Good evening to all of you. I'm pleased to welcome you to this call and review with you our sales in the Q3 of 20 14. I will provide you with a bit more background on revenue trends at group level and in our major brands. Then Jean Francois Palouse, the Group Managing Director and I will be available to answer any questions you may have. On slide 4, you will find a summary of group sales in the quarter.
Revenues were up 4.4% on a comparable basis and 3.3% in reported terms. Kering posted another steady revenue progression in the 3rd quarter, in fact, even ahead of the pace of growth in Q1 and Q2. The consistency of top line growth across quarters truly validates our multi brand strategy, which enables us to deliver satisfactory growth when the markets are upbeat and also when they are more challenging. In Luxury, trends remained healthy in the quarter with comparable revenue up 3.5% in a fairly difficult environment. Like our peers, we faced more intense macro uncertainties and political unrest and this affected business conditions in several markets.
In this context, our high growth brands notably Bottega Veneta and Saint Laurent kept an excellent dynamic with sales up double digit. Gucci for its part proved resilient in retail with very good trends in North America and Japan. On the positive side also, currency headwinds have begun to ease with reported and comparable growth rates of our luxury activities at nearly the same level in the quarter. In Storeton Lifestyle, we are truly encouraged by the 3rd quarter achievements at Puremon. It is executing its turnaround strategy fully in line with its roadmap.
The Forever Faster campaign launched in August is effectively repositioning the brand in the performance segment and the Q3 is confirming the positive top line inflection we expected. Overall, comparable sales in Sport and Lifestyle were up over 6% in the period, a performance we had not witnessed for quite a few quarters. Currency negatively impacted the division's reported performance, especially due to Puma's exposure to Latin American As a reminder, from this quarter onward, there is no more scope effect due to the consolidation of Pomellato. As you can see on the chart, once again, performances were driven by solid growth in our own stores with retail revenue up 6%. As you know, this is our key focus and we have dedicated action plans across all our brands centered on retail excellence and organic growth.
By region, natural markets, notably North America and Japan, up respectively 12% 7% had the highest growth. As a whole, emerging markets did post a good 4% increase in retail revenue, although they were affected by adverse conditions in certain Asia Pacific markets. Growth of online revenue, up 25% this quarter, was solid across our luxury activities. This performance underscores the growing importance of this channel in which the group has invested in the past years and will continue allocating resources. Wholesale revenues decreased very slightly in the quarter with 2 major trends to outline.
As anticipated wholesale at Gucci was still down but improving compared to the 1st and second quarters of the year. In hard luxury, conversely, we observed more caution from certain third party distributors. In line with our strategy to selectively expand our retail network, the number of directly operated stores rose by 26 net units in the 3rd quarter still very well balanced between emerging and mature markets. Let's now turn to Gucci's performance in the quarter on Slide 6. Gucci posted retail trends similar to the Q2.
In our view, given recent market headwinds, this is in line with overall industry performance. By region, Japan, North America delivered mid to high single digit sales growth, which is a significant achievement and does fully confirm the success of our Elevation strategy. In Japan, the brand is well established and will capitalize on the upcoming celebration of its 50th anniversary in the country. In the U. S, Gucci's momentum is vibrant.
The brand is increasingly appreciated on the West Coast by both local customers and visitors matching its traditional strengths in other parts of the country. In Western Europe, patterns were contrasted. France and the UK were the weakest spots, while Southern Europe seems to have bottomed out, especially Italy but also Spain. In the context of softer tourist spending in Europe, Gucci's sales to local customers were up reflecting the appeal of new collections. In Asia Pacific, retail revenues were down 5%, so not materially different from the 2nd quarter trend, even slightly better.
South Korea had another positive performance confirming its momentum and Taiwan is back in positive territory this quarter. Gucci sales trends in Mainland China stabilized in the period. On the flip side, we experienced some deterioration in Hong Kong and Macau, while Singapore remained a difficult market. In Asia Pacific, Gucci Now has new management teams in place following the recent appointment of Marina Young, General Manager of Taiwan as President of the China region encompassing both Mainland China and Taiwan. As expected, the drop in wholesale eased materially compared to the previous quarters reflecting 2 main dynamics.
First, Gucci continues to buy back certain operations as it did in Russia at the beginning of the year and is considering doing in the U. S. With a few department store corners to be converted to retail. Secondly, in line with our brand elevation strategy, we are cutting down sales of entry price and logo products. In this respect, it's worth noting that the decrease in sales of small leather goods contributed to 50% of the total decline in wholesale.
