Welcome to PPR's first half 2012 results conference call. For your information, today's conference is being recorded. Your host today is PPR Group Managing Director, Jean-François Palus, and CFO, Jean-Marc Duplaix. Please go ahead.
Good afternoon and good evening to all of you. This is Jean-François Palus, PPR Group Managing Director. I am pleased to welcome you to this conference call to discuss our first half 2012 results, which you should have received a few minutes ago. Together with Jean-Marc Duplaix, Group Chief Financial Officer, we will give you a brief introduction following the deck of slides you can find on our website. I will say a few words on our operating and financial performance in the first six months of the year. Jean-Marc will guide you through the results of our major activities and the key group financial highlights of the period. I'll touch upon our objectives for the coming quarters before we take your questions. Before we get there, I'd like to say a word on the announcement we made this morning regarding our continuing disengagement from CFAO.
As we had announced at the time of CFAO's IPO, we had no intention of remaining a long-term minority shareholder in that activity. The transaction we have announced is in the best interest of all parties involved, secures the future of CFAO and all its people, and is based on an excellent valuation for this great asset. For PPR, this disposal marks another important step towards our strategic focus on luxury and sport and lifestyle, while enabling us to significantly reduce our net debt. Needless to say, we are very pleased with this development. Let's go back to the first half results. Overall, we are delighted with the solid set of results the group has delivered in the first six months of the year, summarized here on slide four.
In what was another period of tough consumer environment in many parts of the world, group sales were up more than 8% on a comparable basis. This was fueled by the jump in revenues from our luxury good brands, all posting strong growth. Recurring operating income rose by more than 20% in the first half, notwithstanding the lower operating profitability of our sport and lifestyle division and the small operating loss at Fnac. Operating income at all major luxury brands posted solid increases, unaffected by their significant efforts to expand their networks and positioning. The group share of recurring net income from continuing operation was up over 25% in the first half. On slide five, we have given you a snapshot of our operating performance in the half year, highlighting the components of the strong sales jump I just mentioned.
Our core activities in luxury and sport and lifestyle together generated an impressive 12% increase in comparable sales, while Fnac, down just 1%, undeniably outperformed its competitors in the dismal consumer shopping environment we are currently seeing in Western Europe. I want to say a few words here about the negative performance at Puma, whose recurring operating income was down about 9% from the first half of last year. I would like to insist on the fact that this is not primarily due to a shortfall in sales or brand positioning, but is above all a cost issue. We have mentioned to you in the past that we are not satisfied with our footwear sales in Europe.
This was the case again in the second quarter, and we are addressing this issue, which will take a few quarters to correct and is more than offset by strong demand in other markets and other product categories. On the other hand, we are taking immediate action to reduce and redirect our cost base, notably in Europe, and Jean-Marc will give you examples of what we are doing. As you've seen, this will result in a one-off charge that could reach EUR 100 million in the second half, against which you will rapidly see important cost savings. Despite these factors and the small operating loss at Fnac, we have achieved a meaningful improvement in group operating margin, which reached 12.8%. I will now ask Jean-Marc to review in more detail our operating performance by brand and the group's financial results. Jean-Marc?
Thank you, Jean-François, and hello to all of you. As a reminder, all the sales figures and comments I will make are based on comparable scope and exchange rates. Redcats and Fnac Italy are both accounted for under IFRS 5. Let me start with our solid performance in luxury on slide seven. In the first half, PPR's luxury division posted another spectacular increase in sales, up close to 18%, one eight. Similar growth rates in both quarters confirm our brief momentum as clients became more demanding and the economic climate more uncertain. All regions posted double-digit sales growth, confirming the global appeal and resilience of all our brands. In emerging markets, which accounted for 40%, four zero, of the total, sales were up 21% in both the quarter and the half year.
