly, there's no problem there. And also, the projects they are embarking on it are really, really relevant. Now Andrea, you were asking about taste. Well, I think as far as taste is concerned, we are moving towards a taste, which is refined and chick, but we need very special products to accompany that. So if collections are a bit too basic or repetitive, then maybe you do have some problems with that. that's for sure. At this moment in time, style and design do really have a great value. We worked a lot in it. We came up with our collections and apparently, or actually, that's shown by numbers, the price like them and they buyers are like in them, too. So I think that for the next few years, we see a lot of sophisticated beautiful refined, very fine products. So you remember, when we first heard about quiet luxury, people were a bit perplexed, and they said, what is it? Well, it's a fashion. It's the key fashion of the time, I should say. So sophistication, elegance, the color pallets, the shapes, all these things are really, really important. So we are very positive about our size and design. You need to be brave. But we never have evergreen. So the even men's jackets maybe 1.5 cm shorter than the wear last year. So it's not the same jacket. It is different in a way. Even though it's still a blue jacket evergreen will lead you to your grave. I mean, you end there, so you need to invest in product design, product development all the time, because you may get it rank in marketing, and that's okay. But if you get the product wrong, that's much, much worse. So product comps firms. And it's our key resource.

The next question comes from Oriana Cardani of Intesa Sanpaolo.

Good evening. Thanks for receiving my question. I have one -- first question about the order collection for fall/winter '25. So you said collection -- order collection is good and well balanced within the three main geographies, Europe, America and Asia. So I was wondering inside Europe, within Europe. Is it a well-balanced distribution here again? Or do you have some European markets that I may be showing some signs of slowdown, whereas others are more brilliant?

Well, in the end, things are going very well. Of course, maybe Germany is doing more reorders so they're buying a bit less for the first order. So what that means is that deliveries are extremely important. Instead of buying plus seven, they buy plus four and if they start selling well, we need to be ready with reorders and deliveries. So Oriana, please remember that everything now reorder has a sellout ratio of nearly 100%. So it's really important to do reorders properly. They tend to sell to their own domestic clients. The atmosphere is pretty good. But of course, products must be innovative and quite new. Even in many times, we say men's is more difficult than women's fashion because a jacket is a jacket. And to look different, it needs different details like I don't know buttons or sizes or whatever, we certainly saw a lot of research as soon as people get to the showroom, they all look for something really special, really creative. They look for design and sophistication and being exclusive is very, very important. Because if you are wealthy, and you see Orianna, you don't want to buy in wear what anybody else can buy and wear. I hope it was clear enough.

Absolutely. Thank you. I have a second question, if I may. On the launch of the six new fragrances you did in November. Also in quality terms, how are they performing? Did you notice any results?

Well, the -- all those two successful oriented to tell you the truth. Now these fragrances, they are top quality fragrances. Our first two fragrances, the two, let's say, basic ones are performing very well. We are happy. They are well positioned. And deposition just like our Cashmere products. And then every year, we'll add three, four, five new fragrances. Now these are performing very, very well, and we think they kind of mirror our customers' taste. Because there again, it is important for fragrances to mirror the taste of a brand. I've always been in love with my master Roth. But even today, I have to say that Roth taste is his own taste. So it's very recognizable, very clear. And we should never lose sight of that, Oriana. Yesterday, I was interviewed by the New York Times on the value of light colors. And so that means we should never lose our taste, taste and positioning, which is another very important thing. When we speak of governing our growth, managing our growth, that's what we mean. Exactly. We won't have [indiscernible] prices. We never do that. This is not what we do. Oriana, we have more or less 400,000 customers. It may be 10,000 more, a few more. We don't know them all because some are served by multi-brand, but we know more or less how many people we have -- and we have to become less well known than yesterday in a way. So that means we'll be more exclusively sophisticated and chic is on. We always have to be refined. Never lose sight of that. So I realize we've been praising ourselves a lot, but this is a constant fight Oriana, never lose your identity. So the collection is the same everywhere from San Francisco to Shanghai. I mean it's except with the same collection, the sizes may be different, but the collection is always the same. And this is important, too. So we can say that difficulties and challenges are in virtually proportional to growth, but actually, we had 1,000 pieces in our collections 4 years ago, and we still have today, because we have a single brand, a single positioning, and that's what we do. That's what we're all about. We do believe in beautiful things, Oriana.