By category, handbags performed extremely well in natural countries supported by the carryover lines Zoho and Bamboo Shopper. The introduction of the swing and Bra diamante was successful especially among Gucci's younger Asian clientele. The Swing is a functional yet fashionable no logo leather bag which helps satisfy demand for entry level products. In addition to the good results generated in this segment, the recent launch of the JackieSoft higher priced sophisticated handbag has been promising. The product assortment and price architecture of this key category is now where we want it to be with a very strong and qualitative offer in the core segments.
In women's ready to wear, Gucci posted a very good quarter with sales up sharply, reflecting the success of the fallwinter collection. The shoes category for both men and women also grew nicely. As of September, Gucci operated 4 85 stores with 5 net openings in the quarter, of which 2 in Latin America, namely Panama and Brazil. Moving on to Slide 7, Bottega Veneta had a very consistent performance in the quarter of 11% comparable. Retail was up 10%.
Despite a shift in deliveries that benefited the Q2, wholesale was up 14% in Q3. Leather Goods posted further sharp increases in sales fueled by continued good client reception for both iconic in stretch of styles and for newer solid leather shapes and styles. Men's lines were among Bottega Veneta's fastest growing categories and accounted for around 35% of total sales. The presence of more seasonal items continues to be well received by clients attracted by novelty and the regular flow of new products. The perfume line has been expanded with the launch of a new fragrance named Knot in the quarter.
Sales remained sustained in retail across all main regions with somewhat less uniform patterns this quarter. Western Europe was up 8% in retail, reflecting slower tourism traffic. North America and Japan, both up 12% had another very strong quarter. Asia Pacific was also up double digit with Taiwan and South Korea being the strongest drivers. During the quarter, Bottega Veneta opened 3 new directly operated stores and closed 2 bringing the total store count to 228.
On Slide 8, you will find a recap of Saint Laurent's sales. In the 3rd quarter, Saint Laurent achieved another sharp increase in sales, up close to 28% consistent with the previous two quarters. As was the case already during the first half, this was driven by very solid 34% growth in retail. This channel accounted for 60% of sales and is gaining more and more importance as the brand successfully rolls out its store concept and expands its network. Wholesale also grew at a solid pace, up 21% in the quarter, driven by the very positive reception of the fallwinter14 collections and reflecting the brand's penetration with leading wholesale accounts worldwide.
All product categories contributed to growth. In line with the previous two quarters, leather goods achieved the sharpest retail increases, up 35%, a performance driven by the success of the Sacre Desjours and Monogram lines. On top of this, the newly launched pre fall 2014 lines including Mujique, Universite and Emmanuel posted very positive results ever since they reached the stores. Ready to wear accounting for over 25% of retail sales also delivered outstanding revenue increases driven by women. This follows the very sharp growth in sales of men's ready to wear in the past 2 years.
Overall sales in this category are now well balanced between men's and women's. By geography, retail growth remains steady across all key markets further underlining the broad based outperformance of the brand. In Asia Pacific, a high potential region for the brand, sales rose at a sound pace. In Mainland China, sales more than doubled, a performance accomplished with limited store openings at this stage. On that subject, a quick word on Saint Laurent's retail footprint, which reached 122 units at the end of the quarter with 7 net openings year to date.
Most of the recent store openings target key destination cities in mature markets where the brand's momentum is unfading. The highlight of the quarter was the opening of the brand's Milan flagship store on Via Sant'Andrea. Moving on to Slide 9, I will comment briefly on our other luxury brands. In the Q3, the contrasted performance of our other luxury brands largely reflects diverging trends in soft and in hard luxury. Altogether, our soft luxury brands posted revenue growth of 5%.
Particularly noticeable was the performance of Balenciaga with another quarter of double digit sales progression in both retail and wholesale. Our British designer brands also enjoyed solid retail growth with wholesale performance reflecting shifts in delivery patterns compared to last year. Our high luxury brands faced tougher markets in the mid quarter. Pomellato sales remain quite resilient considering conditions in Western Europe, which account for the bulk of its sale. At Bouffron, sales comparisons were impacted by 2 factors: the high base in Q3 last year due to sales of high jewelry pieces and the lasting effect of Japanese VAT increases last April as sales only started anticipated purchases that had occurred in Q1.
Finally, sales of timepieces primarily from Gerard Perrigo reflected the continued caution of 3rd party distributors widely observed in the watch industry. If we look at distribution channels, most brands saw firm increases in retail sales up 11% driven by soft structuring in line with our strategy to focus our efforts and investments on retail. Trends were negative in wholesale impacted by the restraint of resellers in hard luxury I mentioned. In the other luxury brands, we recorded 21 net store openings since the beginning of the year, bringing the total network to 3 60 units. Balenciaga, Briony and Alexandre McQueen saw the largest stock network expansion so far this year in line with our selective approach to investments in retail adapted to each brand's need and stage of development.
