Kering Sa Ord

Welcome to the Caring 2025 Third 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. Welcome to Caring's 2025 Third Quarter Revenue Call. I will start with comments on the period, and we'll be joined by Jean-Marc Duplex, our COO, for some concluding remarks before we take your questions. Starting on slide four, The quarter ended with a series of bangs in the form of highly rated fashion shows and presentations with three debut collections at our four main brands. At Gucci, Demna's La Familia looks and his presentation through a short movie, Tiger, stand out as a bold creative statement. Reimagining Gucci's quotes through a modern-day prism, the collection reflects the varied facets of Gucci's personality incarnated by A-list performers. At Bottega Veneta, Louis Trotter's inaugural collection opened a new chapter, overlaying a confident vision to the house's artisanal heritage. Her subtle reinterpretation of the intrecciato motif and other house codes resonated strongly with audiences. Pierpaolo Piccioli gave the fashion world a refined version of Balenciaga, balancing couture, craftsmanship, with modern designs and accessories. Last but not least, Saint Laurent staged another powerful show set against the Eiffel Tower. The collection reaffirmed the brand's core identity and showcased a fresh dimension through spectacular silhouettes and innovative materials. All four collections drew wide acclaim and attention, boding well for their rollout in H1 2026. Bottega Veneta, Saint Laurent, and Balenciaga were among the most viewed runway shows with significantly higher live stream and replay views versus last year. Gucci, despite not presenting a runway show, achieved exceptional media visibility and generated record engagement and positive reaction across digital platforms. On slide five, you will find the key figures for the third quarter. Revenue was done 10% reported and 5% comparable, with a significant 5-point negative FX impact. The 5% comparable revenue drop comes after a 15% decline in Q2. Of this sequential 10% point improvement, only about half is attributable to the easier comp base. Looking at retail dynamics, all regions contributed to the sequential improvement. North America and Western Europe posted the best underlying momentum. In terms of KPIs, the drag from traffic moderated with some regions doing better than others. Continued increase in AUR driven by mix as well as higher average tickets provided some buffer to the drop in volume. I would also like to mention that full price stores performed best. our brands continuing to gradually reduce their outlet footprint and assortment. Online revenue for their part started to stabilize. On slide 6, you have Q3 revenue by segment. All our segments improved sequentially compared to Q2. In terms of magnitude, Gucci and the other houses posted the best improvements, although starting from a lower point. Bottega Veneta confirmed its positive momentum on a high-con base. Saint-Laurent's performance started to recover. The improvement in eyewear and corporate reflects an acceleration at getting eyewear. Our Q3 revenue breakdown by region evolved from 2024. As a percentage of the mix, Asia-Pacific dropped two points and Japan one point. Rest of the world was stable, while Western Europe and North America gained one and two points respectively. On slide seven, let's move to the Q3 top line by channel. Retail, accounting for 74% of revenue, was done 6% comparable, a significant quarter-on-quarter improvement. Our footprint at 1,758 stores showed a net decrease of 55 units since year-end, of which 14 net in Q3. This excludes grid integration of its China distribution back in Q2. Gucci was the largest contributor to our network optimization plan, with a net decline of 8 units in the quarter and 26 over the first nine months. As you know, our strategy concentrates on fewer but higher quality locations. It also entails gradually downsizing our presence in outlets, with two additional closures in Q3. Wholesale and other revenue, accounting for 20% of the total, was down 2% comparably. Wholesale revenue at our luxury houses dropped 11% in Q3, primarily due to the strategic downsizing of this channel and softer order intake. While these factors continue to weight on performance, their impact is progressively moderating. In absolute terms, wholesale dropped more than €330 million year-to-date. We are in line with our planned trajectory for the year that implied a minor decrease in H2. We are comfortable with our current all-set setup and number of doors and do not expect any material impact from rationalization in 2026. This decline was partly offset by growth in wholesale at Carignay Ware and Botté of 5% comparable and by a 1% increase in royalties and other revenue. On slide 8, a closer look at comparable retail performance by region. Overall, It continued to be affected by soft tourism spending, while domestic consumption demonstrated greater resilience. In Western Europe, Q3 improved sequentially, down 7%. Local demand, accounting for 40% of the total, was the key driver. Tourism spending also improved from Q2, but to a lesser extent. North America, down positive, up 3%, from a 10% decline in Q2. sequential improvement occurred across the board, with Saint Laurent and Balenciaga back to growth, Bottega confirming its strong momentum, and Gushis dropped now just 3%. Looking at the American cluster, it was nearly flat in Q3, marking a notable improvement over Q2, although a bit less than the region. Japan, down 17% comparable in Q3, improved on the back of easier comps, but was still the region most impacted by weaker tourism spending, while local conception proved a touch better than in Q2. Asia-Pacific declined 10% comparable in Q3, a nine-point sequential improvement. Better trends in the region were driven by mainland China, Hong Kong, Macau, but also Korea. However, the overall improvement is in line with the easier comparison base. The Chinese cluster was done 18th, substantially better than in Q2 and H1. In the quarter, more than 30% of spending by Chinese customers took place outside of their home market, and close to 80% of their overseas spending remained in Asia, including Japan. Finally, the rest of the world swung back to growth, up 2% comparable in Q3. Moving to our houses, starting with Gucci on slide 9. Q3 revenue was close to 1.35 billion euros, down 18% reported and 14% comparable. Retail was down 13%, 10% points better than Q2, driven by North America and Western Europe. AUR was up across categories, mainly through mix, supported by unit introduction in handbags, An average ticket also increased, partially offsetting a milder drop in traffic. Laser goods started their recovery. The injection of novelties, initiated last year and accelerating since, has begun to pay off, particularly in handbags, where we are seeing promising early signs of stabilization. This rejuvenation should gradually strengthen Gucci's carryover base. From the emblem line to strategic revamps of Marmont and Ofilia, and the highly successful launch of Giglio in May, alongside MiniGG and recent introductions such as Beatrix and Sienna, Gucci's product offering has been significantly strengthened, enhanced in terms of quality, and rejuvenated across all price points. With the La Familia presentation in late September, Gucci has started regaining its fashion authority reaching broader audience, including younger customers, and refreshing existing relationships, notably with top clients. As you know, the looks were available only in 10 stores for two weeks, so this will not change the revenue profile in Q4. Women's and men's ready-to-wear accounting for the bulk of the sales. La Familia also supports traffic in stores and cross-selling opportunities for the fall-winter lineup. The full Familia collection, We hit the whole network from January onward. Wholesale was down 25% in the quarter. Turning to slide 10, Saint-Laurent. Saint-Laurent Q3 revenue was 620 million euros, down 7% reported and 4% comparable. Retail was down 2% comparable, but was up, excluding outlets. North America turned positive, and Western Europe was only down 3%. The house confirmed its high desirability and new collections were very well received with both ready-to-wear and shoes up double digits. In leather goods, the revitalization of key lines such as the Lulu and recent additions to IKAR are yielding solid results. The acceleration in innovation and the fine-tuning of the product architecture are firmly on track. Wholesale was on 16% in the quarter on phasing and further impact from rationalization. On slide 11, Bottega Veneta's revenue came close to 400 million euros, down 1% reported but up 3% comparable. Retail remained a key driver, up 5% comparable, supported by sustainable digit growth in North America despite high comps and positive trends in Western Europe and the Middle East. APAC was nearly unchanged, and Japan was moderately down. Growth was fueled by locals and high-end clients, as well as a continued AUR increase. Credit wear and shoes were the fastest growing categories, and the launch of the Campana handbag delivered promising results. The value strategy, combined with strong cultural content and an efficient mix of global and local communication campaigns, continue to reinforce the brand's positioning. The acclaimed debut show of Bodega's Veneta new creative director paved the way for a next stage of progress at the house. All sales declined 9% on a comparable basis, fully in line with the selective distribution strategy. Our other houses here on sign 12 had revenues of over 650 million euros on a comparable basis, they were up 1% with retail unchanged and wholesale up 5%. In soft luxury, our houses also delivered sequential improvements. Balenciaga sharply reduced the gap with last year, thanks notably to positive sales growth in North America, but all regions and product categories did better. Compared to Q2, McQueen reduced its year-on-year shortfall with sales of women's ready-to-wear up and a reinforced handbag line-up. Briony sales were up, boosted by solid double-digit retail increases in key regions. Jewelry was a particularly bright spot this quarter, up double digits. Bouchon's expansion in the U.S. continued to pay off, and they housed positive retail and wholesale performances in other regions as well. Pomelato also had an excellent quarter, helped by retail, up in most regions, with strong showings of kilo lines and a new high jewelry collection. Dodo recorded another solid performance, and Kivin achieved impressive growth rates across Asian markets. On slide 13, a focus on Kering Eyewear and corporate, with segment revenues of nearly 450 million euros. At Kering Eyewear, comparable sales were up 7%. All regions, apart from Japan, turned in positive results, with particularly good performances from Maui Gym and Lindbergh, as well as Cartier. The expansion of the portfolio continued thanks to the contract with Valentino, which will lead to a first collection of solar and prescription frames for spring-summer next year. At Gangbote, Creed's quarter primarily reflects differences in the calendar of product launches. The new Oud Zarian fragrance reached the network in early September and is well received. The other highlight of the quarter was the introduction of the Balenciaga collection of 10 high perfumery women's fragrances that recorded a hefty sell-out level. This wraps up my comments on the quarter, and I will turn the phone over to Jean-Marc for a few words of conclusion.

