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

Good day, and thank you for standing by. Welcome to the Prada Group Q1 2025 Revenue Update. [Operator Instructions] And please also note that today's conference is being recorded. I would now like to turn the conference over to Mr. Andrea Bonini, CFO. Please go ahead, sir.

Good afternoon everyone and thank you for joining the Prada Group's First Quarter of 2025 Revenue Update. I'm delighted to be with you again and with me today is our Group CEO, Andrea Guerra. We will start with some remarks and then move to Q&A. Before we start, please be reminded that during today's call, we may discuss forward-looking statements which are subject to risks, uncertainties and factors beyond our control and the actual outcome and returns may defer materially from such statements. Please refer to the disclaimers included on Slide 2 of our presentation. With that, I will hand over to Andrea Guerra.

[Foreign Language] Andrea. [Foreign Language] We had a positive and solid first 4 months of the year with a low teen double-digit growth, has not been easy. The sector is now going flat or backwards since 18 months. And there is no real improvement signals in front of us. We were able to show a plus 13 in retail growth with the Prada brand competing against a very strong quarter in 2024 of almost a double-digit growth in 2023. We will continue to build Prada desirability and product innovation to remain in a positive territory even in this tough circumstances. Miu Miu continued on its path with a strong growth in the quarter. Prada brand continues on its journey, on its journey of cultural innovation and after a very long temporary gastronomic offer in Harrods, opened two very unique locations in 2025. The main being Mi Shang Rong Zhai Shanghai, a kind of melting pot of architecture and gastronomic offer between Milan and Shanghai. Mi Shang is the translation of obsession. Location is conceived together with Director Wong Kar Wai. It's a cultural landmark. So Rong Zhai in Shanghai has become the brand epicenter in China with a section dedicated to our Fondazione Prada, a section dedicated to the ultimate experience of our clients and a section in the garden dedicated to Mi Shang gastronomic experience. I think that this is a big step forward and allows us and allows everybody to touch our intentions, our objective, our ambition to constantly carve society culture with our actions. Miu Miu in these first 4 months of the year was well received at 360 degrees, in all countries, all product categories and consumer segments. In these last 4 months, we launched Miu Miu Custom Studio, at first was part of the Gymnasium pop-up, but then as a stand-alone project, in which we, together with Miu Miu community can interact on many different products to end up with each one of our clients and consumers with their Miu Miu unique product. This is another step forward in Miu Miu to be part of a larger and stronger community. People are reacting very positively to this project, and we are very happy about it. Andrea, it is now your turn to focus on revenue details.

Thank you. And starting with net revenues by channel. The group recorded net revenues of EUR 1.34 billion in the first quarter of the year, up 13% at constant FX on the same period last year. Over the period, exchange rate had a mild positive impact of 50 basis points on revenues. We recorded a solid performance at retail level with sales reaching EUR 1.22 billion, up 13% at constant FX and driven by like-for-like and full price sales. Wholesale was up 7% versus the same period last year. On royalties, the business delivered plus 13% in Q1, a sustained performance supported by both eyewear and fragrances. Turning to the next slide, retail sales by brand. Prada delivered a highly resilient performance with retail sales stable over the period against high comps. And indeed, you remember that the first quarter was the best for Prada in 2024 in terms of year-on-year growth performance followed by the second quarter and then the comps eased slightly in the second half. Miu Miu confirmed its remarkable growth trajectory with 60% constant FX. Growth was widespread across all categories and regions. As a result, the brand contribution to group retail sales increased to 31% versus 22% in fiscal year '24. Moving to Slide 9, retail sales by geography. Over the quarter, the group achieved robust growth across all regions. Asia Pacific delivered a good performance with sales up 10% at constant FX on a tough comparison base and broadly unchanged market conditions in the region. Europe was up 14% year-on-year, driven by domestic and tourist spending. The Americas, up 10%, continued to be supported by local demand, notwithstanding increased volatility since the start of the year. Japan remained on a positive trajectory, up 18% over the period, albeit in further moderation, which is expected to continue as we saw extraordinary growth over the first half of 2024, driven by local consumption, but also very, very significant touristic flows. Lastly, Middle East delivered the best performance of the quarter with retail sales up 26%. And with that, I will hand back to Andrea Guerra for some closing remarks.