With Slide 10, let's move on to an overview of our sport and lifestyle activities, which had solid sales performances during the quarter. The brand relaunch at Puma combined with the repositioning of our other brands were the engines of this growth. At Puma, after a successful Football World Cup in terms of brand visibility, the quarter saw the unveiling of the Forever Faster campaign as well as the partnership with the Arsenal Football Club. The Forever Faster Global 360 degree media campaign launched in August ahead of the crucial back to school season led to a sharp surge in brand awareness. It's a decisive statement delivered to both end consumers and our key wholesale partners that the Puma brand is on the offensive.
As expected, Puma sales picked up nicely during the quarter led by the rapid takeoff of the partly revamped full winter the quarter. Retail evolution was also positive both in reported churn and on a like for like basis extending the promising developments of the first half. By region, sales performances were consistent across both mature and emerging markets growing 6% and 7% respectively. Within mature markets, sales in Western Europe accounting for 35% of the total grew 6%. The Eurozone was especially solid led by rebounds in Germany and France underscoring that the Puma brand continues to resonate intensely in its home region.
In North America, sales were up 5%, extending the market share gains of the first half. Looking at product categories, I would like to start with footwear, which represented 44% of sales in the quarter and is seeing a marked improvement. Higher sales of footwear confirm the appeal of Puma's new product lineup with a better articulation of design and functionalities between performance and lifestyle products. For example, in football, Evo Power achieved strong sales reaching the younger audience not expected to reach the shelves before springsummer 2015 collections. Apparel and accessories also posted further increases in sales up 11% and 7% respectively fueled notably by the recent Arsenal Keep launch.
For their part, sales of Volcom and Electric were also positive in the quarter. Combined sales of the 2 brands were up 5%, confirming the revenue trends that started emerging in the first half. At Vulcan, both Western Europe and Asia Pacific were up double digit suggesting that the retail investments we made over the past 2 years to better establish the brand outside of its domestic U. S. Market are starting to pay off.
A few words of conclusion. In Luxury, we are carrying on our ongoing strategy. Our consistent approach aims at providing each of our brands with the tailored support and resources it needs to fulfill its long term potential. This requires a constant commitment on the part of the group to direct brand investments where they have the biggest impact according to each brand's individual traits and stage of maturity. We conjugate this strategic approach with shorter term vigilance helping our operations navigate the surging macroeconomic evolutions and a generally tougher market environment particularly in Asia Pacific.
In Sport and Lifestyle, the launch of Puma Forever Faster has gained traction confirming the merits of the brand's long term marketing strategy. The relevance of the investments is already reflected in the sales and order trends of the Q3. For the balance of the year, we will closely monitor sales through developments ahead of the launch of the SpringSummer 2015 collections due in the Q1 next year. In the Q4, we also look forward to reaching further important milestones in reinforcing our group's portfolio, expertise and synergies. The closing of Police Nada is on track and we should get through antitrust clearances over the next few weeks.
In eyewear, we are progressing with the ramp up of our Kering eyewear structure, a process that should continue into 2015. And we are continuing to strengthen our management teams across our operations. Each of our brands benefits from huge inherent potential and we will continue working methodically and consistently to foster growth and profitability at the level of each brand and at the level of the group as a whole. I would like to thank you for your attention. Jean Francois and I are now available to answer your questions.
Certainly. Thank you, And we'll now move to our first question today from Helen Brand of Barclays. Please go ahead.
Hi, good evening everyone. Just a couple of questions for me. First of all for Gucci, you said mainland China stabilized in the quarter, whereas Hong Kong deteriorated. Do you think you could give us the magnitude of the deterioration in Hong Kong? And secondly, just on Hong Kong, you talk about the trends during the start of October?
And what the impact from the protests was during Golden Week? And are you seeing any of that spend being directed elsewhere? Next on Gucci. So my final question just on the wholesale performance. Obviously in Q3 still down 8%.
What are you expecting for Q4 in wholesale?
Good evening, Alain. What we said about Gucci sales in China is that there is a stabilization of the trends, meaning it's still slightly negative, low single digit and we didn't see further deterioration. We feel that all the initiatives taken in China start to pay off in terms of merchandising and products on the shelf. And we are confident that with the appointment of the new manager in China, we will improve further. And considering the track record of Merinda in Taiwan on the retail network, we are quite confident.
