Good day, and welcome to the Kering 2017 Third Quarter Revenue Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jean Marc to text. Please go ahead, sir.
Good evening to all of you, and welcome to Kering's Q3 sales call. Slide 4 provides a group summary. Once again, this quarter, Kering experienced strong growth momentum. Revenue was up 23% reported and 28% comparable to €3,900,000,000 FX turned negative roughly 5 percentage points, slightly skewed towards Luxury. The scope of consolidation was unchanged.
As in the prior quarters, Kering Eyewear was accounted for under Corporate and Others. Total Kering Eyewear sales were €65,000,000 in Q3. After elimination of intra group sales and royalties earned by the brands, net consolidated revenue of Kering Eyewear was €49,000,000 and as previously, this contribution is included in our comparable revenue increase. Q3 sales continued on a strong double digit trend and this is true in both Luxury and Sport and Lifestyle. Growth was slightly higher than in Q2 and even than in Q1.
In Luxury, we posted a remarkable 32% comparable increase against comps that were significantly tougher than in Q1 and Q2. In Sports and Lifestyle, comparable sales rose 16%. At group level, growth is well balanced across geographies. We posted double digit increases in all regions with Asia Pacific up 36%, Western Europe up 32% and North America up 21% comparable. Japan and Rest of the World were also firmly in positive territory.
On Slide 5, our luxury activities where we delivered strong performances across all regions and channels. Retail was up an impressive 37%, led by Asia Pacific and Western Europe, up 42% 36%, respectively. North America was also very healthy, up 33%, and Japan improved sequentially with a substantial 24% jump. In Western Europe, sales to locals were up sharply, while tourism purchases remained dynamic. As a result, Bouillequay, France, Italy, Germany, Spain, all posted double digit increases in the quarter.
In Asia Pacific, the highly positive purchasing trends by local clientele were further confirmed. Mainland China, but also Hong Kong, Macau, Singapore, Korea and now Taiwan achieved strong double digit rises. Local consumption and to a lesser extent some improvement in tourist spending fueled the performance in North America, though all our brands did not benefit equally. In Japan, the improving trend gained strength with locals and tourists contributing. Online revenues were also buoyant, up nearly 80%.
Wholesale rose a solid 22% with Gucci, Saint Laurent and Balenciaga in particular greatly appreciated by partners and clients. Royalties further improved, supported by the steady development of Caring Eyewear. I would like to add 2 comments. First, FX turned heavily negative in the quarter, impacting Luxury revenue by around €90,000,000 and total group by €128,000,000 This headwind is not likely to get better in Q4. The second comment relates to our basis of comparison, which as you know, do not get any easier in the final quarter.
This being
said, Kering continues to benefit from a supportive demand environment, But you can safely say that the quarter further testifies that our focused execution to bolster organic growth makes a genuine difference. We are gaining market share. The creative momentum at play in our brands and the resounding success of our recent fashion shows are instrumental in driving brand attractiveness and reinforcing engagement with new and existing customers. At all levels in the group and in our brands, we foster innovation and inventiveness throughout the value chain. From collections to merchandising, supply chain, communications, CRM, store productivity, omnichannel experience, we are working relentlessly on all levers to adapt, anticipate, stay ahead of the curve.
Our directly operated network comprised 13.51 stores
at the
end of September, a net increase of 28 units compared to June, reflecting the strategies of YSL and our other brands to develop market penetration. Let's turn to Gucci on Slide 6. Gucci had another stellar performance. Revenue rose 49% comparable and was driven by an impressive 51% growth in retail, achieved purely on the basis of like for like full price sales. Equally important, this performance was particularly well balanced across the board.
Whether you look at it by region, nationality or product category all were up double digits. The definite success of all product categories, both men's and women's, reflect the fully accomplished transition to the new Gucci offer. In leather goods, growth is especially strong in handbags driven by carryover lines as well as newness. The outstanding momentum confirmed quarter after quarter of Gucci's shoes and ready to wear attest to the appeal of both new collections and styles launched in earlier seasons. Regarding regional trends, I want to highlight that in Western Europe, the progression was fueled by locals and tourists and is gaining cities of all sizes across the whole store network.
This is also true in North America. In APAC, growth was buoyant in every single country. In mainland China, it's worth noting that momentum is spreading to all tier cities. In Japan, trends have improved sequentially, reflecting growing appreciation of the new aesthetic by locals, helped more recently by the rebound in tourism. Online revenue grew triple digit in the quarter, confirming the strength of the brand's digital proposition.
The e commerce site launched in China in July with very promising results now enjoys its first deliveries of the cruise 2018 collection. Wholesale grew 44% as our partners continue to respond enthusiastically collection after collection. Finally, royalties rose 28%, a very encouraging development. After more than 1 year of transition and with successful launches in eyewear as well as Fragrances, royalties are now enjoying positive momentum. We are confident in Gucci's ability to continue gaining market share.
The brand is building sustainable growth, relying on an innovative positioning and narrative and engaging a wide cross section of customers across nationalities and demographics. Gucci is investing in marketing, communications and in the continuing rollout of its new stock concept to further leverage its potential in all regions and categories. In this regard, significant investments have also been committed to supply chain with a focus on preserving manufacturing now fostering innovation, enhancing vertical integration and reducing lead time. The opening of the new center of excellence for leather boots and shoes, the Gucci Art Lab, planned for early 2018 will be the pillar of the new industrial platform. Moving to Bottega Veneta on Slide 7.
Trends in the quarter reflect our ongoing work to strengthen brand value. Revenue was up 1% comparable as retail had another positive performance. Conversely, wholesale was down again, but Bottega Veneta is nearly done with the implementation of programs aimed at raising exclusivity in this channel. Retail sales were up in all regions except North America with a strong Japan and more modest increases in Western Europe and Asia Pacific. Higher sales to local clientele reward our efforts to rebalance our customer mix in that direction.