[Foreign Language], Andrea. So normally, the first 3, 4 months of the year are the most delicate ones from a team psychological point of view. And I'm happy to have reported the numbers that we have been reporting, and we finished up with a positive result. But the market is not easy. We see irregular trends. So it's not even easy to understand and give an intelligent answer to current trading status. I would say very regular and much of the same with obviously some differences. For sure, last year, second quarter, Japan experienced a huge flow -- inflow of tourists. The group accounted for something around 60% growth -- 65% growth on the year before. Therefore, it's a complicated comparison. But on the other side, Prada has constantly invested in North America, last step being the unveil of the dedicated main store on Fifth Avenue. And we are proving and allowing positive results. So I think this is a very peculiar year, a very complicated year. We need to find our own ways, and we are finding our own ways, and we will continue to fight. We will continue to remain in a positive environment for both brands. But for sure, this last almost 24 months has not been easy and recently I would say that maybe we have reached the lowest plateau, we will see. And we continue nurturing activity, nurturing desirability, motivating our people on all company, both brands and corporate to keep on with this positive double-digit growth. With this, I thank you all for listening, and me and Andrea are ready for answering to some of your questions.

[Operator Instructions] We are now going to proceed with our first question. The question has come from the line of Susy Tibaldi from UBS.

So my first question is about the trends that you're seeing by nationality. If you can comment for the Prada brand at retail. It's always very helpful to understand the progression versus the fourth quarter.

Susy, Andrea Bonini. On Prada, starting with the Chinese cluster, continued to be a bit volatile. We went from negative to positive in Q4, and Q1 was back to negative against the Q1 '24 that was double-digit positive, though. The slowdown mostly driven by local transactions, traveler transactions is still positive in the period. Europeans, flattish versus mid-single digit in Q4. The North Americans, positive mid-single digit with no major differences versus Q4. However, we were seeing the impact of weaker dollar and recent uncertainty may be more visible going forward. And on Japanese, positive low single digit in progressive moderation, but as we expected versus Q4.

That's helpful. And on the second question, just to maybe expand a little bit, especially on the American consumer and the U.S. market as a whole, obviously, very volatile, a lot going on there. Are you able to -- have you seen any change in consumer behavior at all in the most recent weeks? And maybe as a broader question on the current trading. You mentioned it's hard to say. But as the comparison base for product gets easier, should we expect some acceleration in the coming quarters?

So I'll try to be as clear as possible. We were positive in the United States with Prada. And I feel that we can continue to be. It's unstable. I mean when it's unstable, it's unstable. Every week, it's a different story, every day, it's a different story and changes in the regions, changes in the states of U.S. We have invested. As we all know, we have invested on a team. We have invested on Fifth Avenue. We have -- and this is readable, refurbished, closed some stores, opened some other stores. So I think that we have been opening a kind of new era for Prada in the U.S., and this is what we're trying to do. It's not easy to comment today to be honest, not easy at all. On the next comps, I think, the second Q is still complicated for Prada. I talked about Japan, and that is a huge hurdle. Obviously, second half is much easier.

The questions come from the line of Ed Aubin from Morgan Stanley.

Yes. Andrea, I guess, Guerra, you mentioned in your prepared remarks, if I understood correctly that leather goods was one of the, if not the fastest category. Are you talking Prada and Miu Miu, apologies if I missed it, so if you could confirm that. And then in terms of what are the drivers for that? Are they driven more by your iconic buys or by newness. So that would be my first question.

So we had -- what Andrea was talking about probably was regarding Miu Miu. So in Miu Miu, leather goods was the strongest category. And even in Prada, on the leather category, we really had great success during these first 3 months.

And sorry, is it again more iconic bags or newness and if you could come back on the drivers, that would be helpful.

I think that regarding Miu Miu, it's very complicated to talk about icons today when we talk about Miu Miu. I think that there are some spectacular successful lines, which I hope will become icons in time. So we are nurturing them. We are cultivating them. We're working on them. And it's the Wander, it's the Arcadie, it's the Bow, it's the Aventure. So we are doing our best in that. I think that we are recapturing our fair market share in leather goods with Miu Miu. This is what we are doing so far.

Okay. And just my second question on your store expansion. I think you had said earlier this year that you intended to -- the net increase for Prada brand was 10% to 15%. And I think for Miu Miu, you had talked about 15% to 20%. Just wondering if you could get an update on that. And specifically related to that on Miu Miu, obviously, you're very underpenetrated in the U.S. So if you could comment on what your internal and external surveys are telling you about the brand perception, how big it could be and so on in the U.S. market in terms of store expansion?

