Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Kering's 2019 First Half Results Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you this conference is being I must advise you this conference
is being recorded today, Thursday, 25th
July, 2019. And I would
now like to hand the conference over to your speaker today, Jean Marc Duclay. Please go ahead.
Good evening or good afternoon. Welcome to Kering's 2019 first half results conference call. I will go through the highlights of the period, and Jean Francois will offer some words of conclusion before we take your questions. Let's jump straight to a summary of our performance on Slide 4. In the first half, we delivered another very strong set of operating figures.
Once again, our growth is both ahead of the market and highly profitable. Revenue first. Sales were up nearly 19% reported and above 15% comparable. That's an impressive additional €1,200,000,000 in revenue year on year to reach €7,600,000,000 by region. And continuing the trends we already commented on last quarter, Asia Pacific was a key driver with a very strong 24% comparable increase.
Western Europe and Japan posted healthy growth, up 15% 10%, respectively. The pace in North America was more moderate, up 7%, on top of a 45% jump last year in the same period. In Q2, group revenue increased by 16% reported and 13% comparable. 2nd, recurring operating income. I have to start with a quick explanation relating to the first application of IFRS 16.
The new standard in use since January 1 massively modifies lease accounting. We have decided, during a transition phase, to restate the previous period in IFRS 16, so you have a fully comparable base. Restatements of H1 2018 under IFRS 16 have been available on our website for 2 weeks. We are also providing bridges to explain how IFRS 16 reported figures would translate into the previous standards. That's the adjusted data you will see in subsequent slides.
This being said, recurring operating income increased by a noteworthy 25% to reach €2,300,000,000 for a record profitability of 29.5% or 29.2% adjusted. We grew margin by more than 150 basis points despite a dilutive impact from a combination of FX and hedging. It showed how our determined focus on organic growth is driving substantial operating leverage. 3rd, at more than €1,500,000,000 our free cash flow generation remained at a very high level. CapEx is up 23% and represents 5% of revenue.
For the full year, you should expect something in the 6% to 7% range. Finally, net debt is just above €2,000,000,000 down compared to a year ago and as usual higher than at year end due notably to the dividend payment. Our definition of net financial debt has not changed and thus does not include lease liabilities. Switching to Slide 5. More detail on our Luxury houses whose sustained outperformance, drove superior margins.
Revenue was up 19% reported and 15% comparable in H1. FX was less of a tailwind in Q2, so the overall impact on the 1st 6 months is 3 percentage points. Growth was robust in all distribution channels with retail up 16% and wholesale up 12%. This achievement illustrates the power of our multi brand, omnichannel approach and the potential of all our houses. Trends by distribution channel and by region were broadly consistent in both quarters.
In Q2, comparable revenue increased 13% with Retail up 14% and wholesale up 11%. In retail, Asia Pacific confirmed its strength, up 22%, with sharp increases in Mainland China, Korea and Taiwan. By contrast, Hong Kong and Macau suffered from a combination of high comps, repatriation of Chinese demand and more recently, some disruption in Hong Kong. Western Europe was up 15%, supported by both locals and tourists. All key countries contributed to growth.
Japan and North America were up single digit. Now if we look at Q2 sales of our top 3 brands by client nationality, the key takeaways are that the Chinese cluster continues its high growth profile, spending roughly 50% at home, 30% in the rest of Asia, including Japan and the balance in Europe. Purchases by Chinese customers in the U. S, though quite marginal, were down significantly. Other Asian nationalities, such as Koreans, were also very supportive during the quarter.
Europeans held firm as well as the U. S. Cluster. Worth noting is that Americans were much stronger abroad, mainly in Europe, than at home, a likely consequence of currency strength. Very few nationalities posted negative performances, mostly Eastern Europeans and Middle Easterners as in Q1.
Our Luxury houses achieved a first half EBIT of €2,400,000,000 up 24%. The margin stood above 32%, a gain of 140 basis points. Healthy top line growth prompted significant operating leverage and margin expansion at Gucci and Saint Laurent. Our other houses increased significantly their profit contribution led by Balenciaga. At the same time, we are continuing to invest in Butterga Veneta to support the promising repositioning of the brand.
An important side note. The combined FX and aging impact was dilutive in terms of profitability. So the underlying margin expansion was even more remarkable. CapEx in the period at 3.7 percent of revenue was in line with the 2018 first half. We are pursuing selective investments.
You should, as in the past years, expect a higher CapEx to sales ratio in H2. I won't comment on the store network brand by brand. You have details in the appendix. The total store count stands at 1306 units with 28 net openings in the 1st 6 months, an increase of just 2%. Let's now have a look at Gucci on Slide 6.
In the first half, Gucci posted once again a very strong top line growth on top of high comps in both 2018 2017. To put things in perspective, the €4,600,000,000 in revenue Gucci generated in the 1st 6 months this year exceed the total sales for all of 2016. Reported revenue was up 20% and up 16% comparable. In Q2, revenue grew 13% comparable with retail up 12%, fueled by like for like and further sales density improvement. This is remarkable on a comp base that stood at 43% growth last year.
