Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to Kering's 2019 first quarter revenue conference call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you, the conference is being recorded today, Wednesday the 17th of April, 2019. I would now like to hand the conference over to your first speaker today, Jean-Marc Duplaix, Chief Financial Officer. Please go ahead.
Good evening to all of you. We are pleased to welcome you to this call to review Kering's sales in the first quarter of 2019. We provided an overall summary on slide four. Outperformance continued in the quarter. Total reported revenue was up nearly 22% to EUR 3.8 billion, or 17.5% comparable with a significant tailwind from FX. There was no change in scope. This sustained increase in our revenue comes on top of very high comps, as you see on the bottom half of the slide. With the expected normalization in growth rates, we are delivering the same level of incremental revenue in absolute terms compared to last year. Turning to our luxury houses on slide five. Altogether, they posted sound growth of over 17% comparable. Revenue exceeded EUR 3.6 billion. The impact from currency fluctuations provided slightly more than 4% percentage point support, with reported growth close to 22%.
Retail, which represents nearly 80% of revenue now, was up 19% comparable. By region, Asia Pacific up 30%, achieved the best growth, with all countries contributing. The momentum was very strong in mainland China. Both Western Europe and Japan performed well, with revenue up 14% and 12%, respectively. North America, our fastest-growing market in Q1 last year, posted a 7% increase, reflecting this demanding comp base. As a reminder, North America retail grew 30% and 54% in Q1 2017 and 2018, respectively. Regarding key nationalities, for all three main brands, the Chinese cluster was up more than 25% worldwide. Clearly, we are seeing continuing repatriation of Chinese spending, but it held firm in the rest of Asia Pacific, Japan, and Europe, especially for Gucci and Saint Laurent. All other major nationalities grew in the quarter, with the exception of Russian and Middle Eastern customers.
Online penetration further increased, and wholesale advanced a solid 12%. As you know, it is the creativity of our houses and their ability to innovate across the board that fueled their outperformance. All the fall-winter fashion shows held in late February, early March, had a resounding impact. Day in and day out, our brands combine art and science to implement differentiating initiatives online and offline aimed at fostering customer engagement across all touchpoints. And once again, we grew from a stable retail network. At March end, we directly operated 1,286 stores, a net increase of just eight units in the quarter. A few words on our store count as we are adopting a new methodology. From now on, unit counts are based on location under one roof. For example, whenever a brand directly operates two or three corners in a single department store, we consider this one store.
There are some exceptions, like airports, where we view each terminal as a separate building. This method is more representative of a brand's actual retail footprint and provides a more relevant base of comparison with our peers. Obviously, it does not change anything in terms of sq m, sales density, or sales productivity. We provided at the end of this presentation a before and after picture so you can assess the impact and update your models accordingly. Let's turn to Gucci on Slide six. Gucci delivered a very strong start to the year. Revenue rose 20% comparable. Retail also grew 20% on a basis that, as you know, is almost pure like for like. This is all the more remarkable that in both Q1 2017 and 2018, retail sales were up 50% or more. Regarding regional trends, Asia Pacific posted 35% growth with double-digit increases in all countries.
Mainland China was particularly dynamic, supported by the ongoing repatriation of Chinese spend. Trends in Japan and Western Europe remained solid, thanks to both locals and tourists. In North America, the environment was more contrasted at a time when trends normalized as expected following two years of exceptional growth. Over three years, the average North America Q1 growth in retail is approximately 37%. E-commerce grew nicely and accounted for 6% of retail sales. Wholesale was up 16% on a stable number of EUR compared to the previous year. The brand's creativity and finely tuned merchandising resulted in growth across all product categories once again this quarter, driven by both carryover and newness. The teams are hard at work to maximize the efficiency of the offer in all categories, ensuring a proposition that is both balanced and dynamic.
We capitalize on our iconic pillars with seasonal variations, new functionalities, materials, and colors. At the same time, we inject pure newness into the lineup, tapping market segment opportunities, preparing the next generations of carryover, and fueling brand desirability. This is true in leather goods, where you see the continuing strength in the best-selling lines, now complemented by three recent successful introductions. We apply a similar approach in shoes and ready-to-wear. Gucci continues to execute its strategic plan and gain market share. The brand trajectory aims at delivering consistent and sustainable growth with a deliberate focus on improving all retail metrics across regions, first and foremost, conversion rates. The brand is investing in marketing, dynamic communications initiatives, and in the continuing rollout of its store concept to realize its full potential.
Moving to Slide seven, Yves Saint Laurent posted further growth and delivered another solid quarter with comparable revenue up nearly 18%. Retail was up 22% with double-digit increases in all regions and a balanced performance across main nationalities. New and existing stores both contributed to the rise in sales. In wholesale, Saint Laurent grew 8%, a sound performance against a high cumulative comp base as Q1 showed the highest growth in this channel in the past two years. The brand's consistent execution nurtures its momentum. Its recent fall/winter show in Paris was spectacular, with distinctive ready-to-wear silhouettes confirming Saint Laurent fashion leadership. Its outstanding performance in leather goods is driven by a constantly renewed creative proposition. New lines are extremely well-received, while carryovers continue to enjoy broad success.