Thank you, Armelle. Hello to everyone on the call. As you have seen, the third quarter has been quite an interesting period, during which we started seeing positive signs of inflation. Some were helped by easy comps, others clearly reflect early impacts of our actions. Numbers are one thing. Another, the acceleration of our initiatives to regain our footing, and more broadly set our strategic priorities for the coming years. On that front, We have not been sitting on our hands. Lucas Arrival has reenergized the organization. He has met with dozens of managers across the group and across regions. And we are all working together on developing our strategic plan for the next years. As you know, we should unveil it in the spring of 2026. I don't think I will be spoiling the announcement of that plan when I tell you that our number one priority is to reignite the top line. From that standpoint, the progress we made this quarter is encouraging, as is the response to the collections and launches that Armel mentioned. Clearly, work on the product offer of all our houses ranks high among our strategic priorities. On top of that, as we told you we would last February or last July, we are accelerating and amplifying our cost and efficiency initiatives. We are further right-sizing the store network and focusing on durably improving sales density. We are enhancing the productivity of our marketing investments, and we are using every available lever to reduce our cost base. Solid progress has been made on all these fronts, and we are keeping the pace. We also concentrate on cash generation, and we have launched a group-wide task force headed by Armel to sustainably optimize inventory and working cap management. Our task is to implement structural solutions to the group's challenges and reduce our sensitivity to cycles. In this endeavor, there are no sacred codes we are assessing every aspect of our houses, from brand positioning to client excellence, as well as the role the group should play in such areas as supply chain, tail-through optimization, or customer relationship management. Speed is of the essence, but we are also fully aware that some of these actions will take longer than others. In the meantime, as you have also seen, we have been able to deliver on some key strategic initiatives. The announcements we made on Sunday to join forces with L'Oréal to boost the beauty potential of our houses represents a major step forward. This alliance with a global industry leader, a firm with which we share values and have a long-standing working relationship, secures the growth of our brands into beauty at an attractive valuation. As part of the alliance, Creed also gets to integrate into a bigger portfolio, demonstrating the unique attributes of this house and ensuring its next stages of growth. Finally, our plan, joint venture with L'Oréal in luxury longevity and wellness, enables us to combine our strengths in an area that is sure to reach new milestones in coming years. The deal with L'Oréal will also have a highly positive impact on reducing our debt leverage, another top priority. Pushing back by two full years the exercise of the put option for the remaining 70% of Valentino enables us to focus on our existing activities at a time when they require our full attention. We are continuing to explore real estate transactions along the lines of what we have already done. As in any negotiation, it would be premature to put a date on them. But we are absolutely confident in reaching a favorable outcome sooner rather than later. So, a lot has already been done. We will not stop here. We are looking forward to the coming months and to sharing our progress with you. Before we take your questions, I have an important announcement to make. This conference call, number 48, is the last one under Claire Roble guidance, as she will soon be taking new responsibilities within the group. Claire's successor will be announced shortly and will be joining us in the coming weeks. I wish to take this occasion to give Claire a warm thank you for the 12 years she has spent leading caring financial communications. She has done a spectacular job in good and in less good times. We intend to maintain the very high standards she has helped establish and to continue earning the trust of the financial community. Claire, thank you from the bottom of my heart. And on that note, we are ready to take your questions. Operator?