In Hong Kong, we saw a further deterioration, meaning that we lost further points in terms of decrease of sales being now double digit on the quarter in Hong Kong, not over the 9 months, but for the quarter. What we can say about the recent protest and the event in Hong Kong is that, as we already said and mentioned that the trends in Hong Kong since the beginning of the year are quite complicated with some concern about the traffic industry and also the average quality of the Chinese mainland Chinese customers with probably less purchasing power and perhaps a soft transfer of the more of the West just Chinese customers on some other markets. Finally, I would say that the event had an impact, especially during the 1st week of October with a decline of traffic in the stores in the location, which were completely blocked like, of course, Canton Road, Admiralty and Causeway Day. But we
see we saw a sort
of transfer to some other stores in some of the malls, which were not concerned by the event and also to the airport. And also, we saw that for the Golden Week, you had a shift of Chinese tourists to some other locations, especially South Korea and Taiwan. Even if, of course, concerns the size of this market and for the Chinese tourists, it cannot completely offset. So all in all, I would say that the outcome of the Golden Week is not so is quite positive and we remain confident that we can improve. And soon as the 2nd week of October, we saw a slight improvement in Hong Kong and there is currently an acceleration in Hong Kong, regaining a little bit in terms of traffic and sales.
Concerning the wholesale, of course, we won't comment about what we expect for the last quarter, especially because of course, we already mentioned the fact that we should see a gradual improvement over the year. And if you consider that the Q3 is minus 8 compared to the trends we had during the first half, which was double digit negative, we should see some of additional improvement in the wholesale. But as you know, we have been carefully reviewing our 3rd party distribution network throughout the past 2 years with the growth still to further decrease the share of wholesale sales. And we will continue we contemplate some opportunity to buy back a few new doors. We cannot comment on this at this stage because we have some confidential discussion, but it could have an impact on the Q4.
So meaning that we believe that it should be up for next year in the retail network, but probably with an impact on the Q4. And interestingly, I think that as I mentioned during the call, we are working also on the quality of the merchandising in the wholesale network. And the fact that half of the decline of the quarter was due to the small leather goods and the travel and luggage categories is quite interesting because it's typically some categories where we want to upgrade the brand as well.
Perfect. And just one follow-up question on Gucci in terms of the margins. If Hong Kong is obviously weakening and that's obviously quite a high margin region, how are you thinking about H2 margins for Gucci compared to H1?
I think the main impact we are expecting for the second half of the year has to do with the hedging. As you know, we saw an inflection point in September with the dollar and some with some other currency. For the yen, it's not yet the case. So the hedging impact should be less favorable, even negative during the last quarter. So it will have surely an impact.
And again, don't forget that despite what you mentioned about the breakdown of the sales and the gross margin depending on the region, we have still the beneficial effect of the improvement of the gross margins as the gross margin should continue to increase on a constant currency basis. But I think that the main driver for the decrease of EBIT margin would be the FX and the
hedging. Thank you very much.
Thank you. We'll now move to our next question from Thomas Chauvet of Citi. Please go ahead.
Good evening. I've got three questions. The first one on Europe. Trends at Gucci, but also at Bottega Veneta have deteriorated comparative. So could you comment perhaps on what have been the moving parts between the local demand evolution and the tourist demand?
Secondly, can you come back to the rationale for the eyewear deal announced earlier this summer and the financial implication you are forecasting in terms of cash outflow, potential earnings dilution, but also the organizational changes it requires in terms of distribution. And thirdly, in terms of the management changes, earlier this week you announced 3 CEO appointments at Bottega, Briony and Christopher Kane. Can you perhaps give us an update on where you are in the transformation and improvement of some of the smaller brands and perhaps the more sizable of these smaller brands? I'm thinking of Balenciaga and Brioni. I would like to hear about those brands.
Thank you.
Thank you, Thomas, for your question. So I will answer to the first question and I will let Jean Francois jump on the 2 other questions. Concerning the first one, it's true that we have witnessed since Q1 2014 a weakness of Russian tourism in Europe And it still continues. There is no improvement, as you can see, when looking at the data provided by Global Blue. And we have still lower tourism purchases from Japanese customers.
So this trend for Russian and Japanese continued in Q3. As far as Chinese tourists are concerned, I think it's more a question of volatility. It's quite difficult to predict how this tourism flows will evolve. Q1 was totally satisfactory and positive, but Q2 and Q3 trends with the Chinese in Western Europe have somewhat slowed down, at least for some brands, which is not totally a surprise to us looking to the broader industry trends. Finally, what is interesting is that for the local customers, especially at Gucci, we feel we have some figures showing that it's a new collection and especially in ready to wear and with the new launch in terms of handbags do resonate quite well with the local clientele.
