Good evening. This is the conference operator. Welcome, and thank you for joining the Kering third quarter 2022 revenue conference call and webcast. 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 Mr. Jean-Marc Duplaix, Chief Financial Officer. Please go ahead, sir.
Good evening to all of you, and welcome to Kering third quarter 2022 revenue call. Starting on slide four, the group once again achieved a very solid performance. Revenue was EUR 5.1 billion, up 23% reported and 14% comparable year-on-year. Scope was not material, the consolidation of Lindberg offsetting the disposal of watches. FX was a nine percentage point tailwind. We carry out a range of actions to nurture the desirability and exclusivity of our houses, capitalizing on their heritage and immense creativity. All the fashion shows they ran for the upcoming season were widely acclaimed and extended the reach and influence of our brands, Gucci's parade of 68 sets of identical twins, Balenciaga thought-provoking mud installations.
Saint Laurent's sophisticated spring summer 2023 runway, and the perfectly balanced Bottega Veneta's show, I'll come back to in a moment, all ranked among the most striking displays on the recent fashion show circuit. We also closed on the acquisition of Maui Jim a few weeks ago, reinforcing the positioning and growth potential of our eyewear activities, the EUR 1 billion business we have built from scratch over just a few years. Turning to slide five, you will find our revenue breakdown by business and region. All segments contributed to growth in the quarter, demonstrating the strength and complementarity of our ensemble of houses. Western Europe and North America together accounted for 55% of revenue at 29% and 26%, respectively. Asia Pacific represented 1/3 of the total. The relative contributions of Japan and rest of the world were pretty stable.
I'll come back on trends by geography in a moment. On slide six, we provide more insight both year-on-year and against 2019. In Q3, our 14% comparable growth represents a slight acceleration compared to Q2. This puts us 28% above the pre-pandemic level, a very consistent performance versus Q2 and the first half. Looking into our retail performance alone, Q3 accelerated sequentially. Compared to 2019, Q3 retail is up 35% above the pace of the first two quarters. On slide seven, let's review our Q3 revenue by channel. Retail, accounting for 77% of the total, was up 19% in Q3. Our global store network was almost fully open during the period. Although operating conditions in mainland China had not completely returned to normal, as you know.
Online sales remained dynamic, up 17% in the quarter, with a penetration of 13% of retail. Wholesale and other revenue were down 1%, reflecting an 8% decrease from our luxury houses, a 23% rise at Kering Eyewear, and 18% growth in royalties and other. Shifting to slide eight, an analysis of quarterly retail trends by geography. Up 74%, Western Europe was the most powerful growth engine. The region enjoyed strong demand, both from local clients and from a sharp rebound in sales to tourists, which nearly tripled year-on-year. On top of intra-European, Middle Easterners and some Asian travelers, Americans came back massively this summer. Western Europe is now 18% above pre-COVID level, although sales to tourists are still nearly 10% below Q3 2019.
Japan pursued its recovery trend, up 31% in the quarter. Revenue in the country is now ahead of pre-pandemic performance, though until very recently, it was generated exclusively by locals. Growth in North America moderated. Revenue was up 1% in Q3, but this represents an impressive 85% increase on a 3-year stack. As mentioned, Americans traveled and purchased abroad, especially in Europe. Overall, the cluster is very much on par with its Q2 trend. Asia-Pacific swung back to positive territory, up 7% compared to a 15% decline in Q2. Mainland China improved substantially, but was still impacted by rolling lockdowns and mobility restrictions, impairing traffic in some locations. In the rest of Asia, our houses delivered very strong performances across both established and more recent markets. Finally, rest of the world also sustained a good momentum.
Let's now look at each of houses, starting with Gucci on slide nine. Q3 revenue was up 18% reported and 9% comparable. Retail grew 9% as well. In Western Europe, the trend was sustained both by local clients and by the return of tourists, notably in Paris, Rome, and London. Gucci posted strong performances in Japan, where its timeless focus resonates particularly well. Against tough comps, North America also faced the increased spend overseas this quarter. In Asia-Pacific, the overall situation improved. Gucci was still disproportionately impacted in mainland China, while rest of Asia kept performing strongly. Wholesale, whose rationalization is broadly over, grew 2%. In line with its strategy of elevating client experience and overall brand positioning, Gucci implemented a host of initiatives this quarter. From a product perspective, new collections were very well-received and together with carryovers, contributed to a material increase in AURs.
The revitalization of Gucci's luggage offering is a success, particularly well-timed as travel resumes in many parts of the world. Gucci is working hard on introducing newness in leather goods to round out its offer on strengthening its men's category, as well as on fully implementing its strategy in mainland China in the coming quarters. This initiative, together with a strong reception given its latest fashion show, are bolstering our confidence in the outlook at Gucci. On slide 10, Saint Laurent had another stellar quarter. Comparable sales rose 30% year-over-year. The house's conquest of local clienteles in all markets yielded sustained growth across the board. Retail was up 38% with strong or even very strong double-digit growth in Western Europe, Asia-Pacific, and Japan. Progress was also solid in North America, considering the dynamics I mentioned earlier. Saint Laurent posted strong double-digit increases across all product categories.
Ready-to-wear led the race thanks to the success of the summer and fall collections. In leather goods, beyond the success of its key carryover lines, Saint Laurent kept up with strong demand for the Icare bag launched in Q2, confirming its ability to address higher price points. The 13% increase in wholesale entirely reflects strong demand for the upcoming seasons. Saint Laurent's excellent showing this quarter, notably with locals, confirms the house's very positive trajectory. On slide 11, Bottega Veneta posted healthy growth in the quarter, driven by retail. Total revenue was up 14% comparable, with an increase of 20% in retail alone, all through a store network that has been stable for several quarters now. Following a much-admired winter collection, the media and the public gave a huge standing ovation to the ultra-refined fashion show that Matthieu Blazy and his team put up last month.