In the quarter, in line with the roadmap you are familiar with, Saint Laurent opened four net stores to expand market penetration and broaden its footprint. On Slide eight, some highlights for Bottega Veneta, which experienced a challenging quarter ahead of the arrival in stores of Daniel Lee's creations. The sell-through of the previous designer's collections, which represented the bulk of the product offer in the quarter, was low. Daniel's two new handbags gathered an enthusiastic client reception, but they were introduced only very recently and in a limited number of stores. Overall, revenue was down 9% comparable with retail further dragged down by the brand's exposure to tourism and wholesale down slightly on the phasing of the collections. Brand momentum is building up. The fall '19 fashion show, held in late February, unveiled the house's new approach, propelling its course in a more fashion-centric direction.
Feedback as well as order books are encouraging. The first products from pre-fall will start hitting the shelves from mid-May, and fashion show pieces will be available early in Q3, allowing for a gradual shift towards newness in product assortment in the second half. The new Arco handbag from the pre-fall collection is already available online and in Milan stores on the occasion of Design Week. We are very confident in the brand's potential and support its rejuvenation with the investments it needs to build new skills in design teams, new capacity in the atelier, and enhance communications to install the brand narrative across all touch points. On slide nine, we have provided highlights on our other houses. All together, they posted comparable growth of nearly 22% in the quarter. Retail sales accounting for a growing portion of the total, now 54%, rose by 31%.
Asia Pacific was up nearly 50%. All the other regions also achieved solid double-digit growth. In couture and leather goods, retail grew significantly across all geographies as both Balenciaga and Alexander McQueen delivered excellent performances. At Balenciaga, sales were up in all product categories, with particularly good showings from shoes and ready-to-wear. Increases in leather goods and men's underscore the further potential of these categories. The brand is investing in further enhancing sales density and in expanding its retail footprint. Retail sales at Alexander McQueen were also up strong double digits, supported by like-for-like growth in all regions and another sharp increase in e-commerce. Shoes led the advance while the brand successfully rebalances its ready-to-wear and deepens its leather goods offering. The international rollout of the new store concept inaugurated in London is gaining pace.
Brioni retail sales were impacted by the ongoing rationalization of its store footprint with another nine locations closed in the quarter. Excluding this factor, Brioni's like-for-like performance was encouraging, particularly in Asia but also in Europe. The trends in wholesale for our couture and leather goods brands chiefly reflect the decision to gradually raise the contribution of retail to overall sales. In hard luxury, we had a very good performance in jewelry, particularly from Boucheron, up in all regions. The launch of the Jack de Boucheron line in the quarter further strengthens the house's jewelry offering and the extensive coverage of the reopening of the Place Vendôme store supported its visibility far beyond Paris. The development of Qeelin is progressing at a rapid pace, while retail sales from Pomellato are trending nicely. In watches, we are focusing on sell-out through an increasingly selective network of distributors.
The feedback we received following the presentation of new products and refreshed collections at the SIHH Watch Fair in Geneva was very positive for both Ulysse Nardin and Girard-Perregaux. We are also very satisfied with the progress in developing synergies between the two brands, focusing on sharing all manufacturing and support functions while they each retain their separate identities in the market, as illustrated by their recent impactful communications campaigns. With slide 10, corporate and other, I will provide an update on Kering Eyewear, which accounts for the major part of this segment. Had an excellent first quarter. In the period, total sales of Kering Eyewear were EUR 163 million. After elimination of intra-group sales and royalties earned by the brands, net consolidated revenue of Kering Eyewear was EUR 128 million, up 23% comparable.
Gucci had another very strong performance in eyewear, leveraging Chinese New Year celebrations to strengthen its positions in this key region and launching global digital campaigns. Cartier is developing according to plans, as are our other key brands. Major events of the quarter also included the successful launches of the Balenciaga and Montblanc collections. With the new logistics center in northern Italy now on stream and handling 100% of deliveries, Kering Eyewear is in a great shape to further improve customer service levels. A few words of conclusion on slide 11. We continued to outperform in the period, on top of the extremely high comps established in the first quarters of the past two years. We remain fully confident in our brands' capacity to leverage their creativity and market leadership.
We are also adapting swiftly to the changing geographic makeup of our sales, due in part to the repatriation of Chinese spending, and we are closely monitoring our environment. In this context, we are watchful and maintaining strict financial discipline. In the longer term, we stand by our ambitions. We are comforted by the performance of our brands in this beginning of the year, and confident in our ability to continue delivering steady, sustainable, and profitable growth. We are now ready to take your questions.
Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, that's star one if you wish to ask a question, and hash to cancel the request. Please stand by while we compile the question queue. Your first question comes from the line of Edouard Aubin. Please ask your question.
Good evening, Jean-Marc and Claire. I have three quick questions, or questions on Gucci and all related to geography and nationality. My first question on Gucci is that you grew around 12% in Europe in the first quarter. I know you said that sales with Europeans were up, but to what extent the increase was driven by tourists or not in Europe in the first quarter? Are we talking about low single digits? If you could quantify, that would be helpful. My second question relates to that, is that if you look at European customers, they were early adopters of the Gucci brand back in 2015. To what extent could it be a lead indicator for other nationalities like Chinese nationals or not?
Just finally on the U.S., which you obviously mentioned earlier, if you could just please quantify a little bit more in terms of what your analysis is. I get the very difficult comp base and you performed very strongly last year and the year before, but the performance was nevertheless below initial expectations. Could you please say a word on desirability? Social media surveys seem to indicate that desirability is down in the U.S., but what are your surveys saying? What is the feedback from the trade on the desirability of the Gucci brand in the U.S.? Thank you.