In terms of products, handbags benefited from solid demand for fallwinter newness. Sales of ready to wear for both women and men posted sharp increases. New colors and interpretations drove excellent results in women's shoes. Bottega Veneta continued to make progress with its action plans. New communications campaigns were launched late in the quarter, more consistent and with a notable emphasis on telling our story through digital media to attract newer, younger clientele segments.
The House's recent fashion show, notably the spring summer in Milan last month gained widespread notice. The adaptation of our store network entails not only lighter, brighter displays, but also greater coherence between the assortment and specific characteristics of each store. We will leverage the opening of the Madison Avenue Maisons in New York in the Q1 of next year to mark the emergence of a new spirit throughout the brand. On Slide 8, Saint Laurent posted solid growth again this quarter. Comparable revenue rose 22% with double digit increases in wholesale as well as retail and also in royalties.
Retail rose 21% and all regions were up double digit apart from North America, where sales were up 39% in Q3 last year, establishing a high base of comparison. By product category, sales of leather goods were up sharply with a balanced contribution of newness and permanent lines. Shoes were also up significantly and the fall 17 collection in ready to wear was very well received. Hotel achieved a good rebound, up 23% on deliveries of full men's and men's fallwinter collections. In line with its selective retail growth strategy, Saint Laurent opened 7 stores in the quarter, mainly in the U.
S. And Asia. The summer 2018 fashion show held in front of the Eiffel Tower late last month resulted in great responses from the global media influencers and our clients setting the path for further growth. Slide 9 summarizes the robust revenue performance of our other brands, up 17% comparable. Both retail and wholesale channels grew up 31% and 9% comparable respectively.
Asia Pacific, Western Europe and Japan fueled solid retail performance. In soft luxury, revenues were up 19% comparable with an even better performance in retail. Balenciaga is leading the pack, growing at a very fast pace, accelerating quarter after quarter. Its shoes and ready to wear collections are received with great enthusiasm in all regions and the strong appreciation of the springsummer 2018 fashion show makes us very confident that we are only at the start of the journey. Leather Goods are already performing well, but we are only beginning to grasp their full potential.
The brand's visibility is gaining strength and its feasibility enhanced by selected Hallmark store openings as in Avenue Montaigne in Paris late September. All other soft luxury brands also posted positive retail performances in the quarter. In our Luxury, revenue was up 15% comparable with both jewelry and watches growing. In jewelry performance was strong across all our brands, Bouffron, Pomellato, Dodo and Kiline. These trends result from both economic lines and new launches supported by greater marketing and digital presence.
In watcheries, trends were encouraging in the quarter. Girard, Perrigo and Ulysse Nardin making good progress, notably on the back of their recent new models, the L'Orealto, Agior, Perrigo and the Marine Top Gear at Ulysse Nada. On Slide 10, our Sport and Lifestyle activities achieved a 16% increase in comparable revenue, reflecting Qumas remarkable 17% jump in the quarter. Kuma reported its Q3 results earlier today and raised its full year guidance. Kuma delivered consistent double digit increases in footwear and accessories.
Sport style and running training shoes did particularly well. Apparel also had a good quarter. All main regions posted double digit increases. In Western Europe, both key wholesale accounts and solid retail fueled the growth. APAC benefited from high demand in Greater China.
Once again, e commerce review was up sharply in the quarter. We are very pleased with Cuemath's performance as all the initiatives to gain greater market prominence with customers and with retailers are clearly paying off. PUMA's product lineup is in high demand. The brand actively collaborates with individuals and organizations that resonate with major customer segments. Each new partnership with Selena Gomez or the September 23 workout event with the New York City ballot are just two recent examples of this.
New product launches and communications initiatives should extend Puma's winning streak. To conclude with Slide 11, we are well on track to deliver a record performance this year. We are confident in the validity of our strategy and the soundness of our execution. We are keenly aware of the potential pitfalls from political and economic scenarios, and we will experience further headwinds from currency and comps. But the overall environment remains conducive for luxury goods, and we are well positioned to continue outperforming the industry.
With that, we are ready to take your questions. Thank
We'll now take our first question from Thomas Chauvet from Citi. Please go
ahead. Good evening, Jean Marc. Thomas from Citi. I have 3 questions, please. The first one on well, the 3 actually on Gucci.
The first one, Gucci is clear market share winner in the Q3. Growth accelerates on a tougher comp. That was a big surprise. Sorry to ask a bit of a short term question, but we've seen several data points in September pointing to a softer demand environment, duty free spend in Europe, SwissWatch in China, Golden Week, etcetera. Has this been the case of Gucci or Saint Laurent, BV softening in September, October versus perhaps the beginning of the quarter?
Secondly, on Gucci's EBIT margin for the year, you guided for 32% EBIT margin on a full year basis last summer. In light of your Q3 numbers and maybe current trading, are you able to give an update on this previous guidance? Or should we consider you reinvest a lot in the brand in
the second
half? You highlight marketing, digital, new store concept. Was keen to know how many new stores you have now. I think it was 109 at the end of H1. Where are we now in that new Miqueti concept?
And finally, on Bouchie, but the broader division, you highlighted FX headwind. Can you remind us the hedge rate for FY 'eighteen on USD and Japan Y, how much is covered and whether you've made progress on your thinking about pricing policy next year? Thanks.