This marks yet another step in the house's effective iconization strategy. The house intensified its communication efforts, reaching new and existing clients now that its ultra high-end positioning is well established and being deployed across all product categories. Bottega Veneta focus on timelessness is paying off in higher AURs, and initiatives underway should further support this strategy. Rationalization of wholesale is ongoing and resulted in a 5% drop in revenue through this channel. In short, Bottega Veneta is diligently implementing its roadmap, and we are confident that the house will amplify its successes across all markets. On slide 12, we have summarized the performance of our other houses. Revenue was up 13% comparable. Retail up 43% drove this increase, and both soft and hard luxury contributed consistently to this trend. At Balenciaga, growth was well balanced across categories.
Leather goods continue to gain momentum, fueled by novelties as well as the iconic Hourglass family. Ready-to-wear was strong, especially driven by men. Alexander McQueen also delivered a robust quarter in the retail, with good progress in its leather goods offer, both newness and pillar lines, and sound growth in ready-to-wear with a renewed appeal of evening wear. Brioni confirmed its rebound in retail, all main regions being nicely positive. In jewelry, Boucheron posted another high-growth quarter, fueled by the appreciation of its lines in high jewelry and jewelry across Western Europe, Japan, Korea and Mainland China. Pomellato also experienced strong momentum driven by Japan and Western Europe. Finally, despite its heavy exposure to China, Qeelin proved resilient in the quarter. Wholesale of the other houses segment was down 25%, reflecting a combination of phasing of deliveries and enhanced selectivity in third-party distribution.
Let's turn to Kering Eyewear and Corporate on slide 13. Revenue was EUR 253 million, of which EUR 246 million from Eyewear, up 23% comparable over last year. Sales were higher in all regions and channels. Once again, Gucci and Cartier were the largest revenue contributors, but together, all the other brands posted sharp increases. The top line also benefited from the successful integration and development of Lindberg, and we are of course looking forward to the contribution of Maui Jim, with high potential is undeniable. Let me now conclude with slide 14. We are pleased with the group's performance this quarter. Solid year-on-year increases, consistent growth quarter after quarter since the beginning of the year, under somewhat unsettled macro conditions are a testimony to our strengths.
Our brands continue to leverage their attractiveness and exclusivity and to benefit from their pursuit of customer excellence and tighter focus on retail distribution. Where it has been fully implemented, this strategy has paid off according to plan, and we are reinforcing it brand by brand across all markets around the globe. At the same time, we are keeping a very close eye on our environment. Our sector might be less correlated than others to overall economic conditions, but that doesn't mean it is completely weatherproof. Our long-term investment plans in our houses and growth platforms are unchanged. We are also ready to rapidly make the right decisions to maintain the group on course in the near term should the need ever arise. All told, we remain confident in Kering's fundamentals, in our capacity to meet challenges, and in our prospects for the coming quarters.
Now with Claire, we are ready to take your questions. Operator?
Thank you. This is the conference operator. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is fr om Anto ine Belge with BNP Paribas Exane. Please go ahead.
Yes, good evening. It's Antoine Belge at BNP Exane. Three questions, if I may. First of all, regarding Gucci in China, is it possible to have the trend for Asia to be slightly negative at 2%? Is it fair to say that China was down double digits? It seems also that September was probably worse. You know, some comments about the initial results from Laurent Cathala. Question number two is about the fourth quarter at Gucci. If we would, if the brand would maintain the three-year stack it achieved in Q3, I think, it would imply a sort of decline of around 10% yea r-on-year.
Is that the right way of looking at it, or three year stacks are not that relevant or are there any initiatives or factors that could prevent sales to be down 10% at Gucci? Point number three, regarding the EBIT margin, I think consensus is slightly below 38%, sub 37.6%, according to Visible Alpha. Do you think it's the right number? I think you had, as you did in the past, that if need be, you would not refrain to invest in the brand. Thank you.
Thank you, Antoine, for your three questions, because you have the right to ask three questions tonight. In fact, you have four question, if I include your comment about the start of Laurent Cathala in China. Indeed, China, in fact, if we look across the board in the industry, or at least in our group, you have a sequential improvement compared to Q2 in APAC, which is of around 20 points or something like this, around that, 20-25, depending on the bra nds.
Clearly, driven by an improvement in China because as we try to explain, as I tried to explain during the speech, in the other countries in Asia, the demand was very strong, and we passed very good figures across the board and also for Gucci in the other countries of the region. Clearly there was an improvement in China, but it means that Gucci is among the brands which is still negative in China. I will not elaborate further in terms of figures, but I think your guess is something which is close to what are the figures while some other brands in the group are back to positive territory. As you can imagine, Laurent started last July.
His first mission was to travel in China, to meet all the teams, to assess what has to be done very short term. He's working very hard to improve the situation. We know and we have been very candid about the situation we have for Gucci in China. There is a short-term action plan which is right now implemented, with a boost in terms of energy in the teams and some work done in terms of display, in terms of merchandising in the stores, plus some initiatives going along with the launch of new products with pop-up activities. Some also more investments in terms of advertising.
Of course, you can imagine that also Laurent is presenting in the coming weeks an action plan for the long term with of course some directions as regard investments both in OPEX and CapEx but still in the envelope globally that we have in mind for Gucci and its trajectory. Now coming to the Q4 obviously I'm sure that a lot of your questions tonight will be about what we see for Q4 in certain regions and globally. We know globally that our brands have built a strong offer and have a solid pipeline of introductions and initiatives, and that's also true for Gucci, as you can imagine.