Growth remained consistent across all product segments, with sharp increases in sales of the all-important fashion and leather goods categories, translating into further improvements in profitability for marked brands. Investments were sustained as the division added 66 new stores, in addition to consolidating 35 Brioni directly operated stores, bringing the total store count to 896 at the end of June. Let's now look at Gucci on slide eight. Over the first half, Gucci posted sales growth of close to 11%. The 10% increase in the second quarter confirmed the very positive trend, which was achieved on top of demanding comps as percentage growth in Q2 last year was the sharpest of 2011. This is another indication that Gucci's upscale strategy, focusing on exclusivity across the board, has significantly intensified the consistency of the brand's performance.
The contribution of directly operated stores representing 76% of sales, rose by 13% in both the first half and second quarter. Growth in online sales was also strong, with total revenues up 45% in Q2 and very solid performances in the U.K. and France in particular. All regions posted positive growth both over the first half and in Q2. North America posted an excellent performance. Sales grew in excess of 14% during the first half, with further acceleration in the second quarter up 19%. This performance reflects both the loyalty of our local clientele and the growing contribution from tourism flows in the U.S., particularly from South America and Mainland China. In Western Europe, trends were more contrasted, with strong momentum in France, the U.K., and in the retail channel, where sales were boosted by tourism.
Performance was softer in Southern Europe, pulled down by our ongoing rationalization of wholesale, particularly in Italy. Looking at the other key regions, trends in Japan were solidly positive, with sales up 12% in the first half and 8% in Q2. In Mainland China, Gucci sales jumped by over 17% in the first half. Sales of all product categories were up significantly, with double-digit growth in leather and fashion, and a further rebalancing of the overall product mix towards the more sophisticated end of the market. In the first half, Gucci posted another double-digit increase in operating profit, bringing the operating profit margin to 30.2%, up 33 basis points year-on-year. This strong performance was achieved despite higher operating expenses linked to our store openings. In the first half, Gucci added 27 directly operated stores to its network, bringing the total to 403 units.
New stores were opened in both emerging markets and in Western Europe, where Gucci opened nine stores during the first half. Moving to slide nine, Bottega Veneta turned in another fantastic performance in the first half. Total comparable sales for the first half were up 35%, accelerating in the second quarter to a 37% jump, with strong growth in all key regions and across all product categories. Emerging markets posted very sharp growth, topping the 50% mark in Q2. Bottega Veneta also achieved very strong performances in more mature markets where sales increased close to 30%, reflecting growing brand awareness. All product categories contributed to the increase, with leather goods showing growth of nearly 40% in both H1 and Q2, driven by both seasonal and iconic products. Shoes also posted record growth rates both for men and women.
To ensure its future growth and protect long-term sourcing, Bottega Veneta took new steps to secure its supply chain. In Italy, it set up a new JV with one of its main leather suppliers. The brand has also launched a second cooperative workshop in Northern Italy. Bottega Veneta's strong sales growth in the first half went along with an impressive jump in operating margin, up 270 basis points 13.2%. This matches the record level reached in full year 2011, places Bottega Veneta among the best-in-class brands in its peer group. At the end of June, Bottega Veneta had 180 owned stores, a net addition of 10 stores during the first half, of which an additional five stores in Greater China. Selective network expansion will continue as Bottega Veneta leverages its unique positioning as an exclusive luxury brand focused on quality, craftsmanship and innovation.
Let's move to slide 10 on Yves Saint Laurent's outstanding H1 performance, with very strong double-digit revenue growth across all regions, consistent in both retail and wholesale. Sales growth accelerated in the second quarter, up 42%, with a jump of 45% in couture. Royalties grew double digits compared to the second quarter of last year, largely from fragrances and beauty. All regions posted strong double-digit sales growth in both the quarter and half year. Growth was outstanding in Asia Pacific, where sales grew 71% in the half year and close to 80% at store in Q2. All product categories showed very positive trends. In particular, leather goods boosted by the new Cabas Chyc launched at Pre-Fall 2011, as well as by carryover items such as the Muse and Muse Two and their seasonal renderings. Leather goods, shoes, and men's ready-to-wear showed high double-digit growth.
