Kering Sa Ord

Welcome to the Caring 2024 Third Quarter Revenue Conference Call and Webcast. Please be advised that today's conference is being recorded. As a reminder, all participants are in listen-only mode. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Armel Polou, Group Chief Financial Officer. Please go ahead, madam.

Thank you. Good evening to all of you, and welcome to Cairng's 2024 Third Quarter Revenue Call. Starting on slide four, our revenue in the quarter was close to 3.8 billion euros, not 15% reported and 16% comparable. Cade provided two-point positive scope impact, while FX was one-point negative. The quarter was challenging, marked by a worsening backhaul backdrop waiting on consumer sentiment. This translated into persistently weak traffic.

By region, we saw this extension from the western part of Japan on the back of the strong Britain, then from Asia-Pacific. At the same time, we have not yet seen any deflection in the northern region, and it was more probable to suffer results. In this context, we continue to focus on the execution of our strategy, sustaining efforts to elevate and broaden the relevance of our brand across segments and categories. This is coming together with the 10th quality of sales, for both product and distribution endpoints. The gradual through-the-year complex, including the additional technology that we offer, to support the enrichment and the rejuvenation of our house's product offer.

Ladies and gentlemen please hold the line, the conference will resume shortly. Ladies and gentlemen, please hold the line. The conference will resume shortly. Okay, sorry. Main speaker line is open now.

Sorry for the interruption.

At the same time, we pursue our plan to support the enrichment and rejuvenation of our house's product offer, as well as brand desirability.

Moving on to our quarterly revenue in both cases on slide 5. By segment, there are not many changes in the future, with Bottega Veneta still as a bright spot, killing away a number of days. providing resilient growth while our other segments would be in negative territory.

By region, our revenue breakdown changed quite substantially here only. Asia-Pacific accounted for 29% of the total, down 5 points. Western Europe gained 2 points. North America and Japan each gained 1 point, respectively at 32, 23, and 8% of revenue.

and the rest of the world at 8% of revenue was up one point.

On slide six, let's review Q3 top line by channel and region. With this, accounting for 75% of revenue was done 17% comparable. In Q3, traffic once again was subdued across most regions and particularly weak in Asia Pacific. Online performance didn't provide much support notably due to the winding down of our presence in certain income sessions.

Online, we counted for 10% of retail revenue. I think.

So I start again, I'm sorry, I think we have some technical issues. So I jump to slide six. On slide six, let's review previous top line by channel and region. Retail accounting for 75% of revenue was done 17% comparable. In Q3, traffic once again was subdued across most regions and particularly weak in Asia-Pacific. Online performance didn't provide much support, not to be due to the winding down of our presence in certain e-concessions. Online accounted for 10% of retail revenue. Our footprint at 1,860 stores showed a limited net increase of 50 units compared to June 10. More than ever, Our brands are focused on optimizing their networks, concentrating on fewer but high-quality locations. Gucci stores count decreased by three net units, while Saint Laurent and Bottega Veneta increased by one and two, respectively. For their part, our three brands, as well as Creed, continue to selectively extend their reach. Wholesale and other revenue, accounting for 25% of the total, was not 5% comparable in the quarter. This is a result of somewhat different situations. At our luxury houses, wholesale was down 27% as we continued to downsize each channel on top of order reduction. This drop was partly offset by the performance at Kering Eyewear and Bote, up 5%. And once again, a sharp increase in royalties and other revenue, up 18%. On slide 7, let's have a look at retail performance by region. Western Europe and North America were done respectively 11% and 50% comparable, a slight deterioration compared to the second quarter.

This being said, there was no noticeable slowdown when looking at the spending by nationalities.

In Western Europe, overall, the summer troop season was like last year, with some discrepancies by country, brand, and nationality.

To some extent, our houses were converted in France by the MPKs. Contributions from Middle Easterners and, to a lesser extent, U.S. citizens were resistant, while all major Asian nationalities were not. In North America,

polarisation based on van position in the Pacific, and Bottega Veneta in the higher-end segments continued to perform very well, with Q3 retail up 22% comparable in the region.

As previously mentioned, the bulk, roughly three-quarters of the sequential slowdown, came from Japan and Asia Pacific. On the back of mid-year high costs and the recent business recession, Japan was up 3% comparatively. Tourism was still up 90%, but decelerated, while trends with locals were very much in line with the future. The price gap between Japan and other markets is gradually becoming less attractive.

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Okay, the line is open now.

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Yes, I can hear you. Ladies and gentlemen, please hold the line. The conference will resume shortly. Good evening, ladies and gentlemen. We are restarting the conference all over again. We do really apologize for the technical issues.

Sorry for that. all of you and welcome to Cary's 2024 South Water Revision Call. Starting on slide 4, our revenue in the quarter was close to 3.8 million euros, down 15% reported and 16% comparable. It provided two-point positive scope impact, while FX was one-point negative. The quarter was challenging, marked by a worse tobacco backdrop, waiting on consumer sentiment. This was shifted into persistent public traffic.

By region, we saw deceleration coming mostly from Japan, on the back of the stronger yen, and from Asia-Pacific.

At the same time, we have not yet seen an increase in export to North America, an increase in export reports, In this context, we continue to focus on the execution of our strategy, the same effort to elevate and produce the relevance of our brand across segments and categories.