They are implementing consistently their strategies, nurturing their desirability, engaging with a broad base of consumers, focusing also on local clients. What we know also is clearly that the comparison base is very demanding and in a macro environment, which is clearly unsettled with quite low visibility. We see that there is still a strong demand for luxury goods so far, so it's very difficult to predict. Clearly we have a pipeline of a lot of actions and initiatives to support the business in Q4 for Gucci, but of course, I will not take the risk to comment further about the trends we could see for the last quarter. Finally, regarding the EBIT margin, you are talking about the magic number.
I don't know what's the magic number for the EBIT margin of Gucci for this year. What I know is that, as we mentioned already, we are working as a group to improve, to sustain the trajectory of the group in terms of profitability. It means, in other words, like we do with CapEx, that we have some priorities every year and we know that today, this year, this is really a year of investment for Gucci. We will continue to support Gucci in this effort to recover, to accelerate. As such, EBIT margin is important of course, but we will continue to invest in the brand.
What I can tell you is that for sure, I'm not sure that we will deliver an EBIT margin for H2 that we will be exactly on par with what we had delivered last year. It will be probably below considering the level of investments we are injecting in the brand.
Thank you very much.
The next question is from Edouard Aubin with Morgan Stanley. Please go ahead.
Yeah. Hi, Jean-Marc and Claire. Sorry, Jean-Marc, I know it's a bit painful but as you know, the market cares about the brand. Issue on Gucci, during your CMD, late June or early June or late May, I forgot. You talked about, you know, the new structure you were implementing with, you know, two creative directors, you know, one new marketing director coming from Roger Vivier. The objective was obviously to allow you to kind of walk on two legs, so to speak, you know, keep the fashion-forward characteristic of Gucci, but also develop your timeless, your icons, timelessness and your icons. Where are you in that long-term journey? If you could give us an update, that would be much appreciated.
On the US, I think in the second quarter call, you talked about Jean-Marc about some entry price point being under pressure for Gucci in the US, which obviously was offset by higher price point, you know, accelerating. That's kind of still the case in the third quarter, and to what extent, you know, the US cohort globally is accelerating or decelerating on an underlying basis. Obviously, any comment on the exit rate would be more than welcome. Last one, sorry, on energy cost. There was an article in The Wall Street Journal this week, I don't know if you saw it, but talking about some of your suppliers in Italy, you know, being under pressure, the profitability being significantly impacted by higher energy costs.
you know, how big of an issue is that for you and your suppliers? That would be helpful. Thank you.
Thank you, Edouard. Your last question, the sound was a little bit blurred, but we heard the question, so it's okay. I regret that you don't remember this memorable Capital Market Day. It was in June. What we said during the Capital Market Day, maybe I will elaborate a little bit about the new organization just to clarify. You're right that there is now Maria Cristina Lomanto in charge of merchandising. She started her new role in April 2022. Her attention was really focused on a few key areas. I will mention three of them to begin with.
First, it's very important, Gucci's full return to the fashion calendar as soon as 2023 with six collections. It does imply to work very closely with the design team, the marketing teams, and the supply chain to ensure a unified and very coherent go-to-market capability. The second area is about the further expansion of Gucci's in the high-end offer across all categories, which is one of the axes or one of the key pillars of strategy that has been presented by Marco last June. Of course, some opportunities and sweet spots that we have mentioned, like the men's category and the travel categories, where we believe that we have not yet reached the full potential.
The second part of the organizational reorganization was about the design office, which is, to be very clear, still and fully under Alessandro Michele's direction. Considering the size, the scale of the brand, the expansion of the brand's collection, the expansion in some categories and the full return to the fashion calendar, there was a need to have someone also in charge of the main collection. A long-time trusted collaborator from the team has been appointed as a studio director with a reinforced structure to support the scaling of that business. That's the two pillars we had mentioned.
Of course, one of the all aspects of the strategy is also about timeless, but I will not elaborate too much on that because you will jump on it just to ask for some KPIs. It's not about KPIs. It's a merchandising approach, and you know that the launch of the Beloved lines is clearly part of that strategy. To be honest, so far, I think that when it comes to timeless and the more high-end offer, we start to see very good results in that direction. We had for the launch of all the last pieces of the Beloved lines, with...
We have also now the travel or the luggage business with the launch of the Gucci Savoy Travel line, with a campaign, an advertising campaign featuring with Ryan Gosling. I think definitely the reception is very good, and it's part of the question you had about the US. It's true that in the very important customer cluster or among the high spenders, we have delivered a very solid growth at Gucci. So very good results so far, but the reorganization has been announced only a few months ago.
As clearly mentioned by Marco Bizzarri during the Capital Market Day, it's a long-term strategy that will continue to bear fruits in the coming months, in 2023, and even going forward. Regarding the U.S., I think, if we look now just starting with the U.S. coast, because I think it's very important to start with that, the growth for Gucci, with the cluster in Q3 has been very consistent, with the one of Q2, but of course with the transfer of part of the purchases from America, to Europe, principally. We had a triple-digit growth of the sales to the American clients in Europe.
By the way, we have more or less a triple digit growth with all the different clusters of tourists in Europe, including some Asian tourists. What we see in the U.S. is that also I heard a lot of things about the decline of the business in the U.S. globally speaking, but what we see is that first the traffic is still up for our brands in the U.S., including for Gucci. What is clear also, and I had already mentioned it during the H1 call, is that among for certain categories of products which are maybe more appealing to a more aspirational clientele, there is some more pressure, more or less conversion, so the traffic is up but with an impact on the conversion rate.
