Earnings Call: Q1 2017

Apr 25, 2017

Good day, welcome to the Kering 2017 first quarter revenue conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Monsieur Jean-Marc Duplaix, CFO. Please go ahead, sir. Good evening to all of you, welcome to this call to review Kering sales in the first quarter. Slide four provides a group summary. In the quarter, Kering achieved record-breaking growth. Revenue was up 31% reported and 29% comparable to a total of EUR 3.6 billion. FX was a positive factor of roughly 2.5 percentage points, evenly benefiting our luxury and our sport and lifestyle activities. The scope of consolidation was unchanged. For the first time this quarter, we accounted for Kering Eyewear under corporate and others. Total sales amounted to EUR 113 million. After elimination of intragroup sales and royalties earned by the brands, net consolidated revenue of Kering Eyewear was EUR 85 million in Q1, and this contribution is included in our comparable revenue growth. Our Q1 sales show a sharp sequential acceleration. This highly satisfactory performance is a result of our focus and hard work on organic growth drivers. In all fairness, we did benefit from a somewhat favorable base of comparison. Both our luxury and our sport and lifestyle activities contributed to the double-digit growth in group revenue. In luxury, we posted a remarkable 32% comparable increase. In sport and lifestyle, comparable growth was 14% as Puma posted a very strong start to the year. At group level, we achieved robust double-digit growth across all geographies except Japan. All regions realized significant increases in comparable sales, with Asia Pacific up 42%, Western Europe not far behind at 34%, North America up 25% on a comparable basis. Reversing the trend of the previous quarter, Japan was slightly positive, up 1% comparable. On slide five, some figures and comments on our luxury activities, where we delivered an industry-leading performance. Revenue trends accelerated across all regions and channels. Retail was up a stunning 37%, with Western Europe and Asia Pacific in the lead, up 50% and 47% respectively. In Western Europe, growth was largely driven by locals, with lively sales to Europeans in their key domestic markets and a sharp rebound in tourism purchases from a low base, as you remember. As a result, the U.K., France, Italy, Germany, Spain all posted double-digit growth in the quarter. In Asia Pacific, the highly positive purchasing trends by local clientele was confirmed. Mainland China, also Hong Kong, Macau, Singapore, Korea, achieved double-digit increases, the only notable exception being Taiwan. North America also turned in a very good performance, with growth of 30% fueled by local consumption and, to a lesser extent, by a modest improvement in tourist spending. In Japan, the scope of the improvement was more limited. While our total luxury sales in the country are back into positive territory, we are still seeing very different patterns from brand to brand. Online revenues were also buoyant, up 60%, further underscoring our brand's first-rate digital presence and e-commerce positioning. Wholesale, for its part, was up a robust 20%, reflecting healthy underlying trends combined with some catch-up in deliveries at Gucci and Saint Laurent. I think we can safely say that this quarter is a clear evidence of our ability to deliver fully on our priorities, and first and foremost, on organic growth. All our houses are working hard to nurture their attractiveness through great creativity and product innovation. They are all implementing retail excellence programs and new digital initiatives aimed at enhancing customer engagement and store productivity. Thanks to their healthy footprint, they are demonstrating their ability to take full advantage of rebounds in both tourism and local consumption. Emphasizing this point, our directly operated network comprised 1,316 stores at the end of March, a net increase of just 11 units year to date, mainly due to developments at YSL and in our other brands. By contrast, the store count was down slightly at Gucci and up marginally at Bottega Veneta. Let's turn to Gucci on slide six. Gucci posted a truly exceptional performance, its best quarterly percentage growth in 20 years. That was achieved purely on a like-for-like basis. Revenue is up 48% comparable, driven by an impressive 51% growth in retail. This performance stems from the sharp acceleration in full price sales across all key categories and regions, which all posted double-digit increases. By product category, now that the transition is complete, the momentum intensified in shoes and ready-to-wear. The positive trends also picked up speed in leather goods, with higher sales across all sub-segments. In handbags, the new generation carryovers are doing very well, as are the new lines and additions to existing families. The brand has built strong references and is enriching them season after season, developing new sizes and functionalities to meet the needs of all customers. By region, retail was up 66% in Western Europe, with impressive growth across the board. Gucci is performing extremely well with both locals and tourists, all nationalities being up double, or in some cases, triple digits. In Asia Pacific, retail grew 63% with outstanding momentum in mainland China, while all other countries, without a single exception, are up. In North America, the trend was also very good, up 46%, as locals and tourists participated evenly in the sales pickup. Finally, in Japan, the trend improved materially with revenues from local customers turning positive again. This is a direct result of the effective retail, merchandising, and communication initiatives Gucci has been implementing to enhance its repositioning in this market. Wholesale grew 37% as our partners continue to respond enthusiastically collection after collection. Finally, royalties were very much unchanged as a result of two diverging trends. They were up in eyewear, which, as you know, has been taken in-house since January under Kering Eyewear, with very successful initial collections and results. For their part, royalties in perfumes and cosmetics were down. Keep in mind that the collaboration with Coty is in its early stages, and we'll see its first major initiative with the unveiling of Alessandro Michele's first fragrance in coming months. Needless to say, we are more than ever confident in Gucci's ability to continue gaining market share. Now fully repositioned, the brand's journey to engage with all clientele segments is still in its early days. Gucci enjoys huge potential to further improve its performance by region, country, city, category, or subcategory. The Gucci team's execution capabilities, evidenced by its success in fostering client engagement and retail excellence, also find their accomplishment in such breakthrough initiatives as unified fashion shows, cross-cultural collaborations and consistent brand narrative across all touch points. Moving to slide seven, Bottega Veneta trends improved during the quarter with revenue up 2% comparable. In