Good evening. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Moncler nine months 2019 interim management statement conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. 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 Ms. Paola Durante, Strategic Planning, Intelligence, and Investor Relations Director of Moncler. Please go ahead, madam.
Thank you. Good afternoon and good evening, everyone. Thank you for joining this Moncler nine months interim management statement conference call. We know today is a busy reporting day, so we will keep this as short as possible. As usual, for Q1 and Q3, the call is hosted by myself and by our Chief Corporate Supply Officer, Luciano Santel. Before commenting on our revenue results, I would like to remind you that this presentation may contain specific statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Moncler's current expectations and assumptions of future events, and are subject to various risks and uncertainties that could cause actual results to differ materially from those projected or implied by these statements. Please remember that the media have been invited to participate in this call in a listen-only mode.
I will also comment on cost and currency trends, unless otherwise stated. Let's now move to page three of the presentation, revenue results key highlights. I would like to make three quick comments. Moncler posted a good set of data, notwithstanding the difficult situation in Hong Kong. In the first nine months, consolidated revenues were up 12%, 10% in Q3. Results have been supported by the positive reception of fall-winter collections, and by the success of the Moncler Genius project, which continues to boost the brand's momentum worldwide. Let's move to page four, revenue breakdown by distribution channel. Both channels showed solid performances. In particular, retail revenues rose by an outstanding 13% in the first nine months, 12% in Q3, driven by organic growth and new space. In Q3, Japan, Chinese mainland, and Korea contributed significantly to the growth of the channel.
Wholesale also performed well, in line with management indication of a high single-digit growth at constant currencies for full year. Results have been driven by the good acceptance of fall-winter collections by Moncler Genius, and by the development of shopping shops and retailers. In Q3, wholesale results were particularly good in the U.S. and Japan, while in Europe, growth was softer due to early deliveries in Q2, thanks to a better production planning. Let me also note that e-commerce posted outstanding double-digit growth in both distribution channels. Moving to page five. In the first nine months of 2019, global expansion continued, with international markets growing 13% and accounting for 87% of total revenues. Also, our domestic market reported sound results, growing 6% in the first nine months. Let's now turn towards a more detailed analysis of our revenue by region.
Page six, focusing on our EMEA region, which includes also Italy. In the first nine months, our EMEA region, including Italy, reported a solid 10% growth, largely driven by the retail channel. In Q3, wholesale reported a lower growth to the already mentioned early deliveries in Q2. In EMEA in Q3, we saw excellent performances in Germany as well as Austria and Switzerland, and in the Scandinavian markets. Italian revenues were largely driven by organic growth in the retail channel, while wholesale was influenced by the ongoing selection of doors. Moving to page seven, Asia, which as you know, it includes APAC, Japan, and Korea. In the first nine months of 2019 and in Q3, Asia recorded a 15% growth. Japan, Chinese mainland, and Korea were the strongest performance in the quarter. All three regions showed sound, strong, double-digit growth driven by very good retail organic growth.
Japan benefited also from the October VAT increase, which prompted many Japanese to anticipate discretionary purchases in Q3. Hong Kong, on the other hand, has been the worst-performing market in the region and also overall at group level. It has experienced a double-digit decline since August. Unfortunately, the situation is not currently showing signs of improvement. In any event, should you have further questions, Luciano and myself will be happy to answer in the Q&A session. Let's move to page eight, talking about the Americas region. Revenue in the Americas increased by 10% in nine months and in Q3. The newly opened Mexican store, which is delivering above expectations results, also contributed to this sound performance. Overall, we are satisfied with Moncler performance in the region in retail, although it remains a more volatile market. Wholesale was good and benefited by solid sell-through and by the openings of new shop-in-shops.