This is coming together with an end quality of sales from both products and a distribution standpoint. The gradual tremendous of outlets, including an additional closing and coaching in the whole group, further generalize our performance as is the downsizing of all sets. At the same time, we pursue our plans to support the enrichment and rejuvenation of our overseas product offer as well as for the safety.

Ladies and gentlemen, please hold the line. The conference will resume shortly. Ladies and gentlemen, the connection with the speakers is back.

Okay. So, sorry, we are extremely sorry for this technical issue. Apparently, the line was very bad, so I'm going to resume from the start. Good evening to all of you, and welcome to Caring 2024 South Water Revenue Call. Starting on slide four, Our revenue in the quarter was close to 3.8 billion euros, done 15% reported and 16% comparable. CREIT provided two-point positive scope impact, while FX was one-point negative. The quarter was challenging, marked by a worsening macro backdrop, weakening on consumer sentiment. This translated into persistently weak traffic. By region, we saw deceleration coming mostly from Japan, on the back of the stronger yen, and from Asia Pacific. At the same time, we have not yet seen any inflection in North America and in Western Europe overall, the summer was soft. In this context, we continue to focus on the execution of our strategy, sustaining efforts to elevate and broaden the relevance of our brands across segments and categories. This is coming together with enhanced quality of sales from both a product and a distribution standpoint. The gradual streamlining of outlets, including an additional closing at Gucci in the quarter, further penalized our performance, as did the downsizing of wholesale. At the same time, we pursue our plans to support the enrichment and rejuvenation of our house's product offer, as well as brand desirability. Moving on to our quarterly revenue in more detail on slide five. By segment, there are not many changes in the big picture, with Bottega Veneta still the bright spot, getting anywhere and now Botte, providing resilient growth, while other segments remain in negative territory. By region, our revenue changed quite substantially year on year. Asia Pacific accounted for 29% of the total, down five points. Western Europe gained two points. North America and Japan each gained one point, respectively at 32, 23, and 8% of revenue. And the rest of the world at 8% of revenue was up one point. On slide six, let's review Q3 top line by channel and region. Retail accounting for 75% of revenue was done 17% comparable. In Q3, traffic once again was subdued across most regions and particularly weak in Asia-Pacific. Online performance didn't provide much support, notably due to the winding down of our presence in certain e-concessions. Online accounted for 10% of retail revenue. Our footprint at 1,816 stores showed a limited net increase of 15 units compared to June end. More than ever, our brands are focused on optimizing their networks, concentrating on fewer but higher quality locations. Gucci store counts decreased by three net units, while Saint Laurent and Bottega Veneta increased by one and two, respectively. For that part, our jewelry brands, as well as Creed, continue to selectively expand their reach. Wholesale and other revenue, accounting for 25% of the total, was down 12% comparable in the quarter. This is a result of somewhat different situations. At our luxury houses, wholesale was down 27% as we continue to downsize this channel on top of order reduction. This drop was partly offset by the performance at Kering Eyewear and Boutique, up 5%, and once again, a sharp increase in royalties and other revenue, up 18%. On slide 7, let's have a look at retail performance by region. Western Europe and North America were done respectively 11% and 15% comparable, a slight deterioration compared to the second quarter. This being said, there was no noticeable slowdown when looking at the spending by nationalities. In Western Europe, overall, the summer tourist season was lackluster, with some discrepancies by country, brand, and nationality. To some extent, our houses were impacted in France by the Olympic Games. Contributions from Middle Eastern Earth and, to a lesser extent, US citizens were resilient, while all major Asian nationalities were down. In North America, Polarization based on brand positioning persisted and Bottega Veneta in the higher end segment continued to perform very well with Q3 retail up 22% comparable in the region. As previously mentioned, the bulk, roughly three quarters, of the sequential slowdown came from Japan and Asia Pacific. On the back of multi-year high comps and the recent yen strengthening, Japan was up 3% comparable. Tourism was still up nicely, but decelerated, while trends with locals were much in line with YouTube. The price gap between Japan and other markets is gradually becoming less attractive. Asia Pacific declined 30% comparable. The slowdown is driven by mainland China, while trends in Hong Kong, Macao, and Taiwan showed a very slight improvement compared to Q2. Broadly similar to Q2, a third of spending by the Chinese cluster took place outside of its home market. Close to 80% of their overseas spending remained in Asia, including Japan. All in all, revenue from the cluster was down close to 35%, with differences from brand to brand. And finally, the rest of the world was up 2% comparable, driven by the Middle East. Let's now move to our houses, starting with Gucci on slide 8. These three revenues stood at 1.6 billion euros, down 26% reported and 25% comparable. The same decline applies to the retail channel. You will find, as usual, detailed values shown in the appendix. still in offer ramp-up mode, was overly impacted by current market conditions, especially in Asia-Pacific. On average, new nets represented about 35% of revenue as the seasonal products started to hit the shelves. This was reinforced by introductions, especially in handbags from September. Ready-to-wear, supported by injection of new nets, outperformed other categories. Novelties in handbags meeting a broad range of functionalities, styles, and segments add a good early performance. The Blondie launch, since late September, is supported by an extensive communications campaign, blending fashion authority, luxury