particular, retail was back to a positive performance, posting a 4% increase. The improvement largely came from Western Europe, up 14%, thanks to both locals and tourists, especially in key countries such as Italy, France, and the U.K. In Asia Pacific, trends also improved thanks to growth in mainland China, Macau, and Korea. In Hong Kong, while still negative, the situation improved compared to prior quarters. North America and Japan remained challenging markets for the brand, but there as well, headwinds were weaker than in previous quarters. Bottega Veneta pursues the implementation of its strategy, aiming at reinforcing brand exclusivity, thereby limiting markdowns in both retail and wholesale. The execution of this strategy led to a 3% drop in wholesale, less pronounced than last year. We are pleased with improvements at Bottega Veneta in the quarter, but we are conscious that for the time being, it is mainly a factor of the more favorable market environment. The brand is making good progress with its action plans. We expect a more tangible outcome as we head into the second half of the year. Already, trends are starting to reverse across all nationalities, and even the Japanese cluster is not far away from turning positive. In all regions, the local clientele contributes to this rebound. The brand improved performance is not due only to loyal clients, but also to the recruitment of new ones. The appetite for novelties and product innovation is confirmed with material improvement in sell-through of new models of the cruise collections. Shoes, which should be an important growth driver going forward, are once again posting very positive trends, especially for women. Finally, the brand is proactively adapting its store layout and optimizing its network. All in all, we are gradually ramping up the brand's action plans. While there is still work to be done, Bottega Veneta is definitely heading in the right direction. On slide eight, you see the highlights for Yves Saint Laurent. The brand had another quarter of substantial growth across the board, with comparable revenue up 33%, well-balanced across distribution channels. In retail, up 31%, all regions were up double digit. The sole exception was Japan, where the positive impact in early 2016 of the Omotesando flagship opening boosted the base of comparison. As was the case for all our luxury activities, Western Europe and Asia Pacific were the main engines of growth, up 46% and 48% respectively. Both locals and tourists participated in that evolution. Online sales were also sustained, especially in the key markets for the brand that are Western Europe and the U.S. In wholesale, Saint Laurent posted a strong 35% growth, driven as expected by deliveries of Anthony Vaccarello's first collection. As you can see, the brand's fundamentals are sound and make way for successful developments under the new creative direction. The summer collection has been available in stores since January and is posting very good results with some bestsellers already sold out in women's shoes and ready-to-wear. We are confident in the future with a very positive reception for the winter fashion show and plenty of novelties to be introduced with the fall collection. Slide nine summarizes the revenue performance of our luxury division's other brands, which all together were up 11% comparable. Both retail and wholesale channels grew significantly, up 18% and 8% comparable, respectively. Here as well, Western Europe and Asia Pacific drove the solid retail performance. In soft luxury, revenues were up 11% comparable with an even higher performance in retail. A highlight of the quarter was the performance of Balenciaga. Its momentum is gaining pace, and sales are up across all regions and product categories. The performance is especially well-oriented in retail and in e-commerce, with sharp increases in ready-to-wear and shoes, where Demna Gvasalia designs bring a great new breath of modernity to the brand. Stella McCartney and Alexander McQueen continued along their growth path. I think it's important to mention that Brioni is back to positive trends in retail, driven by its core formal menswear offering, especially in Western Europe and in the U.S. In both regions, sales to local customers are up, and in Western Europe, Brioni has also been growing with visitors. In hard luxury, we posted 13% comparable growth in the quarter with both jewelry and watches up. Boucheron and Pomellato had very successful performances, notably in the retail channel in key European destination cities. Both brands have implemented a number of initiatives, including new launches, animation, or extension of iconic lines, and they have introduced impactful new communications tools and campaigns. In watches also, trends improved during the quarter. Girard-Perregaux and Ulysse Nardin benefited from great visibility at the SIHH in Geneva in January. Both manufacturers presented new models that prompted very favorable reception. I should mention the Laureato at Girard-Perregaux, which is based on an iconic model of the '70s and is now being extended to a full-fledged collection. There were also new additions made to the Marine collection at Ulysse Nardin. With slide 10, let's move on to our sport and lifestyle activities, where revenue were up 14% comparable, thanks to an upbeat start to the year at Puma. This morning, Puma reported its Q1 results, which had been pre-announced on April 12, when the brand also raised its full-year guidance. For the first time ever, Puma achieved quarterly revenue above the EUR 1 billion mark, with revenue up 15% comparable and 18% reported. This strong performance was driven by the acceleration in the key footwear category, up 25%. With the exception of Japan, all regions grew solidly with double-digit increases in Asia Pacific, North America, and Western Europe. Both wholesale and retail achieved double-digit growth. Puma's performance ahead of expectations is confirmation that brand heat is largely back. Thanks to high customer demand and improved retailer sell-through, some deliveries were moved forward from Q2 into Q1. This success reflects the innovative product lineup in both performance and sport style segments and the relevance of initiatives taken by Puma in women's. Puma has built solid franchises such as the Fierce, Ignite, and Fenty collections. The brand is capitalizing on its attractive offer and new launches, the most recent examples being Ignite Limitless and Basket Heart. Puma keeps investing to anchor its positioning in sports and performance, as illustrated by the announcement of sponsorship deals with Olympique de Marseille and Borussia Mönchengladbach. To conclude with slide 11, Kering delivered an outstanding performance in the quarter. This achievement is the result of the right long-term strategy combined with a determined day-to-day execution. Obviously, our performance has been amplified by a more favorable backdrop for the industry as a whole, though plenty of geopolitical and macroeconomic uncertainties remain in front of us. In this