Welcome to the Kering 2025 third quarter revenue conference call and webcast. Please be advised that today's conference call is being recorded. As a reminder, all participants are in listen-only mode. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Armelle Poulou, Group Chief Financial Officer. Please go ahead, madam.
Good evening to all of you. Welcome to Kering 2025 third quarter revenue call. I will start with comments on the period, and we'll be joined by Jean-Marc Duplaix, our COO, for some concluding remarks before we take your questions. Starting on slide four, the quarter ended with a series of bangs in the form of highly rated fashion shows and presentations with three debut collections at our four main brands. At Gucci, Demna's La Famiglia and its presentation through a short movie, Tiger, stand out as a bold creative statement. Reimagining Gucci's codes through a modern-day prism, the collection reflects the varied facets of Gucci's personality incarnated by A-list performers. At Bottega Veneta, Louise Trotter 's inaugural collection opened a new chapter, overlaying a confident vision to the house's artisanal heritage. A subtle reinterpretation of the intrecciato motif and other house codes resonated strongly with audiences.
Pierpaolo Piccioli gave the fashion world a refined version of Balenciaga, balancing couture craftsmanship with modern designs and accessories. Last but not least, Saint Laurent staged another powerful show set against the Eiffel Tower. The collection reaffirmed the brand's core identity and showcased a fresh dimension through spectacular silhouettes and innovative materials. All four collections drew wide acclaim and attention, boding well for their rollout in H1 2026. Bottega Veneta, Saint Laurent, and Balenciaga were among the most viewed runway shows with significantly higher livestream and replay views versus last year. Gucci, despite not presenting a runway show, achieved exceptional media visibility and generated record engagement and positive reaction across digital platforms. On slide five, you will find the key figures for the third quarter. Revenue was down 10% reported and 5% comparable, with a significant five-point negative FX impact.
The 5% comparable revenue drop comes after a 15% decline in Q2. Of this sequential 10 percentage point improvement, only about 1/2 of it is attributable to the easier comps. Looking at retail dynamics, all regions contributed to the sequential improvement. North America and Western Europe posted the best underlying momentum. In terms of KPIs, the drag from traffic moderated with some regions doing better than others. Continued increase in AUR, driven by mix, as well as higher average tickets, provided some buffer to the drop in volume. I would also like to mention that full-price stores performed best, our brand continuing to gradually reduce their outlet footprint and assortment. Online revenue, for their part, started to stabilize. On slide six, you have Q3 revenue by segment. All our segments improved sequentially compared to Q2.
In terms of magnitude, Gucci and the Other Houses posted the best improvements, although starting from a lower point. Bottega Veneta confirmed its positive momentum on a high convex. Saint Laurent's performance started to recover. The improvement in Eyewear and Corporate reflects an acceleration at Kering Eyewear. Our Q3 revenue breakdown by region evolved from 2024. As a percentage of the mix, Asia-Pacific dropped 2 points and Japan 1 point. The rest of the world was stable, while Western Europe and North America gained 1 and 2 points, respectively. On slide seven, let's move to the Q3 top line by channel. Retail, accounting for 74% of revenue, was then 6% comparable, a significant quarter-on-quarter improvement. Our footprint at 1,758 stores showed a net decrease of 55 units since year-end, of which 14 net in Q3. This excludes Creed integration of its China distribution back in Q2.
Gucci was the largest contributor to our network optimization plan, with a net decline of 8 units in the quarter and 26 over the first 9 months. As you know, our strategy concentrates on fewer but higher-quality locations. It also entails gradually downsizing our presence in outlets with 2 additional closures in Q3. Wholesale and other revenue, accounting for 20% of the total, was then 2% comparable. Wholesale revenue at our luxury houses dropped 11% in Q3, primarily due to the strategic downsizing of this channel and softer order intake. While these factors continue to weigh on performance, their impact is progressively moderating. In absolute terms, wholesale dropped more than EUR 330 million year- to- date. We are in line with our planned trajectory for the year that implied a minor decrease in H2.
We are comfortable with our current wholesale setup and number of doors and do not expect any material impact from rationalization in 2026. This decline was partly offset by growth in wholesale at Kering Eyewear and Beauté, up 5% comparable, and by a 1% increase in royalties and other revenue. On slide eight, a closer look at comparable retail performance by region. Overall, it continued to be affected by soft tourism spending, while domestic consumption demonstrated greater resilience. In Western Europe, Q3 improved sequentially, down 7%. Local demand, accounting for 40% of the total, was the key driver. Tourism spending also improved from Q2, but to a lesser extent. North America turned positive, up 3% from a 10% decline in Q2. Sequential improvement occurred across the board, with Saint Laurent and Balenciaga back to growth, Bottega Veneta confirming its strong momentum, and Gucci's drop now just 3%.
Looking at the American cluster, it was nearly flat in Q3, marking a notable improvement over Q2, although a bit less than the region. Japan, down 17% comparable in Q3, improved on the back of easier comps, but was still the region most impacted by weaker tourism spending, while local consumption proved a touch better than in Q2. Asia-Pacific declined 10% comparable in Q3, a nine-point sequential improvement. Better trends in the region were driven by mainland China, Hong Kong, Macao, but also Korea. However, the overall improvement is in line with the easier comparison base. The Chinese cluster was then high teens, substantially better than in Q2 and H1. In the quarter, more than 30% of spending by Chinese customers took place outside of their home market, and close to 80% of their overseas spending remained in Asia, including Japan.
Finally, the rest of the world swung back to growth, up 2% comparable in Q3. Moving to our houses, starting with Gucci on slide nine. Q3 revenue was close to EUR 1.35 billion, down 18% reported and 14% comparable. Retail was then 13%, 10 percentage points better than Q2, driven by North America and Western Europe. AUR was up across categories, mainly through mix, supported by newness introduction in handbags, and average tickets also increased, partially offsetting a milder drop in traffic. Leather goods started their recovery. The injection of novelties, initiated last year and accelerating since, has begun to pay off, particularly in handbags, where we are seeing promising early signs of stabilization. This rejuvenation should gradually strengthen Gucci's carryover base.