By region, Asia Pacific led the growth as in Q1. Mainland China and Korea were the main drivers. Western Europe was consistently solid, thanks to locals and tourists, notably Chinese and Americans. In North America itself, the quarter was more challenging. The very high comp base, 52% growth last year, played an important role along with tough market and traffic conditions in many cities, a situation we also observed at our other brands.
Weak inbound tourism did not help either. Every key nationality was up in the quarter with the Chinese and more broadly Asian clusters very dynamic, Europeans and Americans doing pretty well. Wholesale was up 15% in the 2nd quarter, a growth we achieved on a stable number of those. Royalties grew double digits, thanks to the good momentum in both eyewear and fragrances. In May, Gucci successfully launched its first makeup line.
Product wise, carryovers further confirmed their appeal together with pure novelties and new options or functions in bestseller level goods lines. Coming to profitability. Scale and healthy top line growth translated into record H1 operating margin. Recurring operating income jumped 27% to reach €1,900,000,000 more than doubling over 2 years. Margin expanded 220 basis points to 40.6% or 40.4% adjusted.
This represents substantial operating leverage at a time when Gucci keeps investing to strengthen its leadership, dedicating additional resources to communications, omnichannel and client service initiatives. CapEx focused on rolling out the new store concept, with another 24 stores converted in H1. Stores under the new concept now represent 48% of the total, and the ambition is to reach approximately 60% by year end. On Slide 7, we provided some highlights on Saint Laurent. Once again, the brand delivered solid mid teens revenue growth, consistent between the two quarters.
The Health also realized another improvement in operating margin in the first half. The second quarter was very much in line with Q1. Retail rose 17% with particularly bright performances in Asia Pacific. Saint Laurent also posted robust double digit growth in North America, Western Europe and Japan. Among key product categories, leather goods were particularly buoyant with strong showing from both iconic and newer models.
The distinctive ready to wear presented last fall hit the stores in the quarter, further elevating Saint Laurent's fashion's leadership. And Saint Laurent had a strong quarter in e commerce, up more than 40%. Wholesale was up 14% in the quarter. Saint Laurent posted another sharp increase in operating income. The 24% surge resulted in 80 basis points margin expansion to 25.9%.
At the same time, Saint Laurent continues investing to support its development, notably in communications. CapEx was up in the first half to nearly 6% of sales. You will remember that last year, CapEx outlays were skewed towards the second half. By contrast, we expect a more even breakdown between both halves this year. Among the openings of the quarter, we should note the new Saint Honore Rivdroat located in the space formerly occupied by the iconic Collet store.
Moving to Slide 8. We are pleased with the course at Bottega Veneta. The warm reception of Daniel Lee's creations is starting to translate into more favorable top line trends. While comparable revenues were still down in the 6 months, the pattern was reversed in the 2nd quarter. Retail as well as total comps were slightly positive, and wholesale was up 3%.
The new collections increasingly gained relevance. Revenue was also supported by increased initiatives to favor the gradual adoption of new collections in the context of a transition where existing carryover lines remain a drag on performance. Sales of the spring 'nineteen collection has been solid, while pre fall 'nineteen has been gaining momentum week after week. We had particularly good responses across all women's categories, and some of the new handbags instantly ranked among the house's bestseller lines. This is true of the pouch from spring 'nineteen and also of Arco and Cassette, which have only been on the shelves for 2 months.
We are also attracting new customers in our stores while maintaining good retention rates. Some of the new bags, like Poch, appeal to a higher percentage of younger clients new to the brand. Arco is particularly popular with our Chinese clientele. Finally, ready to wear and shoes are outperforming. Bottega Veneta is working on stepping up production, impaired in certain areas by the use of new techniques and hardware.
As product availability improves, we expect the new collections to account for over half of the assortment in the last 6 months of the year versus less than onethree in Q2. Thanks to good cost discipline, we were able to alleviate the impact of operating deleverage. However, Bottega Veneta needs to support its relaunch in terms of product development, samples and communications, and this had a sizable impact on the EBIT margin. All in all, the house is on track. We have no doubt that its new CEO, Leo Rangone, will pursue and intensify the brand renaissance launched by Claus Dietrich Lars.
The 2 are working closely during this handover period. Our other houses are on Slide 9. In H1, they solidified their spots as drivers of incremental growth, while their increasing contribution to group profitability is becoming more and more material. Altogether, other houses delivered double digit growth in retail in both quarters and across all regions. In Q2, revenue was up 19% comparable.
Retail alone posted an even sharper increase of 34%, on top of significant comps last year. By region, growth was very much in line with the Q1 performance. In wholesale, the increase in revenue was more moderate, reflecting the performance of watches as well as our focus on retail and Titan control over distribution. Balenciaga had another spectacular quarter with strong double digit growth across all regions and all product categories. This was driven by retail as well as a significant increase from balanciaga.com, confirming the health of the brand's omnichannel strategy.
Shoes and ready to wear for both men and women performed extremely well, and leather goods improved considerably, underlining the huge potential of this category. The performance at Alexander McQueen was just as outstanding as the brand has now consistently delivered double digit growth quarter after quarter over a long period. Revenues at Briony were encouraging, especially considering the complete restructuring of its store network with a number of closings during the period. In watches, we had a contrasted quarter as Gerard Perrigo was impacted by slow sellout on certain key markets, while Lismar Nardin performed well in Q2 with a very strong month of June. All the jewelry houses posted strong performances.
