Moncler S.p.A. (MONC) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Moncler Q1 2020 interim management statement. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Remo Ruffini, Chairman and Chief Executive Officer of Moncler. Please go ahead, sir.

Paola?

Yes, Remo, you can start, sir. You go direct.

Okay. Okay. Thank you. Sorry, I didn't know that. Good evening, everyone, and thank you for attending our conference call tonight, although normally, I do not participate in the first quarter. Today, I thought it was very important to be here with my team and with you all. In this day, in which we are all far apart, being together has become even more important. In Moncler, together we are facing these difficult moments. Together, we are reacting to them. Together, we are supporting our community. And together, we have adapted our way of working. Together, we are shaping our new future. And together, I'm sure we'll come out of this situation stronger than before. 2020 will be remembered as the water sit between the before and the after. We have faced an unknown challenge. We understood that we are a truly global society. And that we need sharp, deep and coordinated actions. This is what we have done in Moncler. I ask my people to go back to basic. I ask them to think even more digital first. I ask them to further engage with Moncler community, both internal and external. Since the outbreak of the virus, we act with 2 priorities, taking care of our people and of our brand, having always our client in mind. We have created a tech task force to face the crisis. In one weekend, we learn how to work from home. We have started an energy plan to keep in touch with our people. We have started to communicate differently. We support in this emergency an important project for our city, for Milano. Advertisement saved in 1,000 -- 1929, sorry. Crisis can be a blessing to any people. To any nation, crisis bring progress. Crisis are moments of learning. They oblige people, our company, to take time to reflect, to look inside, to analyze deeply strength and weakness, to choose the essential, to find new energy and to act. Now is the time to act. We restart, and we have to do it by remembering what these weeks and months have taught us. I feel an unbelievable energy in my team and all Moncler people. New ideas are arising for today and for tomorrow, new way of thinking, new tools, endeavors to attract with our clients, to talk with them even if far apart. 2020 will be difficult. We all know this, but Moncler will not find short path to improve short-term results. We have never done it and will never do it. We have skills, we have talent and financial strength, and we know that it's better to suffer today in order to be stronger tomorrow. Also, for this reason I supported the Board resolution to withdraw the payment of dividend, a decision absolutely not necessary, but that I welcome. And I asked to waive my total compensation for 2020 and the variable one from my executives. We have always managed this company with strong rigor. To restart, we have a powerful brand, a clear strategy, but also financial strength and motivated people to continue finding our inner genius altogether. Our yesterday craft our today. Our today shape our tomorrow. Our future is carved today. We are ready to face this challenge with the same energy, the same emotion and rigor that we had at the beginning of this journey. Altogether, we will take it. Altogether, we will make it. Thank you very much. I'll give the floor to Paola and Luciano.

Thank you, Remo. Thank you and good afternoon, everybody. First of all, let me highlight that we are tonight, we are all connected, as you can understand from different places from our homes, so our different homes. It's the first time we are not physically together, and it is a new experience, which I hope we will go without problems. I will start providing you a review on our revenues, and then I'll leave Luciano commenting on all the actions we are taking to face the current situation and to ask your questions. Luciano will also manage primarily the Q&A given the logistic constraints. Let me also highlight something that I need to remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Moncler's current expectation and projections about events, future events and are subject to risks and uncertainties that could cause results to differ even materially from those expressed or implied by these statements. In addition, let me remind you that we have invited members of the media to participate in the conference. Let's now go to the numbers to the results. Moving to Page 5 of the presentation. I will make 2 quick comments. The first one is that in these 3 months of the year, we have been, as all know, severely impacted by the global health emergency that we are facing. All channels, except the online, and all markets have been affected by the spread of the virus COVID-19. As a result, our revenues declined 18% at constant and reported currencies. Moving to Page 6, revenue breakdown by distribution channel. In the first quarter of this year, retail revenues were down 19% and wholesale was down 15%. Retail performance has been impacted by the temporary closure of many stores during the quarter. In February, we temporarily closed up to 14 stores, mainly in China. While in March, we progressively temporarily closed up to 111 stores. At the end of March, we had all stores in EMEA and in Americas temporary closed. Our wholesale revenue performance reflects not only the difficulties at the moment, but also even more the actions that we have taken to limit the risk of our stocking. In particular, we have postponed all deliveries expected to be done in February and March. Let me also underline that our e-commerce posted very good growth in both the channel and in all regions. I will now move to Page 7 of the presentation, revenue breakdown by region. As I said -- as I already said that all regions have been severely impacted by the current crisis with barely no exceptions. Italian performance incorporates not only the closure of all the retail stores from March 9 and actually also the previous sharp decline in traffic, but also the action taken on the wholesale channels. EMEA outperformed the rest of the regions. Thanks to a strong start of the year and also more limited numbers of days of closures for the retail. Asia and Americas reported similar performance, down 23%. In Asia, Japan and Korea, in particular, outperformed, while Hong Kong remained the most difficult market. Let's now focus on the region EMEA, Page 8, EMEA including Italy. Europe and Italy combined reported a minus 12%, with both China recording negative growth. Germany and Middle East posted the best performance in the region, also driven by positive results in the retail channel. Italy and partially France underperformed the average of the region, having had more retail closing days in the quarter and having being affected by lower travelers in the previous weeks. Online was up double digits. Let's now talk about Asia, which, as you know, it includes APAC, Japan and Korea. China, Mainland China has been highly penalized by the COVID-19 spread, in particular, in the month of February. While in March, we have started to see signs of improvement, which has continued also in April. Hong Kong remains a very difficult market, as already said, as well as Macau. Japan and even more Korea outperformed the rest of the region. Korea, in particularly, has been less impacted by the virus and benefited by the strong local demand. Japan also had less store closures in the quarter and had a sound local demand. But unfortunately, now the country is completely locked. As you know, all the stores are closed. Online business, in particular in China, but also in Japan has been growing strong double digit. Of course, we are talking about off a small base, but very nice growth. Finally, moving to Americas. Revenues in the Americas decreased 23%, not much to add here. Both the distribution channel suffered for the effects of the virus of the COVID-19 spread. And finally, on our store network, Page 11. At the end of March, our retail stores reached 213 units. In the quarter, we opened 4 locations, including our store in Kiev in Ukraine, a new market. In terms of stores temporary closed, I've already commented, but I can add that as of today, we have 130 stores temporarily closed. In April, unfortunately, we had to close all the Japanese stores. But in the meantime, we have opened 8 stores in Europe. In addition, in the quarter, we opened 2 wholesale mono-brand stores, but we also closed -- well, actually, we converted from wholesale into retail other 2 stores. I will now leave the floor to Luciano that will take you for a deep dive into all the actions that we have taken to face the current crisis and then for your Q&A.