context, we will not deviate from our priorities. We'll keep concentrating on organic growth, value creation, and financial discipline to enhance our performances while being vigilant on our environment. We remain confident in our ability to outperform our markets and achieve sustainable and profitable growth. We are now ready to take your questions. Thank you, Mr. Duplaix. If you would like to ask a question at this time, please press the star or asterisk key, followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow the signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We'll pause for a moment to allow everyone an opportunity to signal. We'll take our first question from Mr. Antoine Belge from HSBC. Please go ahead, sir. Yes, hi. Good evening. Antoine Belge at HSBC. Three question, if I may. First of all, given the stellar growth at Gucci, and I know it's not a call about margin, but conceptually, when you have such an amazing growth, how are you looking at cost? I mean, because in theory, the margin should be flying. Is there a willingness to be reinvesting behind that growth? What's the balance between the sort of target that you have to improve margin longer term, also maybe this willingness to have a sort of progressive evolution of the margin? My second question is on BV. You mentioned that in your view, most of the recovery was linked to market conditions. We feel that there's been a few launches also which seems to have been more successful compared to the last two or three years. maybe could you comment on that? finally, within your portfolio of other luxury brands, which are the one that have the most improved sequentially, compared to the end of last year, and which are the one where you think that there is still more work to do or which are maybe not recovering as much in the portfolio? Good evening, Antoine, and thank you for your questions. I think you are totally right to point out this is a conference call about the revenue. of course, I will not comment so much on the expansion of the margin at Gucci. That being said, as you know, we start to face tougher comparisons in terms of revenues in the following quarters. I remind that for the whole luxury division, which was the case also for Gucci, the Q1 was the weakest quarters in 2015 and in 2016. it shows that we have delivered such a growth during the Q1 that we should, of course, benefit from some substantial operating leverage at Gucci. Even if we have always said that we will reinvest part in the expenses because to sustain the growth, especially in terms of marketing, visual display animation in the store. you know that we have a plan in terms of sustaining the growth by different actions. that being said, also if we consider the ambitions that had been presented by the brand in the summer 2016, we believe that we are in a position to deliver sooner than expected some of the targets we had, be it in terms of operating margin or in terms of sales density. the brand will likely reach and even exceed the 30% EBIT margin mark as soon as this year, ahead of the initial plans. Regarding BV, I think that we have to be lucid about the fact that for many brands in the group, we have benefited during Q1 of very favorable market conditions. I'm thinking about, of course, the rebound in terms of tourism and especially the Chinese tourism. Maybe some unexpected positive trends with the local customers in the different mature countries in Europe or in America. Those are the reason why we have pointed out that positive factor. However, it's true that I would like to highlight two very positive factors at BV. In one hand, it's true that we have launched several products or several handbags, which have been very positively welcomed by our customers, with new functionalities, new colors, new shapes, new size. it's true that we see that when we are in a position to animate our entry-level categories or entry-level products, there is a very positive answer of the market. On the other hand, what I would like to mention also is that the growth has been driven also by local clientele, and especially in Europe, in America, and of course in China. Which is very positive because it does correspond to one of the ambitions we had for this year, which was to gain some clientele, new clients in the mature countries, while also still keeping some very loyal customers, which is exactly the case. I would also end on that point with the fact that the core offer in handbags, which is the one between EUR 2,000 and EUR 5,000 Up to EUR 5,000. This core offer has grown very significantly during the quarter. It has been one of the driver of the growth for BV. Let's say that on the fundamentals of the brand, I think that we had very positive developments this quarter. As we said during the presentation of the annual result, we know that we have in front of us quite a long journey in terms of recovery at BV. We still believe this is a transition year or consolidation year, we are encouraged by these first achievements at BV. Concerning your third question, as we mentioned, we had quite nice developments in almost all the brands of the segment of the luxury brands. We have, I think, clearly mentioned Balenciaga because it is the one where we have invested significantly in 2016 and we will continue to invest in 2017. Here again, after a very positive answer of the professional buyer or the press, now we see that the Demna Gvasalia collections are resonating very well with all customers, with the Balenciaga customers. It's true that if you look at the improvement or the acceleration of the growth, clearly Balenciaga has delivered one of the most remarkable performance in this division. Let's say also that even if, of course, Brioni has not fully recovered, to post a positive performance in retail is very encouraging, especially considering that this growth is driven by the formal wear. It does demonstrate here again that when we are working well, and we are dedicating all our efforts to concentrate of what are the strengths, what are the key pillars of the brand, the performance is there. I made a point about jewelry and watches. I won't repeat what I said, saying that we have very positive developments also in these brands. Let's say that Balenciaga has clearly delivered the most remarkable performance in the quarter. Well, thank you very much. You will notice that I didn't ask any question on the Olympique de Marseille deal, you know why. We will discuss this later. We'll take our next question from Mr. John Guy from MainFirst. Please go ahead. Good evening. Thanks very much. Jean-Marc, a few questions from me, please, as well. Thanks. Maybe just on Gucci retail, can you give us any indication around the volume and value split during the quarter? How much of this was driven by volume and any sort of price action that you've taken? Also talk about in which particular categories, and notably, I think within the bags, which particular price points you saw the strongest demand. Given this kind of growth, Antoine obviously highlighted on the margin implications, you've