Good morning. Welcome to presentation of Kering's Annual Results. In several respects, 2017 was a phenomenal year for Kering and especially for our houses. I don't know of any other group of our size that saw such substantial annual growth in 2017, which is to say that last year we created over €3,000,000,000 additional in revenue, €2,300,000,000 in Luxury alone, and we did this in a fully organic fashion. We generated over EUR 1,000,000,000 in additional operating income in 2017.
Above and beyond Gucci's spectacular development in all of its markets, Saint Laurent continued its sustained growth. Bottega Veneta continued its redeployment. Balenciaga is very much making good on its promises and all of our other luxury brands have also grown. We can say that 2017 was the year when we demonstrated very clearly the power of our business model. It's a year where we very clearly became number 2 of the luxury world.
And we can say that our vision now influences the entire industry. 2017 will also be the year of the completion of our transformation into a luxury pure player. The beginning of January, we said we intended to pay out to Kering shareholders most of our stake in Puma. We have a sound financial structure with the generation of cash flow, which is quite substantial. We felt it made sense then for caring shareholders who supported us for the years of Puma's recovery to reap the benefits of the substantial potential of the Puma brand.
We can say that growth at Puma is just at its beginning stages. We're going to further step up the tension resources that we earmarked for our luxury brands so that they can boost their development and value creation, further strengthening them thereby. In 2017, we achieved things that would have been unimaginable just a few years ago. This is a success that we owe 1st and foremost to our 44,000 employees. Together, all of us have very much made good on our signature empowering imagination.
We're talking about a boundless imagination, an imagination for both creation and execution and imagination, which has really enabled us to take flight. I'd like to hand the floor now to Jean Marc, who will run us through our 2017 results. After that, Jean Francois will explain to you the ways and means the Puma operations being carried out and our group's new profile. Then I'll take the floor once again to talk to you about our intentions, our strategy and of course, we will field your questions after that.
Ladies and gentlemen, good morning. As Francois Henri Pinos just indicated, 2017 is a record year for the operating performance of Kering. Revenue stands at close to EUR 15,500,000,000 up 25% on a recorded basis. Currency effects are unfavorable to the tune of EUR 221,000,000 weighed exclusively on the second half because they were slightly positive in the first half. There's no scope effect on the year.
Organic growth like for like and at constant currencies reaches over 27%. It's the best performance of the group since the acquisition of Gucci. Let me state here that Kering Eyewear contributes 2.2% organic growth at constant currencies. Trading was very strong with sales at EUR 352,000,000 and a contribution to consolidated revenue of EUR 272,000,000 after elimination of intra group sales and royalties received by brands. Group revenue remains well balanced in terms of geographical distribution.
It has changed somewhat year on year. Europe and Asia Pacific gained a few points at the expense of Japan, essentially. These two regions now represent 30 3% 27%, respectively, of revenue, thanks to comparable growth rates in excess of 32%, Japan at less than 10% of the total, but saw accelerating trends throughout the second half. Lastly, North America, which contributes to 21% of the total, is up 23% and delivered a good 4th quarter. Recurring operating income is up at EUR 2,950,000,000, a remarkable performance of 56 percent up over 2016.
In absolute terms, that's an all time record for the group. Operating margin reaches 19%, up 380 basis points over 2016. At EUR 2,320,000,000 free cash flow doubles over 2016 with the CapEx level maintained at around 5% of group revenue. In accordance with our capital allocation priorities, we devoted the bulk of this cash generation to reducing our net debt down over EUR 1.3 1,000,000,000 and stands at around EUR 3,000,000,000. That's a ratio of 0.9 times EBITDA.
This year,
we really did deliver on the priority given to organic growth for the group. It was both sustained and constant throughout the year. For Luxury, annual growth stands at 30% like for like. The second half growth is even slightly higher than that of the first half in spite of a more demanding base effect as to Sport and Lifestyle. Performance was very steady throughout the year with like for like growth of the order of 15%, Puma up close to 16%.
The strong increase in revenue was accompanied by an even greater increase of ROC, up 56%. Contributions of Luxury, Sport and Lifestyle, respectively, up 50 16, notably of an shows an increase over 2016, notably of an increase of the long term incentive plans, reflecting the rise of the Kering share price in 2017. The contribution of Kering's eyewear is slightly positive for the period after amortization of the indemnity paid to saprolo. All in all, ROC is sharply up. You have the corresponding changes on the slide in 1,000,000 of euros.
Turning now to greater detail of our businesses. A luxury increase of revenue, 27.5 percent on a like for like basis is hampered by negative ForEx effects of over 2 points on the year with an inversion in the second half that is penalized by 6 points. Comparably, annual growth is of 30%, showing a very strong outperformance versus sector. The revenue of the Luxury division exceeds the EUR 10,000,000,000 mark at EUR 10,800,000,000 Business was driven throughout the year by excellent sales momentum in our stores, up 35% trends very strong in Western Europe, Asia Pacific, North America. Online sales are up by 73%.
Sales to 3rd parties are up 17% on the year. Q4 continues with these trends with own store retailing up 36%, driven by acceleration in North America and Japan and strong momentum in Western Europe and Asia Pacific. All in all, in Q4, Luxury is up 31%, growth slightly higher than that of the full year. Full year, as for Q4, growth is driven both by local customers and tourist visitors, a trend that is reflected across all main regions in terms of nationalities. On the scope of our 3 main brands, they're all up both on the year and in Q4, in particular.
The spending of the 3 largest groups of nationalities, that is Chinese, European and American visitors are up 40% in 2017 and maintained excellent momentum in Q4 in spite of a high basis of comparison. For Chinese customers specifically, trends remain buoyant, both in Continental China and even more so for tourist purchases in the rest of Asia and in Japan. Western Europe remains a popular destination, but the basis of comparison were higher at the end of the year. The ROCE of Luxury activity is sharply up EUR 2,900,000,000. This is due to the high level of operational leverage at Gucci and Saint Laurent, slight increase from the contribution of other brands and the stabilization of the earnings of Bottega Veneta.
The operating profitability stands at 27%, up 4 10 basis points
and 4 90 basis points.
In the second half. Investments stand at EUR 487,000,000, up 28%, represent 4.5% of revenue, a ratio unchanged that confirms the attention given to organic growth and to targeted and selected store openings. Let's now look at the key figures of our Luxury Brands. As per usual, you will find additional information in the annex. Let's start with Gucci, whose revenue has topped the EUR EUR 6,000,000,000 mark.
42% on a reported basis and close 45% like for like. Q4 is up 43% in spite of a more difficult comparison basis. The outstanding performance reflects the continued success of the creative proposal of Alessandra Michele in all product categories and all regions, all customer segments by nationality and by age. Own Retailing is up 47% full year, 45% Q4, driven by very strongly positive performance in Europe, North America, Asia Pacific. Japan posts notable acceleration in Q4, demonstrating the continued success of the brand with local customers, but also its appeal to tourists.
In addition, the focus on digital is rewarded with online sales up 86% on the year. Sales to 3rd parties are up 35% full year, 29% in Q4 with a level of retailers that remain stable. This outstanding organic growth went hand in hand with an increase in 69% of operating income and stands at EUR 2,120,000,000. Operating margin has reached a record level at 34.2%, up 5.50 basis points, of which 640 basis points in the second half. This increase benefited from an improved gross margin linked to discontinued store markdowns and reflects the leverage effect from high growth of like for like stores.
This leverage is materialized whereas the brand is investing massively to drive its growth over time. These efforts focus on its distribution network, so as to meet the requirements of greater in store traffic and accelerate the rollout of the new store concept. It's advertising aimed at making it as consistent and targeted as possible at the time when the touch points with its customers are increasing and its information system in line with accelerated digitization of our industry. Contained OpEx reflect once again the priority given to organic growth. 152 new concept stores at the end of year, total number of stores slightly up, including the acquisition of 5 franchise stores in Thailand in Q4.
In 2017, the teams of Buttega Veneta continued the implementation of the action plans initiated back in 2016. Revenue is up 2% like for like and flat at EUR 1,180,000,000 on a reported basis full year. Wholly owned distribution is back to growth, up 4% like for like with good performance in Western Europe, driven both by tourists but also by local demand. Sales in Aspac are up 3%, driven by Continental China but also Korea, Macau and Singapore. Business in Japan saw an acceleration throughout the year and also benefited considerably from the dynamism of Chinese demand in the second half.
In Q4, the trend improved sequentially with an increase of 6% in retail mark via strong rebound in North America that needs to be underscored more globally good business trends achieved with local customers. By product category, the dynamics is driven by footwear ready to wear whose weight increases in revenue as well as leather goods, the very good reception of new products and the animation of iconic lines, the brand also worked to guarantee its exclusivity in 2017 through the continuous increase in the weight of full price sales in stores, the optimization and renovation of its network of stores with a streamlining of its sales to 3rd parties that is nearing its end in Q4. Thanks to strict cost control while continuing to have targeted investments in advertising to support the read deployment of the brand. The unfavorable leverage effect is contained. ROC is almost stable at €294,000,000 and operating margin that remains maintained at 25%.
