Earnings Transcript for 1913.HK - Q4 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing-by and welcome to the PradaSpA Full Year 2020 Results presentation. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] For your information, this conference is being recorded. Now, I’d like to hand the conference over to your speaker today, Alessandra Cozzani, the Group CFO. Please go ahead.

Alessandra Cozzani: Thank you. Good afternoon, everybody. And thank you for joining our full year 2020 financial results conference call. I am Alessandra Cozzani, the Group CFO and with me today there are Ms. Patrizio Bertelli, our CEO and Founder of the Company, Mr. Mazzi, our Chairman and Mr. Lorenzo Bertelli, Head of Marketing and CSR. During the call, Ms. Bertelli will give us an overview of what happened during the year, and how we have navigated during this unusual period. And then I will go through the numbers. Afterwards Lorenzo Bertelli will update you on our marketing and communication projects. And Mr. Mazziwill share with us some final remarks before the end of the presentation. After the presentation, we will be pleased to take your questions as usual. I'm handing over to Ms. Bertelli.

Patrizio Bertelli: Good afternoon, everyone.So first of all, I need to express my personal satisfactionabout the way in which our group was able to react to these dramatic moments of pandemics. And I'm really pleased about the speed that we were able to put in place to implement a lot of measures, including those that guaranteed the safety at work of our people, of our staff and our people so to keep our production factory in the production area too. Of course the pandemics had a negative impact on the performance of the group in the first half of the year. But since June, recovery is strong in terms of revenues and EBIT went back to positive territory, large enough to fully offset the operating deficit of the first half. So thanks to the cash generated in the second half of the year, which was about €290 million, we were able to improve the net financial position vis-à-vis 2019 by nearly €100 million. Something which is important and it's highlightingis that this was made possible by the industrial and logistic platform we can count on. It's strongly rooted in Italy.We own our production facilities. This allowed us to improve production cycles. And competitiveedge also allowed us to decrease the stock we carry from the beginning of the year. So we focused our production on the most successful and necessary products. So our full control of the value chain allowed us to quickly react against all changes on the market. And that has to shown to be a decisive factor in this situation. Also because most activities happened via digital systems of course and so we were able to devote our undivided attention to the most important requests we received from the market. Another relevant and important note that is worth pointing outis that because of this pandemic situation, we actually speeded up the rationalization process we had already started back in 2019 in terms of distribution through wholesale accounts. In2020, we decided to give up about €250 million of revenues, because we considered that it would be a suitable to yield out a very strong fine during this situation, during this particularly difficult and challenging market situation. Because we wanted to be on the safe side as far as trade receivables were concerned.

Also: This crisis has actually sharply set up some ongoing trends including for instance, the impact of digital and the weight of online sales. Besides the importance, which is more visible that consumers attach to sustainability when making shopping decisions. Our ecommerce channel grew by over 200% over the year.Their important performance which we were able to achieve thanks to digital transformation that we started a couple of years ago. And thanks to a very efficient logistic platform that allowed us to cater for the strong demand. Of course, online growth is still going on to this date, and it's actually going to be stronger and stronger in 2021. In the second half, we've worked to enrich retail experience with special initiatives to attract bigger and more and more demanding group of customers. So, in the year, we have created about 80 installations including pop ups and special installations 50 of which in the second half. Another relevant topicis the value of the brand. So our creative leadership is a reference point and a benchmark in the international luxury markets. We see continuous and growing appreciation by consumers towards our brands, while Raf Simons appointment as co-designer confirms his choice, and actually it shows that Raf Simons fully shares in the creative vision of the brand. So keeping his personal design contribution and creative contribution. The two fashion shows that Raf Simons co-designed with Miuccia Prada were highly appreciated and the new collections are responding very well in stores. The investment in digital besides marketing and communication, to create an authentic and direct dialogue with our audiences helping to strengthen the visibility of our brands. There are very interesting experiences, such as the public chats that Raf Simons and Miuccia Prada co-held at the end of each fashion show, this were highly appreciated both by the press and by the public. Now I hand the floor back to our CFO Ms. Alessandra Cozzani, who is going to continue with the presentation of the 2020 financial.