Next question from Melania Grippo of BNP Paribas.

I have one question on the gross margin, it increased by about 200 bps. So can you give us more details on -- how much of that is due to vertical integration and how much is due to the value mix in channels? And what can we expect for 2025 in terms of its improvement?

Melania, this is Riccardo. I'll answer your question. As Dario said earlier, we certainly had an increase in the gross margin, which is due mainly to the effect of bringing production in-house, the factories I was talking about earlier. And this also meant that the cost of personnel increased at the same time. So when we said that the amount of FTEs at the end of 2024 is 3,100, it's because the increase versus last year is due to opening new factories. So 260 of these new 400 people are those that used to work with us with outside suppliers before. So this is the main impact. As far as our expectations for 2025 are concerned, fully in line with the forecast and guidelines on -- we have already disclosed, we expect EBIT to improve slightly. Thank you.

Next question from James Grzinic of Jefferies.

Good evening, everyone. Good evening, Brunello. Congratulations on your fragrances. I did try [ Britain tile Gentris ], it's fantastic. I love it. What that's a sponsorship isn't it. Yes, it sounds like it. Now I have a simple question. It's a bit philosophical perhaps. Now if we think of this 3-year investment plan to expand production capacity from '24 to '26, and we still have the capability to expand operating margin in a well-managed way. So once the -- we've laid the foundations for local expansion of production. Can we possibly think of having more leverage on operating margin?

No, no, not really. Now let me explain this to you. So the issue of operating leverage is we start off from basic point of view. So I'm persuaded that many people -- young people, in particular, do not want to buy if you make an outrageous amount of money on what to do. So I have to be very frank with you here. So people are a bit tired. They're not tired of luxury, but they are tired of some exaggerated prices, whether we like it or not. They are annoyed, they are fed-up. So with EBITDA anywhere between 16% and 17%, and net profit of 10% for an Italian company. So we think we can certainly do a good job there, because we do actually make a nice amount of money, but our factory workers may make EUR 2,300 per month, and that makes a difference. So should we have a higher profit, don't you think we could increase prices by 10%, 15%? So would you pay Cucinelli $6,000, $6,500, it wouldn't change much. But we do have a basic decision there. So these prices that are slightly high you're a bit younger than us, but 15 or 20 years ago, the top designers of Italian fashion did EBITDA in the region of 17%, 18%, 19%. So we don't want to lose that kind of noble attitude towards our job, our work. Then if we do have 20 basis points more, which did happen, that's fine. But don't expect us to do anything really differently from what we do, because younger people, younger consumers were not prepared to buy. We'll not be happy to buy. I wouldn't be happy to buy. I mean if your profit is exaggerated in my eyes, I would not be happy to buy from you. And this feeling is really strong, and it's becoming even stronger as we go. So we found the right balance in our profits. We found the right balance with our salaries for factory workers. Someone asked me, why are you so much loved and appreciate it? Well, perhaps because we turn a fair profit because if you by coat in Vicuna, $27,000. And then you see that my profit was 35%, 40% EBIT. Well, do you think you would be happy with that? I don't think so. So we do not want to really be judgmental on other brands strategies. But I, for example, buy [indiscernible] because 270 years of heritage and they only make 30,000 units per year, and that made a healthy profit. Once again, I repeat it 270 years of heritage. But if you -- the fair profit is the key. So, I do not want to go to a restaurant and pay $830. This is not what I'm looking for. So the thing is that we have struck a right balance, then of course, if we do have 10 basis points more, we are pleased, but that should not be the aim and purpose, because the use are different.

Pristine and clear.

There is a lot of sensitivity about this. And I would say that the fashion industry has had some issues because of that because, say, if you are a Chinese shopper, you buy your product across 140 times more. And you see many Chinese customers, they say, why is it 140 for being 104 Milanese. Why do -- would I have to queue step into a store when there's nobody there. You see all these attitudes. I know I don't want to do that. So this is -- sometimes people have funny attitudes in stores. I wanted to step into a store, in Milan of another brand, and they made me wait for 10 minutes, because that's the way it is. We should find the balance again.