Investments were devoted particularly to renovations and targeted openings of stores in key locations to improve both the visibility of the brand as well as customer experience. For Cyno 2017 is once again an outstanding year. The brand is posting growth in excess of 20% for the 7th consecutive year and tops the EUR 1.5 billion revenue mark. Growth was driven throughout the year, particularly in wholly owned retailing that is up 27%. Double digit performance across regions, thanks to the success of permanent collections and new products.
Wholesale growth is 20% full year. In Q4, momentum remains excellent with like for like growth of 23%, driven by wholly owned retailing and e commerce. Operating income is sharply up in excess of 40% at EUR 377,000,000 The margin is up 3 10 basis points, thanks to strong leverage. The brand is continuing to deploy all the necessary investments for its future growth, be it in retailing or advertising. Operating margin exceeds for the first time the 25% threshold.
Operating expenditure up 26% in line with the opening and renovation plan for stores. In 2017, the growth of other luxury plans amplified throughout the year, reaching 18% in the second half, having reached 10% in the first half. Revenue stands at EUR 1,900,000,000, up 14% like for like. Wholly owned sales drove growth with an increase of 26% when wholesale improved 7%. Couture and Leather Goods are sharply up 18%, led by Balenciaga delivering a record year, achieving the best growth of all the group's brands in Q4 and in H2.
In addition, our jewelry brands delivered excellent performance and the watch brands saw a return to growth. ROC comes in at EUR 116,000,000 slightly up. Current operating margin, 6.1% with a dilution focused on the first half in H2 the strong operating leverage of Balenciaga allows the margin to increase in spite of the investment efforts devoted to jewelry. CapEx up 20%, primarily devoted to the expansion of the Balenciaga retailing networks that of Alexander McQueen, Boucheron and Pomellato. Let's turn now to the results of our sport and lifestyle activities.
Above all, I'd like to highlight the performance of Puma, whose growth trend in terms of revenue and operating income in 2017 is quite with an acceleration in the turnaround in profitability. Since the results were published yesterday, I'll try and be brief. Puma delivered an increase in sales like for like 16% full year, 14% reported basis. Its revenue exceeds EUR 4,000,000,000 with strong and balanced trends in H1 and H2. ForEx effect becomes negative in H2 with an impact of minus 5 points on growth.
The momentum is very strong across all distribution channels. Growth is uniform between emerging and mature markets. The largest product category, footwear, is driving performance with an increase of 24%, poised by the success of new products. Operating income of Puma, EUR 244,000,000 doubles almost on the year. The margin is close to 6%.
The expansion of gross margin, very good containment of operating expenses amplifies the leverage effect whilst maintaining the investments that are necessary in advertising and sponsoring. Moving on now with a few comments on the other items contributing to net income. Other non recurring income and costs represent a total expense of EUR 242,000,000 depreciation of assets, no impact on cash, EUR 219,000,000 of which EUR 185,000,000 for the impairment of intangibles within other luxury brands as well as Volcom, other noncurrent expenses limited to around EUR 70,000,000 and partly offset by capital gains on the sale of a building. Net financial expenses stand at EUR 242,000,000 as against EUR 202,000,000 in 2016. The cost of financial debt, €128,000,000 unchanged over 2016.
Indeed, the decline of the amount during the period was totally offset by unfavorable rate effects, the reimbursement of treasury bills at very low rates, whereas long term bond debt rate remains almost stable. The financial cost of bonds is higher than that of treasury bills. But thanks to the bond it's used these past few years, the group has secured its financing over time at relatively low rates. Lastly, strong cash generation whose yields are almost 0 in a context of negative rates in 2017 has once again strengthened this impact. Other financial expenses and income represent a net cost of €114,000,000 up 56%.
This increase is largely due to the increased hedging costs because of growing differentials of interest rates between the Eurozone and other regions. Corporate income tax stands at €591,000,000 sharply up given the increase of our pretax earnings. At December 31, 2017, the effective tax rate stands at 24% as against 25.1% in 20.60. However, restated for nonrecurring items, the corporate tax rate stands at 23 percent against 20.5 percent in 2016. This increase is partly due to the growth in trading in countries where the tax rate is higher.
It's also linked to a revamping underway of organization of flows linked to supply chain to adapt the brand operating model to the development of omni channel and to reduce lead time. The opening of the Gucci Art Lab is an illustration of that. This operational reorganization is set to lead in the coming years to a gradual increase in the tax rate, partly offset by the decreases in tax rates envisaged in several countries. All in all, net income group share comes in at EUR 179,000,000,000, up over 119%. Net income of group for continued activities, excluding nonrecurring items, reaches EUR 2,000,000,000, up 56%.
Let's turn now to a review of free cash flow from operation that stands at EUR 2,300,000,000, almost doubled out of 2016. This sharp growth rests on cash flow from operations up close to 60%. That's over EUR 1,300,000,000. That's a change correlated to the significant earnings improvement. Good control of WCR in relation to business and a gradual increase of taxes disbursed and OpEx that remained stable as a percentage of revenue.
Free cash flow from operations related to EBITDA stands at 67%, one of the best industry ratios. Stock levels has leveraged a low point. Many group brands and WCR will have to be reconstituted to a certain extent in 2018. Furthermore, given the 2017 earnings, the tax paid out is set to increase significantly in 2018. Turning now to net financial debt that stands at just over €3,000,000,000 at the end of 2017, down over €1,300,000,000 The net debt to EBITDA ratio coming below 1x to 0.9x EBITDA.
At Annex, you'll find more detailed information on our financial structure and balance sheet. Let me end with a brief word of the dividend in cash. For 2017, the board that met yesterday will propose to the AGM on the 26th April, the payment of a dividend of EUR 6 per share, up 30% over 2016. To this cash dividend, there is obviously a dividend in kind as part of the Puma transaction that Jean Francois will discuss in a moment. As you can see, we are very much too attached to conserving over time balanced payout ratios, both in respect of the recurring earnings of the group as well as free cash flow, a down payment of EUR 2 was already put out for payment on the 17th January this year.
Subject to the approval of the AGM, the balance of EUR 4 will be put up for payment on the 6th May 2018 with the timetable synchronized with that of the dividend in kind. Thank you for your attention. And I'll hand over now to Jean
Thank you, Jean Marc. Good morning to you, Juan and all both for commenting on the distribution of Puma shares, I'd like to talk to you specifically about the process, which has turned Kering into a luxury pure player. 10 years ago, PPR was a retail group, 17% of its sales was luxury. At that time, about 2 thirds of our sales were in Europe. In 2017, Luxury made up over 70% of Kering's revenues, 2 thirds of our trading taking place outside of Europe.
In 2018, all of our revenues will be through Luxury from Luxury. Over a 10 year period, this means we really changed the way the group looks entirely, its financial and operational model, its operating organization, role of central functions as well as its know how. We're very much ready for the new challenges of Luxury in the future. Francois Henri will talk to you about Luxury has been the main growth driver in earnings in recent years for us between 2008 2017. Luxury revenue increased more than threefold coming close to €11,000,000,000 This growth is well above overall market growth, which underscores the quality of our brands and our business model.
At the same time, recurring operating income increased basically fourfold. Operating margin went from 23% to 27%. We're especially well positioned in all segments and product categories that constitute personal luxury. Over 50% of our revenue comes from leather goods, whereas together, ready to wear and footwear represent approximately 1 third of the total. Currently, our jewelry and watches brands are still of modest size, but we've got very ambitious growth plans for Boucheron and Fromilato.
Our brands are at varying stages of maturity. That's a strength for our group and demonstrates our potential. Now on the screen here, we've listed our main brands based on the size of their store network, the proportion of retail and their revenue and their relative sizes. Gucci and Bottega Veneta are the biggest group with a well developed network of stores, though this doesn't mean their potential is more limited, far from it. On that point, Gucci has very clearly demonstrated that in recent years.
At the center, you can see Saint Laurent, which is our 2nd brand in terms of size, but its network needs to be further enlarged and extended. That's what we intend to do. We'll be tapping into the brand's potential, all the while growing its revenue with the same number of stores. Balenciaga and Boucheron are brands that are seeing substantial acceleration. They're different, and Francois Henri will explain this to us in greater detail.
Then we have younger brands in terms of development in retail. We've got great hope in Alexander McQueen and from a Latto. And we're very pleased at the work that's been done by their teams. Gradually, our smaller brands will reach a critical mass, which will then further improve the group's profitability. After the payout of Puma shares, Kering will have a new financial profile and will become one of the absolute top ranking luxury companies.
