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

Good evening, and welcome to the presentation of the First Quarter 2025 revenues of the fashion house, Brunello Cucinelli. The speakers will be Brunello Cucinelli, Executive Chairman and Creative Director; Riccardo Stefanelli, CEO; Luca Lisandroni, CEO; Dario Pipitone, CFO; Moreno Ciarapica, Co-CFO Senior; and Pietro Arnaboldi, Investor Relations and Corporate Planning Director. [Operator Instructions]. And now I'd like to hand it over to Brunello Cucinelli. The floor is yours.

So welcome back to analysts, investors and journalists. So before we start, we would like to thank our friends from Moncler for postponing their call by 30 minutes. Thank you. Thank you so much. Now -- so this call will be extremely brief, but we do not -- we do want to walk you through every single detail. So if you need any explanation, please do not hesitate to ask. It is the first call of 2025 for this first quarter, which has so far been very, very positive. This morning, our Board of Director first examined the quarterly figures and then focused entirely on what we refer to -- we, I want to say it clearly, we refer to as the battle of tariffs and not the war or tariffs war because the word war means harshness, whereas a battle is something different. And we also discussed our countermeasures we have put in place. As always, all 10 of us are here to share our thoughts. So what about the structure of the call? First of all, I will read out the press release with the quarterly results, then I will speak about the countermeasures we adopted to face what you refer to as the battle of tariffs, and then we will reaffirm our year-end forecasts. Then in the second part, we will revisit our upcoming projects and the investments, but there has been no major change, so we will provide you an update on the ongoing initiatives. And now let me read out the highlights. Excellent revenues of EUR 341.5 million, marking growth of plus 10.5% at current exchange rates and 10% at constant exchange rates. Revenues by geography. Americas, plus 10.3%; Europe, plus 10.1%; Asia, plus 11.3%. It really seems that we have rounded up or down everything in order to have everything on an equal footing. Then sales by distribution channel: Retail, plus 11.9%; wholesale, plus 8.2%. Strong and consistent growth across all markets with a significant contribution from both channels, reflecting the deep desire of our high-end luxury clientele for garments of exquisite craftsmanship and exclusivity, as we like to repeat. Then a substantial investment plan for '24-'26 continues as planned for the artisanal production made in Italy, with major progress in the construction of the new factories as well as the expansion of our Solomeo facility, which will enable us to operate with confidence for the coming decades. So we have asked all our employees worldwide as well as our external manufacturers to consider to view this as a somewhat special moment for the world at large and to remain hopeful, focused, courteous, gracious and united until the economy stabilizes once more, understanding that all these challenges are cyclical and are part of human life. Based on these reflections, we confirm our vision of closing 2025 with revenue growth of around 10% and a healthy balanced level of profitability. Then on April 3, Brunello Cucinelli was awarded an honorary PhD in Architecture by the University of Campania "Luigi Vanvitelli", and I'm really thankful for that. Then the British Fashion Council has announced that on December 1 at the Royal Albert Hall in London, I will receive the prestigious Outstanding Achievement Award. It is the world Oscar Academy Award for fashion. So my comment as follows: The first quarter of 2025 concluded with excellent results in both the retail and wholesale channels. And we honestly see great opportunities for our brand in the future. We view this as a special moment for the world. For this reason, we have asked all our employees around the globe and our external manufacturers to remain focused on our work and of being hopeful, respectful, kind, composed and united until the economy finds its balance again. These difficulties, after all, are cyclical, and they're part of life itself. We hope that today's conflicts may give way to collaboration between peoples paving the way for a future rich in generosity and courage. This is our wish. With this in mind, we wish to reconfirm our view of closing 2025 with growth of around 10% and a sound and balanced profitability level. So in response to what we call the battle of tariffs, as I was saying before, not the war, we promptly implemented the following measures. And that's the same approach we adopted in 2001 for the Twin Towers, then 2008 for the bank crisis, then '20 during the pandemic and so on and so forth. We always begin with a reflection by Thomas Moore, who says, "My God, help me accept what I cannot change." That's it. So in this company, it is forbidden to think about tariffs. So help me change what I can change. So we held a company-wide assembly. We usually hold it once every 3 months, but this was a special edition, so to speak. We conducted 3 international calls with our store managers and our DSAs, divided by geographies. So one, we had a call with all our 400 external manufacturers with 9,000 employees. So what did we say to one another? We will not alter any of our projects, but we will increase our level of attentiveness to the highest degree, focusing intensely on what follows. We do not want to talk or discuss with anyone who has not strictly to do with business. And once the situation is back to normal, then we will start meeting with other people. We need to be focused even more on collections, on visual presentation. That's something we can change. Lifestyle, that's something we can act on. Then in-store staff, they need to be -- as we told them, they need to be kind, well-mannered, courteous, gracious, never arrogant and never pushy. You need -- as you know, 85% of our employees' wages are fixed, so that's why they can have