Thank you, Edouard, for your questions. As you may imagine, I won't provide detailed figures when it comes to the trends in Europe. What I can say is that it's true that for the first quarter, despite what are the figures already communicated by Global Blue, we had for our brands and Gucci specifically, a good support from the tourism. It's clear that in almost all clusters, trends were strongly up, especially with Chinese, but also still with American. American cluster was particularly dynamic in Europe. Just to summarize, in a way, the growth of the tourist cluster was above the growth of the local clientele base. Still, it was up with the European clientele, reflecting in a way, let's say, also the normalization of the growth in the region.
It's clear that for that segment of clientele, it's not a double-digit growth, but it's still very sustained. I would add also that we are still suffering in Europe from a lag with Middle Eastern and Russian customers, even if it was less declining compared to the past, but on easy comp base. It's true, and you're right to point out that European customers, and to a certain extent also with a catch-up with the U.S. customers. European customers were the early adopters of the new aesthetic. After that, there was a quite rapid catch-up with the American customers. It does explain why the performance has been so strong in North America in the two past years. That's very interesting to compare the stack growth of Europe with North America. You see that it's quite consistent over the last three years if we compare only Q1.
It's very difficult to say and to predict if the trends in Europe or with the European customers could be a sort of indicator of what would happen with the Chinese customers. I think that the dynamic behind, in terms of economic trends, are not totally comparable. It's true that we rather see a very sound consumption base still with the Chinese cluster, and more globally in many emerging markets. For I think we know perfectly that we have a more mature clientele in Europe, in the U.S., and in Japan. I do believe that we should consider this, the trends in Europe, as an indicator of what could happen with the Chinese clientele. After that, making the connection with North America. It's true that it has been a more challenging quarter for Gucci, but, again, we are facing a very high comp base.
It's true also that, as you may know, the North American clientele is more skewed towards ready-to-wear and shoes and less on handbags. If you consider the predictions for 2019 in terms of growth, if you consider Bain & Company Altagamma analysis, we could expect that the handbag category should grow faster than the other categories. It may explain also part of the trends we had in the U.S. After that, if we consider, without providing the figure, the like-for-like growth in the U.S., it was quite robust. I think that the performance of Gucci, in terms of like-for-like, is not really fundamentally different or significantly different from some other brands of the group in the country.
We have also some indicators showing that the traffic also in some areas on both were impacted, maybe by less confidence with the U.S. customers and a macro environment which is maybe not so supportive as it was before. I think we are working clearly on the assortment, on the merchandising, in order to better address the U.S. market. There is no specific concern so far. Last point also, on some SKUs, some delivery issue in the U.S. It may explain also that we had late deliveries. That could explain also why we have this performance. This is a combination of factors, and there is, let's say, nothing alarming so far. We remain confident for the remainder of the year in North America.
Okay. Thank you so much, Jean-Marc.
Thank you. Your next question comes from the line of John Guy. Please ask your question.
Yes. Good evening, Jean-Marc and Claire. Three questions, please. My first question is just on Gucci in terms of the store network. I think as at the year-end, 44% of the network was in the new format, and you were targeting around 60% by the end of 2019. Could you update us as to where we are at the end of the first quarter, and if there were any specific trends that you saw in terms of footfall conversion in the first quarter? My second question is on price mix. At Gucci, were there any specific increases by category or by region during the quarter that you wanted to call out? On Bottega, I just wanted to get a sense of how many stores Daniel Lee's collections were present in, and what was the % of the sales penetration in those stores. Thank you very much.
Regarding the new concept, first of all, as you will have noticed, we have changed the methodology in terms of store count. The 44% was based on the previous calculation method. We are tracking still the % of completion based on the old method. I think it does give, in any case, a good indication of where we are. The first quarter is not a quarter super active in terms of refurbishment or store openings. As you will have also understood, we have opened a very limited number of stores net on Gucci. At the end of Q1, we had approximately 45% of the network with the new concept. It does not change the ambition, by the way, to be at 60% approximately by the end of the year, still relying on the old counting method.
It should be more or less a good proxy of where we are in terms of new concept. That said, what we see, and it's more a general comment about the performance of Gucci during the quarter, and it will answer partly to your second question. The performance of Gucci is once again driven principally by quantities, by volumes. What is interesting is that there is a contribution of traffic, but we start to see across the board a normalization of the traffic, especially in the more mature countries. What we saw is an improvement of the conversion. All the metrics we are tracking, we see globally an improvement. We are very happy with the progress made, and we see that finally all the levers we were working on for now several quarters, start to pay off in terms of conversion and globally retail metrics.
That at the end of the day, yes, there is still another performance of the stores where we have the new concept. In terms of sales growth, if we look at the sales growth, with analyzing the different clusters of stores, it is obvious that the stores bearing the new concept are performing better in terms of growth. Overall, across the board, what we can see for the quarter is that the performance is not driven by an increase of the average selling price. The price mix, you have some here and there from one region to another, from one category to another. You may have some changes, some variances up or down, but obviously we cannot consider that it is material and that it isn't worth commenting anything on that, because it is just a reflection of some changes in the mix.