Okay. Thank you, Paola, and good afternoon, everybody, and thank you for attending our call today. We are now at the Page 12 where we report, as Paola said, the slide and with all of the actions we are taking to face and to protect the company and our people and our stores from the virus, from the coronavirus. We see all the most important periods we are working on. The first one and most important is our people. People, as you know, is the most important asset of our company. And for this reason, we took actions to implement very stringent health measures to protect people that kept working in our facility, to protect them from the health point of view. In addition, we implemented actions to protect the other compensation, mostly for people that are not currently working. I'm talking about the people that work in the stores that are currently closed. We decided to integrate the salary to maintain their level of salary. Brand and the client. We keep communicating the value of the brand. And we keep communicating with our clients, with mostly our local clients in order to keep alive as much as possible our relationship with them now more than ever. OpEx and CapEx. Of course, the current situation is having a very severe impact on our sales and, of course, also on our P&L. In order to reduce as much as possible such impact, we are working to reduce our OpEx and our CapEx by selecting and working on only, only on high-priority projects, digital first and some important retail projects. Talking about the CapEx, we cut our CapEx budget by about 30%. We are also working, of course, on inventory. As we said during the last conference call in February 10, the day right after the COVID outbreak, actually the month right after the COVID, we took immediately actions to adjust as much as possible our open to buy and to reduce to cut our production plan for the fall-winter season of 2020. This is an ongoing activity. And this, of course, is very important not only to protect our P&L, but also to protect our brand integrity. We also cut our marketing budget, focusing as much as possible only on important projects and on digital projects. Rents. Rents is an open discussion, an open negotiation with landlords are not easy and -- not easy at all, very, very tough and very, very difficult. But, of course, very, very important to protect our profitability. Last but not least, cash. I mean we have the benefit of having a very important net cash position, which is about a EUR 700 million net cash, but we also took a decision to withdraw the dividend payment that, as Paola said, was and is not strictly necessary, but we believe that it's important in such a dedicated and critical time to protect the company for the future. Okay. These are my comments, and we are now ready to answer your questions. Thank you for your attention.

[Operator Instructions] The first question comes from Ms. Louise Singlehurst of Goldman Sachs.

I'll just ask 2 and then we can move on. The first question and the obvious one to ask is what can you tell us a little bit about China and the reopening of stores just in terms of appetite? Obviously, mindful that the rest of the stores around the world remain closed. And then secondly, very interesting to see such sharp discipline being taken in wholesale during the quarter, so much greater control in terms of the inventory. Can you just help us think about the working capital and how we're going to deal with the inventory build that is unsold for this current season? Presumably, you get some benefit with such a small seasonal weight for Q2. But can you keep a large chunk of inventory for next year in terms of the evergreen product and just the seasonality of the business?

Okay. Okay. Thank you. Thank you for your question. About the China, first question. China was the first country, first market severely impacted by the virus, but was also -- it was also the first market, the first country that reopened the stores. Right now, China is in a much, much better shape than any other markets. The stores -- all the stores are opened. And we see very encouraging signs of improvement. Good signs of improvement in March and even that are signs of improvements right now in April. So we are confident. We are confident that the situation recover very pretty nicely in China. Even if I have to tell you that right now in April and May, the due least important month for our business. And so even if the signs are very encouraging, I can tell you that are still particularly significant. But again, very good signs of improvement in China. About working capital. Working capital is the problem as we said before. And because it's the most important problem of our profit and loss, not just working capital, but the impact that working capital may have on our profitability, we took immediately actions first on inventory. I'm talking about retail first because as I said before, we immediately implemented actions to cut our production plan for the fall/winter season, that coming collective season. We couldn't do a lot on the current spring/summer season because at the time of the outbreak, most of the production was already completed. But we are now working on something that we anticipated correctly. We are now working on the collection, and we are very selectively selecting some bestseller items of the current season that were very bestseller in January, but because of the closure of the stores are still in our inventory. And some of these bestsellers will be carried over to next year to spring/summer 2021. So this is something, again, let me say it again, we are doing very, very selectively because we don't want to move a problem from one year to the other. But again, I'm talking about only bestsellers of this season. And second action that has already been also communicated by other brand. Of course, if, and hopefully soon, the stores will reopen, we plan to maintain our pre-summer product in our stores longer than normally longer than last year. We normally changeover -- implemented the changeover in end of May, June or later in this year. The changeover will start probably in June that we will maintain our pre-summer product until August, September in order to minimize again as much as possible the impact of the leftover. About our sales. Of course, our sales is a channel made of stores that are facing the same situation. So we expect this problem -- to face this problem with our wholesale customers. But I have to tell you that because of this situation, our wholesale business in January was doing very well, and it was way over the results of last year. But right after the outbreak, we immediately stopped our deliveries to our wholesale customers, exiting order to minimize the impact of their inventory. And this is the reason why our wholesale business is down in the first quarter, and it is down only because we stopped deliveries to our customer as, again, in order to minimize the inventory problem they may have. Of course, we also implemented relations that are still alive with our customers, with our wholesale customers in order to see whether or not we can get some returns from them at the end of the season. But, of course, to make the long story short, the inventory is the problem of this year. Again, we are acting as much as we can on the fall/winter season, but we are acting -- taking the initiatives. I just told you on the spring/summer season, but for sure, we will have a leftover product at the end of the season. I told you what we are doing. I didn't tell you what we don't want to do. That would be the most simple and the easiest solution, the easiest decision to take, that will be to push spring/summer leftover to our outlets next year. That would maximize our outlet sales, that would maximize our outlet profits, but would be disaster for the brand. So this is something that we are not doing and will never do. About working capital, the other component is credit. The credit is strictly under control. I mean our receivables are protected by our insurance policy. Having said that, of course, we are looking very closely at the overall situation of our wholesale customers and, in particular, of our some department stores, that's specifically North America and also the rumors that are circulating right now about some difficulties that were expected. But in any event, our credit is totally protected by our insurance policy. Thank you.