settings, and storytelling. Gucci's iconic Jackie line also posted a solid performance. While new net is moving in the right direction, it is not yet enough to offset the performance in carryovers, especially handbags. Wholesale was done 38% in the quarter, as the house is ever more selective and prioritizes deliveries of novelties to its own retail network. At the same time, in certain regions, wholesalers have to deal with their own difficulties in the current environment. Quietties and other revenue were up 9%. We recently announced that Stefano Contino will take the helm as Gucci CEO, replacing Jean-Francois Pelletier. With fundamentals now secured, it was the right time to install new permanent leadership for the brand. Turning to Saint Laurent on slide 9, revenue in the quarter was 670 million euros, done 13% reported and 12% comparables. Wholesale was down 20% as the brand continues to raise control over its distribution under challenging business conditions. Retail was down 12% comparable, dragged down by Asia-Pacific and deceleration in Japan. Against this background, Saint Laurent further enriched its collection, introducing both seasonal variations of its bestsellers and entirely new lines. There is a solid array of launches scheduled between now and the end of the year across all segments. Saint Laurent's spring 25 fashion show was widely acclaimed, exploring many facets of the house women's silhouettes and cultivating even stronger desirability. On slide 10, Bottega Veneta, which continued to perform consistently. Revenue was close to 400 million euros, up 4% reported and 5% comparable. Growth was fueled by retail, up 9%. Beyond the market's appreciation for top-end brands, Bottega Veneta's healthy momentum benefits from its iconization strategy, the resonance of its fashion shows, and its highly successful leather goods proposition. AUR was up. and Bottega Veneta continues its expansion on the most exclusive client segments. Finally, the brand is also extending its product offer with a recent launch of fragrances. Ongoing rationalization of third-party distribution resulted in a 10% decline in wholesale. On slide 11, you see that revenue of the other houses was done 15% reported and 14% comparable at €686 million. The quarter was still substantially penalized by wholesale, done 28%, while retail was done 10% comparable. Trends were challenging for our soft luxury houses. Balenciaga was impacted by weak traffic but posted solid growth in leather goods due to highly successful recent handbag launches such as The City, Rodeo, and Bel Air. At Alexander McQueen, the first new creative collection just started hitting the shelves. Brioni posted steady growth with increased penetration of its leisure wear offer. Our jewelry houses were more resilient, but not fully immune to the overall regional trend. Keeling remains impacted by its exposure to China. The jewelry houses continue to animate and complement their offer, enhance visibility through events and campaigns, and selectively expand their footprint. In September, Boucherie unveiled a magnificent boutique on New York's Madison Avenue, its first in the US. On slide 12, we have the caring eyewear and corporate segment, which also encompasses caring bodies. I'll say a few words about both of them. Sales at Kering Eyewear were up 4% comparable in the quarter. Growth was fueled by improvements in key house brands. Kering Eyewear, now celebrating the 10th anniversary of its creation, is actively supporting the growth of all its brands through an intense schedule of marketing activities around the world. Turning to Kering Bote, Q3 was a busy period for Creed, delivering solid growth with strong performances in the Americas, Europe, and the Middle East, and in travel retail. Here also, UNESC is a key performance driver. Creed introduced two unisex amber fragrances in September, Santorus and Delphinus. And in another major development, Kering Bote put the final touch on the launch of Bodega Veneta's collection of five high-end fragrances. They hit the market on October the 2nd and for the moment are available exclusively through about 100 stores in the brand's network and on its website. We are very pleased with the reception of Garing's Bote's very first launch for one of our houses. Before Claire and I take your questions, I would like to share a few words of conclusion. We are keenly aware that we are implementing a radical transformation at Gucci and in the group in an environment that is far from optimal for the whole luxury industry. This affects the pace of our execution, and it definitely adds to the pain we endure in the near term. But it doesn't change our determination to achieve our goals. At each of our IOCs and at group level, we have clear strategies to elevate the desirability of our brands, covering every aspect of their business from creativity to communications. This plan has been developed over the past year or so in close cooperation between the management teams of the brands and the executive leadership at Kering. Their implementation is monitored step by step. The top priority is quality of sales in every house and in every segment, regardless of the clientele they target and the price point they occupy. Products are, of course, central to success. Throughout this presentation, I have insisted on what we are doing to enhance quality, to bolster both newness and carryovers, and to ensure a sound product offer architecture. These actions cannot come without an impact on top and bottom line dynamics, all the more at a time when consumer demand is fragile around the world. This is why, under the current circumstances, we expect full year 2024 recurring income from operations to amount to approximately 2.5 billion euros. With the goal of protecting our performances as much as possible, we have tightened scrutiny of every aspect of our operations and put in place stringent programs targeting OPEX as well as CAPEX. The impact of our cost optimization initiatives, like our efforts to rebuild healthy, sustainable top-line growth, will not materialize overnight. But we are all pushing in the right direction, and we are all committed to a successful outcome. As I told you in July, we take no shortcuts. We want to make 100% sure that top line growth when it returns is based on absolutely sound premises. And now we are ready to take your questions. The returns.