There is no major changes, and principally the performance is driven by volumes and with an improvement of the retail KPIs. As regard Bottega Veneta, it is true that you know that the spring collection or the pre-spring, had been designed principally by Tomas Maier, and the remainder of the spring-summer offer assortment was designed by the studio. We had only two handbags designed by Daniel Lee. It was a way to test the market, and that is the reason why we had only, let's say, 10 stores where the products were available. Obviously, since mid-February approximately, where we have been able to deliver the first pieces, with a ramp up, of course. What we can say is that they have been sold out. It has been a super interesting performance. Super interesting also because we saw that in terms of clientele, we had a new profile of clients.
We had in proportion more new clients, even if it was also super successful with the existing clients. It is a good indication. It is just an early indication, and of course, it has not really moved the needle in terms of performance because it was really a minor part of the assortment.
That is great. Thanks very much, Jean-Marc, bon courage.
Thank you. Merci.
Your next question comes from line of Antoine Belge. Please ask your question.
Yes. Hi, good evening. It's Antoine Belge, HSBC. Three questions. First of all, regarding the performance of the first quarter and mid-February that mentioned that the trends were pretty much in line with Q4, which I think the market understood as being above 25%. Is it possible to comment a little bit on the regional slowdown that you've seen, the U.S. that drove most of the slowdown? Second question, you mentioned the repatriation of growth in mainland China, and there's a very strong performance of the Chinese cluster in general. Is it possible for you to update the share of Gucci sales to Chinese and maybe the split? I think it was 45/55 in terms of local versus tourist. Finally, coming back to the U.S., you didn't mention any impact of the incident you had during the quarter. Was it not meaningful in terms of impact?
Also with regards to the issues of deliveries, were they only impacting the U.S. also, if they had an impact in other regions as well? Thank you.
Thank you, Antoine. I think it's important to come back to what had been said by François-Henri, you're right, during the full-year results presentation. He was mentioning that there was a strong start of the year, but he had mentioned and reminded that because of the anticipation, in a way, of the Chinese New Year, it should be analyzed after at least combining January and February to have the full picture. It's true that at the beginning of, or until the presentation of our full-year results, the trends were more or less consistent with Q4, and more specifically in terms of patterns of consumption, meaning the situation with the Chinese cluster in mainland China and so on. After that, if we combine January and February, there was in a way, a form of normalization of the growth at Gucci, which was I think quite anticipated, at least on our side.
I think that we have been quite transparent and vocal about what could be this normalization. Without commenting region by region, month by month, what we can say, and that's very interesting, and I think that the occasion also to mention that is that if you look March more specifically, the trends in March were globally consistent also with the trends experienced for the combination of January and February. We cannot say there was an additional decrease in March compared to the two previous months. That should be analyzed altogether because otherwise it's not meaningful. You know that at the beginning of January, you have a decrease of the European consumption. After that, you have some pickup gradually. I think that overall, let's say that there is no surprise on our side and the pace of normalization is quite consistent with what we are foreseeing.
Now, the repatriation in China and, let's say the very healthy situation we have with Chinese, of course, you can imagine that it has increased slightly, the share of Chinese among our clients. Considering also that you cannot really consider Q1 specifically because Q1 generally, you have another representation of Chinese in the clientele because of the Chinese New Year. Just to remind you, if I remember well, for the full year last year, we had one-third of the clientele of Chinese, while in Q1 2018 it was something like 37%. You have a three, four percentage points gap between the quarter and the full year picture. What has been said also by François-Henri is that considering the very healthy trends we have with the Chinese, we could expect that for the full year, Chinese cluster could represent something like 35% of Gucci.
I let you imagine what was more or less the weight of Chinese in Q1 for Gucci. Your last question was about,
Hello, François-Henri. Do you want to know where they're spending? Was it part of your question? Local versus remote?
Yeah. I wanted to have maybe a split between mainland and tourism, but I understand that Q1 is maybe not meaningful.
No, no. In that sense, it's a little bit meaningful because it does illustrate how important is the repatriation. It's true that we are around slightly below 50% in terms of consumption locally on the domestic market, which is probably a very high level that we had not experienced in the past few years. You have a big share, of course, consumption in Asia, broadly speaking, if we include also Japan. It's approximately 35, 36% in Asia. The bulk of the remainder is principally in Europe.
It's true that, and it's important to remind you that we have probably lost 1.5 percentage point of growth in North America because of a decrease of tourism, both from Chinese and Latin American, in the U.S. Also, it has impacted a little bit the North American market, because there was clearly a decrease of the Chinese cluster in North America. A big repatriation in mainland China and something which is quite well-balanced, and I anticipate probably the question, between the different tiers in terms of analysis or clustering of the cities in China.
The last question was on blackface.
Last question, which is a very important one, about what happened in the U.S. Obviously, the priority here about the blackface issue was not to quantify the impact on Gucci business, but rather to react as promptly as possible to what has been obviously a mistake. Gucci had alleged, without any ambiguity, that such situation was not acceptable, even if it was also very obvious since the beginning that it was not Alessandro Michele's intention to inflict any pain. We believe that Gucci and more globally, Kering, have managed the situation in the best way as possible. We have some more initiatives to come in order to place diversity and inclusivity at the core of our key decisions. I think that obviously, we should not consider the performance in the U.S. because of that event.