From the emblem line to strategic revamps of Marmont and Ophelia, and the highly successful launch of Giulio in May, alongside Mini GiGi and recent introductions such as Beatrix and Sienna, Gucci's product offering has been significantly strengthened, enhanced in terms of quality, and rejuvenated across all price points. With the La Famiglia presentation in late September, Gucci has started regaining its fashion authority, reaching a broader audience, including younger customers, and refreshing existing relationships, notably with top clients. As you know, the looks were available only in 10 stores for two weeks, so this will not change our revenue profile in Q4. Women's and men's ready-to-wear accounted for the bulk of the sales. La Famiglia also supports traffic in stores and cross-selling opportunities for the fall-winter lineup. The full Famiglia collection will hit the whole network from January onward. Wholesale was then 25% in the quarter.
Turning to slide 10, Saint Laurent. Saint Laurent Q3 revenue was EUR 620 million, down 7% reported and 4% comparable. Retail was then 2% comparable, but was up, excluding outlets. North America turned positive, and Western Europe was only down 3%. The house confirmed its high desirability, and new collections were very well received, with both ready-to-wear and shoes up double digits. In leather goods, the revitalization of key lines, such as Lulu, and recent additions to Icar are yielding solid results. The acceleration in innovation and the fine-tuning of the product architecture are firmly on track. Wholesale was then 16% in the quarter, unfazed and further impact from rationalization. On slide 11, Bottega Veneta's revenue came close to EUR 400 million, down 1% reported but up 3% comparable.
Retail remained a key driver, up 5% comparable, supported by sustained double-digit growth in North America, despite high comps, and positive trends in Western Europe and the Middle East. Asia-Pacific was nearly unchanged, and Japan was moderately down. Growth was fueled by locals and high-end clients, as well as a continued AUR increase. Ready-to-wear and shoes were the fastest-growing categories, and the launch of the Campana handbag delivered promising results. The value strategy, combined with strong cultural content and an efficient mix of global and local communication campaigns, continued to reinforce the brand's positioning. The acclaimed debut show of Bottega Veneta's new creative director paved the way for a next stage of progress at the house. Wholesale declined 9% on a comparable basis, fully in line with the selective distribution strategy. Our other houses here on slide 12 had revenues of over EUR 650 million on a comparable basis.
They were up 1%, with retail unchanged and wholesale up 5%. In soft luxury, our houses also delivered sequential improvements. Balenciaga sharply reduced the gap with last year, thanks notably to positive sales growth in North America, but all regions and product categories did better. Compared to Q2, McQueen reduced its year-on-year shortfall, with sales of women's ready-to-wear up and a reinforced handbag lineup. Brioni sales were up, boosted by solid double-digit retail increases in key regions. Jewelry was a particularly bright spot this quarter, up double digits. Boucheron's expansion in the U.S. continued to pay off, and the house posted positive retail and wholesale performances in other regions as well. Pomellato also had an excellent quarter, helped by retail up in most regions, with strong showings of Kilo lines and the new high jewelry collection.
Dodo recorded another solid performance, and Qeelin achieved impressive growth rates across Asian markets. On slide 13, a focus on Kering Eyewear and Corporate, with segment revenues of nearly EUR 450 million. At Kering Eyewear, comparable sales were up 7%. All regions, apart from Japan, turned in positive results, with particularly good performances from Maui Jim and Lindberg, as well as Cartier. The expansion of the portfolio continued thanks to the contract with Valentino, which will lead to a first collection of solar and prescription frames for spring/summer next year. At Kering Beauté, Creed's quarter primarily reflects differences in the calendar of product launches. The new Oud Zarian fragrance reached the network in early September and is well received. The other highlight of the quarter was the introduction of the Balenciaga collection of 10 high-perfumery women's fragrances that recorded a hefty sell-out level.
This wraps up my comments on the quarter, and I will turn the phone over to Jean-Marc for a few words of conclusion.
Thank you, Armelle. Hello to everyone on the call. As you have seen, the third quarter has been quite an interesting period, during which we started seeing positive signs of inflection. Some were helped by easy comps, others clearly reflect early impacts of our actions. Numbers are one thing. Another, the acceleration of our initiatives to regain our footing and more broadly set our strategic priorities for the coming years. On that front, we have not been sitting on our hands. Luca's arrival has re-energized the organization. He has met with dozens of managers across the group and across regions. We are all working together on developing our strategic plan for the next years. As you know, we should unveil it in the spring of 2026.
I don't think I will be spoiling the announcement of that plan when I tell you that our number one priority is to reignite the top line. From that standpoint, the progress we made this quarter is encouraging, as is the response to the collections and launches that Armelle mentioned. Clearly, work on the product offer of all our houses ranks high among our strategic priorities. On top of that, as we told you we would, last February or last July, we are accelerating and amplifying our cost and efficiency initiatives. We are further right-sizing the store network and focusing on durably improving sales density. We are enhancing the productivity of our marketing investments, and we are using every available lever to reduce our cost base. Solid progress has been made on all these fronts, and we are keeping the pace.
We also concentrate on cash generation, and we have launched a group-wide task force headed by Armelle to sustainably optimize inventory and working cap management. Our task is to implement structural solutions to the group's challenges and reduce our sensitivity to cycles. In this endeavor, there are no secret codes. We are assessing every aspect of our houses, from brand positioning to client excellence, as well as the role the group should play in such areas as supply chain, sales through optimization, or customer relationship management. Speed is of the essence, but we are also fully aware that some of these actions will take longer than others. In the meantime, as you have also seen, we have been able to deliver on some key strategic initiatives. The announcements we made on Sunday to join forces with L'Oréal to boost the beauty potential of our houses represent a major step forward.
This alliance with a global industry leader, a firm with which we share values and have a long-standing working relationship, secures the growth of our brands into beauty at an attractive valuation. As part of the alliance, Creed also gets to integrate into a bigger portfolio, demonstrating the unique attributes of this house and ensuring its next stages of growth. Finally, our plan, joint venture with L'Oréal in luxury longevity and wellness, enables us to combine our strengths in an area that is sure to reach new milestones in the coming years. The deal with L'Oréal will also have a highly positive impact on reducing our debt leverage and other top priorities. Pushing back by two full years, the exercise of the put option for the remaining 70% of Valentino enables us to focus on our existing activities at a time when they require our full attention.