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 hashtag key. Please ask your questions as distinctly as possible and put on mute all devices apart from the phone that you're using to ask your question. The first question is from Aurélie Orson de Moutier from HSBC. Please go ahead.

Yes. Good evening, everyone. Several questions from me, please. Two on Gucci, one on Bottega Veneta. On Gucci, could you please give us a bit of color on October trends, especially as new handbags have been launched? Are you seeing some improvement? Also on Gucci, the consensus expects currently 1% upline for year 25. What is your view on this number? And finally, maybe on a more positive note, how do you explain such a nice performance in the U.S., which was up 20% organically in 2004, and also on nine months it's like plus 22%. So what is happening in the U.S. that could be maybe replicated in other regions? Thank you.

Thank you, Aurélie, for your question. So regarding October trends, I would say that at group level, September was slightly better than the average of the quarter, and October is starting quite on the same trend. So I would say that October is quite in line with September, but it was a touch better than September. than the quarter. Regarding your second question, regarding 2025, you know it's a Q3 call, so I will not comment on 2025, sorry. And regarding your third question on Bottega Veneta, yes, first I would like to highlight that the very good performance of Bottega Veneta in the U.S. is also very good in Europe with the same performance, actually. and even better if you consider Middle East. So we have an extremely good performance of Bottega Veneta in the U.S., in Europe, and in the Middle East. How can we explain that? Certainly, I think, yes, of course, Bottega Veneta is positioned on the high-end segment that is more resilient, but it's also the result of its creative proposition. I think blending a very strong creativity with a very good quality and craft matching of the product with a very good reception, especially in the handbag category, where we see a very consistent growth quarter after quarter.

Okay, thank you very much.

The next question is from Ben Radamartin with Goldman Sachs. Please go ahead.

Good evening Claire and Imel. Thanks very much for the question today. I just have two please. My first is just on the moving parts for the FY24 operating income guidance. I wonder if you can maybe talk about the deleverage both on gross margin and OPEX just for our thinking for how it flows through those two cost lines. And then secondly, just on the employment of Stefano, interested whether this is a sign that the organisational and operational changes at Gucci are now complete, and should we think about the brand now positioning more in a growth territory despite the near-term macro weakness that we're seeing? Thank you.

Thank you very much. So on your first question, on the... Moving parts, as you know, considering the performance of the Q3, that was quite challenging. We have to be more cautious of the top-line trajectory for Q4. We still expect some headwinds on gross margin, and at the same time, we are making some effort on the cost to offset part of it, but as you know, it will not offset completely the dev leverage coming from the gross margin. Regarding your question about Stefano and the team at Gucci, so I would say that the team is quite complete now at Gucci at the top level with all the different changes that you've seen recently. There will be some further change in the organization, especially in the communication organization. We will be happy to welcome some new senior executives to lead the communication section, and that should be announced in due course. But we expect the new leadership structure of communication to be fully operational by the end of 2024. Great.

Thanks very much.

The next question is from Olivier Chen with TD Cohen. Please go ahead.

Hi, Armelle and Claire. As we think about the Gucci brand, what are the launches in terms of the handbag launches and the percentage of total that we should be excited about in the next quarters? Also, Asia-Pac was worse than you expected it sounds. Do you expect that trend to continue, the oversized negative impact from Asia-Pac for that region to be to continue to be more negative than North America. How might you compare what you're seeing in North America, which seems less negative relative to Asia-Pac? And then finally, as we think about variable versus fixed cost to the earlier question, maybe you could speak to which of these elements are more variable. At the same time, I know you're protecting the brand and seeking a long-term elevation strategy. Thank you.

Thank you very much. So answering to your first question, so you know we have introduced in September three different lines of handbags. The Emblem, that is a line that is priced around 2,000 euros. We launched, that is I would say very functional, that is resonating very well with our customers, both existing and new customers, especially in China. We've also introduced the Blondie. Blondie is a bag that is positioned a bit higher. That has been very much pushed also by the communication, the nice Blondie communication campaign I mentioned in the clip. And then we launched the Gucci, the B-Bag, which is this oversized bag that is more of a fashion statement, but it's where we are not looking for large quantities, but it's a strong image bag for the brand. There is another launch that has been sort of pre-launched, but that you will see more over the holiday seasons, which is the Orbit Soft. And so that is the main line that we launch today. Of course, in the coming months, you will see also some rejuvenation on the carryover lines that will come because, as you know, it's very important that we rejuvenate our offer, both in units but also in the carryover category. What can I say about the reception of those launches? I would say that the new offer is resonating very well with existing customers, both regarding the style, the design, and the functionality, with a much higher perception in quality, both in terms of materials and craftsmanship. Of course, this is an early stage, and this introduction we know occurs in a difficult market environment. However, it confirms that customers are welcoming innovation and creativity, which is good news. Regarding your second question about Asia Pacific, and it is going to continue, I'd like to know also, you know, the context in China is not easy. We know it's very much a question of consumer confidence because we have some headwinds in the macro, and at the same time, we know that the selling rate is very high at the moment in China. There's been a few announcements in China recently of measures. It's a bit early for us to know what would be the effect on the conception of luxury products and when, so we will see in Q4. Regarding the U.S., I would say the U.S., we will see what would be the impact of the cuts of the rate, and also we know that there could be some impact of the U.S. election. So we will see going forward what we noticed in Q3 was still that the IAN segment is more resilient than the most aspirational segments. And then coming back to your third question, so it was on variable and fixed cost. So I would say our structure, as you know, is especially Due to the utilization that we've done over the past year, of course, a fixed part of cost is quite important. But we are working on both. We are working on being more efficient in the production while raising the quality of the product, and we invest in the quality of the product very much. And we are trying to decrease the cost. I can give you some examples. We've done a lot of efforts on the transport costs that are, for example, variable. But we also did some efforts in some costs where we did a lot of investment in the past, like IT, CRM digital, where we tried to leverage on our previous investment. So we are changing costs in every area. Now, as you know, considering the cost structure, it can only offset part of the deleveraging coming from the top line.