Good evening, Thomas, and thank you for your 4 questions, Ingrid. You are still right to point out that if you look at the global data and especially the one obtained from Global Blue, September was weaker, especially in Europe due to a weakness of tourism traffic and more specifically in September. That said, I would say that looking at the performance of each brand, we didn't see so far any signal of slowdown and any specific issues in the different European countries or in APAC. I think that we have a very sound base of local clientele and still our brands are very out with the tourists. So we didn't observe any negative signs.
But it's the reason why we remain cautious nevertheless for the remainder of the year considering that we have a quite tough comp plus the impact of the FX. So we prefer to remain cautious, but so far, trends were very positive in Q3. Regarding the EBIT margin, it's true that considering the trends of the top line at Gucci, we are confident that Gucci will deliver a strong operating leverage in H2, while still investing in some key areas we have already mentioned in the past to sustain growth. It's probably fair to assume an increase in H2 margin of the same magnitude or maybe slightly higher than in H1 in terms of percentage points. And to remind you, it was 4.40 basis points during H1.
So I like to make your math, but clearly, we have a stronger operating leverage without compromising all the necessary investments to fuel the growth. So you had a question also. It was a question about the store concept. In fact, we have now 123 stores under the new concept, so it was 14 compared to million of H1. It represents approximately 24% of our total Dot network.
We plan to add an additional around 30 stores in Q4, so that we would reach around 150 stores by the end of the year. It's approximately 30% of the network. And it's important to remind that also we have set up some visual tools in mainly based on the new aesthetic of the stock concept in approximately 25% of the network. So in total, we can say that by the end of the year, we would have 30% premium content and 20% to 25% with some visual tools. Regarding the hedging.
So for the year 'seventeen, we had hedged we had €110,000,000 for the USD hedge and €121,000,000 for the Japanese yen, just to give you an indication for the main currencies, it was €0.83 for the GBP. So far regarding for next year 'eighteen, it's €1.11 on the USD, €1.23 on the Japan EBM and €0.87 on on the British
pound. And anything on pricing?
Regarding the pricing policy, as we had the occasion to comment in the past, we consider that it's something we need to manage carefully, and we don't want to react too rapidly to the currency move. Nevertheless, regarding Gucci, more specifically for the spring summer 18 that we'll be introducing stores starting now. We plan some actions depending on regions and products, resulting so far in the mid single digit average price increase, which we are still functioning, by the way. And again, we are we have always been cautious when it comes to adjusting prices following FX moves. But it's true so far that some price gaps were in the low range.
So they would need to adjust. I know that some other brands have also started some actions also to correct and to address the price architecture.
Okay. So 5% price increase on the in average on that springsummer 2018 collection?
Absolutely. Thank
you. Thanks so much.
We will now take our next question from Susanna Pouz from Berenberg. Please go ahead.
Hi, good afternoon sorry, good evening actually. I have three questions, if I may. First of all, could you maybe give us a little bit more detail on the performance of the major consumer clusters at Gucci and the luxury division overall, I mean, specifically the Chinese consumer, but also other clusters, please? And second on Gucci e Commerce. So clearly, the triple digit performance was really impressive in Q3, and that seems like a big acceleration versus Q2.
So I'm guessing that the China e commerce launch in July helped. Jenny, was this a big positive impact? And generally, maybe you could give us a little bit more detail on kind of the initial feedback from the initiative? And then finally, on tourism in Europe. So I mentioned before, there's been some weakness in September, and this is not something you've seen so far.
But I was just wondering, when you look across the different brands, is there any difference in terms of the impact stronger euro may be having on the categories? I mean, specifically soft luxury versus hard luxury? That would be very helpful. Thank you.
Thank you, Susanna. I will let Claire answer on the Gucci e commerce. Regarding the major customer cluster, let's start in a way to with the Chinese cluster. The Chinese cluster was clearly strongly up for if we consider the Luxury division, more specifically on which it will buoyant. It will buoyant across the board, meaning that it was up in almost all countries or all regions, still in Europe, as we mentioned.
In APAC, of course, you had some contrasted situations because there was some impact of the measures taken by the Chinese authorities in Korea, but there was a sort of redirection of Chinese tourists to Japan, especially in September, also due to the situation of renminbi against the Japanese yen. So globally, with the exception probably of the U. S, where the Chinese cluster is still quite weak, but if you look at the global consumption of China, U. S. Is not significant.
Globally, it was very positive. It was also very positive with the American cluster, especially dynamic in Europe, more than domestically, but globally, it was up that cluster. When it comes to Japanese, clearly, there was also some repatriation of the purchases domestically. So when there was some positive signs at the beginning of the year, when the Japanese tariff finally, it's turned to be less positive and even negative in certain case for some brands. That's the case of Gucci, of course.
And once again, Gucci is positive across all the different clusters. So when it comes to nationality, that was my comment. Regarding maybe the different clusters in terms of ages at Couture, what I can say is that it's very comparable to the trends we saw during the first half. It's positive with the million, but not only with the million, it's double digit growth of all the different clusters of engines for Gucci. Claire, on the Gucci e commerce maybe?
Yes. Hi, Susanna. Hi.
Very briefly,
of course, we launched the Vigucci launch early July in China. But if we look at the figures, we have very high double digit growth in our region and even triple digit growth in our region. And so it's not only driven by the opening of the Chinese ecom website. Now when it comes
to the
ecom in China, I
mean, it's a very nice launch,
all in line with what we expected, both in terms of products, both in terms of high share of sales in handbags, for example, sales in mobile phones are performing very well. So it's very well aligned with what the brand expected. Keeping in mind that really, I mean, I would say the bulk the collection will come now with the cruise collection. So the assortment that we had in July was one of the more limited one. So it's a very nice start, but knowing that we are now enjoying the delivery of the cruise collection, which would be another growth potential for this channel.
But very good start, but triple digit, not only driven by China.