What is really more important is the incredibly high comp base due to the outstanding performance of the brand in 2017 and 2018. Once again, I think that there is a slightly less favorable environment for retail and also for luxury, in the U.S. We won't quantify any impact on that side, and I don't believe that it had, at the end of the day, a very material impact.
The next question comes from the line of Thomas Chauvet. Please ask your question.
Good evening, Jean-Marc and Claire. I have three questions, please. The first one, coming back to the Gucci slowdown in the U.S. and to some extent, in Europe. Could you comment a bit more on whether certain product categories, price points, age groups, for instance, millennials, have slowed down more than others in the period? When I look at the segment reporting disclosures, it looks the slowdown in the U.S. and Europe was a lot less pronounced at YSL or your other luxury brands, probably Balenciaga and McQueen, than Gucci. I'm trying to understand what's really Gucci-specific here.
Secondly, on the topic of pricing and repatriation, when you look at what's been happening for Gucci and your other brands, greater demand in mainland China, less in foreign markets in the last six, nine months maybe, do you think it has a lot more to do with some very mechanical effects on pricing, currency moves, import duties cuts, more recently, VAT cuts? Is it maybe a more serious attempt by the Chinese authorities to crack down on Daigou, which is probably quite a sizable chunk of some of your foreign markets? Is it maybe your own ability to actually drive traffic conversion offline, online in China and just generally greater brand interest?
Finally, on Puma, back in February at the full year results meeting, you said, or Mr. Pinault perhaps said you were a very happy shareholder in Puma, but you would consider exiting that residual stake if an opportunity arose. The shares are up 15% since then, I guess you were right maybe to wait a little bit. You are probably a happier shareholder now. That stake is worth EUR 1.3 billion. What would you do with the proceeds if you were exiting it in one way or another? Can you give us the exact date of the lockup expiry for Artémis' 29% stake? I think it's around mid-May, I'd like to know the exact date of that lockup. Thank you.
Thank you, Thomas, for your questions, and especially to have provided already the answer to the second question. First point, at Gucci, I think that it's clear, and I have mentioned this, that the fact that the European clientele and also the American clientele are more skewed towards shoes and ready-to-wear, and on top of that the European customers were among the early adopters. Of course, if you look at the overall performance by category, even if it does remain robust across the board, it's true that the pace of growth of ready-to-wear and shoes categories are below the ones of handbags or small leather goods. We have a super strong performance in handbags and small leather goods, which is not surprising considering the boost of the business with Chinese. Besides this, it's very difficult to add anything.
I think that here, we are not surprised to see that what we were expecting in terms of normalization does start with these two categories. I think that the Gucci teams are working in order to continue to fuel the offer with newness, but also work on the carryover lines or the pillars. You know that we have mentioned that we wanted to not to have the same proportion of carryover in ready-to-wear and shoes as in handbags. Still, there is this ambition to constantly bring some new interpretations, new functionalities to the pillars. That's the case in handbags. That's the case also in ready-to-wear and shoes. We are working. What is interesting is that typically, these are not categories where we have some changes in terms of price mix, so it means that we don't push at any price to make volumes. That's super important.
We had already some discussions about the exclusivity of the brand, the good answer is this, that of course, we could continue to grow even faster in these categories, that's not the ambition of Gucci. The price mix does remain quite stable and even as you saw some categories where we had rather small variance, positive variance in terms of average selling price. I think that typically for these categories, we are in this phase of our normalization, but very confident with the pipeline of products we have, and also with the reception by the clientele in the stores. As regards China, I was kidding a little bit because you have mentioned a lot of factors explaining or trying to explain why the brand is so successful in China and if it's detrimental to certain countries or certain activities. I would just start with an indication.
China, for Gucci, became the third online market after the U.S. and the U.K., with a very rapid growth. The desirability of the brand in China is super high. We had also, as you know, a very strong success on the social media in China, with a very rapid development of followers on WeChat. Which has been one of the most rapid increase or one of the strongest increase in terms of traffic and visits and also, clearly engagement. Overall, I think that Gucci was well prepared in China. You know that we have not decided to open many stores and to add some stores or any pop-ups. We were really very happy with the network we had. I think we have also the right store concept.
What is also encouraging in China, that it's a country where we have the lower share of refurbished stores with the new concept. Globally, I think that all the actions, the initiatives launched by Gucci in the country, plus repatriation, which is at the end of the day, quite sound, does explain the performance. After that, the repatriation is clearly linked to the geo-pricing. You're right to mention that because of different factors, FX, tariff adjustments that have been translated into prices, it has been clearly an incentive for the Chinese customers to buy rather in mainland China. It had an impact in some countries. You can see that in Korea, the market was still very dynamic. We cannot really say that the Korean market was only driven by Daigou.
It was also a market driven by local clientele and some Chinese customers who are not Daigou customers or buyers. I think that all brands, and Gucci included, had already started work in Europe, to reduce or to have a tight control of Daigou. We cannot really say that it could explain the decrease of business in some other regions. Daigou was a chunk of business, but globally speaking, we are quite happy to reduce that exposure. Regarding Puma. I confirm that we are a happy shareholder. Tomorrow, there will be the AGM of Puma. We will confirm that we are very happy with that stake. I think that the comments that have been made by Mr. Pinault or Jean-François Palus when we presented the full year results are still relevant.