Next question from Chris Huang, UBS.

I have three, if I may. So the first one is just on your currently Q1 trends. I mean you commented that you're very satisfied with the performance so far. But if we look at the different channels, starting with retail, can you just give a little bit more color on whether or not the channel is still growing double digit? And moving on to wholesale, you had, of course, a very strong Q1 last year. So just trying to think about what kind of level of growth should we expect for Q1? That's my first question. And secondly, coming back to the U.S. I just wanted to confirm, are you seeing any signs of weakness and perhaps the traffic in the U.S. or the mood in the U.S. consumers. I'm asking this, because I would imagine the high-end consumers are very sensitive to the stock market in general. And as you can see, it hasn't been doing so well year-to-date. So very curious to hear what you're seeing there. And last but not least, coming back to the gross margin, actually, if we look at your historical gross margin trends, we can usually observe a higher gross margin in H2 versus H1 due to the product nature you have in the fall/winter seasons. But if we look at 2024, you actually had two halves of gross margin in line with one another. So are there any one-off impacts you had in H2? And you can elaborate a little bit more on that?

So Chris, starting off from your last question on the gross margin, you should also consider that last year, in the first half, we grew by 14% and then 10% in the second half. And this effect of this kind of growth actually impacts the margin. Then, it is true what you say that the effect of the the in-sourcing of production weighs more in the first half, rather than the second, but the main effect of the change in margin between the first and the second half has to do with the sales performance. As far as the U.S. is concerned, we see no difficulty of challenges, but Chris, bear this in mind. We are talking about exclusivity and absolute luxury segment. This really is key. So we see -- you have to design beautiful collections and be stay exclusive. So that's for sure. And the last question had to do with the first quarter. Yes, Chris. So Today, we say that this is some sort of quarterly call or call on the first quarter because there are just 2 weeks busy, but we want to grow in a healthy manner. We already have the results of the first quarter, you can expect a good first quarter, let's be say out. A good healthy first quarter results.

I'm sure you will like this, a good healthy first quarter results. And we can say, as Luca was saying, across all the different continents across the world, we can say, in the different geographies.

Next question from the English conference call by Natasha Bonnet, Morgan Stanley.

The first one, just on China. I mean obviously, you outperformed the market last year and you had a big event in October 2024. Can you tell us what your teams on the ground are telling you regarding brand momentum of Cucinelli in China? And where you expect the incidence of China could be in the next 2 to 3 years? And then my second question would just be, if the U.S. were to impose tariffs on EU imports, do you believe you could offset that fully with pricing. Thank you very much.

So Natasha, first thing first. Thank you for what you wrote. You've wrote so many beautiful things that we are really honored. So -- and -- so we'll talk about tariffs last, but you see China. Honestly, we think the following: the Chinese people, they are all very much online and connected. Whenever I have interviews with them, they're surrounded by devices, iPads and mobile phones. So in China, you have to be known just a fair amount, not too overly known. Otherwise, you lose out on exclusivity. And in China, we are viewed as an exclusive brand, and we love that. As you can see, we opened one store a year. So in China I have to say that, it is very easy to run the risk of having your brand overly distributed to commoditized. And so for us, it is quite a good time in China. We're enjoying quite a good time. As to the figure -- the tariffs, I would like to say the following. In our case, in '96, 1997 there was the so-called Banana war, because there were some problems between Banana and Cashmere and -- but then everything went -- ended up well. But now you see EUR 121 million is the price in the U.S. and EUR 100 is in Europe. This is the proportion. So I think, that all countries in the world are so strictly intertwined and interconnected that this tariffs issue can be solved and settled as it happened in the past. Then if you think ahead, we have 400,000 customers and 250,000 of them. They have three or four mansions across the world. When there was the problem with the war in Russia, this was offset by the other geographies, the drop in Russia, like Dubai, U.K. And even if there was to be a tariff that impacts us, I would regret it, and I would find and consider it unfortunate, but actually selling a suit for $6,000 instead of $6,500 does not change much for our customers. I think that what really matters is taste and exclusivity in order to maintain our positioning. We can't lose out on this. If we lose out on exclusivity, which means that we lose out on a lot. I always gave the usual example of when I was modeling for less #1 in the world in 1982, 1984, they stopped selling and the owner called me and said, Brunello, you are young, -- what's wrong with this collection? Why are we not selling? And I said, "Well, the problem is they do not want to see the logo less". So -- well, Moreno, you were working as a CFO there. You know this. You see this a time when the brand is okay and the product is not, and vice versa. So I attach a lot of importance to product and exclusivity, Natasha. And then in a nutshell, I do want to thank you for what you wrote such a nice coverage, beautiful thoughts. But if we think of our company in the coming decades, I see a balance between the three geographies, U.S., China and Europe. But we still need to be exclusive in China. Otherwise, the brand becomes too commoditized. There would be -- it would be no longer exclusive. That's for sure. Yes, you can count on that. Thank you, Natasha, for everything that you wrote.