Okay, thanks. Very helpful, Armel. Thank you. Best regards to you both.

The next question is from Susanna with UBS. Please go ahead.

Hi, Armel. Hi, Claire. Thank you for taking my question. So just two from me. First of all, I was wondering if you could maybe tell us a little bit about your plans on the retail front. So it's interesting you mentioned that Gucci actually closed in Some stores I presume they must have been the outlets given your prior comments. But given the rather big drop in revenue this year, I'm guessing that probably densities are, you know, very much lower than they were a few years ago. And you probably must be thinking already about some retail network rationalization. So if there's anything you could maybe share at this stage, you know, how many stores you may have to close, which regions would be most impacted, That would be very helpful. And secondly, related to that, and I completely understand you can't comment on 2025, but given the rather challenging context, we are trying to really understand how we should think about the margin for Gucci for next year. So, I mean, given that you mentioned you'll be investing in the quality of the product and you continue to, I presume gross margin could be still a bit under pressure next year. You know, you continue to invest in the brand, which is the right thing to do. And that's why I'm asking about the retail network, because I presume unless you reduce your rental cost, it's, I don't know, it's difficult to really see the margin going up next year, sort of keeping the sales component constant. So these are just my two questions. Thank you.

Thank you, Susanna. So, yes, regarding the small network, what is our priority is to make sure that we have the right services for network in terms of quality, but of course also in terms of size and to make sure we are in the best location with the best footprint. That means that we are reviewing, of course, as we generally do, but probably more importantly this year, our footprint with a focus to optimize the locations, so avoiding deductive and five-minute presence, but also very important to upgrade the store presence So doing that, it may be... So I mentioned already the closure of some outlets, especially in Asia-Pacific. In terms of outlet closure, that will continue next year and will be amplified. In terms of DOS network, we are going to consolidate our footprint, especially in greater China in 2025. But at the same time, we will seize opportunity to... to upgrade part of the locations. So to be clear on your questions, yes, there will be some evolution of the store network. The idea is to close the smaller stores or the ones that are not in the best location and probably extend the size of some of the best stores in order to get the right footprint. Because it happens that in some tier one cities we have many stores Sometimes very close one to the other, and it's probably a better idea to concentrate on very nice tools, but not that many. Regarding your second question on 25, I'm going to disappoint you again, but I'm not going to talk about 25. Yes.

So I totally understand. Thank you. But just maybe to follow up then on the retail network. So would you say that it's fair to assume that next year your total selling space for Gucci is going to decline?

I mean, it's not too much of a question of the selling square meters because it's a question also some stores, smaller stores are going to be closed and probably some other stores are going to be extended. So I cannot be very precise in terms of square meters, but Of course, the idea is to adapt to the demand, but while being sure that we keep the right network for the rebound. Okay. Thank you so much.

The next question is from Lucas Okaway-Bernstein. Please go ahead.

Yes. Hello. Good evening. A question about Japan. We saw quite a significant deceleration there. And we know that in Japan, you had the common tourists buying products, but you also had, that was my understanding, professionals, daigus, arbitraging, the price differences between Japan and China. As you see the data, do you have a sense that the very significant deceleration is coming from the professionals? sitting on the bench and pausing their activity given the very significant forex changes, or do you have a sense that it's actually the actual tourists that are now coming and spending less in Japan from China? This would be my first question. I also wonder about your inventory situation. You were talking about gross margin pressures as we take into account the EBIT prospects. I wonder how you stand on finished products inventory, especially when it comes to Gucci. And if that has been a potential area of concern as far as the speed of the introduction of new products was indeed concerned. And then last but not least, I remember you were talking about having partners or co-investors for your real estate recent investments. Apologies if you can confirm that that has been already put in place, but I was wondering whether you had any update on that. Thank you.

Hello, Luca. It's Claire. So I'm going to take the first one. And once again, I want to apologize for all the technical issues and the We are now from a mobile phone, but it looks like it works well. So let us know if it's not the case. So for Japan, yes, deceleration clearly coming from the tourist component because locals were, in fact, improving a bit, I would say, sequentially in Q3 compared to Q2. Now within the tourist component, we know the nationality. Daegu, they are always resurging when you have some price gaps and interesting price gaps. So now we have control and quotas in place in all regions to make sure that we identify and we limit as much as possible, number one action, and number two action is obviously and that's what all our brands have been doing, is to have some price increases regularly on the price in Japan, and especially on some SKUs that are more, I would say, skewed towards the tourist purchase. So I think that's the comments we can make for Japan.

So, Luca, regarding your second question on inventory, inventory is really an area where we are... We can celebrate great progress that we've done, and we discussed that already in July, but this is really the result of the new approach that we have in terms of planning, in terms of buying, in terms of production agility and time to market, where we've done some great progress in terms of logistic and supply chain, and in terms of sales flow. As a result, we are very satisfied with the fact that the inventory that was done in June versus December, even in the context of decelerating sales, is again lower at the end of September. So this is also, as a result, we don't feel any pressure in terms of inventories, and this is also what is allowing us to continue our strategy in terms of outlet reduction. For your second question, in terms of real estate, we are making some good progress in welcoming some partners in some financial vehicles to deliver our real estate. We are quite confident that we will close a deal on part of the total by the end of the year with a signing by the end of the year and a closing that would occur end of the year or beginning of next year. And then we will continue to work on other parts in 2025.