talked around exceeding 30% margins for 2017 given the very strong growth. I think your historic peak margins are around 31.8% at Gucci. It doesn't seem to me that there's any reason why you can't get close or even exceed that kind of margin. I appreciate you have the tougher comps going through into the second half of the year, but it's a very strong start. Can you comment to the extent as to where the leverage can go, given the fact that you have probably already taken your initial budget for the year in terms of investments? Then maybe just a couple of questions around capacity constraint risks, the sustainability of the kind of growth, what you're seeing during the end of the quarter and maybe the first few weeks of trading after Q1. If you could talk about those, please. Thanks. Thank you, John, for your questions. Clearly, the revenue growth of Gucci in Q1 was mostly driven by volumes, and to a lesser extent by a favorable mix impact. Volumes, of course, because there was a huge increase in terms of traffic across the regions with both new clients and also retained clients or regained clients. What is very interesting compared to 2016, where at the beginning with the repositioning of Gucci, the growth was driven principally by new clients. What is interesting there and very positive is that it's a very well-balanced growth between the different clusters of clients, new and existing clients. The main driver of the growth is clearly volumes/traffic. A few comments on the mix impact. First, you have the positive product mix, which does impact the average selling price in some categories, such as handbag and ready-to-wear. You have also, and it's very important for me to stress that, the positive impact of the increasing share of full-price sales following the decision we had already commented to reduce the markdown in stores. Inside, the pure price increases were almost non-significant, negligible for the quarter. Regarding the categories, you know that we generally don't comment so much on the breakdown between the different categories. I mentioned during my pitch that this was very well-balanced across the different categories, and I confirm, to answer your question, that including in the categories where the transition was still ongoing, in 2016 and it's still a little bit in Q1, and we had mentioned that we had still some weaknesses in some sub-categories like small leather goods or luggage. We start to see a real and solid improvement. I think that I would not point out specifically one category and another because, again, we see positive developments across the board, obviously. Clearly, very solid performance in the core categories, ready-to-wear, shoes, handbags. That's the reason why also we are confident because we have still some room for improvement in some categories, or in terms of royalties, where we know that we have some launches, some new products coming, and that's the reason why we believe that there is still some margin for improvement. I won't comment again on the EBIT margin expansion. I think that we have repeated several times that we want to increase the EBIT margin very progressively at Gucci. We know that we have some major investments to make. I would take just an example. We had mentioned the fact that we wanted to have an online store in China. It will be the case in the year, probably Q2 or Q3, to be confirmed. This type of investment does impact necessarily the EBIT margin. You know also that we are very vigilant about sustaining the growth by animating also our digital communication by providing with new contents, new videos. We are very active on the social media. That's the reason why I will reiterate what I said just before, that we are confident that we can exceed or reach the 30% mark, which was the medium-term objective. I would not consider that 31.8% you mentioned, which was a record EBIT margin, is something we should reach this year. Regarding the capacity constraints, as soon as 2016, Gucci launched several initiatives in order to re-engineer its supply chain organization and to adapt the production capacity. Beyond the long-term objective, which is also to increase the share of internalized production, there was primarily a short-term need to address a growing demand. What I can say, and I think that it's a big achievement from Gucci and from the Gucci teams, during Q1, handbag and luggage production has been indeed reinforced thanks to the introduction of new suppliers and increase of the scale of the existing ones. We will continue to improve in Q2 in order to align fully production capacity versus demand order. Okay, great. Thank you very much, Jean-Marc. Maybe just one final one in terms of thinking about the watches space. I think you mentioned that both watches and jewelry increased over the course of the quarter. What are you seeing in terms of the channel from a third-party perspective now? Are you seeing a stronger momentum in terms of reordering? Is this more of a function of sell-out? You've had some big cleanups, especially within the Girard-Perregaux distribution in some markets over the last 18 months. Could you just maybe explain a little bit about how you're seeing that industry dynamic evolve? As we several times stated, we are not in the best position probably to comment on this market. We have been really focused on working on our brands, in terms of synergies, but also in each brand in terms of communication also, to have a better alignment between communication and the product offer. We had a huge work, now finalized, of streamlining the offer, extending also a little bit the offer to propose something more affordable with steel cases, both for Yves Saint Laurent and Girard-Perregaux. Even if I think that we had a phase of cleanup of distribution, we are still cautious. On our side, we want to avoid a new situation of disconnection between sell in and sell out, with inventories building up in the market. It may be a temptation to push the sell in, at Kering level, for our brands, we are very vigilant about that. The trends you can see for Q1 are very encouraging, have been made based on a clean way of doing business. I'm not definitely sure that the market has reached a low point. Let's be cautious, and on our side, we will continue to work on our brands. That's very clear. Thank you very much. We'll take our next question from Erik Karlsson from Bodenholm. Thanks for taking my question. On Gucci, when you see all the beautiful new products in the stores, it's not surprising that you're doing so well. Even so, the growth numbers are quite staggering. Could you just help us understand whether the growth was uneven in the quarter, or whether it was relatively even throughout the quarter? Thank you for your question, Erik, and for the comments you made about the product. I think that we were still in Q1, and if we consider both 2016 and Q1 2017, in a phase of pickup with the introduction of the new styles in all categories. We had a sequential improvement along the quarter at Gucci. I would like also to remind, compared