Prada S.p.A. (1913) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Prada S.p.A. Full Year 2021 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Alessandra Cozzani, CFO. Please go ahead.

Good afternoon, everyone, and thank you for joining the Prada Group's Full Year 2021 Financial Results Conference Call. I'm Alessandra Cozzani, the group's CFO. And with me today is Mr. Patrizio Bertelli, our CEO and Founder; Mr. Paolo Zannoni, Chairman; and Mr. Lorenzo Bertelli, Marketing Director and Head of CSR. Today, Mr. Bertelli will open with the group's business update. Mr. Lorenzo Bertelli will follow with an overview of our marketing and communication activities and the group's ESG strategy and progress. Afterwards, I will go through the financial numbers. And to conclude, Mr. Zannoni will share final remarks and outlook. After the presentation, we will be pleased to take your questions. Now I would like to hand over to Mr. Bertelli.

[Interpreted] Good afternoon, everyone, and welcome to the yearly presentation of the results for the Prada's Group. We're all following with great concern and pain the events of this last few weeks, the war in Ukraine. Since Sunday, March 6th, we have closed our retail activities in Russia, both the direct stores and shops and department stores. The Prada Group immediately accepted the call from The Camera Nazionale della Moda to support fund raising for the refugees through the United Nations Refugee Agency, which is sending concrete aid to the people of Ukraine. We have set up a crisis committee to constantly monitor the evolution of the situation in Ukraine and Russia. We're keeping constantly in touch with our colleagues and their families, and we will continue to provide support to them. And in the same way, we will support local communities and people who are experiencing serious difficulties at this time of tragedy. Today, we are here to comment on the Prada Group's results for 2021. I will start by briefly recalling the strategy we have presented last November at the Capital Markets Day. The group has shown it is able to adapt its strategy to provide an efficient answer to the market's evolution. We suggest a contemporary vision of luxury that reaches beyond simple shopping to fully embrace the values of our brands. We have extended our offer by introducing higher-value products and new product categories, thus covering all price points, strengthening direct distribution is at the center of the group's strategy. In 2021, we have implemented 80 pop-ups and we have partially renovated 120 stores of both Prada and Miu Miu to optimize product presentation and to guarantee a more attractive shopping experience. Our industrial supply chain lies at the basis of the group's ability to meet market needs in a timely way. And we are continuing towards the integration of some fundamental production facilities for future development, also in view of sustainability. All of the above achievements have also been made possible by continuous investment in technology and new talent. Retail sales increased by 15% versus 2019, showing a major acceleration in the fourth quarter plus 24%. Consumers -- local consumers globally accounted for 86% of total consumers, and we have achieved important results in all markets and in all product categories. The e-commerce channel has posted a major growth, and it now accounts for 7% of retail sales. Margins and cash generation have benefited from the major growth of retail, thus allowing the group to reach an EBIT margin of 14.5% and a net financial position, which is largely positive. Our priorities for 2022 are the following: putting customers at the core of our strategy with special care towards new generations, younger generations; investing in the quality and uniqueness of our products; investing in the network of our stores also through select openings in high potential markets besides extending the omnichannel experience. ESG issues are fundamental in driving the group's decisions and choices as also shown by the inclusion of 2 sustainability experts in our Board of Directors. In 2021, we posted important progress for the Prada Group. And the beginning of 2022 is just as promising. These results consolidate our confidence in the achievement of medium-term targets. Even though right now, it's still really difficult to assess all the implications of the war in Ukraine on the global economy. So thank you very much for your attention. Let me now yield the floor to Lorenzo Bertelli, who is going to talk in detail about the marketing strategy, and will provide you with an update on the sustainability initiatives.