Now coming to the tourism in Europe and what could be the differences between the brands. So just to focus a little bit on Europe, so there was a double digit increase of the purchases by the Chinese client and globally of Asia, of APAC and Middle East. For the other clusters, it was not so positive, but it was positive but not double digit for the other clusters of Clientele. North America was mid- to high single digit and the other clusters were slightly below. And when it comes to Japan, it was positive, but slightly positive.
Of course, globally, because of the situation of Euro, probably the brands which are particularly odd like Gucci and Saint Laurent did not suffer from any impact and any changes during Q3. For a brand like Bottega Veneta, also considering the price points, which is particularly high, it's true that there was probably more repatriation of purchases in some domestic markets. So if we look at the trend, we saw that hot brands like Gucci, Saint Laurent and also Balenciaga, I mentioned Balenciaga during my speech, had a very good development with tourists in Europe and did not suffer from the slowdown we have mentioned. For the preclinical, probably, it has been more impacted by some reclassification of purchases.
We will now take our next question from John Guy from MainFirst. Please go ahead.
Many thanks, Jean Marc, and for taking my questions. Maybe just starting with following on with Gucci. Jean Marc, you mentioned that millennials, the other demographics also drove double digit sales growth there. But can you just maybe highlight the percentage of millennials in terms of sales for Gucci? Were they driving over 50% of the year growth?
I appreciate the double digit growth was everywhere, but just wanted to get a highlight on that. Do you have any also sense in terms of order books? Is it too early to talk about order books from a wholesale perspective running into the Q1 just to get a sense of the appetite for the brands going forward? Can you also, on Saint Laurent, as well just flag any sort of comments around wholesale order books? And on Balenciaga, is it fair to say that the run rate for this year is well above the 20% level and we could be looking closer to between €550,000,000 €600,000,000 of sales for Balenciaga?
Or is that maybe a little bit too optimistic?
Thank you, John, for your questions. Regarding the short millennials in the sales of Gucci, it has been quite comparable to the share we had recorded during H1. It's more or less similar. So just to remind you, it was 54% during H1. So it's very close to that amount.
So it doesn't change significantly. So it's around 54%, 55% of the sales. So it grew double digit, more than double digit. And again, I want to insist on the fact that if I look at the other clusters, growth was very, very strong as well. What is interesting and we had already the occasion to comment in the past quarter is that the retention was the millennials is good.
It's very close to the one we have with the other clusters of clientele and it is improving faster than for the other clientele. So that at the end of the day, we may be in a situation where the retention rate is quite similar to the other clusters. It's not yet the case, but it's clearly improving. Regarding your question about the orders, the order books, you know perfectly that it's not the type of information that we are providing for any brand, by the way. Let's say that the reason why we are confident for the end of the year is also because we know that our collection, Gucci collections are well received by the buyers.
And that's the reason why we believe that we should keep the momentum in hotel going forward. As you say, I will answer exactly the same for Saint Laurent. We are not providing any figures. You will have noticed that the last show has been unanimously celebrated and commented. It was a magnificent show, really true to the spirit and the DNA of the brand.
And I think that the reception of the buyers has been extremely good. Finally, regarding Balenciaga, of course, I won't come back to the figures you have mentioned, and I don't want to elaborate on that. Two comments, by the way. It's one of the fastest growing brand in the division. And in September, in retail, it was the fastest growing brand.
So you can imagine what is the run rate for the brand in retail and also it's very positive as well. And my second comment is that during the presentation of 2015 results, sorry, in February 2016, Mr. Pinot had the occasion to say that this was a brand new potential to reach or to exceed €1,000,000,000 of sales. So we are working to achieve the target mid term, and we are very encouraged by the development of the brand in the 18 months.
Jean Marc, thank you. That's very clear. And just one follow-up, please, just on Gucci bags. You called out handbag sales as being particularly strong in a few regions. Not that I want to go into category by category, but could you make a comment specifically around Gucci Bags in terms of the rate of growth relative to what we've seen in the Q3 and the weighting of Gucci Bags and leather goods accessories now for Gucci?
You know that we don't comment precisely the figures by category. And that category is continuously posting very strong results with a double GB growth compared to last year. The new iconic pillars are clearly the key driver of the business, both in carryover and in E and S with the civil developments, seasonal developments. This iconic line has been developed across all prices all price ranges to ensure a balanced business. So I think it's one of the reasons of the success of the category.
You know that we have also built a strong offer on some lines. We have less lines than in the past. We have the same number of SKUs, so that we have broadened the offer on each line. And let's say that clearly, the M backed category is performing well, but I can say that the other category I don't see major weaknesses in the other categories. And let's say that where we had mentioned some issues in order to improve like the small ever goods, the luggage or the mass category, we had also very positive development during the last quarter.
So I think that we have fixed many issues already. So and that which is a key category, is performing well, but other categories are performing on par with the n bags category.
We will now take our next question from Anthony Belge from HSBC. Please go ahead.
Yes, hi, good evening. Actually, Antoine. Three questions on it's hard to find more question on Gucci, but I'll try. I think you would have said that if you have caught any every methodology to forecast sales, 2 year stack, 3 year stack. So how are you yourself looking internally at these issues of basis of comparison, which for the time being have been only theoretical and so any help on that?
The second question relates to the other brands. I think we knew that part of them were already doing quite well. I've noticed there was some kind of a rebound in even the watches brands. Have you seen some kind of restocking in watches? And could you provide a bit of information on the other brands rather than the balance figure?
And finally, on Puma, it seems that every day there is a new article or you remember about the fact that carrying could dispose of Puma, but which way would be the most appropriate? And is it a sign that I think you had mentioned maybe 2018 or end of 2017. So can you maybe comment on that, especially after the other bid that we saw at Puma and the revision of the guidance once again?