We are continuing to explore real estate transactions along the lines of what we have already done. As in any negotiation, it would be premature to put a date on them, but we are absolutely confident in reaching a favorable outcome sooner rather than later. A lot has already been done. We will not stop here. We are looking forward to the coming months and to sharing our progress with you. Before we take your questions, I have an important announcement to make. This conference call, number 48, is the last one under Claire Roblet's guidance, as she will soon be taking new responsibilities within the group. Claire's successor will be announced shortly and will be joining us in the coming weeks. I wish to take this occasion to give Claire a warm thank you for the 12 years she has spent leading Kering's financial communications.
She has done a spectacular job in good and in less good times. We intend to maintain the very high standards she has helped establish and to continue earning the trust of the financial community. Claire, thank you from the bottom of my heart. On that note, we are ready to take your questions. Operator?
Thank you, ladies and gentlemen. We will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the star key. Please ask your question as distinctly as possible and put on mute all devices apart from the phone you are using to ask your question. First question is from Chiara Battistini, JP Morgan.
Hello. Good evening. Thank you very much for the presentation, and thank you very much from my side to Claire for all the work together over the years. First question, maybe on North America, there was a particularly strong read across the board, not just for one single brand. Can you give us more color? Can you talk a bit more about what you've seen with the American consumer throughout the quarter between trust and conversion, and also whether you're seeing new consumers coming, young Americans and maybe aspirational consumers coming back, or rather the high net worth individuals and returning customers across the different brands?
The second question on the Beauté transaction, I was wondering, are you now happy with the initiatives you've put in place between beauty and real estate in terms of addressing liquidity constraints on the balance sheet, or are you sort of revisiting all options, including potentially other brands in the portfolio? With this beauty transaction and the cash inflow, should we be thinking about possibly also the urge of cost savings, easing to stabilize profitability and availability of cash, or cost savings also remain a key focus at the moment? Thank you.
Thank you, Chiara. On North America, we had a sequential improvement that occurred across the board, much beyond the compares. Happy to see Saint Laurent and Balenciaga back to growth, and Bottega Veneta confirming a very strong momentum in the region. In terms of consumer, traffic is improving, but the growth is also helped by the fact that the AUR is going up through mix. In terms of customers, I would say still a good resilience of the high-end customer, but also maybe some good performance on the e-commerce that is generally a channel where we see more aspirational customers.
Regarding your question about the Beauté transaction and its implications about what we're going to do with the portfolio and the leverage, first of all, I think, and I'm sure that there will be some other questions during the conference about the transaction, but the rationale behind the transaction was not driven by the leveraging ambition that we had. I think it was, at the end of the day, a very win-win deal in the sense that it first fulfilled completely our strategic objectives, as well as the ones of L'Oréal. Of course, it does contribute massively to decrease the debt of the group.
That being said, we had started the process of optimizing the structure of our balance sheet that we will not give up in the sense that, as I said, we continue to work on the refinancing of the real estate, which was something already as an ambition when we bought the assets two years ago. Nothing's changed on that side. When it comes to the portfolio, I want to be very clear. We'll review, of course, in a very open manner, as we always did, the relevance of the assets we have in the portfolio. I want to be clear that when it comes to Kering Eyewear, because I read some articles on that, Kering Eyewear is a core in the strategy of Kering, is doing extremely well, is the leader on its segment. You can see that the performance in Q3 was more than robust.
We are very pleased with the investments we have in Kering Eyewear, which is instrumental in the development of the group. Beyond the portfolio, when it comes to the savings, we are working on with, under the helm of Armelle, who is doing a brilliant job on that front. To be honest, as I said, we keep the pace because the idea is not to cut the muscle or to touch the muscle, but it's really to be sure that what we are doing and where we are investing, it's always bringing results and return. There is no reason to stop there. I think it's really a good window for us in this period for the industry and for the group to continue this work of streamlining the organization to chase for the maximum of efficiency.
Next question is from Ed Aubin, Morgan Stanley.
Good evening, Armelle and Jean-Marc. Congratulations, obviously, for this very encouraging development. Jean-Marc, I just wanted to echo your comments on Claire. A huge thank you, Claire, for your time, your patience, and your professionalism. You will definitely be missed. Armelle, if you could please come back on the, it looks like, but maybe I'm wrong, that there was some gradual improvement during the quarter in terms of the trends. If you could comment on that in terms of September and what you've seen so far in Q4 in the Golden Week, that would be question number one. Sorry, just to come back on the sale of the beauty unit to L'Oréal, just to talk numbers to the extent you will be willing to share any.
I think some of the players have indicated that the cosmetic sales of Saint Laurent is about EUR 3 billion versus Gucci at about EUR 500 million. It looks like there is a really huge opportunity there to grow the business. When you look at that, should we be aware of any fundamental structural reason why Gucci in the medium to long-term cosmetics business should not be more or less the same size? Obviously, Saint Laurent has a bit more heritage there in terms of perfume and cosmetics, but that would be one. The last one, which is quite important and maybe the most sensitive, is for the investors to judge about the merit of the transaction. Obviously, it would be helpful to understand what type of royalty fees are going to be paid by L'Oréal. I think the industry norm is about high single digit to maybe sometimes 10% of sales.
Again, I don't know what you're going to be willing to share, but if you can just give us a little bit more color in terms of the structure of the deal. I understand that Saint Laurent, the fees are substantially lower than that today that you're getting from L'Oréal. Any comments would be much appreciated. Thank you so much.
September performance was in line with the quarter. July was weaker, but it was a month with the first conveys. August was the best month, and then September was in line with the average of the quarter. You know, in terms of current trading, it's very early in the quarter. I'd like also to remind you that the conveys in Q4 is much sharper than in Q3. That being said, retail trends in key regions are in line with Q3, but be mindful that October shows the easiest comparison base in the quarter.
