Kering Sa Ord

Welcome to the Caring 2025 First Quarter Revenue Conference Call and Webcast. Please be advised that today's conference call 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 Pollou, Group Chief Financial Officer. Please go ahead, madam.

Good evening to all of you, and welcome to Caring 2025 First Quarter Revenue Call. I will be reviewing our performance, and we'll be joined by Francesca Berrettini, Deputy CEO in Charge of Brand Development, and of course, Claire Roblet, Head of IR and for the Q&A session. Starting on slide five, our revenue in the quarter came close to 3.9 billion euros, down 14% reported and comparable. Scope and FX were brought in neutral this quarter. As anticipated, the start of the year was challenging. No need to remind you that we are navigating in an uncertain macro environment with low visibility and this does not support consumer confidence. Traffic was weak across most regions. Against this tough backdrop, our retail performance showed a limited sequential deceleration compared to Q4. Softer trends were observed in Western Europe, North America, and Japan, while they were consistent in Asia-Pacific. In this context, we remain totally focused on what we control and on the single-minded execution of our strategy. We made significant progress on many fronts, including deliveraging our balance sheet, notably through the transaction with Ardian for Paris Prestige Properties, which was finalized at the end of the quarter. We closed a number of stores, and we further increased our vigilance in terms of both CAPEX and OPEX, to cope with an environment that is even harsher than anyone could have anticipated just a few months ago. Moving on to our quarterly revenue in more details on slide six. By segment, there are not a lot of changes to highlight. Bottega Veneta keeps performing extremely well, despite high comps. Kering Eyewear and Kering Botte are providing steady growth, while other segments remain in negative terraces. By region, our revenue breakdown registered some year-on-year changes. Asia-Pacific accounted for 31% of the total, down 3 points. Western Europe, North America, and rest of the world each gained 1 point, respectively at 28, 23, and 10% of revenue. And Japan, at 8% of revenue, was stable. On slide 7, let's review the top line by channel and region. Retail, accounting for 73% of revenue, was down 16% comparable. Western Europe and North America were down 13%, a limited deterioration compared to Q4-24. Looking at the spending by nationalities, the slowdown was less pronounced, especially for the U.S. consumer. In Western Europe, both tourist and local trends decelerated versus Q4, but softness with locals had the biggest impact. Americans and Middle Easterners were still the most supportive nationalities, nicely up in the quarter, while all major Asian nationalities were down. In North America, market polarization persisted. Bottega Vedetta, at the upper end of the sector, continued to perform very well, on a demanding com base, with retail up 19% comparable in the region. Conversely, Gucci suffered more. Japan continued to decelerate sequentially, down 11% comparable in Q1. The comparison base is also tough, and tourism spending kept weakening due to the less attractive pricing gap. Performance with locals was still subdued, but not more so than in Q4. Asia-Pacific declined 25% comparable, fully in line with Q4. Greater China trends improved a touch sequentially on easier comps. Improvement is mostly led by mainland China. A little over 70% of Chinese spending occurred on the domestic market, and the bulk of offshore consumption remained in Asia-Pacific, including Japan. All in all, revenue from the Chinese cluster was down 27%, a bit better than in Q4. The rest of Asia was more constructed. In Korea, trends were still challenging, as they had been in Q4, although with significant discrepancies by brands, while Singapore decelerated. And finally, the rest of the world was up 1% comparably, driven by the Middle East. Our footprint at 1,788 stores showed a net decrease of 25 units compared to year-end, including five outlets. As we had announced, we are stepping up our plans to make our distribution even ever more exclusive. Our brands are optimizing their networks, concentrating on fewer but higher quality locations. Gucci's store count decreased by 10 net units compared to Uran, and the net drop at Saint Laurent and Bottega Veneta was 1 and 4, respectively. For their part, our other houses closed 11 net stores. In addition, Creed opened one store during the quarter. Wholesale and other revenue, accounting for 27% of the total, was down 9% comparable in the quarter. At our luxury houses, wholesale was down 23% as we continue to downsize this channel on top of unsupportive market conditions. By contrast, wholesale was up 2% at Keringeware and Bote, while royalties and other revenue jumped 11%. Let's now move to our houses, starting with Gucci on slide 8. Revenues stood at 1.6 billion euros, down 24% reported and 25% comparable. The same decline applied to the retail channel. You will find the usual details by region in the appendix. Gucci continued to suffer from weak traffic, only partially mitigated by an increase in AUR on the back of successful recent handbag introductions. Carryovers still drag down Gucci's performance, making our efforts to accelerate the rejuvenation of the offer across