Thank you, ladies and gentlemen. We will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone. and wait for your name to be announced. Please stand by while we compile to 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 question 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.

Hello, good evening. Thank you very much for the presentation, and thank you very much from my side to Claire for all the work together over the years. First question, maybe on North America, that was particularly strong really across the board, not just for one single brand. So can you give us more color? Can you talk a bit more about what you've seen with American consumers throughout the quarter between traffic and conversions? and also whether you're seeing new consumers coming, Americans and maybe aspirational consumers coming back, or rather the high net worth individuals and returning customers across the different brands. The second question on the beauty transaction, and I was wondering, are you now happy with the initiatives you put in place between beauty and real estate in terms of addressing liquidity constraints on balance sheet, or are you sort of revisiting all options, including potentially other parts in the portfolio? And with this beauty transaction and the cash inflow, should we be thinking about possibly also the urge of cost savings easing to stabilize profitability and availability of cash, or cost savings also remain a key focus at the moment? Thank you.

Thank you, Chiara. On North America, we had a sequential improvement that occurred across the board, much beyond the Combays. Happy to see Saint Laurent and Balenciaga back to growth, and Bottega confirming a very strong momentum in the region. In terms of consumer, you know, traffic is improving. but the growth is also helped by the fact that the AUR is going up through mix. And in terms of customers, I would say still a good resilience of the high-end customer, but also maybe some good performance on the e-commerce that is generally a channel where we see more aspirational customers.

Regarding your question about the budget transaction and its implications about what we're going to do with the portfolio and the leverage, first of all, I think, and I'm sure that there will be some other questions during the conference about the transaction, but the rationale behind the transaction was not driven by the leveraging ambition that we had. It was, at the end of the day, a very win-win deal in the sense that it first fulfilled completely our strategic objectives as well as the ones of L'Oréal. And, of course, it does contribute massively to decrease the debt of the group. That being said, we have started a process of optimizing the structure of our balance sheet that we will not give up. In the sense that, as I said, we continue to work on the refinancing of the real estate, which was something already as an ambition when we bought the assets two years ago. So now things change on that side. when it comes to the portfolio I want to be very clear we will review of course in a very open manner as we already always did the relevance of the assets we have in the portfolio but I want to be clear that when it comes to carrying eyewear because I read some articles on that carrying eyewear is a core in the strategy of carrying is doing extremely well and is the leader on its segment, and you can see that the performance in Q3 was more than robust, so we are very pleased with the investments we have in CaringAware, which is instrumental in the development of the group. Beyond the portfolio, when it comes to the savings, we are working under the helm of Armel, who is doing a brilliant job on that front, to be honest. As I said, we keep the pace because the idea is not to cut the muscle or to touch the muscle, but it's really to be sure that what we are doing and where we are investing, it's always bringing results and return, and there is no reason to stop there. I think it's really a good window for us in this period for the industry and for the group to continue this work of streamlining the organization to chase for the maximum of efficiency.

Next question is from Ed Ubin, Morgan Stanley.

Yeah, good evening, Armel and Jean-Marc. So congratulations, obviously, for this very encouraging development. And just, Jean-Marc, I just wanted to echo your comments on Claire. So just a huge thank you, Claire, for your time, your patience, and your professionalism. So you will definitely be missed. So, on that, just, Armelle, if you could please come back on the, it looks like, but maybe I'm wrong, that, you know, there was some gradual improvement during the quarter in terms of the trend. So, if you could comment on that in terms of September and what you've seen so far in Q4, in the golden week. So, that would be question number one. And so, sorry, just to come back on the sale of the beauty unit to L'Oréal, just to talk numbers to the extent you would be willing to share any, but I think some of the players have indicated that the cosmetic sales of Saint Laurent is about 3 billion euros versus Gucci at about 500. So it looks like there is a really huge opportunity there to grow the business. When you look at that, should we be aware of any fundamental structural reason why Gucci in the medium to long-term cosmetics business should not be more or less the same size? Obviously, Saint Laurent has a bit more heritage there in terms of sales. perfume and cosmetics, but that would be one. And then the last one, which is quite important and maybe the most sensitive, is for the investors to judge about the merit of the transaction. Obviously, it would be helpful to understand what type of royalty fees are going to be paid by L'Oréal. So I think the industry norm is about a high single digit, maybe sometimes 10% of sales. Again, I don't know what you're going to be willing to share, but if you can just give us a little bit more color in terms of, you know, the structure of the deal. I understand that Saint Laurent, the fees are substantially lower than that today that you're getting from L'Oréal, so any comments would be much appreciated. Thank you so much.

September performance was in line with the quarter. August was weaker, but it was a month with the toughest conveys. Yeah, July, sorry. July was... And then August was the best month, but September was in line with the average of the quarter. You know, in terms of current trading, it's very early in the quarter. I'd like also to remind you that the com base in Q4 is much tougher than in Q3. That being said, retail trends in key regions are in line with Q3, but be mindful that October shows the easiest comparison base in the quarter.