When it comes to the size or the potential size of the beauty business for our brands, this business should encompass, at the end of the day, if you look long-term, fragrances, makeup, and to a certain point, the more mature the brand is, skincare. Of course, I cannot disclose any figure. I think that maybe you got some figures from L'Oréal management. It's true that we consider that if you look at the profile of the luxury brand, I would say that we know that the beauty category, if we think in terms of retail price or penetration of the market, should be higher than the one we have currently or that we had historically for Bottega Veneta and Balenciaga.
That's the reason why we decided to repatriate these brands and to internalize the business with the success we know because, you know, you may remember that we had very successful launches and we are very pleased with what has been done so far by Kering Beauté. We can imagine also that Gucci brand would deserve, let's say, a higher penetration on that segment, especially if you look at the ranking of the fragrances in different geographies. I think we need to develop more of this business across the board for our brands and that's the rationale behind the transaction with L'Oréal. For sure, I think all the brands, relative to their respective size, have the potential to grow quite massively, with, of course, an incremental level of royalties for us.
It does make the transition with your last question, on which, of course, you can imagine I will disappoint you. As we always did with Coty, being very careful about not disclosing any contractual obligations, we will not disclose what is the content of the contract we signed with L'Oréal.
Okay. I expected that. Thank you, Jean-Marc.
Next question is from Oliver Chen , TD Cowen.
Thanks a lot. Claire, it's been really wonderful to work with you as well. Congrats on the next steps. Thanks, Armelle and Jean-Marc. We appreciate it. I'd love, one, you mentioned early signs in handbags and also carryover. What are the early signs you're seeing? Can you accelerate the flow? You've done that in the past in terms of working very quickly there. My second question is on traffic. Is traffic continuing to be fairly volatile? Given that Tiger was such a success, should we expect traffic to get better? It sounds like you're doing a great job with AUR and managing conversion very well. Third, in your prepared remarks, you mentioned reduced sensitivity to cycles.
I would love for you to let us know what you mean there, in terms of, you know, we've seen so many cycles between hard luxury and softer luxury, as well as thinking about aspirational. Also, beauty is a great category, but it's a great deal you're conducting in terms of partnering with a world leader. Thanks a lot.
Regarding handbags, you know that we've done a lot of work since the end of 2024 by reintroducing many new lines in the offer at Gucci, but also at Saint Laurent. The performance that we have on newness in handbags is very positive. We've been suffering from the underperformance of carryover that was offsetting the very good performance of the newness. We are on handbags coming to a point where it equals, and we are very happy to see the performance of the handbags at Gucci stabilizing this quarter. There will be, of course, a lot of new introductions in Q4. You know some of them that you've seen during the cruise show in France, and of course, some other in 2026. The trend is very positive. In terms of %, you know in the mix, you have some seasonal effects.
At the moment, I would say in handbags, at the end of September, we were at more than 60% of the sales in handbags were coming from newness. Of course, the newness from last year is now feeding the carryover base. Regarding traffic, traffic improved sequentially during the quarter. It's still largely impacted by Japan and APAC.
Yeah. I think when I mentioned in my pitch, cyclicality, it's not only a question of the mix of activities we have in the group. By the way, even if the beauty business is no more internalized, what we hope and what is the bet is clearly to increase the level of royalties, which is a solid contribution in terms of EBIT, as you can imagine, and to exploit the full potential of our brands in that segment. In any case, we'll still benefit from this cycle of the beauty business. The hard luxury does represent still a quite substantial part of the business, not yet at the full potential. If you combine the sales of our jewelry brands, but also the jewelry businesses of our fashion brands, we start to have a quite substantial business.
It's clear that also our jewelry brands are quite relevant in the different segments of jewelry, meaning high jewelry, fine jewelry, and more accessible jewelry, with also this capacity to absorb some shocks in terms of demand, especially when aspirational demand is weaker. Behind this also, there is the work that we have started at group level and in each brand. That probably, and surely, by the way, Luca will present more in depth and more in detail during next spring. It's a journey that we have started, but clearly, there is the ambition to accelerate this journey, which is to rely more and more on science to be stronger in terms of predictions, in terms of merchandising, in terms of supply chain, so that we can gain in efficiency and to be less, let's say, exposed to aspirational demand, to be stronger in terms of carryover lines, replenishment strategy.
That's the reason why we have always said that in our industry, it's a combination of art and science. Clearly, even if we have made some progresses in the past few years, we need to accelerate to be sure that also we have, and that's the spirit of what I was saying about what the group could bring to our brands. It's also some expertise that we will have at group level to push our brands to do better in that direction, which is to be more disciplined in terms of step-through and things like this, which are reducing, obviously, the risk of cyclicality.
Yeah. Okay. That's really helpful. One quick follow-up on mainland China customer. How would you characterize what you're seeing now? Are you encouraged in terms of rays of light and stabilization, just color on what you think is happening in that dynamic market? Thanks a lot for everything.
Consumer spending in mainland China is still not very supportive, but we are seeing some sequential improvements. We are working on the product offers, the retail network, and things are progressing. Of course, we will continue going into Q4 and next year. Things are going in the right direction. We are seeing still some polarization in the customer, but we are progressing in the right direction.
Best regards. Thanks.
Next question is from Antoine Belge, BNP Paribas Exane.
Yes. Good evening, Armelle, Jean-Marc, and Claire. Thanks for all these years of collaborations. Three questions, if I may. First of all, I think you updated a bit the amount of stores that were closed, first of all, at the group level, but at Gucci. Could you maybe comment a bit, giving like not anecdotes, but when you're closing, not only maybe a store in China that is quite close to another, you know, like how much of the business are you recouping? Are you quite encouraged that you're really creating, not losing too many consumers? What's your, obviously, improving the cost base? I understand that it's not a one-year effort, and because I think you're probably waiting for some leases to expire. Net-net, compared to, let's say, the fleet at Gucci at the peak and maybe two years down the road, how many stores could end up being closed?