Alessandra Cozzani: Thank you, Ms. Bertelli. As Ms. Bertellimentioned,the PradaGroup showed a very good resilience in this adverse environment. Net revenues for the year reached €2.4 billion down 24% year-on-year at constant exchange rate and these reflected a minus 40% in the first half, but a decline limited to just 8% in the second half. The exchange rate fluctuation was negative for the year about 1% with a bigger impact on the second half trend about 3 percentage points. In terms of operating expenses, effective cost containment measures were taken promptly since the outbreak of the pandemic with a significant cost saving in all areas. As a result of the total operating expenses were €1.7 billion down 14% compared to the same period of last year. EBIT turned positive for the full year. The economic and financial performance in second half were back to pre-pandemic level as I will better show you in a moment. Same as in the first half and in order to better understand the impact of the store closures on our P&L, we have identified all the selling costs pertaining to the store that have been closed during the lockdowns around the world. And this impact was around €116 million. All this cost generated zero revenue because of the various closures.

of our cost to: Turning to our balance sheet, the balance sheet structure remains very strong. Net current assets decrease for the combined effects of yearly depreciation and the limited level of investments during the year. Net operating working capital improved and was down 5 year-on-year. Net financial position improved from negative €406 million in 2019 to negative €311 in 2020. And cash generation was strong in the second half of the year. Now let's turn to look at our sales by channel. Retail channel was down 18% at constant exchange rate impacted by the store closures around the world. The first half accounted for the bulk of the decline down 32% while a strong improvement was posted in the second half of the year to a limited decline of 6%. Our direct ecommerce shows an extremely strong performance as Ms. Bertelli mentioned before in all regions during the year growing sales by triple-digit. Lorenzo so will give you more insights on how we have achieved these impressive results. Our sale was down 49% at constant exchange rate and down 20% in the second half of the year. This trend is in line with our strategic decision to downsize this business in order to focus on retail and ecommerce development and to protect the brand equity. As you already know there is a strict correlation between sales trend and store closures not to mention the complete absence of tourism everywhere. Store network was significantly affected by lockdowns worldwide with 115 direct [Indiscernible] store closed on average in the total year, which means 18% of the total drops 27% in H1 and 9% in H2. As you can see from the slide the retail sales trend significantly improved in the second semester. And despite a new wave of lockdown since November, which is impacted mainly in Europe, Q4 far better trend compared to Q3 with October and December back to positive territory. We are pleased to say that this encouraging trend is continuing in the first part of the year. Looking at retail sales by geography we were seeing a sequential improvement across all markets driven by strong local consumption that in the second half almost entirely offset the lack of tourism. In Europe retail sales were significantly impacted by lack of tourism and prolonged lockdowns with around 30% of the store closed during the year. However, we were seeing a very good response from local customers in every country, which was up double-digit with an outstanding trend in Russia which registered plus 46%sales growth during the year. Asia Pacific was the first market to recover since April, with a marked rebound mainly driven by Mainland China and Taiwan, which in the second half of the year registered plus 52% and plus 61% sales growth respectively. Korea also showed consecutive strong double-digit growth trends throughout the year. It's worth noting that sales performance in Asia Pacific market has already reached back to pre-pandemic level and this is a remarkable result. In America, retail sales trend turn positive in the second half of the year, with a solid 4% growth. Brazil