to Q4 of 2016, that in Q4, the performance of Gucci had been dragged down still by the decline of markdown activities compared to 2015, which is not the case in 2017. We have a pure performance in Q1 2017, which is really based on full price sales. We had, clearly, a sequential improvement. I think that I have mentioned the fact that, first of all, we have, in the coming quarters, tougher comparison bases. I think that one of our peers have also stressed that Q1 had been particularly good, exceptionally good for different factors, we can expect more normalized growth also in the coming quarters. I remind also that we have finalized the transition. We won't benefit any more from the boost we had with the introduction of the new styles in all categories. Now we have to rely on the creativity of Alessandro. I'm still convinced, and looking at the evolution of the sell-through, and also considering the wholesale orders we have, I think that we can be confident for the remainder of the year. I would like to say that we should see a normalization of the growth going forward. Very clear. Thank you very much. We'll take our next question from Thomas Chauvet from Citi. Good evening, Jean-Marc. A few question, please. Firstly, when you look back at the Gucci investor day last June, which wasn't that long ago, you gave that medium term 30% EBIT margin guidance. Would you say that the fact you're now well ahead of schedule has a lot more to do with your own actions in the last nine months, or it has been mostly driven by, effectively, a phenomenal cyclical demand recovery that we saw at the end of the summer and the autumn for you and for many other players? Secondly, on the Puma investment, sorry, I missed the Puma conference call, it might have already been answered. Apologies. Can you confirm your stake in Puma is still at 86%, or have you bought shares in the market in the last three months or in the last couple of months since full year results? Shares are up, what, 50% year to date. I think they've doubled in the last 18 months, and they're now 10% above the EUR 330 purchase price of 2007. What are you thinking in terms of this investment? If you're focusing on organic growth, how are you thinking about the leverage of the company going forward? Finally, coming back just on the Gucci numbers, could you try to explain what the driver will be to get to that 30% EBIT margin? I would assume that the gross margin must be exceptional in the first quarter, will be very good on the full year basis. I just would like to understand a little bit the balance between gross margin and OpEx following Antoine's question, and whether the 30% EBIT margin is because effectively you've done fantastic gross margin progress. Is the 75% gross margin a realistic number today for Gucci? Thank you. Good evening, Thomas. You will be blamed for having missed the Puma conference. Anyway, I will answer you. Yes, we are ahead of schedule in terms of achievement of the objectives we had set together with Gucci. But I think it's, first of all, and we have to pay tribute to the work done by the Gucci teams. I think that you're right to say that there is clearly an improvement, let's say, in the soft luxury market. Only if we can see that it's not necessarily the case for all the brands and all the players. Clearly for the group, I mean for the big brands, there is clearly an opportunity to capture the growth with the Chinese cluster, but also with the local customers in the mature market. The fact is that Gucci is over-performing the market because of all the initiatives and all the work done by the Gucci teams, in Alessandro Michele and his team, but also the merchandising, also because of the financial discipline imposed by Marco and the team. I think it's a great job here done, but it's true that we have a more favorable environment which is more obvious during Q1. It started, let's say, November, and we are still benefiting from that in Q1. I'm more interested about the long-term impact of all the initiatives taken by Gucci. I mentioned that the online site we are launching in China. We have opportunities in the eyewear business, as you know perfectly. The Gucci team are working with Coty to launch new fragrance by the end of the year. I mentioned the categories where we have room for improvement. Despite the fact that the performance in Q1 was obviously very good and does mark a serious improvement. I think also that in terms of retail excellence, we are continuing to work on that. I think that clearly all the initiatives pay off and will continue to pay off. Regarding Puma, we still have 86% of Puma, so the position has not changed at all. It's exactly the same. You have mentioned the increase of the share price. What is my reaction to that? My reaction is very simple. I think that the Puma team is doing an outstanding job. It does demonstrate that we have been focused on the recovery and the turnaround of Puma, we start to see the materialization of this turnaround with, of course, very positive evolution of the sales, but also now some operating leverage. The focus of the group, and the focus of Puma management is on that. I have no other comment. I think that the evolution of the market cap is just the translation of the very good performance of Puma, does demonstrate that what we had in mind in terms of development and business plan for Puma is totally realistic. It just confirms that this is a very strong and very good asset. Last comment, or your third question was about, if I remember well, the margin at Gucci. I think that, of course, you're right that this improvement of the sales, the increase of the sales, plus the fact that it's driven by full price sales, has some impact on the gross margin. Simultaneously, we have also still some increase in terms of store expenses because of the share of variable costs, especially in the Asian countries. We have also some ambitions or some plans regarding communication and marketing. I won't give you any clues about how we could bridge the margin in 2016 and what could be the margin in 2017. Considering also that even if it will be very minor, we may have some slight dilution due to the evolution of currencies, so it won't be material. We may have some slight dilution because of the evolution of the USD and some pegged currencies like Hong Kong dollar and Korean won. I think that we are implementing all the plans that had been presented last June with continuous investment in communication, more and more investment in terms of information systems. We want to monitor the evolution of the margin as we had commented, very progressively, and not with an objective of milking the brand. We are very vigilant about that, and we will make the right investment in consequence. We may also accelerate, for example, the refurbishment and the installation of new visual tools in the store. We could also have some actions to push the open to buy. We have all these plans. We could also accelerate in terms of reengineering of the supply chain. We will take this opportunity to continue to invest in