My second question on the sort of overall group EBIT for this year. In July, you had mentioned that gross margin in H2 could be quite supported, notably by FX hedging elements. You had given a very precise target for OpEx. Given that Q3, and correct me if I'm wrong, was probably ahead of your own expectations, are you deciding maybe to spend a bit more on OpEx, or are you happy to see consensus, which I think was at EUR 1.7 billion of EBIT, maybe creeping up to EUR 1.8 billion on the fact that also trends seem to be quite good at the beginning of the quarter? Finally, on beauty, EUR 4 billion seems to be a good number for disposing beauty, but I guess it's a combination of two things. One, you know, selling the current business and then probably evaluating what could happen in the future.
Is it possible maybe to have an idea, especially of the, I mean, are you going purely on the Creed and existing beauty business? Are you going to have to post a loss on asset disposal? If that, what is attributed to that, is less than the EUR 3.5 billion you paid, or actually, that's not the case, and you managed to get an even higher price than you had paid initially? Thank you.
Thank you, Antoine. Regarding the store closure, as I mentioned, we are progressing, and we have, of course, 14 stores in the quarter and 55 year to date. As Alpha Fit roughly is attributable to Gucci, what do you mean in terms of recouping the business? It varies from one store to another because it depends on the location. It depends on the store. I could say that generally, we recoup between 30% and 80% of the business. We pay a lot of attention. We generally move the sales assistant from the previous store to the next store. We make sure that we call the clients. We invite them to the new store. I must say we are quite satisfied with the dynamics. It would have to be measured more in the long term, but we are seeing good dynamics in that front.
If I may, I will add that going forward, we will continue to work on the network rationalization. Here again, we will have an occasion to be more specific already during the full-year results, but even more during the spring investor meeting. This is an ambition to continue to look at the network, to consider what are the stores which are the less profitable or delivering the lowest returns. We want to concentrate on some key locations and not to distract our brand with too many locations to operate because also it has an implication sometimes, which is to increase the structure and the costs associated with the structure to manage all these stores. We knew, and I think it's among the weaknesses that we have acknowledged in the past few years, was probably that we went a little bit too far in terms of expansion of the network.
Without providing any figures, you can assume that in the two coming years, we'll continue to rationalize quite drastically the network.
Regarding your second question, I can confirm that we are delivering our plan on cost efficiency. I can confirm the indication that I gave in July, which is that we expect OpEx to be done mid to, I think, a little bit in the full year. Regarding gross margin, here again, I can confirm that we expect gross margin full year or H2 to be at the same level of H1 at constant currencies. Of course, if currency rates stay where they are today, there will be a hedging effect. That will be a tailwind in the gross margin. All in all, you have to keep in mind that FX and hedging combined could have a negative impact up to EUR 50 million in the EBIT. More generally in the EBIT, I also can confirm that H2 EBIT margin will be declining year- on- year, but much less than in H1.
Regarding the price, you said that EUR 4 billion was a good number. That's your assessment. I think that if we reach a deal with L'Oréal, it is because we were thinking on both sides that that was a good number. It's a comprehensive deal, through which L'Oréal and Kering are becoming long-term partners in beauty. This deal encompasses the sale of Kering Beauté as a company with all the subsidiaries and all the activities. It means, in other words, that the sale of Creed as a house, the fact that we are granting the Bottega Veneta and Balenciaga license to L'Oréal. In the price, there is an option or the right to grant the Gucci license, of course, at the expiration of the license with the current terms and conditions we have with Coty. To make it simple, it's Creed plus two licenses plus an option to grant a license.
We don't split the price so far. What I can tell you is that in terms of capital employed at group level in our balance sheet, the capital employed attached to the beauty business is below EUR 4 billion. You take it the way you want, but at the end of the story, it will be a net gain before tax for the group. The recognition of this profit is something we need to continue to work on because from an accounting and tax standpoint, there will probably be a need to allocate the price. What has been negotiated is a global price. I think it's a good price for both parties considering the ambitions we have on both sides for beauty brands, but also for the joint venture because don't forget that in the deal, there is a joint venture which is very promising.
All right. Thank you very much.
Next question is from Zuzanna Pusz, UBS.
Thank you for taking my questions. I'd also like to say thank you so much, Claire, for all of the years and all of your wonderful help. I agree, everyone will really miss you. Three questions from me. First of all, on the Chinese consumer, in case I missed it, I don't think you commented on the sequential performance of the Chinese consumer. I was just wondering if you had seen any improvement. I think that was sort of the key surprise from one of your peers. If you could tell us a little bit, maybe especially for Gucci, how that cluster has performed. Secondly, on the store network rationalization, just to follow up because Jean-Marc, you mentioned that, if I understood correctly, for the next two years, we should still expect some further rationalization.
I remember you mentioned in the past that the space would be flat despite some store closures because the existing stores will be made bigger. I just wanted to confirm if that's still the case. Finally, just a follow-up on current trends, I guess I wanted to understand, I mean, the comparable because we don't know the comparable basis across every month. I just wanted to understand because you mentioned August was the best. September was in line with the quarter, which surprised me a bit because I would have thought it would be better given the, you know, sort of a little bit more excitement around Gucci.
I'm just trying to understand, is it reasonable given that in Q3, you had seen an improvement ahead of the comp and you are seeing comp getting tougher, but is it still likely that Q4 is going to be better than Q3 or that improvement ahead of the comp is sort of a bit slower now and we should actually expect sales to be weaker then, just to get a rough idea around that? Thank you.
Thank you, Zuzanna. The Chinese cluster improved slightly sequentially for all the brands. The improvement is driven both by the domestic market and by the tourist. We saw improvement on the tourist, but still a double-digit negative trend in all regions, especially in Japan due to the higher comp base and also the less attractive price.
Yeah. As regards to store rationalization, I think our position has evolved, to be clear, in the sense that it's not a secret to say that the sales density is not on par with our expectations, and I would not dare to say on par with the competitors. There is a need first to recover in terms of sales density. It does mean, in other words, that of course, if you look brand by brand, maybe it's difficult to say that all the brands will see both a reduction of the store count and of the square meters. Globally speaking, at group level, we envisage to reduce the total surface, even if probably the reduction will not be exactly at the same level in terms of % than the total number of stores because still some brands in the group deserve to have a decent size.