On the slide, we're giving you the main financial figures in 2017. This is pro form a, which means it's a restated signature count Puma's contribution. Above and beyond the mechanical impact on revenue and operating income in absolute terms, you'll also observe that this operation will substantially improve our operating margin, excluding Puma, would have gone up by 4.90 basis points. Net income group share, excluding nonrecurring items, goes down by around 6%. You also see the conversion rate of operating cash flow goes up significantly as well.
Excluding Puma, net financial debt at the end of the year would have been higher by around 12% since the deal doesn't lead to any cash in for Kering, whereas it deconsolidates Puma's net cash position. This increase in our debt will be offset by the dividend paid by Puma to the tune of 50%. The amount of EUR 12.50 per share corresponds to the amount paid to carrying of €162,000,000 All in all, the payout of Puma actions is an operation that creates value for the group because afterwards, Kering will see profitability of its capital employed going up by approximately 400 basis points. So this initial analysis of the carrying of the future really does underscore the importance and the appropriateness of our decision to complete our change into a luxury pure player. Now let's talk about recent history for Puma starting in 2013 when we put in place the current management team at Puma.
Since that date, Puma has been executing its plan called Forever Faster, which has led to a resumption of growth in revenue, up by around 40% over the period, going beyond the level of EUR 4,000,000,000 in 2017. Operating income increased almost fourfold over the period, thanks to sound improvement in gross margin, careful management of communication investments and a good control of operating expenses. Operating margin went from 2.1% in 2013 to 5.9% last year. This trajectory of profitable growth also meant a strong increase in stock market cap, growing by EUR 2,000,000,000 between end of 2013 and end of 2017. The Forever Faster plan is based on 5 strategic pillars.
Firstly, to strengthen the attractiveness of the brand, which is a global renowned and is especially attractive secondly, to develop more innovative products in the area of performance and sports style thirdly, improve quality of retail wholesale fourthly, to have a product offering that's distinguishing for women's products and fitly optimize organization and improve competitiveness. By reestablishing its clear anchoring in sports and clarifying its positioning, Puma has once again resumed its really special impact and is very much one of the most beautiful brands in the world, rightfully so. Once again, the brand is very much appreciated and respected by athletes, by retailers and by its fans worldwide. At a time when sports is also a lifestyle, Puma has created a different positioning in the area of footwear and casual garments, which is becoming an evermore important segment in all continents. To further strengthen this universal attractiveness of the brand, Kuma reinvented its communication policy using several partnerships with athletes and really legendary teams, Usain Bolt, Antoine Griezmann, Arsenal, the Borussia Dortmund, the Jamaica Athletics team and others.
Kuma also works with icons from culture and fashion. These are ambassadors that make it possible to reach a younger trend setting audience. So the brand works with Rihanna, The Weeknd, Cara De La Vina and Selena Gomez. To talk about products. Puma revamped its approach to design, to develop new and different models more relevant, more desirable and more commercial.
The brand also played great story in innovation, for instance, using technology included in soles to improve return of energy or net fit, which is a system of adjustable laces. The brand is also using some very strong well known lines Ignite, Fierce, Creeper, Suki and Basket Heart, which have really fueled sales in 2017 and are a very sound commercial basis for the future. Sweden, an iconic model for the brand, Le Suede, is celebrating its 50th anniversary in 2018. It's a really strong it's got a really strong and long standing image. 31% of Kuma's revenues are in Western Europe, 26% in North America, 24% in Asia Pacific and 11% in Central and South America, which means it's a very good balance of geography for sales.
Goma makes over 80% of its revenues in wholesale. The brand improved quality of its distribution by strengthening its relationship with the main strategic retailers worldwide. The more there's an increase in sell through as has been the case in recent years, the more Puma partners are prepared to place more Puma items on display in their stores. Puma continues strengthening its wholly owned stores network as well through new openings as well as refurbishments. The brand launched the site puma.com with a more modern format and easier to navigate on mobile devices.
In 2017, online sales of Puma grew by over 50%, five-zero. Women customers are a priority for Puma. The brand is particularly well positioned where the gym meets the runway. In 2017, the women's product offering outperformed and contributed to the strengthening of the brand. There's tremendous momentum using some iconic products that bring together both authenticity and performance and credibility of style supported by effective communication campaigns using ultra visible ambassadors and specific in store approaches as well.
Puma has made tremendous progress, but the brand is still far from having reached all of its potential. You'll understood Puma is especially well positioned to reap the benefits of the tremendous potential for growth in the medium and long term when it comes to the sportswear marketplace as a whole. Now Asia is still just about 25% of Puma's sales. The brand is famous in Asia and very widely appreciated, which means it's got substantial potential for further growth. For instance, in China, it's improving its presence and gaining market share.
So we can further optimize its e commerce sites and network of wholly owned stores to boost sales that are directly to the consumers. That will further increase brand visibility and will have a driving effect on 3rd party sales as well. Puma continues having innovation at the very core of its strategy with a constant flow of novelties that are distinguishing in all product categories for both men and women. In the category of performance, the brand just added 2 new football shoes, 1 in the future. The brand's visibility will also be increased through new sponsoring such as in soccer.
This year, the Bonapita Marseille, Borsia, Montelongarte and AC Milan, some of the best known clubs in the world, will become part of the number of teams sponsored by Puma. Equally, the success of some of our ambassadors such as Formula 1 champion, Lewis Hamilton, further increased Puma's brand awareness. Puma has substantial options to improve its operating profitability, for instance, in terms of gross margin by drawing the benefits of improvements in sell through and reaping the benefits of improvements provided through product development and sourcing improvements. Also, if we're talking about the operational leverage, it will continue simplifying operations, organizations, modernizing information systems and optimizing supply chain, all the while maintaining the requisite level of investments in marketing and communication. In the past, when yesterday, when Puma announced its 2017 results, Bjorn Grotegen gave the outlook for the current year.
Thanks to a very good order book. Once again, Puma should see a substantial improvement in its revenue and operating income this year. And then beyond 2018, Puma will be really building on the power of its brand to continue gaining market share and improving operating margin. Therefore, we can say Puma's momentum is very positive. The outlook is very favorable and the management team is best qualified to make it possible for this brand to reach its tremendous potential.
Now let's come back to the specific operation of distribution of shares and talk about some of the technical aspects. If the AGM approves the resolution, Kering shareholders will receive 1 Puma share for 12 Kering shares they hold. For those of whom who have a number of shares there are the multiple of 12 will receive a balance payment in cash. So after this payout, Puma's float will be significantly extended going to 55%. Artemis will become a direct shareholder in Puma to the tune of 29%.
Kering will maintain a stake of approximately 16% in Puma's capital. Kering has committed to hold its stake for 6 months after this payout. Artemis has committed to hold for 12 months and intends to continue to be a long term strategic shareholder of Puma. Lastly, Puma's governance will be changing, shifting from a Board of Administration structure a structure with an executive board and a supervisory board, and its composition will reflect the new Puma shareholder base. The ways and means are explained in the specific press release, which we distributed this morning, and information is also going to be forwarded to individual shareholders in the very near future.
Now specific points on the calendar and upcoming dates. March 20 will be when Bjorn Gulden and his team present to the markets in a detailed fashion, their strategy and ambitions for Puma. At Investors Day will also entail roadshows to London, Paris, Frankfurt and New York. The quarterly publication for Q1 of Puma and Kering will take place on 24 April. Kering's AGM, which among other things will vote on the distribution of Puma shares and on 26 April.
If the approves the payout of those shares, the payment we made on 16 May, I draw your attention to the fact that the balance the cash balance of paying dividend €4,000,000 carrying would be paid on that same date. We're convinced that this operation of paying out Puma shares will be creating value for both Kering and its shareholders. As you've seen, Our standing as luxury pure player will be further strengthened. We'll be in even better position to continue on our ambition to continue growing and developing our houses. And we have the resources to make good on that.
We're absolutely confident in Puma's potential, its ability to continue its growth and improvement in its profitability. With the 16% capital stake, which we will maintain, we were at the benefits of that potential. We want to give a sound shareholder base to Puma, all the while ensuring the initial continuity so the company can best manage its new status, new position. Our shareholders will have an opportunity of direct exposure to growth of one of the most iconic sports brands, a brand which we've really very much gotten back on the right track under the management of Bjorn and Gudin. For Puma, we're talking about a new stage in its history, all the while preserving stability.
This payout will make it possible to continue with its strategy and execution smoothly with no change in course. Puma is being led by a galvanized management team, a highly talented team that demonstrated their ability to put this brand back on a track of profitable growth. Lastly, for existing and future Puma shareholders, we feel this operation is also very much a positive one. Puma's stock market standing will improve its float, will increase significantly. Puma will therefore have an increased visibility and greater stock exchange liquidity.
Thank you for your attention. I'll give the floor now to Francois Henri.