Globally speaking, the U.S. quarter is up. As I was mentioning before, very good results with the high spenders and the top clients. Finally, regarding energy cost. Since I don't read English, I didn't read the news, the article you are mentioning. More seriously, I think that yes, clearly what is happening is that during several months not only our suppliers, but we have also been protected by a long-term contract with fixed costs. Now we start to see with some new contracts the impact of the energy increase not only the gas but also the electricity. The contract we are signing now, we have a massive increase of the cost per unit in a way.
As such, of course, it does create some more tension for our suppliers. You know by the way that in the past few years we have integrated more the production and the design process, all the process before the production. Clearly, as usual, we will support our network of suppliers. We did it several times, including during the COVID-19 crisis. Of course, we will absorb part of that inflation in the production cost. You know that we have some more inflationary pressure now for several months, both in terms of transportation costs, in terms of salary. You know also our capacity to absorb price increases through some more efficiency in the production process.
We have some room to find some savings, and of course we can still also increase the prices even if, of course, there are some other considerations when it comes to price increases. Definitely, yes, there is some increase of the cost of goods sold. so far in a proportion that we can manage.
Many thanks, Jean-Marc Duplaix. Sorry, one very small clarification. When you say that traffic is still up in the U.S., you're referring to Q3, not Q4, right, so far?
Yes, I'm talking about Q3. Yes, that's it.
Okay.
I will not comment on Q4.
Thank you.
The next question is from Louise Singlehurst from, Goldman Sachs. Please go ahead.
Hi, Jean-Marc Duplaix. Hi, Claire Roblet. Thank you very much for taking my questions. If I could just have two, please. Firstly, just to follow up on China, is there any risk of any excess seasonal stock at Gucci or any clearance activity that will need to take place given where we are towards the end of the year after autumn/winter? My second question, you must be very pleased with the strong result from Europe, particularly for Saint Laurent. When we look at Gucci, so the question I have is the performance between, or any details you can give us between the domestic and the tourist driven demand. Is it fair to assume there's been a slowdown in the domestic consumer? Obviously, it's difficult to read from the numbers.
They're big numbers, but obviously just trying to look between the two different cohorts. Thank you.
Yeah, thank you, Louise. As regards the level of inventories or the risk of overstock, obviously you know that in the past few years we have made a lot of investments to improve the efficiency of the supply chain and the logistics. We have strongly improved our processes from manufacturing to sales planning, replenishment and logistics. We are in a position where we can adapt more to the current situation. On top of that, you should remember that at the end of 2021 we had a quite clean situation in terms of inventories at group level. We had a quite sound start of the year.
In fact we are comfortable with the fact that we may rebuild inventories in some regions, especially considering the ongoing elevation of our brand, starting with Gucci, and the share of carryovers we have in our collection. Of course, China among the regions will be the region where maybe the situation of inventories will be where we have the highest days of inventory. Considering what I said before about the share of carryover, I think it's a situation that we can manage. Of course, I expect, let's say compared to the very sound situation we had at the end of 2021, probably an increase of the days of inventory, globally speaking, at the end of 2022.
So far, it's under control. Claire, do you want to take the question about domestic demand and
I can take this one. Hello, Louise. I'm not sure I will comment specifically on Gucci, but where you're right is that when we look at European cluster on Q3 year-on-year versus Q2 year-on-year, there is a slight deterioration, and that's true, I would say, for most of the brand, if not all the brands. Still very strong trend, but a little bit of moderation, once again, sequentially year-on-year. When we look on the three-year stack, it's pretty consistent, I have to say. Q3 stack, three-year stack on Europeans versus Q2, once again, at group level, is pretty consistent.
I would just add that domestic demand remained very sustained. Clearly there was a boost also due to the tourism during the summer. Looking at Gucci and the other brands in the group, the trends with locals were very good all along the summer.
Thank you very much. The next question is from Zuzanna Pusz with UBS. Please go ahead.
Good evening. I have three questions, please, if possible. The first one, on YSL. Can you maybe tell us a little bit more about the drivers of the very nice strong momentum and acceleration sequentially? Is it the, you know, let's say, high exposure to Europe? Any incremental color on that would be very helpful. Secondly, maybe on pricing. Can you share with us any pricing plans you may have short term or perhaps next year? I know it's not necessarily always easy to comment on that because FX is moving a lot. Clearly, given that the US dollar strength, Europe is way cheaper than the US dollar sort of linked region.
I'm just wondering if you're planning to address it by perhaps raising prices in Europe by quite a bit short term or perhaps next year. Finally, sorry to press on that, but to come back on the Gucci margin. Now, I understand that you're obviously managing the margin as a group. But also just in June, you provided your long-term plans for the brand, and you said that the margin should return to 41% and that from current levels, we should be seeing a gradual improvement year-on-year.
Maybe if you don't wanna comment specifically on H2 margin, at least if you still expect the margin to be improving every year from last year or if this may have a different sort of shape. Thank you.
Thank you, Zuzanna, for your three questions. As I mentioned before, you have the right to ask three questions, and there is no good or bad question, so you can push all the buttons you want. Starting with Saint Laurent, I think that it's a very sound development of the brand. It's very balanced across geographies and very balanced across categories. I think we see an acceleration at Saint Laurent because also Saint Laurent has been very strong to reconfigure, to restructure its ready-to-wear offer. You may remember it happened a few years ago already, with some very hard work done, in terms of structure, architecture of the collections, both in terms of product, but also in terms of prices.
The same with the shoes. At the end of the day, definitely this work start to pay off now, since for a few quarters. Now the growth is very well balanced across all the categories. I would mention also this capacity of Saint Laurent to have very strong iconic lines of bag, but also to introduce strong newness. I mentioned in my speech the Icare bag, which is definitely a success, a very nice bag, helping also Saint Laurent in its target to have a balanced structure also in terms of prices. Also, it's true that it's a brand with a very good penetration with locals in some key markets like Japan, Europe and the U.S..