Thank you very much indeed, Claire.

The next question is from Edouard Aubin with Morgan Stanley. Please go ahead.

Yeah, good evening. And Claire, I can confirm that the audio is perfect, so don't worry about this. So two or three small follow-up for me. Armel, so you talked about your willingness as a group to continue to invest behind your brands and build up brand desirability. How are you, you were asked about, you know, some of the fixed cost variables. In terms of ANP and clienteling, how are you thinking about it? Because obviously the size of your brand in terms of some of your brands in terms of euros, has been shrinking. So in terms of, you know, are you looking at keeping NP constant as a percentage of sales or in absolute because it would seem that you're going to have, you know, mathematically less firepower to invest behind this brand. So that's question number one. Question number two is on your net debt and dividend policy, am I right in kind of thinking that your net debt should be around 12 billion euros excluding any real estate transaction before the end of the year. And if you could confirm, Armel, that you still have in mind a dividend payout policy of about 50%. And then, sorry, last one, small one on CREED. Could you please comment on your expectation for sales and EBIT versus last year? So is sales of an EBIT of CREED going up or down or flat? So if we could have an idea, that would be very helpful. Thank you so much.

Thank you, Edouard. So regarding ANP, yes, we continue to sustain investment in communication in 2024 behind our brands. This is, of course, we have also worked on optimizing their ANP spending to maximize impact. So all in all, I would say ANP should be sort of flat which means, of course, that as a percentage of sales, it will be around, it will be high single digits. We are working on ANP. It's not only a question of how much we spend. It's also a question of how we spend the communication budget. And Stefano, for sure, is... And what I was mentioning about the communication team at Gucci is that we are working on... making the communication at Gucci even more efficient. As you've probably seen the last campaign for Blondie, you see that it's a campaign that at the same time is promoting a new product, which is a Blondie bag, but it's also a brand campaign because it's very well revealed the soul of Gucci and also referring to its heritage and the fact that it's rooted in London. So we think that we are... also going to make much progress in the impact of our communication strategy, also in the way we diversify between the different media that we use. You've seen probably more print and billboards on Gucci recently, but that's the way we look at communication going forward. Regarding your second question, Nebdet, I would say that our forecast is more around $11 billion for the end of the year, and outside any real estate evolution. And in terms of dividend of payout policy, you're right, we are going to follow our payout policy, which is 50% of net recurring income, and we will apply that this year.

Sorry, Creed.

Yeah, yeah, sorry.

Thank you, Edouard, for the confirmation. The video is good now. Well, Creed, you know, we don't disclose it stand-alone for now at least. So it's in the corporate segment. The only thing that we can tell you is that it's developing very well, top-line performance. in Q3 was very strong in terms of growth rate and that we expect quite a very high contribution from CREED this year. The only thing you have to take into account is that CREED is in Kering-Bauté. Kering-Bauté is a business where we have some costs in terms of startup costs. So we will help you doing the math when we will report the full year. But in any case, the contribution of CREED is very high and perfectly in line with our plans when we did the acquisition.

Okay. So just one small clarification on Armel. You talked about the inventory being down in September versus June. You're talking in terms of euros, not number of days, right?

Is that correct?

Sorry, I couldn't hear you.

Sorry, I'm looking at the number of units.

Units. Okay. Perfect. Thank you.

The next question is from Charles-Louis Scotti with Kepler Super. Please go ahead.

Good evening. Thank you for taking my question. I have two and another very short one. The wholesale business of Gucci was down 38% in 2003. How much of the decline is due to the proactive streamlining of this channel versus lower orders from wholesale partners? And is the emergence of a second-hand and grey market platform also forcing you to accelerate the downsizing of the wholesale business at Gucci? My second question is a follow-up on your staff network. Some articles were mentioning the closure of Shop-in-Shop at Alexander McQueen in France. You provided some details on Gucci, but could you help us model the scope impact for brands other than Gucci, and more particularly Bottega Veneta, where it seems that you are accelerating store openings? And the last one is purely technical, but Some of your peers have disclosed the impact of the exceptional tax hike in France. Could you share with us your first assumption? Thank you.

So I'm going first to answer to your first question regarding old cell. So what I would say in old cell is, as you know, we started a few years ago to rationalize old cell at Gucci. And this is very important because this is also in terms of the quality of sales and of our distribution. It is very much important. We will continue further because, as you know, we are fighting parallel markets in China. And we know that if we want to avoid to see our products into the grey market or into, you know, parallel markets and different platforms, it's also very important that we are extremely strict in some of the doors. So we are making sure that we are continuing to work with the best doors and we will continue to reduce further the number of doors. It's also true that we are becoming more and more selective in the range of products that we propose to the wholesale. The idea being that we want to to make sure we raise the exclusivity in our own network. Then, of course, as you know, the wholesalers in the U.S. this year have been through some difficulties, so part of this acceleration is coming from the American and the U.S. wholesalers, and also, yes, for sure.

Maybe, Charlie, on your second question, you know we don't disclose like for like and growth, and we're not going to go into the whole detail, brand by brand, of impact of store richer soil or clothing now. We can try to provide more in the full year results, but that's not something we will provide in detail in any case.