Next question, Adrien Duverger, Goldman Sachs.

So the first question would be on the wholesale channel. Could you please comment on the confidence level across the wholesale partners and how you would compare this compared to when you last spoke in January? And could you also please comment on the order book and if there are any timing issues to be aware of in 2025? And my second question would be with regards to your manufacturing investments. So thank you very much for all the comments on the progress regarding the new facilities and the construction. If I understood correctly, we should expect most of them to be completed between August 2025 and in 2026. And I was wondering how do you expect the additional supply to evolve over the next 3 years given the progress on the construction? Thank you very much.

As to the wholesale channel, you see in history, we've always had 40% wholesale in history we've only less 0.1% of our revenues, which means we lost nothing. We had no losses there. And we have the 400 best accounts in the world we attach a lot of value to them, because they -- we call them the true guardians of taste because no one will ever convince me of the opposite. The wholesale channel, they know exactly what good and fresh collection is. They know for sure. So you should always consider that we are great and firms up person supporters of the wholesale channel, than as to the deliveries. Well, truth be told, very often brands, they tend to serve their retail stores better than the wholesale channel. And they say to the wholesale well, sometimes they -- some brands reduce the wholesale channel, then they say they do not pay but it's not -- it's not true at all. The top brands, wholesale brands, they are extremely serious. We never lost any single penny in 45 years of history.

So as we said on the investments, so these 3 years of investment will end next year 2026, and there will be a doubling of space of square feet, but then up to 2023, there will be a gradual doubling of our production capacity, because these are the spaces we are prepared. So it's not that when you expand the factory, you can expand it by 10% a year. Factories, you will do them every 10 years, and that's it. So this factory, we think that everything -- the new spaces will cater for our needs until 2032. But you should remember that it takes 3 to 5 years to train a tailor. So we believe that at the end of 2026, we will have a production capacity and facilities that will be super robust. In line, we have a governed measured growth, and that's important. It's 7 points in volume and 3% in pieces and -- but since we have not changed model, we have 400 small subcontractors, arts subcontractors that enable us to respond immediately and on time whenever the demand increases. And also, at the same time, we have managed growth. Adrien, you are young, but since 2000 -- year 2000, on average, we grew by 12.1%. And since our listing on the stock exchange in 2012, we grew by 12% to 12.2%. So if you forget these post pandemic years because this is our plan. So if we wanted to, we could open 30 beautiful stores. But since we like to abide by our plan, we do it only when it is worth the while as it was in Paris or Geneva. So we may spend a lot and invoice more, but this is not exactly what we want to do. We want to comply with our plans.

Next question will come from the Italian conference, Paola Carboni of Equita.

So I have one question on the pricing increases, which you said is going to be 3.5% this year. So can you give us a comment on what you expect in terms of mix? Which I think will be added to that price increase. Then I have another question on the expansion of production capacity. So could you please remind us of the mix between in-house production and outsourced production today? And is that going to change? As you progressively expand your in-house production capacity and on a steady-state basis once you get to the end of your projects? For wholesale, I have a technical question. The fourth quarter was slightly weaker. So should we think that deliveries are going to be concentrated in the first quarter of this year? Maybe that is partially where the first quarter is particularly strong. And then speaking of the first quarter of 2025, again, I think the idea is that we're obtaining a very well balanced growth in the three main geographies. Normally, we are used to see that North America and APAC grew more than Europe in this part of the year. So are you also looking at well balanced growth for the whole group, do you think there's an extra contribution from wholesale in this quarter? Or looking at retail, Europe is picking up speed and falling in line with the growth rates of other geographies.