The brand is still benefiting from a lot of traction in this market. It's also a well-balanced growth if we split between volumes, price increase, product mix, and with a favorable impact on the average selling price. Plus a small contribution of store openings, but you may remember that we have started to moderate the growth in terms of store footprint. It's not the key driver of the growth. It's just an element among other and quite a small one. Yes, you're right. When it comes to pricing, it's not easy to answer because as we mentioned before, the environment is quite unsettled.
You have a risk of high volatility in terms of currencies. I think that we had explained during H1 call what we did as regards prices for Gucci and for the other brands. We have not increased the prices during Q3. I will not comment about what will happen in Q4 and in 2023. You know perfectly that each time we are introducing a new collection and newness, this is an occasion to work on the average selling price and to play with the mix. We are very pleased with the development of the average selling price at Gucci during Q3. That does demonstrate that we are going in the right direction.
We have a very substantial contribution of the average selling price. I will not comment further on the pricing. You're right to say that we have a situation in terms of geo pricing and price gaps between the region, which is not necessarily sustainable in the very long term. Short term, we don't feel the need to make something, and we will see going forward what will be the decisions of our brand. EBIT margin, I think partly I've been quite clear about what we could expect for H2, saying that we will not be at the level of EBIT margin of the second semester of last year, considering the investment we are making in the brand.
When it comes to the potential of the brand, of course, I will not change a word to the slide that has been presented by Marco Bizzarri during the Capital Market Day. To say that the brand can reach 41% margin at EUR 15 billion of sales is something which does look, I think, quite reasonable and sensible, and quite logical if you do the math. Considering also the expansion of the retail contribution, you may have noticed that we have now 91% of our business at Gucci in retail, completely exclusive. In fact, I'm sorry to insist, it may be weird, but I'm sorry, we are managing a group, and sometimes I would like to relook at the performance at group level.
Still, I think the trajectory we have in mind for our group is to continue to improve the profitability, whatever the level of investment we have to make in our brands. We would be very comfortable if Gucci would plateau a little bit in terms of its margin going forward concerning the investments we have to make, then to see an acceleration later in the trajectory, considering that the, not the landing point, but at least the milestone of 41% at EUR 15 billion of sales is something we believe we will reach in any case.
That's very clear. Thank you.
The next question is from Chiara Battistini with J.P. Morgan. Please go ahead.
Good evening, Jean-Marc Duplaix and Claire Roblet. Thank you for taking my questions. I actually have just follow-up. One is on your wholesale strategy. If you could give us an update maybe by maison on how to think about wholesale, especially into next year, and notably for Saint Laurent that keeps on growing while we were expecting at the beginning of the year a decline there. Then maybe just to touch on the other houses division, Jean-Marc Duplaix, sorry. If you could give us any color by brand and notably within the brands by category. Within jewelry, if you could comment on sort of what kind of performance you're seeing by price point. Are you seeing an outperformance in the higher price points within jewelry, or is it broad-based across all the different price points?
Thank you.
Yeah. Hello, Chiara, this is Claire. I mean, going into next year, for wholesale, it's a bit, maybe a bit too early, so we'll probably be happy to update a bit later. Now, I can maybe comment on the shorter term views for the end of the year. Yes, you're right. We were expecting Saint Laurent to turn negative under the impact of rationalization probably a bit earlier. The brand is effectively implementing the strategy, but with strong demand, I would say, with the accounts that we keep. So, that turns out to be still a positive in Q3. At some point, and maybe Q4 will be the starting point, the wholesale at Saint Laurent should really moderate and turn slightly negative.
BV, I think it's pretty clear. I mean, you have seen the moderation coming gradually, and I mean, nothing to change on the message now for Bottega. For Gucci, as you've seen, wholesale rationalization is completed, so it's a channel that should grow very modestly, I would say, at least in Q4. Then for other houses, that will make the link with the question that Jean-Marc will take on other houses. I mean, this -25% in Q3 is a combination of pretty different impact. You had a bit of phasing impact, so difficult to extrapolate that onto Q4.
You had clearly some rationalization and conversion to retail, which is going to continue, for sure. Then you had other, I would say, smaller impact from Hainan, et cetera, Russia for Brioni. That's a mix of other smaller impacts.
I would say going forward, as the strategy is also for other luxury houses to get more and more control of a distribution, that's probably also where you should expect wholesale to moderate or, I mean, still be in the negative, at least Q4.
Bouncing back on the answer of Claire, clearly, this was a quarter of rationalization among some of the brands. I think about Balenciaga and Alexander McQueen. As mentioned by Claire, it's not only about rationalization, but we have been very clear about the group's strategy, aiming at focusing on exclusivity in terms of distribution. Conversely, retail did extremely well during the quarter. Some of our brands are benefiting compared to the three big ones fr om some space expansion, both from opening in 2021 and 2022, with the full year impact for the ones of 2021.
It's true also that we are very pleased to see that starting with Balenciaga, the brand is growing very nicely in all categories with a great success of the leather goods collections and products. We are very pleased to start to reach this balance across categories, both in terms of growth, in terms of sales in absolute terms, and also the rebalancing to also more formal pieces in all categories, shoes and ready to wear. Very good traction still at Balenciaga, definitely.
Alexander McQueen also is doing very well in its network, with also a very encouraging improvement in the leather goods category, which was so far a quite small category in terms of contribution at Alexander McQueen. Still a very good performance in ready-to-wear, which is really a strength of Alexander McQueen. Of course, Brioni was impacted by you know, wholesale, especially by the lack of Russian business. In retail, very positive trends across all geographies, following also a simplification and a rationalization of the offer, turning back to basics and fundamentals wardrobe at Brioni.