So when it comes to the size or the potential size of the beauty business for our brands, and this business should encompass at the end of the day, if you look at long-term fragrances, makeup, and to a certain point, the more mature the brand is, skin care, Of course, I cannot disclose any figure. I think that maybe you got some figures from L'Oréal management. But it's true that we consider that if you look at the profile of a luxury brand, I would say that we know that the beauty category, if we think in terms of retail price or penetration of the market, should be higher than the one we have currently. That we had historically for Bottega Veneta and Balenciaga and that the reason why we had decided to repatriate these brands and to internalize the business with the success we know because you may remember that we had very successful launches and we are very pleased with what has been done so far by Caring Botte. And we can imagine also that Gucci brand would deserve it's a higher penetration on the segment. especially if you look at the ranking of the fragrances in different geographies. I think we need to develop more of this business across the board for our brands and that the rationale behind the transaction with L'Oréal. So for sure, I think all the brands, relatively to their respective size, have the potential to grow quite massively with, of course, an incremental level of royalties for us. And it does make the transition with your last question, on which, of course, you can imagine I will disappoint you. But as we always did with COTI, being very careful about not disclosing any contractual obligations, we will not disclose what is the content of the contract we signed with L'Oréal. Okay. I expected that. Thank you, Jean-Marc.

Next question is from Olivier Chen, TD Cohen.

Thanks a lot. And Claire, it's been really wonderful to work with you as well. Congrats on the next steps. Thanks, Armel and John-Marc. We appreciate it. I'd love, one, you mentioned early signs and handbags and also carryover. What are the early signs you're seeing? And can you accelerate the flow? You've done that in the past in terms of working very quickly there. Second question is on traffic. Does traffic continue to be fairly volatile given that Tiger was such a success? Should we expect traffic to get better? Sounds like you're doing a great job with AUR and managing conversion very well. And third, in your prepared remarks, you mentioned reduced sensitivity to cycles. Just would love for you to let us know what you mean there. in terms of, you know, we've seen so many cycles between hard luxury and softer luxury, as well as thinking about aspirational and also beauty is a great category, but it's a great deal you're conducting in terms of partnering with a world leader. Thanks a lot.

Regarding handbags, you know that we've done a lot of work since the end of 2024 by reintroducing many new lines in the offer at Gucci, but also at Saint Laurent. And the performance that we have on newness in handbags is very positive. We've been suffering... from the underperformance of carryover that was upsetting the very good performance of the newness. But we are on handbags coming to a point where it's equal and we are very happy to see the performance of the handbags at Gucci stabilizing this quarter. Regarding, so there will be, of course, a lot of new introductions in Q4. You know, some of them that you've seen during the cruise show in France and, of course, some other in 2026. So the trend is very positive in terms of percentage. You know, in the mix, you have some seasonal effects. But at the moment, I would say in handbags at the end of September, we were at more than 60% of the sales in handbags were coming from U.S., And of course, the new net from last year is now feeding the carryover base. Regarding traffic, traffic improved sequentially during the quarter. It's still largely impacted by Japan and APAC.

Yeah, I think when we mentioned in my speech Cyclicality is not only a question of the mix of activities we have in the group, and by the way, even if the beauty business is no more internalized, what we hope and what is the bet is clearly to increase the level of royalties. which is a solid contribution in terms of EBIT, as you can imagine, and to explore the full potential of our brand in that segment. So in any case, we still benefit from this cycle of the beauty business. The hard luxury does represent still a quite substantial part of the business, not yet at the full potential, but if you combine the sales of our jewelry brands, but also the jewelry businesses of our fashion brands, we start to have a quite substantial business, and it's clear that also our jewelry brands are quite relevant in the different segments of jewelry, so meaning high jewelry, fine jewelry, and more accessible jewelry, so with also this capacity to absorb some shocks in terms of demand especially when aspirational demand is weaker and behind this also there is the work that we have started at group level and in each brand and that probably and surely by the way Luca will present more in depth and more in detail during next spring is you know to and it's a journey that we have started but Clearly, there is the ambition to accelerate this journey, which is to rely more and more on science to be stronger in terms of predictions, in terms of merchandising, in terms of supply chain, so that we can gain in efficiency and to be less, let's say, exposed to aspirational demand, to be stronger in terms of carryover lines, replenishment strategy, And that's the reason why we have always said that in our industry, it's a combination of art and science. And clearly, even if we have made some progress in the past few years, we need to accelerate to be sure that also we have, and that's the spirit of what I was saying about what the group could bring to our brands. It's also some expertise that we will have at group level to push our brands forward. to do better in that direction, which is to be more disciplined in terms of set through on things like this, which are reducing, obviously, the risk of cyclicality.

Yeah, okay, that's really helpful. One quick follow-up on mainland China customer. How would you characterize what you're seeing now? Are you encouraged in terms of rays of light and stabilization, just color on what you think? is happening in that dynamic market. Thanks a lot for everything.

So consumer spending in mainland China is still not very supportive, but we are seeing some sequential improvement. We are working on the product offers, the retail network, and things are progressing. Of course, we will continue going into Q4 next year, Things are going in the right direction. We are seeing still some, you know, polarization in the customer, but we are progressing in the right direction.

Best regards. Thanks.

Next question is from Antoine Belves, BNP Paribas Exxon.

Yes, good evening, Armel, Jean-Marc, and Claire. Thanks for... all these years of collaborations. Three questions, if I may. First of all, I think you updated a bit the amount of stores that were closed, first of all, at the group level, but at Gucci. Could you maybe comment a bit, give anecdotes, but when you're closing, there may be a store in China that is quite close to another. How much of the business are you recouping? I'm quite encouraged that you're really create not losing too many consumers once you're obviously improving the cost base. And also, I understand that it's not a one-year effort because I think you're probably waiting for some leases to expire. So net-net compared to, let's say, the fleet at Gucci at the peak and maybe two years down the road where how many stores could end up being closed. My second question is on the overall group EBIT for this year. In July, you had mentioned that the gross margin in H2 could be quite supported, notably by FX hedging elements, and also you had given a very precise target for OPEX. So given that Q3, and correct me if I'm wrong, was probably ahead of your own expectations, Are you deciding maybe to spend a bit more on OPEX or are you happy to see consensus, which I think was at 1.7 billion of EBIT, maybe creeping up to 1.8 on the fact that also Transar seems to be quite good at the beginning of the quarter? Finally, on beauty, 4 billion seems to be a good number for disposing beauty, but I guess it's a combination of two things. One, selling the current business and then probably valuing what could happen in the future. Is it possible maybe to have an idea especially of the I mean, are you going purely on the creed and existing beauty business? Are you going to have to post a loss on asset disposal? If what is attributed to that is less than 3.5 billion you paid, or actually that's not the case, and you managed to get even higher price than you had paid initially. Thank you.