And one quick question, just to clarify, is China back to positive territory?

Mr. Santel? I think Mr. Santel is on mute.

[Foreign Language]

[Foreign Language] Sorry, we lost Mr. Santel. This is the progress. I think he will rejoin in one moment. In any case, I can take the question. We don't go so much in detail.

Hello?

Okay. Here he is. Louise was asking a follow-up question on China. If -- she was asking if China was on positive territory. I don't know if this was your question.

Yes, it is.

Okay. China is providing, as I said, some positive and encouraging signs, and it is still too early to tell. I mean it's not a strong, strong signs, honestly. Again, positive, but still early signs. So again, we are confident about China that I'm not telling you that we see strong signs in China because it would not be true. Again, we are confident because the signs are encouraging and are getting better day after day.

The next question is from Luca Solca of Bernstein.

Thank you very much indeed, Remo, for your generosity to Milan. The first question is an attempt to understand beyond geography, how you've experienced organic growth trends by nationality, so that we can better isolate the impact that the Chinese suffered from COVID-19? And where that and how that is going to reverberate across the various nationalities? More practically, you were talking about the change and the adjustment to manage inventory. I wonder if on the back of the disruption you are changing the genius calendar this year, and how you're planning to change it in case? And then more technically on operating deleverage, it's very difficult, I believe, at this time, to make any forecasts for the full year. It's very likely that it's going to be a very, very difficult year as you pointed out earlier in the call. I wonder how you see operating deleverage work for you? And given the actions that you're taking, what kind of top line reduction would bring you to breakeven point?

Yes, okay. Thank you. Thank you, Luca. And now to your first question, organic growth by nationality. What I can tell you is that, of course, our Chinese cluster is suffering more than the others. First, because of what happened in China and because China was the first market where our stores were closed, but also because Chinese people are not traveling and didn't travel after the outbreak. I can tell you that in January and after the outbreak, for the first week or 10 days after the outbreak, our business in Europe was pretty good, also thanks to tourists and specifically Chinese tourists. But after they went back home, of course, they didn't travel at all. So I'll tell you the cluster, which is still our most important cluster, but it is down as compared to last year also on a percentage basis. So all the other clients are more or less in line with the last year. Even if I can tell you that South Korea is better than last year because Korea is the market that is suffering, and they're suffering less than others, honestly. And so the cluster, the Korea cluster is a little bit better. And also in the first quarter, the Japanese cluster is a little bit better. But as Paola said, in April, end of March or beginning of April, we closed all the stores in Japan. So this information is not particularly meaningful. So this is about your first question. About gene, yes, of course, we are working, I would say, we keep working on the calendar because we planned originally, we expected to deliver Simone Rocha and Richard Quinn between March and April, if I'm correct. And now we are planning to deliver the 2 collections in May, and we hope to be able to maintain and to meet this plan. But, of course, we may change. We also maintain our plan to deliver in June fragment probably with some weeks of delay. But, of course, right now, it's not a big problem. Of course, we want maintain as much as possible our Genius calendar because if you attended the show where we held in Milan in February, you know exactly what I mean, that the collection, all the collections are very, very nice, impactful. So we really hope to be able to deliver with the same calendar or with some delays all the Genius collections. About operating deleverage, I mean, honestly, we have a number in mind. Luca, it's not a number I can tell you. But what I can tell you is that it is a big, big number. I mean the reduction in order to breakeven, that is not to make any profit. If this is a question, it is a very big number. We have about 40%, as you probably know, of variable costs. Costs that are variable or cost that we force them to be variable. An example, for all marketing, which is not available, but considering the current situation, we are cutting our marketing budget. And also, honestly, I expect for this year a percent closer to 6% than 7%. Something important to say is that our functional cost is something we are taking actions, but with the first priority in mind, that is what I told you before, that is more to protect them, to keep them motivated as much as possible for the time when we will reopen the activities in the stores. And so we prefer to spend more money now to integrate their salaries than to save that money because that money is an investment in motivation. So I mean, again, to make the long story short, in order to breakeven, we can play to cut our top line of a big, big number. Of course, we plan and we hope, more than plan, to maintain a reason for top line still with a significant cut, but to present, to report a profitability and operating profitability that, of course, would not be what we and all the market is used to see, but still a reasonable and fair profitability because, again, we have taken all the actions I said. I don't know if I answered your question, but please, if I not...