As you know, there was not an ambition for Kering to be a long-term shareholder in Puma. To answer your question about the lockup, even if I should not have to answer to that question, but it was very clear and announced at the time of the operation that Artémis had a one-year lockup. That should end in May. Nothing to add on my side. We are vigilant. We are scouting the market, and as said by the top management of Kering, we will seize an opportunity in due time. When it comes to the process, I think that François-Henri and Jean-François made already some comments about the M&A and about the dividend policy. I've nothing new to add also on top of what has been already said by the top management of Kering.
Thank you, Jean-Marc.
Thank you so much.
Your next question comes from the line of David Da Maia. Please ask your question.
Hi, everyone. Thank you for taking my question. The first one on Bottega Veneta. How do you manage the current creative transition? Have you planned to reduce earlier the visibility or the volumes of the former collections in order to give more space to the new collections, in late Q2? Or should we rather expect a smooth normal transition for the brand? The second question on Balenciaga. It is still your fastest growing brand, since the beginning of the year. Do you want to outline some key drivers, not only in terms of product category, but also in terms of customer nationality in order to better understand the current very strong momentum of this brand. Thank you.
Thank you, David. Your question about Bottega Veneta is a very relevant one. I think it will be key, when the fall-winter collections will hit the shelf, and especially the pre-fall, to have a layout, a visual display, a merchandising strategy allowing to present in the proper way the new products. There are some cases with the new stores, for example, the Los Angeles one or the Tokyo one, Ginza, where we have already a concept which does help in that process. It will be clearly challenging because you know that we cannot completely skip the old collection. We have the chance with Bottega Veneta to have a significant share of carryover and permanent lines, which are still successful. Unfortunately, they are not enough. Let's say that there is still desirability about the permanent collections.
If you look at the figures, clearly they are decreasing and are not yet offset by newness. This is clearly a basis on which we need to rely, as that is part of the identity of the brand. We need to manage carefully how this transition will be managed. Clearly, that will be what will happen rather at the end of Q2, beginning of H1, or H2, sorry. It will be very gradual. It is a gradual shift towards newness in the product offer. Today, we are rather in to have a very vast majority of carryover lines. During H2, there will be a shift with more and more weight of the newness. The reason why, obviously, as you see, Q1 was below some expectations, including our expectations to a certain extent.
The recovery should come rather during H2, once the transition will have started. It should be, in any case, a quite modest positive inflection in H2. We need clearly to manage that transition, and the carryover lines still need to be presented and exposed. Balenciaga. It has been clearly, as recorded, the strongest growth in the ready-to-wear or couture and leather division. To be very transparent, Celine had another excellent quarter. In the segment of ready-to-wear and leather, it was the fastest-growing brand. I will come back as you propose to what have been the drivers of growth by category, even if, once again, ready-to-wear and shoes drove the growth with still a very robust performance in leather goods. I think that this is now a phase where, first of all, there is a focus on retail.
It means that the brand now has the maturity to focus more on retail, and wholesale was still up in Q1, but there are some conversion of some wholesale activities into retail. There is clearly a strategic decision to control the wholesale channel. Not in the sense that we had an issue with the wholesale channel so far, because Balenciaga historically had a quite good point of sale in terms of wholesale, but just the question of shifting the activity towards more retail. The priority will be given to retail going forward, with some new openings. Going forward, we expect a normalization of the growth also at Balenciaga, but still at a very high level of growth, high pace. We will work more on retail KPIs because we had a very rapid increase of the sales density, thanks to the traffic.
As you know, after a phase of expansion, there is a need to consolidate and to activate all the levers as it happened at Gucci. We are not yet at this stage, but clearly, there is a need in the existing stores to boost even more the productivity and the density. We have some ambitions in terms of store openings. All these factors, clearly, we will accelerate in the coming quarters, but there have been already some elements helping the performance in Q1.
Thank you.
Your next question comes from the line of Flavio Cereda. Please ask your question.
Yeah. Hello, good afternoon. Three quick questions from me, please. The first one, again, I'm afraid, looking at Gucci. Following up on what was asked earlier in terms of the speed of the rollout of the new store concept or the lack of speed. According to my calculations in the last year, you basically were looking at less than 80 stores. I was wondering, and clearly this must be a deliberate strategy, if you could help us understand a little bit more the thinking behind that, because if you confirm the target to 60% by year-end, there's going to be a significant ramping up in the remainder of the year. That was number one. Number two, could you perhaps give us the percentage of e-commerce, the weight on wholesale sales as it is today, a rough idea of what that is, and for Gucci.
This is not related to Gucci, it's not even related to Q1, I'm going to ask it anyway. When do you think we're going to have some kind of visibility on the final resolution of your situation with the Italian tax authorities so that we are able to have a better visibility on that? Thank you.
Thank you, Flavio. You are not to apologize to this question about Gucci. Yes, it's true that the ramp-up is ambitious for Q2, Q3, and Q4, in terms of refurbishment. I think that that was the way Gucci had anticipated the refurbishment for this year. I think that there was a decision to be at full speed in Q1 because of the Chinese New Year and to schedule some work and refurbishment for the following part of the year. As usual, when you are scheduling some work and some refurbishment work, you cannot completely be accurate because it depends on the availability of the construction company, it depends on the capacity to deliver the materials. Obviously, that's the reason why we say it should be around 60%. Should it be 59%, 58%, 61%? Difficult to say.