So globally, I would say that in Europe, global the local clientele is improving, not yet up, but is improving. And we suffered from the lower tourism flows. So I think the combination is that there is a decrease in terms of the contribution of tourism flows and rather an improvement with the local clientele, which is very encouraging considering all the initiatives we had in Europe to position better Gucci. And we feel that with local clientele in Europe, we could experience the same trend we are now posting in Japan and in America with a very good perception of the brand with local clientele.
About the eyewear initiative, our intention is to take back the full control of the value chain on this product category, which is quite important for our brands, all of them actually including Sport and Lifestyle. So what we want is to set up an expertise in this field. And so we now are gradually taking back the license contract from the various licensees to have them all under one roof. And we will now control design, product development, distribution, of course, the monitoring of subcontractors for eyewear. So this will also enable us to strengthen the performance of Gucci and also to develop the full potential and to tap the full potential of our other brands in this product category, which is very again very important.
The financial implications will be twofold. 1, the ramp up of costs, which won't be very material in the financial statements and also the payment of a compensation to Safilo as we explained in the press release that we issued
a few weeks ago.
So in terms of organizational changes, they will be very, I would say, minimal because we are setting up a new team with experts of this industry led by Roberto Vettorotto who is the former CEO of Safilo. And there won't be any change within the brands. We will have a slight change in distribution because a significant portion of distribution will be centralized, but we will also have sales force throughout the world and also agents. So nothing but normal. And just as a follow-up
Jean Francois, are you expecting to grow the current €350,000,000 turnover achieved by your partner? Or on the contrary, do you want perhaps to be more selective in terms of distribution? Are you expecting to offset the loss of €50,000,000 royalty stream? And at what time frame roughly?
Well, actually the what we plan is to increase the quality levels in terms of product, in terms of distribution, which will also have an impact on prices for a few brands. For the other ones, we want to develop some product categories, particularly prescription eyewear or conversely sunglasses. So we do have identified some opportunities to increase turnover and also to increase margin.
Thank you.
About the changes in the CEOs of Bottega, Briony and Christopher Kane, Bottega again it's a natural move because you remember that Marco Bizzari has been appointed the CEO of the Soft Luxury division. And so he has been naturally replaced by Carlo Alberto. For reali Gianluca comes at the end of a phase or an area for Brioni where we have completed the integration into the group, particularly the integration in the logistics schemes that we have at LGI. And also Francesco has finished the reengineering of the manufacturing template. So we need to step up to some other, I would say, development and domains where some other competencies are required.
And that's why Gianluca, who's been in the group, particularly in retail, not only in the U. S. But also globally for Bottega, will particularly focus on retail development and excellence. For Christopher Kane, it is the same. Alexsama had a mission to set up the company because as you know it was a minute company startup I would say.
So he set up the various function and also the integration within the group. And now that this has been completed, we need to push the fire on some commercial development and that's why we have Sarah joining us to boost the sales particularly in wholesale. And then some you mentioned Balenciaga, I think. Well Balenciaga is I mean ordinary business, so there is nothing to tell about that.
Thank you.
Thank you. We'll now move to our next question, which comes from Antoine Belgeoff, HSBC. Please go ahead.
Yes. Good evening. I've got three questions. First of all, I would like to come back on the performance of Gucci in retail. It's still flattish.
What I think you are expecting an improvement. And when you look at Q4 now and especially with Hong Kong even if we understand that the situation is maybe not that bad, And is there any rationale for Q4 sales not to be negative at this stage? I think you've mentioned some terms of products, etcetera, but that will that be enough to offset the headwinds of the industry? And second question on actually the smaller luxury brands. I think you've mentioned a few of them.
What was the exact I think Pomellato and the base what was the performance of Pomellato? Are they also impacted by trends of the luxury brands? And so I think you didn't mention the performance of Cerrosy, where there's been a change in management as well, rumors of disposals. Can you maybe update us on this? And finally, I think you've mentioned the impact of FX on the second half.
So yes, I understand the margin will be negatively impacted, but hopefully the sales will be. So if you look more maybe on 2015, I think you're more hedged through using forward contracts rather than options. So how should we think about 2015? Does it mean that you will benefit from FX in the second half of next year? Thank you.
Good evening, Antoine. Concerning the Q4, as you perfectly know, we never provide formal quantified outlook, but ambition was to regain, as we said last time, progressively positive like for like growth across all the regions as the like for like growth is already positive in America and Japan. Given the sharp market volatility and complicated macro situation in many parts of the world, I must say it's quite hard to predict if consumers' mood and macroeconomic environment will improve in some regions and even more some in the light of the situation in some markets like Hong Kong. This being said, we are confident that we have done a lot of improvement in the repositioning of Gucci in all key regions. As you know, the first stages of our positioning strategy have encompassed first product and merchandising.
