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Edited Transcript of MONC.MI earnings conference call or presentation 10-Feb-20 5:00pm GMT

Full Year 2019 Moncler SpA Earnings Call

Milan Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Moncler SpA earnings conference call or presentation Monday, February 10, 2020 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luciano Santel

Moncler S.p.A. - Executive Director

* Paola Durante

Moncler S.p.A. - IR & Strategic Planning Director

* Remo Ruffini

Moncler S.p.A. - Chairman & CEO

* Roberto Eggs

Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director

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Conference Call Participants

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* Antoine Belge

HSBC, Research Division - Global of Consumer and Retail Research

* Elena Mariani

Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands

* Louise Susan Singlehurst

Goldman Sachs Group Inc., Research Division - MD

* Luca Giuseppe Solca

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Marion Cohet Boucheron

MainFirst Bank AG, Research Division - Research Analyst

* Oliver Chen

Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst

* Paola Carboni

Equita SIM S.p.A., Research Division - Analyst

* Susy Tibaldi

UBS Investment Bank, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Moncler Full Year 2019 Financial Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Paola Durante, Strategic Planning, Intelligence and Investor Relations Director of Moncler. Please go ahead, madam.

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Paola Durante, Moncler S.p.A. - IR & Strategic Planning Director [2]

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Thank you, and good afternoon, everybody. Thank you for joining today's call on Moncler Fiscal Year 2019 Results. First of all, as usual, let me introduce you to the executive team on today's call. We have here with us, our Chairman and CEO, Mr. Remo Ruffini; Luciano Santel, Chief Corporate and Supply Officer; and Roberto Eggs, Chief Marketing and Operating Officer.

Before starting the presentation, I need to remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Moncler's current expectations and projections about future events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that could cause results to differ even materially from those expressed in or implied by these statements, many of which are beyond the ability of Moncler to control or to estimate. I remind you that press has been invited to participate in this conference in a listen-only mode.

I'll now leave over -- sorry, hand over to our Chairman and CEO, Mr. Remo Ruffini.

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Remo Ruffini, Moncler S.p.A. - Chairman & CEO [3]

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Good afternoon. 2019 has been another extraordinary year for Moncler, another year of double-digit growth in all economic and financial indicators. Revenues grew by 15% at current exchange rate, exceeding EUR 1.6 billion, with an EBITDA margin above 35%, while our net cash continued to climb, reaching EUR 663 million.

Today, I was ready to talk to you about our many achievements and our plans for the future, but in the last day, we had to face a new and unexpected scenario. That's why during this call, I want, I believe I have to, focus on how we are managing the current situation.

First, and more important, let me say that our love and care go to China and to our people in the region. We trust the significant and urgent measures that have been put in place to rightly face the health emergency. Our first concern has been to protect our people. At the same time, we immediately start to act at all levels to protect also our company. Organizations should be valued for their capacity to react quickly to changing scenario, even when these are completely out of their control. This, I believe, is one of the most important asset of Moncler.

Since we start our journey, I want Moncler to be based on a solid, long-term vision, while knowing the strategy is be flexible and to evolve. This is driving our decision. We understand that the current situation will recover eventually at the speed that can be even faster. But today, it is impossible to forecast how long it will last. In Moncler, we have already put in place a clear contingency plan in all divisions. We have started to postpone some cost and investments while focusing only project essential to further consolidate our brand.

In addition, everything we have done in the past can further help us today. We continuously work on our brand, leveraging on our unicity while evolving through innovation and creativity. Moncler can engage with its client using their language. Genius has told us how to do so. We have developed a selective, high-quality and profitable network of stores. We can rely on excellent passionate people. We are a never-ending start-up. Last, but not least, Moncler has almost EUR 700 million of net cash in its balance sheet.

Moncler is an ever-evolving company. We never stop, while always remaining true ourselves. We'll continue on this journey baked by support of all our stakeholders, and above all, the contribution of our 4,600 extraordinary people. Their energy is unique. It is powerful. It give me the strength and total confidence that Moncler can face the situation and become even stronger.

Let me now leave the floor to Roberto and Luciano for more comments on our results.

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [4]

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Thank you. Thank you, Remo. Let me come back to the key highlights for the full year 2019, starting by the revenues. Revenues grew by 13% at constant exchange rate and 15% as reported sales, reaching EUR 1.627 billion. Retail revenues grew by 13% at constant exchange rate, reaching EUR 1.257 billion, with a comp growth of 7%, with solid results in all regions. Wholesale revenues reached double-digit growth at plus 10%, EUR 371 million at constant exchange rates. EBIT reached EUR 475 million, with a margin on sales of 29.2%, exactly the same as the one we had in 2019. Including IFRS application, the result would have been EUR 491.8 million, with a margin on sales at 30.2%. Net income reached EUR 361.5 million, plus 9% compared to full year 2018, plus 16%, normalizing the one-off tax benefit recorded in 2018. Including IFRS 16 application, results reached EUR 358.7 million with a margin on sales of 22%. Finally, as stated by Remo Ruffini, net financial position reached EUR 662 million of net cash versus the EUR 450 million of last year, which is an increase of EUR 212 million. Including IFRS application, euro amount to EUR 23.4 million of net cash.