categories and price points all the more imperative. On top of recent injections, such as the Softbit line, Gucci has planned a wealth of initiatives in the coming months. The Art of Silk events reaffirm Gucci's leadership in this category, while celebrating the house's rich history and deep connection to the world of art. Re-styled versions of some of our key lines, such as Marmont and Ophidia, are upcoming. As you know, we have recently announced that Demna is joining Gucci in July as new artistic director. Wholesale was done 33% in the quarter, in line with our plans, as the house implements its roadmap to enhance the quality of third-party distribution. Royalties and other revenue were up 2%. Turning to Saint Laurent on slide 9, revenue in the quarter was 679 million euros, down 8% reported and 9% comparable. Wholesale was down 24% as the brand continues to rationalize its distribution. retail was down 8% comparable, only a touch below the trend in 2004. The brand proved resilient in Western markets, and its spring-summer 25 collection was very well received across categories, confirming the growing appetite of customers for novelties and innovation. This supports Saint Laurent's ongoing strategy of further refreshing the offer especially in leather goods across all price segments. Its 425 fashion show was once again widely acclaimed, all about shapes, colors, and powerful silhouettes. On slide 10, Bottega Veneta continued its remarkable performance. Revenue was 405 million euros, up 4% reported and comparable. Growth increased. was fueled by retail, up 7% on very demanding comps. Western Europe, North America, and Middle East all posted strong double-digit increases. In Asia-Pacific, the drop was limited, thanks in part to positive trends in Korea. Bottega Veneta is reaping the fruit of its consistent value strategy as strong creative and cultural contents generate high brand desirability. Growth is healthy and well-balanced, stemming from all product categories and driven by AURs. Younger customers, as well as VITs, contributed to growth. The house pursued the elevation and consolidation of its distribution, While it opened a handful of stores during the quarter, it shrank both its DOS network down 4 units net and its wholesale with revenue down 13%. On slide 11, revenue of the other houses was down 11%, both reported and comparable, at 733 million euros. Retail was down 9% comparable and wholesale down 17%. Our soft luxury houses posted mixed performances. Balenciaga delivered robust growth in leather goods, fueled by the success of recently launched handbags, but the house is not immune to weak traffic conditions. Still in the early stages of establishing its new creative vision, McQueen's recent fall-winter 25 fashion show was well-received. The house is making progress in scaling down its operations, including a substantial streamlining of its store network. Brioni posted very healthy growth with retail up double digits, driven by Western Europe and North America. Jewelry grew once again this quarter. Bouchon's performance was solid on top of Icon's, and the house is successfully developing in the U.S. Pomelato had a strong quarter, sustained by novelties and animations around its iconic noodle line. And at Kivin, the enriched collection, blending Chinese heritage and modern aesthetics, resonated across Asia-Pacific, driving greater brand appreciation. On slide 12, I will make a few comments about the Killing Eyewear and corporate segment, including Killing Boutique. Comparable sales of Keringai Ware were up 2% thanks to a solid performance across the brand portfolio, even if Maui Gym faced more volatile market conditions in the US. Sales of optical frames were particularly positive, and Europe was the best performing region. As you have seen, Keringai Ware has continued strengthening its manufacturing footprint, securing technical expertise and high-quality craftsmanship to support its leading position in luxury eyewear. Moving to Kering Bote, Cree continues to deliver strong performances and is reinforcing its presence in feminine scents. The early March launch of Eladaria, a fresh floral fragrance that fills a gap in its portfolio, resulted in promising sell-outs. Bottega Veneta's high fragrances are performing nicely and preparation for Balenciaga's collection of scents is moving ahead. To conclude, before we take your questions, I would like to reiterate that we are all tenaciously focused on executing our strategy. Clearly, the current uncertainty and volatility in world affairs does not make our task any easier. But the global environment does not detract from our determination to reach our goals, starting with Gucci. We are pursuing our deliberating efforts and are working on all the factors that we do control, first and foremost, cost and investment, at group level and in each of our brands. We are doing it smartly, with the discipline and agility needed to continue supporting our top line and improving our organization for the future. The reduction of our retail footprint clearly demonstrates our result. And now we are 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 one 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 key. Please ask your questions as distinctly as possible and put on mute all devices apart from the phone you are using to ask your question. First question is from Chiara Battistini, JP Morgan. Please go ahead.