At Boucheron, the Place Vendome flagship as well as the Japan market propelled sales to double digit growth with the Carte and Serpent Boheme lines outperforming. The Jack collection launched earlier in the year had a very nice takeoff. Pomellato benefited from excellent trends in its Western European stores, and the launch of its new Brera line has been well received. As for Killeen, its remarkable momentum continues, maintaining strong double digit growth. First half operating income of our other houses rose by more than half and their combined margin was up a solid 230 basis points, thanks largely to the significant contribution from Balenciaga.
In addition, thanks to the actions we have taken to develop Boucheron and reorganize Borioni, headwinds impacting the segment's margin are clearly diminishing. CapEx was up in the first half on network enlargement, primarily at Balenciaga and Alexander McQueen. On Slide 10, you will find our Corporate and Other segment. On the revenue side, Kering Eyewear is a lead contributor with external revenue of €321,000,000 in H1, translating into consolidated sales of €259,000,000 up 21% comparable. Performance was strong in both quarters, fueled by the continued appeal of Gucci, Cartier and Saint Laurent.
Balenciaga or Montblanc, launched this year, have been successfully rolled out. Kering Eyewear keeps innovating on all fronts, from marketing to supply chain, without forgetting its blockchain traceability project. The negative EBIT contribution of Corporate and Other is broadly on par with last year at €117,000,000 Costs incurred in relation to corporate long term incentive plans decreased, offsetting the rise in other costs related to the group's ambitious digital and innovation initiatives. On the CapEx side, the increase is due to the platform and infrastructure buildup to strengthen our operations. Now moving on the remaining lines of the P and L summarized on Slide 11.
Other nonrecurring operating income and expenses were €42,000,000 negative, in line with last year. Net financial charges amounted to €134,000,000 They now include interest on lease liabilities according to IFRS 16 for a total of €49,000,000 Excluding this item, financial charges were €85,000,000 down year on year, thanks to a significantly lower cost of net financial debt at €26,000,000 This is driven by the bond redemptions carried out in the past 12 months as part of our active liquidity management strategy. Other financial charges amounted to €59,000,000 including, as usual, the ineffective portion of hedging. Corporate tax amounted to €1,400,000,000 This includes €896,000,000 related to the settlement with the Italian tax authorities for the period 2011, 2017. In addition to our initial estimate, this chart also reflects our assessment of 20 18 tax in Italy in light of the settlement's main conclusions.
And as you know, 2018 was a particularly profitable year. Excluding this one off, the tax rate on recurring income is 26 point 4%, up from last year due to the in-depth reorganization of our operating model, notably with regards to logistics and supply chain. A word on share in earnings of Equity Accounted Companies. As Puma will not report its Q2 results until next week, the number we are using is based on the current analyst consensus. Group net income from continuing operations adjusted for nonrecurring items and the tax settlement reached €1,600,000,000 compared to €1,200,000,000 last year.
A few comments on free cash flow and net financial debt on Slide 1213. In the first half, we generated substantial free cash flow of €1,500,000,000 We previously mentioned that we had reached a low level of inventories at year end. And some of this was rebuilt in the first half to support the growth of our brands. We closely monitor working capital and all our new projects and organization will enable us to further optimize it going forward. As expected, our tax cash out is higher, keeping in mind that the bulk of the settlement payment will take place in H2.
At June 30, net financial debt was €2,100,000,000 after the significant dividend payment of €1,300,000,000 and some share repurchases. Compared to June a year ago, our net debt decreased by over €650,000,000 We don't include in our net debt definition debt definition the €3,900,000,000 lease liabilities related to IFRS 16, which you will find in our balance sheet. This ends my remarks. So let me now pass on to Jean Francois for a few words of conclusion.
Thank you, Jean Marc. 1 year on from our exclusively focusing on luxury, our strategy is clearly paying off. We are delivering a superior combination of organic growth and sustainable profitability, all from a virtually unchanged infrastructure. This stems from the growing desirability of our brands built on boundless creativity and innovativeness and on their total dedication to their customers around the world. But it is also the consequence of the rigorous discipline we have instilled throughout our group at both the operational and financial levels.
The organization of our houses is focused on executing focus on that meet our clear criteria, not only regarding return, but also control, scalability and smooth integration into our platforms. And we are just as selective when it comes to OpEx. We are in robust financial health. This was confirmed by S and P ratings upgrade following the issue of our full year results. As many of you have seen last month, when we held our Investors Day, the in-depth work we are doing at group level in close coordination with our houses is instrumental in solidifying our transformation and giving us the means to secure continued growth.
And our strong worldwide presence, constantly fine tuned as well as our global perspective, enable us to secure continued profitable growth wherever it comes from. All in all, while our environment is subject to changes, we are in great shape and highly confident, both when it comes to our performances and to our capacity to create value in the medium and long term. Thank you very much. Jean Marc and I are now ready to take your questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. And your first question comes from the line of Johan Rambourg from HSBC. Please ask your question. Your line is now open.