Let me come now to the results and the revenue breakdown by region. In full year 2019, Moncler continued to show outstanding results, surpassing EUR 1.6 billion as mentioned before, plus 13%, with double-digit growth in all regions. Also in Q4, Moncler reached an excellent 13% growth, which is completely aligned with the results we had during the first 3 quarters of the year. During the full year 2019, Italy recorded a plus 10% of growth with an important acceleration in Q4 at plus 21%, driven by the retail channel. EMEA results grow by plus 14% during the full year 2019 with a strong performance in Q4, plus 19%, led by U.K., Germany and France, but also Austria, Switzerland, Benelux and Nordics that reached, all, double-digit growth. Asia and Rest of the World rose by a good 13% in the year, a plus 9% in Q4, notwithstanding the negative performance of Hong Kong and Macau. Mainland China and Korea led the growth. Americas delivered good performance in all markets and both -- and in both channels. Revenue rose by 11% in full year and also 11% in Q4.

If we look at the split between wholesale and retail, thanks to the double-digit growth of the wholesale channel, the balance between retail and wholesale remain at 23% for wholesale and 77% for retail. As already mentioned, we had a very good results in retail with a 7% comp growth sales. E-commerce continued to strongly outperform with more than double the growth of the retail channel. Wholesale grew at 10%, thanks to the airport openings, the e-tailers performance and also the shop-in-the-shop openings.

If we look at our retail network, we reached 209 stores compared to the 193 at the end of 2019, which is 16 openings. We managed to open the 10 stores we had in the plan during Q4 and also the 4 that were planned for the month of December. We opened Val d'Isère, Beijing Shin Kong Place, Shanghain One ITC and one flagship store in Osaka. For 2020, around 15 new doors are secured.

Concerning wholesale mono-brand, we reached 64 locations compared to the 55 we had on the 31st of December 2018. And we opened 2 mono-brand wholesale in Q4, 1 in Cambodia with DFS and other 1 in Munich with Oberpollinger.

Let me hand over the micro to Luciano Santel.

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Luciano Santel, Moncler S.p.A. - Executive Director [5]

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Okay. Thank you, Roberto, and good evening, everybody, and thank you for attending our call today. We are now at Page 10.

Page 10, where we report our income statement under the new IFRS 16 application and the comparison with the statement before the application of the IFRS 16. The new IFRS 16, as you know, changes the way companies recognize their lease obligations. Consistently with what we did during the presentation of the first half of the year, we will comment our financial results excluding the application of the IFRS 16. So of course, unless we have any questions later, we will be more than happy to answer your question. But now we are making comments on the financial results and the income statement that is also at Page 11 before the application of the IFRS 16.

Top line EUR 1.6 billion, already presented in detail by Roberto, plus 15% as compared to last year, with a very remarkable gross margin of 77.7%, better than the last year, thanks also to the expansion of our retail business, but notwithstanding the negative impact on our results of the Hong Kong situation that, as you know, impacted in Q3 for about EUR 10 million, another about EUR 20 million in Q4 for a total of about EUR 30 million. Not to say that the gross margin is still very, very healthy, honestly.

Selling expense is good, honestly, substantially in line with last year, higher on a percentage basis, but simply because, again, we have expanded our retailer network and with a minor negative impact of about EUR 1.5 million due to rent cost associated with the stores that are not to be opened yet. Just 2 examples, very important, the Milan Galleria and Paris Champs-Élysées. G&A 9.1%, substantially in line with the 9% that we reported last year. And again, they include the important work to make our organization more strong, stronger in all the different fields of our business. Marketing expenses 7%, totally in line with last year and with our plan with our guidance. Stock-based compensation, same amount as last year, but with the lower impact, 1.8% on revenues. And EBIT margin of 29.2%, exactly the same margin that we reported last year.

Below EBIT, we have to comment taxes. And something that Roberto commented at the beginning of this presentation, tax rate is higher than last year, unfortunately, lower than what we expect for 2020 because this year -- in 2019, sorry. We still report a positive impact of our Patent Box that last year, 2018 was even higher. I mean, but this is only a timing -- a different timing impact of the Patent Box, which makes our net income higher than last year, 9%, but not as much as it would have been without this different timing. Bottom line, EBITDA adjusted, which is remarkable, I would say, again, 35.3%, even a little bit higher than last year. So a very good set of results.

Page 12, CapEx. CapEx, pretty high, significantly higher than last year as planned and as expected and already communicated to the market, because of the expansion of the retail network, of course, but also because our infrastructure CapEx or what we used to call before corporate CapEx are growing more and more because of investments in our information technology platform because of the expansion and the automation of our logistics center in Italy and not only, I will say, and also because of the important e-commerce project implemented in Korea, as you know, that started in June of last year.

Page 13, net working capital, 7.9%. Last year, it was 7.3%, slightly higher, but honestly, I will say, still very, very good. Very strong credit control. Very good inventory management, again, notwithstanding the situation in Hong Kong that impacted, of course, our top line, but also the amount of our inventory.

Page 14. Page 14, we report a net financial position that, as Roberto said, and Mr. Ruffini said, is EUR 663 million before the application of the IFRS 16. After the application, it's still positive, of course, much lower. It is at EUR 23.4 million cash. Again, I would say a very good number.

Page 15, balance sheet. Nothing to say, again, unless you have a question.

Page 16, the cash flow statement. A cash flow statement, as you know, is a summary of the most important business results. The first one is the very good EBITDA of EUR 575 million. The other numbers that are worth to make comments are CapEx, that again have been significantly higher than last year, and the line change in other current and noncurrent assets, which is the real difference against last year. Last year was EUR 48 million positive, this year at EUR 24.9 million, and this is totally or mostly, mostly due to the Patent Box impact, I told you before. And this is the reason why our free cash flow, which is EUR 340 million, is still very, very good, I would say, is lower than the EUR 362 million we reported last year. This is the only reason of this small decrease.