The two airport locations, one in L.A. and the second in Vancouver, are performing particularly well. Let's finally comment very briefly on our store network, page nine. At the end of September, our retail stores reached 199 units. In the quarter, we opened three concession stores, so two in Korea and one in the U.S. with Bloomingdale's. I would like to remind you that these numbers refer to the new counting method adopted since January 2019. Four stores were opened in October so far, including one at the important new Istanbul airport. We can confirm that we have six upcoming openings to be finalized in November and December. During Q3, we also relocated important stores, including the one in Venice, very nice stores that you will be able to see the pictures at the end of the presentation.
For 2020, for next year, we expect to have some 15 doors secured and some important relocations. In terms of shop-in-shop, we have opened two in the third quarter of this year, and we expect another two to be opened in Q4. I finish the brief presentation of the numbers. We would be now happy to answer any questions. Operator, you can please open the Q&A session.
Excuse me, this is the conference call operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star 1 on their touch-tone telephone. To remove yourself from the question queue, please press star 2. Please pick up the receiver when asking questions. Anyone who has a question may press star 1 at this time. The first question is from Anne-Laure Bismuth with HSBC. Please go ahead.
Yes. Hi, good evening. Anne-Laure Bismuth from HSBC. I have three questions, please. The first one is on retail. Retail was at 12% at constant effect in Q3. I know that you are not disclosing the split of the performance between like-for-like and contribution from new space, but you usually give an indication. Is it fair to assume a contribution from new space of a mid-single digit in Q3, implying like-for-like circa 7% in Q3? My second question is about Japan. You flagged the significant contribution of Japan in Q3, probably linked to the advanced purchases ahead of VAT hikes. Will it be possible to quantify the impact at the group level for Q3, please? My last question is about Hong Kong.
Hong Kong was weak in Q3, worsening probably in September versus August, partially mitigated by the growth repatriation, especially in China, a double digit. It seems that the first week of October and the Golden Week was particularly weak. Can you give us an update on the situation there? If you are planning to take any actions regarding the Hong Kong market. Thank you very much.
Okay. Hi, Anne-Laure. This is Luciano Santel speaking. About your first question, as you correctly stated, we don't report the comp in Q3, not in Q1, not in Q3. Your estimation is not far from the reality, but in any event, I can tell you that in the 12% we reported, there was a good comp and a good new space contribution. I think that, honestly, we are happy with both, with the comp and with the contribution coming from the new stores. About Japan performed extremely well. Actually, it has performed very well all the year since the very beginning of this year, but specifically in Q3, particularly well, and September even better, honestly, in anticipation of the VAT increase that happened to be early in October 1st.
Japan was a strong contributor of our sales growth and specifically not only wholesale, but specifically in particularly retail. About Hong Kong, the situation was and still is unfortunately very difficult, very complex. On the other hand, as you stated, China, and as we said, China Mainland did very well. It's difficult to say exactly how much we recovered, but what I can tell you for sure is that China Mainland as a market did very well, and also our Chinese clients overall, our Chinese cluster overall did very well. Of course, not only in their local market, but also in the other markets. Something important to
Highlight about China and the very first couple of weeks in October, the first week of October, the Golden Week was particularly strong in mainland China. About Hong Kong. Hong Kong, of course, business, we face this difficult situation. We are taking actions, of course, to reduce and/or to postpone some expenses. Of course, we are trying to protect the productivity of our stores, but still preserving our best talented people we have in the stores. It's a very delicate, difficult job, but we want to maintain the asset that we have developed over the past years. We are postponing, and we have put on hold some investments in communication. What we are working on more than ever is the direct communication with our clients. You know that our CRM, our clienteling strategy has been very important since ever.
Now, more than ever, because we want to maintain more than before, strict contacts with our clients in Hong Kong. Of course, we are also discussing with the landlords. We opened discussion with them early September to obtain some rent reductions. Discussions are still open. We have obtained some significant reductions. Discussions are still open, and we are confident to provide some more complete information for the year-end. Thank you.
The next question is from Suzy Pusz with UBS. Please go ahead.
