Kering Sa Ord

Good evening to all of you and welcome to Kering's 2024 first half results call. Before I go over our operational and financial highlights, a few housekeeping comments. The call tonight will end at 7 p.m. sharp, so we can hand over to Moncler. After my presentation, I will be joined by Francesca Bellettini and Jean-Marc Duplex, our deputy CEOs, for the Q&A session. We kindly ask that you limit the number of your questions so anyone who wants can have an opportunity. Starting on slide four, during the first half, we focus on the execution of our strategy, pursuing our investments in the long-term desirability, visibility, and exclusivity of our houses. They reach new milestones along their creative journey with fashion shows, that splendidly displayed modern interpretations of their codes and identities. Our houses capitalize on both innovation and legacy. At Balenciaga, for instance, this was evidenced by the success of its new rodeo bag, together with a revival of the iconic city line. Boucheron celebrated the 20th anniversary of the Quatre Rings and introduced a stunning new high jewelry collection. The continuous enhancement of our distribution and client service was exemplified by Bottega Veneta's opening of its first residence in a Venetian palazzo, a beautiful location hosting a new program of VIC experience, services, and cultural encounters. Tightening control over our supply chain, internalizing production capacity, craftsmanship, and know-how is all part of our long-term strategy. This is true in our soft luxury and eyewear businesses, as it is in jewelry. Bottega Veneta recently advanced its leather-goat capabilities through the acquisition of a strategic supplier, and Pomellato did the same with a renowned stone-setting laboratory in Italy. Botte is forging ahead. For Bottega Veneta, anticipating the launch of her first ultra-iron fragrance in the second half, it unveiled our first in-house products in the form of an exclusive candle collection. We are also making progress with the integration of Creed, whose recently introduced feminine scents are well received. And we continue to make headways in our sustainability and talents roadmap, notably with the development of new collaborations and graduate programs alongside leading schools and institutions. On slide six. Our revenue in the first half exceeded 9 billion euros, down 11% both reported and comparable. The one-point positive scope impact from CRED offset the negative FX impact. The Q2 revenue trend is very much aligned with H1, both in reported and comparable terms. Our first half revenue breakdown by region changed quite substantially from 2023. Asia Pacific accounted for 32% of the total, done five points. Western Europe, North America, and Japan each gained one point respectively at 28, 23, and 8% of revenue. And the rest of the world at 9% of revenue was up two points. I will review the dynamics driving the geographic mix. On slide seven, you have revenue by segment for Q2 and H1. No great surprise there, comparable growth ended up quite similar in Q1 and Q2, apart from some minor acceleration or deceleration, depending on the segments. On slide 8, let's move to H1 top line by channel and region. Retail, accounting for 74% of revenue, was done 12% comparable in both Q2 and H1. In Q2, traffic was weak again across most regions, bar Japan. Online performance is closer to that of physical stores and its penetration to the 12% of retail revenue. Our footprint at 1,800 stores shows a net increase of 30 units compared to year-end. While expanding that reach, our brands also optimize our networks, concentrating on fewer but higher quality locations. this strategy until gradually downsizing their presence in outlet as Gucci did with two closings in the first half. Wholesale and other revenue accounting for 26% of revenue was done 7% comparable in the first half and 6% in Q2 alone. This covers two very different situations. Wholesale was done 18% at our luxury houses in the first half as we continue executing on our plan to scale down this channel on top of order reduction. This was partly offset by a strong performance at Kering Eyewear, up 6%, and a sharp 16% increase in royalties and other revenue. On slide 9, we take a closer look at retail performance by region. Here again, trends were similar in Q1 and Q2, especially in Western Europe and North America, done respectively 8% and 11% comparable in the first half. In Western Europe, local demand was rather subdued, while tourism spending was more or less supportive, with some contrast across brands and nationalities. Overall, there was no major inflection either on local or on tourism spending in Q2 versus Q1. North America remained in negative territory, but polarization based on brand positioning persisted, and Bottega Veneta in the higher-end