In the first half, Yves Saint Laurent's operating profit grew nearly four-fold, resulting in a margin of 11.1%, up 680 basis points compared to H1 last year. The sharp upturn in profitability is entirely due to strong growth in couture. Yves Saint Laurent operated 89 stores as of the end of June, having opened an additional six stores during the first half. The Yves Saint Laurent strategy will continue to leverage its historical and present-day prominence in ready-to-wear to support strong growth categories like leather goods and accessories. Moving on to slide 11, a quick word on our other luxury brands. Together, they enjoyed revenue growth of close to 21% in the half year, and the positive trend of Q1 ramped up in Q2.
In the period, the strong momentum of all our other luxury brands was fueled by brisk sales in fashion and leather goods, up 23% in both H1 and Q2. This was led by standout performance at Alexander McQueen and the huge success of the recently launched McQ collection. Brioni, fully integrated since January, posted very satisfactory growth during the half year and is off to a very good start. In watches and jewelry, Boucheron achieved strong double-digit sales increases in both Q2 and H1. All in all, the pace of growth was good across all product categories as well as across all distribution channels. Every region posted strong double-digit growth with sales in emerging markets up more than 30% through it all. Despite the impact of the consolidation of Sowind and Brioni, margins at the other luxury brands were unchanged, with positive EBIT growth for all brands.
In the first half, net store openings by our other luxury brands totaled 17. Adding the consolidation of 35 Brioni stores, this brings the total to 224 units. We continue to see tremendous potential in each and every of these brands. Let's now turn to the sport and lifestyle division on slide 12. As you have seen from Puma's pre-announcement last week and earnings release earlier today, Puma's performance in the quarter came far short of our expectations. At the level of the sport and lifestyle division, sales were up 4% in the first half and sales growth improved in the second quarter. Once again, the division delivered a solid growth margin, but operating income was under pressure due to continuing disappointing sales of footwear, notably in Europe, and to further investments to support and strengthen the Puma brand.
At Puma, sales were up nearly 5% in the second quarter, a significantly higher rate of increase compared to Q1, despite the challenging base of comparison established in Q2 last year. This is due to very strong demand for Puma apparel and accessories, compensating for lackluster footwear sales. By region, Puma's good performance in the Americas and Asia-Pacific was overshadowed by disappointing sales in Europe. Despite higher sales and growth margins, Puma's operating margin was down in the first half. Facing the inefficiency of the company's cost structure, and thus caught by this performance, we have decided to speed up the pace of Puma's transformation program. About EUR 100 million were earmarked for actions to return Puma to better performance. Many projects and R&D investments underway will reinvigorate sales growth in the medium term.
We are taking immediate measures to refocus on our retail network on the most profitable outlets, to refocus our sponsorship on the most effective programs, to refocus our advertising and marketing on actions that directly influence sales. For Export, Volcom achieved double-digit sales growth in the second quarter, leading to a near doubling of its EBIT compared to the first half of last year. The major event of the period was the successful sponsorship of the Volcom Fiji Pro Surfing Event, achieved without increasing total marketing spend. Let's now move on to Fnac on slide 13. In H1, Fnac successfully contained its sales drop to just 1%, despite very challenging market conditions and against far worse performances in its segment. Sales in France were down only 1.2% in the second quarter, significantly outperforming the market and improving on earlier trends.
Outside France, developments were contrasted, with Belgium and Switzerland down, and in Southern Europe, Portugal weak, but Spain up, benefiting from new store openings and solid demand for technical products. Brazil continued to perform very well. In the difficult environment across nearly all categories in which Fnac is present, technical products posted a solid performance, while down, sales in editorial products were once again significantly better than the market. Online sales were buoyant, both in France and internationally, posting increases of 13% and 28%, respectively, in the first half. The internet channel represented 14% of all sales in France and 7% in international activities. In the first half, Fnac posted an operating loss of EUR 7 million as compared to positive EBIT of about EUR 7 million in H1 last year.