Thank you, and good afternoon to everyone. This year, the Prada Group has continued to pioneer new and innovative marketing and communication initiatives. Each of these share common ground in the group's distinct creative vision and mirror our brand's DNA, to constantly create a dialogue between fashion and culture, push boundaries and convention. These brand moments have been highly successful and we detail a selection of notable example in the next 2 slides. I will talk about Prada first before going on Miu Miu. Our [ recently launched ] men's and womenswear for winter 2022 shows were highly successful with online mentions up 42% and 132% versus full winter 2021, respectively. We're constantly challenging ourselves on how to innovatively approach the show format, including embedded sustainability throughout. For several seasons, now the Prada Group has been exploring circular show approach. We are working with selective partners to whom we donate the show set materials to create a second life for these items. A portion of these materials have also been donated to universities and design schools. Our mass advertising campaign with Tom Holland saw 181% increase in engagement rates compared to 2021. The compare reflects our thoughtful approach to working with influencers who interpret the Prada's spirits. Technology and innovation are central to Prada's DNA, and we've explored new and one-off kind projects in gaming and metaverse arenas. We joined forces with the video game company, Ubisoft to integrate Prada Linea Rossa in the outdoor sports playground of Riders Republic. Prada Republic is about outdoor sports and performance, the perfect match with Linea Rossa. In January, we launched an NFT collaboration with adidas. Co-creation with user community, access and co-ownership made this project truly unique in the luxury industry. Moving on to Miu Miu specifically. We have this year, achieved very high visibility for the brand. The spring/summer 2022 collection was extremely successful from the [indiscernible] social channel engagement, celebrity pickup and exceptional media coverage. The micro mini skirt and cropped top outfit became one of the standout fashion trend in the recent season. And here, you can see the impact of this pioneering and marketing and communication activities on our digital channels and social media, confirming our brand heat momentum. Turning now to ESG, a critical strength for our long-term strategy for growth. As we embedded our Capital Market Day, our ESG agenda is underpinned by 3 pillars: For planet, for people and for culture. These pillars guide our approach and ambition to embed ESG across all aspects of group activities. In 2021, I'm very pleased to say the group accelerated its commitment to ESG and deliver concrete actions and progress across our governance, climate strategy, materials and diversity and inclusion agenda. Notably, sustainability experts Pamela Culpepper and Anna Maria Rugarli were appointed to the Board and ESG core committee was formalized. They are focusing on advancing our ESG strategy and actions. The group climate strategy was launched, and we are on track to reduce Scope 1 and 2 emissions and hold the leading position in LEED green building certification. Materials innovation is integral to our brand DNA and Re-nylon achieved full conversion. We are actually working with partners to advance our sustainability practice around leather and other materials. Our DNA agenda progressed with substantial gender parity achieved at Board level. We've made good progress, but I'm conscious that we need to keep progressing on stretching our ESG agenda. In the year ahead, the group will continue to commit to ESG further embed across the business and will update on strategy and development. Thank you.