Hi. Good evening, everyone. Could you comment a little bit, if you can, on trends that you've been seeing in October to date? I know that you don't comment on current trading, just roughly if we can have an idea, if it's broadly in line with what we've seen in the first nine months, or I assume that what we've heard from the other companies is that Hong Kong, specifically in October, has gotten worse. Can you confirm that this is also true for you? What about the rest of the other regions? Secondly, I wanted to ask on Hong Kong, can you give a little bit of color in terms of the Hong Kong market specifically? How much would you say is local versus tourists? Also, what's the price gap between Hong Kong and mainland China? Maybe one more question.
In light of the recent events in Hong Kong, mainly in Hong Kong, how should we think about the margins for the full year? Do you think that it's still possible to protect the margins? Let's say estimate a flat margin year-over-year? Or do you think that now, given these new recent events, this is maybe a bit difficult to achieve? Thank you very much.
Okay. Hi, Suzy. About the current trend in October. The current trend in October, honestly, is substantially in line with the Q3, with some comments. One you made is Hong Kong. Honestly, Hong Kong is not doing worse. Hong Kong, unfortunately, is still doing not well, but not better, not worse than before. The other comment, important to highlight, is that in Japan, we have seen at the very beginning of October, a slowdown in the business, but this was totally expected because after the increase of 80, as I said before, September was extremely strong in October, and so we expected a deceleration of business that honestly right now is recovering. The deceleration was very first days of October. Now it's getting better. This again, is natural and totally expected. About Hong Kong.
Hong Kong, our business was, of course, before the events in Hong Kong, was in the bigger part, made of Chinese customers, but this is different store by store. If we are talking about Canton Road, I can tell you that as the other brands, our business, the vast majority of the business was made with Chinese clients. If I look at IFC, that business was made more with Hong Kong residents. Of course, the geography of our customer in that city is different store by store. The price gap between Hong Kong and China is about 30%.
10%.
10%. Sorry. Yes, I was thinking. It is about 10%. Hong Kong is a very profitable market. Not much more than the other markets, of course, the impact on the top line is impacting also margins. Honestly, again, as I said before, we are working on expenses and Hong Kong represents about 6% of our business, and we are pretty happy, very happy with the other 94% of our business. Honestly, for the year-end, we don't see a particularly material impact on our margins. Again, we are working to protect them.
Very clear. Thank you.
The next question is from Janet Kloppenburg with JJK Research. Please go ahead.
Good evening, everyone, and congratulations on the strong results. I just had a couple of questions. I'm not sure, but I know you said Hong Kong was down double digits. I was wondering if you could give us a bit of quantification there and perhaps some idea of how much the Hong Kong decline impacted your total retail sales or your like-for-like. If we should expect that Hong Kong performs in line with the third quarter or perhaps worse in the fourth quarter, maybe just some picture there would help. It seems like the Americas got a little bit better in the third quarter versus the first half. I was wondering if you could talk about that.
Just lastly, on the wholesale business, what you're seeing, particularly in the North America market, where Barneys may be threatened as a vendor, and other trends that you're seeing in the general wholesale market. Thank you.
Yes. Hi, Janet.
Hi.
About Hong Kong, honestly, in Q3, we lost about 40%, which is a big number. This is the reality. For Q4, as I said, right now, unfortunately, we don't see any improvement, any worsening. The situation is flat. It's as stable as much as it was in September. It's very difficult to predict the evolution of the situation in Hong Kong in Q4, honestly. For the time being, I can only tell you that the situation is not better and not worse than what it was in September.
North America.
About North America, U.S. and North America market, the wholesale specifically, our business, as you may have seen in Q3, North America was good. Of course, both channels and both geographies, U.S. and Canada performed pretty well. North America is a market which is to some extent volatile. For our business, we are pretty happy. Specifically, wholesale and the big players in the wholesale market, which are department stores, we keep doing well with all the names you know, Neiman Marcus, Saks, Bergdorf, Bloomingdale's. About Barneys, of course, they filed for Chapter 11. We have delivered only a small part of the full winter season, which is totally protected by our credit line, by our insurance policy. Now we are looking at the evolution of the situation.