recorded a remarkable performance delivering positive sales growth during the whole year. In Japan, retail sales were heavily impacted by lack of tourist and prolonged store closures in Hawaii, Guam, and Saipan. But we were very pleased to see that local consumption resumed growth in the second half of the year. In the Middle East region, we also saw a strong rebound of sales in the second half across all countries achieving a total plus 26%. The improvement we achieved in the second half was seen across all product categories. Sales trend of leather goods improved, thanks to new launches and the ongoing reinterpretation of iconic products. Spectrum, just to mention some very successful examples. It's worth mentioning that leather goods category saw double-digit growth in the second half of the year in Asia, U.S. and Middle East. Ready-to-wear performance was very strong for both Prada and MiuMiu resuming growth in the second half of the year. Sales performance for footwear was also good with successful reception of new lifestyle collection, which drove the sales recover in the second half. Strong recovery sales trend we're seeing for both Prada and MiuMiu. Sales performance for churches were impacted by the geographical exposure with a vast majority of stores located in Europe and U.S. more exposed to tourism. Gross margin proved to be very resilient standing at 72% for the full year of 2020, improving by 100 basis points in the second semester reaching 73% versus the same period of last year, supported by favourable channel and geographic mix, with more than compensated the under absorption of the fixed industrial cost experience in the first half. Total operating expenses stood at €1.7 billion down 14% a decrease of €290 million during the period. As you can see from the slide, extensive cost containment measures were taken promptly since the outbreak of the pandemic with significant cost saving in all areas. This was particularly the case in selling expenses, which were down €210 million with an important contribution from successful negotiation of lease agreement. Advertising expenses went down €24 million with some marketing initiatives cancelled or postponed while prioritizing digital initiative amplifying the visibility of the brand as Lorenzo will show you. G&A costs were down €30 million during the year including the positive extraordinary income from the sale of Milan real estate. This slide and the next one will show you clearly that we experienced two very different half’s. Here we have the EBIT evolution. In the first semester of the year EBIT has been significantly impacted by the decline in sales and gross margin caused by store closures partially mitigated by the effective cost containment measures taken promptly in all areas. During the second semester sales recovery and the equal effective cost containment turn EBIT positive, reaching €216 million which more than offset the deficit of the first half of the year. Moreover, you can evaluate how in the second half the economic and financial parameters came back to pre-pandemic levels. With EBIT margins and operating cash flow generation even higher than those of second half of 2019. EBIT margin, excluding real estate extraordinary gain reached 12% of revenue and operating cash flow rose to €289 million 27% higher than 2019. Capital expenditure was significantly lower compared to previous year ended at €122 million as we focus only on essential projects. With reference to the retail network during the year we had eight net closures consisting of 12 openings and 20 closures. I have already mentioned the net operating working capital remained well under control during the year. Thanks to our direct control over the supply chain and the strength of our logistic platform, we had effectively managed the level of our stock that which saw a decrease of about 6%. The lower figure of trade receivable is in line with our decision to downsize the wholesale business. Thanks to a strong cash flow generation, the limited level of CapEx and the withdrawal of dividends, net financial position improved compared to last year and is negative at €311 million versus €406 million at the end of previous year. This is a very good result in this adverse environment. Now I would like to handover to Lorenzo Bertelli.