I think you did.

The next question is from Antoine Belge of HSBC.

Three questions, if I may. First of all, compared to some of your peers, it seems that the U.S. has been suffering more relatively to the other region. So can you explain if there is a specific region or maybe about the timing? Is it truly in the month of March that led to that minus 23% decline? Second question regarding new stores. I mean they are a big part of your story. Usually, they contribute sort of high single-digit numbers. So first of all, what was the contribution of new stores in Q1? And since you are talking about a 30% reduction in CapEx, I guess, some stores will not be open this year. So what's the sort of a reasonable number of stores that we could expect? And finally, on the gross margin, you mentioned a bit of a challenge in terms of inventories and also maybe retail will not outperform wholesale versus as has been the case in previous years. So should we expect a decline in gross margin this year? And what would be the magnitude of that decline?

Thank you for your question. About the U.S., about North America, actually, North America is suffering more or less in line with other regions. Honestly, I can tell you that some decline is associated with the wholesale business, first, because we anticipated in November and December deliveries because of department stores in the U.S. at that time wanted to receive a product as early as possible to sell out the product before Thanksgiving and before Christmas as usual, but even more than before. So, in general, these deliveries were lower, softer than last year and also because in earlier March, as we said before, we stopped deliveries in all the markets in all countries. But, of course, the U.S. was impacted significantly by these 2 reasons. I'm saying from the retailer point of view, stores, I mean, we -- you may remember comments we made at the time of the last conference call. We said that also way before the virus arrived to the U.S. or to Europe, the stores in the U.S. as well as in Europe were not doing extremely well because after the outbreak in China, the mood, the worldwide mood was very critical, was very weak. And so our retail network started to perform not very well before we closed the stores. In Europe, we noted a benefit there, as I said before, of the Chinese New Year for about 10 days after the outbreak; in the U.S., much less. And this is another reason. Overall, I mean, I can't tell you that there is a specific reason for the Q1 results in the U.S., honestly, of course, there are some concerns, some reasons to be concerned about the U.S. because they were saying business is made of some big players, department stores that are softening, that are facing -- all other stores closed right now. About the new store contribution. Honestly, I have to tell you that the new store contribution in Q1, not only because it's only 1 quarter, but also because of the current situation, it's not particularly meaningful. Definitely, the space contribution is less than the high single digit will normally indicate. For sure, it's less, but this is due to, again, to the current situation that make metrics, honestly, in the first quarter of this year not particularly meaningful. And about the gross margin. I mean gross margin decline, yes. Yes, because the impact of the depreciation of inventory will be something visible and touchable at the end of the first half, for sure, and it's difficult, premature to predict how much would be the impact for the year-end. Hopefully, it will be much, much lighter. But for sure, in Q1 that is not something we report. But, of course, internally, we close the books every month. The impact is significant. If I told you the contrary, it was lie because, of course, the problem of spring/summer leftover is a problem. And again, it could not be a problem if and only if we decided to carry over that inventory to our outlet next year. Very easy solution, very easy solution, but a disaster for the brand. So because, I mean, our financial statements reflect our business strategy, I have to tell you that, yes, you will see a gross margin decline in the first half, hopefully less for the year-end. Thank you.

Maybe just a follow-up on my question about the new stores. But regarding the full year and what's the -- in terms of store count this year, what's the most likely number of net openings?

Yes. So the net opening is still in the region of 12, 13 stores. We have postponed some openings. We have postponed some projects because, as I said before, we have cut our CapEx budget of 30%, and a part of this 30% that is in cluster related to retail projects that are new openings or expansion, relocations, like a big project in China in Beijing that is [indiscernible] that was expected to happen in October, and we postponed that project to next year. We still maintain some important projects, as I said before, one for all, our project in Paris, Champs-Élysées, which is, by far, the most important project of the year, honestly, with some concern because the construction site in Paris right now is closed because of the situation. And so we are not sure 100% to be able to open that store by the end of the year, but we are working hard to meet that plan. But in any event, I mean, if we will not be able in December -- November, December, for sure it will be January or February. Another important project, which is not a new opening, but it is a relocation, is a project store in Rodeo Drive, Los Angeles. We are relocating our store to another much bigger location, much more visible. That again will be this year. A very important new opening is the first store we are opening this year in Spain, in Barcelona. That again is another project very important to mention. But again, the total number will be in the region, I told you, 12, 13 new stores.

The next question is from Susy Tibaldi of UBS.

I hope you are all well. Can we go to spec to mainland China for a second? I wanted check if you're seeing trends that can vary by region within China. And I'm asking this because I can -- I imagine that your store network may be still a little bit underpenetrated versus some of your peers. So I was wondering if you think that you are well positioned to capture the recovery or if you could see some headwinds given your core network in the -- in Mainland China. Secondly, I wanted to ask with regards to the supply chain. Ruffini has been very vocal in the press saying that it's important to go back to work as soon as possible. So I was wondering if you have any clear visibility at the moment, as we have heard that some of your peers have started to reopen, for example, some prototyping factory. And also, I just wanted to check if your production in Eastern Europe was also affected by corona.