When it comes to jewelry, it's very difficult to say because our brands are especially Boucheron, which is a brand with the most comprehensive offer, meaning from jewelry pieces to high jewelry pieces. They are penetrating very successfully many markets. In fact, when they are entering some markets like we did recently in China or in some other Asian markets, the success is across all categories. I know that there are some debates about what's the health of each category or each price point in the jewelry segment.
I think that considering the investments we have made in our brands, especially launching also the high jewelry collection at Pomellato, all the different price clusters are achieving great results in our brands, which is due to the expansion of our brands. By the way, also, Boucheron is very strong in Europe historically, and thanks to the return of many tourists in Europe, we have been able to sell quite expensive pieces, especially in our boutique, Place Vendôme, that I invite you by the way to visit if you have the occasion. Very difficult to say. Of course, there was something, a specific situation for Qeelin in China.
As we mentioned, Qeelin proved to be very resilient, despite the situation in China. The offer of Qeelin is more concentrated on certain price clusters.
Thank you very much. It's very clear. Thank you.
The next question is from Luca Solca with Bernstein. Please go ahead.
Thank you very much indeed, Jean-Marc Duplaix and Claire Roblet. One question about organization development. You announced at the most recent Capital Market Day major changes at the top of the Gucci organization, both at the headquarters in creativity and in China. Sometimes those changes at the top involve an impact on lower ranks. I wonder how buttoned up you feel that the Gucci organization is deeper down the company and if that is done and so you have the power of this organization on the ground. Maybe a question on the impact of COVID-19 in China and how this has created a headwind.
The impression we have, looking at traffic and talking to some of your peers is that this impact was significantly smaller in the third quarter than in the second quarter. I wonder if you would confirm that. Maybe a third question on Russia. We've seen that most luxury goods groups keeping their stores and their staff there, continuing to pay rent and continuing to pay salaries. If that's what you're also doing and would you be prepared to continue to do that if the situation doesn't improve for the medium term? Which is a big question, I wonder. Thank you very much indeed.
Thank you, Luca, for your questions. The first one is not an easy one. You know that I'm just a poor CFO, and I'm not a guy from a consulting firm able to tackle all the dimensions of your question. However, I think that we have been very candid in the past few months to say that, of course, when you have such a magnitude of change, this is a change in the long run. Of course, there will be further changes in the different layers of the organization. Of course it would not happen overnight.
Definitely, and maybe to mitigate a little bit your comment, Gucci is not just a small company, so you have already in place a very strong and solid organization with a lot of talents in the different regions, with people who are able to relay quite rapidly and efficiently the directions given at the headquarters. On one hand, I think that the organization of Gucci is more mature today than it was a few years ago. As a reminder, we have multiplied by two the size of Gucci since 2016. We have clearly put in place a lot of strong organizations. On the other hand, of course, you're right.
When you have a change, of course, it can take some time, and we have already mentioned, and I was answering to that question before that, the changes will bear fruit not only in 2023, but it will go further. Of course, in the roadmap of Laurent Cathala, there will be some additions of positions, some changes to be made in China. As regards to the COVID in China, I think it's obvious that we had an improvement compared to Q2. I did my math, and I was looking at the trends we saw in APAC and more specifically in China comparing to some other peers.
At the end of the day, if you look at the sequential improvement in terms of trends, it's very similar across the board, so it does demonstrate that the situation has improved principally through higher traffic. Still, compared to last year, we are negative in terms of traffic with a higher conversion still, and of course, some other improvements in terms of retail KPIs, including the average selling price and all the other different KPIs. Also, I would like to mention that beyond traffic, you have more and more clienteling activities with different ways to sell the products in China that have been put in place now since COVID, and that does pay off also.
Clearly despite there was an improvement, as I was mentioning before, we don't believe that we are back to a totally normal situation, concerning the disruption, we are still in the country. Lastly, concerning Russia. You can imagine that it's not a very simple question. What happened is that since the beginning of the crisis, we have decided of course, we have applied strictly the rules, so we have closed our stores, even if, as you know, we had not a huge exposure to Russia and especially not through direct operations. So we had a few stores at Gucci and one store at Boucheron, so we have closed the stores early March.
We are taking the time to assess the situation. We continue to pay the rent, because we abide by the contract by the way. We continue to pay our people, but going forward, we'll continue to monitor the situation, and we will take in due time the right decision, if needed, considering also that we need to continue to protect also our brand and trademark, in the country. To protect the trademark, it does imply at least some presence, in the country. We will measure what's the best balance, in terms of business decisions, but we don't expect that we'll be able to operate again in the country, short-term or midterm. We are prepared to take some decisions if needed.
Thank you very much indeed.
The next question is from Thierry Cotta with Société Générale. Please go ahead.
Yes. Good evening, Jean-Marc and Claire. I have three follow-up questions, two wide and one much more narrow. First, you mentioned the uncertain environment from a macro perspective. We're all wondering what's gonna happen next year with the big clusters, US, European and Chinese obviously. My question would be not to ask what you think is going to happen, but which of the three populations concerns you the most, and why? What action or plans are you putting in place in preparation of that for next year? My second question would be on inflation. Do you expect Kering or the sector as a whole to behave differently from the overall mid- to high single-digit price inflation that we see in the Western world?
I mean, is there any reason why the sector should be widely different in terms of its price action, retail price action, different from the overall retail price inflation? Lastly, much more precise on Saint Laurent. I'm not sure if we understood, so they did 38% retail growth in Q3. Did you say that the growth was pretty balanced between price mix and volume? So did you imply that we have over ten points of price, over ten points of mix, and over ten points of volume contributing to that almost 40% retail sales growth? Thank you.