Thank you, Anthony, for your questions. Regarding your the phasing of revenue growth, it's true that it's very I understand the question. And of course, I won't give you any recipe about the way we are working on the forecast. It's clear that we know that if we look at Q4, we had last year we had tougher comps ahead for sure compared to Q3, 4 points more. It's very difficult also to predict the full year impact of FX.
But it's true that if we look at the 3 year CAGR, we consider and that's the reason why we are confident for the Q4 because we have still room for expansion. If you make your math, when you look at a 3 year stagger, the momentum is still there. Now going forward in for IT, it's sure that it's not the call to comment on what could be the trends for next year and the way we are forecasting. And in a way, it's more I come back to the action plans and all the actions that have been presented by Marco during the Investor Day in June 'sixteen, I think that almost all these action plans are still ongoing, are still valid. You know that we have still ambitions to grow the store productivity and the sales entity.
Also that we consider that there is still room for improvement in some areas, that we can still overperform the market, but surely not to that extent. But I can tell you that we are still considering for 'eighteen, but of course, on the faster for comps. So at least for Q4, it's true that on a 3 year CAGR, Q4 should be still quite strong. Regarding the other brands. So you started your question with watch and jewelry.
I think that we have 2 different situations in terms of jewelry. It's the normal development of the branded jewelry in the world. So we have opportunities to grow our business there with brands, which brand awareness is still very low in some countries. So with some actions we are implementing at Tubou Francois, but also Pembareto, we are able to grow Veranda Onex and to enter and penetrate some new markets. So things are obviously going well on these 2 brands with very nice developments across the board, meaning so in all different price brackets for this brand, especially at Bouffin where we have a more accessible offer and high jewelry.
For watches, is I share your view I may share your view regarding the fact that we are seeing a market that can be both sides improving overall. But it's true that I had already the occasion to comment on the fact that there is some seasonality of the deliveries. So I think that there are still a high level of inventories in the market. So we are cleaning up clearly, cleaning up the inventory by with some buyback approach. There is an improvement, but and especially concerning our brands, which have acquired small market share, we remain cautious.
We are encouraged by the development of the quarter, but we have still work to do on our brands. Regarding the other brands, I will go very fast by saying that we had a very positive development of the retail business of this brand, including for including Brie and Mi, which had a very positive quarter in retail, which is based, of course, on with easy comps. I mean, we have to be clear on that. But it's positive in retail, the same for McQueen and McCartney. With our wholesale, which is partly impacted by the situation in the U.
S. Of department stores, while in the other countries, wholesale is obviously quite good. Regarding Puma, obviously, I think that a you saw the figures and the results and you read the comments made by the management. The revision of the guidance is, of course, very encouraging. It shows that the management is doing a great job in the turnaround and that this turnaround is more and more demonstrated.
The set of figures is clearly good, and we are really focused on that. We always say that there was a timing for the recovery of the brand, and we are working on that. This is still a question of delivering improved figures. So we are confident for the Q4 and then for further development of the business in line with the guidance of Pumaal. And I can tell you that the management of CareLink is working closely with the Pumaal management to be successful in that turnaround and to continue to deliver an excellent financial performance.
And I have no other comments to make on that. Maybe
just on Q4, I think last year, there was a bit of an issue in terms of because the demand was so strong and you had to prioritize, I think retail versus wholesale. And this year, I mean, is your supply chain more prepared to launch from Q4?
Francois, the question refers to Gucci?
Yes, exactly. Sorry, yes.
Yes, I think you know the brand was clearly had to adapt itself to the increased strong increase in demand. So they have been doing it regularly. I mean, clearly, this year, they have been, 1st, increasing the volume they could increase and the scale they could have at some suppliers. And on the longer term, Jean Marc mentioned in his presentation that they are going to open what is called Gucci Art Lab early 'eighteen, which is a further step because it is set towards more internalization of production for especially in Evergoods. So I think now they are clearly on par and at least have really catch up in terms of what we could produce.
So that's not an issue anymore.
We will now take our next question from Mario Otoli from Bernstein. Please go ahead.
Good evening. Can you give us an idea of what is the production source and outsource at Gucci in leather goods and shoes? And the second question is about Puma. If you, Jean Marc, can confirm that Puma is still classified as a non strategic asset and considering these, if you are looking at different way for an eventual divestiture from Puma, like for example, distribution in kind, the IPO also because the need of cash of the group to pay the debt seems, thank God, just a remainder of the past because of the cash generation of Gucci, you are pretty confident on your debt level at the moment?
You can imagine that I won't provide any indication of the share of products or production internalized or outsourced. I will just reiterate what has been said by Claire. It has become clearly strategic to have a better control, a better grip on product development and sampling, on research and development, also on new materials. You see the announcement of Marco about the use of fur. So it means that clearly, we are working on new materials and innovation.
It's a market where we need to be more and more innovative to keep our customers and to gain new market shares. That's the reason why it's strategic. So let's start with this project, which is huge. We are talking about premises of 33,000 square meters with many full time employees. And clearly, it will help to increase the share of development internalized and also part of the production in leather goods and in shoes.
We have also similar initiatives at Saint Laurent, for example, where we have opened recently a factory close to Padova for the shoes, also to increase the share of internal development and production. So that's a trend that you will see. It means that we will have some investments in that field without also changing our objective in terms of CapEx. So it's part of the CapEx plan that I want to elaborate further on the percentage. Regarding Puma, first of all, I think that it has been very clear, and I won't change what has been said directly by the CEO of the group that Puma is a non core asset, that the group is focusing more on luxury.