Paola, this is Riccardo. I'm going to answer you on pricing. 3.5% is the average price increase, and we believe that we'll have another 3 or 4 points from the mix. Then production capacity. Well, production capacity, we really focused on men's jackets, because it's a very difficult product to manufacture, and it takes 3 to 5 years to educate tailors. For the rest, we have no problem at all. For the facilities we have created manufacture jackets between today and 2026. So we'll be happy with our production capacity until at least 2032 or '33. Then for wholesale, well, of course, there may be some swings, because there may be deliveries that change quarter depending on the timing, but it's a very, very slight difference. But there are two big seasons for wholesale, two halves of the year. Yes, we want to be very punctual and very exhaustive. Deliveries are a very serious matter. People understand them better if they have a wholesale background. So if you deliver 7 days or 10 days late, when multi-brand stores have already prepared their store windows with other brands, they're not going to change their windows because your stock has arrived. See what I mean, this is a very delicate issue. I mean deliveries are very, very important for wholesale customers in particular. And since, we come from a wholesale background, we are pretty well organized as far as deliveries go. But, this deliveries organization is very beneficial, because it means that as soon you feel a product is really taking off, you can do reorders, you can manufacture more. So what happened in 2020, we slightly we just took some time because we didn't really know what to expect. In 2023 -- actually, in '21, '22 and part of 2023, there wasn't much product available on the market. So we were very reactive. And proactive too. But if your growth project is 5% to 6% to 7% in terms of units, then Paola, it's relatively easy to manage that. But if you need to manage growth, which is 25% to 30% with pretty high sales, so things become much more challenging. So if you ask me about my big concern, it's design. But if you're brave enough to listen, then you can fold design out. So I spent 4 days in PTI. I talk to 300 multi-brand accounts. And we look at them viewing our collections. And so if they don't seem to satisfy it, then you have to go back home and say maybe we should take a color of for it at another or whatever. It's a bit difficult to just listen to criticism. We all know that. We don't like it in general. But if you listen to criticism, you are at least 2 years ahead of everybody else, you intercept in new trends as they come up. But if you only listen to your store managers, and they always tell you we're the best, we are so good -- but I understand them because they only see the products we have in our stores where multi-brand accounts see 300 collections 6 months ahead. So that's the big issue. What about growth in different geographies?

Well, for the first quarter, it's really well balanced. I mean they're nearly pretty much the same everywhere. Very, very well balanced, and we like it. It's maybe too balanced in a way. We still have 2 weeks to go.

May I ask a follow-up question? Can you comment on three, four points of increase from the mix? What kind of products are becoming more peculiar and popular? Is it menu or network?

Well, first of all, we do 50% men, 50% women. Yes, let me go back to what Brunello was saying earlier, Creativity is the name of the game. This is what really brings the right mix. We always try to do things even more manually and the artisanal way and also the wealthy consumers in the world are looking for creativity and quality. They're looking for content. They need to be satisfied by the way products feel and not just look. So all of those contents are things we are very satisfied with. Also, our creative teams here in Solomeo are very good at doing this. We are a product company to begin with. Paola, if 1 year, the trials are very wide and long, of course, they're more expensive than tighter pants. If 1 year longer code is more popular than the bomber jacket. Of course, it will cost a bit more. So these are the key differences that may vary from year to year. And this is where you have to be lucky enough to get the taste right. There are no further calls. There are no further questions. So then thank you very much. Thank you to you all, and talk to you in about 1 month. we'll only be talking about revenues at the next conference call. So we'll have time to discuss the topics too. Thank you very much. Bye-bye.

Goodbye, everyone.

This is the Chorus Call operator. The conference is now over. You can disconnect your phones. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]