Yes, hi, good evening. Juan from HSBC. Thanks for the presentation and congratulations. Three questions, if I may. You've highlighted that you were in a healthy financial situation.
Puma shares have had a great run. You're trading at a discount on valuation to some peers. So I'm just wondering if you can tell us what's the thinking around appetite for M and A, potential further share repurchases and other uses of capital? Secondly, you reached a record high margin on Gucci, above what I believe was more of a midterm target of 40%. So I'm just wondering what how do you think about the trade off between sales growth and margin?
And would you be willing to reinvest to support the sales growth going forward? And linked to that, just a third point on U. S. I think we understand fully what the macro impact of FX and tourism flows, how that has affected U. S.
Growth? Is there anything under your control that you can do? And again, I think the comp base was pretty high, but is there anything that you can do to address the slowdown in the U. S. For Gucci and for Gucci to pick up growth go back to positive growth in H2?
Thank you.
Thank you, Erwan, for your question. Regarding our financial situation and particularly our stake in Puma, we are considering several alternatives to deal with this investment and to protect the value of this investment. But today, we do not have any intention whatsoever to dispose all of it. And the use of capital is being used today with in a share repurchase program, the 2nd phase of the program that we announced a few months ago, and it's currently ongoing. And again, we do not intend to launch an additional one before the end of this year, But we intend to go to the end of this one and to finalize it.
And then regarding potential acquisitions, as always, we are effectively looking at potential targets, but again, with a very strong discipline in terms of quality of the brand and prices for the acquisition.
Good evening, Erwan. As regard to the profitability of Gucci, it's true that we have delivered a very healthy margin improvement in H1. And clearly, we have reached a level which is above the target we had shared during the Capital Market Day a few years ago. And it's clearly linked to a very high margin drop through in H1, thanks to leverage on store expenses and also basically on scale effect on other lines. And as I mentioned during my remarks, I think this is even more remarkable than gross margin was diluted by FX and aging combination.
And that we have continued to invest to support the growth of the brand. We expect further margin expansion year on year in H2, although much more moderate. The reason for this is that the base, first of all, is higher. Considering now also the scale of the brand, it's true that the breakdown of expenses is more balanced from 1 semester to another one. And it's true also that we will continue to support the growth of Gucci.
And we have some more ambitious investments in terms of marketing activities and store animation during H2. So it's clear that part of the operating leverage will be reinvested during H2, but with still a target to improve profitability as we want clearly to deliver more sustainable and profitable growth. As regard to the U. S. Situation, I think it's right to mention some macro environment, which is obviously challenging.
And we observed this also in the other brands of the group. And you know clearly the reasons for such a more challenging environment. And in a nutshell, I would say that the U. S. Market became in the past quarters gradually tougher.
And it's a highly polarized market where there is an increased competition to gain market shares at any price. In that context, it's true that we have a very tough comp base, you mentioned it. The brand has regained a lot of market share in the past few years. It's true also that we have not expanded the store footprint during the semester. We had no specific animation on all marketing activities during H1.
And then more globally for several reasons and one of them being quite obvious, Gucci has been on purpose less visible in terms of communications and clienteling activities to promote units during the first half. And combined with some depressed traffic trends in some key cities, ongoing refurbishment because you know that we were late in the U. S. In terms of implementation of the new concept, It's clear that it was more difficult to outperform. That being said, we it's clear that during H2, we'll have more activities to support the business.
We have a plan clearly at Gucci regarding retail, merchandising, clienteling, both with high end clients and more globally speaking, clienteling at scale with all the different type of customers. And we will have more communication investments. So clearly, there is a plan to tackle the situation in the U. S.
That's great to hear. Thank you. Best of luck.
Thank you. Thank you. And your next question comes from the line of John Guy from MainFirst. Please ask your question. Your line is open.
Yes. Good evening, Jean Marc and Jean Francois. Thanks for taking my questions. Maybe just following on from your comments around Gucci and North America, but also from a category perspective, were there any particular categories in the U. S.
And maybe across Gucci in all regions that you saw any specific slowdown in the Q2, whether it's in sneakers, bags on the carryover side or in ready to wear would be helpful just to get some color around the actual category performance. You also talked about CapEx effectively accelerating in the second half of the year. You've delivered a pretty decent free cash flow in the first half of the year. And if I go back over the last 3 years, your free cash flow has more than quadrupled. And I think last year, you were just around the €3,000,000,000 mark.
So how should we think about free cash flow for the second half of the year given maybe a sharper pace of investment? I'd be interested to get your thoughts there. And finally, maybe just with regards to the Gucci operating margin, I think excluding IFRS, it was at 40.4%. I'm just trying to get a sense if you could provide us with some more information around the extent of maybe some of the expense actions or the cost savings that you took? What sort of level of basis point benefit did you see in the first half of the year?
Thank you very much.
John, good evening, 1st of all. 2nd, concerning your question about the situation in the U. S, you may imagine that you won't we won't provide a level of details where you would be in a position to analyze market by market, product by product the situation. First of all, it's important to remind, 1st of all, it's super important to us that if you look at the U. S.
Cluster, which is, by the way, the second one for Gucci. So Gucci is not relying only on the China demand. Historically, the U. S. Cluster is super important for Gucci and has performed super well in the past few quarters.