And thank you very much for taking my questions. I have three. The first question on Gucci and the new designer transition. I was wondering if you could tell us more how now you think about the build-up as Demna joins from a product perspective, if it's going to build on the existing and the new lines you've been introducing since the end of last year, or if we should expect a completely new and fresh start. That's the first question. Second question, if you have any early indications you can share with us on how to think about the growth margin and OPEX at Gucci or for the group. You mentioned you'll continue to work on the cost. If you could share more color on that, please. And finally, on the latest trends since the start of the quarter of Q2, any color you could share on what you're seeing with the consumer since the beginning of April, and especially how the American consumer has been evolving in recent weeks, please. Thank you.

Hello, Chiara. Hi, it's Francesca Bellittini speaking. I take the first question regarding the Gucci created transition. Of course, Demna is going to build on what has been done so far. We have been working in the past two years really on the foundations of the brand. We have improving processes, product, quality, invested a lot in our icon and our tradition. But you know very well that the success of Gucci comes when tradition is blended with a strong fashion authority. So the work that it's going to do is building on what we have been doing. and not throwing everything away to start from scratch? Absolutely not.

Okay. I will answer to the second question regarding gross margin and OPEX, and I will answer for the group. So regarding gross margin, you know there are a lot of moving parts in terms of mix, channel, product. and region, and also the recent FX moves that could be less of a headwind. All in all, we expect to stabilize and eventually regain some gross margin points, but not as soon as H1. Regarding OPEX, we are increasing our cost initiatives and We are, and by consequence, we are setting up our efficiencies in a way that we are working not only to stabilize but to decrease OPEX for the full year. For your last question on the trends in Q2, we don't see a real changing in trends versus Q1 so far. And nothing, we don't see any change, particularly in the U.S., nor in the other regions, probably with a slight deceleration in Japan.

Thank you. Next question is from Erwan Ramberg, HSBC. Please go ahead.

Yeah, hi, good evening, and congratulations on recruiting to run CREED. I'll keep it to three questions. Just a clarification, I think this might go without saying, but you gave an initial guidance last time around. Should we understand that you're essentially pulling this guidance given the uncertainty, which I suspect is the right thing to do? Secondly, if we leave aside tariffs in the U.S. because I think the visibility there is very poor, just looking at the dollar weakness, is that an incentive for you to increase prices in the short term in dollar-denominated regions and notably the U.S. itself? And then lastly, I think last time you spoke, there was hope that maybe mainland Chinese would be a bit more engaged in H2 this year after a period of being less engaged. Do you see any initial signs of possible green shoots coming with the Chinese domestic clientele? Thank you.

Thank you, everyone. So I will take your first question. Of course, you know, The environment has obviously changed since we laid out this equation. We were already expecting a slow start of the year, and it has been confirmed. Now we are planning cautiously for Q2, still expecting a double-digit revenue decline. And I would say that we are still expecting that H2 should be better than H1. Regarding your second question on the dollar, I would say that we always consider currency in terms of geo-pricing, and we adjust from time to time our price to geo-pricing, but maybe I'll let Francesca add.

Yes, of course, we are making our assumptions about what to do as a consequence of the tariffs. We are now in a moment of pause, so it will take time. We need a bit more clarity before we confirm our final decisions and, of course, monitoring the situation. But apart from the study, what we're going to consider is going to be the consumer confidence in America and in the rest of the world, because this is something that has an impact on the geo-pricing and not only on the U.S. And we are, of course, monitoring the situation, and we reassessed our action around May with the delivery of the new collection.

Thank you.

On your third question about mainland China, it's very difficult to forecast. There is a very low visibility at the moment. I think even today in the news there were a lot of changes. What we can say is that we saw that there have been a set of stimulus measures. It's a bit early to know how that will translate into consumer demand. But, yes, we can hope that there will be a combination of the macro but also the action that we are taking in our brand in H2 in China.

Okay. Thank you very much. Best of luck.

Thank you. Thank you. Next question is from Oliver Chen, TD Corwin. Please go ahead.

Hi, Francesca and Armel. Regarding the carryover product that you mentioned at Gucci, What are your plans that are within your control? It sounds like this has been a little more challenging than you expected. And then the U.S. market has been somewhat resilient, but we're pretty cautious given all the volatility we're seeing in the market as well. What's driving some of your cautious optimism for the U.S.? And then finally, on your comments on greater China trends improving sequentially, what Are you pretty encouraged that that can continue? It sounds like it might be hard to know, but thank you.

Thank you, Oliver. I take your first question regarding the carryover product at Gucci. Of course, the carryover products are the part of the Gucci business that continues to be slow. The new introductions, on the contrary, are performing quite well. And actually, we see that also the new introductions that have been done to overcome specific lines are working. For example, the performance of the emblem line that was supposed to offset the business, the client of the business on the Ophidia line is working. And this is giving to us a lot of confidence about the appeal that whatever novelty we introduce is appealing for the market. This is, of course, a consequence of the fact that you are experiencing a downtrend, a big downtrend in the traffic. And typically, the traffic brings the business of the carryover because those are new customers that buy into the brand that they tend to buy what they know. The good thing is like the new product like Emblan, like I was saying, that has been introduced with the idea of staying as future carryover are performing. So we are accelerating all the options in renovating and rejuvenating the carryover line like Armel was mentioning in her presentation, like Ophelia, for example, skewing down the collection but focusing and improving the quality of some of the best performing skews within the line. And same with the marmont and bag, that is going to be relaunched and rewound to a better quality and a better suited for the market. At the same time, what we see is that the completely new introduction, like the soft pit, for example, or the bee bag, or the work that has been done on the blonde bamboo performs. So, given this response on the seasonal, we are pushing even more on our supply chain to accelerate and decrease the time to market of the novelty and invest in more open-to-buy on the novelty line as opposed to trying to replace a business of carryover that keeps suffering. And this is going to be the focus, and this is also what is going to happen, not only with the arrival of Demna, but also in the coming months with still the new products that we keep introducing in the brand.