more -- they can be less pushy, so to speak. And ultimately, we said that for the first half of the year, the prices in the U.S. is what it is. For the second half, there will be a price increase of 3%, 4% for the second half of the year, as I said, but this will not be an issue because selling a garment for $2,300 or the very same piece for $2,400, I don't think that it will really make any striking difference. This is not a problem. But in fashion, we still have an issue because the other brands, in general, they have been slightly arrogant. They want customers to queue unless they are VIPs. We -- so what happens is that we want to do exactly the opposite, even more so now. You have to understand who stands before. You have to respect them and offer a sense of tranquility. By nature, even the very wealthy customers may carry concerns for their businesses. And if we can be slightly better, then we can do something definitely better. So what did we say to our 400 external manufacturers who employ around 9,000 people? So we reaffirmed our sense of solidity, the soundness of our company. And to all salespeople in the world, we told them that they will be paid exactly the same. We will not change anything at least for the coming 2 years, then we will see. So be focused on your job, but do rely on us. And the same, we did say to the 400 external manufacturers who employ around 9,000 people. We told them that we feel sound, robust, steadfast and we are very elastic and flexible in our production. But we have to be even more flexible and we have to be even more careful. Even more, you might ask? Yes, even more because this is something that might apply for 2, 3 or 4 months. So we must be even more focused here. We told them to be ready for restocking or modifications, always ready to change a jacket, a jumper because this can make the difference. This flexibility that we have always displayed has turned out to become a huge benefit, especially in 2020 during the pandemic. So this solidity in our exclusively made-in-Italy production gives us great peace of mind. So we are here in Umbria, but in Italy at large, there is an almost century's old traditional heritage, and we are deeply committed to upholding this. We have a great many young workers engaged in highly skilled manual and artisanal tasks. So much so that the factories we had initially planned to complete by June 2026 may, in fact, be ready by February 2026. Therefore, you may expect capital investments in 2025 to be around 10%. But in '26 and '27, they should be the following: 7.5% in 2026 and 7% for 2027. And truth be told, as we were saying this morning at the Board meeting, if we can complete it by December 31, this would make us even more confident in the future for production. So in 2 months' time, we could say to you, you might consider 10.5% investments and then 7% in 2026 and 7% in 2027 because these facilities, you should know that they will cater for our needs for at least the next decade. Since you know we want to always double our revenues in always 6, 7 years and if 65% -- 70% of these revenues is made up by the volumes and the rest is price, it means that we can carry on confidently. So we don't want to change any strategy. We are not changing our investment in new artisanal production facilities. We are not changing retail expansion plans. As you know, we open just 3 or 4 stores every year. And this is important because we think that we can seize good opportunities. And we are not -- we don't want to change anything in terms of the number of family style events that we hold on a yearly basis, as we did the other day in Monte Carlo. You see, at first, I was not willing to go because I thought maybe it's not a good idea to go and watch the tennis tournament. So -- but instead, I decided to go because I wanted to speak to the 150 clients, and I went there specifically to speak to them and to tell them -- speak my mind about how I see the world. In conclusion, our view of 2025. The first 2 weeks of April have not shown any signs of disruption. But of course, we still do not feel the impact of tariffs have not been applied yet. But again, we always say we stand for Italian luxury, top-notch high-end luxury. And we always rely on very high quality. So basically, we are focused on this segment of the clientele. So basically, we assume that we will have a 10% increase in the turnover in 2025. Margins will also slightly improve. And investments will hover between 10% and 10.5%. In 2026, we do expect to have, again, at least 7%. We will have 2 major events in the second half of the year, which we believe will provide us with a quantum leap forward for our brand in 2026 and 2027. On December 1, a global fashion award will be bestowed upon us. And on December 1, we will have the premier of our film in Rome at the Cinecittà. Naturally, in 2026, we'll travel the world to promote the film, and thus the brand. So it will involve quite a bit of travel for me, but I've always believed if one doesn't wish to travel, one should not pursue this profession. So basically, some final remarks. We feel a strong sense of responsibility towards our local area. We walk the talk, so to speak. And this is the spirit with which we carry out our work. So we would like to seek and embrace a deeply responsible approach in all the activities that we carry out, including you, of course, our investors. We feel steadfast, sound and we strive to work with great focus and courage. Please believe in us. And we know that there are great opportunities looming on the horizon for us. Last, but not least, we continue believing in this call of 6 per year, basically. And this helps us in maintaining a steady, thoughtful dialogue with you as our analysts because you are our representatives, basically, out there in the world. So thank you very much. And I hope I've been very clear in my short presentation. It's 10 minutes after 6, so basically, we have about -- well, it's 6:00, it's 4 past 6, to be more specific. So it means that we still have a few minutes before the Moncler call starts.