the brand. Okay. Thank you. Just on the eyewear, in terms of reporting, the EUR 86 million is the net amount that you book in the corporates related to eyewear. This is increasing the comparable sales growth, or this is coming into reported? No, it's encompassed in the comparable growth, in the sense that it's not a scope effect. It's a business which is developed internally. Just to be very clear on that, to avoid any misunderstanding, the EUR 86 or EUR 85 is the amount, the total sales minus the intragroup sales and the elimination of the royalties paid to the brands. Okay. Thank you. Our next question comes from the line of Zuzanna from Berenberg. Please go ahead. Hi, good afternoon. I just have actually two questions left. First of all, I was wondering whether you could comment on the performance of the Chinese consumer in Q1. I guess, given that we've seen a broad-based improvement across different types of consumers, maybe if you could also comment on the Russian consumers and the Americans. On YSL, I understand that there was some shift of orders, wholesale orders from Q4 into Q1 as you wanted to deliver the new collection of Anthony Vaccarello and all in Q1. I was just wondering if you could comment on the impact this has had on Q1 wholesale. Thank you. As you can imagine, Zuzanna, the trends with Chinese customers were positive across the board. What I mean there is that it was highly positive on the local domestic market, so that globally, at the end of the day, the share of Chinese customers buying on the domestic market has increased. It was very positive in Europe, also based on If someone could switch to mute, please, because we hear some typing. Thank you. The evolution was very positive as well, of course, in Europe. I was saying that, of course, with more favorable compares, especially in France. In Asia overall, it was also very positive, with the exception of Taiwan, which was clearly negative. Otherwise, it was overall very positive. It's positive across the regions and it's positive across the brands because all the brands almost have benefited from this very strong pickup in terms of Chinese demand. Russian clients were back in Europe. It's not the only one, but it's one of the reasons why Brioni recovered during Q1, even if also we had very positive evolutions with local clients. Russian clients are back. However, with some impact also on the domestic market. The Russian cluster is probably slightly up, but with a shift from the domestic market to Europe, principally. Which was maybe slightly counterintuitive, is that the American cluster was up as well on the domestic market, and principally in our stores, because we see that we may have some diverging trends between wholesale and retail. In our stores, we had clearly an increase of the traffic of the American clients and also abroad, with very positive and encouraging trends again in Europe, U.K. first but also France, Italy. I think that the reason why this is a very positive quarter in the sense that it's a way, the perfect situation where the growth is very well-balanced between local customers and tourists, and where we have a very good dynamic in terms of tourism flows. The last question was about YSL. Yes, clearly there was a shift, as we had mentioned during the presentation of the annual results from Q4 to Q1, just to align the deliveries in retail and in wholesale of the new collection. However, if you look at the performance in wholesale, the performance is basically very positive. The trends are very well-oriented. Clearly the shift had an impact. It does not by itself explain solely the performance of wholesale. Wholesale, besides this shift, was very positive for Yves Saint Laurent. Perfect. Sir, just actually one follow-up question on Gucci. I think the number of stores was down year-on-year, and I was just wondering, are you using the fact that you have such a strong momentum at the brand as an opportunity to maybe reduce some of the outlet exposure of Gucci? Or what sort of stores were the stores that you've been closing? I will answer very rapidly on that. First of all, it's a strategy that had been defined for now several quarters to contain and to be very vigilant about the evolution of the store count. As we said also already, we want to keep the network as it is, including with the outlet stores, in the sense that because we have reduced the markdown sell in the full-price store, we still need to have a very well-balanced outlet network to sell all collections. Perfect. Thank you. Thank you, Zuzanna. This is Claire. May I ask everyone to stick to one or at maximum two questions because we have quite a lineup. It would be nice that you don't have so many follow-ups ones. Thank you. Our next question comes from Helen Brand from UBS. Hi, good evening. I'll stick to two questions. I guess first of all, on Gucci, can you just talk to the growth of handbags in the quarter? I guess you're still very small in terms of your carryover product on handbags. How you're expecting that to shift between carryover versus new as we go through 2017 and lap some of the product launches? If you do have any material carryover product, how's that performing relative to some of those new products? I guess secondly, we're almost at the end of April. Obviously, you've talked to expecting a normalization in terms of organic growth. Is there anything that you're seeing in April so far that is actually suggesting we're seeing any normalization of these trends? Thank you for sticking to this two questions principle. I won't comment or I won't answer to the first question. I would just say that first of all, we have an amazing performance in the handbag category. We have now definitely, in the offer, several lines which can be considered as carryover, with a very successful animation of these lines. I think that we are reaching, progressively, the ambition that had been presented by the brand in terms of share of carryover in the total offer. You know perfectly the lines which are performing well. You can see them in the stores. All the lines that have been launched in the past quarters have been very successful and may be considered as carryovers. Regarding the current tradings, you know perfectly that we generally don't comment the trends. Let's say that it's still positive in this context of tourism flows because it's spring, so we have a lot of tourists in Europe. They continue to purchase. I won't comment further on current tradings. Thank you very much. Thank you, Annie. Our next question comes from Louise Singlehurst from Morgan Stanley. Hi, good evening, everyone. Jean-Marc Duplaix, thank you for taking my question. I will stick to one question, and I am going to stick with Gucci, unsurprisingly. Mr. Bizzarri is obviously working the team very hard. Can you just help us understand that delivery of the 50% or so like-for-like growth in terms of how the team is planning? You touched on earlier, I think it was to John's question, in terms of the inventory planning, and a little bit more internalized production. I wonder if you