Today, there is no reason to believe that there will be not an additional significant wave of refurbishment, considering that, as we already mentioned, we are not necessarily targeting some flagships or big freestanding stores. I remain confident that the team at Gucci can deliver what they had in mind in terms of refurbishment for this year. It's absolutely key. In our recent discussions with Gucci, not any comments or any requests from changing the timeline in terms of refurbishment. As regards to e-commerce, and the share of e-commerce within wholesale, it's not a figure that we are providing. What we can provide you is, as usual, what is the share of e-commerce in retail, which is 5.9% for Gucci. If I remember, slightly more. Sorry. It's more than 6% overall, with still big markets leading the way. I mentioned China, U.S., and U.K.
Some markets start to accelerate also online. For example, Germany was already high in terms of share of business made online, and France accelerated. Maybe it's an outcome of the difficulty in France to shop on Saturday because of the yellow vest. Anyway, we had a very good trend in online in France. For wholesale, I would make just a qualitative comment. I think that the strategy of Gucci was rather to convert some online store to operate them directly or under a concession model. We have a limited number of partners online, and you know that we are always working with the best partners as possible, be it in terms of physical distribution or online distribution. There is no major change in terms of breakdown of sales with wholesale partners between offline and online.
We will continue to work with the partners we have online with the ambition, clearly, to have more and more grip on the online distribution. As regards this question on the tax litigation, let's say that the group continues to fully cooperate in complete transparency with the Italian tax authorities in order to close that litigation. Nothing new happened since our press release of last January. As clearly stated during 2018 results conference, we expect that the final conclusions of the tax audit may be communicated, discussed, and agreed, in the coming months before year end. As soon as we will have more precise indication of the final outcome, we will, of course, communicate comprehensively to the market.
Okay. Thank you very much.
Your next question comes from the line of Rogerio Fujimori. Please ask your question.
Well, hi, Jean-Marc and Claire. I appreciate this is just a sales update, but I just wonder if you could make some comments on the margin outlook for the first half regarding three areas. First, is there any material impact from hedging on margins year-over-year in the first half, assuming current spot rates for the balance of the year? Secondly, any timing factors with regards to some important investments in H1, H2, like phasing of marketing and the investment to support the BV turnaround? Thirdly, is there any material margin difference for Gucci between mainland China and the U.S., given the big geographical shifts seen in Q1? Any qualitative color would be helpful. Thank you.
Well, it's always difficult to make provisions on FX rates. Therefore, it's difficult to predict what could be the impact, in terms of hedging. Globally, just to help you to understand, assuming that the rates stay at March 2019 levels for the remaining part of the year, FX impact on sales and not hedge, for the full fiscal year should be or could be slightly positive around 2%-2.5%. I think it's, by the way, a figure that was also shared by L'Oréal and some peers. If the FX would stay as they are today or as they were for March, and not for the average of the quarter.
In that case, yes, the hedging policy would result in a hedging loss. Which is at this stage too early to be quantified, and it will be too early to quantify, let's say, the combination of FX and hedging. Does it mean that we are concerned about the achievement of the ambitions we had in terms of profitability for our brands and especially Gucci and Saint Laurent? Obviously, no. I think that, as I already mentioned in past calls, we are working in a way to try to offset any deviance deriving from hedging. I think considering the size of Gucci and Saint Laurent, there is clearly room for maneuver to offset any negatives coming from hedging impact. The second question was if, I remember well, yes, some events that could impact margin.
Let's say that I don't believe, obviously, that we are in a situation today at Gucci or Saint Laurent or even Balenciaga, McQueen, where there are some reasons to deviate from the ambitions we have in terms of profitability. We had a roadmap of initiatives for our brands, marketing, communication, events in the stores. There is no reason today to change and to deviate from that roadmap. Obviously, we remain confident as regards the profitability of our brands. I think there is something more specific on Bottega Veneta. It's clear that because of the trends we had in Q1, plus the need to clearly support the brand on some initiatives that I have rapidly touched on during my speech.
Let's say that there would be some more pressure in terms of EBIT margin at Bottega Veneta, and that we can expect that we should be closer to 20% compared to what we had already said before. Besides Bottega Veneta, we are still quite confident about our capacity, the capacity of our brands to deliver an additional improvement in terms of EBIT margin as expected. As you know, we don't provide figures or more indications about the profitability country by country. It's clear that today, despite the slowdown experienced in the U.S., we have a level of traffic where we are in a position to absorb. We have a level of traffic and sales, giving us the opportunity to absorb quite well the fixed costs we have in the U.S.
Conversely, in China, the more traffic we have because of the variable part at the end of the day, the EBIT margin is improving modestly because there is just a little share of fixed cost. At the end of the day, today, we are still at Gucci with the level of sales and traffic we have in a situation where, of course, Hong Kongese or Chinese stores can be more profitable. Overall, the profitability across the regions are quite even.
That's great, Jean-Marc. Just a super quick one. Was the trend in e-commerce growth rate for Gucci in the U.S. in Q1 similar to Q4 e-commerce in the U.S.? Thank you.
Roger, I think it's a bit too detailed to give you that. We can catch up afterwards because we still have a few questions lining up, if you don't mind.
Sure. Thanks.
Thank you, Roger.
The next question comes from the line of Mélanie Flouquet. Please ask your question.