Okay. I don't have any comments now. And of course, we are all ready now for your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Susy Tibaldi with UBS.

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Susy Tibaldi, UBS Investment Bank, Research Division - Associate Analyst [2]

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Congratulations for another great set of results. So my first question was on China and the impact of this virus. So you say that it's really hard right now to still quantify what the impact would be for the full year. But I wanted to ask if you can maybe give us some color on what you are seeing in the first month or first few weeks of this issue? So did you have to close some stores? How many? Are you reducing your operating hours? How much is traffic down, et cetera? And also, if you can give some detail on these costs and investments that you're postponing? And in general, are you sort of taking similar measures of what you were doing in Hong Kong when the project first started? So maybe you are sort of switching off the advertising spend? Or is this case maybe a bit different? So the e-commerce is helping? So any color that you can provide there will be super helpful.

Secondly, on the store expansion. So you have secured 15 locations for 2020. I wanted to ask a little bit more, maybe longer term. Given that all of the luxury players right now are trying to relocate stores, expanding, et cetera, do you think that potentially, maybe longer term, it could be more and more difficult to secure really prime real estate space?

And thirdly, you have mentioned a few times, obviously, that the -- you're sort of accumulating more and more cash, given the exceptional results. Do you have any color that you can give on your plans potentially for this cash? If there's anything on your radar? Or if you're planning to do maybe another small buyback? Anything will be great.

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [3]

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I'll start. Susy, this is Roberto Eggs. Let me start with China. We'll give you some more qualitative highlights and I'll let maybe Luciano then comment on the financial impact. Let me first start by saying that we had a very good start of the year in all markets. And these, until the 23rd of January. As you know, on the 24th of January, the China -- the coronavirus was discovered or it was announced in China and there was immediately measures that were taken by the Chinese government in closing some of the malls. And we have seen immediately a very strong impact in Hong Kong, Macau, Singapore and in China. In China, we are still now -- we have 1/3 of our network, so 14 stores that are closed. And the ones that are open, we have seen a decrease that is around 80% of the traffic in the store, with a similar decrease in turnover for the Chinese market. We are following the guidance of the Chinese government. And as soon as there are possibility to open store, we will reopen them. We had an impact also on Korea, where for a few days last week, we had 5 duty-free shops that were closed. And again, it's not a Moncler decision, but it was a department store decision to close. Similar for China, when I'm talking 80% decrease, this is the decrease of the traffic that we have been contemplating in the mall, not only in Moncler store.

We have decided to postpone some of the investment on the Chinese market. We had 3 relocation that were planned that have been postponed to -- for a full year, beginning of 2021 and also 2 new openings that have been postponed.

Concerning advertising, here also, I will say that for the time being, it's more a freeze that this -- of part of the spend that we had in China and postponement to the second half of the year. We are monitoring closely what is happening. And we are, of course, ready to react very, very fast.

Concerning the e-commerce. The issue for the Chinese market is that, for the time being, for the last 2 weeks, we have seen also issues on the logistics of -- on the Chinese market. So it's not only us, but all the e-commerce in China that has been also slowing down because of some logistics center being closed.

Regarding store expansion, it has not been too difficult so far to secure our 15 doors. We had a plan that was slightly higher this year but, linked to what is happening on the Chinese market, were postponed. But for us, there is still a lot of possibility to open because there are markets where we are still not present. So we are going to open our Spanish market in retail. We are going to open Ukraine in retail. We have secured also the largest store of the network that will open during the last quarter of the year, which is in Paris, the Champs-Élysées. That is going to be, by far, the largest store that we have in the world.

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Luciano Santel, Moncler S.p.A. - Executive Director [4]

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Okay. Susy, this is Luciano speaking. I mean, about financial impact of the current situation in China, I can tell you that the business impact over the past 2 weeks has been very, very serious, as Roberto said. I also believe, honestly, that any extrapolation of the current trend would be very, very imprudent. So I'm not going to tell you what we may expect for the year-end, but not even for the end of the first quarter because the situation can change. But again, just to give you a fair and understanding picture of the situation, again, right now, as we speak, the situation is critical. Of course, we have started exactly after the breakout to take important actions to CapEx basis. Of course, our expenses are 99% expenses important for business, but some of them are more important than others. And of course, as a management team, together with Mr. Ruffini and Roberto, we started a plan to reduce and/or postpone some expenses and some investments, in order, of course, to protect our margins. We are acting, of course, on our store expenses, on our rents, the same we did in Hong Kong, even if -- I mean, as we said, and as you know, Hong Kong landlords are less open, at least they were a few months ago, less open to discuss about rent reduction than what are the landlords in China that, of course, are totally cautious of the current situation. So we are acting on several different fields. The same -- we are doing the same for our CapEx. That, again, are very -- our CapEx plan is, as usual, very ambitious, very important, but right now, we are setting priorities. And we are giving priority to some projects that we believe are essential for the brand first and for the business.

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Paola Durante, Moncler S.p.A. - IR & Strategic Planning Director [5]

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Cash?