Thank you, Jean Francois. As you can see, we're close to completing our transformation into a luxury pure play. I would even venture to say the purest of luxury players. As I said in my introduction, our outperformance in 2017 demonstrates the strength of our model, and I'd like to return to that briefly. We live in a world that is digital, hyper connected, globalized that blurs differences.
The individual, on the other hand, needs to affirm what makes him distinctive. New generations have only known this world. They're, therefore, particularly sensitive to the need for differentiation today. Their behavior significantly influences all age brackets. Our mission at Kering is to contribute to making sure that each can express what makes him unique through the products and experiences that our brands offer.
The tradition
and craftsmanship excellence that many luxury brands have relied upon for decades is no longer enough. We can no longer rest solely on the achievements of a brand, the new luxury consumers, the millennials or the generation said that follows care little for the idea of brand heritage. It's more express a genuine creative vision and it's a sincerity that allows one to stand apart in a world where everything is similar, the powerful brands, those whose creative universe is based on imagination and on an original and consistent perspective on the world. I don't view luxury that could not be sustainable and attentive to society, the environment in which it is part of for the long term. This for us is a source of inspiration and innovation.
This engagement is an opportunity. It's also an opportunity for our group to generate efficiencies. We are in a promising sector with favorable demographics and our strategy involves capturing the full luxury potential through the organic growth of all our brands to grow faster than our markets. Outperformance relies 1st and foremost on the specific dynamics of each brand, its creative universe and its product innovation, sales efficiency with creative merchandising and optimal performance levels from comparable stores. Also bespoke customer relations to be developed and the focus on omni channel seamless move from channel to channel over and above the potential of each brand.
If we outperform our markets, it's thanks to the power of the group and the synergies that it makes possible. I'll return to these performance boosters, but let me first of all review the strategy and the outlook for some of our houses. The best illustration of our organic growth strategy is, of course, Gucci's track record. The brand has returned to the position it deserves, both in terms of influence as well as in terms of size. It's one of the world's most respected brands that interacts with its customers in a fully genuine and convincing manner.
Gucci fully executed the strategy that it presented at London back in June 2016. The house perhaps gave the impression that it was easy, but in fact, it required a very delicate balance between art and science before the staggering growth in revenue of the brand to meet significant growth in volumes to ensure optimal availability of products and ensure outstanding qualities at every level, we have to perfect the organization, making it lean and efficient. At the same time, it lean and efficient. At the same time, to build its future growth,
Gucci
has developed the requisite capabilities to better analyze, grow and retain its customers and to interact constantly with it. Gucci was able to enhance creativity to give greater emotion to the brand. It's outperforming its market by targeting millennials, this new generation of luxury consumers. The passion and the joy with which customers today turn to the brand demonstrates the profound engagement they have with Gucci, whatever their social status, their nationality or their age. The group creates a privileged access emotional with its customers.
Its universe is inclusive, immersive and open to collaborative creations. By way of an example, I'd like to mention the Gucci Garden in Florence, the many collaborations of brands with designers for capsule collections or with retailers in the form of online or physical pop ups. These initiatives are conveyed and amplified through social networks. Last year, the number of Gucci followers on Instagram, by way of an example, increased close on 70% and its website saw exponential growth in visits. In December last year, the Gucci side received 5,000,000 visitors way ahead of other luxury brands.
The house is strengthening further the productivity of its stores and it's made them the spearhead of its commercial presence and its distribution in retailing is even more distinctive with an exclusive full price policy in all its stores. Strengthening of in store teams was continued in 20 17 and will, of course, remain a priority for this year. Our supply chains and our our supply chains and our manufacturing capability are constantly changing in order to improve quality and reliability to reduce the time of presence of products in our stores to favor our best sellers in store lines and to showcase our new products. These manufacturing lines and logistics supply chains demonstrated their worth last year. The opening in the coming weeks of the Gucci Art Lab in Florence will intensify this process still further, will factorize our know how and strengthen innovation in terms of materials and new manufacturing technology.
Having regained through amazing creativity and great management discipline, the place that it can lay claim to the house is ready for the next steps, its growth is well balanced across all product categories, ready to wear that unoffense the desirability of the brand is leading all the other segments, notably leather goods. By geography, as you saw, the growth in sales is uniform, having behind it an unprecedented growth trajectory in Luxury, Saloja, we Saloja, we have 2 other houses that represent over EUR 1,000,000,000 in revenue and whose potential for organic growth is equally significant. The improved performance of Buttega Veneta in Q4 that Jean Marc mentioned is encouraging. Buttega obtained good results in the United States at the end of the year. And the winning over new local customers in the United States and Europe will happen over time and it's well underway.
We're confident that we've well identified the areas of improvement of the house and our effort in 2018 is moving is moving towards a better sales balance between its permanent models, the seasonal reinterpretation of existing lines and new products. Its goal, of course, is to focus primarily on new products. At the same time, the house is refreshing its permanent sales. We're happy to see that the sales of models that have been the focus of advertising responded very positively. Furthermore, to increase the share of millennials who are underrepresented in the brand's customer base, Bottigabermeida is enriching its offering in small leather goods and has ramped up swiftly its advertising and digital presence.
The store renovation program affected in 2017 some 20 units and this year will affect some 30 stores, that's a 10th of the total. The inauguration last week of the Madison Maisons whose format was rolled out for all recent openings, should give renewed impetus to Bottega Veneta Retail. The Tokyo Ginza new store planned to open at the end of the year will continue and amplify this trend to celebrate the opening of its New York flagship, Bottega Veneta, exceptionally held its autumn winter 2018, 2019 teen event in New York rather than in Milan. We plan to continue this to reconquer American market. Merchandising programs, continued digital investments and the increased use of powerful CRM tools going forward will allow Bottega Veneta to accelerate the positive results this year that we obtained in 2017, particularly in Q4.
As you can see, I'm confident in the future of the house with the support and backing of the group.
Regarding Saint Laurent, you'll all remember the ambitious objectives we presented them to you last June. These objectives should enable the house to go beyond the mark of €2,000,000,000 and then €3,000,000,000 If we look at Saint Laurent's performance in the second half of last year, we very much see that, that will be true. Saint Laurent still has the capacity to further extend its stores network, but it has many other things we can leverage to boost its potential for growth. First of all, by thanks to the firepower of its brand, extension of product lines and further mastery of its know how. This is what we're very confident.
Santa Fe is very much on the right trajectory, a good win in terms of operating margin. You saw this and also growth in its revenue. Now the next house in the group that went beyond that goes beyond the mark of EUR 1,000,000,000 as I said, will Balenciaga, and it may actually get there faster than expected considering the pace it's already headed in. When I meet with potential designers for houses, I like for them not to talk too much about products as such, but more about their creative vision regarding their creative universe. With Demna Gabriela, Her innovative vision is sudden novel and I immediately realized she was fully in sync with contemporary times with the expectations of customers who very much want novelties and also very much in sync with Balenciaga's genetic makeup.
Balenciaga's excellent performance in 2017 shows that we were right. The house is benefiting from the millennials' purchasing power and influence. As other houses of the group were giving Banansega the resources to turn this vision into a commercial success. Barenteka's potential is gigantic, particularly in leather goods and accessories. With a selective strategy for store openings and a strong impact in wholesale, I have no doubt whatsoever Esteban and Cerro's ability to reach its targets.
Boucheron is a good illustration of how we're implementing the group's strategy in the specific area of jewelry. Boucheron has been very successful. We can see this year it's celebrating its 100 and and 60th anniversary. And these successes are based both on heritage and the boldness of creative stances in our house. Boucheron also saw substantial investments in communication worldwide last year, focusing especially on digital and social networks to further increase the visibility of Boucheron and impact a younger customer base as well.
The recent event, Vondorama held in January in Paris, got people looking at the brand new, both locally in Paris, but also online. To celebrate its major anniversary, Boucheron is refurbishing its townhouse, which you know is its showcase historical showcase located 26 Place Vendome. All the decorative elements in this mansion that you'll see finished in September will also be the sort of leitmotif for the refurbishment of their global store network. As you can see, we're investing in every area, products, stores, communication, with an eye to further boosting Boucheron's organic growth as well as its contribution to our watches, jewelry division to underpin group growth. Lastly, a few brief words regarding Alexander McQueen, a house with a strong identity that is extended to new categories.
It's a house that came of a tremendous artisan's know how, especially in ready to wear and the house gradually built legitimacy in footwear as well as other product categories. These categories are fueling growth and in 2017 helped it strengthen its product offering, especially in leather goods. With the support of the group, the brand has been investing and extending its global store network and integration of new communication tools, again, to reach a broader and more diverse customer base. It's also extended its relationships with its main wholesale partners in all markets where they operate. So you can see our houses have tremendous further potential for growth, further amplified and speeded up by our integrated development model for our brands to be able to really focus on their essence.