So I will answer to your third question regarding the impact of tax in France. So although we don't disclose the split of our profit before tax and income tax by country, you know well that the geographical footprint of our houses and of our production is concentrated in Italy. Therefore, our results are largely taxable in Italy and to a lesser extent in France as well as in China and the US. Consequently, we don't expect the significant impact on our effective tax rate at group level.

Very clear. Thank you very much.

The next question is from Antoine Belge with BNP Exxon. Please go ahead.

Yes, good evening. It's Antoine at BNP Exxon. Three questions. First of all, coming back to the revised guidance, first of all, I mean, does it... take into account some kind of improvement in Q4 in terms of top line or pretty much the same as in Q3. And so I've done some calculation. Could you correct me if I'm wrong that the main reason for the revised down guidance compared to what you gave in July was Gucci on the one hand and the other businesses. So Could we approach a group margin of around 15% with just above 20% for Gucci? More likely that there is a loss now in the other. If you could quantify that loss in terms of tens of millions. My second question is about coming back on the new products and what you said and being well received that the rest of the carryover base in bags aging further. In terms of profile of consumer, is the Nikkei Lace consumer fan still in big decline and where could we come to an end on that process? And thirdly, in terms of the CEO change at Gucci, is it also a sign that the role of Francesca Belletini is evolving, that she might be more involved in the running of Gucci compared to what was supposed to be the case a few months back. And also, if that's the case, can you update us a bit on the management of Saint Laurent? Thank you.

Ms. Poulou, your line is open.

Sorry, sorry, it's me. I'm with the mobile, forgetting to take off. Sorry, Antoine, so I was answering to your first question regarding the assumption of top line for Q4 embedded in the EBIT guidance. You know, the revision of the guidance is for sure reflecting the further deterioration that we experienced in Q3. and also the fact that the current environment is marked by many uncertainties. As said during the H1 call, we were not expecting revenue to turn positive for the group as soon as H2 2024, but we were expecting some sequential improvement back-end loaded. This is obviously more challenging now. So the guidance is based on Q4 trends that are quite similar to Q3. Regarding your question on margins, I'm not going to give you as much detail. I would say that the Gucci habits decline in H2. So I'm going to give you some color of the implied habit decline in H2 by brand. Gucci habits decline more than the group. Saint-Laurent and BV less than group average. Of course, other houses are very impacted by current environment. And just as a reminder, you remember that carrying high wear profitability is more good towards H1 and duty more good towards H2. Regarding your third question, I don't think there is any... Sorry, I forgot the second question. Your second question was about the new products and the profile of the consumer. What I can say on that is that at the moment, the new offer, the new net, is resonating well with the existing customers. I think where we have still some work to do and some challenges in the current backward environment is more about recruiting new customers. And that is also linked to the fact that the traffic is very much done in many regions, especially in Asia Pacific. But we don't see it as a problem of transition of the existing customer base. It's more a question of managing to recruit new customers in an environment that is more challenging with a weak traffic. Regarding your third question, I don't think there is anything to... to draw from the fact of the new nomination at Gucci. It's a Gucci nomination, and that's it.

Thank you very much.

The next question is from Thomas Chauvet with Citi. Please go ahead.

Good evening, Armel and Claire. Three quick follow-ups, please. The first one on... the property, the sale-leaseback transaction, are you still expecting around $1.5 billion? And what kind of stake would you want to retain in that JV? And if we think about the incremental rent you'll have to pay on Fifth Avenue for Gucci, on Avenue Montaigne for Saint Laurent, is it fair to assume that what you'll get in terms of reduced interest payments on the debt would more or less equate to the... to the rent you'll have to pay New York and Paris, so maybe, you know, 40, 50 million ballpark. So neutral ATPS level, but obviously good because it reduced your debt level. Secondly, on the group EBIT guidance of 2.5 billion, so 900, 950 million in H2, that's down 50% year-on-year in H2. Is that purely operational or does it include... some one-off charges or provisions, given the obviously exceptional nature of the revenue decline you have at the moment. And thirdly, following up on Charles' question on the store network, could you perhaps give us an indication of the number of units you're planning to close at Gucci, Saint Laurent, and the smaller brands next year, roughly, so we get a sense of the downsizing of the store network? Thank you.

Thank you so much for your question. So on the first question, yes, we are making progress in setting up some vehicles where we will welcome some financial partners. We already stated in the past that our project is to keep minority stake in those vehicles. Yes, still contemplating 1.4 billion, probably in two parts. One that will be closed by the end of the year or beginning of next year, and another one during the first half of the year. And it's not the season, it's back. Second thing, on the group EBIT guidance, yes, the guidance is on the operational profit income. Now we are in the year of transformation, so there will be some non-recurring items in H2. And regarding your third question, I don't think I'm able to answer to your question.

Okay. Thank you, Ahmed. the EBIT guidance, the non-recurring item, are out of that guidance, right?

Yes, yes, we guide on recurring operating income, Thomas.

Okay, yes, that's clear. And you say it's not selling his back, but if you don't own that property anymore, I mean, won't you have to pay your share of rent on New York and New Mountain for Saint Laurent?

But we always pay a market rent. Either we own or we don't own the building.

But you will not own the building anymore. So is it fair to assume that this will obviously offset largely the reduced interest payments you get on that $1.4 billion cash inflow?