I will answer to your second question. So regarding U.S. market, of course we remain extremely cautious. There is a lot of volatility in the market at the moment. What we know is that the U.S. cluster in Q1 was similar to Q4. We don't see for the moment any change in trends, but of course we stay vigilant. knowing that volatility is not good in general for consumer confidence. So we will stay cautious and vigilant for the coming months. Regarding your third question on China, I would make the sort of same answer. Visibility is very low. There is a lot of uncertainty, so we stay cautious.

Thank you very much. Best regards.

Next question is from Antoine Belge, BNP Paribas XM. Please go ahead.

Yes, good evening. It's Antoine Belge at BNP Paribas XM. I have three questions. First of all, coming back on Demna, there are different interpretations in the market in terms of when it will start to impact the product offering. So, for instance, even the new moment, is it something that – had a bit of a revisitation from then already, or is it really not before the end of the year or even the next beginning of 2026 that we should see some impact? My second question is coming back on the group a bit for the year. I think consensus today that 2.3 billion already a bit below the guidance you had given earlier in the year. I also remember that I think the H1 margin was guided somewhere between down 250 and 500 pips. Is it more likely with the trend that you commented on Q2 that we should be closer to 500? And also when I understand that what you mentioned on gross margin and OPEX, but taking into account your guidance for 2Q, it I mean, it seems that it'd be hard to avoid a stronger magnitude in terms of OPEC delivery. So is that 2.3 for you, a credible figure? And finally, on Valentino, you've always been quite discreet on the puts and calls and the condition of your progressive ramp-up in terms of ownership. Were there any calls that could have any circumstances like the one that we had on tariffs that could, you know, allow you to postpone or even walk away from that deal if the condition would become extreme or not? So any, you know, a bit more information because that's obviously on a lot of investor minds and, you know, this sort of commitment that you have. Thank you very much.

I take the question on Demna. Antoine, thank you for asking. We are working every day on the products of Gucci. So whatever products arrive in the store are products of the brand. And internally, we never associate product to a creative director or to another creative director. It is a collection that is done on carryover, seasonal product, and what we call still valid at the product. There are none of the two, but they're not going to be reproduced. Demna has not been working on the version of the new Marmont that is arriving this month in the stores because it wasn't there. But for sure, Demna will have his stake in the reinterpretation of the icons of Gucci, whatever they are. In terms of when he is starting, officially Demna is going to start after the Couture show of Balenciaga, therefore at the beginning of July. It's an internal move, so of course he's already talking to Gucci and to the brand. He has already met the team. The show that the brand is going to do in May in Florence is done by the team, but of course without having nothing in that show that could be in contrast with whatever is the vision of Derna for the brand. I remind you that, as I said in the first question, Derna is going to build on the vision of the brand. So it's going to bring to the brand desirability, fashionability, but it's a build-up. It's not a cancellation. When are you going to see the first hint of them, a creative vision for the brand? It's going to be in September. But in terms of product arriving in the stores, we are working all together, the team at Gucci, to bring novelty. Like I said, we have signals that all the novelties are working. So more and more novelties will be introduced, and we are accelerating the whole process and the time to market of the company. So we are trying to accelerate also the delivery to the stores of the product that will be officially, let's say, part of the September collection. Therefore, no, you don't have to wait until 2026 to see some of those products. But also, we are not waiting at Gucci to have Demna products or not Demna products. We're going to have novelties progressively arriving to the stores, and we keep on working also on the revamping of our carryovers.

So, Antoine, I will answer on your second question on the group EBITS. Yes, I can confirm that there will be a deceleration of the H1 margin compared to H1 last year, around 500 basis points. We are making additional savings, but of course it will help mitigate part of the H1 margin, but the H1 margin distribution compared to last year will still be quite material. Now we will probably be able to have a H1-25 margin that would be thus higher than H2-24. Regarding your question on Valentino, you know that calls and puts are disclosed in our URD, so I think you have all the information necessary.

Thank you very much.

Next question is from Adrian Duverger, Goldman Sachs. Please go ahead.

Hi, good evening, Francesca, Carmen, and Claire. Thank you very much for taking my questions. So the first one would be on the consumer environment across the regions. I know you already provided a bit of information, but could you please help us understand maybe in terms of traffic and conversion rates as well as appetite to spend in the different regions? My second question would be actually a question to Francesca. I was wondering with the arrival of the new creative director at Gucci, are you happy that you have all the team in place to stabilize Gucci and return to growth in the next few quarters? And then the last question would be on the cost. Just a quick follow-up on the different comments you've provided. Regarding that focus, can you please explain to us what level of controls you have on the different costs, and given the level of volatility, are there additional sources of cost takeout that you're considering right now, and is the store base one of these? Thank you very much.

Okay. Thank you, Adrien. I will answer your first question. So, yes, we suffered from low traffic in every region with some differences between the region, but also discrepancies also across our brands, with some brands being more resilient in the U.S. and in Europe, and a better situation in the Middle East. In terms of conversion, it depends also by brand. Some brands saw conversion going up, some a stable conversion, I would say. Appetite to spend, for sure we would like it to be better. It's still an environment that is not supportive with low traffic, with some discrepancies as I said.