Thank you, Antoine. Regarding the stock closure, as I mentioned, We are progressing, and we have close to 14 stores in the quarter, 55 years to date, as AlphaFit roughly is attributable to Gucci. What do you think in terms of regrouping the business? Of course, it varies from one store to another because it depends on the location, it depends on the store, but I could say that generally we regroup... between 30% and 80% of the business. Of course, we pay a lot of attention. We generally move the sales assistant from the previous store to the next store. We make sure that we call the clients, we invite them to the new store. So I must say we are quite satisfied with the dynamics. Of course, it will have to be measured more in the long term, but we are seeing good dynamics in that front.

If I may, I will add that going forward, we will continue to work on the network rationalization. Here again, we will have an occasion to be more specific already during the full year results, but even more during the spring investor meeting. But this is an ambition to continue to look at the network, to consider what are the stores which are the less profitable or delivering the lowest returns. We want to concentrate on some key locations and not to distract our brands with too many locations to operate because also it has an implication sometimes, which is to increase the structure and the costs associated with the structure to manage all these stores or So we knew, and I think among the weaknesses that we have acknowledged in the past few years was probably that we went a little bit too far in terms of expansion of the network. So without providing any figures, you can assume that in the two coming years, we'll continue to rationalize quite drastically the network.

Regarding your second question, I can confirm that we are delivering our plan on cost efficiency. So I can confirm the indication that I gave in July, which is that we expect OPEX to be down mid to high single digits in the full year. Regarding gross margin, here again I can confirm that we expect gross margin full year or H2 to be at the same level of H1 at constant currencies. Of course, if currency rates stay where they are today, there will be an edging effect that will be a tailwind in the gross margin. But all in all, you have to keep in mind that that FX and hedging combined could have a negative impact up to 50 million in the EBIT. And then more generally in the EBIT, I also can confirm that H2 EBIT margin will be declining year on year, but much less than in H1.

Regarding the price, you said that 4 billion euros was a good number. That's your assessment. But I think that if we reach a deal with L'Oréal, is that we were thinking on both sides that that was a good number. And it's a comprehensive deal. So through which L'Oréal and Kering are becoming long-term partners in beauty. This deal encompasses the sale of Kering Beauté, as a company with all the subsidiaries and all the activities. It means, in other words, that the sale of Creed has a house, the fact that we are granting the Bottega Veneta and Balenciaga license to L'Oréal, and in the price there is an option of the right to grant the Gucci license, of course, at the expiration of the license with the current terms and conditions we have with Scotty. So to make it simple, it's Creed plus two licenses plus an option to rent a license. We don't split the price so far. What I can tell you is that in terms of capital employed at group level in our balance sheet, the capital employed attached to the beauty business is below four billion euros. So you take it the way you want, but at the end of the story, it will be a net gain before tax for the group. Then the recognition of this profit is something we need to continue to work on because from an accounting and tax standpoint, there will probably be a need to allocate the price, but what has been negotiated is a global price And again, I think it's a good price for both parties, considering the ambitions we have on both sides for our beauty brands, but also for the joint venture, because don't forget that in the deal also there is a joint venture, which is very promising. All right.

Well, thank you very much.

Next question is from Susanna Puth, UBS. Yes.

Thank you for taking my questions, and I'd also like to say thank you so much, Claire, for all of the years and all of your wonderful help. I agree, everyone will really miss you. So, well, three questions from me. First of all, on the Chinese consumer, in case I missed it, I don't think you commented on the sequential performance of the Chinese consumer, and I was just wondering if you had seen any improvement. I think that was sort of the key surprise from one of your peers. So if you could tell us a little bit, maybe especially for Vucci, how well the cluster has performed. Then secondly, on the store network rationalization, just to follow up, because Jean-Marc mentioned that, if I understood correctly, for the next two years, we should still expect some further rationalization. And I remember you mentioned in the past that the space would be flat despite some store closures because the existing stores would be made bigger. So I just wanted to confirm if that's still the case. And then finally, just to follow up on current trends, just because, well, I guess I wanted to understand, I mean, the comparable, because we don't know the comparable basis across every month. So I just wanted to understand, because you mentioned August was the best, September was in line with the quarter, which surprised me a bit because I would have thought it would be better given the, you know, sort of a little bit more excitement around Gucci. So I'm just trying to understand, like, is it reasonable, given that in Q3 you had seen an improvement ahead of the comp, and you are seeing comp getting tougher, But is it still likely that Q4 is going to be better than Q3? Or that improvement ahead of the comp is sort of a bit slower now, and we should actually expect sales to be weaker then? Just to get a rough idea around that. Thank you.

Thank you, Susanna. So the Chinese cluster improved slightly sequentially for all brands. The improvement is driven both by the domestic market and by the tourists. We saw an improvement on the tourists, but still a double-digit negative trend in all regions, especially in Japan, due to the higher combates and also the less attractive price.

Yeah, as regards to store rationalization, I think our position has evolved, to be clear, in the sense that it's not a secret to say that the sales density is not on par with our expectations, and I would not dare to say on par with the competitors. So, here there is a need first to recover in terms of cell density. So, it does mean, in other words, that, of course, if you look brand by brand, maybe it's difficult to say that all the brands will see both a reduction of the store count and of the square meters. but globally speaking at group level we envisage to reduce the total surface even if probably the reduction will not be exactly at the same level in terms of percentage than the total number of stores because still some brands in the group deserve to have a decent size. If we check, and it's always the same example for many years, Bottega Veneta, it's true that now considering the growing share of ready-to-wear collections and footwear and the success of these collections, we need in some cases to have larger stores. We have not enough flagships for this brand. Even for Balenciaga, we may have some situations where we will need to consolidate in a larger store, but overall and directionally over two years there will be a reduction of the number of stores and of the square footage.