So the project is going on as we have already talked about, no changes. Regarding Miu Miu U.S., nothing special during 2025. In terms of store expansion. We have just refurbished and reopened with great success, our SoHo store in New York for Miu Miu. And we are working in order to expand Miu Miu in 2026, '27, '28 in North America. So we are heavily working on that and the perception and the request is very high, and we see it online every day.

We are now going to proceed with our next question and the questions come from the line of Erwan Rambourg from HSBC.

Congratulations on a great quarter. I was wondering if you could comment on how you think about pricing regardless of tariffs, you've had the dollar, the renminbi, a few other currencies being relatively weak. What are you ready to put through this year to possibly compensate for a very strong euro? And then I'll have a follow-up, please.

So we are observing exactly what you are observing. We talked about in the past, our kind of maintenance pricing strategy of between 2 to 4 points, every 6 months. And we have not yet decided what to do in June, July. So we are seeing exactly what you're seeing. So including tariffs because we will need at that time by June, we will understand also what happens with tariffs. We will have to do certain things on pricing for sure. But I do not know exactly the amount today.

Okay. Great. And then my second question is more philosophical. I think, when Miu Miu started its journey of massive outperformance relative to peers, you had commented at the time that Miu Miu had a lot to learn from the Prada brand. Now that Miu Miu is half the size at least this quarter of the Prada brand, is it fair to say that the Prada brand might be able to learn a few things from Miu Miu? How do you think about not hard cost synergies or anything, but more philosophical best practices or synergies that the Prada brand can learn from this Miu Miu success.

Being philosophical questions, all answer are viable. I would say that Miu Miu still is learning a lot from Prada and there are so many things we can do with Miu Miu because Prada is there. So the responsibilities of Prada are much higher and bigger and sometimes you can feel those. But I wouldn't revert any kind of thinking or opinions between the two brands today.

We are now going to proceed with our next question. The questions come from the line of Thomas Chauvet from Citi.

Andrea and Andrea. I have two questions. The first one, going back to pricing and perhaps related to potential tariffs of 10% or 20% applied to the EU or maybe nothing. I'm sure you've had a bit of a sensitivity analysis of how much would you need to increase prices by in the U.S. to fully offset 10% or 20% tariffs. I mean you have a very high gross margin, I guess, pretty low landed cost in the U.S. So is that a manageable price increase you think. And what is the share of Asian sourcing today in your total COGS, I presume it's now marginal? That's my first question.

Extremely, extremely low on this second half of the first question and the first half for the -- sorry, first half of the first question. With 10% reciprocal tariffs, the maintenance type of increases of which Andrea spoke earlier about would be enough to compensate. But the point is the impact that matters the most, and it's harder to quantify is the one on consumer confidence and long term on the U.S. economy. Next question.

And my second question on the discussion of Prada versus Miu Miu. When you think about the customer demographics, particularly in leather goods. How much today you think there is overlap between the two brands? How are you leveraging that in making sure that your historical Prada handbags customer doesn't fly to Miu Miu because certain bags are maybe more hot at the moment or better priced. And are you creating some form of sort of synergies between the two brands to leverage customers following up to Erwan's question earlier on Miu Miu learning from Prada and maybe Prada learning from Miu Miu?

So what we're doing is we're forbidding our Prada customers to buy Miu Miu. It's a joke, obviously. It's -- I mean, we are managing the two brands totally independently. We're managing the two brands in their DNA. Between all brands in the universe, there is some overlaps. Obviously, Miu Miu growing has gained market share on everyone in the market, some brands more, some brands less. And I would say that Prada has been one of the less. Having said so, consumers are free to do whatever they want. We are constantly nurturing brand by brand. And inside their brand, their consumer segments -- by their consumer segments, and we are not doing any thoughts on cross-branding or overlapping or nothing like that. It will never be the case.

We are now going to proceed with our next question and the questions come from the line of Melania Grippo from BNP Paribas.

This is Melania Grippo from BNP Paribas. I've got a question on profitability. How should we think about first half versus second half and full year. Any seasonality phasing we should bear in mind also in light of the store opening plan, how could it impact profitability?

Melania, Andrea Bonini. So it's a revenue call. So I will not comment extensively on margins. What I would say is nothing to highlight compared to what we said before. So first of all, growth remains the priority. But ideally, we would like to maintain the trajectory of progressive even if moderate margin expansion on a yearly basis. And in terms of phasing wouldn't necessarily highlight anything dramatically different from last year.