Thank you for not asking about my vision for the future, because I would be unable to tell you something very serious. I'm not a chief economist. To be honest, we should have a longer-term view on the potential of each region. Clearly, as we mentioned before, the U.S. has been, or America has been, the engine of the growth for the industry, or at least for the group, in the past quarters.
We believe that even if there would be some hiccup in terms of growth profile for the country, if you look now at what is the penetration of luxury in terms of spending, luxury good spending, if you look at the number of stores per inhabitants, I think that definitely the U.S. market has changed for the luxury industry. Short term, I don't know what will happen, but we have clearly no short-term plans to reduce or to review our ambition for the long run in the U.S. and in America, which is still a very promising market.
Beyond the percentage of evolution, if we look at the conversion rate, the sales density and so on, the business is still flying in the U.S., obviously, and if you look at the U.S. cluster. I think that the long-term potential of the region in the U.S. is very strong, very promising. Let's forget what will happen in the meantime, because of course, we know that this is an industry which could be exposed to a certain extent to some macroeconomic hiccups, stock exchange evolution, and so on. China, for different reasons, as you can imagine, that's also the same. I think the potential is clearly unchanged for the region. We see that there is still a lot of appetite for luxury goods in China.
Of course, we could argue that because of COVID, because of maybe a slowdown of the economy, unemployment among the young generations, there will be some impact, in a way or in another on the sector. I don't see why overnight the potential of the region would have changed. I think that we should keep calm and carry on in the country to continue to implement our strategy and our action plans. In Europe, clearly, I think that this is probably where the region where we have more question marks, of course, considering the economy's inflation and the geopolitical situation. However, we see that during the summer and during that quarter, we have been able to grow both with locals and tourists.
In a normalized environment, tourism will resume in Europe with the addition of Chinese hopefully in the coming years. So at the end of the day, I think we have been right because you may remember that after the COVID, you had a lot of kind of questions about should we downsize the network in Europe? Should we stop opening in Europe? We were right to continue to implement our action plan and our roadmap. So I think definitely, I think Europe maybe short term is where we have some maybe more question marks. But in the long run, I think the three regions, for different reasons and with different profiles of growth are still very promising for the industry.
Yeah. When it comes to the composition of the breakdown of growth at Saint Laurent mix, volume, price, I mean, we're not going to elaborate further, Thierry. Jean-Marc mentioned it's balanced. Yes, there is a good traffic at Saint Laurent. There is also good conversion, so there is a volume component. But then there is a mix component, and the Icare is the most obvious component in increasing the mix. And then there are pure price increase. I think that's the sufficient answer.
You had a question about inflation and what type of impact that it could have on the pricing. I think as I mentioned before, it's too early to say what we're gonna do. I think, of course, historically, our industry, our brands have been able, through the introduction of newness or through pure price increases, to absorb the impact of inflation. It's even more needed in a context where you have such a price gap, but you can imagine that the question is, if we increase the prices, it would imply to increase more the prices in Europe to reduce the gap, which is currently the region which is the most exposed to inflation.
It's an equation which is not easy to solve. You could imagine that that's not the right place to address further that question that will be treated in the coming months by our brands.
Thank you.
The next question is from Thomas Chauvet with Citi. Please go ahead.
Good evening, Claire and Jean-Marc. My first question is on China and Gucci. You mentioned, Jean-Marc, that you know the new CEO was going to think about a long-term plan. On this long-term plan, are you expecting that the brand innovation will take more time and might be a bit more challenging in China than in other markets? Secondly, on wholesale and the rationalization for Bottega Veneta and Saint Laurent, could you say what the overall percentage of those are being eliminated from the start to finish, and when would you expect that program to end? Finally, on beauty at the Capital Market Day last June, you've explained the different options for potential internalization of beauty of the license managed by Coty.
Has the deterioration of the macro environment, you know, potentially impacted your thinking on maybe the timing of such a move might not be right? Could you confirm that the expiry of the Gucci license is beyond five years? Thank you.
Thank you, Thomas Chauvet. You know, your first question about the speed or the pace of adoption in China of some more sophisticated or, let's say, more elevated products, that's not easy to answer because there is no magical recipe there. First of all, it's not as if we were starting from scratch. We have historically in China a broad base of clients which are already top spenders, high spenders, and buying, let's say more timeless products. The elevation strategy, it's not something which is completely new for us in China.
However, as we mentioned during the Capital Market Day, and that's normally the purpose of the Capital Market Day, to explain what we're gonna do and the time it will take. We have been, and Marco has been very clear about the fact that it's a long-term objective, and that it will take some time, and we don't expect that Laurent, despite all the efforts, he's making, will fix the situation overnight. I think, let's be very realistic. It's a long-term objective with some, let's say clearly, quick wins that we'll get, and also some, let's say, more long-term actions.
What we can say typically is that the Blondie bag, which is obviously when you look at the design and the quality of the leather, quite timeless product, and a more elevated product, it has been very successful, successfully received in China. It was where clearly we had a great success. I think definitely it will take time, but we are very confident that we have the team in place. We have the products, the offer to be successful in the country in the long run. The question was about wholesale, I think, at BV and
The number of stores.
Saint Laurent.
Yeah, I think, I mean, you know, Thomas, we already provide some good indication, I would say short term about the trajectory of wholesale, so I don't know really, what it will bring to give you indication about the number of doors. Yes, we are reducing the number of doors and that will be reflected in the wholesale trends.