One thing to give some additional color to what Armelle was saying that we see basically across all of our brands is that notwithstanding the lower traffic and let's say a stable conversion rate, we see an increase in the average ticket. Not only due by price increase, absolutely not, but due to product and mix. So the people who come and buy seems not to have resistance, but the problem is that the traffic is down, so there are less people entering the stores. You see that the challenge is to offer products without diluting or reducing the ticket to increase conversion. And some of the actions that you have seen at Gucci, for example the one on silk and on the fular, is also done to do that and to make sure that the legitimacy of our brand in certain product categories that can help the conversion is very well understood. Other categories like jewelry or smaller goods that is not only mini bags but other functions are, of course, being looked at in all of the brands to try to improve their conversion. But I think that the fact that all of the brands are improving their average ticket is a good sign that the people that decide to buy seems to have not a problem of price resistance when the product is good. I take also your second question regarding the team with the arrival of the new... Well, what I can share with all of you is, like, after the nomination of Demna, I never received so many CVs of creative people and designers who want to join the team. Of course, whenever a new creative director comes, there is a visitation of the creative team around him. Demna wants to be the best team. There is already quite a good team in place at Guccine. All the supporting functions of design, like merchandising, for example, or collection coordinator, So, no, we don't expect any disruption, but, of course, there will be some changes according to the type, the topology, and the seniority of the people that Demna wants to bring into the brand.

I'll take the third question on cost. First, to remind that top-line recovery is our absolute priority. So, we continue to invest in client-facing areas. to enhance the customer experience while at the same time we put all other OPEX under strict control. I can give you a bit more color. Of course, those cost efforts or efficiencies effort that we are doing are in different areas. Yes, what we do on the network is including the efficiency of the network. We are also working on any duplicate that we can have in our organization, being more efficient, looking at the scope and the mission of within our house, between the corporate and the region, between the caring corporate and the corporate of the brands, making the best of all the investment we've done in system and IT, renegotiating some rents, working on some NFP with some large suppliers and doing the usual SG&A control. In terms of ANP, we remain committed to supporting our brand initiatives, but that does not prevent us from having a smart allocation of resources and look also at the relative intensity of our marketing and communication spending.

To give you comfort, we meet every month regularly. I mean, me even more, but officially every month with every company and every CEO, and every month we look at the actions to put in place according to the results and according to the cost that can be spent or not, and according to the market conditions. So the level of cost control is the maximum that we could have, given what we can activate.

Thank you very much. Thank you.

Next question is from Susanna Putz, UBS, please go ahead.

Thank you for taking my questions, and good evening, ladies. So just two from me. First of all, on Gucci, so I think you already closed some stores in Q4, and in the presentation you mentioned, I believe, that you closed 10 stores in Q1. I know you don't disclose like for like, performance but I'm just wondering are you seeing perhaps any signs of stabilization of like for like growth in the stores for Gucci I'm asking because obviously there is a bit of a deceleration but on top of that we have to take into account the negative space so that's why I was wondering if there's any extra color you could add and and then secondly maybe on balance sheet can you tell us if you know maybe there any further actions you could take or consider to take, you know, given the really uncertain environment. And I guess I'm specifically asking if, you know, maybe you would consider, in very extreme cases, spending the dividends or, you know, anything you could tell us just so we can get a bit more comfort on the balance sheet given how unpredictable the environment is. Thank you.

Thank you. Oh, sorry. Susanna, thank you very much for your question. I will answer to your first question saying that, you know, as I said, what we are doing on the network and it's true also at Gucci is not downsizing the network but upgrading the quality of the network. So you shouldn't see any major effect in terms of square meters.

And in terms of what we see across all the stores, like what is – in all the market and all the stores is the overperformance of the seasonal collection as opposed to the carryover. So those are clearly the positive signals that we see.

On your second question on balance sheet, first I want to tell you that we are confident in our deliveraging path along the lines of what we discussed with you in February. You know, it's a combination of the refinancing of real estate, on which we already announced the deal with Ardeo in Q1. We are working on the rest of the portfolio. I cannot be more specific, but we are making good progress. It's also the result of the healthy free cash flow generation that we are planning for this year, as in last year, and the strict general control that we have over CAPEX. So I would say that for the moment, we don't need to consider any strong further elements.

Thank you so much.

Next question is from Edouard Aubin, Morgan Stanley. Please go ahead.

Yeah, good evening. So three questions for me as well. So on Saint-Laurent, I guess the store build was quite significant in recent years and given the sales trajectory that has led to, I guess, a negative seizure effect and operating the leverage. Are you considering rationalization as well of the store estate for the brand? And a consensus is looking for EBIT to be below 20%. slightly below 20% this year from, you know, above 30% a few years ago. Does that sound realistic to you? That's question number one. Number two, just to come back on the U.S. tariffs, and if we just look at the 10%, one of your peers has already announced that they will pass on these tariffs. Is that your intention as well? And, you know, what would be the magnitude if you were to pass on to the end consumer the totality of the tariff in terms of the price increase? And then just on the follow-up on the balance sheet, sorry, Armel, but assuming no additional real estate transaction for the remainder of the year, your net debt was 10.5, if I remember correctly, in December 24. Where do you see your net debt by December 25? And so just maybe one clarification, Armel, for you in terms of what you said earlier. I think you said that you were expecting your sales to be down double-digit year-over-year in Q2, if I heard correctly. Is that for the group, or is that for the luxury activity? Thank you so much.