Overall, of course, there are some names like Neiman Marcus, as you know, that have been having some financial troubles, but so far so good. We are expanding our business with them, but something very important that, as you know, we monitor very closely, is not just what we sell to them, but what they sell out. The sellout is very good.
Great. Thank you so much.
Welcome.
The next question is from Mélanie Flouquet with JPMorgan. Please go ahead.
Yes. Good evening. Thank you for taking my questions. The first one is regarding Japan. You were kind enough to give us a decline in Hong Kong. I was wondering whether you could give us the growth in Japan, or the acceleration, whatever you prefer to provide to us in retail. My second question is in Italy and Europe, we have a deceleration. You're flagging that this is mostly wholesale related or all wholesale related. Could we have an idea of the trend in retail, in Italy and in the rest of Europe, and how this compares to the recent trends? I was wondering whether on wholesale, you could help me understand whether around 9% organic growth is achievable organically for the full year.
I appreciate you mentioned some timing effects that explain the deceleration in quarter three, but quarter three is by far the largest quarter in wholesale, so I'm trying to understand whether our full-year targets still make sense in this context. My last question is a bit more strategic. I was wondering whether you see any change in the way you need to approach markets, from a communication, pop-up stores, activities, or anything, to fight competition, and your where you're standing and how you're approaching markets. Thank you.
Yes. Hi, Mélanie. About Japan, I can't tell you more than what I said, honestly. For the first nine months, business in Japan was very good. It is still good with the comments I just made about the first couple of weeks of October. Honestly, we don't disclose the precise numbers market by market. The number I told you about Hong Kong is to be considered an exception, but simply because now there is an important focus on Hong Kong. In any event, Japan did very well. Korea did very well. China Mainland did very well. The only focus and the only critical situation, as I said before, is in Hong Kong. About Europe. Europe, I would not consider the growth rate in Q3 of Europe a deceleration. Yes, it is a deceleration, but it is still a positive number.
You know that our Q3 business is heavily impacted by the wholesale business, and specifically in Europe, we anticipated this year deliveries in Q2, in June, because our production was ahead last year. We delivered a product from our production earlier than last year, and so we serviced our customers better and earlier. The wholesale in Q3 in Europe was impacted by this kind of timing impact for Europe. For Italy specifically, this is one explanation. The other explanation is in Italy, more than in the other countries, we are still implementing our selective strategy in the wholesale distribution. We keep cutting the number of those in Italy. Still, we reported a positive number. About retail in Italy was honestly good, very good. The organic growth was very good. In Europe, I can tell you that Germany, Switzerland, Austria, very well. North Europe, very well.
U.K., very well. France, less well than the other countries. Our business in France is mostly in Paris. Paris was less good than the other countries. Again, overall, our retail business in Europe was good in Q3. Another question you asked was about wholesale. Wholesale, our indication is still the same, high single digit. That means 8% to 9%, which is what we reported at the end of September. Nothing different from what we said. We confirm that number. About communication marketing strategy. Honestly, we are not sorry. We are not changing our communication strategy. Not at all. What I said before, of course, we are a little bit adjusting the execution of the strategy because we are not investing heavily now in Hong Kong because it would not make sense. We are investing more in other markets. We have as a strong focus China.
China Mainland is a very important focus, not just for the next couple of months, but for next year, for the future, because China is, needless to say, a very important market for us. What we have implemented over the past couple of years, and this year specifically, is a change, a movement of our strategy from the traditional media to the digital. We are investing more and more in digital with very good results. Nothing particularly different from the last time we talked together one quarter or a couple of quarters ago.
Thank you.
You're welcome.
The next question is from Piral Dadhania with Royal Bank of Canada. Please go ahead.
Hi. Good evening, everybody. I was wondering if you could perhaps comment on whether the weather trends we've seen in Europe and North America in the third quarter have at all affected the retail sales channel performance. Has there been any change in the product mix that you've seen given the warmer weather relative to last year? Has that had any knock-on effects with retail KPIs such as ASP or units per transaction? Any color there would be very helpful indeed. Just finally on e-commerce, I was wondering if you were able to perhaps just quantify the rate of growth that you're seeing in your retail e-commerce channel, if possible. Thank you.