Kering directly manages all functions that can be pooled, purchasing, logistics, information systems and many other activities have been pooled at Kering. This sharing of these facilities makes it possible to cut costs and make use of best practices developed group wide. Over the last 5 years, we strengthened our policy of sourcing raw materials, for instance, through the acquisition of tanneries and expansion of their capacity. But that's not the only thing vertical integration entails. Above and beyond centralized logistics, you're familiar with our fashion houses and other goods houses.
We've also pooled prototyping for Ready to Wear in a dedicated entity and we're seeking constantly seeking ways of further growing our efficiency and operational organizational systems. We're putting together cross business expertise. One of the main areas here is caring eyewear. Think of frames and eyewear, this is a central type of accessory for image and strategy of our brands. Now we've in sourced these activities in most of our houses, which means we can ensure the quality that we demand of all of our houses and also ensure production and quality of distribution products as well.
A few weeks ago, we announced the appointment of Gregory Boutte, who's here, who becomes the Digital Managing Director and Customer Relations Director for the whole of Kering Group. His mission statement will be to carry out the digital transformation and lead development of e commerce functions, CRM and management of group data in its entirety. Lastly, all the if we look at Zaveri's performance accelerators, the most powerful of them all is certainly the excellence of our great talents, talent that we manage worldwide. We focus on the fulfillment of caring employees, gender equality, mobility. These are very much pillars of our corporate culture, and we feel this culture is especially open and strong.
For a group that very much counts on creative spirit and imagination as a foundation for success, talent development is a major asset of ours. Henceforth, most of our brand CEOs are men and women whom we promoted from within the group. And I can say the same thing regarding many other functions at Kering as well. Shifting transferring from one house to another creates a positive atmosphere of emulation and competition and a group that is very much present in the culture of all our houses this way. There's another point, we're talking about a state of mind, probably more difficult to actually define and say in words, but which is equally important.
Caring is a group where we never forget the importance of people. We always keep a level of humility and even a touch of a reverence sometimes. Over these recent years, we've substantially increased our brand prominence. Caring is the guarantor of the consistency of our brands, their expression over time. This has meant a constant and ongoing interaction at many different levels.
And we can say that we are always pushing our various houses to surpass themselves, think differently. And we feel that this way of doing things is what brings the momentum and secure their success, our success. Our ambition is very much to be the most influential and most innovative luxury group worldwide in terms of creative boldness, social and environmental responsibility as well as economic performance. Our objectives of value creation and our financial ambitions, which guide and validate our operating strategy, remain unchanged, of course. Our priority continues to be organic growth for all of our brands with growth rates that we want to be substantially above those of industry averages.
Most growth this year again should come from our existing stores. Our operating margin once again in 2018 should benefit from growth in our stores, particularly Gucci, Saint Laurent, Bottega Veneta and of course Balenciaga, all of these houses. We also continue to have strong operational financial discipline this year yet again should lead to substantial generation of cash flow. As Jean Francois said to you, our profile as a pure player will also make a major impact in terms of return on capital employed. Lastly, we intend to continue giving an attractive return to shareholders, increasing the dividend this year as a demonstration of that.
Now we're going through a decisive stage during our period of change. And now more than ever before, we're convinced that our strategy, our assets, our talents are very much aligned with long term market trends. Now of course, we know there are unpredictable world events. There are various political risks, economic and financial risks, which of course could have an impact on our performance in a temporary fashion. But if you look at the complementarity of our houses, our footprint, the diversity of our customer bases and the strength of us as an integrated group, all of this once again should mean that this year we'll be able to outperform markets.
Thank you for your attention. We'd like to
Yes. Thank you. Good morning. It's John Guy from MainFirst.
I've got four questions, so I'll be as fast
as I can. Congratulations on the results there. They're excellent. Your vision in terms of moving from 2,008 to 2017 and the transition from retail to luxury, I remember if we go back a little bit more, you're a Woodham finance company and you continue now to morph into a pure playluxury player now into 2018. When we think about the record free cash flow that you generated, the €2,300,000,000 What's next going forward?
Is it just an ongoing focus on the organic growth and the opportunities that you just mentioned? On a pro form a basis, you'll have probably over €10,000,000,000 in terms of acquisition firepower. Do you see any other opportunities to continue to add to the portfolio going forward? That's my first question. Inventory wise, inventory was up just under 11% to €2,700,000,000 strong working capital management, but inventory only up just under 11%.
Can you talk about maybe capacity constraints in terms of stock or in terms of budgets for growth for 2018? 3rd question, how do you view your relationship with YOOX NET A PORTER given the changes that we've now had with Richemont and that acquisition going forward? And for Gucci, I guess from September last year, the teams have probably had to go back and revise their 3 5 year plans given the success of Gucci. Is €40,000 per square meter an achievable target in terms of productivity by 2020? Thank you.
Thank you. I'll answer in French. You have simultaneous translation. Speaking to your first question on group's organic growth in terms of acquisitions, As I said earlier, our priority as it's been of late is organic growth for a simple reason. As you saw, we demonstrated this in 2017.
We have a potential for organic growth, including Gucci, let me stress that, that's very considerable. And what's more, we have the quality of our brand portfolio, having brands with different degrees of maturity to generate growth through organic growth of our brands within the portfolio such that acquisitions are absolutely not necessary for carrying short, medium, long term in order to generate growth. That's something that must be absolutely clear. Jean Marc, on the second question perhaps, yes, allow me to establish a link with the point on cash flow. I mean, it's not innocent.
The fact that we mentioned free cash flow over EBIT 67%. It's a rate that's at an all time high, very high also versus the sector. Of course, we had a year with sales that were higher than those expected, higher than what we expected, such that we managed to adapt the production tool so as not to miss too many sales. That was anticipated at Gucci. As we commented to you last year, there was a plan to boost the manufacturing capacity at Gucci.
Indeed, at Balenciaga today, it's an issue that arises because we also have growth that must be supported by a ramp up in manufacturing capacity. So we have an issue there on the brands that's, I would say, less maneuverable at this stage than Gucci that has this ability to manage its supply network. More globally, if we look at the group's performance, there's a minimum inventory level to have to serve to meet demand, be it in the depth of the or the breadth of the offer, both the number of SKUs and within SKUs sizes and colors, we reached a low point in terms of inventory days. So we're going to have to rebuild those inventories, hence my point on cash flow generation next year. And in terms of constraints, clearly, there are manufacturing constraints, but I think the group has adjusted well, particularly Gucci.
A comment was made about Gucci Art Lab, which is a center of excellence in terms of product development prototyping that will allow going forward to significantly reduce lead time. Turning now to the agreements with Hughes, net ready to wear covers online sales business for Couture and Leather Goods brands except Gucci that are operated by a JV Hughes Ready to Wear, the JV that we control called Elite. And the deal currently underway with Richemont changes nothing to those operations in our agreement in our contract. Again, to your 4th point on sales density, yes, as you saw last year, Gucci grew significantly, exceeding EUR 30,000 per square meter. It's an average that's in the good average of the industry that's not outstanding.
You need to bear in mind that Gucci only renovated 152 stores out of the 510 store brands, we can have look to significant improvement of sales performance per square meter of Gucci through the ability of our teams to make the brand very attractive and through renovations, renovations go hand in hand with increased productivity. So Gucci still has very significant potential, notably in its sales per square meter. We won't set a target or even a date because every time we don't we deliver sooner, but we're pretty ambitious on that metric. So, Jen, 3 questions, if I may. You've just said that M and A is not a priority.
Are you going to change your net debt to EBITDA of 1 to come 1 to below 1 midterm. Can you give us an update on your pricing policy out to the Gucci announcements a few months ago? We can move into other brands and maybe a question linked to that. What do you anticipate in terms of margin impact of currency changes? If ForEx remains unchanged?
What negative impact do you expect? Will you use price hikes to offset that? Thank you, Thierry. I'll try and answer all those points. Financial disciplines aimed at returning to a ratio of 1 EBITDA, which once Puma exited the pro form a ratio that we'll have at the end of the year, also including the payment of the dividend of €12.50 of Puma, it's not dogmatic that needs to be to remain within the range of €1,000,000,000 to €2,000,000,000 It was a goal that we set ourselves to remain in that 1% to 2% range.
Obviously, we're going to review market opportunities, market trends. But as already stated and restated, the priority is above all organic growth, deleveraging, ensuring the payment of balance, payment of dividend balance versus the payout policy that we followed for several years. So there's no dogma here. We can fall below 1 times EBITDA, but it's not an absolute criteria to remain at 1. Pricing, I'll be very prudent.
And so far as you know, the prices have been adjusted at Gucci and in some of our other brands at the time of the cruise collection launch and also the springsummer collection with price increases in certain regions, certain products. Gucci was an across the board price increase in many regions, say, the eurozone. I have the currency changes that are heightening or clearly will weigh on 2018. You're absolutely right to point out the probable impact on to possibly reconsider the pricing for the upcoming collections. Having said that, no decision has been taken at this stage.