But I can tell you that we are still working, as I mentioned before, closely with the Puma management. I think that we are still very involved in the management and the monitoring of the performance of Puma. And again, I think that we already say that we are very happy with the development at Puma. I think that Puma is on a very nice trajectory, and we will have the occasion to consider and to contemplate some options, but later and probably not short term. So let's work, 1st of all, still on the turnaround, and let's deliver a very nice set of figures for 2017.
That's the priority for us. And it's good to and I agree with you that we never look back. And the fact is that it's true that considering the cash generation we have at group level, we are also very confident that we could reach without any disposal with process a situation of debt, which is the one we had set as an objective. That's the comment I would make also about the quality of the work done at group level in terms of financial discipline and cash generation.
Thank you very much.
Thank you, Mario.
We will now take our next question from Helen Brand from UBS. Please go ahead.
Hi, good evening. Three questions from me. Just firstly on Gucci again. Can you break down the Q3 organic between ASP and volume? You've mentioned the 5% price increase for springsummer 2018.
But can you just talk a little bit about how you're planning for these components into 2018? And so how you think about mix and volume? Secondly, we're now starting to lap some pretty strong growth from duty last year. And I was just wondering in Q3, what was the split between new customers and repeat customers? And finally, just on a group level, your net debt to EBITDA will likely be towards the bottom end or below the bottom end of your 1 to 2 times target by the end of this year.
Should we expect some higher cash returns given you stated that acquisitions are not really a focus near term?
I won't give you any precise indications on your two first questions. But let's say that when you look at our full price sales in Q3, the key contribution still comes from volume with a price component that is very limited so far. So it's principally driven by traffic and therefore volumes. It's true that if you consider the year to date performance, not only the Q3, the decision we took to reduce drastically the markdown activity because generally, you have no markdown activity in Q3, but you had in Q2, you have a more significant impact of the average selling price if you look at the year to date data and principally because of the reduction of outlet sales and in percentage and the end of margin activities. So you have clearly an impact due to the soundness and the quality of ourselves.
But it's true that for 'seventeen, it's clearly performance which is driven by volumes and traffic. And for 'eighteen, of course, I won't elaborate on that. As we said several times, we believe that we have still an opportunity to grow the to have an increase of traffic, clearly to a lesser extent compared to this year. So the combination of product mix plus traffic plus the price increases we have mentioned should contribute to the increase of revenues. Regarding your question about new customers, let's say that the performance is obviously very well balanced between the different clusters.
So we are considering acquired clients, retained clients and regained clients, meaning some clients who have bought more than 1 year before and that we have been able to regain by having some commercial activities. And when you look at the percentage of growth on all these 3 segments, they are all double digit with, of course, a great contribution in absolute terms from new clients. But it's true that the performance in the 3 segments are very good. Now coming to your question about the net debt situation at the end of the year. What is for sure is that we are well on track in our deleveraging process, thanks to strong free cash flow generation.
But our priorities are unchanged so far: return to shareholders with a consistent payout ratio, investment in our plans to foster the organic growth and potential and no M and A on the agenda. So to be very clear, we will keep for 'seventeen a consistent payout ratio compared to the past, meaning around 50% of the net income or net recurring income and available free cash flow.
But even then, you'll probably still be at the bottom end of your net debt to EBITDA target. Would you think about incremental cash returns above the normal dividend cost of business?
Helene, I think Jean Marc has answered. And I guess it's a question that will have to be answered once we have our full year results and that the Board will cover to the AGM. So I think it's not clearly a question for further elaborating today.
Perfect. Thanks very much.
Thank you, Anne.
We will now take our next question from Elena Mariani from Morgan Stanley. Please go ahead.
Hi, good evening. This is Elena Mariani from Morgan Stanley. Thanks for taking my questions. The first one is on Bottega Veneta. I know that you hadn't guided for an improvement in performance in the second half of the year and that you're still doing quite a lot of work on the quality of revenue.
Could you perhaps comment on the work that is going on behind the scene, whether you're satisfied with the changes you have implemented and whether we should expect perhaps a bit of a pickup starting from next year? And also in terms of profitability, if you could give us an updated view. The second question is about Saint Laurent. Similarly to Gucci, performance has remained extremely strong into the second half. And I remember that at your Investor Day, you had given a relatively medium term target of around 20% 25% of EBIT margin.
It feels like you could be close to achieve that already this year. So maybe could you comment on this and whether you're looking at exceeding this target already? And my final question would be on M and A, but not on the short term. It's very clear that it's not on the agenda for now. But thinking about the long term and the current brand portfolio that you have within your Luxury division, what would be your sort of wish list or perhaps an area or segment that you would like to expand in the past thinking theoretically, obviously, and not on like any short term targets?
Thank you, Lena. It's good to talk a little bit about BV because I think that, as we mentioned, this is a year of transition. We are very happy with the development we see at Bottega Veneta. That's we already said that it would be a long journey. We are as I mentioned during my speech, we are close to the end in terms of rationalization of the wholesale distribution.
So we can expect that situation should improve probably slightly in Q4 and and hopefully for next year. This is clearly a year of transition to stabilize the brand and build a solid base for the long term. We are building clearly on some strategic initiatives we had mentioned. For the products, the aim is to offer refreshed offer to existing clients, but also to engage with new and younger clients. But we have recruited a new merchandising director only recently, so it's probably too soon to see what will be done.
But we had already some initiatives like the launch of a new bag, which is probably more relevant to younger clients, which is a mini Montebello. And we continue clearly to work on exclusivity through the ongoing reduction of markdown. On Communications, that was a big push made more at the end of the quarter. That's the reason why it's clearly a quarter of transition in the year. With a more proactive and more digital communication.