Regarding those two aspects, we believe that we have brought the brand where we wanted it to be. Now our focus is more on communication as well on addressing our retail excellence, which we all know is a long journey, but we are making good progress. Our confidence is therefore higher than ever on our capacity to restore positive trends at Gucci in the near future. And for the moment, the trends are positive for the Retail business at Gucci, at least better than the Q3. Concerning your comments about the smaller luxury brands.
As we mentioned during the speech, the performance of Hard Luxury is negative. It's not because of Pomellato, because Pomellato still has a high exposure to the European market, as you know. The bulk of the sales of Pomegranateau are in Europe is in Europe. But all in all, the trends are, I would say, flattish at Pomellato, which is a good achievement. And I think that we have quite a solid performance considering the macro environment in Europe and with a rebound of Dodo Business.
The two weaknesses we saw was, 1st, the Girard Perrigo suffering of course of the situation of the distribution in the watch industry in Asia, especially following the change of the distribution since the beginning of the year. And also, I would remind also the high comps we have at Boucheron. Boucheron had high sales of high jewelry during the Q3 2013. So we have high comps. And on top of that, the Japanese market did not fully recover from the VAT increase.
So we saw a pickup late in September. So we see now positive trend on the Japanese market. But in July August, the market was still negatively oriented and Boursin has a high exposure to Japan. But we are also confident because I think that the feedback that we had on Boucheron BienaR in Paris was very positive and we can say that we have some sales and orders as regards the pieces that were shown during the year with very positive trends. Finally, concerning the FX, our hedging strategy is primarily a forward contract with no options in 2014.
We will have some options in our strategy of hedging in 2016, but with more impact during the last quarter. This means obviously that at this stage, we should expect rather a negative hedging impact for the next 12 months ahead, assuming spot rates being dragged forward. So you're right to say that normally, it should have a positive impact in terms of FX on the sales. After that, you have a mix between the different regions and the different currencies. So that at the end of the day, if we look at the Q4, what you can see is that despite the favorable impact of the FX on the EBIT margin, at the end of the day, the hedging impact is negative for the EBIT in terms of percentage.
And we should expect still headwinds as regard the hedging impact at least for the first half of twenty fifteen.
Thank you very much. Maybe just a very small question regarding your stake in Puma as it changed during the quarter?
It remained unchanged since the end of June since the first half, sorry.
Thank you.
Thank you. We'll now move to our next question from Luca Solca from Exane BNP. Please go ahead.
Yes. Good afternoon. Luca Solke from Exane BNP Paribas. A couple of questions on Gucci again and its position in China. Fully appreciate the geopolitical issues and tensions in Hong Kong and the difficult macroeconomic environment.
But talking about brand specific issues, what brand specific issues do you see there that could be at the top of the agenda of the new CEO and that could be improved supporting better progression for Gucci. I think, for example, about the quality of some of the store locations and also despite wholesale streamlining about the quality of distribution, we continue to see what appears to arise gray market product in a number of locations and also in high profile locations like the Canton Road in Hong Kong. Concerning the appointment of the CEO, if I understand correctly, this looks like an internal appointment considering that it took a while. Is it fair to conclude that you looked for an external hire, but you couldn't find one of your satisfaction? And thirdly, on lifestyle, at one point, you hinted that there could be a review of results for Lifestyle and how Puma and its revival is progressing.
This update seems to be indicating a good step forward. Is it fair to assume that this is the case and that your commitment to lifestyle is reinforced? Thank you.
Can you just elaborate on the 3rd question Luca to be sure that we are properly understood?
Well, the 3rd question had to do with
the idea that you were sort of setting up a timetable to see how the cure or the new strategy for Puma could work and that you would reassess this at some point to test whether this was actually working through your study instruction or not. This quarter results seemed a good step forward. And I was wondering whether this is sort of reinforcing your commitment to Pulmind to its future development?
So thank you for providing part of the answer to the first question, Luca. No, I think that as we as I said previously in the call, we made some good progresses as regards to merchandising, the replenishment policy, which is more efficient than before. In terms of store network, you're right to mention that we may still improve, but the point is rather that in China, it will be a constant reshuffle of the network considering the change of traffic year after year depending on the cities of the mall. So probably, we need to fine tune. But as you know, we have 3 years' leave.
So I think that now for the industry, it's a question of systematically review the quality of the traffic of the stores. What we have several times pointed out is the retail excellence. And we have candidly acknowledged that the retail excellence should be at Gucci on a worldwide basis and also especially in China. So that's why also and I think that Jean Francois will come back also to the appointment of the new manager in China. What is important is to improve the client experience in our store in China.