And it's neither the time nor the place to comment or mention or preempt decisions that are taken readjusted. As that must be readjusted. As regards to currency issue, I know that this will crop up sooner or later at the conference. Let me respond immediately. The hedge for next year is at 1.13 to the dollar with flows that are already very hedged.
If I take another key currency where we see a change, we're at €125,600,000 for the yen. So you can see that we've managed with those rates and given spot rates to protect as far as possible the group's margin. So there will be a pressure on sales if currencies were to remain as they are. As you've seen, if you look at the differential between like for like growth and reported growth in Q4, so we can envisage variations in that proportion. But now the impact on operating margins should be contained in light of what I just said about hedging policy.
Thank you. Exane BNP Paribas. Three questions, if you don't mind. What are the measures you've considered to protect exclusiveness of Gucci? As perceived Gucci is showing substantial growth, very strong momentum.
Might this be an opportunity to reduce the factory outlets business or possibly reduce its exposure to wholesale? I understand full well it stands at 15%. Gucci's revenue is around EUR 1,000,000,000 and enterprises and promotions. My question is whether you intend to move more into the retail business. Now a question on digital on China.
We can see that there's very concentrated traffic in that market. Initiatives Alibaba, Tencent were especially interesting with developing of top life and luxury pavilion. Are you now considering for that market other digital expositions? Think of Gucci, indirect. Will there be further initiatives such as JD and WeChat?
A last subject, a little bit delicate, but I'd like to understand it. Regarding tax considerations in Italy ongoing, what clarifications could you give us in terms of the change in rate of taxation? Are you including the contested amounts that the tax authorities are contesting in Italy? Are you concluding these in the figures that we
have seen today? Thank
you. Thank you very much. To answer the first question, which is decisive for Luxury brand, Generally speaking, even more decisive for that brand if it's growing exponentially, which is Gucci's situation. Well, understand that since 2017, we've enacted measures sacrificing the short term. We didn't seek growth just for the sake of quick growth.
We've got rid of in store discounted sales. We reduced the wholesale channels in a very big way. So that there's a whole array of measures we're taking to protect the exclusiveness of the brand. We're not going to stop wholesaling, but when we say wholesale, this also includes travel retail, multi brand stores and department stores, plus some franchise holders aren't very many of them go. So we'll talk about all of that.
For us, wholesaling needs to be something that's very much complementary to our own stores network. Otherwise, it wouldn't be right. So necessarily, this will be further reduced. Certainly, measures have been taken to protect the brand, particularly discounted sales. We've drastically reduced those sales as per last year.
We'll continue doing this again to protect the exclusive nature of the brand. Now the digital strategy and specifically in China, as I know you saw, we signed a partnership agreement with jt.com for Top Live, First major brand and luxury to be intoplive is Saint Laurent. Our strategy in China will be indirect with our brand, but in a market where we can't only be alone at our own with our own separate websites. So alongside our website, we'll have the exclusive Toplife site that we selected, 1st of all, because it's backed well, because there's know how, 1st of all, and also backed by WeChat and Tencent. So there's several group brands that are then going to be joining this year, Dotlife, to develop online sales in China.
I'd also like to specify, we have a partnership we'll further develop a partnership with Farfetch, which has a special approach in China, which may well be very interesting for our brands. Jean Marc, on the tax question. There's no such thing as a sensitive question. Let me just say it's important to make a distinction. There are 2 separate possibilities.
For instance, on the one hand, you have the search and seizure that you referred to, the search by the Italian finance police in the Florence and the line offices of Gucci after the beginning of an investigation on Gucci taxation. Gucci said they were confident in the transparency and appropriateness of their transactions and their tax position. The brand is working hand in hand with the authorities. And we're just saying this, it's not just posturing, it's a fact. There are information exchanges and the brand is cooperating fully with the taxes raised in Italy.
We don't need to say anything specific after the search, the investigation is underway. And I'm not going to comment on the investigation itself, which is just at a preliminary stage. The figures that may have been out there are based on conjecture by journalists. There's no specific amount that's been given by the Italian tax authorities so far. They're at the beginning of their investigation.
So I won't make any further comment. I would just say that it is true. In this situation, we can't actually provision the risk since we're at the beginning of an investigation, there aren't sufficient facts, tangible elements that we could use to actually do specific provisioning for the risk. But however, as every year, maybe even more than other years, we've been very cautious in ascertaining our tax position and evaluating our positions. That's the first point.
2nd point, for those who are carefully listening, this is nothing new that we're saying. This is something that we've been saying for quite some time. We began considering the group's operating model and taking tax into account. Our operating model at Gucci, Gucci Group and now the group dates back to around 15 years ago. It was crafted based on physical distribution and selling, not taking into account new areas in the business, dimension to omnichannel, responsiveness, lead time and so forth.
For instance, product developments product developing more concentrated at Gucci and so forth. So there's structural changes in terms of flows within the group. And all this is also going to have an impact on tax rates. As we already mentioned last year, though I'm not sure that everyone heard this or was listening, I know some analysts did factor this into their models. We're expecting a gradual change in the tax rate, very gradual current tax rate this year around 23%.
Now this is very difficult to ascertain because the tax administrations, the governments have decided to revise their tax rates, for instance, the U. S, France come to mind. In the medium term, I think the first stage will be to have a current tax rate on the order of 25%. Thank you. From HSBC, I have 3 questions.
After this fantastic year, you explained you have no concerns regarding the brand or production. Could you talk to us briefly about the beginning of the year though? I know basis for comparison becomes more difficult. Gucci growth, is it still as it was in Q4? Any dip anywhere?
If so, in what geography? 2nd question, Bottega Veneta, we saw a recovery slight improvement in Q4. Do you think 2018 will be a further year transition? Or might there be further acceleration in the top line and the margin? Or we have to see further investments to boost these new product lines?
A last question. You mentioned under the smaller brands, the ones that you have great hopes for. Are there maybe some brands that you can see where they might divest? There were rumors, for instance, regarding Stella McCartney.
Thank
you, Antoine. Regarding the beginning of the year, as you know, we don't give any actual forecast. But I can tell you that January, which is this unusual month this year, you realize the Chinese New Year is offset by 2 weeks. Nevertheless, we can say the trends are right in line with Q4, so very good. Regarding Bottega Veneta, you observed, yes, there's been an improvement in Q4, very substantive work we've tried out last year.
It's begun bearing fruit. There'll be a major year this year, particularly with major store openings. And yes, we're expecting a year of improvement for Bottega Venet. We feel very much open and feel that we're quite confident here that there will resume pace of growth that's very much in line with the overall growth of the market. Regarding small brands as you're calling them, our group strategy is one that's very much based on a portfolio with differing levels of brand maturity.
You see, we're fortunate. We've got Gucci and then Saint Laurent and Balenciaga, Bottega Veneta, Maquina coming in line. All of this is part of the very sound operations of this group. It's important to have a whole brand portfolio. We don't intend to divest anything whatsoever within the group.
You heard rumors on Stella McCartney. It's a fifty-fifty joint venture. It's been the case since 2,001. We established it with Stella in 2,001 over the past 10 years. It's a fourfold increase in its size.
Its profitability has been absolutely as it should be. Like any joint venture every year, there are talks with Stellar regarding the Stellar, regarding the future, possible focuses and so forth. That's where the rumors come from due to the talks we have regularly with Stella. Now of course, if there were any decision one way or another, the market would be duly informed, but that's not the case today.
Mario Ortelli of Bernstein. Three questions, if I may. The first one is about Gucci. Gucci has the ambition to be a fashion authority and in the last 2 years really accomplished this result that defined the trends in the market. In your presentation, you mentioned the importance of the role of creativity for Gucci going forward, but also the importance of a well balanced mix between permanent collection and newness.
Can you give us an idea today, which is the share of permanent collection and newness in the face of Gucci? And how do you expect it will evolve over time to give a sustainability and continuity to the brand? The second question is about how do we see Caring in the long run. You mentioned that you're focused on organic growth, but you've got brands at a different maturity stage. So we think that you have got clear plans of how they will evolve over time.
So what we will expect regarding your mix by product lines and brands nowadays, for example, you are 52% in leather group and very few in jewelry. In few years, how we will evolve this mix? And considering also the operating leverage, which kind of margin should we expect from Kering going forward? Last but not the least, about you mentioned a lot about digital synergies. One of the most important things in luxury is having intimacy with your customer.
What are you doing with all the data that we are sourcing with your CRM? And can you share with us what is what excites you the most of the opportunity we're using this data to increase your sales and your margin over time? Thank you.
Yes. Regarding Gucci, I'm very confident in its ongoing development. It's a very sound, strong brand. As I said, what would be risky is if that growth were focused on just a few items or one category or couple of geographies. Today, Gucci's growth is extremely sound.