Thank you, Lorenzo. I will now turn to our financial review. Prada Group's 2021 financial performance was very strong. Our strategic actions have delivered solid, high-quality growth, continued profitability improvement and positive cash flow generation. As you can see on this slide, we are well above prepandemic levels across all metrics, with revenue EBIT margin and operating cash flow generation much higher than 2019. Total net revenues for the full year reached EUR 3.5 billion, up 41% at constant exchange rate year-on-year and up 8% on a 2-year stack. Exchange rates had a negative impact on total revenues of 1.7 percentage points versus 2020 and 3.5 percentage points versus 2019. Retail revenues reached EUR 2.9 billion. This marked significant growth compared to 2020, up 40% and up 15% compared to 2019, much higher than pre-pandemic levels. EBIT reached EUR 489 million for the full year or 14.5% of sales implying strong progression in margins in the second semester at 17.4% of sales. Compared to 2019, EBIT marked 69% increase. Net profit stood at EUR 294 million, 8.8% on total revenue. Operating cash flow for the full year reached EUR 751 million. This enabled us to fully finance capital expenditure, resume our dividend payment and notably to significantly improve the net financial position from negative EUR 311 million in the end of 2020 to positive EUR 238 million at the end of December 2021. Moving to net sales by channel. The retail channel remains our priority and now represents 88% of our sales. As just mentioned, retail sales fueled the growth of the period, up 40% in 2020 and up 15% versus 2019, driven mainly by full price sales, clearly demonstrating the strength of our brand momentum. This growth was particularly strong also in light of the ongoing and varying global lockdown restrictions with around 10% of the stores closed during the period, of which 17% in the first semester and 3% in the second semester. Notably, there was marked acceleration in the second half of the year with strong double-digit organic growth versus 2019. I will show you more details in a moment. Online sales increased in all regions during the period, growing 5x sales on a 2-year stack and strong double digits versus 2020. This channel currently represents around 7% of our retail sales. We have 635 directly operated stores as of the end of the year, a stable retail network. Wholesale was down 29% at constant exchange rate compared with 2019, consistent with our strategy to rationalize the wholesale channel. Moving to the quarter. The retail sales trend consistently accelerated throughout the year. We saw strong sequential quarterly improvement versus 2019 from 3% growth in Q1, 13% in Q2 and further accelerated to 18% in Q3 and 24% in Q4. We are also very pleased to say that this encouraging trend is continuing in the first few months of 2022. Looking at retail sales by geography, the growth was remarkable in Asia Pacific, Americas and Middle East, and we saw a robust recovery in Europe and Japan. Overall, domestic demand was very strong across all markets and the local consumption reaches now about 86% of our sales. Asia Pacific delivered strong double-digit growth plus 30% compared with the same period of 2019. Our sales performance was outstanding in Korea and China and Taiwan, which showed a 90% increase, 56% increase, 61% increase, respectively, versus 2019. In Europe, retail sales improved significantly in the second semester, supported by strong local demand following the reopening of the stores and the region turned positive in H1 versus 2019 with an acceleration in Q4. The Americas saw remarkable performance with triple-digit sales growth versus 2020 and up 69% on a 2-year stack. All countries in the Americas recorded very strong growth, including Canada and Latin America. In Japan, retail sales improved in the second half of the year but remain impacted by prolonged pandemic restriction. However, we have seen a gradual recovery and sales returned to flattish in Q4, and more importantly, turned very positive in the first month of 2022. The Middle East region saw strong sales momentum, driven mainly by local consumption and some recovery sales from tourists. Retail sales by product. This strong acceleration trend was observed across all product categories with double-digit growth registered in the second half of the year. Leather goods sales performed very well, proving the success of our strategy to cover all strategic price point, leveraging on iconic and new products. Outstanding sales trend was seen also in ready-to-wear for both Prada and Miu Miu brands, which registered plus 36% growth and plus 53% growth versus 2019 and versus 2020, respectively. This remarkable performance again demonstrated our leadership in design in the luxury sector. Good progress was recorded in high performance lifestyle sports well such as Linea Rossa, adidas/Prada Re-nylon collection. Sales trends for footwear was also very strong with highly positive reception to new collection, which accelerated in the second half of the year. Turning to retail sales by brand. Prada, which contributed 87% of our sales, continued its very strong sales momentum in every quarter with robust double-digit growth in H1 and further accelerated in H2 on a 2-year stack. This impressive result was driven by all product categories. Miu Miu sales trend also improved in H2 with a strong double-digit growth in ready to wear on a 2-year stack. The Upcycled by Miu Miu collaboration with Levi's and other denim collection proved particularly successful and drove sales recovery during the period. We are very pleased to say that Miu Miu had an excellent start of 2022. Church's sales performance was impacted by its geographical exposure, given the vast majority of stores are located in Europe. Gross margin reached 74.3% in the first semester and further accelerated to a record high level, almost 77% in the second half of the year, improved by 470 basis points versus the same period of 2019. Gross margin for the full year reached 75.7%. The significant improvement was driven by the richer product offer, a more favorable channel and geographic mix and industrial efficiencies. Moving on to operating costs. Total operating expenses were at EUR 2,058 million, up 20% at constant exchange rate versus the same period of 2020 and up 4% versus 2019. We continue to prioritize advertising and promotion expenses, including digital investments, representing now a relevant portion of our communication budget. EBIT in 2021 surpassed prepandemic levels, and we saw a sharp profitability improvement in H2, driven by operating leverage and gross margin uplift. As you can see here, total EBIT for the first semester reached EUR 166 million or 11% of sales, up 10% versus the same period of 2019 and further increased to EUR 324 million or 17.4% of sales in the second semester, up triple digit versus 2019. Capital expenditure increased to EUR 216 million during the year from EUR 122 million in full year '20. The retail network stayed broadly the same with 635 directly operated stores at the end of the year. Our investments were mainly allocated to the retail network with 120 renovation and relocations during the period. Part of the CapEx was also devoted to investments in production and IT infrastructure. The net operating working capital improved [ landing ] at 18% of sales, which was well below 2019 level. To close my section, I'm pleased to confirm our net financial position turned positive at EUR 238 million, improving from negative EUR 311 million in December 2020 as a result of strong operating cash flow that allowed us to finance investment and resume dividend payments. Given our current strong financial position, the Board of Directors today has proposed the distribution of EUR 179 million of dividends or EUR 0.07 per share, representing a payout ratio of 60%. Now it's my pleasure to leave the floor to Mr. Paolo Zannoni, who will deliver closing remarks.