Hello, Edward. I take the first part of your first question regarding the Sanoran store network, also because I did part of it. So, yeah, it is true that Sanoran opened quite a few stores in the past few years, and this was done in sync with the reduction of the exposure on wholesale. So Sanoran tend to open stores, in particular in the U.S., in cities that were a little bit secondary, where at the same time they were closing doors with the wholesale. There are not too many problematic stores in the network of Sanoran, but still we are looking at it. And what you can expect is a rationalization eventually coming from moving stores from one location to another and eventually closing, for example, two small locations in advantage to opening in a better situated place a better store. So this is what you can expect vis-a-vis Sanoran.

I will answer to your second question regarding our adaptation to the situation on tariff. Of course, we are vigilant on the high level of uncertainty on it, but we would most likely adopt a careful and gradual approach, protecting our gross margin, but also mindful of consumer sentiment, which means that we could implement this approach either only in the U.S. or more globally. leveraging on seasonal adjustments, and be differentiated by category and price points. Regarding your third question, I have to remind you that we are on a Q1 call, so I won't answer this question.

Okay. And on your guidance, your indication for Q2, sorry, to the cell.

Sorry, for Q2, the indication is for the group.

And so you said down double digit, but not as bad as Q1. That's what you said, right?

Yes. I said down double digit, and it should be, yes, in line or a bit better than Q1. Okay.

Understood. Thank you.

Next question is from Luca Solka Bernstein. Please go ahead.

Good evening, and I have a question around the organization for them now, and especially referring to the separation of the merchandising function that you had announced at the Capital Market Day in Paris when Marie-Christine Romanto was appointed, if I remember correctly. Is there a plan to bring merchandising and the creative department back together so that the partnership that we had seen, for example, between Alessandro Michele and Jacopo Venturini could be reignited permanently? My second question is on the cost efficiency program. Is there a way for you to expand on that and maybe touch on the three or four major pillars that you are considering and what the total envelope of the potential efficiencies could look like and whether you're pursuing those efficiencies with the let's say, holding leadership or with division by division and brand by brand. And the third question is a very simple one. I remember, if I'm not wrong, that at the time of the Valentino acquisition announcement, there was mention that Mehula could be settled in part with shares. I wonder if this opportunity still on the table and if this could potentially be one of the ways to take care of the 70% of Valentino that is yet to be paid. Thank you.

Hello, Luca. I answered to your first question regarding the merchandising department. I think that what was announced at the Capital Day was a division actually of the design department because it's what I found two years ago when I took my role and was a separation of the design team that was working on the fashion show versus the design team that was working on the pre-collection. And this part of the design team actually was under merchandising. This organization is not going to go forward. Actually, we had already changed the way of working. And we absolutely intend to create an efficient organization and exchange in between design and merchandising, which is what I truly believe in, very similar to the exchange that there was and there is in a lot of other companies, but there was in between Alessandro and Jacopo Venturini, but like we have in any other company of the group. So there are two departments working together with clear and different ideas and working together to make sure that our collections are at the same time desirable and complete in terms of functions and price points.

Regarding your second question on cost, I think what is very important is to remind that we try to make sure that we find the right balance between being more efficient but not endangering the rebound of our brands. So this is extremely important, and we pay a lot of attention on some cost efficiency in some parts, but also investment and allocation of resources in other parts. So could we do more? You can always do more and find for more, but we will not go to a point where we endanger the rebound of our brands. I'm a bit sorry. I'm not sure I understood the second part of your question.

Hello, Luca, this is Claire. We're not sure we fully understood your second question. So maybe Armel will answer first on Valentino because it's a quick one. And then if you have additional info you want on the cost side, but we're not sure we fully understood it.

So on Valentino, as it is disclosed in our URG, Valentino can be paid in shares to a maximum of 3 million shares. which represent 2.4% of the shareholding.

Understood. Thank you very much indeed, Armel. The point about the cost program and my question was, what could be the magnitude of the cost efficiency potential? And are you pursuing these efficiencies at the holding level? So are you leading the cost-cutting program? from the head of the group, or is this a program that has been pursued within each of the brands and within each of the divisions?

Thank you. So I will answer on how it is organized. It is led at group level, for sure, because we are following on a very regular basis the performance and the general structure performance and financial performance of the group, and we set up targets to our brands, then it's to them also to explore the possibilities in the spirit that I mentioned of finding the right equilibrium, and then we discuss together the opportunity that they see and the one that we want to prioritize. But I'd like maybe Francesca.