Lorenzo Bertelli: Thank you. Thank you, Alessandra. Good afternoon, ladies and gentlemen. 2020 was a year of huge disruption to our business -- the markets in which we operate. However, the investment we had made in the digital transformation of the Prada Group over the past few years mean that we have -- where we're place it topivotour activities, especially in online sales, marketing and communications towards our digital assets. Because of the progress we have already made in our digital journey, we had the flexibility to adapt very quickly to the new circumstances of 2020. In practice, that means an acceleration the [Indiscernible] way, but which we have experience -- we have expanded exponentially over the past year. I want to underline we are just at the beginning of our growth trajectory, and that there is still a huge potential to unlock. We've leveraged more ways of staying connected with clients through our social media platform both in the west and especially in China, and our brand it does grow successfully. We have used our fashion show innovative ways to drive engagement and brand excitement, and adopted a more accessible style of communication that has brought new forms of interaction with the brand and made it available to new audiences. As well as global initiatives, we have also used local events to make the brands more relevant to local audiences. Finally, we continue to prioritize ESG activities and took our sustainability agenda to a new level with product innovation. Let me go through each of those topics. As we have all witnessed at covenanting lead to a life spending trend worldwide. But as mentioned, thanks to our global logistics platform, we're able to react quickly to the disruption brought by the pandemic and capabilities on the online trends. We did so through a series of initiatives. We placed a strong focus on our brands.com websites. We launched Prada ecommerce in additional key markets in 2020. We revamped Prada website across all major markets. And we rolled it out the new website version for 2021. We also launched a new strategic info session in marketplace. We built a dedicated ecommerce Chinese team to strengthen our local presence the relationship with selected third-party distributors. We utilized our distribution channel via revising the fulfilment process including also general warehousing in addition to shops. This optimizing ecommerce experiences for more customer worldwide understanding and outstanding ecommerce growth. Talking about client engagement, and Omni-channel. Our initiatives were supported by ongoing investment in our digital infrastructure include improvement to the front-end and the back-end. Enhancing the shopping experience and making the customer relationship more interactive are using the latest technology. We leveraged analytics to develop and personalize customer strategy which was supported by digital tools to help our staff making more efficient and engaged sales as stores remained close. We have implemented the project to engage clients more deeply with brands and companies values. Finally, we have rolled-out Net Promoter Score system globally that will allow us to continuously monitor customer experience across all our distribution channels to enable us to promptly reacted to any change in customer experience. Talking about the Prada brand heat strong and acceleration. As a result, we noticed an acceleration of our presence in all main digital channels, which was confirmed by data analytics with statistics showing strong results throughout the year. As you can see from these slides, particularly the Prada brand experienced increase in heat and we went on Instagram as well as on Weibo. Brand Prada and MiuMiu Spring/Summer ‘21 was a key moment. All fashion show and communication activities add to be digital in almost all markets and this year was particularly important to us because of the first collection with Raf Simons. Despite having towards the first collection line the Prada sales ‘21 should drove huge amount of online buzz during Milan Fashion Week. With views and growing a triple-digit growth on Instagram compared to the live streaming of the previous year. On Weibo the hashtag Prada SS21 heat 170 million views in one day, and the show was viewed 32 million times and 35 million times on Douyin. Similarly the MiuMiu SS21 shows the third most mentioning during the Paris Fashion Week with the shows experienced triple-digit growth on Instagram compared to previous year that is a remarkable result if you consider the dimension compared to other brands. Innovative ways of connecting with our audiences. It was really important to us to remain engaged and find new ways of communicating with our audiences, ensuring our ways of connecting were appreciable and continue to promote dialogue and culture engagement. Some of this year highlights are the Prada dialogues and innovative concept within the Prada marketing strategy starting from the debut collection by co-creative directors Miuccia Prada and Raf Simons. Prada inaugurated an open dialogue between the brands and its audiences. Other examples include the Prada tools of memory for winter ‘20 campaign, and the Prada possible conversation a series of digital talks exploring fashion, culture and life on Instagram. Global and local approach in communication. We continued our global and local approach to communication with activation and events around the world such as the Prada Mode event, the MiuMiu woman's tales local screening and product-oriented activation involving celebrities and influencers. I'm proud to say that we were able to successfully adapt to the challenging environment, our brand accessibility and connect with our audiences in innovative and creative ways. Now talking about ESG that for me is a very relevant topic for the present of the future of the company, we continue to [Indiscernible] the deliveries of ESG initiatives. Later on this year, we will unveil our CSR roadmap. In the last year, we have continued to foster an inclusive company culture progressive our sea beyond educational program and confirm our leadership in sustainable finance. Sustainably remains a key value, we approached our product innovation. The research and development of alternative materials is better for us and we confirm this commitment throughout the year with our Adidas partnership and implementing the Fashion Pact guidance. Prada Re-Nylon proves we can do something sustainable for our planet and that we can make it relevant in terms of revenue. In 2020, we have expanded the collection to ready-to-wear and footwear and I'm proud to announce that the full conversion to regenerate Re-Nylon by the end of 2021 is on track despite the difficult times. As for the new brands, upcycling and MiuMiuhas been really successful. And we're excited to extend initiatives with Levi’s collaboration this year. Thank you all and I will now hand it back over to the Chairman for an outlook. Carlo.