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Luciano Santel, Moncler S.p.A. - Executive Director [6]

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About cash. Yes. I mean, I thought you asked a question about potential M&A. But I mean, we have almost EUR 700 million cash. Of course, now more than ever -- honestly, now more than ever, we are very happy to have cash and not to have debt. Honestly, we don't have any specific plan for buyback. What I can tell you, which is in our results, is that we are proposing to the shareholder meeting an increase of our payout ratio of our dividends. That last year was $0.40 and this year will be $0.55, with an important increase. We don't have any plan, honestly, to implement a buyback, also because normally, the buyback we have implemented in the past have been strictly instrumental to buy shares needed for our performance share plan.

About merger and acquisition, even if you didn't ask the question, we don't have any file, any dossier on our desk, but as we said in the past, we are open to look at eventual opportunities. We don't see any now, but we are open to look at opportunities eventually in the future. Thank you.

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Operator [7]

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The next question is from Oliver Chen with Cowen and Company.

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Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [8]

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Regarding the contingency plans and your proactive planning, what are your thoughts around inventory management? And what you can do around inventories and the seasonal nature of some of the inventories to read and react to the evolving situation? Second question is on U.S. wholesale. U.S. wholesale has been a tougher market. What are your thoughts about sales trends versus -- sell-in versus sell-out? And how the U.S. wholesale market has trended? It's been somewhat promotional, and there's also price matching.

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [9]

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Okay. Just -- I think the answer on the inventory will be a shared answer between Luciano and myself. We have been quickly reacting on the buy that has been planned for the end of the year, and we have been working on giving us some flexibility to, let's say, manufacture according to the way the sales are going to evolve and it's something that we are monitoring.

Regarding the current season, the spring/summer started very well. We had also a very good month of January into requests also coming from the wholesale market because we were at the beginning of January with some points on -- doing better than in 2018. We need to see now also how this China coronavirus is going to affect the sales. But so far, the spring/summer season is doing well. We have, let's say, freezed the sum of the shipments that were planned for the Chinese market and redirected the merchandise that was planned for the Chinese market, but also for Macau and Hong Kong to some other regions where the performance, especially in Europe, is currently good.

Regarding the wholesale in the U.S., 2019 has been a good year, supported by the fact that we have been -- rationalized the approach on the North American market. We have also completely reviewed where the buying was done. And let me say that we have retailized the approach on the wholesale market with a more qualitative approach in terms of buying and a slightly different balance between permanent and seasonal products. There is also strong support that is given in terms of training for the people that are on our shop-in-the-shop. And so far, the performance has been good. Also, if -- even if we must -- I mean, that there is always a lot of volatility on this market, but so far, so good. We have also started the retailization in terms of conversion of some of the doors and in the U.S. market. So the base of comparison between 2018 -- 2019 and 2020 will slightly change as we are starting now the conversion of offering through in Canada into concession and also Bloomingdale's to us now in wholesale. We have started now to convert some of the doors into a retail operation.

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Oliver Chen, Cowen and Company, LLC, Research Division - MD & Senior Equity Research Analyst [10]

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And our last question is about -- regarding sustainability. You've been a leader in this movement. What are your thoughts longer term with what you're seeing with recommerce and the circular economy and how Moncler may participate? And what we're seeing, which is a lot of growth at different levels in the circular economy?

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Luciano Santel, Moncler S.p.A. - Executive Director [11]

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I mean, of course, we are looking very closely at the -- how the market is changing. And I mean, we are implementing projects on the circular economy, which is the possibility that we will give our customers to return the product. This is something that we are working on. We are looking with much attention to -- also to the business impact on this, for example, business players like RealReal. I think that this is an important field of attention of growth. Honestly, right now, it's something that we have not put a particular business plan on this, but it's something very important to look at.

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [12]

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Maybe just some more and more color across to the answer. We have been in the past 2 years, working a lot on the repair of our jacket because there was a strong demand from consumers that were coming with jackets that were 10 years, 20 years old, and they wanted to -- these jackets to still be something they wanted to wear because that was an emotional link to the product and to the jacket for those people. And we have been investing a lot in the past few years. It's something that we have not really been advertising, but we have now representers in all our regions that are fully equipped also to extend the life time of our product. And as you know, on another tone, but that is in my way, also linked to the circular economy. We have been launching our first bio-based jacket in the last quarter of the year and also recycled jackets. That has been also very successful, and that was launched also in Q4 2019.

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Operator [13]

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The next question is from Antoine Belge with HSBC.

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Antoine Belge, HSBC, Research Division - Global of Consumer and Retail Research [14]

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It's Antoine at HSBC. 3 questions. First of all, I'd like to -- a bit of a clarification of what you said about the store opening plan. I think you mentioned 15 and then you mentioned 2 in China being postponed, and then you mentioned other opportunities as well. So does it mean that the 15 goes to 13? Or does it mean that it remains 15, but you are going to find 2 location outside of China? My second question relates to the Genius pipeline. First of all, I would say, without the impact of the virus, are you -- how you were sort of scheduled and maybe a bit of color on how it will be different from previous years. And also, to what extent, if there is no improvement on the virus situation, this could impact the Genius pipeline for the remainder of the year? And finally, going back to the question of having a lot of cash and also potentially buying brands. I mean, at the end of last year, Remo published a press release after we had talks about a potential tie-up with Kering. So if Remo could, maybe elaborate a bit on that. And when he is talking to other operators in the industry, what's the idea? And what -- why such a tie-up could bring something to Moncler?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [15]

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Antoine, first, on the first question for -- regarding the opening, just to be clear, we had 17 openings planned, 2 have been postponed to 2021. And so we are still with the plan of opening 15 new door this year, including 2 new markets in these -- in 15 openings.