Yes, exactly like Carmel said, we embark, of course, a cost efficiency program without endangering the brand. So this is why we set very clear guidelines at group level, but we discuss brand by brand what are the areas in which each of them can control better their cost without endangering what is the medium to long-term performance of the brand. As much as we can have a framework and we have a framework and we follow up, we have developed brand by brand single plans. Actually, we have frozen even at the time or before anything happens, we have frozen part of our cost that in order to be activated need the approval of the group, like I said, during those very, very often situations. and reviews. And so within the guidelines given by the group, we follow up brand by brand the plans, group and brand together. At the same time, we also have a plan at group level itself that we follow very carefully.

Could you maybe give us one or two examples of the cost families that you're looking at? Is it discretionary cost? Do we understand that this is maybe cost related to events, for example, or to communication? Or is it more structural SG&A that you are also pursuing?

Like I said, it depends on the brand. If you take Gucci as an example, it's a mix of everything. We have, of course, already reduced cost and are in the process of reducing cost structural, but at the same time, we also allocate better and pretend a very good ROI in all of the communication investments. The area that we tend to touch last are all the areas that are related to consumer experience, consumer activation, and building platforms an immediate return for the brand, and at the same time, something that is gonna be valuable for the future. For example, if we do, if we intend, let's take the example of Gucci. If we intend to promote the brand, you saw that very recently, Gucci worked on an exhibition in Shanghai related to the iconic bamboo bag. At the same time, one week later, we were going on with an event in Salone del Mobile in Milan, about bamboo as an icon. So all of those actions that are done in order to build a stronger foundation for the brand are controlled in terms of cost in the sense that we search for efficiency, but we don't stop them. Everything else that is not necessary and everybody has a nice to have is, of course, carefully monitored and cut. Structure-wise, we are going department by department and see where eventually, also due to the fact that the company has lower revenues compared to before, we can generate efficiency. But it's really done quite thoroughly, brand by brand, and function by function.

Thank you very much. That's very clear. Thank you.

Next question is from Charles-Louis Scotti, Kepler Chevrolet. Please go ahead.

Yes, good evening. Three questions for me, please. The first one on Gucci, it seems that one of the key challenges for the brand remains the subject in top traffic. What concrete actions have you implemented to drive footfall and re-engage clients at store level? And if you could be more specific on activation and initiatives slated for Q2. The second question on Yves Saint Laurent, Could you shed some light on the reasons behind the underperformance of the brand in Asia, especially as the brand seems to be holding better in the Western market? Has there been a shift in brand perception in these regions, and what measures are being taken to reverse the trend? And lastly, you sounded quite confident about the solid free cash flow generation this year, despite the continued earnings pressure. The working capital was tightly managed last year. Is there still, you know, meaningful room for further working capital inflow in 2025, or should we expect a more normalized contribution going forward? Thank you.

Thank you. I take the questions on Gucci and Salah. In order to try to overcome the drop in traffic at Gucci, we act on different layers. First of all, like I said, we keep communicating the brand and its halo. You saw several campaigns. I think you saw already the magnitude of the campaign that we are doing, the quality of the campaign, and those campaigns try to present the brand in a more joyful but at the same time elevated way, and they push silhouette but also iconic products. So this is a a mix of brand communication but also product specific communication. A campaign on the blondie, a campaign on the bee bag, and all of that. At the same time, we are trying to work on qualified traffic. So we have built a series of eventually smaller events targeted by area like the exhibition in Shanghai or the dinner in Miami or the dinner during the winter season in the capital city that each market is executing to try to reactivate customers that they had in the past or to try to make existing customers come back to the store and spend more. The fashion shows themselves are also vehicles to create this qualified traffic to the store. So it's really a double layer because it's quite complicated. And the biggest effect that you should see on traffic is when we are going to work on the bigger desirability of the brand coming with the new creative vision of Demna. So it's really a double action because there is not only the interest on creating simple traffic, but also working on qualified traffic for people that come with the intention to buy. And this is more created through capillary event, market by market, city by city. Regarding Yves Saint Laurent and the other performance in Asia, this is mostly due to traffic and therefore aspirational clients. and it's driven mostly by the ladder goods. How did we overcome? Revamping the line of ladder goods. You saw the introduction of and the reward that has been done on the Lulu line. That is a typical aspirational product for Saint Laurent, and that is working very well, and there are more to come. So the company is actively working on revamping It's a key core leather goods line to make sure that we reactivate those customers that were the ones that also before were coming to the brands like first-time buyer and buying monthly at the first purchase the leather goods.

Regarding your third question on free cash flow generation, we are progressing still on the reduction of inventory and actually the inventory at the end of March is lower than one at the end of December. Of course, the impact compared to the year before will be more normalized this year than it was last year, considering the very large improvement that we had in 2024, but still it would be an improvement. And in terms of CAPEX, we are more and more selective in our choices in terms of CAPEX. which means that we should land slightly lower probably than the 1 to 1.1 billion that we indicated in February.

Thank you very much, very clear.

Next question is from Ashley Wallace, Bank of America.