segment continued to outperform, with Q2 retail up 18% comparable in the region. Japan was up 22% comparable, with Q2 accelerating up 27%. The market is fueled by strong tourism spending, notably from China and other Asian countries. Most of our houses implemented tactical price increases to account for the weak yen, but the price gap remains attractive. Asia-Pacific declined 22% comparable in the first half, of which 25% in Q2. This drop is mainly driven by greater China, with most of the Q2 sequential deceleration stemming from Hong Kong and Macau on a very high com base. Performance in the rest of Asia also deteriorated. In the quarter, 30% of spending by the Chinese cluster took place outside of its home markets. Close to 80% of their overseas spending remained in Asia, including Japan. All in all, revenue from the cluster was down 25%, with significant discrepancies across France. And finally, the rest of the world was up 2% comparable in the first half, driven by the Middle East. On slide 10, an overview of recurring operating income, capex, free cash flow from operations, and net debt. Recurring operating income was 1.6 billion euros, down 42% year on year, within the guidance range we provided earlier this year. Looking at the moving parts, gross margin was down a bit below 200 basis points, a higher drop than anticipated, reflecting different dynamics across brands. For most of them, regional and product mix was a headwind, as were some cleaning actions partly mitigated by positive channel mix, except at Gucci. At 3%, OPEX growth was well controlled. We are intensifying efforts to prioritize costs that directly support our brand strategies notably ANP, store expenses, and clienteling. EBIT margin was down more than 9 percentage points at 17.5%, tighter control over distribution and supply chain, and the increasingly fixed cost structure it implies translate into significant but not unexpected operating deliverage. EBITDA decline was more moderate, down 28% year-on-year, as was EBITDA margin, down around 7 percentage points. CapEx 2 sales stood at 5.5%, roughly in line with H1 2023. CapEx, excluding real estate, was down slightly in absolute terms. Including the acquisition of a prestigious building to secure prime locations for our houses on New York's 5th Avenue, CapEx was 1.4 billion euros. Our free cash flow, excluding this acquisition, amounted to 1.9 billion euros. Operating working capital stood at 18.3% of last 12 months revenue. I want to underscore our efficient management of inventories in the first half. Our houses combined cleaning actions of past seasonal collections, lower coverage of existing carryovers, more accurate open to buy, and more stringent sales through targets. Inventories were down 4.5% compared to year end. The decline is even more significant in volume terms down double digits. This effort will be continued. They are an essential part not just of our financial performance, but of our entire elevation strategy. Net debt, excluding lease liabilities, was 9.9 billion euros at June 30, after a steady dividend payment and the New York real estate acquisitions. We completed the purchase of the Monte Napoleone building in Milan a few days ago. As announced, we are working on a refinancing plan for the recently acquired properties. Let's now move to our houses, starting with Gucci. On slide 12, H1 revenue stood at 4.1 billion euros, down 20% reported and 80% comparable. Q2 revenue was down 19% comparable, roughly similar to Q1, with retail down 20%. Trends by region were also broadly aligned. The full detail is in the appendix. On average, the new offer represented about 25% of revenue as we executed, in line with plan, the ramp-up in stores during the quarter. In terms of category, ready-to-wear outperformed, thanks to the higher penetration of the new styles, with the men's offer gradually becoming available in stores at the end of the quarter. This is encouraging, but not enough to offset the performance of carryovers, especially in handbags, that continued to suffer. The exciting lineup of handbag introductions coming on stream from September should contribute to improving this trend. Wholesale was done 12% in the quarter, royalties and other revenue up 4%. Recurring operating income came at 1 billion euros, a 24.7% margin. Gross margin was done on adverse product and regional mix on top of reinvestment in quality. Gucci pursued its investment in communications, highlighting its fashion authority and timeless luxury, as well as in client and store experience elevation. To counter the impact of a lower top line in the short term, Gucci is reallocating its resources to enhance efficiency and maximize their impact. Apex 2 sales stood at 3%, a year-on-year decrease on a high-com base, as phasing last year was skewed towards the first half. Our strategy