And clearly, the focus is to tell a more consistent brand story across the different touch points. It was clearly missing before because there was probably a lack of investment in that field and maybe not the need to do so. So I think that we have to tell a story around the brand and to do it in a modern way to engage with various clientele. And the 3rd pillar is on the store network, where we are still working to have a more it's not only a question of stock concept, but it's also a question of having the right locations. And today, we are expecting a lot from some openings like the Maisons and Madison Avenue next year and also later next year the opening of a new Maisons also in Tokyo.
So we'll have some bigger stores not everywhere, but in some key destination cities. So we are continuing to work on that. But as you can imagine, if we take time and I can tell you that we are still working to protect also the EBIT margin at Bilib. And we believe that the 25% around 25 percent EBIT margin is something which is achievable at BV despite all the investments we are making for the brand. Good transition to the your question about the EBIT margin at Saint Laurent.
It's clear that the brand will continue for H2 also to deliver operating leverage, but it's more gradual. It's on a more moderate pace, as we had the occasion to explain during the Investor Day. So I must say that there is no reason to revise the objectives and the targets. So 25% is still a mid term objective. It won't be achieved this year because this is also a brand where we are starting to issue the growth through some investments.
We are continuing to invest in communication. I think that the show, the recent show was a good indication on that. You can imagine that it was a quite huge investment. It was important for the brand, but it was a quite huge investment. We will relaunch a new e commerce site very soon.
I think at the end of it was launched or at the end of October, it's on the verge of being launched in the coming days with a new version that has required some investments. So it will be launched tomorrow, to be precise. So I think that we have still some investments and to do in that brand to fuel the growth. So we want to achieve that 25% for 'seventeen. On MMA, I will be very direct and straightforward.
It's not something we are considering so far, not short term or long term. It's not is not the occasion today to talk about the long term strategic objective. It's a Q3 conference call. And I can tell you that short term or mid term, we have nothing on the agenda.
We will now take our next question from Luca Solca from Exane BNP Paribas. Please go ahead.
Yes, hello. Good evening. Thank you very much. Just to go to Gucci, it's probably going to be the understatement of the evening, that momentum is clearly not the issue there. I wonder if you could tell us what you're doing to make the client face at Cuccia more viscous and retain the clients as well as avoid overheating?
If you are doing anything in particular, for example, to reduce the brand exposure to off price and to gray market professional buyers arbitraging price differences across geographies. I wonder what your mix of Chinese sales in Europe are between professionals and tourists. And if you see that there's a difference in behavior visavisforex changes that we should keep in mind. More specifically on Bottega Veneta and handbags, how are you progressing in introducing new styles that can take the relay from the great iconic success of the intra charter? And are you in the initial stage of seeing new potential winners in that space?
And if I may add another one, hot Luxury, do you continue to see this as a strategic development area for the group? And how are you progressing between jewelry and watches on this target? Thank you very much.
We at Gucci, we are not decided to stop Maradhan activities to control the Avocado channel and to freeze the expansion in terms of stores because you will have noticed that we are stable in terms of store network to push any gray market or anything of this sort. We want to protect the exclusivity of the brand. Historically, you have always professional buyers in the clientele in Europe. We have taken some measures to control that and to monitor that clientele by reducing or by controlling the number of items sold. We have a set of measures, and I want to develop more on that.
It's not new. It's always been the case. And what I can tell you looking at the different clusters of clientele, including the Chinese in Europe, I can tell you that the growth of Gucci is not driven in any case and is not significantly improved by any parallel market or something of this nature. So we want to protect the exclusivity. We are working on that.
We cannot ensure that we fully control. It would be arrogant to say that. It's always difficult, but we are working in that. It's true that the recent evolution of euro against the renminbi is not bad in a way because it clearly discourage some Daegu activities. But I cannot elaborate more because we are tracking as much as possible this type of profile.
And we have the impression that it's not something significant, and it's not something that is important in the development of the brand recently. And it's important to remind that in Europe, we have strong development with local clientele. And I can tell you, it's a very local clientele. Looking at the passports and all the data we have, there is no debate about this. Regarding Bilibili, you're right.
I think that in the future, we will test some new products. We're still with Intriciato detail, but to with less dependence on Intriciato. We have a launch, which is just at the beginning, which is a Piazza 1, which is a plane never bag with some Intriciato details. So we are testing with a very nice shape and some functionalities that are, according to me, very adequate to engage with clients. We have some seasonal items and new versions around the knot, which is very iconic to the brand.
So we are testing, but as I mentioned before, it will be a long journey. So it's difficult to say if we have already a hit bag in the new offer. But I can tell you that the merchandising is working hard to add with the creative director to test some new style. In our luxury, I think that we have decided to make major investments Bouchon and to a certain extent to in Promelato. We are very pleased with very nice developments we saw recently for cleaning in China, developing very well with a very sound business.
So if we have decided to invest in Bouffron, it's because we are believing that we can develop that business and to grow that business. We have clearly nice brands. It's true that and it's fair to say that we have not made significant market share so far in that segment. But we have very nice brands, including in watches, where we have among the most admired manufacturer with a very good tradition in terms of manufacturing. So far, the intention and the plan is to develop this brand.
Wonderful. Thank you very much indeed, Jean Marc.
Thank you, Luca.
We will now take our next question from Marion Poshon from Raymond James. Please go ahead.
Hi, good morning. One last question that actually follows with what we've seen before. Regarding other brands and the investments you were making in jewelry, you were expecting maybe some pressure on the margin for the division. But given the strong growth rate we're seeing, could this ease a bit and could we see have a bit upside on what you were initially expecting for the margin in this division?
It's true that things are developing well, but I must say that it's on par with our plans. So in terms of trajectory, both in terms of sales and in terms of profitability for Bouffron Pomellato. It does not change at all our views. There will be still a drag from the investments we are making in brands. It could encourage us in a way to go faster maybe.