So August was the best month of the quarter on Aegis Comp and September was in line with the performance of the quarter. It's true that we launched La Familia product in September, but it was only 10 stores, so it cannot change completely the picture on the September performance. Going forward, what we see for Q4 is that, of course, consumer confidence is uneven. There is a lot of uncertainty. From what we see so far, I would say that we could expect that Q4 sales decline year-on-year could be in the same order of magnitude of Q3, despite tougher conveys.

Okay, thank you. So just to clarify, so basically despite the tougher conveys, we can expect, is it across the group or for Gucci, specifically Q4 to be in line with Q3? It's for the group. And for Gucci? Sorry, I'm being very demanding today.

I'm sorry, but I won't answer brand by brand.

For the last one of Claire, you could show some indulgence.

Okay.

Thank you so much. Thank you. Next question is from Thomas Chauvet, CT.

Good evening, Armel, Jean-Marc, and Claire, Claire Vest Special. Thanks to you for over a decade of hard work, great partnership with the analysts. You'll be You'll be missed. Thanks again. Three questions, please. One on rightsizing and two on L'Oreal carrying transaction. On rightsizing, if we look at your luxury houses, we exclude eyewear, we exclude beauty, your 25 revenue will be more or less one-third lower than at the peak of 22, so just three years ago. You say, Jean-Marc, in your concluding remarks, reigniting the top line is a priority, but until then, Is there further right-sizing of the cost base that's needed at the carrying holding level, at the individual brand level? Anything concrete maybe you and Luca and Armel have started working on beyond what you've already initiated at the end of last year and the distribution footprint rationalization you've just talked about? Secondly, on L'Oréal, first on the rational and the opportunity, or maybe the missed opportunity. When you took over the Saffilo license 10 years ago, my understanding is you thought you would do, in the long run, a better job than your license partner in terms of distribution, marketing, production, with the right people, as long as you learn about this métier. I guess you delivered on those promises. You said this is core, this has critical mass. Now, when it comes to beauty, what was the trigger in the last year or so that made you think you wouldn't be able to replicate the same success as you did in Iowa, to give up maybe so quickly after creating this division, especially you could... integrate the Gucci license in just three years. So where do you think you lack competences relative to L'Oreal? I'm curious about that. And thirdly, on L'Oreal and numbers, is $4 billion the net amounts you expect to cash in? In H1X2, are there any other deduction or addition to that amount we need to be aware of, particularly who will pay for the potential early buyback? of the COTI license and will you redeem early some of your existing bonds with that cash? Thank you.

I don't want to be too specific on your first question because I will not enter into the details of all the things and all the initiatives we have started with Armel but also with the HR teams and also under, of course, the leadership of Luca. What I can tell you is that in the last two years with Armel, we had already started to tackle what could be tackled rapidly and to grab all the low-hanging fruits in terms of savings. and it was easy to do in a way. What we have started to encourage clearly by Luca is to look more structurally at the way we operate, not only in all the corporate organizations at caring level, but also in the brands, but also when it comes to big platforms like IT or logistics. we know that we can say some efficiency more. So I think what we have started now is something which is more structural, which is to look at the ways we are working. And so it will continue during 26. We expect with some gains and sometimes also with some reinvestment. You know, bouncing back to the first question we had at the beginning of the call, From CARA, of course, there is some cost-cutting, but there is some reinvestment. We need also to recruit some talents in the group. So I think we will make savings, but we will also try to also boost the efficiency of our organization, and sometimes it will imply to recruit some people to invest in new technologies. But for sure, yes, we will continue to work on the right-sizing of the organization. And I already mentioned the discussion around retail, which is part of the process of being more efficient. What's the rationale? To be honest, and I will start by saying that we are very proud of the job that has been done by the caring body teams. They did a terrific job. The integration of Creed has been very successful. The launches they made at Balenciaga and Bottega Veneta were absolutely at the top and outstanding with a very good reception. In a way, we have been so successful that clearly it has triggered a lot of appetite from the market and from our competitors. And it's also our duty as a management to regularly review our strategic options. So it's true that at a point, you know, feeling that there was some appetite in the market for our activities, we just started an analysis and discussed with the board because at the end of the day it was a board decision. to see if we could pursue our journey on a standalone basis, but if we had also some other routes to go, especially in a market which is probably a little bit tougher currently for the beauty business. And in terms of risk and reward analysis, Whatever the success we had, and we were confident that we had a very good team at CaringBauté and we could have pursued our standard on the way quite successfully. If we look at the math and we want to go faster, to avoid also capital, if we want to optimize capital allocation, considering that it's a quite capital-intensive business, probably more than the eyewear business, we decided to look at the different options. It was a process that accelerated more recently, but it's a process that started before, and that was clearly decided by François Henry, so that we can move in that direction without taboo. It was fully supported by the board, and clearly with the energy and the vision of Luca, we have been able to accelerate and to strike a deal so very recently. That was the rationale behind this move. And clearly, you know that when we made the move with carrying eyewear, at that time, the Gucci license with Cefilo was already one of the leading license in the eyewear business, even the first one, so we had quite rapidly a critical scale. And we knew that it would be completely different with the beauty business. So it was really what we call in the business school a strategic dilemma now. And then we made all the pros and cons of each solution. But it's not the reason for taking that way was not because we were disappointed by the job done by the team because I think they were above expectations in terms of delivery and Creed was on par with the initial business plan. I will not comment further as regards the price that has been paid. And so far, the plan is to wait for the expiration of the license, and we will see if at a point there will be an opportunity to discuss with Coty. But so far, as I said, there is an option, and we will see at the end of the license what will happen.

Thank you so much.

Sorry, go ahead, Armelle.

No, no, no, sorry.