As you know, it's still up, thanks also to the purchases made by the Americans in Europe. What I can give you is a flavor or some colors about the performance by category. Very briefly, the handbag category is continuously posting very strong results with double digit growth compared to last year. And the iconic pillars confirms our success and are key drivers of the business, both in carryover but also in newness with the seasonal developments. Small level good and luggage performance is also very strong and sustained.
This is once again driven by the strength of our carryover now that we have rebalanced the offer between carryover and Inez. And shoes and ready to wear have posted globally robust trends, but normalizing on a very strong comparison base over more than 2 years and especially in Western Europe and in the U. S. But the performance overall was driven by a strong appreciation of carryovers and novelties from the new season. So globally, I think the U.
S. Market reacted as a mature market with higher exposure to ready to wear and shoes. And that's the reason why there was probably more normalization than in some other regions. As regard the CapEx, I think that and the free cash flow generation, more globally speaking, so you know that there is somehow a form of seasonality in our CapEx. It's not necessarily true for all the brands.
For example, in Saint Laurent, we expect something more balanced. But if we look at Gucci and the other brands and Global is a group, we should see more CapEx in H2. So that at the end of the day, we can expect that the CapEx to sales ratio should be in a range from 6% to 7% and probably closer to 7% for the full year. It will depend on the phasing of the investments we have in terms of logistics. But if we are on par with the plan, we should be closer to 7%.
During second half, we will have also the cash out of the tax settlement, the bulk of it because on the total amount, we have paid less than €100,000,000 during H1. So the payment will be concentrated fully concentrated on H2. So that the free cash flow for the second half, of course, should be impacted by that. We will be very vigilant, of course, in the context about working cap. If you look at the working cap on H1 on the last 12 months days and you have this presented on Page 30 of the presentation where you have an exhibit showing that in percentage of revenues compared to last year, it's quite well monitored.
And then if you know that we had mentioned during the full year results that we would have to rebuild inventories. We had reached a very low point at the end of last year. So that at the end of the day, I would say that if I take your question with a different angle, which is to look at the depth regarding the generation of cash flow during H2, for the full year, at the end of the year, if I consider the ratio based on the IAS 17, so fully comparable to last year, we should be close to 0.4 times the EBITDA in terms of debt. So it helps you in your math to estimate what could be the cash flow generation for H2. I'm not sure to get your point for the 3rd question in the sense that can you clarify
Yes, sure. Sure, sure. Sure, Jean Marc. Thanks. It was just with regards to, I think, some comments before the half year flagging that the Gucci margins would be strong, but there were some potential benefits around some cost savings and some expense actions that you took in the first half of the year.
So I was I was just trying to get a sense of the scale of those actions that benefited or incrementally benefited the margin for Gucci in the first half?
Okay. So in fact, I had understood your question. No, I think that there was probably a misunderstanding somewhere because what we have said is that we had the flexibility and we had made the work during the budget process for all the brands and not only Gucci to identify what could be the savings in the case the business will not be exactly where we were expecting. Considering the trend of H1, putting aside the U. S.
Situation, overall, it's very positive and completely on par with our expectations. We are not to activate any specific actions. And on the contrary, we have continued to invest. Besides also the point I made about the U. S.
Where we have been probably less active in terms of marketing, postponing some actions during H2. So overall, I think that there was nothing specific initiated by Gucci about the cost base besides the fact of being, as usual, vigilant and just to make the investments where we believe it does pay off.
Thank you very much. That's very clear, and all the best.
Thank you, John.
Thank you. And your next question comes from the line of Thomas Joubert from Citi. Please ask your question. Your line is open.
Good evening, Jean Marc, Jean Francois. Three questions, please. The first one, Jean Marc, coming back to your comments on a lower degree of operating leverage in the second half at Gucci, is it because you are expecting further normalization in revenue growth from 13% in Q2? Also, as you alluded to, you feel you need to reinvest in marketing perhaps in markets where the brand has slowed down, may lose share relative to peers, I'm thinking the U. S, but also Japan.
Secondly, could you come back to the increase in inventories up 25% I think had reported FX year on year. Were there particular events, one offs, timing issues? And are you expecting that that be increasing a way to fade towards year end as you unwind particularly the Christmas period? And finally on bottega Veneta, feels that something is happening or could happen. I think there's great hopes there.
Could you comment on the new CEO, share with us maybe what you think his first assessment of the brand is, what needs to change profoundly? And with regards to profitability in this year of transition, can you explain the big swing of 600 bps in margin in H1, whether this is likely to be similar in the second half? If I recall, you had guided for EBIT margin just below 20% in 2019, and I think that looks a bit ambitious now for BV. Thank you.
Good evening, Thomas. I will take the 2 first questions. Jean Francois will react about the new CFO CEO of BV and I will come back for the BV margin. Regarding Gucci margin, first of all, there is basically a situation which is that last year, if I consider the EBIT margin with the old accounting standards, the H1 margin was 38.2%, while the margin of H2 was already 40.7%. And as I said, now we have more balanced cost base during the 2 semesters.
