Welcome to the Kering 2025 First Half Results Conference Call and Webcast. Please be advised that today's conference is being recorded. As a reminder, all participants are in listen-only mode. Should anyone need assistance during the conference call, they may signal an operator by pressing Star and Zero on their telephone. At this time, I would like to turn the conference over to Ms. Armelle Poulou, Group Chief Financial Officer. Please go ahead, Madam.
Good evening to all of you. Welcome to Kering 2025 First Half Results Call. I will start with comments on the period and second quarter, and we'll be joined by Francesca Bellettini and Jean-Marc Duplaix, our Deputy CEOs, for the Q&A session. Starting on slide five, in the first half, our houses stepped up the expression of their exceptional craftsmanship and innovative offer driving desirability. Bottega Veneta celebrated the 50th anniversary of its signature intricate Intrecciato motif with the Craft is Our Language campaign, highlighting the universal language of hand gestures. At Gucci, the Gigi Obsession campaign paid tribute to the roots of the house, featuring its iconic monogram design, through distinctive products and successful introductions like the Giglio bag. Boucheron's latest high-jewelry collection, Impermanence, represents another ode to nature and pushes industry boundaries in terms of form as well as cutting-edge materials and techniques.
Balenciaga closed the decade under Demna's vision with an exhibition in Paris, showcasing his transformative work, both reinterpreting the aesthetic of the house and redefining modern luxury in the process. On the operational front, we raised control over our supply chain and secured advanced expertise in luxury eyewear thanks to a small-scale acquisition of long-term partners in Italy. Kering remains fully committed to cultivating the next generation of talent and unlocking opportunities. This is exemplified by our dynamic partnership with 0.93 Lab, a nonprofit cultural initiative active in the suburbs of Paris, and also by the extension of the Kering Generation Awards to jewelry, the first global prize dedicated to sustainable innovation in this segment. On slide six, you will find the key figures of the first six months. Revenue was EUR 7.6 billion, with recurring operating income of EUR 969 million, a 12.8% margin.
Year-on-year margin dilution was 470 basis points, a touch better than the 500 basis points we had hinted to earlier this year, reflecting our efforts to control and optimize our cost base. Free cash flow from operations came at EUR 2.4 billion after EUR 431 million in CapEx in the first half. Net financial debt of EUR 9.5 billion was EUR 1 billion lower than at year-end. Kering employed 45,000 employees on June 30, down 4% from December. On slide seven, first-half revenue was down 16% reported and 15% comparable, with a 1-point negative FX impact. Q2 revenue trend is very much in line with H1, down 15% comparable. However, FX turned into a substantial 3 percentage point headwind in the quarter. Our first-half revenue breakdown by region evolved from 2024. The contribution of Asia-Pacific dropped 3 points.
Western Europe, North America, and the Rest of the World each gained 1 point, and Japan was stable. On slide eight, you have revenue by segment for Q2 and H1. No big surprise here. Comparable growth was pretty similar in both quarters, with no or minor changes depending on the segment. On slide nine, let's move to H1 top line by channel and region. Retail, accounting for 73% of revenue, was down 16% comparable in both quarters. This is what we had anticipated in April. Overall, Q2 traffic was still weak across most regions, yet with some discrepancies. Continued increases in AUR and average tickets provided some buffer to the drop in volume. Our footprint at 1,772 stores showed a net decrease of 41 units since year-end. This excludes Kering's integration of its China distribution, adding 17 stores.
Gucci was the largest contributor to our network optimization plan, with a net decline of 18 units in the first half. The same number of closures occurred in the Other Houses segment, mostly Balenciaga and Alexander McQueen. Our strategy concentrates on fewer but higher quality locations. It also entails gradually downsizing our presence in outlets with seven net closures in H1. Wholesale and other revenue, accounting for 27% of the total, was down 10% comparable in the first half and 12% in Q2 alone. As usual, this covers very different situations. At our luxury houses, wholesale was down 25% in the first half and 28% in Q2, as we continue to bear the impact of scaling down this channel in addition to lower orders. In absolute terms, wholesale dropped EUR 279 million in H1.
We are in line with our planned trajectory for the year, implying a minor decrease in H2. This decline was partly offset by growth in wholesale at Kering Eyewear and Beauté of 2% and by a 9% increase in royalties and other revenue. On slide 10, a closer look at retail by region. Overall, worldwide retail trends were similar in Q1 and Q2, but by region, notable changes occurred. The main feature was tourism spending, which clearly slowed down in Q2, impacted by currency moves and growing uncertainties. Depending on brands and regions, the magnitude of repatriation in domestic markets was uneven. In Western Europe, Q2 decelerated sequentially, down 17% comparable. Local demand was still subdued, and tourism spending worsened, though not consistently across brands. North America was down 10% comparable, 3 percentage points better than Q1. Polarization based on positioning persisted, and Bottega Veneta continued to outperform.
Gucci improved by 6 percentage points sequentially, an encouraging trend. In Q2, Gucci also did better with the American cluster, which was a touch softer for most of our other brands. Japan, down 29% comparable in Q2, was the region most impacted by weaker tourism spending due to less attractive exchange rate and price gap compounding outcomes. Asia-Pacific declined 19% comparable in Q2 but posted a 6-point sequential improvement. Better trends in the region were driven by repatriation of spending, with Mainland China, Hong Kong, Macao, but also Singapore improving sequentially, although still down double digits. The Chinese cluster was broadly in line with Q1, down high 20s. In the quarter, about one-fourth 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 turned negative, down 5% comparable in Q2, as events impacted the Middle East. On slide 11, an overview of recurring operating income, CapEx, free cash flow from operations, and net debt. Recurring operating income was EUR 969 million, down 39% year-on-year. Gross margin was down, as expected, reflecting different dynamics across brands. In most cases, regional and product mix remained a headwind, partly mitigated for some of our brands by positive channel mix. Our OPEX efforts, initiated over a year ago, are bearing fruit. I will come back in more detail shortly. With actions to contain operating leverage starting to really kick in, the EBIT margin came at 12.8%. Recurring EBITDA decline was more moderate, down 23% year-on-year, as was the EBITDA margin, down 2.3 percentage points. CapEx to sales stood at 5.2%, excluding real estate, a touch below H1 2024.
In absolute terms, CapEx was EUR 431 million, a very significant decrease year-on-year, and down 20%, excluding real estate. Free cash flow was EUR 2.4 billion in H1, or EUR 1.1 billion after real estate operations. Operating working capital stood at 18.1% of last 12 months' revenue, in line with H1 last year. Net financial debt, excluding lease liabilities, was EUR 9.5 billion at June 30, a EUR 1 billion improvement compared to year-end, as we execute on our delivery trajectory. On slide 12, a deeper look at our initiatives to enhance agility through cost efficiencies and discipline. The first bucket regards the store network, where the goal is to right-size while further upgrading client experience and brand perception. A comprehensive review of our houses' footprint is ongoing, encompassing many criteria.
In the full year, we should achieve a net reduction of up to 80 units, significantly exceeding the 50-unit target we had mentioned in February. The second bucket relates to A&P. We have decided to keep the level of spending at a high single-digit percentage of revenue, both in H1 and for the full year. This allows us to sustain brand visibility, to amplify the debut of new designers in H2, while adapting to the current environment, focusing on relative intensity and on the highest ROI initiatives and campaigns. Finally, other expenses that notably include SG&A. In this area, we are scrutinizing every expense line, renegotiating with vendors, launching new RFP, questioning our ways of operating, what can be downsized, what must be restructured. We launched all these initiatives in H1 last year and amplified them in H2.
This first half, group OPEX was down 11% reported, or more than EUR 550 million, with a substantial contribution from fixed costs, lowering our future base. On a more demanding combat in H2, and also to protect some resources, notably in terms of A&P, we anticipate group OPEX to be down mid to high single digits for the full year. Moving to our houses, starting with Gucci on slide 14. H1 revenue stood at EUR 3 billion, down 25% comparable. Q2 revenue was also down 25% comparable, with retail down 23%. two percentage points better than Q1, driven by North America and Asia-Pacific. AUR was up across categories, and average ticket also increased, partially offsetting the drop in traffic. We are highly encouraged by the launches and rejuvenation in leather goods such as the new Marmont.
The emblem, which hit the shelves last year, is consolidating its leading position in the product offer. More recently, the [Giglio], launched right after the beautiful [Mécruz] show, is off to a strong start, especially in Western markets, with the denim coloration quickly sold out. The MINI GG should be a hit in Asia. Gucci is speeding up the pace of introductions and refreshment of its offer. The upcoming pipeline is promising. Agility and reactivity are increasing, and time to market is shrinking. The presentation of the new creative direction in late September. Planned initiative and activation will build on already reinforced assortment and collection across categories and segments. Wholesale was down 50% in the quarter, the optimal number of doors having likely been reached for now. Recurring operating income came at EUR 486 million, a 16% margin. As we expected, gross margin was down on adverse mix.
Operating delivery was eased by stringent cost savings, with OpEx down high teens, including a sharp decline in fixed costs. Gucci is right-sizing and reallocating its resources to enhance efficiency and maximize that impact. A quick update on the distribution network. The house closed 16 net full-price stores in the first half and six outlets since early 2024. The efforts to upgrade the quality of the retail footprint will continue in H2. Turning to slide 16, Saint Laurent had H1 revenue of nearly EUR 1.3 billion, down 10% comparable. Retail was down 12% comparable in Q2. New products performed well, resulting in higher sales of ready-to-wear and even more so women's shoes, confirming the turnaround of this category. Recently introduced handbags were in high demand but did not make up for the weakness in carryovers. All in all, supported by novelties, full-price stores outperformed.
Saint Laurent continues to focus on the introduction of novelties, whose increasing success should feed future carryover sales. Wholesale was down 5% in the quarter, as the house returned to a more normative calendar, resulting in anticipated deliveries of its full 2025 lines. Recurring operating income was EUR 262 million, resulting in a net margin of 20.4%. Gross margin was resilient, and the house is successfully lowering its fixed cost structure while continuing to invest in collections and retail experience. On slide 18, Bottega Veneta proved resilient in more challenging market conditions, thanks to solid penetration with locals. Revenue was EUR 846 million, up 2% comparable in H1. Retail remained the main driver, up 3% comparable in the six months and flat in Q2. By region, growth in North America was very significant, up 18%. The deceleration in Western Europe was steep on tourism softness. Japan decelerated slightly.
Asia-Pacific was contrasted, and Middle East slowed down on very high comps. AUR continued to increase, as did the contribution of core and high-end client segments. The poetic Bottega Veneta brand campaign I mentioned earlier paved the way for the new creative development to come in the fall. Wholesale was up 4% in the quarter. Recurring operating income was EUR 127 million, a 50% EBIT margin, up versus last year. Gross margin increase and good cost control yielded some operating leverage, while investment in store upgrades and client experience continued. On slide 20, many of the other houses had a very challenging first half. Revenue neared EUR 1.5 billion, down 14% comparable. In Q2, revenue was down 16% comparable, materially impacted by wholesale, down 28%. In soft luxury, Balenciaga suffered from severe deceleration in retail trends in Western Europe and Japan, and we are accelerating the restructuring of Alexander McQueen.
On a better note, Brioni's performance was up nicely in main markets and channels. Our jewelry houses proved resilient in Q2. Boucheron and Pomellato unveiled stunning high jewelry collections, keeping confirmed its positive momentum. The other houses' segments posted a recurring operating loss of EUR 29 million in the first half, largely attributable to Alexander McQueen. In the rest of the portfolio, operating delivery is more limited, thanks to cost control initiatives. We maintain targeting investment at our jewelry brands to expand their reach, offer, and awareness. With slide 22, let's look at the Kering Eyewear and corporate segment, whose total revenues of EUR 1.1 billion were up 3% comparable in the first half. In Q2, revenues of Kering Eyewear were up 1% comparable to EUR 921 million. High single-digit growth in Europe was partly offset by slower North America. Overall, optical frames performed better than sunglasses.
Kering Beauté had a good quarter and first half, benefiting from successful recent launches of Creed women's fragrances. The segment's EBIT was up sharply, with high profitability at Creed and resilience in eyewear, along with expanding continued investments. Corporate costs were down, reflecting our savings initiatives across the board. Now, looking at the remaining lines of the P&L on slide 23. Total non-recurring was positive EUR 32 million, the result of many pluses and minuses. On the minus side, we accounted for some impairments, restructuring charges, and provisions. More are expected in H2. On the plus side, we registered gains on asset sales, namely a building in Tokyo's Omotesando district and the Mall Luxury Outlet. Net financial charges amounted to EUR 280 million, or EUR 163 million, excluding interest on lease liabilities. Cost of net debt stood at EUR 164 million, a moderate year-on-year hike.
Interest expense was nearly unchanged, with a very limited increase in the cost of average debt, but rates on cash deposits were lower. Corporate income tax was EUR 199 million, a 27.5% rate on recurring income. Group net income from continuing operations adjusted for non-recurring items reached EUR 450 million. Free cash flow and net financial debt are on slides 24 and 25. In the first half, we generated close to EUR 2.4 billion in free cash flow. These amounts include the cash inflow from property transactions, notably the deal with Ardian for Parisian assets and the outright sale in Tokyo. Excluding these operations, free cash flow would be EUR 1.1 billion. At June 30, net financial debt was EUR 9.5 billion, a net debt-to-ABDA ratio of 2.3 times under our existing definition.
For the sake of better comparability, we introduced a new ratio, pre-IFRS 16, on both sides, under which net debt, excluding leases to adjusted recurring ABDA, stands at 3.4 times. In the first half, we paid EUR 743 million in dividend, a substantial year-on-year decrease. We also executed on our delivery trajectory, as you've seen. On slide 26, we thought it was useful to recap where we stand in terms of delivery revenue. First, we are working full spectrum to protect and enhance free cash flow generation. We are disciplined in working cap management, but the massive reduction in inventories we have achieved now needs to be balanced with necessary investment in unit. Full year CapEx will be contained to circa EUR 1 billion as we prioritize projects. On M&A and shareholder return, we implement the capital allocation guidelines you are familiar with.
M&A is restricted to selective bolt-on acquisitions to reinforce supply chain and internalize production capacity and skills. The 50% dividend payout ratio is unchanged. Coming to monetization of assets, in H1, we reached close to EUR 1.5 billion. In H2 and beyond, we are shooting for an additional EUR 1.7 billion of potential cash in. Regarding financial debt, we seek to systematically and proactively refinance our bonds and size favorable market conditions, as you see on the slide. We have a well-spread, diversified bond maturity profile, as you can see on the graph, with a maturity of 5.6 years on average. Finally, our cash position is robust. A word of conclusion before we take your questions. As you all know, Luca de Meo will join us as CEO in mid-September.
It is, of course, far too early to lay out new directions, but we have started working with him so that he can hit the ground running. In the meantime, we have continued to make advances on a number of fronts, as we had been doing before Luca's announcement was made. The impact is not yet evident in the numbers, apart from some moderation here and there in the pace of top-line deceleration, always as a sharp readjustment of our cost base. Our efforts are clearly visible in our ways of working, in the launches of successful new products and campaigns, some of which I mentioned in opening, in the drastic cleanup of our distribution, with more to come, and in the increased agility of our organization.
We know that these efforts are carried out at a tough moment for the world economy and for the industry, but we are all ready and energized for the new chapter in Kering history that begins in the second half of the year. We are now ready to take your questions.
Thank you, Madam. 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 the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the Star 2 keys. The first question comes from Chiara Battistini of JP Morgan.
Good evening. Thank you so much for taking my questions.
The first question, and I know I see a headline on Bloomberg, but I'll try anyway, is if you could give us any color on how to think about the presentation from Demna. For Gucci, we've seen a lot of news flow flying around, so if we could have your take on the timing on the presentation, both into Q4 and into next year, please. That's the first question. Second question on the updated store closures plans from 50 to 80. I was wondering if you could give us more color on the data, the incremental 30 in terms of regions and in terms of brands, how to think about that. And finally, maybe if I can ask a question on current trading and what you've been seeing in July so far. Thank you.
Hi, Chiara. It's Francesca speaking. I take the first question regarding Demna.
I already anticipated in the previous call that September would have a hint on Demna's vision. Demna has been recently more specific. September will be a presentation of a collection, not in the form of a fashion show, but that will remind people what Gucci is. It's a full collection, and we will then build on this aesthetic with a full fashion show in March. There will be anticipated deliveries in store. The collection will hit the stores fully at the beginning of January, but already in September, we will activate it in a number of stores worldwide. It's a full collection on which Demna has been working, on which a merchandising team has been working. So it's a first hint of his vision for Gucci.
Regarding the store closure, yes, we are updating our plan from 50 net to 80 net.
It is well spread and balanced across regions, with Gucci representing roughly half of the number. No specific on any brand. It's quite well spread. On the current trading, it is quite early in the quarter. What I can say for the moment is that so far, the trend in Q1 region is showing a slight improvement versus Q2. Of course, helped by an easier comp base. If we look by brand, Saint Laurent and Balenciaga are showing quite similar trends to Q2. Gucci is slightly improving. On the other hand, we expect Bottega Veneta to show a slower Q3 as campaigns and product launches are rather planned for Q4.
Thank you.
The next question is from Susanna Pootz of UBS.
Thank you for taking my questions. I'll just stick to, actually two and one follow-up. Maybe to follow up on latest trends.
Given that you've been closing stores for Gucci, and I know I asked about it before, but you must be surely seeing some negative space contribution. It's fair to assume that the like-for-like sales decline is actually narrowing even further than what we've seen in Q2. In light of that and your comments on current trends, is there any kind of idea you could give us on how we should think about maybe Gucci for Q3? Would, I don't know, high teens, mid-teens sales decline be reasonable? Also take into account wholesale. Second, on OPEX guidance, I just wanted to clarify if that's on a reported or FX neutral basis for the full year. I believe it's mid-single digit to high single digit decline. Finally, on balance sheet, obviously you've been doing a lot to reassure investors about your balance sheet situation, which is great.
Is there anything specific else that you're working on on top of everything that has been done? Are you maybe considering any brand disposals? Any color in that would be very helpful. Thank you.
Thank you, Susanna. Regarding the closure of store, I think it's very important to remind that we are aiming to enhance the quality of the network by having fewer but better locations, which means that you should not expect a strong impact on the number of square meters of the network because basically we are closing smaller locations and we are continuing to open or to enlarge some locations. All in all, in terms of square meters, there is not a strong effect of the closure on the square meters for this year. Regarding trends, I'm sorry, but I cannot give you a dedication for Gucci for Q3.
What we are seeing is an improvement of trends, keeping in mind that, remember, last year Q3 was especially weak. This is important to keep in mind. Regarding your question on OPEX, the indication I gave is based on reported figures.
Yeah. Adding on that, for the first half, as you see, there was an impact of FX, but when we look specifically at OPEX, it was not so material. We prefer to give the guidance in terms of report terms and also you saw the evolution also of the STE. You see that it's across the board that we have this discipline. It's clearly linked to the answer to your third question in the sense that we have announced at the beginning of the year when we disclose the full year results, sort of program and ambition for this year, and we are sticking to that ambition.
We have mentioned the fact that we would work on the OPEX side. You see the results. We have mentioned that we would be more disciplined in terms of CapEx. It's - 20% in H1. We had announced some disposal or real estate refinancing. We did part of it. We said that we would have a few additional proceeds from real estate operations going forward between 2025 and 2026. We continue to work in that direction. I think we have a clear strategy for all the brands, and we are working to execute properly the strategy brand by brand. It does include also some improvement at the Alexander McQueen level, which is, as you know, a brand which is challenged. So far, when it comes to the portfolio of brands, we have no plan of disposal.
Perfect. Thank you so much.
The next question is from Antoine Belge of BNP Paribas Exane.
Yes. Good evening to all of you. It's Antoine at BNP. Three questions. First of all, I understand you don't want to talk too much about what Luca may do or not do, but maybe a bit in terms of the timing of how he could maybe provide a strategic update. Should we intend to do this in a relatively formal way, like a capital market day, for instance, or if it's already been, I don't know, during the Q3 release. Any sort of indication on that would be welcome. Second question on the second half outlook. You just printed EUR 916 million of EBIT. I mean, usually there is a bit of a seasonal trend with a bit less in H2.
Also, I think there would be a bit less cost effect in H2 because we are never seeing some of the efforts that started in H2 last year. Also, on your comment that things are only slightly improving versus a single consensus expecting sales down high single digit in the second half. I don't know, do you think that the EUR 1.8 billion in EBIT is feasible, notably with the help of the gross margin, or do you think that EUR 1.8 billion with not a major improvement in July starts to be a bit challenging? Finally, on Bottega Veneta. Trends have slowed a bit, and it seems that it's still the case in July. Can you maybe elaborate a little bit on this? Sometimes when there is a designer transition, there might be a bit of short-term disruption for some reason.
Is there something like that happening at the moment at Bottega? Many thanks.
Thank you, Antoine. As regards Luca de Meo, I think it's not the purpose of this call to make an additional update. We had organized on purpose a call with François-Henri last month when we announced the appointment of Luca. As you know, and I won't repeat what has been already said, Luca is set to take office on September 15th following the general meeting that is scheduled already for September 9. To be clear, of course, Luca has already met with several key internal stakeholders in the group, starting with François-Henri, of course, but also Francesca and myself. He is preparing for his formal arrival. By the way, we are all looking forward to working with him.
Of course, it will be up to him to define his roadmap and to tell you when he will have the occasion to present his ambitions. I think that historically, when you have a new manager on board, there is a time for talking to the market. We could expect that it would be rather in 2026, just giving him the time, even if we are working hard with him, just so that he can quite go fast when he will arrive at Kering. I think we are very, you know, that we have always been very disciplined when it comes to the dialogue with investors and analysts. It has always been the case. There is no reason why in 2026 we would not have a sort of rendezvous to discuss about the ambitions of the group led by Luca.
Regarding the H2 outlook, we are very early in the semester. There are a lot of macro uncertainties, so it's quite difficult to have a clear view. What I can say, and you are through to comment on the fact that we are anniversarying some OPEX cuts that were amplified last year in H2. What I can say at this stage is that we expect EBIT H2 2025 margins to be declining year on year, but much less than in H1.
I take the question on Bottega Veneta. The brand was penalized by the low traffic environment, in particular touristic flows. As Armelle was showing, the brand was very strong in America. That is a market mostly driven by locals, keeps being very strong with locals. The trend slowed down in Europe, in the Middle East, and in Japan, mostly due to low touristic flows.
The brand keeps working on its value strategy. The average price continues to increase. They had a very strong campaign for the anniversary of the Intrecciato that was very much a branding campaign. They have a strong pipeline of launches for the second part of the year, both done by the team. I have to say that we also have very good signs of improvement of performance in certain product categories that are not handbags, specifically ready-to-wear. We expect this to be stronger with the arrival of [Louis], that will present her first collection in September. The transition is going very well, and she's fully integrated with the team.
Thank you. Maybe just a follow-up to make sure I understood correctly. On the H2 margin, they're supposed to be down versus the 11.9% from last year, but not 500 basis points like in H1. Is that how?
Yes. Yes, Antoine. That's correct. Yes.
Okay. Could they still be double digits, above 10%, or? Yeah, yeah, I don't know.
A bit earlier.
All right. Okay. Merci beaucoup.
The next question is from Erwan Rambourg of HSBC.
Hi. Good evening, everyone. Thanks for taking my questions. I'll try three if I can. Firstly, on the tariff outcome, I'm wondering what you can comment on. This 15% that hopefully will stick. How can you deal with this, maybe Armelle or Francesca, in terms of willingness to increase prices in the U.S. or other actions that you might have planned? Secondly, maybe a question for Jean-Marc, I think you mentioned you sold the Tokyo building. I'm wondering what else is in the pipe in terms of priority to deleverage.
And then lastly, for whoever can, but possibly Francesca, any signs of improvement in terms of Chinese psychology as regards to luxury purchases that you're picking up? Thank you.
Thank you for allocating the questions to the speakers. It's all work.
Regarding the tariff, if we understood correctly the recent announcements and we welcome the clarification, the 15% is not that far from the assumption we are working on. We consider that this is manageable through price adjustments. We have already taken some price adjustments in Q2 in some of our brands. Some did it globally. Some did it in the U.S. we may consider a second wave in the autumn because we generally adjust the prices at the moment of the introduction of seasonal collections. We will balance looking at the price adjustment, making sure that we apply it in a smart way, mindful of the consumer sentiment.
When it comes to the real estate things, first of all, I think that we have had always a very agile approach when it comes to real estate. People tend to forget because there is a big focus on the recent acquisitions, but in the past few years, we had already sold some buildings which were not necessarily strategic. As a reminder, in 2014, in 2017, or in 2023, we sold buildings in New York, in Milan, or in London, for a total of EUR 500 million. If we add the one of Omotesando this year, we are talking about EUR 800 million in the past few years. There is a focus on the purchase, but not sometimes on what we did in terms of disposal and management of real estate. When it comes to Omotesando specifically, it's a very good building. It's where we have Saint Laurent.
We think that to own a building in Omotesando is not necessarily strategic. We could have a discussion about Ginza, but obviously, Omotesando is not a strategic place for us. That's the reason why we have decided to sell this building with, to be honest, a very nice gain in terms of sales. Here again, sometimes there is a focus about, yes, you have a loss, but at the same time, if we combine the losses across the years and the gains, I think it is more or less neutral. When it comes to what remains to do, clearly, you know perfectly that we have two buildings on which we are working. One which is the one of New York. Or in fact, we have three. New York City on 5th Avenue. The one in Montenapoleone in Milan.
And there is still the one Parisian real estate asset, which is Castille-Lyon, where you will have sooner or later a Gucci store. Here again, we are working on that. We are making good progress, but we are not ready to make a deal at any price. I think the RD&D was a very smart one and a very efficient one. We will continue to work to strike a deal which does make sense in the long run because you know that we want to keep an exposure to this building. It is not just a sell and lease back in most cases, and we want to remain exposed, but at a decent level. We are working in the direction. I am quite confident that between the second half and beginning of 2026, we will be able to add some additional proceeds linked to these assets.
Regarding China, what we see is that the general economic environment still creates a low consumer confidence. Currently, the rate of saving is very high. The stimulus that has been created has been very specific for certain sectors, and we do not know when they will have an effect on the consumption of luxury goods. What we see is that the consumer is for sure more discerning. They are more disciplined in the way they spend, but they go for quality and higher price points. For sure, a positive effect that we are seeing is on the higher price points, on high jewelry, for example, high watches, both for the jewelry brands or for the fashion brands. Higher-end products, high-quality products are the ones that are performing better at the moment. We still remain positive on China.
We believe that China continues to be a very promising and relevant country for the luxury brands, but we do not know yet when the trend is going to change. It is very difficult to say.
M`any thanks. Best of luck.
The next question is from Edward Alden of Morgan Stanley.
Yeah. Hi, guys. Thank you for taking my question. Armelle, in April, you told us that you expected gross margin to sequentially improve between H1 and H2. Now, obviously, back then, I think maybe you had slightly more optimistic views of the top line. I do not know. If you can update us in terms of what you are expecting in terms of the gross margin trajectory for H2, that would be really helpful. The second point is just to come back on kind of the opportunity to right-size your cost structure.
Not to allocate questions between Jean-Marc and Armelle. I will let you decide. You are guiding for OPEX to be down, if I am not mistaken, 3%-4% year over year in H2 versus 11% in H1. Jean-Marc, you mentioned in your slide that headcount was down 4% year to date. I guess we should not extrapolate that 4% and annualize it. For the remainder of the year, what are you thinking? I am asking the question because, as I am sure you have seen, one of your peers, Burberry, announced a reduction of its workforce by 17%, which is obviously much more significant. Just wondering in terms of how you see the potential reduction in headcount. Out of curiosity, you talk about Brioni, which is doing better. That is great. Are you seeing a return of formal wear, which could be maybe helping the brand?
I guess we had two years of post-COVID where people were focusing maybe more on comfort and so on. Is that a trend? Maybe that is more a question for Francesca, not to allocate questions. Is that a trend you are seeing in the market about formal wear returning to a certain extent? I would be curious to have your views. Thank you.
Eduard, I will answer to you on gross margin. On gross margin, it is true that we were expecting an improvement of gross margin, mostly due to regional mix. Actually, as you see, Asia-Pacific is still declining. All in all, we now expect H2 gross margin to be quite similar to H1.
You also have to keep in mind that depending on the future evolution of the FX rate, in addition to that, we could have some hedging gains if the euro stays at the current level, is very strong, but then we would have some impact on the top line. That could be quite substantial, both on the top line and on the hedging gain in the gross margin, partially offsetting the impact of the top line.
Regarding the cost base, first of all, as you will have observed, we did better than expected in H1. I think in H2, we will continue to work. So far, our assumption so far is that we should be, I think, as you said, Armelle, mid to high single digit. Down in terms of OPEX for the full year, which implies, let's say, a lower reduction in H2.
I can tell you that we continue to work to decrease further. As you know, when it comes more specifically to headcount, you always have a deferred impact of the evolution of the workforce. Considering that we are working based on hiring freeze, some restructuring activities when you have closures of stores, and we are playing also with the fact that there is a natural turnover in this industry. You mentioned a competitor, but what we said is -4%, and it depends on which is the timeframe you are looking at. It is -4% compared to end of the year 2024. It is -6% or -7% compared to end of H1 2024.
That being said, also maybe because we started earlier, if I take the, because Burberry is a brand, if I compare to one of the brands on which we are working on, which is Gucci, we are -22% compared to the peak in terms of headcount, which was at the end of 2022. So compared to end of 2022, we are -22% in terms of headcount at Gucci. It means that today, Gucci, in terms of employees, is below the level of 2019. You cannot just compare what is valid for a brand and what is referred to a group. Of course, we continue to hire people at Boucheron because Boucheron is expanding its network and is doing well. We continue to recruit people at Creed. We continue to recruit people at Kering Eyewear. It has to be analyzed maybe with different granularity and with a timeframe which is different.
What I can tell you is that we have started to consider downsizing and also a different, more efficiency in our organization for a while, and that is the reason why we have been able to reduce already by almost 10% if we compare to last year, the June 30th 2024.
Eduard, regarding Brioni, the trend actually is more driven by higher consumption and desire for elevated casual wear. It is not sportswear. It is not typically formal wear, but it is an elevated form of casual wear, typically knitwear, typically leather jackets, or iconic products that are a little bit in the middle, for example, the Jardigan or the travel jacket that are very iconic for Brioni, that are for sure elegant and high quality, but it is not the typical suiting that we are talking about.
In the suiting area, a trend that is happening very much is the one on the made-to-measure, made-to-order. So again, it speaks to client service and client retention and fidelity.
Okay. Super. Many thanks.
Next question is from Thomas Chauvet of Citi.
Good evening. I have three questions, please. The first one on OpEx, how much of the EUR 500 million of expense removal in the first half is sort of structural and permanent, and how much is perhaps related to the fact that Gucci and Balenciaga have yet to be relaunched under a new creative leadership with obviously investment support? And within OpEx, can you give us more color on the EUR 290 million of non-recurring expenses? How much of that is related to the cost reduction plan, typically store closures?
Secondly, on Gucci, Francesca, you spoke briefly about Demna's first presentation in September and first show in March. Do you expect the products to be launched, presented in these two shows to address an ongoing question, which is affordability, and how to regain some of the luxury consumer that may have been a bit priced out over the last four or five years by the steep price increases we saw in the industry? It looks like the launch of the Giglio bag or the new Marmont at reasonable price points, and maybe that's a way to address that idea. And finally, on Balenciaga, you recently announced the appointment of Pierpaolo Piccioli from Valentino to succeed Demna. It feels like a quite significant change in style, in aesthetics, and perhaps in commercial strategy for the brand. Is that a big relaunch to be expected?
Can you elaborate on this transition to perhaps recruit a different clientele for Balenciaga going forward, and that would lead the brand back to profitable growth? Thank you.
Regarding the OpEx, my comment is that everything we do in OpEx is done for the long term. All the OpEx that we are looking at efficiencies. One that we already mentioned is regarding the network. When we look at the network, of course, we are doing it first and foremost to enhance our brand's perception, the retail experience, and the efficiency of the store. What we are doing is not a one-off because, of course, when we adjust the network, it's for a long period of time.
Another example that I can do is that a lot of the savings that we've done are done through relooking at the organization between the brand and the corporate, within the brand, between the corporate and the regions, and trying to work in a more efficient way. That is going to stay. Another area is procurement. We are looking spend category by spend category on how we can mutualize the way we interact with our suppliers. We are launching group RFP when it makes sense, and that is going to stay for a while. I would say that a very large part of the OPEX savings that we are doing are for the long run, and we are not interested in some one-off. That is the first comment. Regarding Balenciaga and Gucci, what I can say is that more than half of those savings are related to Gucci, for sure.
There have been some savings at every fashion brand over the semester, looking at the organization, looking at the way they work with the corporate, and also with their own organizations.
Regarding the product.
Sorry, I did not answer on the non-current expenses. Just to tell you, yes, this time, it's some of minus and pluses. If I look at the minus, we have booked some non-recurring linked to the impairment of some of the stores and some restructuring charges, mostly at Gucci.
If I may come back to the previous comment of Armelle on the OPEX side, I want to be very clear. If you combine the cost containment we achieved in 2024 and what we're going to do in 2025, it's quite material as a decrease of the OPEX. It means, A, that we have a sense of emergency, that we are taking decisions.
As said by Armelle, there was at the beginning some quick reaction to contain the cost. Typically, in this type of situation, at the beginning, it's a little bit of one-off or something which is less structural. We have started now in 2025 to work on more structural actions, ways of working, re-engineering of the processes, more mutualization, and so on. That is the reason why it's structural. We will continue to work in that direction also in 2026.
Regarding the product architecture, Thomas, you said it yourself. Gucci doesn't need to wait for them now to work on that. The product that you just mentioned, the emblem, the Giglio wear launched before, the team is working on that. For sure, we are addressing some segments that in the past were covered mostly with carryover, carryover that have not been revamped enough and with the lack of traffic.
We need to inject a novelty also at those price points. The bags that you mentioned are exactly hitting these price points and are immediately working very well. Gucci has also, at the same time, the possibility to introduce a product also at a higher price point in leather, for example. What they are now going to do is, in this better product architecture and merchandising product, adding the desirability and the creativity. This has been done with already the presentation in September, and it will be even more emphasized with March, but the team is working on the merchandising grid and the product architecture. Most importantly, certain price points are going to be covered, not only thinking of leather goods or handbags, but also with other categories.
All the work that the brand has been doing, for example, on the silk, building on the heritage of the brand. It is a work that I call horizontal merchandising that goes across categories and not only vertical merchandising, about covering price points within a specific classification. Regarding Balenciaga, you already told in the letter that also Pierpaolo sent out when he was nominated. The nomination of Pierpaolo is a natural evolution. Pierpaolo will build on the aesthetic that is already present in Balenciaga. Our intention is to evolve. It is not to lose the business and the segments that Balenciaga already had, but build on this with, of course, the aesthetic that Pierpaolo will bring to the brand.
Thank you.
The next participant is Oliver Chen of TD Cowen. Sorry about that, sir. Please go ahead.
Thanks a lot. Hi, Armelle, Francesca, and Jean-Marc.
Regarding first question on carryover, a carryover product has been a risk factor with lack of innovation. What is the mix of carryover, and what do you see happening in terms of milestones at the Gucci brand? Second, you commented on traffic at Gucci. Just would love characterizations of the traffic by region, if there are major differences that are relevant there. Third, on the gross margin at Gucci, you had the adverse mix impact. What should we know about fixed versus variable for the Gucci gross margin that we should pay attention to as we model that going forward? Thank you.
Olivier, I take the question on the carryover. One of the most important positive signs that you see at Gucci is how the newness is performing. The share of newness in the business is growing week after week. At the moment, it stands at about 55%.
If we consider it within the handbags, it is even 62%. Another very, very important element that tackles exactly your first question about how do you create new carryover is that within the carryover business. 40% of the business today is already represented by the new carryover that we have introduced in the last two years. The market is telling us that it is well receiving the product that we are putting. To your point, probably in the very past, there was not enough work done to revamp the icons and the carryover. What has been done in the last two years, and in particular in the last year, is for sure proving to be effective. Regarding the traffic of Gucci, there is not a big difference region by region. It is more or less the same. The traffic is declining, and this speaks to brand desirability.
This is what we expect to revert faster with the arrival of Demna and with injecting desirability and creativity into the brand.
Sorry for your question. Gross margin, it is a bit specific. We do not comment by brand.
Okay. Lastly, AUR increases across categories at Gucci. Going forward, will we continue to see ticket up on mix or like-for-like, or what might that lever do? It sounds like traffic and transaction is the main current issue. Thanks.
Yes. It is traffic, and it is a conversion rate. One positive indicator is that we are increasing in the average ticket and the average price. The team is focusing a lot on the execution at the retail level. This is one of our fifth priorities. We are working also a lot on accelerating the injection on newness in the store.
You saw how fast we were able to go with the Giglio bag that was presented in the Cruise Show and was in the stores worldwide, basically the day after and one week later fully delivered. Same for the Mini GG that has also been presented with the Cruise Collection and already delivered. Like I said, also with the September collection, we will be able not only to do some presentation immediately in a handful number of stores, but we have been able to accelerate the introduction of the newness by one month. It goes all together. For sure, we are responding faster to the request of consumer for novelty.
Thank you. Best regards.
The next question is from Louise Singlehurst of Goldman Sachs.
Hi. Good evening, everyone. Thanks for taking my questions. Just a couple of follow-ups, please, and clarification.
I wonder if I can just go back to Francesca's point with regards to the new product. I say this only because it is absolutely crucial, obviously, that we understand how we can probably track progress from the outside looking in. Just to clarify, I think we talked about the fashion show, the full fashion show in March, but there will be newness in the stores in the lead-up to Christmas between September and December. I just wondered if you can talk to us about whether that is more capsule collections, what that means in terms of the stores. Will we see or begin to see a different look and feel in terms of the stores?
My second question, thinking about the working capital and the second half, is the plan still to have a working capital inflow when we think about the full year and what that means for the Gucci inventory? Can that come down again in the second half? Thank you.
As you have seen, we have been working on fashion shows from February. There is not only an injection of novelty in the stores after the presentation of September or the show of March, but there is a constant injection of novelty in the stores, basically every month, starting with the work that has been done for this year, for example, with the February collection that is already hitting the stores. Like I said, with the Cruise Collection, we have been able even to do a sort of see now, buy now on some of the products.
I remind also everybody that before the March collection, there is going to be even a pre-collection in between the September show and the March fashion show that is a pre-fall that will arrive in the stores before the show of March. To clarify, the September presentation is a full collection. It is just not presented with the fashion show. You can expect the normal injection of novelty regularly in the stores. There is going to be also a Christmas capsule that has been already worked on by the team. There is going to be a project for Chinese New Year. I just would love everybody to focus a little bit on the collection of Demna, the collection of another designer.
There is a company, there is a brand, and there is a constant work of all the team in presenting new collection and new product and working on the carryover.
On inventory, what I want to say first is that we have continued to show some progress in each one regarding inventories, especially we continue to decrease the number of products in the inventory by 9%. It is less in value because, of course, the average value of the inventory increased. Now, what I think is important to. Understand is that the quality of the inventory is much better because we are depleting old inventory, and at the same time, we are increasing inventory on the newness as we consider it's extremely important that we have the right inventory for the next collection and the next semester.
All in all, it's a bit difficult to forecast from now how we will end in terms of inventory. What is sure is that we won't have the same benefit in cash flow that we had last year. Because we want to have a balanced view, continuing to deplete all inventories, but making sure we have sufficient newness inventory, especially in the stores.
Thank you, Armelle. It could be an outflow or an inflow at this point, just trying to think about that working capital for the second half.
Yes. Yes, I confirm.
The next question is from Carole Madjo of Barclays.
Hi, yes, good evening. Just one question on my side, please. To come back on Gucci, I think you mentioned there was a small improvement in the U.S. market. Can you come back on the state of the consumer in America, in your view? Any comment there?
Any improvement on the back of all the macro headwinds and volatility we are seeing in the U.S. market? Thank you.
What we see in all the brands and all in Gucci in the American market is recently that our industry is very well linked to what's happening in the stock exchange. It is a little bit more of consumer confidence. There is a better situation with the traffic and a better sentiment of the consumers to come and buy. Gucci, like the other brand, is performing better in America. Like Armelle said, basically, the trend of Gucci in America is very much in line with the one of all of our brands. You saw also in the data of Bottega Veneta, the resiliency of that market.
The next question comes from Charles-Louis Scotti of Kepler Cheuvreux.
Good evening. Thank you for taking my questions. I have three, please.
The first one on wholesale revenues. It seems the cleanup phase is now behind us. What level of wholesale revenue decline should we expect in H2, both for Gucci and at the group level? Secondly, on the stores network, do you believe the rationalization will be completed after the closure of 80 stores this year, or shall we expect further net closures in 2026? Lastly, thank you for all the details on your debt and liquidity. If I'm not mistaken, Mayhoola holds put options with two exercise windows in 2026 and 2027. Do you already have an estimate of the maximum potential cash outflow in 2026 in case Mayhoola exercises its first option during that year? Thank you very much.
On wholesale, yes, you remember that we expressed in February that we were expecting wholesale to decrease by EUR 350 million.
We are confirming from what we can see from now this trajectory, which means that the decrease of wholesale in H2 will be a bit milder. It depends brand by brand. I won't give you the detail brand by brand, but I can confirm that we are still on that trajectory. Regarding closures, yes, there will be some closures also continuing in 2026 and 2027. You mean the network is a living animal, and we will always continue to close and to open. For sure, also, as you know, it takes time, and we are also taking into account the different situation of our leases all over the world. We will continue to make some adjustments to the network in 2026.
Before answering your question about Valentino and Mayhoola, I would just jump on the answer of Armelle about the network. I think we had been very clear.
I think it was part of the speech of Francesca for the full year results that we have a very thorough analysis of the profitability of the network, and more than the profitability, the return on the capital employed. What is sure is that looking at the network we have and also with the ambition to upgrade the network, as mentioned by Armelle in her preliminary speech, I think and I guess that going forward, the net openings or closings, that would be more net closing in 2026 and 2027. For some brands, we have already determined a list of stores that would be whether relocated, closed, or regrouped with an existing store. We will continue to close stores in 2026 and 2027. Now, on Valentino and Mayhoola, that's a question that is asked quite frequently.
I think, first of all, Valentino is a great brand and doing something that has been done by some other brands, which is to clean and to improve the distribution by closing some wholesale accounts and concentrating on the best ones. Thinking about also the fine-tuning of the network, the retail network. In this environment, you can imagine that even if things are okay at Valentino, it doesn't impact on the revenues and on the profitability when you have this process of reshuffling the distribution and also because of the aesthetic transition or evolution. What I can tell you is that the 2026 put option would be based on the 2025 results. I am not, of course, in the shoes of Mayhoola shareholder, but I guess that it would not be the best year to exercise its put considering the trends we see for the industry in 2025.
At that stage, I cannot elaborate more on this question. If you consider what has been the value presented in our accounts as a potential cash out going forward, this cash out is more based on what we see for 2028 rather than the one that would be for 2026. I think that it would be substantially below these EUR 4 billion. Honestly, I think that Valentino, or Mayhoola and Valentino management, are working hard to execute the strategy to deliver a good trajectory for the brand. I think it is not short-term an ambition to sell the stake. Here again, I cannot speak on behalf of Mayhoola.
Thank you very much. Very kind.
The final question is from James Grzinic of Jefferies.
I had two follow-ups, really.
The first one, would it be possible to understand how big the benefit was from higher FX hedge gains to the gross margin in H1? Armelle, as far as FX stands right now, how much do you think that tailwind could be greater in the second half, please? Secondly, to the point on Mayhoola, just to follow up, is there a floor? Is there not a floor that applies to the put option? I just wanted to make sure that we understand the mechanics of that fully. Thank you.
Regarding the FX gain in H1, H1 was a combination regarding the US dollar of a stronger dollar and then a weaker dollar in H1. Actually, the FX gain was quite limited, lower than in H1 last year because we had some loss, I would say. I mean, it was compensating, sitting between Q1 and Q2.
Honestly, it is extremely difficult to forecast the currency in general, so by consequence, to forecast the FX gain for H2. I will not try this difficult exercise.
I cannot, of course, disclose all the details of the agreement with Mayhoola. What I can tell you is that the deal was based on the multiple of EBITDA, and this multiple is the one that has been paid already for the first stake. At that time, by the way, most of the analysts had mentioned that the price was quite fair considering other deals that had been made in the industry. We are sticking to this multiple. The calculation is very basic, I would say. It is an EBITDA multiple minus the net debt or plus the cash position. As you can understand, there is not per se a floor.
So that's just a calculation, which is normal in this type of deal.
Thank you.
Ms. Poulou, gentlemen, there are no more questions registered at this time.
Thank you very much for your interest and for your questions. Claire and her team will be available in the coming days to discuss directly with you any remaining questions you may have. We wish you a beautiful and restful summer, and we will see you and talk to you soon. Have a good evening, and thank you again.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.