If we take, and it's always the same example for many years, Bottega Veneta, it's true that now considering the growing share of ready-to-wear collections and footwear and the success of these collections, we need, in some cases, to have larger stores. We have not enough flagship for this brand. Even for Balenciaga, we may have some situations where we will need to consolidate in a larger store. Overall and directionally, over two years, there will be a reduction of the number of stores and of the square footage.
August was the best month of the quarter on each comp, and September was in line with the performance of the quarter. It's true that we launched La Famiglia product in September, but it was only 10 stores. You know it cannot change completely the picture on the September performance. Going forward, what we see for Q4 is that, of course, you know consumer confidence is uneven. There is a lot of uncertainty. From what we see so far, I would say that we could expect that Q4 sales decline year- on- year could be in the same order of magnitude of Q3, despite a tougher comp base.
Thank you. Just to clarify, basically, despite the tougher comp base, can we expect, is it across the group or for Gucci specifically, Q4 to be in line with Q3?
It's for the group.
For Gucci? Sorry, I'm being very demanding today.
I'm sorry, but I want to answer brand by brand.
For the last one of Claire, you could show some indulgence.
Okay, thank you so much.
Thank you.
Thank you, Zuzanna.
Next question is from Thomas Chauvet, Citi. I'm.
Good evening, Armelle, Jean-Marc, and Claire. Claire Roblet, sure, thanks to you for over a decade of hard work, great partnership with the analysts. You'll be missed. Thanks again. Three questions, please. One on rightsizing and two on L'Oréal Kering transaction. On rightsizing, if we look at your luxury houses, we exclude Eyewear, we exclude Beauty, your 2025 revenue will be more or less one-third lower than at the peak of 2022, so just three years ago. You say, Jean-Marc, in your concluding remarks, reigniting the top line is the priority. Until then, is there further rightsizing of the cost base that's needed at the Kering holding level, at the individual brand level? Anything concrete, maybe you and Luca and Armelle have started working on beyond what you've already initiated at the end of last year and the distribution footprint rationalization you've just talked about?
Secondly, on L'Oréal, first on the rationale and the opportunity or maybe the missed opportunity. When you took over the Safilo license 10 years ago, ballpark, my understanding is you thought you would do, in the long run, a better job than your license partner in terms of distribution, marketing, production with the right people as long as you learn about this métier. I guess you delivered on those promises. You said, "This is core. This has critical mass." Now, when it comes to Beauty, what was the trigger in the last year or so that made you think you wouldn't be able to replicate the same success as you did in Eyewear, to give up maybe so quickly after creating this division? Especially, you could integrate the Gucci license in just three years. Where do you think your lack of competence is relative to L'Oréal? I'm curious about that.
Thirdly, on L'Oréal and numbers, is EUR 4 billion the net amount you expect to cash in in H1 next year? Are there any other deductions or additions to that amount we need to be aware of, particularly who will pay for the potential early buyback of the Coty license? Will you redeem early some of your existing bonds with that cash? Thank you.
I don't want to be too specific on your first question because I will not enter into the details of all the things and all the initiatives we have started with Armelle, but also with the HR teams, and also under, of course, the leadership of Luca. What I can tell you is that in the last two years with Armelle, we had already started to tackle what could be tackled rapidly and to grab all the low-hanging fruits in terms of savings. It was easy to do in a way. What we have started to encourage clearly by Luca is to look more structurally at the way we operate, not only in all the corporate organizations at Kering level, but also in the brands, but also when it comes to big platforms like IT or logistics. We know that we can chase some efficiency more.
I think what we have started now is something which is more structural, which is to look at the ways we are working. It will continue during 2026. We expect with some gains, and sometimes also with some reinvestment. You know, bouncing back to the first question we had at the beginning of the call from Cara, of course, there is some cost-cutting, but there is some reinvestment. We need also to recruit some talents in the group. I think we will make savings, but we will also try to also boost the efficiency of the organization. Sometimes it will imply to recruit some people to invest in new technologies. For sure, yes, we will continue to work on the rightsizing of the organization. I already mentioned the discussion around retail, which is part of the process of being more efficient. What's the rationale?
To be honest, I will start by saying that we are very proud of the job that has been done by the Kering Beauté team. They did a terrific job. The integration of Creed has been very successful. The launches they made at Balenciaga and Bottega Veneta were absolutely at the top and outstanding with a very good reception. In a way, we have been so successful that clearly it has triggered a lot of also appetite from the market and from our competitors. It is also our duty as a management to regularly review our strategic options.
It's true that at a point, you know, feeling that there was some appetite in the market for our activities, we just started an analysis and discussed with the board because at the end of the day, it was a board decision to see if we could pursue our journey on a standalone basis, but if we had also some other routes to go, especially in a market which is probably a little bit tougher currently for the beauty business. In terms of risk and reward analysis, whatever the success we had, and we were confident that we had a very good team at Kering Beauté, and we could have pursued our standalone way quite successfully.
If we look at the math and we want to go faster to avoid also capital, if we want to optimize capital allocation, considering that it's a quite capital-intensive business, probably more than the eyewear business, we decided to look at the different options. It was a process that accelerated more recently, but it's a process that started before, and that was clearly decided by François-Henri so that we can move in that direction without taboo. It was fully supported by the board. Clearly, with the energy and the vision of Luca, we have been able to accelerate and to strike a deal so very recently. That was the rationale behind this move. Clearly, you know that when we made the move with Kering Eyewear, at that time, the Gucci license with Safilo was already one of the leading licenses in the eyewear business, even the first one.
We had quite rapidly a critical scale. We knew that it would be completely different with the beauty business. It was really what we call in the business school a strategic dilemma now. We made all the pros and cons of each solution. The reason for taking that way was not because we were disappointed by the job done by the team, because I think they were above expectations in terms of delivery, and Creed was on par with the initial business plan. I will not comment further as regards the price that has been paid. So far, the plan is to wait for the expiration of the license. We will see if at the point there will be an opportunity to discuss with Coty. So far, as I said, there is an option, and we will see at the end of the license what will happen.
Regarding your question about.
The EUR 4 billion. I'm sorry. Go ahead, Armelle. Sorry.
No, sorry.
Please go ahead.