Yes. Thank you, Susy. About Mainland China, honestly, it's difficult to tell you whether or not there is a visible trend by region within China. As you stated correctly, our retail network position right now is good. It's good because the strategy has been severe and the way before this unfortunate situation to be very selective. And to open stores everywhere in the world, but in China specifically, only in a very big important Tier 1 and some selected Tier 2 cities and in very good locations. So honestly, yes, some stores are doing better than others. But as I said before, April and May have not significant months for our business. Yes, I can tell you something, which is not important, but just to give you some more color and the flavor of the situation. For example, in Beijing that is a city that I think we know very well from the retail point of view, there is a big department store, Shin Kong Place, where we normally -- I mean they, the department store normally holds every year, twice a year, in November and April, a big event. This event is [ purely ] million euros event in 1 week for our business, EUR 3 million, EUR 4 million a week in November, much more than in April in an event. But this year -- last year, of course, they had delayed to this year. They, of course, the curator decided not to hold this event because this event generates thousands and thousands of people. In order to protect people from, of course, from the possible revamp of the virus. So they decided to hold them, to postpone this event. Of course, this was something negative. But again, just to tell you that we monitor the market very closely. And again, we see very encouraging signs of recovery also because we keep talking with our clients and with local clients. This is something that we never stopped to do. And we see their wish to come back to the stores to see the collection. So again, we are positive. We are confident. But again, too early, still premature to come to conclusion. About the supply chain, yes, so we do have a very clear visibility. I'm happy you asked this question because exactly today, this morning at 8:00, we reopened our facility in [indiscernible] where we develop the collections. Actually, honestly, Susy, we never stopped that process because we kept working and remote working with our prototype people working from home. But right now, today, exactly, we reopened that facility, so we can now accelerate the product development process for the spring/summer 2021 collection. The rest of the supply in China and specifically, our production site in Romania never stopped working. Other factories in Romania, unfortunately are still closed. But overall, I can tell you that our production process never stopped. There has been a slowdown. We may have some delays. Honestly, nothing I'm worried about because, again, the most important factories in Romania kept working. And our factory, which is, by far, the most important, never, never stopped working. Of course, some Italian factories are closed because of the current situation. So we have some troubles, needless to say. But honestly, nothing so relevant, so important to be worried about. Our logistics hub in Italy never stopped working, of course, with limited operation, with a slowdown of the operations, but we keep shipping out raw materials to our factories in Romania. We keep receiving finished product for our factories in Romania. We keep shipping out product to our regions and to our customers around the world.

And just to follow-up. So with regards to the e-commerce, was the distribution center maybe closed at some point? Or -- because I think that your online shopping maybe just in Europe, but there was a period where it was not working. Is that still the case? Or what's the situation there?

Yes. So you're correct, Susy. Sorry to forget this. I mean you know that our e-commerce online business is operated by WinApp, and they are a distribution center in Bologna. It has been closed for a few weeks. Right now, the distribution center is open again, but with limited operations so something that we can start to communicate it to our clients. But of course, this is affecting -- has been affecting our online sales even though, I mean, as Paola said, in our online business in the first quarter was up double-digit and so did pretty well. Of course, much better than the other retail business or wholesale business. Notwithstanding that distribution center was closed in mid-March or 20 March. I don't remember exactly the date. And now that distribution center is open again, but with limited financial resource. It's day by day recovering the order backlog, which is significant and to processing of it. So now, I mean it is working. It is working. But you're correct for about 3, 4 weeks, it was closed. And not only in Italy, also in the U.S., by the way.

The next question is from Elena Mariani of Morgan Stanley.

First, can I ask a couple of clarifications? I'm sorry, I'm going to go back to China. Did I understand correctly that you've seen signs of improvements, but of course, so far into the second quarter, the Chinese cluster is still negative? I'm asking because some of your peers have planned very high double-digit growth in April. And so I was wondering where you stand. I mean, is it a single-digit improvement overall locally that you've seen? Or is it more like a low double-digit one? If you could quantify, that would be helpful because that's a very important aspect just to assess the pace of the recovery. Second clarification, you've talked about inventory and what you're doing to manage that. But if you're not doing discounting in stores, which is your policy, and you're not planning to use massively outlets, so can you clarify a little bit better what you're planning to do with your inventory because still, the vast majority of your products are more like seasonal and fashioned as opposed to carryover? And then thirdly, on the operating profitability. You were very clear in talking about the risks of operating deleverage. But at the same time, we know that your business is quite seasonal and maybe this year, this could prove to be quite helpful to you. Should we -- if we assume the scenario of potential recovery in the second half, is your statement from last time about the EUR 100 million loss materials, the maximum level you need to see to keep margins stable still valid? Or at this point given the meaningful deterioration you expect in the first half, you think this could be challenging? And then if I may, can I ask one question to Mr. Ruffini? I'm curious to hear from him how he expects the luxury industry to change after the crisis. There has been a lot of discussion in the press about luxury moving back to a slower fashion after a few years with a strong focus on capital and newness, which is exactly what you've been doing with Genius. What is your point of view on this topic? And would you plan also to move back to a slower fashion? Or at this point, you still believe that your current modus operandi is the right one for the long term?