Like for like stores, full price, all categories with no exception, all geographies, no exception are growing. So there isn't a huge ready to wear bubble for Gucci at all. That's Gucci's business model we're talking about that's been implemented, has provided us with this. Its desirability is tremendous. Through ready to wear, yes, creative or ready to wear, but that then spreads out and impacts all categories.
It's the luxury house where all categories have a very strong relationship from a style point of view. This is something new in luxury. Currently, you recognize you can readily recognize a good ship bag. A lot of brands, if you remove the logo, you don't recognize the product. So we're very powerful.
The creative universe of Gucci covers all product categories. Thanks to this, our growth has become quite homogeneous for leather, ready to wear, footwear, small leather goods. So this is very, very sound at Gucci. As I said earlier, it's important at the same time in parallel as opposed to what maybe was said a couple of times, we didn't just look for sales at any cost. We're even conscious.
We didn't actually seek out a type of revenue that we didn't feel was appropriate in terms of the exclusiveness we want for this brand. So that's why I'm highly confident in the appropriateness of continuing to develop this brand. Now Kering, I'm not going to give you the figures. I did this once way back when and was not a success. With Gucci, we did that around.
We surprised you the other around. So let's be more cautious here. Maybe age brings caution. Let me say this though. As Jean Francois said, the transformation to a pure player will mean our profile, especially in terms of profitability, will be different.
As you saw, Gucci is growing, and we very much intend for it to continue growing. Saint Laurent has grown quite a bit in operating margin and should continue growing. Balenciaga, no doubt about it, will continue growing in terms of operating margin. So what I can say to you, in the medium short, medium and long term, our operating margin will grow. There's no doubt about it.
Size of the group will grow as well, but I can't give you the actual specifics. On the digital point and especially all the efforts we're making, I announced to you transformation of our marketing department into a digital and customer relations department led by Gregory Boutte Gregory, who spent almost all of his career in the digital world and startups, eBay. So as from last year, we set up a global Grootube platform, a sales force platform, which will concentrate all of our customer data stores, customer data, client services, Internet data and so forth. So we can have a highly developed CRM activity group wide that will benefit the brands if their size is insufficient for them to have that particular skill. And also to support and help coordinate the major brands.
We're developing this know how, this expertise, it's going to have a major impact. For instance, as for last year, we started developing a tool for our store sales associates called Lucci. We did this with Apple. It's leading edge in the ahead of the pack of the entire market today. Major efforts also made in data analytics.
We are currently hiring data scientists in the group that are working for all the brands. They'll be in Gregory's team. Gregory, as I said, covering e commerce, CRM, as well as all data management for the group in its entirety. So we're investing in this in a very big way, financial resources and also talent, investing in talent. So this is an asset we already got that will be further confirmed in future years.
Number 3, madam, Susanna?
Hello, Suzanna from Berenberg. I have three questions, please. First of all, on maybe Gucci again. So what was the exact increase in productivity of retail stores? And can you just remind us how many stores you renovated in 2017?
So more or less, what is the total number of the stores in the new concept? And secondly, on Balenciaga, so you mentioned the strong sales growth and profit growth. Is there any chance you could share with us roughly the sales number and maybe EBIT margin for the brand? And finally, I have a question on the new segment of the luxury market, which is growing quite rapidly and it's a secondhand market. Given the recent partnership of Stella McCartney with the U.
S. Resell site, The RealReal, is there any chance you could share with us your thoughts on that market segment? Do you plan to somehow address it by each ground? Or maybe would you consider actually some actions by the entire group in there? Thank you very much.
So if I could perhaps just say to Mario, after Mario's point about the carryovers that was very healthy is that traditionally in in leather goods, at least at Gucci, there was 60%, 2 thirds of the offering on carryover with an animation of the carryover, of course, and after that transformation phase. Full year and more specifically, in the second half, we returned to carryover levels both in sales and in offering. It's also the case, more surprisingly, in footwear because of the repeated success carryover level very similar to what we have in leather goods, which is fairly untickable. Carryover rate naturally lower in the ready to wear. But what's interesting is that we're setting up a sort of garment center where we can install carryovers that's increasing in ready to wear with a Mitch and Match, so that the woman can both have carryover address that she can find from one season to the next and also new products.
Important to state that because we're over and above the fashion development there. We have carryovers that are meeting with repeated success for several seasons. Now the network of stores, as I indicated, 152 stores with a new concept, a total of EUR 529. So we're not quite at 30% of the store with the new concept, 66 renovated during this year and the plan for next year for 2018 rather. For 2018, the plan is to renovate about 90 stores.
As you know, Gucci and it's one of the avenues to control and contain it. Exclusivity is not seeking to massively open new stores. A bulk of the CapEx will be devoted to store renovations. With 90 stores in 2018, at the end of the year, we should be at around 45% of the network with a new concept. It's important to state at the same time that in stores with the old concept, there are schemes with furniture, with some visual tools that make it possible to give or to replicate the new store aesthetics in the slightly older part of the network and that gives an additional 20% or 25% of the network with this touch of the new concept.
And also on the productivity front, when we look at like for like growth on the year, The growth of stores with the new concept is far more significant than that of stores with the old concept. Turning to Balenciaga, I'm going to disappoint you because I can't give you the figures. We don't disclose figures, just some information that we were able to disclose. I believe that Jean Marc said it's the brand that has grown the fastest within the group in Q4 and in H2 also. We're at 40% growth in the year, 60 percent in Q4.
As I said, January in line with Q4. You'll therefore deduce that it's going very well. I can't say anymore. We have to let them work. All this is recent.
We have to consolidate all that. At Gucci, It must happen across categories, across geographies, but we're really headed in the right direction at Balenciaga. The operating margin is double digit. Jean Francois asked me to mention that. Turning to the second third question, very interesting question because we're working actively on what we call the disruptive scenarios.
We put in place an innovation team last year at caring level relying on our 2 major brands, Gucci and Saint Laurent. And we're working in partnership with various scenarios. Now there are disruptive scenarios on materials question, as I said this morning during an interview, if in the near future, we could no longer use leather is a solution offered by new technology. That's the type of disruptive scenario we're working on. And to answer your question more specifically, we have the same type of work ongoing on new business models.
I mean, the second hand, as you say, we're working, in particular, San Laurent is in the lead with Rail Rail. We're testing things with Rail Rail, but also what I call the subscription models. I mean, I don't like the kind of rental models. I mean, that it's a sort of subscription is given to a certain type of product. I mean, it exists in a mass market universe today, doesn't exist in the luxury universe.
Question is, can we consider those models in a luxury universe? If so, what is the implication? So we're testing that with the partnerships outside the group. And it's happening. It's led by Gregory for almost a year now today.
I've got two questions. First of all, on CapEx. 2nd, last year, you really emphasized CapEx. Apparently, a lot of investments did take place. That would also explain why things are going well.
But what can we expect for the upcoming year? Might there be reduced CapEx as a percentage of sales? What's your budgeting? What are your expectations? My second question, more general.
On customers, apparently the U. S. Is doing better in Q4. The Americas are apparently maybe coming back to the forefront. What you're seeing in China, it was very good year last year, maybe things slowing down slightly.
What are your expectations? What are you seeing in the field? Any possible downward changes? First of all, on capital expenditure, as you know, Jean Francois said this, pro form a, it is true the level of CapEx in sports and goods is lower as a percentage of sales. So excluding Puma, if you look at this pro form a, the group would be more in the neighborhood of 5% to 6%, which is pretty comparable.
If you look at the major players in the industry, That's what the competitive figures are looking like. This doesn't mean necessarily we'll be at 6%. That's not the point. We do think today, also taking into account what I said about stores expansion, but also taking into account the investments we're making in Information Systems, we have to maintain these efforts to invest between 5% 6% of sales in CapEx. That's probably the right percentage.
If we need to step things up, we will. If we need to slow down, we are able to. We've got a very good handle on CapEx. And forward looking. It's essentially it's not each brand that does what sees fit.
There's a dialogue that's ongoing throughout the year. It begins during the budget phase, of course. It's a dialogue that not only has to do with the upcoming year, but the upcoming 3 years, so we know the overall trend and to make trade offs from one brand to another. This is why for several fiscal periods now, we've been adhering to this discipline. I feel that we've established a process to manage capital expenditure, enabling us to continue to have this ambition of 5% to 6% of sales and to adjust to take into account changes in sales.
To talk to you now about customer changes. It was a good year. Thinking of our 3 main brands, but equally true for the other brands in the group as well. It was a good year regarding customer Chinese customers. Some people might see the last quarter slowed down slightly.
Let me say, 1st of all, it's a tiny, it would be a tiny, tiny dip. First of all, you've got to look at a 3 year trend. As from Q4 2015, we started seeing a resumption for Chinese customers, especially sped up towards the last quarter of 2013. We see over the several year period, it's the last quarter that's seen very good growth in Chinese customers. Now it's true there's a little bit of volatility over here.