But clearly, we believe we need to invest. Part of it is through CapEx to open stores because for jewelry, it's really instrumental to have a physical presence and directly operated distribution in some regions. So it would require some CapEx, also some OpEx in terms of communication. And clearly, there's a good figures we had does not change don't change at all the profile of the profitability at this point.
We will now take our next question from Melanie Flukwuy from JPMorgan. Please go ahead.
Yes. Good evening. I'm afraid I have 4. Sorry. The first one is regarding Gucci.
And I was wondering, maybe there isn't an answer to this question, but clearly, you're citing 3 years tax, 3 years base of comparison. Gucci had a sharp acceleration in quarter 3 on a 3 year basis. So can you help us understand what drove this? Maybe it's just from momentum being superior, but what in your view may have brought this? The second is regarding, as you mentioned, sales densities and margins for Gucci.
In your Capital Markets Day, back some time ago, you had a target of returning to €30,000 per square meter from €20,000 at the end of full year 'fifteen. You will, I believe, have achieved this by the end of this year already. So
what do
you think can be your new target for sales and CPEs? And you had also mentioned a potential margin target of 35% for Gucci. Could you achieve this instead of medium term by full year 'eighteen or 'nineteen? My third question is on newness and carryovers. You mentioned several times in your presentation that both have been doing particularly well.
So I was wondering whether you saw a shift and carryovers are actually now growing at the same pace as Nynas? Or it was a message because you're citing this several times on notably on Gucci. And my last question, and I don't know whether you're willing to disclose this, so my apologies if you're not. But could you tell us roughly what percentage of sales you're spending on A and T at Gucci?
Yes, you're right, Melanie, because you did your math correctly, and I checked this. You're right. There was an acceleration in Q3. Obviously, it's very difficult to explain. I think it's clearly due to the brand momentum, but also probably because of the operating operational excellence at Gucci, the fact that we have continued to improve the replenishment process, that we have continued to roll out the new store concept, that we have continued to train our people in the stores, have clearly contributed to that acceleration.
But I think it's clearly linked principally to the brand momentum. But I think it's also the outcome and of all the actions we are leading and we are managing. And that's the reason why, at the end of the day, it does give us so far some confidence for the Q4 and probably for next year because we see that we have fixed some levers to improve the performance. Regarding your question about sales density, you can imagine that I won't give you more details about that. It's true that and it's good to remind that the ambition was to increase the sales density by 50% to reach €30,000 per square meter.
Considering that the growth year to date is driven by full price sales on a like for like basis, you can assume that store productivity has strongly improved year on year. We won't, by the way, provide any quarterly update because it's a metric that makes sense on a full year basis. So we will see what would be the situation at the end of the year. It's too soon to say if this objective will be met at the end of the year. We were initially considering that it could be reached rather at the beginning of 'eighteen based on the last month's analysis.
Let's say that just to give you an indication and to help you that we have already something around a significant share, let's say, of the stores where the sales density has been achieved. But it means that we have still some room for improvement because we have a significant share of stores where we are still below the objective. So we have still room for improvement, but it's fair to say that between the end of 'seventeen and the beginning of 'eighteen, we should reach a target. And it's Houston, of course, now to share with you some new targets. And this is something we'll first discuss, of course, with Gucci Management.
Regarding the EBIT margin, I think that I've already commented what could be the ambition for 'seventeen, giving you some indications about the operating leverage during H2. So it means that before reaching 35%, there is still some time to go. As we said before, we need to continue to reinvest in the brand. So we expect and we are still targeting a very gradual improvement of EBIT margin considering that in 'eighteen. You can imagine that we will have tougher comps.
So it means that the operating leverage should not be so strong as we had in 'seventeen.
Regarding your question about newness and carryover, Melanie, I think the fact that the point is out is just to make it very clear that it's a very balanced growth. So I mean Gucci has finally reinstalled very quickly, a very strong base of carryover, and that is close to 60% of the assortments. There are, of course, season after season launching newness. Newness can be part of existing line clearly. So we have also tried and they have tried to be more focused in terms of the number of lines that they are proposing.
So just wanted to mention that it's a very well balanced growth between some inside carryovers, some new net that has just become carryover and some pure new net. So I think that was just the point. Regarding A and P, it's not really a figure we disclosed, to be honest. There is a magic number supposed to be in the industry that is roughly 5 percent, so which is a big brand. So I will not comment further.
The only thing probably that we can say on A and P is that clearly, there is a strong and quite quick shift towards more digital, for sure. And Gucci clearly is leading a lot in this direction. Thank you.
Thank you, Melanie.
We will now take our last question from Roger Heel, Fujimori from RBC Capital Markets. Please go ahead.
Hello, good evening.
I have
just two quick follow-up questions on Gucci. Does the Chinese cluster still account for around 35% of total Gucci sales? And could you share with us the percentage of Gucci sales coming from local customers and how this ratio is changing given all the great success of locals this year?
Just on Gucci, the share of Chinese has not changed dramatically, in fact. Is still around 34%, something like that, 34 rounded, let's say. So it's very comparable to the past. So it means that and it's the demonstration that the development and the growth of Gucci is very well balanced between the different clusters.
And then local services tourists on a worldwide basis, it's more than 60% local and 90% to less than 40% tourists that's on a worldwide base. Of course, we have very different specifics in Europe, in the U. S, etcetera, in China, but this is
Thank you, Rodrigo. Thank you very much for getting on our call and for your questions today. We will talk again in mid February when we announce our full year results. Thank you again for your interest in Kering, and have a nice evening.
This concludes today's call. Thank you for your participation. You may now disconnect.