continues to focus on network enhancements. The stock count decreased by two net units. Saint Laurent delivered a contrasted first half. Turning to slide 15, revenue in H1 was over 1.4 billion euros, down 9% reported and 7% comparable. Wholesale, remained a substantial drag, down 25%, as the brand did not compromise on its strategy to raise control over its distribution. Retail, representing 81% of revenue, was down 6% comparable in the first half and down 8% in Q2, as Asia-Pacific trends worsened, notably in China. In these environments, Saint Laurent maintained its focus on local clients deploying a range of tailored activations. Product-wise, the recent collections were very well received, and the house prepared a strong lineup of launches for the second half, including releasing new generation of key lines and injecting pure newness. Saint Laurent is refining its product strategy to enhance its relevance across market and customer segments, leveraging the creativity and DNA of the house. At €316 million, recurring operating income yielded a 22% margin. Gross margin was impacted by unfavorable regional mix. Recent store openings, which have not yet reached normative sales density levels, accentuated negative operating leverage during the period. CapEx was also up with 12 net store additions in the first half. Bottega Veneta is reaping the fruits of the desirability it has built in the ultra high-end segment. As you see on slide 18, reported sales were stable and up 3% comparable in each one, with revenue at 836 million euros. This is the first half record for Bottega Veneta. Retail was the main growth driver, up 8% comparable in the six months and 7% in the second quarter. EUR increases on the back of a positive mixed impact and the success of its higher-end offer are driving this healthy performance. By region, the house grew double digits in Western Europe and North America and posted an impressive performance in the Middle East. Japan grew nicely, the brand being less skewed toward tourism spending. In Asia-Pacific, a region where it still enjoys plenty of room to grow and improve its visibility, the brand delivered a resilient performance. Ongoing rationalization of third-party distribution resulted in a 13% decline in wholesale in Q2. Recurring operating income was 121 million euros, an EBIT margin close to the 15% level. Both margins were higher, bolstered by the retail performance and favorable channel mix. Bottega Veneta continued to invest in stores, communications, brand ambassadors, and clienteling initiatives to amplify desirability across markets. CapEx was up on store network upgrade. I would highlight the reopening of the flagship in Dubai's Mall of Emirates, a tribute to the brand's craftsmanship. Our other houses had a resilient first half in retail with overall strong performances at our jewelry houses. On slide 21, you see that revenue of the other houses was down 7% reported and 6% comparable in the first half at 1.7 billion euros. In Q2, revenue was down 5% comparable, a touch better than Q1. Both quarters were substantially impacted by wholesale, done over 20% in the first half, on rationalization and challenging market conditions. Retail ended up unchanged in Q2. Balenciaga pursued its recovery with a positive performance in North America on undemanding comps, improving trends in Western Europe, good resilience in Asia Pacific, and high growth in Japan. The house continued to build momentum and gain share with top-hand customers. Once again, Brioni was up nicely across most markets. Alexander McQueen, in the process of evolving its aesthetic, had a challenging quarter. Its new collection will start eating the stores from Q3 onwards. Our jewelry houses kept performing particularly well. with both Boucheron and Pomelato up double digits in retail in Q2. They successfully launch animations of their best-selling lines and unveil new high jewelry collections, a testament to their creativity and know-how. We are extremely pleased with the development of our jewelry houses, including Kilin, impacted by its exposure to China, they reach revenue of nearly half a billion in the first half. At 44 million euros, recurring operating income of our other houses was done substantially. Balenciaga stepped up its communication plans, amplifying its fashion shows and product launches after a very quiet first half last year. The contribution of Alexander McQueen was impacted by the ongoing transition. An wholesale rationalization, while definitely the right move for the long term, does entail some short-term pain. We will keep fueling the long-term growth of our other houses while remaining vigilant and demanding on the return on investment. CapEx is allocated to selective store openings, which led to an increase of 7 net units in the first half. Kering Eyewear and Corporate