For Prada 2021 was a turning point. The growth of our business in America, Europe and the Middle East was amazing, and Asia kept going strong. These remarkable financial improvement was the outcome of decisive actions. 2022 has started robust. It suggests that we are on track to deliver on the medium term, what we promised. Of late, however, the environment in which we operate has become more uncertain, the geopolitical and macroeconomic outlook has worsened and volatility has increased. We cannot foresee at this stage the impact of current events on the luxury good industry. We monitor closely our business environment, ready to react swiftly to unexpected development.

Thank you, Paolo. And now we open the floor to your questions.

[Operator Instructions] Your first question today comes from the line of Susy Tibaldi from UBS.

Congratulations for a very strong end to the year. I have a couple of questions. So first of all, you mentioned that you had a very strong start to 2022, despite the ongoing uncertainties. Can you just give us a little bit more color on that? When you say that it's roughly in line with the end of '21, should we think that your year-over-year growth is about 20% currently? And also, if you can spend just a couple of minutes to talk about the situation in China because, obviously, we are reading that the COVID is spreading there. And there is here and there, some cities are being put under lockdown. So can you just tell us like are your stores closed? Or how are you operating in China? And what kind of impact are you seeing from this recent lockdowns? Secondly, I wanted to ask if you are planning to increase prices in 2022, whether it's on leather goods or ready-to-wear in general, if you're planning to raise prices on a like-for-like basis? And then lastly, your EBIT margin in H2 was really outstanding. How should we think about it because there has been a big jump from H1 to H2. This 17%, is this something that we should take as a new starting point? Or -- is there any reason that 2022 might see it for some reason going backwards? Or how should we think about it? I appreciate that it's a very, very uncertain environment. But assuming that the geopolitical situation doesn't deteriorate further. It would be helpful to understand how to think about it. Thank you so much.

[Interpreted] Let's start with EBIT from the last one between the first and the second half of 2021. The difference is that the first half, January and February, so still a very strong impact from COVID-19. Then after that, the market started recovering, and we went to 17% in the second half of the year. The work done in 2021 should allow us to get higher EBITDA than the one we reached at the end of 2021 and stable conditions like-for-like conditions. And then obviously, we'll see how the market will evolve due to a set of situations we're all very aware of. Then prices -- possible price increases. We have increased prices in the month of January based on market trends in general, and we might review the situation in the light of the fact that raw materials and transport costs are increasing. So obviously, we will have to continue monitoring this situation and see how we might intervene based on economic results month after month, not so much on the quantity of products, but on the profitability of each individual product and our product category. Then for China, clearly, China now finds itself in an unstable situation, and this creates some imbalances as a possible proposal. So we've made a few calculations, and we will certainly have a better development of our revenues from the beginning of the year to now, especially during the last 2 weeks when the situation in China worsened and we shall see what the development will be in the next few days and next few months. Plus we have to add the complexity of the Russian market. So both factors are obviously not positive. But at the same time, we have a higher level of performance in other countries. So this partly should offset the difficulties we might have in China due to COVID and Russia for the reasons we're all aware of.

Your next question comes from the line of Thomas Chauvet from Citi.