Maybe just Armelle or Jean-Marc on that last part. $4 billion is the cash-in flow in H-126. As per the press release, there's no delta ultimately on the cash flow. It's $4 billion.

And when you say... Plus or minus, minor adjustments that you have already in that deal, because when you sell a company like Creed on Caring Beauté, naturally you may have some adjustments depending on the working capital situation, blah, blah, blah, for what you know in M&A deal.

And when you say there's an option for Gucci license that's captured, that option is valued within the $4 billion.

Yes, it's a comprehensive evaluation, as I told you, and the option is in a way probably valued as an option. Okay. Okay. Thank you.

Next question is from Anne-Laure Bismuth, HSBC.

Yes. Hi. Good evening, Armel and Jean-Marc. And also thank you, Claire, on my side for a great collaboration and hard work. I have three questions, please. The first one is on Gucci. The Demna presentation and film is very US-centric, it seems. How do the Chinese react to it? And maybe if you can comment about the performance of Gucci during the Golden Week. My second question is about the wholesale performance. What could we expect by your hand for all the brands? And should we see a further decline in wholesale performance next year, or how have you done for the key brands, especially Gucci? And finally, concerning Balenciaga, the recent Balenciaga stores are big and them not driven, and as a consequence, not in line with the new direction of the brand, given the limited financial means, or will you prioritize the CapEx allocation? Thank you very much.

So regarding La Familia, you know it was presented in 10 stores all over the world in every region. It's true that we had a very good response in the U.S., but also in Europe, and also to mention also in Japan, especially with local Japan customers. We have already a pretty good response in China. Maybe not to the same extent that the very strong one we had in the U.S. Regarding the Golden Week, consumer spending is not very supportive in mainland China. Overall, this year's Golden Week is not changing the picture, even if some brands are posting better results than last year. For wholesale, we are confirming our indication that wholesale should decrease by 350 million, maybe slightly more, Over the full year, it decreased already 330 million year-to-date. And for next year, we expect this number to – we expect wholesale to stabilize, as we have done most of the rationalization of the doors. Now, of course, it always depends on the dynamic of the wholesalers themselves.

Maybe you wanted to jump on the question of Thomas.

I had the answer, but we jumped. No, just very quickly, coming back on your question regarding potential bond buybacks, we will, of course, and the management of the cash inflow, so, of course, first it's written on our balance sheet. We will balance between cash investment and potential buyback of some bonds. trying to be smart, but also always very mindful of our liquidity profile.

And maybe a word on the store footprint of Balenciaga. True that in the recent years we have enlarged in average the stores of Balenciaga, but I think first of all nothing is changing regarding the categories that we have at Balenciaga. It would remain in any case a brand with ready-to-wear leather goods, footwear, with a good proportion of men and women in the collection. So when it comes to the size, I'm not particularly worried. When it comes to the Demna aesthetic, I mean, you see first of all that in the first show, There was a bridge, in a way, with what was the aesthetic of Dana. It was a good combination. Also, we don't plan a short-term major reshuffle of the network. We think that, first of all, all the stores have not exactly the same magnitude in terms of aesthetic. And we have already tested some mock-up where, obviously, just the addition of a few things and also some, you know, painting, additional painting, things like that, can easily, you know, create an environment that would be very consistent with the new collection. So here, again, we don't expect a jump in terms of capex on that side. As usual, with Armel and their... the helm of LUCA, we will have a global arbitration at group level of the CAPEX to be sure that we invest rightfully in the right places and especially at the right pace.

Thank you.

Next question is from Charles-Louis Cotty Kepler-Chevreux.

Good evening. Thank you for taking my questions. I have three, and congratulations, obviously, to Claire, and best of luck in your role. On the Demna First Collection, which will be rolled out globally in January, could you remember also, you mentioned in the past, capsules for Christmas and Chinese New Year, as well as the Cruise Collections before the presentation of Fall-Winter 2026, end of February. If I'm not mistaken, could you update us on the upcoming pipeline at Gucci. Secondly, the deal with L'Oréal includes as well a joint venture on longevity, health and wellness. L'Oréal already gave us some details yesterday about it. Could you tell us more about this joint venture and is this part of a broader move towards more experiential luxury, which seems to be getting a lot of momentum now? And third question, regarding your beauty licenses for Bottega Veneta and Balenciaga, you previously had a very selective approach in terms of distribution, which obviously mechanically limits the development potential. This is not, I guess, the overall strategy, even for the couture brands, except for the private collections. Are you now more open to adopting maybe less selective strategy that could allow the business to scale up more quickly? Thank you very much.

The Devna collection will be distributed in stores as of January 26th, but in Q4, there are many initiatives at Gucci. We just introduced a new figure, the Gucci shift. There is also the Cruise Show collection that is arriving in store in November. And of course, there will be plenty of capsule and animation in December for the Chinese New Year and more generally for the holiday season. That will be amplified by some campaigns. There is already a campaign that you've seen probably on the new shift sticker on digital. There is also a campaign on the ski altitude. And there will be, of course, the Gucci shift campaign at the end of the year as it happened last year.