[Operator Instructions]. The first question is by Oriana Cardani of Intesa Sanpaolo.

My first question concerns the sales in your stores in the first quarter. Could you give us some information about the scope effect out of this 12%? And then the second question, maybe it's more philosophical in nature. You confirmed the plus 10% growth for this year and so you're very confident, and there are many elements supporting this expectation, but what could the main risk be?

So that's a one-million-dollar question, but I'll try and reply to your question. So the first one, over to Luca.

Well, the retail performance level is something we keep a good eye on. And given tangible data, we have come about to 50% of this expected growth. So our sales have been growing in a very healthy way. And we, of course, have the contribution of our new stores. And then as to your second question, well, we had a Board meeting earlier on and the message that we shared was there are things we cannot change, so it's not worth concentrating on this. What we can change is what we do is our behavior. So if we remain very focused on our activities, so it means delivering a bit more, be more welcoming with our customers means making our collections available more swiftly, these are the only things that we can really improve. And in 2021, 2022, 2020, we really derived benefits from this strategy. Back in 2020, we only lost 20%. And given the situation, that was, of course, very positive. When we met in April 2020 and we told you, we expected to lose 10% and you all told us, how can you assume that your losses will just hover around 10%? Yesterday, we had the President of the region of Umbrian Government and also some of the mayors of the cities surrounding us, and we exchanged views. So again, we will be concentrating on the things that we can change. And maybe if we're good at that, we will improve our results. Then in terms of production, in terms of manufacturing, the flexibility that we provided in 2021, 2022, meaning working on Saturday morning or sometimes working longer hours, that helped us to be extremely flexible and that was an asset for us. And again, there are things we cannot change. So I don't really like the idea of telling you, well, we have budget constraints and we will have to stick to our budget.

The next question is by Melania Grippo by BNP Paribas.

I call from BNP Paribas. Congratulations for the results of the first quarter. I have two questions for you. First, I would like to know if the growth of the retail channel in March was significantly different from the 12% which you published and if the timing of Easter somehow had an impact because Easter was in March last year? Then second question about the distribution by category. Are there any garment categories that are now weaker than others? I'm referring to shoe wear, footwear or...

Thank you, Melania. So I will reply to your question as regards to the growth in the first quarter. Thank you for this question because this gives us the opportunity to tell us something we are really very proud about. We want to have a very even and smooth growth throughout all the geographies over time. It seems that you have asked us this question right on cue, Melania. So Easter, well, we don't believe that Easter had an influence on the timing whatsoever. And we really like this idea of uniform growth. Our roots are becoming deeper and deeper throughout all our markets. And then product categories. Well, we have 85% apparel in garment. When we went public 12 years ago back in 2012, we used to sell 85% garment, and this is still the case today, 12 years on. So we are an apparel company and ready-to-wear apparel. So in general, Melania, we can still say that we sell 85% ready-to-wear. So no major changes in this regard and rightfully so, you say. So what we did was to keep our promises. We are a sound and steadfast company. And as we said earlier on during the morning, we will try and make sure that our new buildings are up and running as quickly as possible because when you got full control over your production, then it means that as of tomorrow, you can change your manufacturing planning schedule in the blink of an eye. So this gives you a lot of flexibility. So it has already happened to us, that it was necessary to work on Saturday morning. We did that. No problem. Because that means that we will derive some benefits, we'll be more efficient, we will stay more focused. When it comes to lifestyle, if you work a bit harder, maybe the jacket looks even nicer. And your visual activities will also be more successful. So when the going gets tough, human beings give their best. And earlier on in the morning, we had the mid-day holy mass for Easter. We had the Bishop here. So that was really very nice. And respect is always written in capital letters here. So we really have a winning card up our sleeve, which is respect and which is focus. Thank you, Melania.