Yeah. Maybe just Armelle or Jean-Marc on that last part. EUR 4 billion is the cash-in flow in H1 2026. As per the press release, there's no delta ultimately on the cash flow. It's EUR 4 billion. When you say.
EUR 4 billion, plus or minus minor adjustments that you have already in the deal, because when you sell a company like Creed and Kering Beauté, naturally, you may have some adjustments depending on the working capital situation or what you know in an M&A deal.
When you say there's an option for the Gucci license, that's captured, that option is valued within the EUR 4 billion?
Yes. It's a comprehensive valuation, as I told you. The option is, in a way, probably in a way valued as an option.
Okay. Thank you.
Next question is from Anne-Laure Bismuth, HSBC.
Yes. Hi. Good evening, Armelle and Jean-Marc. Also, thank you, Claire, on my side, for a great collaboration and hard work. I have three questions, please. The first one is on Gucci. The Demna presentation and film is very U.S.-centric, it seems. Do the Chinese react to it? Maybe if you can comment about the performance of Gucci during the Golden Week. My second question is about the wholesale performance. What could we expect by year-end for all the brands, and should we see a further decline in wholesale next year, or have you done for the key brands, especially Gucci? Finally, concerning Balenciaga, the recent Balenciaga stores are big and Demna-driven, and as a consequence, not in line with the new direction of the brand, given the limited financial means, or will you prioritize the CapEx allocation? Thank you very much.
Regarding La Famiglia, you know it was presented in 10 stores all over the world in every region. It's true that we had a very good response in the U.S., but also in Europe, and also to mention in Japan, especially with local Japan press.
We have already a pretty good response in China, maybe not with us to the same extent as the very strong one we had in the U.S. Regarding the Golden Week, you know, consumer spending is not very supportive in mainland China. Overall, this year's Golden Week is not changing the picture, even if some brands are posting better results than last year. For wholesale, we are confirming our indication that wholesale should decrease by EUR 350 million, maybe slightly more, over the full year. It decreased already EUR 330 million year- to- date. For next year, we expect this number to, we expect wholesale to stabilize as we have done most of the rationalization of the doors. Of course, it always depends on the dynamic of the wholesalers themselves.
Maybe you wanted to jump on the question of,
Yes.
Thomas that we had.
I had the answer, but we jumped. Very quickly, coming back on your question regarding potential bond buybacks, we will, of course, and the management of the cash inflow. Of course, first, it's written on our balance sheet. We will balance between cash investment and potential buyback of some bonds, trying to be smart but also always very mindful of our liquidity profile.
Maybe a word on the store footprint of Balenciaga. In recent years, we have enlarged, on average, the stores of Balenciaga. First of all, nothing is changing regarding the categories that we have at Balenciaga. It will remain, in any case, a brand with ready-to-wear, leather goods, footwear, with a good proportion of men and women in the collection. When it comes to the size, I'm not particularly worried. When it comes to the denim aesthetic, you see, first of all, that in the first show, there was Pierpaolo, there was a bridge, in a way, with what was the aesthetic of denim. It was a good combination. We don't plan a short-term major reshuffle of the network. All the stores have not exactly the same magnitude in terms of aesthetic.
We have already tested some mockups where, obviously, just the addition of a few things and also some painting, additional painting, things like that can easily create an environment that would be very consistent with the new collection. Here again, we don't expect a jump in terms of CapEx on that side. As usual, with Armelle and under the helm of Luca, we will have a global arbitration at group level of the CapEx to be sure that we have to do, we invest rightfully in the right places and especially at the right pace.
Thank you.
Next question is from Charles-Louis Scotti, Kepler Cheuvreux.
Good evening. Thank you for taking my questions. I have three. Congratulations, obviously, to Claire and best of luck in your role. On the denim first collection, which will be rolled out globally in January, could you remember, also, you mentioned in the past, capsules for Christmas and Chinese New Year, as well as the cruise collections before the presentation of fall-winter 2026, end of February. If I'm not mistaken, could you please update us on the coming pipeline at Gucci? Secondly, the deal with L'Oréal includes as well a joint venture on the longevity, health, and wellness. L'Oréal already gave us some details yesterday about it. Could you tell us more about this joint venture? Is this part of a broader move towards a more experiential luxury, which seems to be gaining a lot of momentum now? Third question, regarding your beauty licenses for Bottega Veneta and Balenciaga.
You previously had a very selective approach in terms of distribution, which obviously mechanically limits the development potential. This is not, I guess, L'Oréal's strategy, even for the couture brands, except for the private collections. Are you now more open to adopting a maybe less selective strategy that will allow the business to scale up more quickly? Thank you very much.
The denim collection will be distributed in stores as of January, 2026. In Q4, there are many initiatives at Gucci. We just introduced a new sneaker, the Gucci Shift. There is also the cruise show collection that is arriving in store in November. Of course, there will be plenty of capsule and animation in December for the Chinese New Year and more generally for the holiday season. That will be amplified by some campaigns. There is already a campaign that you've seen probably on the new Shift sneaker on digital. There is also a campaign on the ski altitude. There will be, of course, the Gucci Shift campaign at the end of the year as it happened last year.
I don't know if I can add something relevant to what Mr. Babuild said brilliantly yesterday. I think we are convinced on both sides that definitely there is an opportunity in that segment of wellness, longevity. It's true that it has to do with how luxury experience can expand in different categories, in different areas. We see that today, the high-net-worth individuals and many top clients of our brands are reallocating wallet also to experience, resorts, travels, restaurants, and also wellness and longevity, which has become clearly a topic for the billionaires and high-net-worth individuals. Yes, definitely, we are at the early days of this joint venture. We are convinced that, of course, the idea for us is not to work on products because it's really the expertise of L'Oréal. I think there are a lot of R&D in that area.
For us, it's more about finding some synergies, bringing also our capacity to find locations in the city, outside of the city, to create an environment which does correspond to the expectations of these clients, to work on our CRM and database with the top clients we have. This is really what we are targeting, to really provide to this clientele a unique experience, mixing wellness, medical care to a certain extent, and also so that they can enjoy a pleasant environment with a luxury experience. We believe this is a market which is very fragmented, on which there is an opportunity probably to consolidate and to be with this joint venture a major player, considering that our two groups are global and the capacity to enter in the main cities in the world and also to provide unique experiences.