Okay. Thank you, Elena. About your first question, I'm happy to hear what you said because it's exactly what they wanted to say. I mean I know that some brands, actually not many, Elena, said that they see very strong recovery in China. Honestly, I think not many and I think that other are still suffering. But again, we are looking at Moncler. I would lie if I told you that we see strong double-digit recovery, okay? And so I want to tell you again that we are very confident that because we believe in our brand, and we believe in the importance of our brand for our clients, okay? And we see that right now started from mid-March, the business is recovering very nicely. But I don't want to say huge, big, double digit, whatever. China is doing better and better every day. And honestly, this is something that makes us very confident for the future, but not huge numbers, also because again of the seasonality. About inventory. Inventory, you're right, you can't eat inventory. Either you sell it or you hold it. If you can't sell your inventory during the regular season, you and we and all can carryover that inventory to outlets. But to the extent, and this is a Moncler strategy, Moncler-only strategy, only to the extent to what outlets can sell, maintaining a contribution of outlet business strictly within the precise number that we have in our mind. And so again, we will never push our outlet sales because this would be a disaster for the brand. And so we know exactly how much our outlets can sellout next year of the existing leftover, which is not what we have now in our inventory, unfortunately. Some of this inventory will be selectively carried over to our regular stores. And selectively, it means that we are all working only on some items, only on some bestseller items, items that we are selling very, very strongly in January and December. But unfortunately, because of the closure of the stores, we stopped selling them. And on these items, we are working to carry them over to next season and other action, that is something that our other brands are doing. We will try to keep the current season longer than normally and to keep our product, especially the product in the stores longer than last year, probably until August to September. Look at then of all these actions, some will still be leftover. And unfortunately, I said before, there will be an unsold leftover. That leftover will be -- has already been depreciated. We really impacted that, right now, I can't evaluate. And I mean, hopefully, after the second half, it will not be particularly important. But mathematically, there will be an impact on our gross margin. But I'm not talking about accounting arena. I'm talking about business and brand strategy, okay? So that inventory will be held in our warehouse, somewhere in our distribution center. But never ever we will discount it. About profitability. You are totally right. This unfortunate situation is very, very bad, but it would have been much, much worse if it happened in September, October because our seasonality makes our business much stronger in the second half. Having said that, if the stores will reopen soon, if the traffic will start soon, if everything will be normal, like never will not be normal this year, but I mean closer to normal soon, I mean, we are very -- we'd be very happy and confident about the second half. Of course, right now it is something that I can't say. Of course, we hope this to happen also because, I mean, we have been talking about stores that are closed, but Paola anticipated that right now some stores in Europe reopened. I'm talking about Vienna, Salzburg in Austria; Germany; North Europe. Of course, we see if this trend will continue and then there, of course, in Europe, step by step will reopen, of course, the situation may change very, very nicely. But again, too early to say. About the last question, I think the last question was for Mr. Ruffini.

Yes. I think it's -- I don't feel it's a question of slow fashion or slower fashion or fast fashion. I think is -- the world has changed, and I think we have to considering them. And I really feel that all our strategy, not only do you must need an evolution because we have to respect this moment. I think we have to respect also the reaction of the customer. Having said that, I don't feel the Genius project is wrong for this moment. I think it's not a question of selling product or selling collection. It's a question of the relation with the customer. There are things in today's world, it's even more important to keep the relation daily, weekly and monthly with our customer. Means, again, I think we need to understand the mood of the customer. I don't think we have to make any decision today. We already worked a lot in these last 40 days because I think we need really an evolution of our strategy. Having said that, I can say in the tomorrow world, you don't have to push. I don't think you have to push in the next quarter. I don't think you have to push in the next month because you have to recover what you lost in the last 40 days. I think you have to think about the brand. I think you have to think about the long-term strategy. I want to keep the brand very healthy. And I want to really, again, have an evolution of my strategy because you have to consider that the world is really changed. Having said that, if I realize -- I were to realize that the Genius project is not as good as what I feel, I will change. I will change part of them or I will change all of them. I don't know yet. But for sure, I want to follow my customer, I want to follow my community. This is one of the most important things in our strategy. Thank you.

The next question is from Omar Saad of Evercore ISI.

I hope you're well. Most of my questions have been answered, but I do want to follow-up on digital. I wanted to see if you can talk in more detail about the importance of digital connectivity and engagement. Remo, you were mentioning some of those factors as well as e-commerce. Maybe an update on what's happening with your e-commerce business and website. Again, considering the kind of maybe longer-term changes in social distancing and consumer behavior of this channel and importance maybe rising for you.

Okay. Omar, about digital, about e-commerce specifically, we have, as we said before, the top of our priority projects, the digital projects, e-commerce more than one. One is the penetration of our online platform, which has been implemented in Korea, as you know. And of course, we are working in Korea, not because of the importance of Korea, which is a very important market, but because we use Korea as some kind of laboratory to develop tests, specifically on all the possible omnichannel transaction, so we can implement in order to be able eventually to expand this platform to other markets, which is something we have not decided yet. And as we said, we will make a decision and communicate the decision at the end of the first half of the year. And because again, our online business right now is operated by WinApp. The contract, as you know, is expiring at the end of this year, and with the next conference call in July, we will tell you and -- when we'll tell all the market our decision. But in any event, we strongly believe in the importance of digital of not only the online base, but everything associated with the digital communication, and the way we communicate with our clients has changed more than ever. And right now, more than ever, our digital communication is extremely important. And, of course, we communicate right now, more than our business content. We tend to communicate our brand values because, of course, the stores are closed, that people are all online. In Europe and in North America, they are all at home. So we tend to communicate our value, the brand value. We tend to communicate the fact that we are closer to them. Of course, we are communicating also Genius deliveries. But right now, as I said before, the current work were planned to be the current deliveries being postponed. And, of course, we are not communicating right now Genius. But Genius before this situation and hopefully soon when the stores will reopen, will be an important part of the content, we will communicate digitally. And I don't know if Mr. Ruffini wants to add something.

I can say exactly, I think that this moment give us the possibility to be more digital in terms of relation with the customer, in terms of sales, in terms of everything. I hope this is going to push us more and more and more to have a digital company as we project a few years ago. Having said that, I think we have changed really the mood of the approach. I don't think the physical experience is going to disappear. I think the reaction of the market could be different. I think Asia could be there a totally different mood. We see already in these days the impact to shopping. I don't think in Europe will be the same as well in America. But I think we have to respect all the culture, and we have to be as much domestic as we can really to improve our new vision to the customer. Having said that, we have a lot of things to do. The good thing that we have -- the last 40 days, we worked a lot, even with the video call, but we are able really to really make good, smart working, remote working, and we already plan to give to the customer new ideas, a new adventure. But we need to go back to the office. We open end of next week. And then start working to approach this new order. Again, not in a different way. We need a strong evolution. But honestly, I feel a lot of energy, I feel we are ready.