can quantify that and also just talk about the Retail Excellence Programs, any progress or examples you can give us in the quarter. Thank you. Thank you, Louise, for your question. I think that we are at full speed at Gucci in terms of execution of the different action plans we have. All these action plans are successfully executed. I will give just you some example. I already commented on the fact, and Jean-François also had commented on that during the presentation of the annual results, that we have a very efficient organization in terms of planification of the production, replenishment process, allocation of products. I think that it is a perfect illustration that despite the tension we had in terms of production capacities, we have been able to deliver the main store and to avoid situation where we could miss sales or we may have missed sales, but obviously the fact that we have a very efficient organization in terms of inventory and in terms of supply chain, has clearly played in this performance. Retail Excellence, it is true that we continue to implement initiatives like mystery shopping with a high frequency in order to constantly monitor the performance in the stores. It is true that today, because of the momentum of the brand, the desirability of the brand, we have clearly pushed thanks to the traffic. I believe that here, these initiatives will continue to pay off, but more in the longer term, because today with the traffic we have, there is not an issue there. I think it is a question, clearly, of perfect execution of the strategy, and also because of the talent of the management we have at Gucci, which is constantly tracking the weakest points where we need to improve. I think the best example, and I will end on that, is what happened in Japan. I know that the brand, at the beginning, the new style was not resonating so well with the Japanese customers. In a joint action in terms of communication, merchandising, different action plans in different areas have been implemented. You see quite successfully, considering that Gucci is overperforming, clearly, the market in Japan. You could see all the actions that have been implemented there, in terms of digital communication, animation of the stores, dedicated merchandising. I think it is the way the success has been built during this quarter is the attention that is paid to the details and to what has to be corrected very rapidly. Great. Thank you. We'll take our next question from Mario Ortelli from Bernstein. Good afternoon. The first question is about the pricing of Gucci. The brand is on fire, and now you have got some compelling continuity of the collection, especially in leather goods. Have you implemented any price increase in the first quarter, and are you planning any price increase for Gucci in 2017? The second question is about the online sales. Is this currently the % of sales online for Gucci higher than the one of Bottega Veneta and Saint Laurent? Thank you. Regarding the pricing, you know that in fact, the prices you can see in Q1 2017 reflect the pricing strategy of the last quarter of 2016. We have not changed compared to what we had commented for the Q4. I remind that in Q4, we had some selective price increases in the Eurozone, some pure price increase in the U.K., considering the evolution of the British pound. In fact, in Q1, we had some reduction of prices in January 2017, only in Russia following the appreciation of the Russian ruble. We had no other evolution of pricing. I can tell you that it's one also of the KPI which is carefully tracked by the Gucci team. We don't want to play on pricing. I think that, as we already mentioned, we are quite happy with the price architecture we have, and we don't plan to change it dramatically going forward. Regarding the online sale, I will just repeat or say again that we are very happy with the development of the online sales during the quarter, +60%, fairly driven by Gucci but still also by the other brands, with very positive developments across the board. Of course, a brand like BV is suffering a little bit more, because of what's going on here with the brand. Obviously, we are very happy with the developments we had during the quarter also in terms of new services proposed in our different brands. Still very happy also with the rollout and the success of gucci.com. I don't believe that we can say that we are I know that Gucci has some objectives in terms of conversion, in terms of increase of traffic. That's the reason why, when I commented about the EBIT margin, I mentioned the fact that we would continue to invest in terms of animation of the digital platform. You know that we have a midterm objective of tripling e-commerce business. I think that we are on the right track at Gucci, and I'm sure that Gucci will continue to implement all the necessary actions to deliver this objective, a midterm of tripling. Thank you. Thank you, Mario. Our next question comes from Mélanie Flouquet of JP Morgan. Yes, good evening. I have two questions. First one is, I wondered whether you could help us understand how you weigh out the speed of the recovery at Gucci and your ambition of delivering sustainable growth. In particular, I was wondering where you were at the end of this Q1 versus your historical peak sales densities, and whether you felt you could now achieve even better sales densities than the last peak. My second question is, one of the things that is striking us in the reporting just seen in luxury is that the two conglomerates, yourself and LVMH, appear to have seen an even more max success in their brands and also have improved their other brands, whereas the other single brands seem to have more difficulties in delivering. What do you think conglomerates are doing that's so right in this term? Thank you. Thank you, Mélanie, for your two questions. I won't start to comment on the evolution of the productivity quarter by quarter. I don't believe it's reasonable. Because we have mentioned this quarter was particularly exceptional. What we can say is that, of course, we are overachieving in some cases. In some stores, we are already above the objective, but an objective which was, I remind you, something which was still below many of our peers. It was a first milestone in a way. We have not reached yet this milestone in the sense that we have still some stores where we are underperforming, compared to this objective. For us, it's still a midterm objective for some of the stores of the network. We are very happy to see that in some stores in the key destinations, we have already achieved this objective, but it's not the case everywhere. That's the reason why we believe that we are still room for expansion. We are tracking some KPIs like the share of regained clients or clients who stay or who buy in the year. We have some objectives in terms of cross-selling, I can tell you that we have not yet achieved this objective. Overall, it's true that the productivity is strongly up, that we have exceeded, in some cases, the objective. There are still many KPIs where we need to make