Regarding Genius, we have not changed the planned openings for this year. Probably in the first -- for the first 2 launches, there will be a reduction of the merchandise being sent to China, depending on the way the situation will evolve. We have presented already the launch of these new Geniuses that are going to be part of the program for this year, with one that is a very successful designer, JW Anderson. And we had also -- will be presenting also 2 new collaborations, one with an e-bike, another one with Rimowa. So these are going to be presented on the 19th of February during our show here in Milano.

Maybe let me give you also some highlights about the results of Genius in 2019 because we are very happy about the -- let's say, the evolution of Genius with our clients. It still represents slightly less than 10% because we always mention that with Genius, what we wanted is to increase the desirability of the brand and not to maximize the sales. We have been learning launch after launches on how to do better, how to create the desire through the investment in social media. The split we have between outerwear and nonouterwear for Genius is the one that we consider being almost ideal that we would like also to reach in the next couple of years for the Moncler collection, which with 70% outerwear, 20% of knitwear and 10% with the other categories. The things that has improved because we were lacking a little bit of time line to see how consumer were reacting to Genius is that last year we said that 50% of the clients that enter and bought the Genius collection were also buying into Moncler collection. Now after 2 years after the first launch, we can say that 66% of the consumer that bought into Genius, bought also into Moncler collection. So it's really also amplifying the effect on the, let's say, on the Moncler collection. 50% of these consumers, they are next-generation, so generation Y and generation Z. And what is interesting is the quality of this consumer because their average ticket is 30% higher than the average of Moncler. The average spending is 2.5x more than the average ticket of Moncler. And the UPT is the one that we would like to reach also in a few years because we are at 1.8 UPT with Genius, which is something that we are striving for, for the main collection.

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Remo Ruffini, Moncler S.p.A. - Chairman & CEO [16]

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Antoine, talking about the M&A. Honestly, I can say exactly what was written on the press release we sent in December. We have -- we're talking with many people around the world. We are really interesting to see if there is any possibility. But the real truth is we're looking for really to make the next step of Moncler. At the moment, I can say exactly what I said in December, there is nothing on the table. We don't have any discussion. It's really, honestly, the way we work. I always talking with everyone in our industry. I have a very good relation with everyone. But there is nothing consistent, nothing realistic on the table.

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Antoine Belge, HSBC, Research Division - Global of Consumer and Retail Research [17]

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Maybe just -- I think Roberto mentioned that 1.8 UPT for those clients buying Genius. Is it possible to have an idea of what was the UPT for Moncler as a whole? Is it now higher than the 1.5?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [18]

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Antoine, it has never been 1.5. It was 1.04 in 2015, and now it's 1.41, so 1.40. It has been increasing by 2% in 2019. And the objective is to go up because I think that with the expansion and the quality of the new collection also, with the culture internally that has been developing on the knitwear, on the shoes, on the bags and on the soft accessories, I think there is room there also for increasing. And I think that in this sense, Genius is setting a little bit the path on where we want to go with the main collection.

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Operator [19]

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The next question is from Elena Mariani with Morgan Stanley.

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [20]

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A couple of questions from me as well. The first one, I'm afraid, going back to the virus. You've talked about the impact you've seen in China. But some of your peers have also highlighted that since this week, things have got worse also outside of China, given the travel ban. Could you remind us, out of your 33% exposure to the Chinese consumer, how much is within Mainland China? How much abroad? And what you're seeing elsewhere outside of Mainland China? And beyond the Chinese consumers, have you seen a changing mood also within other consumer segments, given that the media impact of this virus has been very broad, just to help us understand what the overall group effect might be?

And still related to this, I was trying to figure out what the sensitivity of your margins could be. Perhaps could you highlight what you think your underlying OpEx growth is going to be into 2020, taking into account all your growth projects, the internalization of your online capabilities, and how much of this underlying OpEx you could actually control and maybe you reduce so that we could know exactly what the sensitivity could be or at least have an idea?

And then the final question, going back to what Mr. Ruffini has just said. I just wanted to better understand what you mean with potential strategic opportunities. Is that selling the brand to another conglomerate just to maximize the future development of Moncler? Is it a combination with another company? Or could it be even buying another brand within the Moncler group or maybe at the Ruffini holding level? If you could help us understand what exactly you would have in mind for whatever you can say, of course? And how we should think about this in the context of your increased voting rights mechanism that you've asked to approve?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [21]

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Elena, regarding the impact on the Chinese and the Chinese clientele, we are still at 50% of buying from Chinese on Mainland China and 50% out of China. 25% is on the countries that are in the vicinity, including Macau, Singapore, Hong Kong, Japan, Korea and Australia, and the other 25% is between Americas and Europe. We have not -- at the very beginning, just after the coronavirus was, let's say, made public, we didn't see immediately an impact outside of China because the travelers, because of the Chinese New Year, they're still outside. But clearly, in the last couple of days, we have seen a decrease also outside of China, especially in the market that were in the vicinity. Korea, Japan, Australia, Singapore, a strong decrease also on Chinese tourists. And what we expect is that, especially for the groups traveling, that there will be an impact, and we will see probably a slower recovery for the travelers. And when the coronavirus issue will be solved, probably a faster recovery on Mainland China. The mood has also been impacting other nationalities. And we see now a slight decrease in the other nationality on top of the Chinese tourism and what is happening in China, Hong Kong, Macau and Taiwan.