Sorry, operator. There was a question from the website that is related to e-commerce, so I just jumped in. The question was what are the revenues made through e-commerce in full year 2019 and in Q1 '20. I just answer very quickly. Full year '19 e-commerce, including both retail and wholesale, was around 10%. If you remember, we said, I think during the last call, in Q1, we had a commentary quarterly performance, but of course, was the only channel that -- who is growing this quarter, so both retail and wholesale for sure, the weight is growing. I leave for the follow-up question, I leave to the operator to take the one.

The next question is from Marion Boucheron of MainFirst.

I just was wondering if you could tell us what's the way of wholesale in the Americas region. My second question would be, if you could give us some more color on your production outlook for the fall/winter 2020. Is it more on the seasonal thing that you've been adjusting production on the carryover? I mean how and what flexibility do you have then to readjust orders? And the last question on the stores opening plan for this year. Do you have any, I mean, views on the timing? I know it's difficult to say these things right now, but if you had any color on the quarters, when you expect them to open.

Yes. I mean about our wholesale in America, I mean we can't provide per specific -- I mean the wholesale contribution in America is about 40% of the total wholesale -- the total business in America. If this is the question, of course, wholesale is very important, very important in America that our -- America is probably, by far, is the most important market of our wholesale because that the large distribution is implemented through retail stores, but not many, many locations, not in our case. But also and even more through some important department stores like Neiman Marcus, Saks, Nordstrom, Bloomingdale's and others -- not many others, honestly, because barriers was another other -- but less the size of -- bankruptcy. So this is a question, but eventually, please ask me if I didn't answer your question. About the production cut. Of course, we tend to cut more seasonal items for the fall/winter season because carryover is something easier. Firstly, because of my designation, even if we produce to March, we carry them over to the next season. Second, because if we are talking about a carryover of permanent or iconic product, this is something that we keep producing very easily and very fast in our factory because we hold raw materials service component. This is a never-ending fashion, so we can slow down it, we can stop it, but we can easily turn it on any time with a lead time that is very short, honestly. So carryover, in general, it is not a big problem. Of course, we have to slow down our carryover production, but this is the easy part. The most difficult part is the cap we implemented in our seasonal product because on one side, seasonal product is very risky because maybe trending this year but may not be trending next year. But the other risk that we need, of course, to maintain absolutely an important contribution of seasonal product in our stores in order to maintain the store exciting and be interesting for our customers. We can't put in stores only carryover or iconic product. So iconic product is probably no, and you will never find our iconic product on the floor of our stores because they are hidden in the back of house. So again, the work, the important work is on seasonal in order to balance the 2 components. I -- about the store opening, the timing, of course, is mostly this year more than ever in second half of the year. Honestly, last year also, we opened a lot of stores in second half, most of them in Q4. But this year because of the situation, you will see most of the new openings in Q3 and Q4. And again, some of the projects that I said before, like Paris, like Rodeo Drive and Barcelona will be, of course, in the second half. The stores we opened in first half are just started in Q1, the stores that Paola mentioned, the one important because it's the first store in Ukraine, the store in Kiev. Okay. But please tell me if I answer your question.

Yes, all fine.

The next question is from Melanie Flouquet of JP Morgan.

Yes, I wanted to check maybe would you be able to explain a little bit better the outperformance of EMEA in comparison to Italy? That was very, very acute in Q1. Some of this, I imagine, is actually down, to a low down [indiscernible]. But really the magnitude of the difference is very meaningful. So as long as you are able to provide any estimations, that would help me understand better how they were so different. My number 2 question is on the production plans. Could you share with us or remind us what is the percentage of sales that you almost carryover? I suspect under replenishment and the replenishment scheme. And what -- by how much have you kept your -- plans for the time being? And my last question, sorry, is for Remo, if that is possible. You mentioned in your opening speech that clearly crisis bring -- highlights the strength and weaknesses and brings big changes. I was wondering whether you could share with us what are the 1 or 2 weaknesses you've identified that you're already working on that would shed differently your business.

Okay. Honestly, the line was not very clear. So if I didn't understand something, please do tell me. The first question was about Italy. Italy and the performance versus Europe. If I...

Yes, or that of the [indiscernible] actually was not a strong outperformance, unfortunately, which was really not down very much. I wasn't surprised by Italy. I was not surprised by EMEA's resilience this quarter. So I was wondering whether you could explain whether there was something else you're seeing there beyond the store network closure timing.

Honestly, I mean, yes, EMEA, Italy -- it was [indiscernible] asking a question, but you're right. EMEA did -- I mean not well, but again, better than other regions because, I mean, there are 2 elements. Talking about retail, which is the most important element, Europe was the last one. And in Italy closed the stores first. Europe, the rest of Europe closed the stores later. So it was less impacted. And in France, Germany, the other European countries were less impacted than Italy from the closing of stores. And the second point is that Europe in January was doing very well and also continued to do pretty well until mid-February because of what I probably said before, the tourist was still pretty active in the first few weeks after the outbreak, also with the Chinese customers who kept shopping in our stores in the main cities, Milan and Paris. Another point is about the wholesale, which is timing -- on the timing explanation, so not related to business. But in January, we shipped out a lot of product from the wholesale point of view, and Europe was a country where we shipped more than other countries. And this is explaining the better performance of Europe and explains also the worst performance of Italy. About the production plan, carryover, any carryover payment represent more or less 30% of our business. And again, putting together carryover, also iconic products, they could represent it more. But as you know, we tend to maintain sales of our iconic product low because we don't want to inflate this kind of product. And so this is the answer. The other question?

How long have you kept your fall/winter collection? You mentioned your production plans are down for the second half.

Production plan, I know we have production plan. I can't give you the number, but of course, the cap was pretty significant on one side. On the other side, I mean, something I didn't say important to your question because helps me to clarify some points. Of course, as I said before, on the carryover permanent iconic product, we have the production lines that keep working. We can easily slow them down or accelerate them and whatever. But we have also some flexibility that has been implemented over the past few years on a seasonal product, which is something that in the past was not possible. Later now, we are able to react to the market demand also on seasonal product. And so we prefer to cut more to maintain the flexibility to react then during the season to the demand of the market, of course, with a longer lead time, for sure, longer than on permanent iconic product, but still in time to beat the market demand. Of course, the lead time is longer. But again, we are taking into consideration also this aspect. That is important, but also thanks to our own factory in Romania, we are more flexible. We are more flexible now than in the past. And so again, I can't give you a number, but we are cutting hopefully, hopefully more than what is needed, I hope so. And we also hope to be able during the season to get surprised by a stronger demand from the market and to have the problem, which would not be a problem, to make more production in our factory. This is doable and not only for carryover product, also to some extent, for seasonal product.

I think the third one was for Mr. Ruffini.

Yes, yes, yes. Okay. Sorry. Okay.

If I understand well the question, I think exactly what I say on my speech at the beginning. I think crisis -- from the crisis, you learn a lot. You have the time to think. I think it's time to reflect, to look inside of your company and not continue to run and check what's happening in front of you. Now you have to time to watch back to you. I think this is very, very important. I think the beginning when start this crisis, I talk with the people in the company, with my people, I say we have to go back to basic. We have to choose the essential. I think this is -- was the moment when like 1 month ago, we started this lockup -- lockdown, sorry, lockdown period. I think we continue to have a lot of energy in the company. And I think we realize that the world is starting to change. And we really started thinking and implement or evolve our strategy in sense that we feel that the customer looking for something, I don't think total -- I don't think totally different. I feel and I think another approach. Seeing the market there won't be more, let's say, human in some way. At the same time, they continue to have the relation with us, the relation with the brand, and I think what we want to really want is to improve our relations with our community as well. I think this is one of the most important point. I think this crisis could be a big opportunity for a company like us because we can redesign more or less everything. We can redesign our view on the market. We can redesign our product. I think we have functionality. It's become very important, I think more than 3 months ago than 1 year ago. And I think this is a question of working product and talking to the customer, trying to communicate another message. And as I said before, we have to for sure, evolve our strategy. I don't think our strategy was wrong in the past. I think it's only question to think that the world is changed over the moment, at least for the next month, the next years. Obviously, I think, again, it's an opportunity to really think a new way to work, a new way to talk, a new way to make your own journey. I think this is important. Again, what I said before, for me, is important, we have to go back to work. And I think we have -- honestly, we have the possibility to recover these 40 days. As I said, I don't want to recover this in the next 2, 3 months because I think we have to think about the long term. We have to think about the brand, think the brand perception. I think you don't have to push your customer to come back to the stores. You have to invite them. You have to propose, I think it could be a totally different approach or at least a different approach. And honestly, we are ready, we want going to go back to work, and I hope what I have in mind is correct for a new world or this new world.

The final question is from Flavio Cereda from Jefferies.

Final question, exciting. So look, 2 quick things. Firstly, I was wondering in terms -- you went into some details about inventories and what you plans are for spring/summer and fall/winter. Given that the majority of the sell-out for the rest of the year will be in Asia Pacific region, is it a challenge to make sure that you have the right amount of product at the right time in that particular area? What are you implementing? Any particular action to make sure that the supply is there? And the other thing, seriously, I just think you deserve credit for being honest and open about the situation and what you're doing. I wish everybody did the same, not often not the case, so well done on that.

Okay. Thank you, Flavio, about inventory, yes. I think, first of all, I think that we are planning to have the fair amount of product in all the regions. But to answer your question, in APAC, in Asia, for sure, in Asia Pacific, for sure, also something important, which is out of our operating model, but we tend to keep in this situation more than ever inventory as much as possible in our central warehouse and to allocate inventory to our regions later, depending on the specific demand from one market more than others. Of course, considering that Asia Pacific and specifically China, we see interesting and encouraging signs of recovery and improvement, we will ship more product for sure there than in other regions. So this is something that is not very difficult in our operating model. So honestly, it's not a specific problem on the space. Of course, the most important problem, which is something, I mean, we are addressing as much as we can, it's the problem to make sure that we don't develop, we don't build too much product. But I feel that for China, I mean, right now, in spring, of course, we have definitely the right amount of product, honestly. And also, we are ready to ship to China more product if that we need it because we have a product in our central warehouse. So from that sign, we don't see any problems.

So we are done without [ eat ]. Thank you very much for participating in this call. Let me just quickly give you a reminder or 3 reminders. Our general meeting will take place on June 11, as you might have seen from our press release today. While our first half results will publish on July 27, after business hours, and the conference call will take place at the same day. And as usual, remember that our quiet period will start on June 29. I think there were some questions also from the web that we might not have answered. I think we answered most of them. But if there are from the web or any follow-up, please feel free to call us tonight, tomorrow, anytime we are here. Thank you. Thank you so much for so many questions and very interesting ones. Thank you. Good night.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.