some progress, and the teams are working on that at Gucci. That's the reason why we consider that, because also of the creative momentum, there is still room for expansion at Gucci, and we have not yet reached the peak. It's very difficult to answer to your second question. Normally, it should be the financial analysts who should bring us some information on that. Let's say I think that as you will have noticed, the luxury division of Kering has delivered a very resilient performance in the past years or in the past quarters despite the slowdown at Gucci. We have a fall in 2014 and 2015. Still with the slowdown and situation at Gucci, we are delivering a very solid performance. It's a question of allocation of resources, of arbitration between the brands and the priority. It's a question of shared services we can, of course, provide to our brands. I think clearly it does help, and to have also all the benchmark we can have. When you analyze the situation, when you can compare the performance of each brand in a district, in Montenapoleone, in Fifth Avenue, clearly you have some early indicators of situations that would need to be improved. I think that's a chance we have in a group, is to have this comparison between the brands. That does create also some emulation. The fact that we are able to make some arbitrations, and to keep the right balance in terms of allocations between the brands. That would be my answer in that case. I'm not sure it's a comprehensive one and it's the right one, but it's my perception of what is the market. Thank you. Maybe we have time for two last questions. Our next question comes from Julian Easthope from Barclays. Hi. Good evening, everyone. Actually, just one question for me now. In terms of the store upgrade program, I know that you had around 70 done by the end of the year, and those who are actually performing exceptionally well. Given the absolutely incredible performance of Gucci, is there still a big difference between the upgraded stores and the existing stores? I just wondered whether or not the cash flow you're producing now, could give you an opportunity to accelerate the program. Thank you. You're right to say that, considering the momentum of the brand and the fact that in many stores, which are not necessarily the new concept we have been at least able to implement or to introduce new visual tools, the difference may be not so obvious. However, definitely, as we have already commented on, the productivity in the stores with the new concept does remain higher, with more time spent by our customers or shoppers in the store. In terms of consistency of the brand, it's a must to continue to invest in the refurbishment or the light refurbishment or the full refurbishment of the stores. There is still a difference in store productivity, even if it's true that because of the momentum of the brand, the gap between the old concept and the new concept has reduced. We believe that to sustain the performance in the long run, there will be a need to execute properly the rollout of the new concept. In terms of number of stores, we have, during the quarter, refurbished eight stores. We are now at 94 stores at the end of Q1 with the new concept. The plan is still to end the year at 150 approximately stores with the new concept, which is about 30% of the network. We have not yet discussed, to be fair, with Gucci management, if there is a need to accelerate or not. So far, we are sticking to that plan. Thank you very much, have a good evening. Thank you. Thank you, Julian. Last question. Our last question comes from Luca Solca from Exane. Thank you very much for taking my question. One question, in fact. Gucci is posting a very strong organic growth number. We know that in luxury goods, you can be a victim of your own success as you become so powerful and so visible that at one point, some consumers could see you as ubiquitous. I wonder, what measures is Gucci taking in order to try and proactively avoid this risk? It's obvious that this is not a risk today. Brand momentum is incredibly strong. I wonder if you're introducing any measures or if you're using any tools, like for example, reducing the amount of discounts that you have in factory outlets, reducing the number of factory outlets or potentially, also limiting the quantities of products that you could sell to consumers. Any means that could potentially help you to sustain this growth over a longer period of time, or any plans for that matter. Thank you, Luca, for your question. I think that there was a first milestone, as I mentioned, that had been clearly presented by the Gucci management, which was a midterm objective encompassing different objectives. We are on the right track to deliver sooner than expected, for us, it was clearly a first milestone. In the life cycle of the brand, we believe that when we will have reached this first milestone, we will continue to implement some action, some initiatives, and it will be the right timing also to track or to implement some tools to track further any signs of weakening or fading. Already now, we are with Marco and the team, having a lot of indicators in terms of brand perception, in terms of brand equity, in terms of traffic, in terms of reception of new products, which provide us a good indication of where is the brand. I think that also the work done by Marco with Jacopo Venturini, the merchandising director, and of course, Alessandro Michele, to ensure consistency between the long-term strategy, the merchandising strategy, and the creativity is very efficient. We don't detect so far any problem there. I think they are working still very well together. I can tell you that all the indicators we have, especially, for example, the analysis of the sales between the different clusters. We have, of course, insisted on the fact that the brand is very successful with the millennials. The fact is that also with the people who are not millennials, the brand is up, and significantly up. It's double-digit growth in these clusters. That's the type of indicators that we are following. So far, I can tell you that it does give us some confidence regarding the future, the short-term, and mid-term development for the brand. Thank you very much indeed Luca, we will continue, of course, to reduce the markdown in the stores. That's really one of the indicators we are following, not only for Gucci but for all the brands of the group. It does rebound also with the question of Mélanie. Typically, the type of indicators we are following for all the brands. Considering the momentum of the industry and of many of our brands, it will be the objective to have a reduction of the markdown sales, be it in stores or in outlet. Thank you very much to all for your questions and your numerous questions. Before closing this call, just one housekeeping note. Our first half results will be released on July 27 after market close, with the conference call to follow on the same day. I wish you a very pleasant evening. Thank you for your attention. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.