Shall we? I don't know if I can add something relevant to what Mr. Bebult said brilliantly yesterday. I think we are convinced on both sides that definitely there is an opportunity in that segment of wellness, longevity, and it is true that it has to do with how luxury experience can expand in different categories, in different areas. We see that today the high net worth individuals and many top clients of our brands are reallocating wallet also to experience, results, travels, restaurant and also wellness and longevity which has become clearly a topic for the billionaires and individuals. So, yes, definitely we are at the early days of this venture, but we are convinced that, of course, the idea for us is not to work on product because it's really the expertise of L'Oréal and I think there are a lot of R&D in that area and for us it's more about finding some synergies, bringing also our capacity to find locations in the city, outside of the city, to create an environment which does correspond to the expectations to these clients, to work on our CRM and database with the top clients we have. So this is really what we are targeting to really provide to this clientele a unique experience, mixing wellness, medical care to a certain extent, and also so that they can enjoy a pleasant environment with a luxury experience. So that, we believe, is a market which is very fragmented. on which there is an opportunity probably to consolidate and to be with this joint venture, a major player, considering that our two groups are global and the capacity to enter in the main cities in the world and also to provide unique experiences. When it comes to Balenciaga and Bottega Veneta, your question is a good one. But I think the plan, you know, that historically these two licenses of these two brands have been completely underexploited in the beauty category. So we had to rebuild the credibility. And we started by launching these niche products, these niche fragrances, very elevated in terms of quality, in terms of price. and it was a way to re-establish the credibility of this brand in the beauty segment. Clearly, the plan of Caring Beauté, especially for Balenciaga and to a certain extent to Beauté Gavinetta, but the positioning of the brands are slightly different, but the idea was at a point, once we had started to be credible again, was to go down to the prestige segment with a broader distribution, with the usual spec in terms of distribution. So it was part of the game, and if I come back to the rationale of the joint venture of the deal with L'Oréal, clearly the idea is that, of course, we can scale up that business more rapidly, and we are very pleased if we could accelerate the development of these two brands but starting with Balenciaga in the more prestige segment considering that of course we will and that was some of the discussions we had with L'Oreal of course we want to keep an offer which is very elevated for the top clients and also to have some fragrances in our stores Thank you very much Next question is from Carol Mario Barclays

Hi, yes, good evening. A few questions for me as well and also on my side. Thank you very much, Claire, for all your time. It was really good to discuss with you over the past few years. To come back on the first question being on Gucci, can you help us understand a bit more what should be the position of Gucci going forward? I guess to come back on the points you mentioned before, you talk about trying to reduce cyclicality, about being a bit more exposed to high-end consumer. Demna talks, I think, about being a bit more exposed towards minimalism at Gucci when he does his first fashion show in February. So can you just, I guess, help us envision what could be the new Gucci in terms of pricing point, brand aesthetic, and positioning going forward? That's the first question. And second question, just to come back also on the jewelry side in the other houses, which I think has been quite solid for the past few quarters now. Can you remind us how big jewelry, so the Boucheron and Pomelato brand mostly account for now in this division? And what kind of potential do you see for those brands going forward? Thank you.

Your question on Gucci is an interesting one. I think it will be part of probably a larger strategic update that Luca and the team will give during the CMD in the spring. What I can tell you at this stage, I think going back to La Familia presentation as an example, I think it was very positive to see that the looks that Debna presented were large in their style, in the categories, and I think it was showing how diverse and rich the Gucci brand can be and very true to the DNA of the brand. Regarding jewelry, I can just mention that if I look at last year, the turnover of our jewelry brand altogether was around 1 million euros. Thank you.

Next question is from .

Yes, good evening, and congratulations to Claire and her next step within the company. Two or three questions. I was sort of detailed questions now at this stage. I was wondering when you look at the retail dynamics going forward, so the retail network being trimmed and potentially space being reduced, would that go hand in hand with rental costs also being reduced? I doubt that because most likely you would be closing tail stores and you would be beefing up flagship and prime locations. but I just wanted to be sure what you thought about this. Maybe a more general question on the EBIT consensus that you see. There's been many moving parts, the reacceleration over the summer and the cost efficiency program continuing. I wonder if you want to touch base on that guidance that you provided or if not. And then maybe more of a blue sky question on Armani. You are obviously focusing on your own business and on improving it organically, but you haven't been shy, for example, with the Valentino acquisition to play a protagonist role in consolidating some of the most important Italian fashion brands. I wonder if this is on your radar screen at all, and if we could envisage down the road a role for you, especially in a scenario where L'Oréal could potentially try an Estée Lauder deal. That is, buying the brand for the beauty business and licensing out the fashion and leather goods business, as in the case of Tom Ford, was done by Estel Order with Zegna. Thank you.

Thank you. We don't streamline the network just for the sake of making some savings on the rental cost. The idea is just to be sure that we have the right setup brand by brand. I think that there was a wave of utilization in the past few years which was made across the board. So for all the brands, I think all the brands are not in a situation, because of the size, because of the product categories, in a situation to be at 80 or 90% retailized. If I think about Brioni or McQueen, these are brands which probably need to rebalance a little bit between wholesale and retail. I would not say the same for the other brands, where there is still the ambition to have predominantly retail distribution. The idea is just to be sure that we have the right setup and that we don't multiply the number of point of sales in the city, that we keep the most efficient one, and that we are able to increase the sales density. We have to be very lucid and we are very candid on this. The problem of the group is not so much about the rental cost. There will be opportunities to reduce the rental cost, for sure, but it's more about the sales density. So the purpose for us is of course to have the right setup. When there is an opportunity to renegotiate the rent, we will do it. And part of the game also in this reshuffling of the network is also to create the conditions to renegotiate some rent. But the ambition is first of all to maximize the efficiency of the network to reignite the top line, as we said before.

On the outlook for this year, I gave already a lot of moving parts regarding top line, gross margin, and OPEX. Maybe what I can flag additionally is that if foreign exchanges remain at current level, the drag on Q4 reported sales will be higher than the one in Q3. For the rest, I think I gave you already a lot of information.

About your last question, you can imagine that it's premature to comment and also because, you know, we have just signed a deal which was very important for us. We have the Valentino brand in the radar going forward with evidence that we have postponed the exercise of the option still. There will be a need at a point to integrate the brand. We have a lot of challenges in our brand. I think our plate is quite full so far. And the priority for us is to work on the action plan that Luca is giving to us and to the brands. And it's not a consideration we have so far about Armani. And we will see what will happen with the different players that have been listed in the testament of Mr. Armani.

Thank you very much.

As there are no more questions registered at this time, I will turn the conference back to Ms. Poulou for additional closing comments.

Thank you very much for your interest and for your questions. Before I let you go, I would like also to add my own sincere appreciation for Claire's great contribution over the years. Thank you, Claire, on behalf of all of us who have worked with you. Finally, to everyone out there, our next appointment is in February for our full year results. I wish you all a good evening, and thank you again for being on the call.

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