And the client experience is a global experience. It's also about the visual display, the windows, the quality of the sales associate. So this is clearly one of the main tasks of the new manager in China. So we need to improve on that. As regard the gray market, I think that it's something we are trying to monitor and to be sure that we are on par with our objective of improving the distribution quality of Gucci, part also of what we did by shrinking the deliveries to some wholesale accounts in Europe and not only in Europe.
The objective was clearly to have a better control of this gray market. We cannot exclude that in some cases, you can have some situation where Gucci products are not properly exposed and sold. But I think you also that the job of the new managers in the region and I can tell you that working hard they are working hard on that is to have a better control of the distribution.
About the appointment of the new CEO, the fact is that she has been identified for a long time now. The fact is that we wanted to have a great expertise in retail. So this is what we wanted to make sure that we would find this type of experience within the group from within the group. And what we have to do is to find the replacement for Mirinda in Taiwan and also to set up the structure that we have in Asia so that she will cover Taiwan also, but she will have a second in command there who also is experienced. And also she will, I would say, be supported by a whole organization within Gucci and also within Keurig.
And that's why we just announced
a few weeks ago a few
days ago this appointment. But in fact, she's been identified for a long time. Considering the assessment of Puma's strategy, we are quite pleased with the transformation of the product engine. We also are quite pleased with the impact on the top line and the prospects that we see with the improvement of momentum in sales. And now we are monitoring the conversion of these good dynamics into EBIT and cash flow and to make sure that through time we will also improve EBIT and cash flow.
Excellent. Thank you very much indeed Jean Francois and Jean Marc.
Thank you.
Thank you. We'll now move to our next question from Melanie Flouquet of JPMorgan. Please go ahead.
Yes. Good evening. Thank you for taking the question. My first category.
Yes,
actually declining? Because you mentioned handbags by category, handbags are strong in North America and Japan, women's ready to wear is good, she wears good. So can you help us a little bit understand whether the good is an overstatement a little bit compared to the 0% total retail or whether there is really a very sore point in one specific category. The other question is on the Gucci brand margin expectations. There will be pressure linked to the non repeat of the bad seeding gains and even a hedging loss because of the forward contracts.
Can you offset that with further positive impact from the mix? Because I think you mentioned earlier on as well that your mix is pretty much where you want it to be? Or can you also get savings all the savings to try and understand how much pressure we can have in the second half and into the first half of next year? My last question is on Bottega Veneta, which is on retail sales of plus 10%. Do you expect this to be the sustainable level?
Or was that I mean, it's still a very good performance, but was that something that penalized Q3 and won't penalize it moving forward? Thank you.
By product category, what we can say, in line with our expectations, Gucci has seen a sharp pickup in women ready to wear during the quarter, suggesting a strong customer reception of the recent collections starting from the 4 Winter 14 collection. This is especially encouraging as really to where it's really instrumental for brand heat and traffic generation in the stores provided that the market is supportive enough. Some more aspirational categories such as shoes performed strongly in retail in the 3rd quarter. In handbags, on a worldwide basis, volume trends are stabilizing as we are gradually leaping the negative impact, which resulted over the past 2 years from the discontinuation of entry price lines. The stabilization of the volumes encompasses a nice and steady growth in the core medium and core high price ranges, driven by the solid reception of the newly launched plain level lines.
But average selling prices are stabilizing now because as you rightfully pointed out, the breakdown between logo, non logo and leather and canvas is now more or less stable if you compare Q2 and Q3. So now we consider that good cheap product architecture is covering properly all the key price points compared to last year. Volumes declined very significantly in other leather categories especially in mortgage as we are currently work on reengineering the product assortment in order to make it more consistent with the revisited brand positioning. So if you strip out the categories other than the Fashion and Lever and if you strip out within the Fashion level the luggage and small level goods, so you are still a large part of the business. You are up mid single digit, which was what we expected.
But there is a huge impact in retail and in wholesale of the decrease of the sales due to volumes of the small leather goods category and luggage category. As regards your question about the gross margin, you're right also to say that you should see from now a stabilization of the gross margin. Still improvement now that would be driven by the price increase of the collections on a seasonal basis. But in terms of product mix, the impact should be less significant as in the past when the core category, the handbag category, we have this positive impact of the improvement of the product mix. So that at the end of the day, the gross margins, the bulk of the improvement was made probably during the first half.