About your first question. Honestly, it's a very smart question because you are right. We don't like to talk about weather, of course, to some extent in the short term, our business may be a little bit affected by weather that this year, in September overall, was warmer than last year. We don't complain. You are right. If I look at our retail KPI, all the KPIs are up. Traffic is up, conversion is up, units per transaction is up. The only KPI that is slightly down, not significantly but slightly down, is the average selling price, exactly what the point you made. This is because we sold in Q3 lighter items. Not spring, but let's say pre-fall items, less heavy items than last year for sure, when the weather was better from our perspective, it was colder, and we sold more heavier products and jackets.
You are totally right. ASP in Q3 is a little bit down. The other question about e-commerce. We are very happy about e-commerce. It is growing very well from double digit. Honestly, as you know, we don't report a precise number, but we are happy about how it's doing.
Okay. Thank you.
You're welcome.
The next question is from Paola Carboni with Equita. Please go ahead.
Yes. Hi, good afternoon, everybody. Very few questions. If you can come back on your comments about the Chinese cluster. It did very well, but just to understand whether there was, in the end, confirmation of the previous quarter's trends or a net slowdown in the end. Also comment on the American cluster, please. You just comment on the U.S. and Canadian market. Further question is about Hong Kong and what this might imply from a strategic perspective, from your point of view, if you're thinking about any further action to tighten the price gap with China or to, let's say, focus more on enlarging your footprint in mainland China as a consequence, let's say, of the possibly structural change in the Hong Kong importance for production flows in Asia. Thank you.
Hi, Paola. About the Chinese cluster, honestly, Chinese cluster is still the same from the % point of view. It is as strong in Q3 as much as it was in the first half of the year. It is in the region of one-third, 35% of our retail business. Not change, not deceleration, not acceleration. It is still, again, very strong. No slowdown at all. About American cluster. American cluster is growing, honestly, and I'm not talking about only the North American market, but of course, to your question, I'm talking about all the different markets. Americans are shopping more, not only locally but also in the other markets in Europe and in other markets. That cluster is growing. About strategies for Hong Kong. I think for the time being, we are not evaluating a flat price gap with China.
We believe that we will still maintain a price gap between Hong Kong and China. About the possibility to, you said, expand our footprint in China. Honestly, our distribution strategy has not changed at all. I think that in China, we still have some opportunities to open some stores, but still with a very selective approach and only in Tier 1 and selective Tier 2 cities. Of course, what we are looking at, what we are working on, not only in China, but in China even more than in other markets, is to expand the size and the visibility of our stores, mostly in the most important cities, Shanghai, Beijing, but not only. You know that we don't have yet an important flagship store in China. This is something, of course, we are working on.
Overall, we believe that the quality of our stores is much more important than the quantity. Of course, we try to follow the quality of our stores, and I think that we have opportunities to expand the size and the visibility and the quality of our existing stores, but not many new stores.
Okay. Thank you very much.
The next question is from Andrea Randone with Intermonte. Please go ahead.
Thank you. Good evening. I have a question about the actions you are implementing to attack marginality. I wonder if you can tell us if these actions are just related to Hong Kong, or if you are doing something else at group level. If you can tell us if these actions are mainly temporary actions, like delaying some commercial investments or permanent actions, in this case, if you can give us an idea of what you are doing. The second question is about the secure stores you are going to open next year. If you can anticipate us, what are the geographic areas you consider more promising for the next year? Thank you.
Hi, Andrea. About the specific actions we are taking in Hong Kong, honestly, are in Hong Kong only. The way we look at our cost structure is not different and has not changed over the time. The situation of our business honestly is very healthy. Regardless of the situation of the business, we look, since ever, very closely at our expenses to be more and more efficient in our store network and in our different headquarter, in our offices. Hong Kong is a specific situation, but in the rest of the business as usual, and the way we operate the business has not changed at all, with the same focus and attention to be efficient in our organization. About new stores in 2020, we estimate about 15 new stores, most of them in Europe and Asia Pacific, in APAC, some in Japan.
One store in North America. Something important also to highlight is that we keep converting some shop-in-shop into concession stores. Something that we did, that we are doing now with Bloomingdale's, and the next year, it will continue also within Canada, with the Holt Renfrew and with Bloomingdale's itself. One store important I would like to highlight for next year will be, in the second half of the year, our flagship store in Milan Galleria, which, of course, is something important to mention. Also, we are targeting a store in Barcelona, in Spain.
Thank you. Thank you very much.
You're welcome.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is from Luca Solca with Bernstein. Please go ahead.
Yes. Hello. I was wondering how you're planning to cope with the possibility of a protracted problem in Hong Kong. Assuming that the situation is not resolved and that we continue to have fewer tourist inflows here, what would you do in order to capture Chinese consumers elsewhere? As I understand, you're not planning to expand your retail network significantly in mainland China. Are you able to reach those consumers with more digital sales in China, for example? What else are you envisaging in the event that Hong Kong, as we seem to be seeing, is not a problem to be solved in the short terms?
Yes. Hi, Luca. The situation in Hong Kong is very uncertain. It's difficult now to make evaluations to implement strategies. Something important you mention, that is something we are doing. You mention how to capture our customers. Actually, this is something that is part of our DNA, honestly. Now more than ever, we are working directly with our customers, Hong Kong customers, Hong Kong residents, but also Chinese customers. You know that we have a very powerful customer database. We can trace our customers wherever they buy. Of course, we're capitalizing on this platform to keep contacts with our customers. Of course, to capture them wherever they are. About digital, our digital business in China right now, as you know, is still pretty small.
This is part of our strategy. For the next future, for next year and the year after, to develop a stronger digital business in China. This will be independently on the situation in Hong Kong. In any event, we strongly believe that now we will be working to make our digital business in China stronger. Right now, honestly, it is still smaller than in other regions. We are working now on the integration with WeChat, which we believe will be very helpful to convey customers to our website. Honestly, we have a very high potential to develop digital business in China. We have a lot to do, but very strong opportunities.
Thank you very much indeed.
Welcome.
The next question is from Marion Boucheron with MainFirst. Please go ahead.
Hi. Good evening, everyone. Just two questions from me, please. The first one on the phasing of store opening for this year. 10 in the fourth quarter is quite a big number. Is it supposed to be at the beginning of the quarter, we should have a bit more contribution first from space expansion or not really? The second question comes to Genius, where I think in fourth quarter, the initiatives you have is more November to the end of January versus last year, October, December. Has it been a drag to the October performance or expect any impact from that phasing?
Yes. About the new openings, of course, you are right. Many new openings will happen or just happened in October, but will happen in Q4, four in October and the others in November and December. Of course, space contribution of these stores in Q4 will not be particularly strong in this fiscal year. As you stated, we expect a higher space contribution for the first quarter of next year because we will have next year 10 more stores than what we had at the end of September. This is exactly what we said, in line with what we said about Genius. Also, on this point, you are right. Something I did not highlight and remember before is that in October, business is doing well, honestly, with the comment I made on Japan.
Something important to remember is that last year, we opened the Genius House in Tokyo, in New York, in Paris. Also our House of Genius project started early in October, which was honestly very successful. This year we are planning the House of Genius project in November, so we expect the same impact in November. Now we are facing a comparison that is more difficult. As you said, also Moncler Genius, this year we have some deliveries, collections in December and in January. The strategy over the year has changed this year. Again, of course, we expect better results also in January.
For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
Okay. Thank you so much. I was just looking from the webcast if there was any question we didn't answer. I actually think that we answered to all of them. In any case, if somebody still has question, as usual, we are here. We thank you all for participating in this late call. Clearly we are here today, tonight or tomorrow to any follow-up question that you might have. Ciao, everybody.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.