When it comes to Balenciaga and Bottega Veneta, your question is a good one. I think the plan, you know, that historically, these two licenses of these two brands have been completely under-exploited in the beauty category. We had to rebuild credibility, and we started by launching these niche products, these niche fragrances, very elevated in terms of quality, in terms of price. It was a way to reestablish the credibility of these brands in the beauty segment. Clearly, the plan for Kering Beauté, especially for Balenciaga and to a certain extent to Bottega Veneta, but the positioning of the brands are slightly different. The idea was at a point, once we had started to be credible again, to go down to the prestige segment with a broader distribution, with the usual suspects in terms of distribution. It was part of the game.
If I come back to the rationale of the joint venture, of the deal with L'Oréal, clearly, the idea is that, of course, we can scale up that business more rapidly. We are very pleased if we could accelerate the development of these two brands, but starting with Balenciaga in the more prestige segment, considering that, of course, we will, and that was some of the discussions we had with L'Oréal. Of course, we want to keep an offer which is very elevated for the top clients and also to have some fragrances in our stores.
Thank you very much. Very helpful.
Next question is from Carole Madjo at Barclays.
Hi. Yes. Good evening. A few questions from me as well, and also on my side. Thank you very much, Claire, for all your time. It was really good to discuss with you over the past few years. To come back on the first question being on Gucci, can you help us understand a bit more what should be the position of Gucci going forward? I guess to come back on the point you mentioned before, you talk about trying to reduce cyclicality, about being a bit more exposed to the high-end consumer. Then talk, I think, about being a bit more exposed towards minimalism at Gucci when he does his first fashion show in February. Can you just, I guess, help us envision what could be the new Gucci in terms of pricing point, brand aesthetic, and positioning going forward? That's the first question.
Second question, just to come back also on the jewelry side in the other houses, which I think has been quite solid for the past few quarters now, can you remind us how big jewelry, so the Boucheron and Pomellato brand mostly, count for now in this division? What kind of potential do you see for these, for those brands, going forward? Thank you.
Your question on Gucci is an interesting one. I think it will be part of probably a larger strategic update that Luca and the team will give during the CMD in the spring. What I can tell you at this stage, going back to La Famiglia presentation as an example, it was very positive to see that the looks that Demna presented were large in their style, in the categories. I think it was showing how diverse and rich the Gucci brand can be and very true to the DNA of the brand. Regarding jewelry, I can just mention that if I look at last year, the turnover of our jewelry brands altogether was around EUR 1 billion.
Thank you. Next question is from Luca Solca, Bernstein.
Yes. Good evening. Congratulations to Claire and her next step within the company. Two or three questions. I was sort of detailed questions now at this stage. I was wondering, when you look at the retail dynamics going forward, so the retail network being trimmed and potentially space being reduced, would that go hand in hand with rental costs also being reduced? I doubt that because most likely you would be closing tail stores and you would be beefing up flagship and prime locations. I just wanted to be sure what you thought about this. Maybe a more general question on the EBIT consensus that you see. There's been many moving parts, the reacceleration over the summer and the cost efficiency program continuing. I wonder if you want to touch base on that guidance that you provided or if not. Maybe more of a blue sky question on Armani.
You're obviously focusing on your own business and on improving it organically, but you haven't been shy, for example, with the Valentino acquisition to play a protagonist role in consolidating some of the most important Italian fashion brands. I wonder if this is on your radar screen at all and if we could envisage down the road a role for you, especially in a scenario where L'Oréal could potentially try an Estée Lauder deal, that is buying the brand for the beauty business and licensing out the fashion and leather goods business as in the case of Tom Ford, was done by Estée Lauder with Zegna. Thank you.
We don't streamline the network just for the sake of making some savings on the rental cost. The idea is just to be sure that we have the right setup brand by brand. I think that there was a wave of utilization in the past few years, which was made across the board. For all the brands, I think all the brands are not in a situation because of the size, because of the product categories, in a situation to be at 80% or 90% retailized. If I think about Brioni or McQueen, these are brands which probably need to rebalance a little bit between wholesale and retail. I would not say the same for the other brands where there is still the ambition to have predominantly a retail distribution.
The idea is just to be sure that we have the right setup and that we don't multiply the number of points of sale in a city, that we keep the most efficient one and that we are able to increase the sales density. We have to be very lucid and we are very candid on this. The problem of the group is not so much about the rental cost. There will be opportunities to reduce the rental cost for sure, but it's more about the sales density. The purpose for us is, of course, to have the right setup. When there is an opportunity to renegotiate a rental or the rent, we will do it. Part of the game also in this reshuffling of the network is also to create the conditions to renegotiate some rent.
The ambition is, first of all, to maximize the efficiency of the network, to reignite the top line, as we said before.
On the outlook for this year, I gave already a lot of moving parts regarding top line, gross margin, and OpEx. Maybe what I can flag additionally is that, if foreign exchanges remain at current level, the drag on Q4 reported sales will be higher than the one in Q3. For the rest, I think I gave you already a lot of information.
About your last question, you can imagine that it's premature to comment. Also, you know, we have just signed a deal, which was very important for us. We have the Valentino brand in the radar going forward, even if we have postponed the exercise of the options. Still, there will be a need at a point to integrate the brand. We have a lot of challenges in our brand. I think our plate is quite full so far, and the priority for us is to work on the action plan that Luca is giving to us and to the brands. It's not a consideration we have so far about Armani. We will see what will happen with the different players that have been listed in the testament of Mr. Armani.
Thank you very much.
Yes. There are no more questions registered at this time. I will turn the conference back to Miss Poulou for additional closing comments.
Thank you very much for your interest and for your questions. Before I let you go, I would like also to add my own sincere appreciation for Claire's great contribution over the years. Thank you, Claire, on behalf of all of us who have worked with you. Finally, to everyone out there, our next appointment is in February for our full-year results. I wish you all a good evening. Thank you again for being on the call.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.