Thomas Chauvet from Citi. Three questions, please. The first one for perhaps Lorenzo Bertelli, Back in November at the Investor Day in Milan, you were potentially interested in strengthening the relationship with YOOX NET-A-PORTER, you said you would update us at a later stage. Can you comment on whether you've been -- you've had some thoughts about whether it makes sense for the Prada group to take a minority stake in YNAP alongside Richemont and maybe Farfetch? And if so, would you consider paying in Prada shares for that stake potentially obviously, diluting the 80% stake owned by the family. Secondly, on gross margin, it was up 40 bps versus 2019, as Alessandra said earlier, is even higher in H2 versus H2 '19. Are you still confirming the 78% gross margin target in the next year or 2? And what will be the remaining drivers to get there to that very high level of gross margin. You've talked about operational efficiencies. I guess that still carries on. And then you mentioned pricing. Could you clarify the amount of pricing you've passed on in January that could also support gross margin? And just finally, on Russia and your operations there that you've suspended, I think announcing that last week. You mentioned in your annual report press release 13 stores or 2% of net revenue. Can you confirm that these are all directly operated? Or is it a mix of franchise stores and DOS. Could you give us the split if that's the case? And sorry for my ignorance on that part of your business.

Thomas. Just to answer to your first question. Honestly, I can comment in this moment. And so I have to say no answer for me, for sure, I can say that things are moving on and we keep an eye on everything, but I cannot comment and for sure, the uncertainty of this moment is will, let's say, make us more cautious, and I think everybody is more cautious than before, but I can't comment more on at this stage.

Thomas, I will take the second question on gross margin. Yes. We may confirm, as you have seen from the number that we have presented for the second half, that 78% is a target that we can achieve. And there's further improvement will be driven by some industrial efficiencies as we have quite extensively to the market during the Capital Market Day. And there is also an element of an offer that is characterized by a higher value of the product.

[Interpreted] As far as your question on our stores in Russia is concerned, our stores are all DOSs. We have no franchise in operation in Russia. We only serve at Tsum and Gum for their e-commerce platform, but we serve them through our own points of sale. So in practice, when we decided to close, we removed products from the stores and from the store windows. So all our activities in Russia have been completely stopped.

Your next question comes from Luca Solca from Bernstein.

Luca Solca from Bernstein. Maybe one question about handbags, more specifically. You've been developing and stretching your price range and reintroducing nylon at the entry price of this category. I wonder if you could comment on demand momentum that you're experiencing different price points, which are the segments that are growing fastest or is there a broad-based growth that you're experiencing for all of the price segments? And do you feel that your handbags merchandising structure is appropriate. Maybe continuing on questions as far as operations in Russia are concerned. I wonder if you are in a position to maintain the flow of goods and the flow of funds between Russia and the rest of the world. One of the scenarios that one could potentially anticipate is that Russia is completely cut off from the global economy. Would that imply that you would need to write-off inventory or refurbishments in the stores that you've been operating in that market? And would that be material at all? And then last but not least, you produced a very remarkable EBIT performance in the second half. I think we touched upon this point at your Capital Market Day in Milan. But I wonder if the 20% medium-term target that you have announced could potentially be seen as prudent, given that you are proceeding very strongly on the trajectory on the path of improving EBIT margin. Thank you very much indeed.

[Interpreted] Good afternoon, first. As to the mix of age we have become much more efficient compared to 2021. All prices grew -- all price points were increased with very positive results. As to EBIT, as we have already said to one of your colleagues earlier on, we confirmed the 78% target for 2022. In terms of gross margin, we also confirm between -- and then the other question on medium-term EBIT, well, this is 20%. These are the 2 targets we want to achieve with a gross margin, which must be 78% already in 2022. Maybe Mr. Zannoni can answer as far as Russia goes.

Difficult to do scenarios on what's going to happen. What I can tell you is that we monitor the situation closely that our current stock in Russia is not significant, and we don't know what will be for us, so what our choices will be going forward. But we do not expect anything to be material on our current position. On our future business, we will see. But as you know, our amount of sales in Russia is between 1.5% and 2%. And so I don't think that's material. But Russia for us remain potentially an important market, and we would like to be able to keep it open if the world situation will allow us to.

Your next question comes from the line of Antoine Belge from BNP Paribas.