And if you should not look at the variance of EBIT margin only from H1 to H2, You need to always to compare to the EBIT margin of the last quarter of the last semester, especially when you reach a certain scale. It's true also that because of the growth normalization by definition, the operating leverage is not the same. All that reasons push us to say that operating leverage should be lower during H2 compared to what we have delivered in H1, even if it may be slightly counterintuitive considering that the combination of FX and aging should be less negative probably in H2. But it's true that once again, we have some marketing activities that are in the pipe. And overall, we want to deliver still an improvement of the EBIT margin, very gradual, very wise, very well prepared and just making the investments that will pay off.
And I think that we have a very disciplined objective plan, and we will execute it. So that's the reason why I mentioned this lower operating leverage. As regard the inventories, I think that it's again, if you look at the working cap in percentage of sales, there is nothing specific to mention. We have just a slight increase, 19.4 percent of the last 12 months sales to be compared to 19% last year. So overall, it's in line.
I think that there were some phasing in terms of deliveries and production here and there at Bottega Veneta, for example, so that probably in terms of building of inventories, we are a little bit more late compared to last year. It's a little bit the same with Gucci. We had mentioned some slight issues in terms of ready to wear development and production that could have weighed a little bit also on the inventories level. But I think there is nothing worrying and we are working on it to optimize it during H2. And I think that we have all the tools and the levers in place to monitor strictly the inventory level.
Regarding the takeover by Leo Rangoni, it's been a few months that Leo actually has been working together with Klaus and the team to take the reins of Bottega Veneta and be very quickly effective as a new CEO. He has created very And and they share this vision together. And both of them are enthusiastic about the potential of the new collections and the new products, particularly the women's categories. So they're very confident that this will pay off in the midterm and that they will regain very strong momentum for the brand, both in terms of top line and margin.
Regarding the margin, considering the dilution of H1, which is still looking at the old figures or the figures according to the old standard, It's a dilution of something like 600 basis points, which is massive, which is due, first of all, to the top line momentum basically. And as we already mentioned, we didn't want to make a stupid cost saving at a time when we need to support the relaunch renaissance of the brand. It's true that during H2, to support this relaunch and this rejuvenation, we will need to reinvest in design and samples. We need to invest more in teams to have more skills across the board in all the functions. We need to invest more in communications and marketing.
So there will be still some operating leverage, but not at the same level, of course, as H1. So maybe to give an indication, that could be something around between 140 and 180 basis points of additional dilution to be expected in H2.
Thank you. And your next question comes from the line of Melanie Flouquet from JPMorgan. Your line is open.
Yes. Good evening. Thank you very much for taking my question. The first question is on coming back on Gucci, sorry. I was wondering whether you could maybe expand a bit on the nationalities performance because clearly, as you said, the American was traveling in Europe.
Your numbers were actually pretty strong in Europe. And also, I imagine the Chinese consumer was pretty strong in Europe. So I was wondering whether you could share a bit more by nationalities as to what has happened to this quarter 2. My second question is on the Gucci operational leverage. Just to make sure, and that's a quick question, but when you're saying that you expect operational leverage just a lower one than in H1, this is a comment about H2.
So there is still an up low operational leverage in H2 or about the full year. My next question, sorry, is just trying to understand the tax rate of 26% excluding one offs. Is that the new norm? Is this what we should put into H2 and next year? And my last question, sorry, is on e commerce.
Could you share with us the growth of e commerce for Gucci in H1 and H2? Thank you.
Thank you, Melanie, for all these interesting questions. As regards to nationality, as you can imagine, the Chinese clientele has been super positive with a huge repatriation of purchases on the domestic market as expected and as it was already the case in Q1. So that we had almost slightly less than 50% of the purchases made by the Chinese on the domestic market. So Chinese the Chinese cluster was strongly up. And more broadly speaking, that's the same for all the Asian nationalities, maybe with an exception of Hong Kongese.
But after 2 or let's say several quarters very strong and with some obvious explanations also due to the events we had to cope with at the end of Q2 and especially in the beginning of H2. But if we look at the other Asian nationalities, it was the business at Gucci was strongly up, with a very important nationality, the Korean cluster. And it does explain why the Korea was quite strong in terms of market. Overall, with the local clientele in the mature countries, let's say that we have a good correlation with GDP growth. So that is positive.
It's positive with Japanese, positive with Europeans. Of course, you can imagine we are talking about single digit growth with this clientele, but still it's positive. And with the Americans, it's true that it was particularly strong in Europe. In fact, in Europe, the performance has been driven by good sales with many different nationalities, not so much with Chinese. Chinese were up in Europe, but it's true that the big contribution was the one of the Americans.
The only negative ones we have, generally speaking across the board, not only for Gucci or as I mentioned in my speech, the clients from Eastern Europe, Russia and still Middle East because of macro or geopolitical events. In H2, as regards to the EBIT margin, yes, I confirm that we still expect more operating leverage in H2, and I was not specific on the full year. It was really also on H2 that we expect additional leverage, but as I mentioned, not the same as the same extent as H1. Regarding tax, let's start with 2019. To be very clear, we expect that the tax rate should be at around 28% for the full year after this 26.3% for the first half.