Despite growth margin pressure, costs were down on a constant store basis, but profitability came down as a result of ongoing investments, notably the online channel and new store openings, including the Bercy Village store in Paris, opened in June. As you know, due to the seasonality of Fnac business, EBIT trends are typically stronger in H2 than in H1. We can confirm that Fnac is fully on track with the strategic plan announced a year ago. Fnac is continuing to work on its various store formats on developing new product categories to accelerate the return to sustainable growth over the medium term. Let's now have a quick review of PPR's H1 financial performance. Looking at slide 14, PPR posted a highly satisfactory performance over the first half, with consolidated group sales up 8%.
Driven by further improvements in gross margin in luxury and despite headwinds at Fnac in Puma, recurring operating income posted another spectacular improvement up 20%, with operating margins edging up another 40, four, O, basis points to reach a record 12.8% at group level. The bottom part of our P&L is summarized in slide 15. I will discuss the most important line items. Other non-recurring operating income and expenses mostly encompass restructuring charges at Fnac as per the restructuring program announced in January 2012. Financial charges amounted to EUR 105 million, a 9% increase over last year, reflecting the higher average debt at mid-year and the acquisitions completed over the past 12 months. The increase in all the financial charges is mainly attributable to accounting adjustments in accordance with IAS 39. The corporate tax rate amounted to 26.6% in the first half, broadly consistent with last year.
Equity income from affiliates relates to our 42% stake in CFAO and was up 7% year-on-year. Net income from discontinued operations includes the positive contribution of Fred K during the first half. All in all, this puts our consolidated net income group share up 6% and our recurring net income, excluding non-current items, up a strong 25%. Let's now have a quick glimpse at slide 16, which highlights the evolution of our free cash flow from operations. During the period, our net cash flow from operating activities was broadly stable. As a strong 20% growth in gross cash flow was partly offset by higher working capital requirements. This reflects the growth in inventories needed to feed our development on store expansion in luxury, combined with higher inventories and trade receivables at Puma.
The decrease in free cash flow from operations after CapEx is a direct consequence of our decision to further accelerate the pace of our operating investments across all divisions, with a sharp increase in luxury CapEx allocated to store openings and refurbishments, as well as higher brand investments at Puma. As you know, PPR generates the bulk of its free cash flow from operations in the second half of the year. Now, on slide 17, you will find the evolution of our net financial position during the period. In the first half, our net financial debt increased, largely due to the usual seasonality patterns, including the payment of our dividend in the first half. Additional purchases of PPR and Puma shares and the acquisition of Brioni completed in January 2012 also explained the increase in net debt.
Our capital management strategy remains unchanged. We have a clear target to further reduce the net debt to EBITDA ratio in the medium term. This now ends my remarks. Let me now pass the phone back to Jean-François before we take your questions.
Thank you, Jean-Marc. To summarize, as we note here on slide 18, our solid performance in the first half of the year is a testimonial to the strength and complementarity of our luxury activity. Gucci is consolidating its flagship status, its strategy of exclusivity, and its global presence fully support the brand's growing resilience. Bottega Veneta and Yves Saint Laurent are confirming their rapid growth profiles, with the latter's turnaround now solidly anchored. Our other luxury brands are doing well, positioned for continuing growth and increased profitability. We do need to improve Puma's profitability. We are confident that we have identified the issues that are dragging it down, and that we are taking the right measures to address them to reach the full potential of this fantastic brand. Our overall financial performance during the period was robust, and the CFAO transaction will further strengthen our financial structure.
While the environment remains uncertain, PPR's solid results in the first half support our confidence that we will post sustained sales growth in the second half, and that we will further improve our operational and financial performance for the year as a whole. With this, Jean-Marc and I are ready to take questions. Operator?
Thank you. If you would like to ask a question at this time, please press star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that 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 will pause for just a moment to allow everyone to signal. Our first question will come from Antoine Belge from HSBC. Please go ahead.