It's Antoine Belge, BNP Exane Paribas. Three questions, please. First of all, regarding the U.S. market. I remember the Capital Market Day, you said it was still under-penetrated. So is it possible maybe to outline your plans more specifically for 2022 in terms of notable store openings and also inflation is increasing quite fast in U.S. So do you think there could be a negative impact from that? Or do you feel that you're quite isolated or your consumer is from higher inflation? And second question relating to the leather goods performance. It was positive plus 7% versus 2019, but goods are less than apparel. Was it a concern to you? Or is it just not ready to [indiscernible] fantastically well. Any specific initiative that you have for leather goods in 2022? And finally, with a cash pile at the end of 2021, and I understand you said you didn't want to comment about taking a stake in YOOX NET-A-PORTER, but providing that you would not -- what would be the other option for use of cash at Prada?

[Interpreted] Thank you. Antoine, I will take the first question on U.S. market that is still growing quite nicely, I have to say. The plan for 2022 is still to find additional opportunities in terms of stores opening in some different cities? And the second question is also related to U.S. market on the inflation rate that could impact, of course, we are able to absorb the inflation rate also with increasing prices given our pricing power. As to your question on the 7% growth of bags, as compared to ready-to-wear, I think we should actually look at the absolute numbers of leather goods on total revenues. So 7% is certainly remarkable growth. And from the beginning of the year, we also increased the average price and capital quantities unchanged. So the bank's performance is really, really positive at the beginning of '22 as well. Our main concern right now is the evolution of this turmoil created by the Russia-Ukraine war. Of course, we are aware of that. The new COVID clusters are quite unexpected. There's a new increase in COVID cases in Seoul, in South Korea, too, and that's another unexpected event. So of course, this has been a constant problem throughout the last years and we'll keep an eye on the evolution of this situation.

Okay. Maybe can I ask just a clarification on some singled out. So the gross margin 78%, is it for the medium term? Or is it fair that you said it would be already in 2020, just a clarification.

Given the results that we have achieved in the second half, we think that 78% is a margin that we can achieve also in 2022 on...

Your next question comes from the line of Aurélie Husson from HSBC.

Several questions, please. The first one is on the new category that you mentioned at the CMD, how are they performing, even though it's pretty early stage. I mean how are they performing with existing clients? Are you seeing new people, new clients coming to this category, who never bought a Prada product before. Or is it your regular clients that are expanding into these new categories? I have also a question on the trends in Europe. Have do you see -- I know it's pretty recent. But have you seen any impact on the feel good factor relative to the current geopolitical crisis in other countries, of course, than Russia? And a quick one on the U.S. The percentage of new customers that you are seeing in this region? And also, you have closed 3 stores in the U.S. Could you comment on disclosure? And therefore, is there -- are you planning to reopen stores in the same city? So that's it for me.

[Interpreted] Good afternoon. The topic of new categories. Well, communication has been organized so that new customers have come clearly in the evolution of new product categories and especially after our communications proposals, not only have we acquired new customers, but also old customers have found inspiration in the fact that they see the brand is continuously renewing itself. So for Prada clients this is the way in which the brand is adapting to current times. And then Mr. Zannoni will answer your other question.

The beginnings of the year, for us, in Europe has been more than strong. So far, we have not seen any significant impact of the geopolitical crisis on our sales in Europe. That does not mean we will not see in the future, but so far, no significant impact on a market that for us has been growing very, very strong.

[Interpreted] As far as your question on U.S. is concerned, generally speaking, we are prioritizing our direct retail store compared to our presence within the Parma stores. So that's the principle that we are following. And it is also one of the reasons why we are still performing very well.

Your next question comes from the line of Liwei Hou from CICC.

Congratulations on great results. I've got 3 questions. First is on the sequential performance. I see that our quarterly retail growth has sequentially improved. Could you break it down into how much from the reopening of closed the store and how much of that acceleration is from same-store sales growth? This is the first question. And secondly, I would like to know the things that our ready to wear has performed really well, kudos to Mr. Raf Simons. Do we expect to see ready-to-wear playing an increasingly important part in our revenue contribution going forward? And my third question is if we rank our customers by age, which market do we have the youngest customers? It is -- which market will have the most mature and senior customers by age?

Can you rephrase your first question because we didn't get?