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Luciano Santel, Moncler S.p.A. - Executive Director [22]

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Elena, this is Luciano, about your questions on margins. Of course, as we said before, we are taking all the actions needed to protect our margins. Of course, our first priority is to protect our assets, and the people is the most important asset together with the brand. So what we never ever will do is to destroy this asset that has been built over the past years, and again, represents the most valuable asset we have. Having said that, of course, we are working to protect our margins and to reduce expenses that are not strictly essential and needed for our business or for our brand. It's difficult to give you a sensitivity also because when we talk about EBITDA margin, we said before that in 2019, it was a 35.3%, which is something that does not represent, honestly, a benchmark we look at. But in EBITDA margin in the region of that percent, 33%, 34%, is definitely something we target. Of course, should the top line decrease, I can tell you that, I mean, just to give you a rough number, but within EUR 100 million decrease, I think that the company can react and to protect totally that margin. Over EUR 100 million, of course, the margin may decrease. But again, I think that one of -- capability of this company or the management team of our people is the capability to react: to react, to be flexible. And so again, we are, of course, concerned about the current situation. But on the other hand, very positive about the capability to react to this situation, and again, to protect margins. The other question was about...

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [23]

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One follow-up, if -- excluding the impact of the virus and the initiatives you're taking, what would have been the underlying OpEx growth expected for 2020?

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Luciano Santel, Moncler S.p.A. - Executive Director [24]

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I mean, it's difficult to tell you a number. And you know our income statement -- of course, we normally expect selling expenses in line with what we reported this year, taking into account that, of course, the retail network is growing. So selling expenses that normally are growing as much as the gross margin. This is our rule of thumb.

And the G&A that will not be lower than this year, maybe a little bit higher depending also on the investments where we are planning for this year. But again, this is under normal circumstances. Of course, right now, again, many of the investments that we had in our plan, OpEx and CapEx have been put on hold. So right now, again, whatever we are implementing is to maintain this ratio between OpEx and the sales and to maintain the same -- overall, the same margins as the last year. So again, advertising and promotion, our plan was, still is, in the region of 7%. Of course, it will depend on the evolvement of the current trend. But for the time being, our plan is still in the region of 7%. So if you look at our current income statement, there are no significant differences. And again, whatever we are trying to implement now is to protect the contribution of expenses, and at the end, our operating margins. Did I answer your question?

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [25]

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Yes, it was very clear.

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Luciano Santel, Moncler S.p.A. - Executive Director [26]

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Okay. On...

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Remo Ruffini, Moncler S.p.A. - Chairman & CEO [27]

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Elena, regarding your question about M&A. I can say exactly what I said in the last call and what I said before, we explore the market. I think, could be the opportunity. We don't find yet at the moment, but we continue to explore. And we don't honestly have any news. I think this market has changed a lot. I think there is opportunity market, not in the typical luxury world but in the new young luxury experiment, I think there is something interesting in the market. But again, we don't have anything on the table. And I think now we are very concentrated in Moncler to facing this problem with China. And I think all the company is very keen to solve this problem.

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Luciano Santel, Moncler S.p.A. - Executive Director [28]

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There was a question about loyalty share, Elena. Am I correct?

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Elena Mariani, Morgan Stanley, Research Division - Executive Director of Luxury Goods and Brands [29]

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Yes.

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Luciano Santel, Moncler S.p.A. - Executive Director [30]

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Okay. So I mean, loyalty share is something we decided, and we want to implement, or I mean, to submit to our external shareholder meeting. I mean, there are several different reasons. But the most important one is to provide the company with higher stability and continuity and to maintain the -- I mean, the direction that has been, and has made, the success of the company over the past years under the leadership of Mr. Ruffini and his management team. So this is the main reason why we are doing that. Of course, we look also at potential, in the future, opportunities of M&A, that, again, are not on the table now, but may happen in the future based on eventual opportunities and the potential dilution impact of a possible combination with other entities. And this is an additional reason why we would like to give to our main shareholder, to Mr. Ruffini, the possibility to increase his voting right. Highlighting the fact that in any event, the maximum voting rights will be capped to 29.9%, so the company would still be open to the market.

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Operator [31]

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The next question is from Luca Solca with Bernstein.

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Luca Giuseppe Solca, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [32]

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I have 2 questions, actually. I would like to understand a bit better with you the moving parts that you have in larger stores when it comes to the underlying metrics. I mean, if you have any significant differences in traffic and conversion rates, in sales per square foot or in any other metric that could potentially be important in terms of unit, ticket, for example, and so on. And if you're continuing to think that larger stores could indeed be a growth opportunity for Moncler going forward.

Secondly, I wonder how are you thinking about the evolution of Genius. This has been an incredible and very effective way to drive organic growth. And you've been on the front foot on this and other initiatives, I assume. But are you looking at any differential impact that this is having over time, both positive and negative in terms of, for example, how you could continue to get good momentum from this initiative and now you would have to update it, so that it always looks new and drives traffic to your stores?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [33]

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Luca, regarding your question, we don't disclose metrics according to the cluster of the stores we have. But what I can tell you is that, overall, all our metrics have increased this year, being traffic, conversion rate, UPT and average transaction value, roughly between 3% to 4% for all of them. And this growth has been driven mainly by the larger store that we have because their capacity of display, the attractivity they have by having the full collection and also having been the engine where we display the Genius and where we do CRM activities and so on, they are the ones that have been increasing the most in terms of retail KPIs. So this is clearly a confirmation of what we have been looking at and following closely in the past couple of years. And that is comforting us on the fact that the new format that we have for the store, which is roughly between 200 to 250 square meter selling is the ideal format for Moncler, allowing us to display all the categories. But we have seen also that what we consider flagship, that for some of the brands, like 500 square meters for some of the brands, they are more global stores than flagship stores, but this is our format of flagship store, have also been performing at a higher level than the average of the network. And we still have globally almost 100 stores, a little bit less now that we need to upgrade, so we didn't discuss this. But on top of the 15 new openings that we have for this year, there are also 15 relocation of existing stores that are going to match the metrics that we have in the plan.

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Remo Ruffini, Moncler S.p.A. - Chairman & CEO [34]

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Luca, I think what we did with Genius in the last 2 years was something honestly unique. All the companies was -- it was very exciting when we launch the project. And step-by-step, realize that also the customer liked the project. The customer love to come to the stores to understand what's going on. We honestly feel we are at the beginning, even if it's -- 2 years already are passed. But for sure, any strategy must need an evolution. This year, we launched a very interesting project with Rimowa. It is a project that is a part of our new vision and new strategy for Genius. We really try to give a voice to our customers. This one of the milestone for the next season where we're going to improve this strategy for the future. And it's really a question of really are able to talk with a lot of customers. And we really have -- we really try to find the best of the year. Having said that, I think the momentum of Genius is very, very strong. And the reaction we have on everything is very interesting. For sure, we learn every day. For sure, we did something very good. We did some mistake and it was something very new for us. It was something very new for the industries. But now honestly, after 2 years, we feel very confident in this project. And for sure, we starting every day in evolution. And we're going to have an evolution next February. And we work a lot. We work very hard to have the next step of Genius for the next year to come.

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Operator [35]

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(Operator Instructions)

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Paola Durante, Moncler S.p.A. - IR & Strategic Planning Director [36]

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Maybe, operator, I just take the opportunity to read 1 question that is coming from the webcast. [Krishna] is asking what is the CapEx guidance for fiscal year 2020?

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Luciano Santel, Moncler S.p.A. - Executive Director [37]

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Yes. CapEx guidance, of course, we have to talk about our original plan that is -- that sees an increase of our CapEx in the region of less than 10% as compared to 2019. So still an increase, but not particularly material. Of course, as we said before, we are under some kind of reshuffle of this plan now because we are setting our priorities. And we are, as we speak now, putting on hold about 20% on this total amount, which is a significant amount. So again, this is the best I can tell you now.

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Operator [38]

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The next question is from Marion Boucheron with MainFirst.

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Marion Cohet Boucheron, MainFirst Bank AG, Research Division - Research Analyst [39]

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Few questions for me. The first one, could you just clarify when you were saying the traffic has been declining 80% and sales as well. So, percent, that is the number for stores that were open and we have -- we need to add to that the stores that are closed? Then on the fourth quarter, the acceleration you had in Europe. Could you give us some color from what clients or cluster has been driven? Was it Europeans? Or was it the big inflow of Asian in Europe? And then when you were saying that you've seen an impact also on, let's say, local consumption in other markets, and you mentioned the decline. Is it a decline or a slowdown in growth? And just another question on the Genius. You mentioned 66% of clients who buy Genius that are also buyers of Moncler. Is it also a proportion of new clients to the brand or it's a totally different number?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [40]

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Marion, the -- what I was mentioning regarding the traffic on the -- in China, but this is something that is evolving day by day, it's 80% on the stores that are opened. And this is the impact that we have seen in the last 2 weeks with not big fluctuation and it's something that is not improving. We have seen also a slowdown in the traffic for Hong Kong. It was already impacted by the crisis of last year, and we have seen a further decrease in traffic in Hong Kong.

Regarding the slowdown that we have seen and impact on the other region, it's something that needs to be seen market by market. Of course, the market that are closer to China have been the one most impacted. We have seen less of an impact in Europe. But as I was mentioning, the Chinese were in Europe. And because the Chinese government extended the period of holiday, we have not seen at the beginning, a slowdown. But now since a couple of days, as they have been flying back to or returning to China, we start seeing also a decrease in the traffic of the stores in Europe. There is also a calendar effect that you need to remind, because last year exactly now was the Chinese New Year. So there is also a calendar effect that needs to be taken into account, and probably, we'll have some more clarity on what is going to happen during the course of the next few days.

Regarding Genius, the amount of -- in terms of weight, the amount of new clients versus existing clients is similar that what we have for the Moncler collection, but this is linked to the fact that we are leveraging, a lot, what we call our preferred clients for the launch of the Genius collection. So we have now, since, I think, 2, 3 years, a very good knowledge of our consumer, the preference, and we have an established database that we are leveraging through our -- all our CRM activities in the store. And of course, all the CRM action that we are focusing in the store, they are mainly driven by the content, and the content is driven by the Genius launches. So this is why, at the end, we come to something similar. Probably without all the CRM activities and clienteling activities that we are developing, the rate of new consumers will be higher with Genius, but it's balanced by the fact that we have a very strong CRM and clienteling activities around those consumers.

Regarding your question on Q4. Q4, the growth in Europe has been mainly driven by local customers because this is the period where the local customer in Europe buy. They come for the Christmas year-end. So it's always where we have a stronger growth and stronger weight of the local consumers. But to answer your question, the Chinese and other tourists have been performing also well at the end of Q4 in Europe.

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Marion Cohet Boucheron, MainFirst Bank AG, Research Division - Research Analyst [41]

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And would you give us for 2019, what was the growth with Europeans and Americans for the group?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [42]

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We don't disclose this type of figures. But generally, as a guidance, the growth that we have had with Europeans has been in line with the growth of -- that we have with the company. So the weight of the local consumer in Europe has not been decreasing. And same for the Americans, sorry, as you asked also for the U.S. market.

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Operator [43]

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The next question is from Paola Carboni with Equita.

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Paola Carboni, Equita SIM S.p.A., Research Division - Analyst [44]

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I just would appreciate if you can elaborate a little bit more on the trend you are seeing for the other nationalities, not just for Chinese? You mentioned that you are seeing some impact also on the other nationalities. And so if you can elaborate a little more on that, not so much by region as you then pointed out, but really by nationality.

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [45]

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I think here we're looking too much of -- in my opinion, of something that has just the result of the last 1 week. What I can tell you that the first 3 weeks prior to the coronavirus, the growth that we experienced was in line with the result of 2019. Then for Europe, there was less of a stop because the tourist was still here. We have seen a strong decrease on the Chinese market, in Hong Kong and in Macau and in Singapore, an effect on the duty-free shopping in Korea, a decrease also in Japan in the last 10 days and slightly less in Europe. But I think it's a little bit early now to see if the -- this contamination of -- will have an impact of -- in Europe and in the other countries. So it's something that we are closely monitoring. But clearly, we have seen that the mood for shopping has been decreasing in the past 10 days.

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Paola Carboni, Equita SIM S.p.A., Research Division - Analyst [46]

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And sorry, if I may, also a follow-up filler on the virus and your flexibility. You have referred to flexibility in terms of postponing some initiatives or some investment. On the day by day, instead, I was wondering if you can share with us, for example, how much of your rents in Mainland China are linked to revenues, for example. Or if you have any flexibility in terms of personnel, which clearly doesn't mean to lose this person, but considering that the hours are reduced and some stores are closed, I was wondering whether there is also some flexibility on the usual personnel costs there?

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Roberto Eggs, Moncler S.p.A. - Chief Marketing and Operating Officer & Executive Director [47]

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Yes, I'll start with the personnel cost. You see that we have strong seasonality in Moncler that has been decreasing a little bit over the past few years because we have been improving the performance on the spring/summer. But you know that usually, at our -- quarter 2 is lower in terms of weight of sales, similar also for the months of March. So the way we plan our team, we have a team that is permanent employee that are, of course, working for us during the full year. And we are working and training people that, what we so-called temp to help us cope with the peak of the end of the year. So this is, for us, at least. Maybe for some other players in the industry that have a more stable business, it's different. But for us, at least, there is this planning of decreasing the number of temporary people in the months of February, March and then having none of them during the second quarter. So I think this is going to help us, coping with the effect of the productivity per client adviser. And of course, for the people that are permanently employed for us, we don't want to touch because we consider this as being one of the key assets we have been developing and training in the past few years.

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Luciano Santel, Moncler S.p.A. - Executive Director [48]

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Yes. Paola, about rents, we normally have a variable range in China, but with a minimum guarantee. Of course, what we are doing now is negotiating with the landlords to remove the minimum, which, honestly, is not so difficult considering that many shopping malls are closed. And there -- I mean, there are not so many people working around. And so negotiation right now is not the most difficult task of this situation. So rent, considering the current situation, we are reducing -- I mean, removing the minimum guarantee. And about the payroll, I think that Roberto already answered the question.

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Paola Durante, Moncler S.p.A. - IR & Strategic Planning Director [49]

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Sorry, Paola, do you have another follow-up? Okay, sorry for that. Now I was just jumping into say that I think we have time for one last question.

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Operator [50]

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The next question is from Louise Singlehurst with Goldman Sachs.

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Louise Susan Singlehurst, Goldman Sachs Group Inc., Research Division - MD [51]

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Just one question for me, please, for Mr. Ruffini, if I may. Can we just talk about the Genius lineup? Obviously, an interesting additions with Rimowa, Mate.bike. Is this more about making Moncler more of a rounded lifestyle brand going forward? Can you just talk about the choices behind those collaborations for 2020?

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Remo Ruffini, Moncler S.p.A. - Chairman & CEO [52]

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Honestly, it's not based on lifestyle, it is based on experience. I think we will really always to -- try to find a solution to have -- to give to our customer new experience. And then I don't -- I cannot -- I don't have the product right now. When you see the product, you can understand that is not a new bag or a new product, that's really a new concept to give the possibility to our customers to have a new experience when they travel, when they're around the world. I think Genius next February will be very, very strong. As you know, we have, as usual, a designer. The newest one is JW Anderson, that I think is the -- one of the stronger designer in the market today, gives us the possibility to make a totally different approach in terms of design, in terms of collection; is, let's say, what we call, genderless, is a product for men and women. I think is something very new for the market. At the same time, we have -- as we said, this kind of new experience. And this is, we feel is an improvement of -- to our presentation. But let's see, 19th February is in a couple of weeks and see the reaction of the people and the customer.

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Paola Durante, Moncler S.p.A. - IR & Strategic Planning Director [53]

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Okay. If there is no other question or in any case, we are going to close the call, but we are at your disposal any time as usual. We would like to thank you, everyone. And just remind you that Q1 will be released on April 22 after market close, and our silent period will start on March 24. I wish you a good evening. And if you have any follow-up questions, please feel free to call us any time. Thank you. Bye.

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Operator [54]

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