As regards the impact of the FX on the hedging, as a reminder, we have said that in 2013, we had a positive impact of the hedging of 100 to 150 basis points compared to 2012. Initially, we had thought that we should offset this impact fully in 2014, which won't be the case because we have 2 positive effect. But at the end of the day, considering the recent evolution, we would have probably something around 50 to 60 basis points of impact due to the hedging negative compared to last year.
This is on a full year basis just to confirm the minus 60?
No, over the second half for the second half compared to the second half of last year.
Perfect. Thank you very much.
As regards to vertical Veneta, the point is that the Bottega Veneta despite being a very hot brand in many regions especially in Asia, the brand suffered however of the macroeconomic and political conditions in Asia Pacific. So in fact, if you look at the performance of Bottega and EVeneta in retail in Europe and North America, the trends are very healthy, very sound. But what was probably a little bit below was the situation in Asia and especially in China and Hong Kong that penalized a little bit Bottega Veneta. You know that we have a lot of initiatives, which have been launched to sustain the growth of Bottega Veneta in the retail network, especially in the U. S.
So that's the reason why we are confident that over the year and for next year, we can continue to put significant growth at the bigger perimeter.
Thank you very much for the detailed answers.
Thank you, Helene. Thank you. I suggest we take the last question.
Certainly. Our final question today comes from Warrick O'Kees from Deutsche Bank. Please go ahead.
Yeah. Thank you and good evening. Can you cope with 3 parts to my question? I'll tell that, yes. I've also got
two questions on Gucci and
one on Bottega Veneta. On Gucci, could you just try and maybe encapsulate exactly what's happening with the Chinese consumer globally? There are lots of moving parts. You said slightly softer in Europe, Hong Kong, Macao, obviously, but stronger Taiwan, South Korea stable in Mainland China. So compared with Q2, is that a slight deterioration?
Or is that a stable performance for Chinese consumption globally? Secondly, can I just come back to Gucci wholesale? I appreciate your comments earlier on wholesale and on small leather good category just now. But at the first half results call, you had said that you'd expected a flattish performance for wholesale. And it doesn't look like you're going to get to that situation.
Is there anything that's changed in season that you've not mentioned that I'm missing? And thirdly, on Bottega Veneta, wholesale has been growing a bit faster than retail this year. I'm just wondering where that growth is coming from and in particular if that's coming from the U. S, which is one of the markets you've highlighted as an opportunity in wholesale? Thank you.
What I said about the Chinese customers is that what is difficult to say to analyze is that you have a huge volatility in the consumption of the Chinese customers. But if we had to summarize the situation and what we could say is that
it did not deteriorate
in the local market in Mainland China. So we didn't see any deterioration. No major improvement and we didn't see any major pickup of the consumption of luxury goods in Mainland China. In alcohol, it has deteriorated as mentioned before. In Europe, if you look at the flows of Chinese tourists, we saw an improvement in September, but July August were particularly weak in terms of Chinese tourist flow and consumption.
And what we say is that what is really interesting is to see the transfer of some Chinese tourists to some new markets in Taiwan, South Korea and also Japan with increased triple digit in these regions or at least double digit in some others. But for the moment, these markets in terms of size for the Chinese tourists is something like 1 third of the size of the Hong Kong market. So what we say what we can say is that globally, I would say that on the Chinese cluster, we didn't see additional deterioration, some move from one spot to another one that we didn't see a major improvement and still much volatility. As regard the wholesale, what we have not necessarily planned was the discussion that we have started in the U. S.
And in some other regions to see how we could take back the operations and to operate directly some corners of some operations. And when you have some transfer occurring or taking place in the first half of the year after, you have generated already some impact the year before and especially during the second half of the year before. So as I said previously, we cannot elaborate on that because we have some confidential discussion with some partners, but we may come to some additional buyback. As we always stated, we would contemplate some opportunistic buyback operations as it proved to be very efficient. As a reminder, since we have bought back the Saks Corners in the U.
S, we had a dramatic improvement of the level of sales and of course of the profitability. Concerning Bottega Veneta, what we can say is that for sure the increase is mainly driven by the mature market. The Europe and North America represents the bulk of the sales for the brand in wholesale. And it's true that even if for the moment, the sales in the U. S.
Were not so huge, we made some big efforts to push the brand in some wholesale accounts in the U. S. And we have a double digit, significant double digit increase in sales to the wholesale partners in the U. S. And still very dynamic sales in Europe with this objective to choose the brand more with the local clientele.
That's very helpful. Thank you very much.
So thank you all for your questions tonight and your interest in carrying.
Our next formal meeting
will be in the second half of February when we release our full year numbers. In the meantime, as always, you can rely on Claire and Edward to answer all your questions. We wish you a nice evening. Goodbye.