But, you know, we will transfer some store. It's a store-to-store, so you have to look at it as the full footprint of store. not on an individual one. We will probably move a store to another store. Okay. Thank you.

The next question is from James Gritsnich with Jefferies. Please go ahead.

Good evening, Hermel and Claire. Just a couple of quick ones from me, please. First one, can you help us scale the level gross margin declining the second half that is underpinning the new trading profit guidance, please? Clearly higher than the 200 basis points you saw in half one or the around 200 basis points, but if you could help us be more specific, that would be great. And secondly, can I just clarify that, Armel, what you said was September was a touch better than Q3 as a whole and October was in line with that September trend. And if that's the case, can you perhaps call out what brand drove that and what cluster specifically, please?

Ms. Polou, your line is open.

Yes, sorry, sorry. So I will first answer to your first question regarding gross margina. So we still expect some headwinds on gross margin for the same reason that we had in H1, which is a negative regional mix from APAC, a negative product mix from NBAC, continuing investment in product quality, and in some cases, channel mix. So it should be roughly the same magnitude, I would say roughly.

Regarding your second question... Well, Jane, that's good to try, but no. We will not be specific background.

All righty, thank you. You did help on the first one. Thank you for that.

The next question is from Carol Maggio with Barclays. Please go ahead.

Hi, good evening. Just a couple of questions for me. I guess to come back on the Chinese market first on the Gucci brand, can you remind us what was the performance of the Chinese cohort for Gucci... I think it was 1 minus 35 for the caring group, if I'm not mistaken. And the comment you used to talk about when you said that you were seeing improving trends with the new handbags, is it also the case for the Chinese cohort as well? Do you also see the same good takeaways on the new product? That's the first question. And the second one was also about the US and the European consumers. I think both cohorts, both countries were a bit weaker. in the third quarter. You mentioned the Olympics for the European market. Of course, the U.S. market will be still having some issue with the entry price consumer. How should we think about this for the fourth quarter? Do you see any signs of improvement? Any kind of reason to be a bit more optimistic on those two markets going forward? Thank you.

Okay. I'll start with the first one, Carole. First, we don't comment on cluster by brand. We give you some group indication, already quite precise, so we will not further comment. And the same will apply to your second part of the question on the recent trends with the Chinese customer on handbags. You know we launched them, as Armel told you and reminded, quite late into free. So it's been only, I would say, a month a month and a half that we have launched them, basically. So it's a bit early to comment in any case.

When it comes to Europe and the U.S., you know, it's very difficult for us to forecast. What we say is that for the moment, we have not seen many inflections between Q2 and Q3. I would say on the positive, we see that there's been a few red cuts in Europe and sort of a cycle of red cuts probably in the U.S., that could help some of our customers purchasing power. But at the same time, it will all depend on the development of the macroeconomy in those regions in the next quarter.

Maybe the only thing we can remind is, as Armelle told you in her speech, There is a bit of deceleration sequentially in Q3 versus Q2 in both regions, Western Europe and North America. But when you look at the nationality, the deceleration is much less noticeable. So it's not improving yet, but at least there is no further slowdown or almost no further slowdown. Thank you.

The next question is from Paola Carboni with Equitasim. Please go ahead.

Yes, hello, hi, good afternoon. I have just two questions. The first one is on your effort to contain OPEX. If you can give us a bit more color on the kind of actions you are thinking about and to what extent this is going to be to some extent sustainable into 2025 or is it more opportunistic approach. And the second question is instead, I don't know if you can comment about that, some of your peers did, about the Golden Week specifically in China and whether the trends since then have been materially different from that or, I mean, October was more or less a consistent month overall. Thank you.

Thank you, Paola. So, yes, I will give you a bit more information on the efforts and the initiatives that we are deploying on the cost base. We are ending the current situation without impairing the execution of our strategic ambitions. So we continue to allocate resources to support our brand strategy. We discussed about ANP, but it's true also in product and retail experience. But at the same time, we adapt the timing or pace of some initiatives slowing down some projects. Also, of course, we will also take into account competitive intensity in some of the spending categories. But what also I mentioned already is that we are more stringent than ever regarding our store network. We will close some locations and we will evaluate some others. And we are applying strict cost control. So we have raised the efficiency and productivity in retail with some headcount reduction, especially at Gucci. We are renegotiating some supplier contracts. For example, we made changes to transport and logistics arrangements that delivered substantial savings. And we changed inefficiency and duplication, leveraging on our previous investments, as I mentioned. And of course, we are very strict in terms of corporate spendings. So to your question, all those efforts are efforts that are not one-off and that will be sustainable going forward. And on your second question on the Golden Week, so, you know, the consumer spending in China is not so positive. So overall, it was not a good Golden Week, but not a surprise in the current context. The cluster was a bit better than the country. Okay, perfect. Thank you very much. Okay, so I think we are at the end of this conference. So I want to thank you very much for your interest and for your questions. And sorry again for the technical problem we had at the beginning of that conference. I thank you also for your patience. I don't need to remind you that Claire and her team are available in the coming days to go over any point that requires more clarification. As some of you know, after more than four years, Julien Vaucillon has decided to pursue his career outside of the group. Julien has been a key member of the IR team. And we want to wish him all the best in his new venture and also to thank him very much. Please also note that we will report our full year results next February 11th before market opening. So have a good evening and thank you again.