Please go ahead. Good evening. Thank you for taking my questions. I have three, please. The first one is just on stores and space contributions. You showed that you have 25 store closures versus the end of 2024. But I think if we look at it on a year-over-year basis, the number of stores is still up. So I was wondering, in your retail revenues, minus 16% for the Q1. does that still include positive contribution from space? And the drag from net store closures is still to come, maybe more like half to, but if you can just help us understand when do we start to see the bigger impact from the store closure plan? The second question is on the full price business. In February, you'd given some colour on how you thought the full price business would develop this year. If I remember correctly, the expectation was mid to high single digit. Whilst I recognise this is probably not the goal anymore. I was just wondering if you could help us understand how the full price business tracked in Q1. And then the third question is just a clarification on the gross margins. I think Armel said gross margins will be flat and eventually grow, but not in half one. So do I understand this to mean that the expectation is gross margins start in half one and then progressive improvement, or can half one gross margins in fact be down and the full year should be more close to the flat-ish? just to understand the shape of gross margin progression would be great. Thank you.

Hello, Ashley. It's Claire. So I'm going to be the bad girl one. It's Claire because we're not going to answer to your number one and number two. Space, like for like, you know, we don't disclose it. We give you lots of indication on the store footprint. Armand mentioned that you're right. We close a lot compared to year end. It's less of the case clearly compared to year-on-year basis compared to Q1 last year. In terms of square meter, we also mentioned it's pretty flaky overall compared to the end of last year. But I don't think we will be providing more information. The same comment about full price, et cetera, we will not provide more granularity on this one. And I let Armelle on the gross margin one.

On the gross margin, as you know, it's very difficult to forecast considering the uncertainty we have in terms of mix and region at that stage. What I said is that we expect to stabilize. I mean, it will be flattish. Flattish, I don't have the crypto ball, but probably flattish on the year with an improvement between H1 and H2. Flattish to positive, it's good to be seen. We are just at the beginning of the year, so it's difficult for me to give you a precise number.

Okay, thank you. Next question is from Carol Maggio Barclays. Please go ahead.

Hi, good evening. Yeah, just a couple of questions from me. First one on Balenciaga. Do you have more visibility on when you could expect an announcement of the new designer? And what kind of profile are you looking for here to replace them now? And that's the first one. And second question quickly on Bottega Veneta, which was also slowing down quarter over quarter. Is there anything to flag here on the deceleration? I think the U.S. was also a bit weaker. Is it just tough comps that we should think about? Or is there some weaker trend fundamentally to keep in mind on the brand? Thank you.

Hi, Carol. Well, we will announce the new – And the person we are searching is, of course, an high caliber and that can build on what has been already very well done at the brand and continue the success and continue to develop it.

And for Bottega Veneta, the brand is performing very well. The deceleration is completely due to the comp. We see all the KPIs that are very well positioned in terms of clients, in terms of AUR, in terms of average tickets. It's very positive.

Thank you. If you do the math on the two-year stack on BV, you will confirm by the math that it's really high confidence.

Thanks.

Next question is from Avia. Please go ahead.

Hi, good evening. Thank you for taking my questions. The first question is to go back to Bottega Veneta. If I look at Japan and APAC in the first quarter, it has declined and obviously the US and Europe have been much stronger. Is this really the difference between aspirational and wealthier consumers? Or is there any other reason that APAC, maybe the brand presence is still growing and requires more work? The second question on jewelry, can you maybe give us a little bit more color on the growth during the quarter? And also, was the space growth positive? Did it contribute positively to growth? And then thirdly, on jewelry as well, the price of gold has been rising for a while now, and I just wonder what impact it would have on the gross margins of jewelry. Do you plan to maybe pass this on to the consumer or absorb some of it into the margins? Thank you.

I take the first question on BV. Historically, apart from over 15 years ago when the performance of Bottega in Japan was really what was driving the brand, and actually we tried not to be too much dependent on one country, but apart from those early days, Bottega has always been stronger in the Western market compared to the Asian market, and this continues to be the case. And on a smaller case, but like all of the other brands, what is penalized in Bottega at the moment are the Chinese and the traveling Chinese. And the trend is very similar and actually better than other brands in other countries. Take Korea, for example, where the brand is incredibly successful. So now it's not a question of aspirational or top or low customers. The customers for Bottega are very similar worldwide.

Regarding jewelry, I'll try to give you more color on Q1 growth. So our jewelry house continued to perform well in Q1. Bouchon was resilient on a high-con base. Performance in APAC was flat, and we are very happy with the fact that North America was still a very strong growth, and it is a result of the new opening in Q4 in the U.S. Pomelato Group posted a solid growth in June 1 with a very good performance in retail. And Kilin as well posted a strong growth, confirming the brand's appeal for gifting during Chinese New Year. Regarding your question on the impact of gold, our brands are working on that both in China making some work on the production efficiency, as well as looking, of course, at the price architecture.

Thank you very much.

There are no more questions registered at this time.

So I want to thank you very much for your interest and for your questions. 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. Please also note that we will report our half-year results on July 29th after markets. Have a good evening and thank you again.

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