Yes, good evening. Antoine Belge, HSBC. Three questions. First of all, regarding the performance of Gucci. There was a slowdown in Europe. I think you mentioned the streamlining of your distribution there, but I think it was already in action in the first quarter. Do you think that there was more weight of this initiative in Q2? Also, if you could comment maybe on the other Asian countries. You mentioned the double-digit figure still out in China mainland, but what about Korea, Taiwan, et cetera? Second question relates to actually your CapEx, which I think doubled in the first half. Is it to assume that over the full year, there should be also a doubling, or do you expect actually that the increase will be a bit less in the second half?
Finally, if the takeover from CFAO goes ahead, you will get EUR 1 billion in cash. What do you intend to do? Especially, I've noticed that you've increased your stake in Puma. Do you think it will be now interesting for you to buy out the minorities, or are you working on some acquisitions?
Thank you, Antoine. First, let me apologize for the issue some of you have experienced when trying to access our website. We understand this is now fixed. If you have missed anything, the replay should be up shortly. First, concerning the performance for Gucci in wholesale, it's true that we have continued to rationalize the distribution channel, especially in Italy. It was mainly in Italy that this rationalization was continued, and I believe that at this stage now, we are quite satisfied with this rationalization, we don't expect any further move for the next period. Concerning Asian countries, basically, as you know, we had already mentioned during the last release that the Taiwanese, the Hong Kong, and mainly Korean markets were tougher.
Concerning Korea, this is still a tough market at the moment, but we hope to see the first signs of improvement in H2. We are still putting much effort on dedication in order to bring the brand more upscale on the current market, as we did successfully in other regions, in order to regain traction among the so-called high spenders, high-end luxury consumer. The first benefit from this strategy, hopefully, are expected by the end of the year. In Hong Kong, we had a rather good performance, but slightly below, of course, the mainland China. Concerning Taiwan, I think we face the same situation as in Korea. All in all, as we say in Asia-Pac, we had a significant increase of the sale, but mainly driven so by China, with Greater China up above 10%.
The other markets were up except Korea, still down, and Taiwan. Concerning the capital expenditures, there is, as you mentioned, a strong increase, mainly driven by store openings and refurbishments, because we had already mentioned that one of the strategic axes is not only to open new stores, but also to refurbish and extend the surface of some of our stores. We have also some investments at Gucci level in the industrial premises and equipment and information systems. For the year, the CapEx should not double, but we still expect a significant increase of the CapEx compared to last year. Concerning CFAO, Jean-François
Yes. Good evening, Antoine. The proceeds from the disposal of CFAO will be used to deleverage the group. As to Puma's minority shareholders, our priority is indeed to increase the profitability of Puma, getting back the minorities has nothing to do with that. This movement is not a priority to us.
Okay. Just maybe a follow-up on CapEx. Do you think that a figure of around EUR 400 million for the full year could be something?
We won't give any guidance about these figures. This is a significant increase, less than a doubling of the figure.
Okay. Thank you.
Peppy?
We will now take a question from Louise Singlehurst from Morgan Stanley. Please go ahead.
Hello. Good afternoon. Three questions from me too, please. Firstly, could you just tell us if there was any change in the trading environment in the quarter? I know a few of your peers have been talking about more uneven trading patterns during the last three months. Secondly, can you remind us on your store plans for Gucci brand this year? I know you talked about 45 net stores previously. Is that still on track? How many did you open in Q2? Similarly on the same line, can you tell us about the like for like or comparable store trends at Gucci, please? The final question, I know there's been quite a few management changes across the divisions. Can you just update us on where we are with Gucci, U.S., and Asia?
Also, we've heard about management changes at Puma as well today. Can you just say if that means any change for the group going forward? Thank you.
Hello, Louise. Concerning the business environment, globally, as shown by our figures, we didn't add in the Q2 a significant slowdown. The business environment, we know it's quite tough in some countries, but in Western Europe, the relatively slow down of the local clientele is completely or partly offset by the flow of tourism. We will remain cautious about the trend, but until now, considering our Q2 figures and the first trend of the months, we are quite confident in the strength of our brands to sustain still a good level or high level of growth. Concerning the store planning, we have opened in the first half additional stores for Gucci. We had announced the opening for the year of approx. 60 new stores for Gucci.