Carlo Mazzi: Good morning to everybody. What can I say about the future? We need some optimistic view. Because Prada Group successfully withstood the unprecedented challenges of the pandemic while continuing to drive forward strategy. Continuous investment in brand equity, people, products and customers deliver the resilience in strong recovery in sales. Direct control of the supply chain and distribution channels combined with a focus on digital communications is the pillars of positive future prospects. Encouraging start to 2021in spite of continuing restrictions. In conclusion, in an environment that is still uncertain, the fundamentals of the luxury sectors remain strong and the Prada Group is well positioned to capture long-term growth. Thank you.

Alessandra Cozzani: Thank you, Mr. Mazzi. I think that we can open now the Q&A session.

Operator: Thank you. Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] And now wait for your name to be announced. Please stand-by while we compile the Q&A queue. This will only take a few moments. [Operator Instructions]. Our first question comes from the line of Susy Tibaldi from UBS. Please ask your question.

Susy Tibaldi: Hi, good afternoon, everyone. Thanks for taking my question. The first one, you mentioned that the trends that you saw in December, they continued favourably in the first few months of the year, this year. And I was just wondering if you're referring to a year-over-year growth, because I can imagine that January last year, you commented it was up almost 20% in retail, but then February when COVID impact started. So I was just trying to think, how should we see the sales year-to-date compared to 2020, but also to 2019? Secondly, I’ve seen and you also mentioned that you are working with some of the retailers to convert from the normal wholesale model into e-concession models. So I wanted to ask if you can give an update on this point, how it's growing if you're getting any sort of resistance from the retailers. And if you're happy with wholesale being about 11% of sales or is there is more to be reduced? And then the last question is regarding your very strong recovery in the second half of the year I mean in terms of operating margins, where you basically exceeded 2019 level. And can you talk about how sustainable do you think this is going forward? So for sure you had someone one-off cost benefits or costs will come back this year. But I was just trying to understand to what extent we can expect this margin improvement to sustain in 2021? Thank you.

Alessandra Cozzani: Thank you. Sorry, Susy for the delay. But you ask a lot of questions. I will take the first one in terms of current trading, yes, I can confirm that the very good trend that we have seen in the end of the year is continuing that we are so far positive on 2020, let's say, mid-single-digit, and we have already fully recuperated order value that we did also in 2019.

Patrizio Bertelli: Now, this is Patrizio. As far as the operating margin is concerned, I can confirm that in 2021, we're going to continue with the same policies we implemented in 2020. And the gross margin we expect is 74.5%.And as to the wholesale sales; we will continue the policy we have started already. So our revenues may vary anywhere between €250 million and €280 million from wholesale.

Susy Tibaldi: Thank you. And so if I can just quickly follow up, you commented on the gross margin, which is super helpful. And can you comment anything on the EBIT as well in terms of margin? And if you think you can kind of keep a similar profitability as both we have seen in the second half or if maybe it could be back to 2019 level or how should we think about profitability assuming that the top line remains in positive territory? Thank you.

Patrizio Bertelli: This is Patrizio. We will have to see what happens with the evolution of the pandemics, of course. So the situation may be similar to 2019 better than 2020. So much will depend on the performance in the next two or three months. I should say that up until June, we're looking at a pretty challenging situation. But then after that, the situation is likely to become much, much easier. Anyway, we're going to obtain results, which are going to be in between 2019 and the second half of 2020.

Susy Tibaldi: Very clear. Thanks Bertelli.

Patrizio Bertelli: Thanks.

Alessandra Cozzani: Okay, next question.

Operator: Thank you. Our next question comes from the line of Thomas Chauvet from Citi. Please ask your question.

Thomas Chauvet: Good afternoon. Thank you for taking my questions. Firstly, just Alessandra, could you come back to the Jan, Feb retail trend comments? And you said of mid-single-digit for Jan, Feb versus 2020. But that would be significantly below 2019 level. I understood, you said you recouped the ‘19 level in December. So isn't any different in Jan, Feb I didn't get the math? Sorry. Secondly, on the design transition with Mrs. Prada and RAF Simon collaborating. Could you comment on the Spring/Summer collection currently in-store? What is this design transition bringing in terms of certain KPI unit per transaction average basket? Are you seeing better retention rates? Are you obviously thinking this is driving also higher full price sales? Maybe a bit early to comment, but was interesting on that first collection now, well in-store? Thirdly on the store network optimization, you've done 20 gross closures and that 8 net of openings in 2020, including store the end of last year, what's your approach over the next couple of years with regards to the physical network given the spending shift online and maybe a year or two of travel disruption? And finally, on the portfolio, how committed are you to car shoe and church both brands have suffered in recent years, are they still core and parts of the Prada Group’s strategy we are seeing a lot of consolidation in the industry with interest from big buyers, but also a small family office doing transaction. So, would there be an opportunity to exit these two brands? Thank you.

Alessandra Cozzani: Hello, Thomas, thanks for your question. I will take the first one; probably I was not clear before we are flat on 2019 and up mid-single-digit on 2020.

Thomas Chauvet: Thank you.

Alessandra Cozzani: I would like also to underline that, of course, we are still operating with 130 store closed. So it's a huge number.