Yes, sure. So our retail sales in the 4 quarters of 2021, there's been an acceleration. And this is -- at the same time, our number of stores closed has been decreasing. So I just want to understand our quarterly acceleration, how much of that driving force is from reopening of stores? And how much of that is from the same-store sales growth in the already opening stores.

[Interpreted] This is Patrizio Bertelli. So for the first question, yes, it's true, the fourth quarter did have a major speed up, which is not due to opening new stores because the amount of stores opened were accepted the same amount in the third quarter. So the increase between the third and the fourth quarter is just higher sales. And I think it's increased by about 24%. As to your question on ready-to-wear. Yes, we must remember that even in the past, ready-to-wear has always been particularly efficient than we kind of lost sight of it. But we believe that the contribution of ready-to-wear on our revenues is increasing and improving, which does not mean that the other big product categories are decreasing sales. And I'm referring to both leather goods and footwear. So that's why we're confident we will be able to achieve the objectives we set ourselves for 2022.

I say the last question on the consumer. Generally, I think at the moment, if I'm not wrong, the U.S. is -- has the highest penetration of younger consumer, but the other countries are not so far. So Europe is strong. China is strong. The point is we are in different historical moment for every country. So for sure, China, we had -- we were in advantage in the past year. So now the rest of the world is following. So the most important thing is that our strategy is working according our ideas and is effective. So we are happy with what we are achieving. And generally, on luxury consumer, I would say there are not big outlier. For sure, there are no big outlier. So there is nothing that I can say that there is some country that is much weaker than others, if you look at the biggest market in general. So I don't have a big comment on that.

These are all very helpful.

I think that we have time for the last question.

Your last question today comes from the line of Elena Mariani from Morgan Stanley.

Hello, can you hear me now?

Loud and clear.

Okay. Great. I have 2 final questions, please. My first one is on the U.S. market. As many other players in the industry, you have seen phenomenal growth over the course of the last year, and particularly in the second half of the year. Could you perhaps share a couple of observations on whether you see this strength continuing regardless of the very tough comparable base. So do you feel that younger consumers that have emerged over the course of the past 12 to 18 months are going to stay there? Or do you feel that perhaps the strength that you have achieved is a bit temporary and therefore, perhaps this year, given also the volatility that you're seeing in the market, you could see a bit of a reversal of these trends. And then -- another question on your profitability. You have kindly shared your outlook for 2022 on the gross margin. And given the strength of your profitability overall last year, you see 78% as achievable already. Do you feel that if your top line strength continues, i.e., everything else being equal in the market environment, you could potentially see your 20% EBIT margin as achievable also -- by 2023, for example? Or if your top line continues to be very strong, you would prefer to perhaps reinvest a little bit of that into marketing activities and see a margin progression that is a little bit more phased through the years. And perhaps if I have time also one final question wholesale, are you completely done with your wholesale rationalization. So should we expect that this channel restarts to grow in 2022?

No, I was answering before to the mix and the penetration of different generation in the U.S. market. So I will not relate the mix to the growth in the sense that for sure, we are doing better in the younger generation. So we are acquiring future customer. But in general, there is a big transformation in the world in United States market. So this has to be taken into account. So for sure, we're not talking about a temporary transformation, then the growth, if we stay with this pace, I don't think so forever. But I think the most important thing is at the end to secure new future customers, so we're achieving those results.

[Interpreted] As to your second question related to 78% gross margin, we want to achieve in 2022. Well, it is clear that it's going to be a structural one, not just a casual or random result. The fact that we might reach 20% by 2023, where we shall see because there are obviously there are many factors that might not allow us to do so. But any way, in any case, our gross margin will have to be consolidated both for -- to further develop marketing and to then increase and improve our EBIT. Then your question that has to do with wholesale rationalization. We have done the most of it, but we are still rationalizing further because we need to eliminate some still critical situations and that requires a bit of time, but we are on the right path. And so we think that this too -- this rationalization will make the e-commerce activity and sales in our DOS is even more efficient.

Thank you. Thank you for joining us today. And Alberto and Cynthia will remain at your disposal if you have additional questions and clarification. Bye.

Thank you. That does conclude today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]