Mid term or short term mid term, the normative tax rate may remain in that range or in that area. And such rate is above our initial estimates for several reasons. First, we have accelerated the pace of the reorganization of our logistics and supply chain operations. 2nd, we have a higher consumption than expected of the loss carry forward because of the high profitability of our brand above our initial expectation. And third, some corporate tax rate cuts, especially in France, has been postponed for big large groups.
So it was not clearly a factored in our plan. The good thing in the acceleration we made in terms of organization of our logistic and supply chain is that half of the impacts of the variance on the expected normative tax rate will be offset starting from 2020, 2021 by the use of free trade agreements between Europe and some key countries and markets that could provide in terms of lower import duties that would be booked, by the way, in our cost of goods sold, so in the gross margin. So as I said, that could offset half approximately of the variance between the 25 something that we had announced and the 28. Longer term, normative tax rate should eventually decrease, thanks to the implementation of the tax cuts in France. As regards to e commerce, we won't provide any specific figure.
What we can say is that we had very good figures in China. We are very pleased with the development of Gucci E Commerce in China. China became the 3rd market of e commerce now after the U. S. And the UK.
As you can imagine, in the more mature countries, we had more normalized growth rates. And in the mature in the countries which we are underdeveloped for e commerce, we continue to see some acceleration.
Thank you.
Thank you, Melanie.
Thank you. And your next question comes from the line of Roger Fudimori from RBC Capital Markets. Please ask your question. Your line is open.
Hi, Jean Marc. Thanks for taking my question. Would it be possible to give us a breakdown between volume and price mix for Gucci behind
the 13% comparable growth in Q2?
And also for Gucci, could you talk millennial segment, which I think was
in excess of 60% of total sales
last year? And also in percent of total sales last year and also in streetwear items. I'm just trying to understand some factors behind the normalization for shoes and ready to wear. And then my third question is on marketing investment. I think you indicate the phasing more SKU to H2 for Gucci.
How about for YSL and other houses? Thank you.
Regarding the drivers of the growth of Gucci, clearly, first of all, what is important to have in mind is that Q2 retail sales were driven once again by like for like growth. And indeed, Gucci sales are generated on a broadly stable number of directly operated stores. And as I mentioned before, without any additional stores or temporary stores, so no specific activities on this side. And regarding the sales from those from direct operating stores, as you know, all sales are at full price. And if you look at the performance now in the stores, the sales have been largely driven by volumes.
And what is interesting, reflecting a significant improvement as expected and as we had announced in retail metrics because the traffic started to normalize as we were anticipating. And in fact, despite this normalization of the traffic, we had this increase of sales due particularly by a meaningful increase in terms of conversion rate as well as unit per ticket, cross selling. So globally, if we look at the retail KPIs, and of course, it depends on the region and on the stores. But overall, it's positive. It's globally green.
We have some red lights here and there, but that's normal in our business to have some issues to fix here and there. But globally, it's positive. And it's clearly the outcome of what we have started in terms of initiative, in terms of tools providing to our sales associates. The price mix is limited. Of course, it can vary depending on product category and region.
But overall, we cannot say that the mix and the price has impacted massively the growth rate. As regard the segmentation of clientele, I think that we have provided in the past quarters some indications the clustering, segmentation of the clientele. I think once again, it's important sometimes also to look at the trends on a more long term basis. What I can tell you is that if I look if we look at the millennials or at the age segment below 35%, which is different. But by the way, in the two cases, we start to see also here, let's say, stabilization in terms of proportion.
If we look at the breakdown of the segment clusters, we see here stabilization, which is normal because now we are at full speed in all the age segments. And it's clear that the performance was quite well balanced across the different age segments. Of course, we are still delivering very good growth with the millennials or below 35%. And it's a demonstration that despite maybe the situation in the U. S.
Market, we can't really see we cannot really see any signs of slowdown or something specific on certain categories in the other countries in that segment of the millennials. And the last point about marketing investments, I think there was there is a specific situation at Gucci that I have mentioned in terms of phasing of investments. But more globally speaking, I think that many of our brands and especially Saint Laurent also at such a scale that now the balance between the 2 semesters in terms of expenses, not only marketing investments, but more global picking is more even than in the past. And I think that as I said about the U. S.
Market, we are in a market which is super competitive with a lot of investments of our competitors. And it's clear that we will make some tactical investments. We will react very with a lot of flexibility and agility as we demonstrated in the past. And I think that we have demonstrated that we can deliver profitable growth while investing in our brands. So be reassured, we'll continue to improve the EBIT margin at Saint Laurent and in other brands, while still investing to support the trajectory of growth they have.
Great. Thank you very much.
Thank you. And your next question comes from the line of Omar Saad from Evercore ISI. Please ask your question. Your line is open.
Thank you. Good evening. Thank you for taking my question. Two questions. Number 1, I was hoping you could speak to the decision to pull back on advertising and marketing in the U.
S. Market? Do you think that's been a big factor affecting the slowdown there? And when do you expect to kind of turn that spigot on back on full force? And how do you think about that dynamically?
And then my second question on Gucci, a bit more broadly universally. As we think about some of the unique opportunities that the brand has in terms of digital activation, digital CRM, store remodel, some of the self controlled factors you have. Maybe you could remind us some of those drivers and kind of what stage you're in rolling those Gucci app, things like that, rolling those out? Thank you.