Lorenzo Bertelli: I will take your second and third answer. It’s Lorenzo Bertelli. About the collection I mean, what Alessandra just said and the fact that we are still targeting a triple-digit growth on ecommerce and the fact that the sales per square metre and the customer like our age -- of customer is shifting dramatically to a younger generation, especially with some of the novelties that are in stores. Some of the novelties that are in store, I mean completely goes in the direction of the stronger KPIs in terms of attentions per transaction et cetera. And about the traffic I will say of local and tourists I mean, I will say that the compared the sector and other brands that we are already -- we were already the big shift in terms of investment towards the local consumer. And actually, I will say that even during the pandemic, we have malls where the local consumer was growing even more than 2019. So I will say that we are ready to dialogue with the local consumer and then if we're going to have even more travellers to just be a bigger part in terms of revenue, but the focus is for sure on local consumer.

Patrizio Bertelli: This is Patrizio. So can I answer on our store network first? So, first of all, as Alessandra Cozzani pointed out, we have 130 stores that are still closed and the performance is quite good anyway, so that means bigger sales per square metre in all stores. And as far as store network optimization is concerned, we didn't really close many stores we improved and enhanced for some of our locations. You should -- that that today in Japan and United States and everywhere there's a lot of relocations and optimizations going on. Of course, you know about the department stores in the U.S., Canada and Germany is we really developing and renovating most of their stores. So most of what you see as close in-stores is actually transferring to better locations. So that's towards networks. And then ecommerce doesn't make sense without physical stores platform. I think it's just an illusion that ecommerce may thrive without some brick-and-mortar stores that the luxury consumers need some physical experience to and not just online, they need to go to the stores look at product presentation, so they need to come in touch with everything we've seen including service. So we definitely want to involve customers more to improve customer service at the stores. And so as to present our product experience in an even more appealing way with more targeted and personalized services. So this is for stores networks. And as pointed to brands mentioned car shoe and churches. Of course, they suffered more than the other brands for the very simple reason of their size. And also it was impossible to organize ecommerce distribution suitably for them that the smaller a brand, the more it suffered last year because this brand doesn't have a distribution network in countries like China, for instance. This is actually where the market picks up quicker than others in the second half of 2020. Both car shoe and churches are typically European products and so they suffered even more than the other brands. And then, sorry, I can't remember your last question perfectly. Let me review it. Okay, it's two acquisitions. We're not selling anything we may buy perhaps, but not sell, that we -- if something happens will be buying not selling. Thank you.

Alessandra Cozzani: Next question, please.

Operator: Our next question comes from the line of Luca Solca from Bernstein. Please ask your question.

Luca Solca: Yes, Hello, good afternoon. I was wondering how you are trying to anticipate organic growth and how you monitor the Prada brand continuing to stay relevant. You mentioned a few interesting metrics in your presentation. Looking at the Instagram and Google Trends, I was wondering whether you can share more with us. And what kind of confidence you get from those measures that things are continuing to go in the right direction? Separately, from that we heard from your peers, that customer service and remote contact with consumers and CRM in general, been vital in sustaining a blind growth and consumer dialogue, especially at a time when so many stores are closed, because of the pandemic. I wonder what your plans are on these fronts and whether COVID-19 subdued to boost activities on this area. Last I was impressed not to see a mention of the Prada’s cup activity and congratulations, by the way for securing that trophy. Is that still a relevant portion of how you plan to support marketing and to engineer marketing for your brand going forward? Or is that a relatively separate activity that comes from legacy decisions taken in the past it cannot become in other words, more relevant to enhance Prada’s -- with consumers at the moment and in the future? Thank you very much indeed.

Carlo Mazzi: Good evening, Luca. So I will take your three questions. Organic trends, I mean, as you saw in the presentation, and then also some of the indicator and KPI we can look for -- we're looking for is public so is not private, someone is private. And in this panorama multiple platform and channel, you have to look at all so I mean, we have a structuring that allow us to review monthly and in some cases and even weekly. The trends that we have in terms of share of voice compared to the other brands and this is the most important things because it's not important that much how much you're good to -- how much where you're doing compare yourself but how much where you're doing compared to the other peers and then we have for sure to several tools and dedicated team to possibly to monitor this situation and we also work every time to improve our performance. And see also what kind of activity was and which doesn't work that much. So is day-by-day we'd get more than a lot. About the Omni-channel, I mean, this is a very relevant topic because to activate and enable some of the key activity that are needed to do a proper Omni-channel strategy. So for example, to have remote say with a set of associate, putting contact remotely, our customer with our sales associate network and drive conversation with our customer, new potential customer, you need a lot -- you need to unlock a lot of tools, and infrastructure capabilities, some of them is already in place. Otherwise, the growth that we had is not possible. And as I said at the beginning of my presentation, we're still the beginning because unfortunately, a lot of the things we would like to do now, it's not possible to do it in the short-term because first of all, you have to go through developer announcement of the platform of the group. So I'm confident we will be soon ready with a stronger platform that will allowed us to strengthen those Omni-channel capabilities engage even better in multiple ways with our customer. On the last question about -- as you see I mean first of all, thank you for your comment and we believe that in this moment -- is a very important pillar for us. Because if we have been contacted by Adidas and vice versa if we are relevant when we go to talk about spar with some suppliers and do collaboration in [Indiscernible] because 20 years ago my father started. So without this kind of credibility, we will not be strong in the sports world and they will say between the luxury player is a strong incredible thanks to -- and in a world where shifting towards experiences and more storytelling is a perfect match. And also the new kinds of both are a perfect match and allow us to look even better the potential of [Indiscernible] I hope that answer your question. Thank you.

Alessandra Cozzani: Next one.

Operator: Thank you. Our next question comes from the line of Thierry Cota from Societé Generale. Please ask your question.

Thierry Cota: Yes, good afternoon, and thank you for taking my questions. First, you gave a very clear indication of the gross margin expected this year 74.5? Do you expect to have a flat, gross margin going forward? Are you happy with that level? Or do you think this could go further higher? Secondly, on your price positioning, I was wondering if there was any significant price increases realized since you rely for the ones you did in the spring. And whether as of now you are happy and satisfied with your relative price positioning versus peers? And lastly, just to make sure I understood well, for this year, did I understand well you said that EBIT margin of the group should be between the 9.5% of year ‘19 and the 12% H1 of H2 ‘20. And on the retail sales growth as of now, the 5% approximately versus last year that covers January and February I presume, if you could just clarify? Thank you.

Patrizio Bertelli: Good afternoon. Now, as far as price positioning is concerned and this is Patrizio Bertelli speaking. So as far as price positioning is concerned, we are partially satisfied because we actually recovered something which we had underestimated in the past. So we decided to correct our price positioning and the improvement was quite significant. I need to point out that the price positioning is not just given from increasing prices on individual products. But also we modified our product offering we are providing products that have a higher perceived value and so they can command a higher price point. As to our performance for the first two months of this year or the first quarter, which we're going to close at the end of March. The trend is what Alessandra Cozzani pointed out so I think that the first quarter ‘21 will point to the fact that in the next nine months of 2021 we expect to continue progressing and making advances. I think I answered your all your questions, there's something left out.

Thierry Cota: Well, maybe you just want the gross margin, the level you indicate for this year, is that the benchmark we should use for future years or you think there could be some further upside there. And just repeat that on the EBIT margin for the year? I understand the target needs to be in the low teens, just to make sure I understood well.

Patrizio Bertelli: Okay. So gross margin, we want to increase gross margin from 74.5%, which is the target now to 78% in the future. To the trend, this is exactly what Alessandra Cozzani said. We are going to experience a level which is going to be anywhere in between the performance of 2019 and the performance of the second half of 2020. Thank you.

Thierry Cota: Okay. And just want to clarify the 78% gross margin any idea of timing?

Patrizio Bertelli: Two years 78% in 18 to 24 months from now.

Thierry Cota: Okay. Thank you very much.

Operator: Thank you. There are no further questions on the line. I will now hand it over to Alessandra Cozzani.

Alessandra Cozzani: Okay/Thank you for joining us. Of course, we remain at your disposal to -- for more detail Alberto and Cynthia are as always available for additional comments. And thank you very much for staying with us and see you next time hopefully in person. Good-bye.

Operator: That concludes the conference for today. Thank you for participating. You may all disconnect.