now on slide 24. Revenue of the segment was close to 1.1 billion euros, of which 914 million euros from caring eyewear alone. The balance mostly includes caring beauté, namely Creed for now. In the first half, caring eyewear delivered another strong performance, up 6% comparable, reaching a new record. Q2 was up 3%, with growth across regions and steady development of the portfolio, both in sunglasses and optical frames. The segment's EBIT increased to slightly more than €100 million. Kering Eyewear's EBIT improved, yielding a sustained 21.4% margin. It's worth keeping in mind that there is a seasonality in eyewear, with revenue and profitability more skewed towards the first half. The contribution of Kering Beauté was positive, thanks to Creed. Kering corporate costs were well under control. CAPEX was 113 million euros, now including CRIT's operation. The year-on-year increase was limited, as we have reached a normative level to support our houses in IT and logistics. This number does not include the building acquisition discussed earlier. Now, looking at the remaining lines of the PNL on slide 25. Net financial charges amounted to 288 million euros, or 199 excluding interest on these liabilities. Cost of net debt stood at 151 million euros on higher debt level and interest rates. Other financial expenses were 49 million compared to 94 million last year. Corporate income tax was 345 million euros, a 26.9% rate on recurring income. Group net income from continuing operations adjusted for non-recurring items reached 888 million euros. Free cash flow and net financial debt are on slide 26 and 27. In the first half, and excluding real estate, we generated close to 1.9 billion euros in free cash flow. Change in working cap was negligible. This is a material improvement compared to last year, due to our stringent inventory management actions. We provide the presentation excluding and including real estate impacts as we did last year. At route 13, net financial debt was 9.9 billion euros, a net debt to EBITDA ratio of 1.8 times. In the first half, we paid 1.7 billion euros in dividend in line with last year. Before Francesca, Jean-Marc and I get to your questions, I want to underline that we are applying all our energy on the implementation of caring strategy and transformation of our business model. Like you and many others in the industry, we are frustrated by the current environment, which slows down our execution. Our priority is to rekindle healthy revenue growth And the operative word here is healthy. To achieve that, we are tightening the product strategy of our houses, Gucci, first and foremost. We are working on the interaction between newness and iconic lines, optimizing pricing and availability, and making sure quality is flawless. We are also better assessing the efficiency of our outreach efforts to maximize returns. And we are making a big push on enhancing distribution, improving time to market, and the management of sales flow. We are also becoming even more demanding when it comes to OPEX and CAPEX control. We have activated new processes to assess store projects and consult or postpone all openings that were not immediately essential. And because we are fully aware of the operational deleveraging that comes with our top-line contraction, we have enhanced cost control across the board. All this will not become visible in our bottom line in the short term. This is why, considering the current uncertainty regarding consumer confidence and demand for luxury in particular, we have issued new guidance. As you have seen in our release, securing operating income could be done approximately 30% in the second half of the year compared to the same period last year. We will continue to work on every factor within our control to return to healthy growth and profitability as soon as possible. We are now ready to take your questions. Operator?

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the star 2 key. Please ask your questions as directly as possible and put on mute all devices apart from the phone you are using to ask your questions. The first question is from Anne-Laure Bismuth from HSBC. Please go ahead.

Yes, hi, it's Anne-Laure Bismuth from HSBC. So I have two questions. The first one is about what organic growth do you expect for H2 that leads to a decline of 30% in H2 group habits? Will the decline be broadly consistent across the branch? And the second question is more specific about Gucci. What is the implication in terms of organic sales growth for Gucci in H2? Consensus is currently expecting a single decline in Q3 and a return to a positive organic growth in Q4. Assuming that the macro conditions stay the same and considering all Sabato de Sarno's products are welcomed by consumers, do you believe that what consensus expects is achievable? Thank you very much.