We are on the space of openings because we have already, over the period, opened 27 stores for Gucci, and we are committed to open some new stores. We will close to what we had announced or said about the number of stores opening for Gucci. As you know, we never communicate any information about the like-for-like trends. We consider that even though the business environment is still good, and we have no negative appreciation of the situation concerning the like-for-like growth. Concerning Gucci and management, perhaps François?
Yeah. The changes in management have been done in the ordinary course of business. We are a large group, so it's obvious that we have several changes in some important positions. The executive position in the U.S. for the Gucci brand, is being replaced by an internal person coming from Gucci, another country. It is something in process. For Puma, it is something that is also very ordinary because the contract of Klaus came to an end in July, and the contract of Tony comes to an end in December. As they are managing board members, it was compulsory for us to communicate about that. Nothing special, just ordinary business in this regard.
Just to precise something, which is about the store opening. Just to remind you that we will have a quite well-balanced breakdown of store opening between emerging markets and more mature countries, because we are still confident also in the strength of the brand in Western Europe and North America.
Deepa, thank you.
Thank you. Our next question now comes from William Hutchings from Goldman Sachs. Please go ahead.
Good afternoon. Just two questions, please. They are kind of related. It seems that your business in the U.S. is performing phenomenally well, and also your leather goods category relative to the other categories across the luxury division. Can you just talk a little bit more about how you see the sustainability of those two growth rates, U.S. business and leather goods as a category?
We are very confident for pursuing the development of these categories and to sustain the growth in the U.S. I think concerning more specifically Gucci brand, this is typically the result of what the strategy implemented for three or four years to upscale the brand. After some slow start, we have now the result of this development. Concerning the other luxury brands, notably Bottega Veneta, the awareness of the brand and the activity of the brand are really huge. We are still opening new stores in the U.S. for Bottega Veneta. Globally, good expectations regarding the U.S. and North America. Concerning leather goods, also this is part of the strategy to upscale Gucci brand, to be more present on the non-logo handbags with more precious skins and added-value products.
We will continue with this strategy, which is, according to us, quite fruitful, as shown by our figures.
Thank you.
Thank you. Our next question now comes from Mélanie Flouquet from JP Morgan. Please go ahead.
Yes, good evening. I was wondering whether you could shed a little bit more light in terms of percentage number, I'm sorry if I missed it, as to what was the impact in Europe of your restructuring in Italy and what you had seen to see the deceleration beyond that, notably in terms of local consumer and tourism. Number 2, I was wondering whether you could share with us what your thoughts are on Asia. I think overall, this was a rather pleasing set of numbers. Clearly, Gucci is still on 7%. There is a huge mismatch between the brands. Are you actually noticing a favoring of smaller brands versus larger brands in that market, and a bit of a boredom effect on the larger brands? The third question is on profitability.
Profitability is clearly a lot better than expected, pretty much across the board in the luxury division. Some of this is driven by sales, but even at Gucci, I was wondering how we should think about what's happening there. Thank you. Whether 30% is sustainable or beyond. Thank you.
Thank you, Mélanie. Concerning Italy, because it was your first question.
Yes.
Italy was the low single digit negative in Q2 2012. This is the only one major European country where the sales are down, because the performance in other European countries are rather good and very good. Local consumers in Italy are indeed suffering. Also this is partly offset by good performance from tourists. Retail performance in Italy was quite good and positive. As mentioned, the point in Italy was mainly about the wholesale, because our goal is to reduce the share of wholesale in Italian sales and to have a better control of the distribution channel in order to ensure the exclusivity and a top quality and trusted distribution channel.
In Italy, this is really about wholesale mainly. Concerning Asia, I don't share, in fact, your analysis because, for example, in China, we had, again, an absolute value for Gucci, a growth of sales, which is above the growth of sales of last year, which is quite impressive. We don't see any move, as you mentioned, or more activity for smaller brands. The fact is that, as I said before, the performance in Asia is driven down mainly by Korea and Taiwan, in which specifically we are presently in the process of upgrading the brand. It's true that we have lost some sales on the entry price category because we don't want anymore to have Gucci focused on the first range of price.