Sorry, Omar, could you repeat the second question because the sound was not good and we were unable to hear you guys the second question?
Yes, absolutely. Sorry about that. So as we think about Gucci's growth normalization, there's different puts, there's different takes, pluses and minuses. Maybe you could talk more in detail about some of the things that are within your control, the drivers within your control, remodeling the stores, what stage you're at with that, rolling out the Gucci app, CRM digital CRM in the store in the salespeople's hands in the stores. Help us think about these factors as we think about kind of what will the Lucci's longer term growth rate look like?
Okay.
It's very difficult to address your first question because it's a moving pieces. We have a lot of pieces in the equation to understand if we would have invested this and this, what could have been the result of this. I think that it's true that for some reasons, we it's true that we have been, let's say, more less active in terms of communication, And you can easily understand why. I think that we wanted to assess what was the evolution of the U. S.
Market, the reaction of the consumers after the issue we had in the U. S. Before deciding some more marketing initiatives because we were fearing that the return on this additional investment would be very poor considering the context. And that's the reason why we have decided to be less active. Is it an explanation for the performance?
We don't know. It's not the point, by the way. What we know is that now that we have finalized some refurbishment in the U. S, that we have injected some new blood also in the teens in the U. S, We are confident that we have the right organization, the right team to address the point.
We believe that the performance with the U. S. Cluster does demonstrate that the Gucci hit is still there. And I think that we have a lot of energy in our teams in the U. S, and I'm sure that they will react.
What you have mentioned about after that, all the tools and all the things we can put in place to continue to support the growth or reactivate the growth in the U. S. Or in other markets. I think that we don't want to deviate from the strategy and the trajectory we have presented. The rollout of the application you are referring to, the Luchy application, is almost completed in the network.
We have made additional progress in terms refurbishment both in the U. S. But across the board. And still, with the new concept, we are delivering higher level of growth. So I think we will continue to execute the strategy as in the past with probably more vigilance as regards specifically the U.
S. Market. And once again, we have gained such market shares in the past few years that it was normal to have this phase where we are considering what are the next actions. And what will remain at the core of Gucci is creativity. That does remain the priority, and we will continue in that direction.
So now if you don't mind, we will take the last question.
Thank you. And your next question comes from the line of Susie Tibaldi from UBS. Please ask your question. Your line is open.
Hi, thank you for taking my question. I have 3, please. First of all, is there any chance that you could comment on the sequential organic growth trends for Gucci throughout the quarter? Have the trends been homogeneous? Or have you seen a deceleration towards the end, especially given the ongoing disruptions in Hong Kong?
Basically, I'm trying to understand what is exit rate for the brand as we are looking into H2. Secondly, would you be able to provide any color on your expectations for Gucci for full year in terms of organic growth? Are you, in general, comfortable with the current expectations, which seem to be around 14% organic sales growth for the full year? And finally, the results of some of your peers this week have shown an increasing willingness of certain players to increase investments in their brands despite the short term negative impact on profitability in order to support the organic sales growth development? And at the same time, today you have delivered a spectacular level of profitability.
However, hypothetically speaking, should the sales growth momentum start to decelerate due to external factors, would you be willing to step up investments to support the growth? Thank you very much.
Okay. Take a breath. As regards the exit rate, you know perfectly that we don't comment. We never comment our performances month by month to make no sense. You have some shift in terms of calendar.
You have some phasing of deliveries. You have some situation of comp base that can change. However, and obviously, and to be very transparent with you, there is nothing significant to call out June showing in a way similar trends overall to May. Maybe with, I'd say, confirmation in the U. S.
That there was a challenging market. But besides this, as regards Gucci and moreover, the all the brands, let's say, that's the expected pace of normalization that we saw in all markets. And it would make the connection with the second question about the trajectory, the expectation and so on. So as you can imagine, I'm not here to comment the consensus or what are the expectations of buy side and sell side. I know you may remember or you may know that the 14% that you are mentioning was based on an H2 with high single digit growth.
We have already commented about the trajectory of Gucci. And I think that considering the momentum of the brand and what we're doing for the brand, we are confident that we can continue to deliver very solid growth during H2, but still with the pace of normalization that we have already commented. So H2 should be on our side, quite on par with our expectations and quite consistent with the messages we have already delivered for the brand. And your question about what has been done by some competitors, here again, we are not here to comment neither the consensus nor the initiatives of our competitors. I think that we have demonstrated in the past that once again, we can manage both profitable growth and the right investments to support the growth of our brand.
I think that we have the flexibility to accelerate, to adapt our strategy whenever we want. And we will take the right decisions to support the brand, to support the growth of all the brands of the portfolio. I think what has also to be kept in mind is that all the brands of Kering have delivered very, very strong performances, both in terms of sales and profitability. And I think that what is important is also to look at the performance of the portfolio of brands we have.
Share with you our confidence in our strategy and our performances. We are determined to continue building on the very strong positions we have achieved in the past years and in the first half of this year. We wish you all a quiet and relaxing August. We appreciate your interest in Kering and look forward to resuming our dialogue after the summer. Thank you very much.
Have a nice evening.