Last, just maybe we are running a little bit out of time, so we will take two last questions, but if you can maybe stick to one, two maximum questions for the next ones. Now regarding beauty, as you perfectly know, in this industry, the beauty business is a natural extension of the brand's territory. We have been very encouraged by the success we have demonstrated in the eyewear segment. I think we have demonstrated that we could create a lot of value for the group and our brands. Currently we are building a team to assess the opportunities and different options that I think Jean-François Palus mentioned during the Capital Market Day.
You know all what are the different options. We will take few months to decide what's the best solutions. We had mentioned that we had some short-term termination as regards certain licenses operated, while for Gucci it's a more longer-term expiration time. As you know, and concerning the confidentiality of the agreement, I cannot say more, but it's more a long-term or mid to long-term termination date for Gucci.
Thank you.
The next question is from Li wei Hu with CICC. Please go ahead.
Wei Li, your line is open.
Yes. Could you he ar me now? Yep.
Yes, we can. Please go ahead. We can hear you.
Yes. Bonsoir, Jean-Marc and Claire. Thank you for taking my question. The first one, I think you are being modest about secret recipe, because when I look at strong performance in APAC, it's been doing quite well. It's actually 60% more than around 70% higher than 3Q 2019 numbers when looking at Q3. It's also a remarkable sequential acceleration. Just wondering, you know, without revealing any business secrets, what are the things that we have done right for Saint Laurent in APAC, and can we apply that recipe to other Maisons in the group? That's my first question. The second one is about Gucci's crossover with Palace. Some compare it to our competitor's crossover with Supreme, a few years ago.
Just wondering, what does that crossover tell us about Gucci's future strategy as well as its targeted clientele? You know, any change in that or any, you know, directional strategies would be very helpful. Thank you.
Hello, Wei Li. So I think Saint Laurent, well, the recipe is to some extent, and Saint Laurent, as you know, is a little bit less penetrated in APAC, and especially in mainland China, compared to some of our other brands. That being said, the brand is now it's performing extremely well, and that's not since only this quarter, but the brand is really performing extremely well in mainland China with very strong growth. Yes, you're right, the brand is also now resonating very well. I mean, not only now, but resonating very well in many other regions and countries in the region. I would mention maybe Korea.
Well, clearly, I mean, the sophisticated approach, et cetera, of Saint Laurent is really now working. What is a bit, maybe, a bit new, to some extent is that it's not only resonating on leather goods, but clearly on all the product category too. I think there is a mix of penetration which is different, and then clearly the sophistication of the product offer and the very, I mean, high desirability of the brand clearly participate.
Bonsoir, Wei Li. Let's say that one of Gucci's unique attributes is clearly it's a strong generational appeal. It's also this capacity to have some collaboration which are developed, positioned very carefully, and they are highly, let's say, elevated positioning with a strong fashion edge at the same time. A price point that reflects the quality because all the products, whatever the collaboration, are entirely made in Italy. I think we are talking here about capsule collections. It's a way to animate our stores to clearly entertain our clients. Anytime we have a collaboration, you have pros and cons among the people.
At the end of the day, they are all generally completely sold out. They are very well received by our clients. By the way, the Palace Gucci collaboration is available only on Vault, which is a very innovative approach we have to sell products and to showcase some collaborations and very edgy ways of playing with the brand. The distribution is very concentrated. It's only on Vault. I think it's a good way to create some sort of animation around the brand.
Thank you very much. Appreciate it.
The last question is from Rogerio Fujimori with Stifel. Please go ahead.
Hi, Jean-Marc and Claire. I'll be quick. Two quick ones. First on Gucci, could you talk a little bit about the balance between volume, price, and mix contribution for Gucci's comparable growth in Q3? In terms of product category performance, any highlights, anything to call out in terms of leather goods relative to shoes and ready-to-wear in retail? Thank you.
Yeah, thank you, Rogerio. In fact, as you could guess, of course the answer to the question is not an easy one to answer in the sense that, of course you have a lot of contrasting situations depending on the countries. Traffic, as I was mentioning before, was up in almost all the regions, with the exception of China, as you can imagine. Conversion was good in some countries, but in some countries deteriorated a little bit. As a result, globally speaking, the contribution of volume was very, very minimal at Gucci, and the bulk of the growth was driven by the price.
When we think about the price, it was probably, and of course you can imagine it's quite a rough estimate, but something around two-thirds, let's say, the mix and partly due to the price increases we had passed during the first semester. It's really due to the work which is done by the brand in terms of mix, and it's very important to remind this, in all regions, the AUR has increased. And across all categories, by the way. It's not one category driving the growth of the AUR. It's across the board. When it comes to the sales by category. You can imagine that two situations that have impacted a little bit one category.
It's about the situation in China, which is a market which is more skewed towards leather goods, of course, and also maybe somehow a sort of slowdown with some more aspirational customers buying some small leather goods or belts. At the end of the day, even if all the categories were growing during the quarter, the leather goods segment grew a little bit below the average. However, within that segment, that category, you have also some contrasted situation because we start to see some traction on the travel or luggage category. We had very successful reception of some newness in handbags, but definitely leather goods was developing well, but below the average and belo w the ready-to-wear and the shoe cate gory.
I will mention also that all the categories we have mentioned historically as pillars to develop the brand in some high-end segment, like the high jewelry, which is not a big one in terms of contribution, but very important in the strategy of Gucci. Gucci did extremely well also. Very pleased with the sales by category. It will end that Q&A session. Thank you all for being on our call, for all your questions and your interest for Kering. As always, with Claire and her team, we are available to answer any question you still have after that very comprehensive call, and continue this conversation until our next scheduled meeting in February to discuss our full year results. I will wish you a very nice evening. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect.