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

Good day, and thank you for standing by. Welcome to the Prada Group Full Year 2022 Results Presentation. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to Mr. Andrea Bonini, CFO. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining the Prada Group's Full Year 2022 Results Conference Call. This is Andrea Bonini, Group CFO, and I'm delighted to be with you again. Alongside me today is Mr. Patrizio Bertelli, Executive Director; and Lorenzo Bertelli, Marketing Director and Head of CSR. Also, I would like to introduce our new group CEO, Andrea Guerra, who joined us at the end of January. Mr. Bertelli will start today with 2022 highlights, followed by Mr. Lorenzo Bertelli, who will provide an overview of our marketing and communication activities and the group's ESG progress. I will then provide an update on our financial performance for the past year, followed by Mr. Guerra, who will talk about priorities for 2023. With that, I will hand over to Mr. Bertelli.

[Interpreted] Good afternoon, and welcome to the presentation of the financial results for the year 2022 of the Prada Group. First of all, let me welcome our new CEO, Mr. Andrea Guerra and thank him for accepting this commitment. During the presentation, Mr. Andrea Guerra will illustrate our priorities for the current year. I would like to start by giving you a summary of the progress we've made in 2022. Despite the complicated macroeconomic and geopolitical situation, the Prada Group has obtained excellent results, thanks to the great strong identity and appeal of its brands and to a careful execution of the strategy. Those results are the outcome of the commitment and dedication of our people. During Q4 of 2022, the Prada Group was the only luxury company with its 2 main brands to rank amongst the top 5 in the Lyst ranking. Prada was ranking first and Miu Miu was ranking fourth, and Miu Miu was also recognized as the Brand of the Year. We are satisfied with the growth of Prada and Miu Miu. This is an organic growth, which is strong and top-quality growth, which extends over all product categories and all markets with the only exception of China, where lockdown has had a major impact. We've reached with a lot of advance, the medium-term profitability objectives we had given ourselves at the Capital Markets Day in November 2021. And we also get near and near to the remaining revenue objectives and made concrete steps forward on the ESG commitments we had communicated at the Capital Markets Day. We accelerated investment in renovating our retail network, our technology infrastructure and production supply chain to consolidate our manufacturing excellence. Finally, 2022 was completed with the appointment of Mr. Andrea Guerra and Mr. Gianfranco D'Attis, respectively as Group CEO and Prada brand CEO. Them joining marked a fundamental change in the group's governance in view of the continuous evolution and facilitation of generation [indiscernible]. Mrs. Miuccia Prada and myself are still fully involved in the business, and we are very happy to be able to contribute to this new phase in our development. Strengthening the organization will allow us to accelerate the execution of the strategy and to continue along the stable and sustainable growth path we have. 2022 marked a sharp increase of net revenues, i.e. 21% for a total of EUR 4.2 billion. This result is the outcome of the excellent performance of the retail channel in all product categories with an increase of sale of 24% at constant exchange rates for a total of EUR 3.7 billion. Profitability also posted a major growth, and the group achieved a gross margin of 78.8% and an adjusted EBIT margin of 20.1% for a value of EUR 845 million. Net financial position is positive by EUR 535 million. Hence, we have achieved the profitability objective in advance, and we are very close to the following revenues objectives that the group has determined for the medium term. Let me now give you an update on the Prada brand. Prada has recorded all around organic growth, much higher than the market average, thanks and driven by full price sales. During the year, we have implemented over 100 store renovation projects, and we kept optimizing merchandising and clienteling activities that's improving customer experience. All product categories have been growing double digit, thanks to the performance of new products and classics. We also launched with a lot of success, the Eternal Gold, the first collection of jewelry in gold recycled 100% and the Prada Paradoxe fragrance. Let me [ see ] this opportunity to welcome officially also Mr. Gianfranco D'Attis in his capacity as the CEO of the Prada brand. Mr. Gianfranco D'Attis brings with him a significant [indiscernible] experience in luxury and retail. Miu Miu also posted important results last year by benefiting of growing appreciation and brand awareness. This is the outcome of everything we did to strengthen the brand's identity of what we did on products and these store formats and better customer experience. Products were really appreciated in different categories like the Wander bag, the ballerina shoes and the miniskirts from the runway show of the spring/summer '22, together with successful events, this will strengthen our relationship with customers globally. Revenues -- retail revenues grew by 20% with a good acceleration in the second half of the year. All product categories grew double digit, and the brand has reached net revenues of EUR 489 million. Let me now leave the floor to Mr. Lorenzo Bertelli, who will illustrate the main marketing and sustainability initiatives. Thank you.

Thank you, and good afternoon. Over the past year, the group has made significant progress across marketing, communication and ESG. Our focus has been on enhancing the strength of our brands, and the unique diverse identities allow us to engage with our audiences and lead in fashion and culture. All these efforts have had a clear impact on elevating our position in the market and deliver excellent brand momentum to bolster Prada and Miu Miu. In Q4 2022, Prada Group was the only luxury company to feature its 2 main brands within the top 5 of the Lyst Index, with Prada ranking first and Miu Miu, fourth. Both brands also made significant improvement in website traffic and search effectiveness. We will remain focused to maintain the high performance. Prada has had an outstanding year, we have maintained and extended the power of the brand further strengthening its awareness. Over the past year, we unveiled 2 highly successful launches with Prada Eternal Gold and Prada Paradoxe, both iconic and disruptive. We presented the first 100% certified [ recycled ] gold collection with 100% traceable diamonds delivered through the Aura Blockchain Consortium platform. The campaign featured recognized personalities, including Amanda Gorman, who perfectly embodies our values and commitment to sustainability. Likewise, Emma Watson has been selected for the launch of the new fragrances, Paradoxe, generating strong visibility. The bottle for Prada Paradoxe is also refillable allowing for less packaging material in this line with our responsible choices. We are [ celebrated ] on our already successful Prada talent strategy, blending local and global talents for increasing relevance. Moreover, events throughout the year continue to deliver exquisite experiences across fashion, art and music. We were proud to be the first luxury brand to host the physical runway show in China in 2022, repeating our men's and women's fall 2022 collection. This, in addition to our Prada Mode and Prada Extends formats in Dubai, Tokyo and Miami, respectively. Moving on to Miu Miu. The brand has been under the spot over the past year and as a result of the strong branded entity has significantly improved. Miu Miu was named Brand of the Year by Lyst, and brand searches on Google increased by 34%. From a product perspective, we have been able to successfully balance the iconic part of the brand with its newness. Our highly successful spring/summer '23 show contributed to boost brand momentum with the Miu Miu miniskirt and ballet flats continued to be most celebrated products by industry and celebrities alike. At the same time, we focused on our brand heritage in leather goods. The Wander bag highly appreciated by the market combines a Miu Miu iconic material, the matelassé leather with the new product shape. We designed local activation and engaging events to connect with a growing Miu Miu community, leveraging on existing successful formats like Miu Miu Select, Miu Miu Club and Miu Miu Women's Tales. Customer experience is a constant priority for us. In 2022, we are especially focused on ensuring we are in constant dialogue with our clients to develop long-term relationships that go beyond a one-off purchase. We have done this by combining significant technology improvements alongside what we call the human touch, an element which remains fundamental within our proposition. We have put our client advisers at the center of our client journey and have been equally focused on improving interactions while using digital tools to maximize traffic and the commercial performance in store. We continue to invest in delivering tailored engaging experience to our clients as well as putting greater attention to personalization across different touch points so that we can enhance loyalty and lifetime value. When we set out our ESG strategy last year, we said that our purpose is to be the driver of the change. This is a bold ambition, and it requires action at every level of our business. We started by building the right foundation and strengthening our governance structure. We have established a sustainability committee, which oversees the implementation of our ESG strategy and drives forward progress on strategic objectives such as climate change mitigation and [ D&I ]. We have also formed an operating committee made up of leaders from across our business to help equip departments with the resource they need to accelerate progress against our goals. And we have ensured that the right policies are in place. With updated Code of Ethics and Anti-Corruption Policy, a new Policy on Human Rights and Supplier Code of Conduct and an open Whistleblowing platform. Our focus is facilitating the progress and deliveries of our ESG ambitions across all 3 pillars of our strategy. We continued our work to reduce the impact of our operations, excluding Scope 1 and 2 emissions. We are investing in renewable energy, participating in collective virtual purchasing power agreement, project launched by the Fashion Pact that will help spur the adoption of renewable electricity by investing in the new green power infrastructure in Europe. We founded the Re.Crea Consortium to manage products end life and support [ circularity ] in partnership with other prominent Italian brands. Creating an inclusive culture is another strong commitment with our sustainability journey, and we are ensuring that the group continues to attract and retain a diverse range of talent. Following the internal survey on [ D&I ], which I mentioned at the half year results, we are developing a robust diversity, equity and inclusion road map that we'll [ begin ] to implement in the coming months. We will keep investing in training and education programs on sustainability for our employee in long term to increase awareness and build an open dialogue. We will also continue conversation externally through the strategic partnerships such as the Dorchester Industries Experimental Design Lab with Theaster Gates to support and amplify the work of diverse designers across the creative industries. We launched a partnership with UNFPA, the United Nations sexual and reproductive health agency to provide a training program for young women in Ghana and Kenya. The project aims to offer participant valuable knowledge and practical skills as well as access long-term employment opportunity in the fashion industry. Culture is incredibly important to us as a business and to extend it to sustainability. I'm particularly proud of the work we are doing with UNESCO on Sea Beyond, which has launched further educational project this year, investing in future generation ocean literacy, so that more young people can understand the importance of the sea for life on our planet. There are many areas where there is still much more to do, but I'm pleased that the past year we have challenged ourselves to embed sustainability in the heart of our business. I'm confident we will continue to [ invest ] further against our ESG strategy. I will now hand over to Andrea Bonini.

Thank you, Lorenzo. I would like to start with key financials, Slide 15. The group reported net revenues of EUR 4.2 billion, up 21% versus fiscal year '21 at constant FX. Exchange rates had a positive impact on net revenues of 3.5 percentage points or circa EUR 117 million for an increase of 24.8% at current exchange rates. Retail sales for the period totaled EUR 3.7 billion, up 24% versus fiscal year '21 and plus 45% versus fiscal year '19 at constant FX. EBIT adjusted reached EUR 845 million in fiscal year '22 with margin of 20.1%. This is a marked improvement versus the 14.8% of fiscal year '21. EBIT adjusted excludes nonrecurring income and expenses of EUR 69 million in fiscal year '22, the majority of which related to write-down of non-current assets in Russia. Net income stood at EUR 465 million, an increase of 58% versus fiscal year '21. Net operating cash flow reached EUR 696 million, resulting in a significant improvement to our net cash position, which at year-end, stood at EUR 535 million. Net revenues by channel, Slide 16. Retail sales growth continued to be high quality and organic in the period, up 24% versus fiscal year '21 at constant FX with positive contribution from both average price and full price volumes. Trend was strong in both semesters. Looking at the second half by quarter, there was a deceleration primarily driven by China, but growth remains very solid. Year-on-year, Q3 was plus 32% and Q4 was plus 14%. On a 3-year stack, Q3 plus 59% and Q4 plus 44%. Online sales continued to perform well, delivering double-digit growth and penetration remains stable due to the strong performance of the physical channel. On wholesale, we kept our approach selective with revenues from independent clients growing low single digits. The DFS channel was negatively impacted by COVID restrictions during the period. We saw a sharp acceleration in growth from both fragrances and eyewear with royalties at plus 55% year-on-year. Retail sales by geography, Slide 17. The group performed remarkably well across all key geographies, excluding China, due to the impact of COVID restrictions. Asia Pacific region declined by 2% at constant FX versus fiscal year '21, but returned to growth of plus 3% in the second half. Thanks to continued solid growth in South Korea and Southeast Asia, which compensated the slowdown in China of Q4. Year-to-date, current trading in China is positive and very encouraging. Strong performance in Europe with year-on-year growth of plus 63% at constant FX, driven by local consumption and uptick in tourism. For the Americas, year-on-year growth stood at plus 22% and plus 106% on 3-year stack. Growth in the region moderated to plus 9% in H2, primarily due to increasingly strong comparatives and outbound tourism. And indeed, the North American cluster continued to register very solid growth. Japan reported an acceleration in the second half, thanks to the return of tourism, which added to continued local demand. And lastly, Middle East delivered consistent growth throughout the year. Retail sales by product, Slide 18. All product categories registered strong growth. In leather goods, further enrichment of the collections drove sustained double-digit growth in both semesters. Performance was well spread across new products and classics. Strong sales trend in ready-to-wear, which registered plus 27% growth at constant FX versus fiscal year '21 and also in footwear with plus 29%, driven by both lifestyle and formal collections. Retail sales by brand, Slide 19, Prada, which accounts for 86% of our retail sales continued to perform strongly, delivering 25% year-on-year growth. This was underpinned by an excellent performance across all categories and growth was well balanced between gender and age groups of our clients. Miu Miu showed a sharp acceleration in H2, closing the year at plus 20%, thanks to the brand momentum and to the introduction of successful products in all categories. At Church's, in the second half, we implemented a business organization from manufacturing to distribution, aimed at further integration and higher productivity. We are confident that these actions will strengthen the business going forward. Gross margin development, Slide 20. Gross margin reached 78.8% in fiscal year '22, showing the benefits of the group's investments in manufacturing infrastructure and capabilities. The improvement of 310 basis points on the previous year was mainly due to average price, channel mix and economies of scale, which more than offset the impact of cost inflation and slightly negative FX hedging impact as well. Operating expenses, Slide 21. OpEx on net revenues declined from 60.8% in fiscal year '21 to 58.7% in '22, a 210-basis point improvement. At constant FX, OpEx increased by 17% driven by the variable component, marketing investments and store events, increased labor costs and decreasing COVID contributions. As already mentioned at the first half results, there's an element of post-COVID normalization in the growth of the fixed OpEx component such as restart of retail events, travel and others, which we expect to moderate this year. EBIT adjusted increased by 69% to EUR 845 million, with the margin improving by 530 basis points to 20.1%. Slide 22. CapEx in fiscal year '22 was EUR 276 million as we accelerated investments in retail, IT and our industrial infrastructure. Over the period, we managed around 170 renovation and relocation projects, which accounted for circa 80% of the total retail CapEx. Excluding retail, of the remaining EUR 107 million, EUR 43 million related to industrial CapEx and EUR 53 million was IT CapEx. We plan to further accelerate investments this year. Net operating working capital, Slide 23. Net working capital increased in absolute value by EUR 89 million for the inventory and slightly declined as a proportion of fiscal year '22 net sales to 17%. Net financial position, Slide 24. The group has a strong balance sheet with a net cash position of EUR 535 million at year-end '22. The Board of Directors has proposed a dividend per share of EUR 0.11, which would result in a total dividend of EUR 281 million with a payout ratio of circa 60%. With that, I will hand over to Andrea Guerra for final remarks and 2023 priorities.

Thank you, and I'm really happy being here today with all of you. A few weeks, I have joined the group. Obviously, I'm so happy being here together with the Bertelli and the Prada family, and celebrating, first of all, the fantastic year achieved in 2022. Obviously, I'm so happy that I have joined the group in such a wonderful time. It's a time of evolution. It's a time of great energy I found in the organization. And I would rather say it's also a time of great health of our main brands. And I would say that, that is a great part of our duty to make sure that every day our brand portfolio becomes day-by-day more desirable. I think that, that is our main job. And this is what happened during past years. We need to really being able to make all this unbelievable work and effort done on brands and creativity. We need to make this work better in our retail network and in every day of our relationship with our consumers. Prada, on one side; Miu Miu, on the other side with their ingredients, with their footprints, with their [ routes ] both in their world, I think we have a long highway in front of us. We need to pursue retail excellence. We need to build more frequent and meaningful connection with our clients. We need to have as many people talk about a more holistic 360-degrees approach. We need to really work and make the unbelievable creativity of this group work even better on the floors of our retail. Obviously, our consumer is a 24-hours job. We need to accelerate on our digital approach, on our omnichannel approach. And this, I think, is something that has been a huge change in the past 4, 5 years. And I think we are at the beginning of a journey, of a journey of really being able to serve our clients wherever they are and in whichever attitude they are. [ Undoubtfully ], if I had 1 mission for this year is store productivity. That is something that we will have to work upon and that is where we have the most space. I think that what is really important is that we constantly give to consumers what they're looking for from Prada and Miu Miu. There is newness on 1 side. There is our ability of animating products that we have already in the market. So it's really doing the easier part of the job, having the brands where they are, having the stores infrastructure where they are, having the amount of creativity we have in the company. Now, the easy but the everyday job we have to do is to make this even better in our retail in the 24 hours of life of our consumers. On the other side, we are in a journey of growth, of evolution, of expansion. We have grown at healthy rates in these past years. We have to really be very careful in creating the new pillars of growth and infrastructure of our company in terms of organization, in terms of IT, in terms of industrial footprint, supply chain. So there is things we have to do during 2023. There is things we need to do to plan in 2023 in order that we will be ready and solid in the years to come. The year started well, finished well and started well. We know that this world is a world of constant and unique surprises. So we are ready for that. We are adaptive. We are agile. And on the other side, I think we are also pretty vigilant on how we are monitoring and addressing our cost base and our capital allocation. One of the good news is that China is back. Chinese are also starting to be back in some of the Asian regions. So on one side, we look to 2023 with positive eyes. And on the other side, we also know that behind any angle, there is uncertainty because that's the rule of the game in this 21st century. Having said this, I will be so happy to talk to all of you in the months to come. And on the other side, I will hand it over to Andrea again for final remarks and starting the Q&A.

Thank you, Andrea. Before we conclude the presentation and start the Q&A, I wanted to update you on an upcoming change to our approach to financial reporting. As of this year, the group will be introducing Q1 and Q3 revenue updates. Q1 update will be on May 11. That concludes our presentation, and we will now hand over to the operator for Q&A.

[Operator Instructions] And the questions come from the line of Susy Tibaldi from UBS.

My first one would be, if you can give us a bit of a flavor on the start of this year. Of course, you talked about the rebound in China. But I was wondering if you can provide a bit of color also in other regions of the market, especially by nationality. We are hearing that there is starting to be a bit of volatility in some specific pockets of the market, for example, in the more aspirational consumer. So I was wondering if you're seeing anything that is worth flagging there? My second question is on your gross margin, which reached a new record. Previously, you were guiding around 78%, and you already exceeded that. So is this -- let's say, do you have a new target? Is this going to be the new normal? I imagine, like you also mentioned pricing has been a key driver. And the brand has been repositioned a little bit higher. So are you happy with your brand positioning now? Or is pricing going to remain a key driver? It would be very helpful if you can break out in 2022, how much of the growth was volume and how much price mix? And lastly, very briefly, given that you already pretty much reached your medium-term targets, and there's been several management changes. Would there be perhaps a new capital markets update coming up?

Susy, it's Andrea Bonini. So first on current trading. Current trading, year-to-date, has improved since Q4 and remained strong. We're seeing growth in all geographies. Compared to the second half 2022, growth in Europe is normalizing as expected, I would say. Asia Pacific and Japan have accelerated, quite significantly in the case of Japan. Asia Pacific benefits from Mainland China returning in positive territory and Hong Kong and Macau with solid growth as it is for Southeast Asia. In Korea instead, we've seen a deceleration on the back of double-digit growth in 2022, but that is also impacted by the refurbishment of our flagship store in Seoul. U.S. remains positive in single-digit territory, but the North American cluster is still up double digit. And finally, Middle East trends, I'd say, in line with 2022.

Let me add one thing, Andrea, it's Andrea Guerra speaking. One of the good things of this beginning of the year is that our growth is really spread out, spread out on our brand portfolio. So Miu Miu and Prada are both growing strong. And on the other side, which is one of the things I like the most is that all our product categories are moving in the same direction. And on the other side, we have really one of those moments that we are also obviously nurturing as much as we can of very good traffic in our stores. Back to you, Andrea.

Okay. So on the second point on gross margin, there were several questions on this. Let's start with the 2022 dynamic. So 2022, I mean, first of all, I'll start saying that we're really happy by the growth because it's high-quality growth in the sense that it's organic and it's growth driven by full price. I mean, we have, over the years, strategically reduced presence in outlets. And so as I said, I mean, it's full price growth that is driving the results. This full price growth benefit from both an increase in average price and also full price volumes. And actually, the contribution is fairly balanced. With reference to gross margin going forward, we are obviously satisfied with the level we have reached. I mean this is, frankly, also investments made in the previous years in infrastructure capacity in manufacturing that are paying off. And from here, from this level, we would expect -- we wouldn't expect expansion or any meaningful expansion. And the other question that was asked in terms of expectation for pricing going forward. What I would say is for 2023, we do expect a benefit. Again, we do expect an improvement in terms of average price but is it improvement in average price as different components. So point #1 is increases of 2022 [ going ] run rate. The second element is the product mix; and then to a lower extent, price increases. But as I said, I mean, it's a third -- and as a third component. New targets, which were the final questions, in due course, I would say.

And the questions come from the line of Thomas Chauvet from Citi.

My first question would be on -- you talked about sales productivity and your OpEx more generally. If we look at your gross margin, 79% last year, even higher in H2, so slightly above your medium-term target. The EBIT margin at 20%, also in line with your target, but that implies obviously your OpEx-to-sales ratio in the high 50s percent, which is obviously quite high in the industry. How do you see OpEx leverage in the future but also in 2023? You mentioned that OpEx would moderate this year, if I understand that correctly. My second question would be just a clarification, you said sales have improved at the start of the year versus Q4. Did I get correctly that Q4 was plus 14%? So does that mean that the overall group or is that just retail is growing faster than plus 14% in January, February. And finally, on the collaboration between Mrs. Prada and Raf Simons, we saw the third autumn/winter collection presented a few weeks ago. How would you characterize the evolution of the collection now that they've been working together for 3 years in terms of time, in terms of consumer adoption and ultimately, commercial impact, I mean we see the numbers, obviously? But any more qualitative color you could give would be very helpful.

Okay. Thank you, Thomas. So on margin outlook and OpEx, I'd say on OpEx, I mean 2 things. I mean, first of all, in 2023, we will remain focused on organic growth and sales productivity. There's also -- yes, as I said, I mean there's also an element of -- in 2022 normalization of fixed OpEx. And that's why, so with more retail events and business going back to normal level from COVID. And that's why we would expect also the fixed OpEx component in terms of growth to moderate in 2023. So these are positive elements. On the other side, I mean, what I want to stress is the fact that, I mean, we see the industry being increasingly polarized and we want to be in the group at the top. And so that means that we will need to continue to invest behind our brands. And that's why we plan to keep in 2023, marketing communication investment substantially flat aligned with 2022 in terms of percentage of sales, which means that we grow in absolute value. So bottom line, we won't be focused on the short term and we won't be obsessed when it comes to profitability short term, but with growth in line or above our target. We expect further operating leverage and EBIT margin expansion in 2023. On the group growth, my comment with reference to year-to-date trading was with reference to retail. So having seen an improvement vis-a-vis the 14% that we had in Q4 of 2022. And for the last question, Andrea?

Yes, if you want, I can answer. I mean, the relationship between Mrs. Prada and Raf, I think from day #1 has been a very easy and natural interaction. And this is visible, more and more we go through shows. Obviously, what you have to always bear in mind is that whatever happened to the group, the group has always been -- has always remained focused on what Prada means and what Miu Miu means. We are so lucky to have the founders alive and kicking and guiding the way from that point of view with a connection between style, between the product development, between the industrial side, between the innovation side that I think it's really unique in the industry.

And the questions come from the line of Edouard Aubin from Morgan Stanley.

So the first one, Andrea, on China, I think you said that the year has started positively. Apologies for coming back on current trading, but just trying to understand the magnitude of the rebound. Am I right in thinking that the comparison basis was quite difficult in January and February last year? You were up, maybe mid-teens up 20% and then things get much easier from mid-March. And if you please, could quantify the magnitude of the rebound. We don't obviously need exact figures, but just an order of magnitude year-to-date. So that would be helpful. That's question number one. Number two, Andrea Guerra this time. I think you talked about sales density being a key focus for you and indeed, your -- an operating leverage story going forward with -- driven by higher sales density. Could you please share with us some of the figures in terms of -- am I right in thinking that your sales density last year was about EUR 26,000, EUR 27,000 per square meter per year, which is obviously below what you were doing at the peak and substantially below what some of your peers are printing today? And therefore, what could we expect within the next 3, 5 years in terms of sales density? And sorry, lastly, related to that on the sales density -- could that -- obviously, that's going to be mainly driven by sales growing, obviously, at the brand globally, but could you also proceed to some rationalization of your store base, which you seem to have been reluctant to do in recent years? So given that you have a relatively large footprint. Sorry. And then -- sorry, the third and last question is on your vertical integration, which you mentioned earlier during the prepared remarks. So can you please just give us an update on where you stand more or less at the group level and then breaking it down by product category and what are roughly your medium-term target, an update on that, that would be helpful.

So Andrea Guerra answering to your, let's say, the first 3 questions. In terms of China, we have seen a beginning of the year, which has been progressively positive, an excellent Chinese New Year. And I would say that we have been observing a rebeginning of internal of China travel which is given to the cities a kind of new aura and the kind of new dynamism. And this is highly visible in the stores as well. So we have seen a growth. And as you are saying, comps will now become easier as we go through, let's say, mid, end March, April, May. So China is, for sure, 1 of those elements of positive stance for 2023. In terms of store density, I don't think we have never given exact figures. But when you say that we have a highway or a journey to be done compared to the best, I could agree with you. I think there is work to be done. There is work to be done on people, on training, on events in stores and out of stores, on the ability to be better between in-store and digital and back to store. There are so many things we have to do. And I think that theoretically, we know how to do them. So now we need to go on the floor and do them. I think that, that would be -- that will be 1 of the biggest drivers of our performance in the next period. In terms of rationalizing our store base, I would disagree with that. At the end, Prada [ full image ] stores is somewhere around 200. So we're not talking of a big scale than we have a number of other stores. With Miu Miu, we have gone through a rationalization [ while ] we were some kind positioning better the brand. But I think that we have an opportunity really to make the base we have working better. Most probably this year, we're not expanding our store base, but we really need to make it working better. In terms of the last question, in terms of vertical integration, I think it's a journey. It's a journey of controlling supply chain. It's a journey in controlling engineering, being more flexible, being quicker, controlling quality. And I think this is a never-ending journey. And I think Prada stands at the best in the industry.

And the next question comes from Melania Grippo from BNP Paribas Exane.

Welcome to Mr. Guerra, and congratulations on your results. I have 2 questions. One is regarding the price increases for 2023. Can you please detail that? I'm not sure you mentioned it, but if you can say more or less, what you expect for price increase in 2023? And then my other question is on the metaverse, NFT. How do you plan to develop your presence in the metaverse, which is the realistic potential in the space? Do you ever imagine to have a percentage of your sales from this in the future?

Thank you, Melania, Andrea Bonini. On prices, A couple of comments. I mean one, I mean, we'll keep monitoring market conditions and will respond appropriately. We want to be -- we are, we want to be and remain competitive. As I said before, I mean, we anticipate a further improvement in average price. But as I said before, I mean, there's 3 drivers to that. Run rate of 2022 price increases, mix and then to an extent, a new price increases. So that's it on prices. And I'll pass it to Lorenzo for the second question.

On the last question, the second question. No, of course, metaverse, NFT, I mean, is a new area for everybody; is, for sure, an upcoming market, but we have some platform in place taking care of it and like the [ encapsule ] by other projects, but it's just the beginning of the journey. So at the moment, is not absolutely at all 1 big element of the group, but for sure, is a key element to explore in the future, and we are exploring, we are making our own know-how, and we are approaching it the Prada way. And so let's see in the future. But for sure, it's an important [ event ] conversation as it's been in the past, the beginning of social network. So we'll keep an eye on it, and we'll keep experiment and give us our perspective.

And the questions come from the line of [ Ann Lo B. Smith ] from HSBC.

Actually, I have 3 questions. So the first 1 is on China. So just would it be possible to give the magnitude of the organic growth decline you had in Q4 '22. The second question is about the U.S. Have you observed a discrepancy in terms of performance between the lower price point segment and the higher price point segment with the higher price points holding better than the [indiscernible]?

Sorry to interrupt. I'm really sorry to interrupt, but we're struggling to hear. Would you mind starting again with the questions?

Yes, sure. Is it better now?

It seems so. Yes. Thank you.

My first question was about China and the performance you had in Q4 '22. It would be helpful if you can quantify the organic sales growth decline in China in Q4. The second question is about the discrepancy. Have you observed a discrepancy in terms of performance in the U.S. between the [indiscernible] segment, the [indiscernible] price segment and higher price point? And the last question is about the performance in jewelry. Can you give us an indication about the performance of this division and if you are happy with the marketing push you are doing behind that division?

So in order to be clear, for what regards your first question and second question, I think we have given extensively -- extensive answers up to here. And I don't think we're ready to give you some more details about the different performance. I have to say that in U.S. I wouldn't be so attentive today between low and high. The issue is how strong is your brand? If your brands are strong, we can deliver good performance. Obviously, then we need to be strong in retail. We need to have the proper people, proper efficiency. But I wouldn't say that U.S. has any kind of issue. Jewelry launch, I would say that, first of all, has been an unbelievable brand success. I think that, again, this has reinforced our sustainable message, a sustainability message. This thing about and only creating our fine jewelry collection through Eternal Gold, recycled gold, has given to the world a completely new way of looking at jewelry, a new way of looking at a new product category for Prada. So whatever the business will be, we're already happy of how this has given further value to our brand, Prada. Having said so, we will really measure business in 2023. And for sure, I will be happy to report to you also during the most important seasons of jewelry. I could only joke with you and say that some Valentine has been a super record for fine jewelry, but it was the first year.

And the questions come from the line of Paola Carboni from Equita SIM.

Yes. I have a few questions. The first one is referring to your statements in the outlook section of the press release. You seem to maintain some caution on the evolution of the context, which remains uncertain and so and so forth. So can you share with us what could worry you more, where do you see any potential risk coming from, if any? Second question is if you can comment and update us on your client base in terms of age cluster and also the stronger sales results we have been achieving, whether you see this success being driven more by repeaters and your loyal customers or more buying new customers? And if so, where are you recruiting them from? And then a third question, if you can comment on working capital and CapEx. For working capital, you managed to improve versus the previous years. I'm wondering whether this is a sustainable achievement for the next year. In particular, I was surprised by your strong control of inventories, notwithstanding the sudden slowdown of China in the last few months of the year. And on CapEx, you mentioned the potential acceleration. So if you can comment on that.

So I think that regarding your first question, I think to be cautious in 2023 or let me say, in the past 23 years of this century, it's normal. I mean there is nothing strange in being cautious. Behind every corner that is a risk or better. Every week, something happens. And being the world so connected to whatever happens in any part of the world is reflected somewhere else. So the real thing is that we are not worried about anything else. We need to work on our agility on the fact that we are able to constantly adapt. And this is, again, I would remark one of the best-in-class items of the Prada Group, which is the velocity, the flexibility and the reactiveness of the supply chain. I think this is really best-in-class. So we're not worried, but I think this is the proper way of -- the proper attitude in this -- during these years. Regarding the second, I will ask Lorenzo.

So regarding your question on customer mix by age range. I mean, it's something that we never disclosed so precisely. But what I can say that we are super happy with the pace of growth the Gen X compared to the others. Of course, it's going to be a key for the future also to drive our growth towards investing in the lifetime value of our customer. And for sure, the Gen X is the beginning of the journey for them, but still we have to work a lot with millennials. So generally speaking, we're happy with the growth that we have with Gen X. But if I have to give up some priorities to increase the lifetime value of our customer. And then, of course, all our sustainability angle and so on, we are very appealing to the new generation.

And then finally, on working capital and CapEx, on working capital and inventory. I mean, the answer is yes, we'll remain focused on that and controlling the development of that. CapEx, yes, I did mention an acceleration -- further acceleration in this year 2023. We believe that this year, we could be at around EUR 300 million or slightly in excess of that in terms of CapEx because indeed, I mean, we want to further accelerate retail, which will remain largely focused on the existing store network. So store renovations et cetera. And then IT and industrial CapEx, with industrial CapEx focused on expanding capacity of our plants.

And sorry, just a follow-up, if I may. Can you also provide some comment on the evolution of the client base and what is driving your success between repeaters and new customers, if possible?

As I answered it before, if I to give us a priority is to increase the lifetime value of our customers, so also the fact of being repeating customers. So today, we don't have a problem on new customer and traffic is, we need to invest more in our customers. So I think I answered to your question.

And the questions come from the line of Chris Gao from CLSA.

[Interpreted] Management, congratulations on the great results. This is Chris Gao, the [ luxury analyst ] from CLSA. I have a few questions. So firstly, we would like to ask about the OpEx ratio. So you just mentioned that all major OpEx ratio has been seeing moderation [ post ] reopening? And can you give us a bit more color on your marketing budget plans going forward, especially on your marketing budget allocation, preferably for a breakdown of China versus outside China. So wondering if you plan to increase your marketing and store investment in China? And if yes, in what magnitude, we raise your investments? And what are the key initiatives we could expect in the coming year in terms of the marketing and store opening. And this is the first question. My second question is related to the growth driver behind the Chinese [ classics ] recovery. So if we want to break down about the growth that's driven by existing customers and new customers, so how much of the recovery is driven by the -- your existing customers? And how much is driven by the newly recruited customers? So this is the second question. And the third question is related to your timetable [indiscernible] timetable of Milan dual listing and also in terms of the Hong Kong Stock Connect entrance. Since currently, the main Hong Kong Stock Connect system has been open to international companies. So what is our current progress in terms of the discussion to tackle what's the possible [indiscernible] technical issues that we are facing in terms of the Stock Connect entrance.

So I will answer to the marketing budget for sure in the -- during the budgeting period, we designed different scenario. And our baseline was with an increased investment, of course, for sure, in China, but still we have on the plate different scenario to be played and triggered depending according to how it's going to be the market in the following months. And so we are prepared, and we are ready to any possible scenario. And -- but for sure, I confirm you that China is one of our, if not key priority market in terms of increase of investment. And I will hand over to Andrea for the rest of the question.

Regarding existing and new consumers nowadays in China, I would say it's 1 of those questions that you could give whatever answer. That is going through the past 3 years where you had consumers that were blocked in houses that were buying online that are now probably back in store that are traveling again in China. I would say that today and having the Prada brand gone through a very positive journey in the past 3 years in terms of brand equity, we have right in this moment, more new customers than repeat customers coming to our stores in this reopening of China.

So lastly, on Milan and the Stock Connect inclusion on Milan. I don't have any news, I mean to share at this point vis-a-vis what we said in the past. And on Stock Connect, yes, it's a possibility. As you rightly mentioned, I believe there is some technical issues to work through, but it's a possibility for the future.

The questions come from the line of Liwei Hou from CICC.

This is Liwei Hou from CICC. Congratulations on great results. I've got 2 questions. The first 1 is on our expansion into jewelry, Eternal Gold. So it's judging by the contribution to sales, it's still in the low single digit. So I was wondering what would be our plan for the future target of the size of jewelry business and also our price positioning and the clientele positioning going forward. That's my first question. And the second one, the follow-up on the expansion of our own plants. So we have an ambitious goal for 2023 to achieve above market growth. So was wondering to support that growth, how do we increase our supply? Is it mainly from the own production or a combination of self-production and selective suppliers?

So regarding jewelry, I will go back to what I was saying before. In 2022, basically, the launch was in November. So obviously, today, it's really marginal. What I want to tell you about jewelry is that going forward for us is more a tool to reach our consumers in a different attitude and new consumers. So we are targeting high net worth, very high net worth but also our clients in a different attitude. It will never change dramatically our profit and loss. But I really think it's really an addition of a new category to our world and to our world of clients. In terms of supply chain, we have been building new facilities and expanding existing facilities. So at the end, it will be a little bit more inside and a little bit less outside. But if you want a synthetical question, I would say 50-50.

So this concludes the call. Thank you very much, and we'll speak to you in May. Thank you. Bye.

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