If I may ask a follow-up question on something that was mentioned earlier on during this call. I understood that the price increase in the U.S. should hover around 3% to 4% in the second half of the year. But this -- does this factor tariffs in or...

Yes, yes, it does. It does. Yes. Our culture does not really allow us to change the price list during a season. So our prices will not be changed. But then when it comes to the winter collection, so we're talking about the collections that will be delivered as of July in our stores, there, we will have to factor in then tariffs. And we assume that this will determine a price increase between 3% and 4%. So now, things won't change. We don't underrate the current situation. So we have been paying 11%, 19% to 12%. We can't call them tariffs as regards to our imports from the U.S. The price list was always 100 for Europe; 121, 122 for the U.S.; 128 for the Far East. So things don't change. Then as of the second half of the year, we will have 125 for the United States instead of 121, 122.

Next question from the English language. Natasha Bonnet of Morgan Stanley.

Congratulations on the good results. I've got two. Just first, within Asia where you had 11% growth, did you see any differences by countries within Asia? And can you tell us more about the performance in China, where I believe you're significantly outperforming peers? And anything your local teams are telling you regarding the outlook for the market? And then my second question would just be, you mentioned you still see opportunities for your brand in the future. Can you just develop on this? Are you looking at further category expansions or any markets to call out?

Luca, over to you first.

Well, when we said we want a very homogeneous uniform growth, this applies to Asia as well, to China. We are very happy with Japan, Korea, the Middle East, China. So there are no major differences in this regard when it comes to the performance of this market. And in terms of growth prospects, there are many of them. In China, things are doing very well for us. In China, we're doing 13%. So there are great opportunities.

Once Luca is done, then I will reply myself.

We ended a great 2024, and we started 2025, which was off to a great start with a lot of excitement for the many opportunities that we see on a daily basis.

Well, yes, Brunello speaking, Natasha. First thing first, we can say that Korea, we are opening a great store in October. We are having a great event there, and the same goes for Japan. And I'd like to dwell on China for 1 split second. With regards to China, so in China, we have always maintained our brand extremely exclusive and high-end. And I keep repeating it, we need to be known, probably less known than we were yesterday. We want to be less known. So I have always seen this. We hear this from the celebrities, from the great ministers. We will organize a great cultural event in 2026 in that country. We are very much -- we have very, very strict ties to that country, to China because since we buy their Cashmere, we have been doing so for 40 years, so we have a different outlook on that country. But I always believe that, that country, everybody is very online, very connected, very informed. So you see everything becomes known too quickly. So we need to stay exclusive there. If we are able to stay exclusive, then the future ahead of us will be brilliant in this country. If we commoditize and over-distribute, they will get to know about it immediately because they're always very connected. And everything becomes slightly cheaper. I don't know if this was clear, Natasha, but what matters the most here is to maintain craftsmanship and exclusivity and lifestyle. That's what matters the most. And also the storytelling about the brand, the values, yes, the values, obviously.

Adrien Duverger, Goldman Sachs.

So my first one, could you please comment on the resilience from the higher spending cohort? Have you seen an increase in the proportion in your sales in the beginning of this year compared to last year? And if so, have you seen any difference between geographies? And my second question would be on the wholesale channel. How is the confidence across your wholesale partners? And how would that compare to when you last spoke to us, I guess, before the different tariff announcements? And if you can also comment on the order book and if there are any timing issues that we need to be aware of?