I have a follow-up on online. Is there anything you can share with us about the performance of your online channel for both brands?

I would take it. Nothing specific, I would say. United States, North America has grown a little bit in terms of mix for both brands. But I would say no major differences from the trend. So always remaining in that between 8% and 10% of the total revenue.

We are now going to proceed with our next question. The questions come from the line of Chris Gao from CLSA.

Chris Gao from CLSA. So my first question is regarding the competitive landscape. So with a couple of mega luxury peers announcing new creative directors and also likely accompanied with rising investment to promote newness. So how do Prada and Miu Miu, which have led the newness in the past cycle prepared to react to the competition in the possible new product cycle from peers. So this is my first question.

Maybe I did not understand the question fully. I think that the industry overall is in a reshuffle mode. And I think that this reshuffle mode is not close to be finished. I think it will take another 12 months probably to see something different. And I really think that this is a period where we can -- are totally and with great performance win market share because we have stability on one side, but we are full of creativity on the other side. So I think that stability nowadays is a very positive signal, if I had understood the question.

So the second question is regarding your plans or investments in China and also your outlook in terms of local demand. Right now, we're still seeing important store openings in China, for example, the Miu Miu flagship stores, newly opened in Wuhan, everybody likes the stores. They are very, very beautiful. So with China local demand right now, as you came in the first quarter, maybe you're still seeing some difficulties still remaining as a temporary dragger. But still you are doing very meaningful and important investments in China. Would you expect some incremental pickup when it comes lower heading to the second half of this year? And if yes, maybe how much is from like the incremental space, how much is from the same-store sales pick up? And from the same-store sales pickup, so which consumer group in your mind will be the more meaningful driver, still the high net worth group will be more meaningful? Or you might see or expect some improvement likely from the aspirational customers may be related to stimulus or the continued policy help to boost domestic consumption.

So thank you for the Wuhan Miu Miu store. It's the largest store in China so far and had an unbelievably strong first week, but it's only the first week. So I -- obviously, we keep remaining very positive about the long-term future of the region. The only reason why second half will be better is because comps are easier. So I'm not expecting any specific change. I hope that some of this extended policies, governmental policies at one stage will modify a little bit the consumer mood and allow people to spend a little bit more money and save less. But I don't see today any kind of change. And let's see.

[Operator Instructions] We are now going to proceed with our next question. The questions come from the line of Oriana Cardani from Intesa Sanpaolo.

The first one concerns Chinese offshore purchasing. Can you quantify the offshore onshore purchasing needs in the first quarter?

It's not dissimilar from what we said before. So it's still around 70-30.

Let me add something, Andrea. I would only add that Chinese are becoming visible in Europe. I mean, we have seen a good start January, February, March 2024. But since then, we have really not seen Chinese expanding and growing in Europe anymore.

Understood. And my second question regards the growth profile in the first quarter, in particular, what was the contribution of price mix on the retail organic growth?

Price mix. I mean it was at group level, we had a fairly balanced contribution from volume and price. I think there's one last question probably. Go ahead, please.

We are now going to proceed with our last question. And the questions come from the line of Paola Carboni from Equita SIM.

Very simple one. Can you give us some color on the, let's say, evolution of the quarter in the sense just to understand whether the trend was, okay, quite volatile, sorry as I got it, but basically was March any different from and then April also as well, if you can comment from January and February, have you seen progressive deterioration? Or I don't know if you can comment on the [ exit speed ], let's say, more specifically. And secondly, in terms of pricing action for the U.S. market and for the tariffs situation in case would you consider, I mean, any different approach to the U.S. market compared to the worldwide action on prices? Or would you aim to maintain, let's say, some geopricing structure, the same you have now. So let's say, just to understand whether you would consider to raise prices more in the U.S. or to spread the impact on a worldwide basis.

I think we -- everything we could have said on both of these questions, I think, we said. I will try to repeat. No real changes. This is also the reason why I talked about the first 4 months. Obviously, we are entering in a comparison with a Japanese hike, which has been unique, and we talked about it a year ago. So I wouldn't -- that -- I would say that, that is the only difference. I mean when company-wise, last year, we did plus 60 something in the second Q. So it's obviously something that it's not repeatable. And we are still having a great performance in Japan in relative terms, especially on locals. This is how I would finish it up. And on pricing, I think it's exactly what I said before. So I would not repeat it again. Thank you. So if I understand correctly, thank you, everyone, and I hope to see you soon, [Foreign Language]

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.