Concerning the profitability, because as you see, once again, for the first time, you have two brands exceeding a 30% EBIT ratio during the first half. We don't see any reason to have a decrease of profitability. We think we are in the process to achieve or to go to what could be the normative profitability of the brands. We are not worried about the fact that profitability could go down, and we frankly believe it's a sustainable profitability.
Thanks a lot.
Thanks, Mélanie.
Thank you. We will now take a question from Thomas Chauvet from Citi Suisse. Please go ahead.
Three questions, please. The first one, in your release, Mr. Pinault, seems to suggest that the trends in luxury could continue in the second half. What kind of growth rates have you seen in July in your retail network, and how does the wholesale order book look like? Secondly, could you give us an idea for the luxury division of the gross margin progress directionally and the growth in OpEx in the first half? Finally, with the CFAO deal this morning, you've made a good step forward in the disposal of the retail legacy asset. Can you give us an update on the Redcats disposal? Why is it taking so long, and are you still confident of selling it in 2012? Thank you.
Sorry. The trends in luxury are quite comparable to what they've been in the second quarter. They are very solid, particularly for Bottega and YSL. Gucci also posted very good first 2 weeks all across the board. The order book is very good, we are particularly satisfied with Yves Saint Laurent with the collection that was prepared by Hedi Slimane. We are quite satisfied with the order book for all the brands, which is quite interesting for the rest of the year. Your second question was about the operating expenses, if I'm correct?
Yes, just for the luxury business. If you can give us a sense of the gross margin progress in luxury directionally, the growth in OpEx.
Yes. The gross margin is slightly impacted by the aging. All in all, the gross margin is quite stable. After that, I think that all the brands are really focused on monitoring strictly their operating expense below the gross margin. Especially, it's part of the policy of the group to strictly control what is the return and what is the profitability of new stores. It explains that we have now a new store with a good leverage on the profitability. Also, the operating expenses are well maintained below the gross margin. As to the disposal process of Redcats, it's going on its way very smoothly. Again, I insist on what we've always said, that time is not of the essence. Our objective is to consummate a very good transaction for all stakeholders, that's what we aim at.
Again, we are not in a rush, we will do something that is very good to the PPR shareholders.
Thank you.
We will take one more question, please.
Of course. Our next question will come from Warwick Okines from Deutsche Bank. Please go ahead.
Yes, good evening. Two very quick questions, please. Firstly, I was wondering if you could give us the specific Greater China organic growth rate for Q2. You gave that number in Q1, and it would be helpful to have it for Q2, please. Secondly, you helpfully gave us an indication of Italy Gucci in Q2. Just for us to understand the quarter-on-quarter evolution, could you give us the Q1 number, please?
Yeah. Concerning all the luxury division in Greater China in Q1, the growth was 22.5%. In Q2 for the three main brands, it was 22.5% in Q1, and it's 20.6% in Q2. With Gucci above 10% still in Q2 on Greater China, and as you saw, 16% in Mainland China. Your second question, excuse me, Warwick, was about?
Just to understand what Gucci Italy was in Q1. You said in Q2 it was slightly negative, single digit. I just want to understand how Q1 actually was. The reason I'm asking is simply just to understand if that was the main driver of the slowdown.
It was slightly positive in the Q1. The retail had more suffered during the first quarter due to the regulation of cash payments. Now we have some shift of the trend, and the retail is up, and with the wholesale down.
That's very helpful. Thanks very much.
Thanks, Warwick. Okay. Thank you very much for listening. We are pleased with our performance and prospects in luxury, and we expect our initiatives at Puma to have a positive impact on the brand's cost issues. We are confident in the H2 environment and in pursuing our strong momentum. Thank you for your interest, and have a great summer. Goodbye.
Goodbye.