Yes, good evening. Thank you for taking my question. The first one is regarding the Gucci profitability confidence for the full year. When you talk about any room for maneuver, you're referring to price increases, OpEx control, or both? I was curious to understand what the size actually enables you to do and the momentum of this brand and where we're seeing the levers. My number 2 question is, you're referring on Gucci as the main focus being conversion. Could you share with us whether there are some stores or some initiatives that has led to superior conversions and that therefore could be, "relatively easy, low-hanging fruits" to improve your conversion? How do you map this out when you say you have big opportunities against your peers or your best peers, or is this against some of your store operations? My last question is on BV.
Would you be able to share with us what you had shared with us at the time of the turnaround of Gucci, which is the gradual percentage penetration of the new products that you foresee. By September, by December, by mid-next year, what percentage of the offer would be the new product? Thank you very much.
Thank you, Mélanie. You know that Gucci is always very cautious when it comes to price increases. There is not a plan to increase prices specifically besides what is the normal policy of adjusting prices collection by collection, depending on the FX moves and so on. You will have noticed that we have rather decreased the prices in China recently since the 1st of April because of the VAT adjustment. When I was mentioning room for maneuver, it's more about the agility of the brand to adjust the OpEx. You can imagine that I was referring to the drag that could rise from or link to the hedging.
We are talking about some amounts with the combination of the favorable FX that could be easily absorbed at the Gucci level regarding the cost base and the capacity we have to adapt the pace of investments to postpone. Clearly here, I think I was referring principally to OpEx control. That was the point. It was clearly a question of phasing of the project, that we have in the past few years anticipated a lot of initiatives and projects. Clearly we can, let's say, play a little bit with that phasing. When it comes to the conversion, I think that there is, if I may, something which is quite mechanical. At the time, we already mentioned that what was clearly outstanding at Gucci was to have both an increase of traffic and an increase of conversion.
Today, with the stabilization of traffic, there is an increased conversion, because also there is a mechanical effect in a way, because the people who are entering the stores, you have a lot of regained clients or retained clients, who come to buy because they love the brand, they know what they want to buy. Mechanically, there is an increase of conversion. On top of that, we have mentioned, and it was the purpose of the presentation of Jean-François for the full year results. We had a lot of initiatives and implementation of some tools and solutions to improve retail metrics, not only conversion, but also all the other retail metrics.
It's obvious that the rollout of the Luce solution, which is the app which is made available for sales associates, clearly does help at a time when you start to see a normalization of the traffic, to increase the conversion, to spend more time with the customers, to have a more dedicated approach, a more personalized approach. Obviously, Jean-François had already mentioned that all these initiatives are low-hanging fruits that we can grab in the different stores, while we will continue to roll out the solution. We have also all the initiatives that we have mentioned about artificial intelligence and how we can have a better modelization of allocation and replenishment, in order to maximize the conversion. I think that globally, we start to see, let's say, the results of this initiative.
You're right to say that the more our sales associates will be trained, the more the solution will be rolled out across the network, we will be able to further improve. I would add also that the full year effect of the conversion, or let's say, the transformation of some stores with the new concept, because you start to have also the full year effect of all the transformations that have been made last year, also pay off for this beginning of the year. The last point, it's a good attempt, I must say, but you can imagine that it's not something that we will share specifically. I think, as we mentioned, it will be very gradual. There is a shift that will be, in a way, quite material, because we are talking about a lot of new product in the pipeline, especially in ready-to-wear, in handbags also.
You may have noticed that we have already made available a new bag, which is quite interesting and which is sold online. Also that was available in the Milan store recently during the Design Week. It will be very gradual, but we won't communicate any figures on the split between newness, carry-over, old collection and so on.
Thank you.
Hello. I think we have to speed up a little bit, so maybe we take the last question.
Your next question comes from the line of Alberto D'Agnano. Please ask your question.
Hi. Good evening. Yes, a very short one from me, please. You mentioned in your reference document that as part of the omni-channel development, Saint Laurent will be the first brand to benefit from Farfetch's partnership set up with JD.com. Could you just give us some detail on the timeline for the implementation and whether you've already maybe added some other brands to the partnership? Just touch upon how the logistics would work for the orders, and what are the key benefits for you beyond, I guess, visibility on a different platform. I'm thinking speed of delivery, customer service, et cetera. Thanks.
Alberto, I'm going to be very straightforward on this one. You know we are planning a capital market day this year about digital, I think it's a good question for this capital market day and not for Q1. If you don't mind, we're going to keep this one for next time.
Yeah. I would just add what is a priority also of the group today and our brand is the project of internalization-
Yeah
of the e-commerce after the end of the joint venture with YOOX NET-A-PORTER, that will be beginning of 2020. We are working on that project, which is super important. As presented by Jean-François during the full year results, there is a bunch of initiatives around that. One of them, which is already super efficient, is what is about customer care, which is clearly gaining traction and full speed in some countries. That's also what is even more important for us, as you know, is to have more control and more grip on our online distribution, and that's clearly what we are working on. Of course, what you have mentioned is another initiative, but it's one among some others.
More to come about in the digital day.
Great. Thanks very much.
Thank you all for attending our call and for our discussions, fruitful and interesting discussions. Please write down July 25th after market in your calendars for our half year results and call. In the meantime, please call Claire and her team if you have any further questions. Thank you again, and have a nice evening.
That does conclude our conference for today. Thank you for participating. You may all disconnect.