There's some shifting of Chinese customers from one region to another. Our brands now are agile enough to deal with the shifts. It's true the last quarter, especially December, with a little bit less buoyant to sales to customers in Europe. There was a shift of Chinese customers, especially towards Japan. And in the last quarter, we even saw Taiwan looking better with the mainland Chinese customers, Singapore, Ditto, Macau and Hong Kong.
We know once again things are headed in the right direction when it comes to Mainland Chinese customers. So all in all, Chinese customers looking good, continues to be the case. American customers, we saw acceleration basically throughout the year, particularly return sales to American tourists. They've traveled more and purchased more outside the United States. It's interesting.
It's good our brands saw very good results with local customers in the domestic market as well. We can say the department store markets has seen ups and downs, but in our retail stores, no negatives. Regarding our major brands, huge successes. And we know that our figures are looking good for our major brands, department stores as well. So U.
S. Customers looking good during the year and things still are looking good for this year. I'm from Kepler Cheuvreux. Two questions. Firstly, you told us you expected to outperform the industry.
Could you tell us what your forecasts are for the industry growth 2018? The second thing, one of your competitors slowed product availability in December, so they could be prepared for the Chinese New Year. Did you also have to take the steps for your brands? When you say outperformed the market, yes, we're gauging market growth, which we feel should be in the neighborhood of 6% to 7% this year. But again, our basis is Banatacama pulls.
If that's the baseline, our brands will substantially outperform the market. I'm absolutely convinced of that. So we have to realize on the other point, our brands, particularly Italian brands, you haven't our Artisan's production system is more Gucci has been able to produce such growth without for one moment wavering on quality demand. It's because of their network of suppliers, subcontractors and quality control, which they've had up and running for many years now, Gucci. And that specifically gives them their ability at Gucci to be highly responsive, able to contend with higher growth, all the while abiding by drastic quality requirements.
So we have no concern to slow down to be able to deliver subsequently. We know that Chinese New Year is in mid February. It's upcoming. We're ready. All of our brands are ready.
There's no concern whatsoever. Let me just build on an answer Jean Marc gave a few moments ago having to do with working capital requirements and so forth. We forgot to underscore the following. We made major investments in all brands, number 1 being Sandro, I might add. We invested in tools to manage sourcing state of the art tools at Gucci, Bottega, Balenciaga and Sonaha, we've got this ability currently to be highly responsive.
You realize we're in an industry. A few years back, we had to deliver beginning of the season all orders to our own stores and outside retailers. Now essentially, we keep 50% to 60% of those orders and only ship these to stores as sales are made. That gives a better inventory quality, inventory level, completely different from inventory management previously, which is one of the reasons why we've been successful in coming up with substantial growth rates for Gucci and Balenciaga, specifically thanks to this system of reorders, which is a top performance system. And compared to previous practices, this has meant to be able to completely change the way we do things.
Now, Marion Boucheron, number 3 will ask a question. And the next person.
Yes, Raymond James. Three questions, if I may. The first on Gucci, you're very confident on the top line. The OpEx behind the brand is high. What operational leverage can we expect this year?
Secondly, on Bottega Veneta, you mentioned resumed growth in the sector, number of store openings. Can we expect stable margin in 2018? Or will it decline further? Could we have a word on iWhere? What are your growth expectations and the profitability profile of the division?
I'll answer your first point on profitability. I've read comments on the operational leverage of Gucci that in 2017 is not in the range of the scale expected. If we look at the industry overall, there are operational leverages that exist, but you can see that numbers other peers in the sector. There's a cost today to sustain the business and grow the top line major investments, as you know, both in advertising and digital and tools, in store animation. And we've always said that there's a need to support drive growth and growth sustainability is also linked to our OpEx at every level.
And also on the supply chain, now, of course, today, there's still strong operational leverage at Gucci. And it's true that starting from 34 point 2% EBIT margin this year, we can anticipate operating leverage growth this year if the top line unfolds as expected? I mean, there are the currency impacts only at the margins of profitability, they are there, but they have to be factored. The margin growth at Gucci, we're confident we're capable of growing the Gucci operating margin. You mustn't expect operational leverage as high as this year.
I think we'll be very vigilant in allocating the OpEx where they need to be allocated in order to deliver this growth over time, this profitable growth that you regularly call for. So it's important to continue to invest in that respect. You know Jean Marc well. He likes to surprise people. As to Bottega Veneta, well, we had an improvement last year.
We're beginning to see the fruits of the work put in. Just to recap the challenges at Boutique Avenue, EUR 1,200,000,000 revenue, very loyal customer base that we have to offer them new products. The issue for the house was that these new products didn't exist in sufficient numbers. And in a store, a network store, where the average size of the BV store is quite small, those in store difficulty when we leave the stores, establish their ranges to showcase the iconic products of both of the business versus the new products. Last year, we revamped all the merchandising systems.
Today, it's the brand of the install replacements to showcase these new products, huge product development work done at Bottega. And I said in my earlier is that we're getting feedback on new products. Whether we focus, we get immediate feedback in store, and that's the Bottigar. That's the first focus to reignite emotion appeal with existing customers, but it's not enough to continue to grow and the brand has potential. 2nd issue is broadening its customer base through the new stores such as the one in New York.
We had that in Milan and in Ginza to give visibility, enhanced visibility to the brands, very important for these new customers. Of course, we're adding digital native advertising shifting from one world to another. But you may have seen the new campaign solely on digital with extracts for an offline advertising. We totally upended the system, and we're addressing far more broadly a far more diversified customer base at Bottega. So we're working on these two fronts, both in terms of the brand appeal of the brand, the stores that we're opening.
The flagships will give a big boost to the brand also in terms of business. We're confident for Buttega Veneta to return to a pace of growth that's normal as of this year. For Kering Eyewear, business will continue in 2018 under 2 impacts. The brands of the group, they'll grow because 2018 will in fact only the 2nd year of Gucci under the new model. So we have strong growth potential in store for Gucci.
Also, fine plans for the other brands, Saint Laurent, Puma in the licensing contract will continue even after brands. Added to that will be the input of the Cartier sales that looking very good because we did some launches that were very successful with very full order books. So final growth prospects. EBITDA will grow, but as Jean Marc indicated, we still have the amortization of the Safilo Indemnity that is capitalized that will weigh on EBIT, but EBITDA will grow. Next question, which will be under the last open up.
Okay. That's from Jefferies. I'd like to add questions on 2 topics that you already touched on, but I wonder if we can have a little bit more detail on specifically on the supply chain at Gucci. You've been quite open in inviting new partners in Italy to come and work with you. The other website is dedicated for that.
How significant is that? Do you have a lot of new partners now? Because in the end, when you're managing this kind of volume growth, it's a challenge. So I guess I'm trying to understand what the risk component there is. And the other topic that we have touched on already is, of course, the one channel that is growing, take Gucci as an example, sorry, I will come back to Gucci.
One channel is growing faster than Gucci at the moment is actually Gucci, pre worn, pre loved, second man, however you want to call it. So and that's getting really big. I mean, if I'm looking on The RealReal, we have 24,000 units of Gucci pieces on it. So does it and this is a conceptual question. Does it come a point where in order to protect the brand profile, you need to get involved is not directly, but indirectly in terms of authentication, making sure the presentation of the product.
Because I suspect that if we have a conversation in a year's time, they're going to have 50,000 pieces of Gucci there. So it's getting too big for you guys not to really get involved, I suspect. Thank you.
Jean Marc touched on this concept of Gucci Art Lab that was prepared over many months and will be coming on stream very soon. This concept is precisely what you mentioned to revamp the network of artisans, of craftsmanhood, the Gucci network to integrate some and to keep others on the subcontracting basis, but in a different way. So unlike or rather than growing the risk, it's going to reduce the risk because first of all, we're going to integrate more and we'll control more. And this is something that will allow us whilst maintaining this agility that Francois Henri mentioned earlier, will allow us once again to have greater proximity and greater responsiveness with the artisans, with the craftspeople. So for us, this is quite the contrary, is a reduction in the industrial risk.
Just to pick up on the point of the pre worn or secondhand, I mean, we're not at all on the back foot of being defensive. We're cooperating with Edril to train them in authentifying the products. I mean, we see this in terms of sustainable development of our brands. It's very healthy. The fact that we can recycle products today benefits the brand.
RealReal, 80% of products are re spent in the same brand. So it's also a repurchase factor that's very interesting. We're testing this proactively with them because it's a form or at least a service, it's more of a service for our customers that can have a key perception in terms of value added. That's why we're collaborating with them actively. I don't believe there are any more questions, I think.
Well, my thanks to you all. Thanks for your questions. Thank you for the interest shown in our group. We look forward to seeing you again soon to give you an update on our business and give you further information on a particular segment that you'd like to know more about. Have a good day.