So I will start from the last one. Order book timing, nothing, because we closed the sales a month ago, so everything is fine. So we actually find that there is -- in the wholesale channel, there is an extreme attention and care on the brand and on the relationship. You should consider the multibrand accounts are very much -- they have a very strong relationship to the final customers. Then the high-end cohort, in the past 4 months, we did not see any difference. We have just over 400,000 customers altogether, so not many. But also with all the events that we organized across the year that I met them in Monte Carlo the other evening. You see, my take on the high-end clientele is that they want to perceive a great atmosphere. You see, I myself, I'm quite a wealthy man. It does not really change anything with everything that is going down. But what I don't like is I don't like the mood, the atmosphere that is a bit more glum, that is a bit more sad. It's just a question of atmosphere and ambience, I would say. There is still a lot of openness and desire for good taste and lifestyle. Now they step into our stores, and they really want to receive tips on their total looks, especially menswear. Especially menswear because, you see, men, they really -- sometimes, they need some tips. Whenever they walk out of our stores, they want to be 100% sure that if they wear that kind of suit at that event, they will feel better.

Next question from Charles Scotti, Kepler.

I've got only one. It's a follow-up question on category expansion. It seems that you are placing a greater emphasis on leather goods, particularly with the recent launch of the BC Duo bag. Could you share how this category is currently performing? And how significant do you believe the opportunity is for your brand within this highly competitive handbags segment?

So as I told you before, we still have 85% ready-to-wear and then 15% accessories. We are a ready-to-wear company. Of course, we curate our bags and our shoes and our accessories, but we can't say that anything has changed in terms of adding loads of bags or footwear. We are a ready-to-wear company, 85% is apparel. And then we have bags, accessories, handbags and footwear. They are there to complement the taste and the identity of the brand. But nothing has changed in terms of percentages. Please, because I want this to be pretty clear because everybody tends to believe that it's very easy with accessories, it has no size, and so you make more profit if you just focus on accessories. But the identity of a brand can only happen through ready-to-wear. This is the truth. And the prize, the award that we will be bestowed upon on December 1 and the previous honoraries were Miuccia Prada and others, Tom Ford last year, if I'm not mistaken. You see, you are awarded because of your identity and taste. And the only thing that we know for sure is that we should never compromise on our identity. We must be very strict. Then of course, we curate everything that we do. We organize the whole event to present a bag, but nothing changes. This is very important. And the good thing is that at this event, too, we told the story of Camilla and Carolina, how they work together. There is always a lot of attention to the value of family because by nature, luxury is always associated to a family. And we have this advantage. So far, all of us, we are all working there at the company. My wife works with the activities in the Hamlet and the rest is working in the company. All the members of the family are involved and also working at different positions in the company. It is easier because -- so that you argue less because one deals with menswear, the other with womenswear, advertising. So we are pretty serene. The only thing we need to be concerned about is -- well, although this morning, what we heard from our Board member, Ramin, about America and the tariffs, it seems that there's only a 1% impact on the high-end bracket. And they say that the profit gained by the wealthy in the last 3 years, they would need a 50% drop in the stock exchange in order to lose all the earnings they have heaped in the past 3 years. So of course, we don't want to shout this out because it's not nice towards those who are actually struggling because of the tariffs.

My question had already been taken. But again, I would like to ask it anyway. So could you give us some information about the timing for the openings last year and this year?

Well, nothing has changed. Nothing has changed. So the plan for opening new stores chugs along as foreseen. So Vienna will be opened by the end of May. And then we will have important relocations and alignments in Geneva and Paris. And Abu Dhabi, Macau and Vancouver, new openings. This is our plan for new openings and relocations and expansions for 2025. And the progress in our building sites, so to speak, is in line with our expectations. When we say that there are rosy prospects, this is what we mean because you need to find the right location if you want to open a new store in a major metropolitan area. And you don't immediately find everything immediately. And now we already received some proposals a bit ahead of time. So we are always looking for the right opportunities. We don't really want to increase the number of new openings by double every year. No, that's not the case. We, once again, rely on very, very healthy growth. That's for sure. If growth is too much, then it means that the brand will suffer. So we're just trying and making this happen.

And could you also give us some information about how many openings there were last year? I think that in the second half of the year, you had a higher number of openings, if I'm not mistaken.

Yes, just 1 year ago, we opened up the store in Miami, and then the other openings took place in the third and in the fourth quarter of the year.

[Operator Instructions]. For the time being, there are no further questions.

Well, then we seize this opportunity to thank you. So I wish Mr. Ruffini, my dear friend, good luck for his call. And thank you so much, and we wish you all the best. Thank you.

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