Kering SA

PAR:KER

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Kering 2020 First Quarter Revenue Conference Call. [Operator Instructions] There will be a presentation followed by question-and-answer session. [Operator Instructions] I must advise you, the call is recorded today, on Tuesday, the 21st of April 2020. And I would now like to hand over to your speaker today, Mr. Jean-Marc Duplaix, Chief Financial Officer. Thank you.

[Jean-Marc Duplaix]

Good evening. And thank you for joining our first quarter revenue presentation. We've all gone through an unprecedented quarter, personally as well as professionally, and I hope you are all doing well, in good health and keeping safe. On Slide 3, you see the heavy impact COVID-19 has had on our top line. At EUR 3.2 billion, it was down slightly above 15% reported and 16% comparable, implying an FX tailwind of 1 percentage point. Our Luxury Houses contribute the bulk of our revenue, and I will elaborate further shortly. Our corporate segment mostly includes Kering Eyewear, which delivered a commendable performance in the quarter, virtually unchanged from Q1 last year, a quarter that had benefited from the launch of the Balenciaga and Montblanc licenses. Our Luxury Houses declined by 17% comparable, heavily impacted in retail by the gradual closure of the store network as the quarter progressed, first, in Mainland China, then in Western Europe and America. At the end of the quarter, all our stores in Mainland China had reopened, and the vast majority of them in Asia Pacific. By then, however, all stores in Western and Eastern Europe, the Middle East, North and Latin America, had shut down. Overall, 53% of our stores were closed at March 31, and more than half of the stores that were open were operating on reduced schedules. The situation has not improved since the end of March, with additional closures in Japan and Southeast Asia. As a result, roughly 2/3 of all stores were closed last week. Switching to Slides 4 and 5, more details on our Luxury Houses. To start, it's worth highlighting the extreme swings in monthly performances. January started on a very high note, up double digits across all our main brands. In February, we witnessed the impact of store closures in Asia Pacific, mostly Mainland China, and the consequences of travel restrictions on tourism spending in the region and in Europe. In March, as the pandemic further spread, the situation worsened as our store network gradually shut down in all Europe and America, while it started reopening in most of Asia Pacific. In this context, retail revenue from our Luxury Houses declined 19% in Q1, with Asia Pacific down 30%. In other words, looking at Slide 5, 2/3 of the drop in absolute terms comes from this region, with Hong Kong, the first contributor to the loss, heavily penalized by lack of traffic. In Mainland China, we observed a gradual and steady recovery since late February, early March, as the rate of decline narrowed week after week. In the past few days, some of our brands have gotten back to growth and others are nearly there. Despite logistical constraints, e-commerce posted a strong quarter and its penetration increased to 9% of retail sales, 3 percentage points higher than last year. E-commerce sales were especially dynamic in Mainland China, with a triple-digit increase and, to a lesser extent, in Japan. I would like to underscore that our brand's differentiated performances in the quarter were largely dependent on the relative sales exposures to Asia Pacific, to the Chinese consumer worldwide, and also to the share of Chinese consumption in their domestic market versus abroad. These differences are amplified by the brand's respective comparison basis and channel mix. As a reminder, on top of high comps, in Q1 last year, Gucci combined the highest exposure to Asia Pacific and to the Chinese consumer. In that quarter, nearly half of all purchases by Chinese customers were made in their home market and another 30% in Asia Pacific, mainly in Hong Kong back then. Of course, repatriation of spending, a trend already at play last year, is accelerating, and is likely to further progress in coming quarters. A few words on wholesale, down 7% on a combination of factors, including ever more selective distribution to enhance brand exclusivity and some order adjustments, both to reallocate products to our retail operations and to limit exposure to weak credit quality accounts. The closure of the central logistics hub at the end of the quarter also penalized wholesale shipments. Our own e-commerce operations have also been impacted by the temporary shutdown of some warehouses and logistics facilities. This wholesale performance is the main explanation for the gap between our actual Q1 revenue and the first estimate we provided on March 20. I will now make some rapid comments by house. Let's turn to Gucci on Slide 6. After an excellent start to the year in all regions, Gucci was particularly impacted in the quarter due to its strong positions in Asia Pacific and high penetration on Mainland Chinese customers worldwide. The closure of Gucci production facilities in Italy mid-March also negatively impacted the brand's ability to optimize its offer in the countries where stores were still open. And finally, comparison to a very strong first quarter 2019 didn't help. As a result, retail, which accounts for 85% of sales, was down 24% year-on-year. For its part, wholesale decreased 20%, as Gucci takes an ever more selective approach to this channel in order to further tighten control of our distribution, both off-line and online. Gucci will further streamline its wholesale footprint throughout the year, reducing the number of accounts and intensifying retailization. In retail, the disparity across regions, ranging from Asia Pacific, down 32%; to North America, down only 11%, very much mirrors the timing of the network shutdown and drop in tourism. Everywhere, Gucci's performance was outstanding until it came to a halt, confirming the brand's underlying might and our confidence in its ability to rebound swiftly as each market reopens. The double-digit increase in North America in the January-February period is particularly noteworthy, and we are also comforted by the steady pace of sales growth in Mainland China from the day we started reopening our stores. In Europe, performance was solid until mid-February. E-commerce, was a bright spot for most of the quarter, but that stopped with the closure of most of our European logistics operations in late March. Gucci is ideally positioned to take advantage of the recovery of the Chinese market and actively fostering sales wherever its stores are reopened, reallocating inventory across regions. It is also making sure its capability are fully ready for a return to normal operations as soon as that occurs. Moving to Slide 7. Yves Saint Laurent saw some downside protection in the first quarter due to its geographic mix. Retail, which accounted for nearly 2/3 of sales, was down 18%. The fact that the house's network has not yet reached full maturity in Asia and in Mainland China, in particular, limited the drop. In addition, in North America, Saint Laurent ended the quarter unchanged, thanks to the strong sales it generated in the first 2 months. Western Europe also delivered a good performance through the end of February, fueled by local customers. And despite the lack of the online site in Mainland China, which should come live this year, penetration of Saint Laurent's e-commerce is intensifying. In wholesale, Saint Laurent recorded a limited decline of 6%. All in all, Saint Laurent showed good resistance in the quarter, and we have plenty of reasons to be confident, starting with the strong growth potential the house still enjoys in Mainland China. On Slide 8, Bottega Veneta bucked the trend, thanks to the relative immunity the house's successful reinvention is providing. Comparable revenue was up nearly 9%. For its part, retail was just about stable, a strong show of support under current market conditions. This was largely driven by the house's appeal with local clienteles in Western Europe and North America, where it recorded solid double-digit increases, notwithstanding the closing of the network in March. In Asia Pacific, much of the revenue decline comes from Hong Kong, where the brand exposure is significant. Excluding Hong Kong, retail in the region is down only 9% in the quarter, notably, thanks to the strong support from the local clientele in Korea. In Japan, in addition to the coronavirus impact, the brand is still working on broadening customer reception for its new esthetics. Thanks to the strength of the Spring/Summer collection with third-party buyers, wholesale rose 55%, despite the logistics issues encountered in the final days of the quarter. While it is clear that this performance cannot be sustained now that our North American and European store networks are under lockdown, we can see even under these circumstances, that the appetite for the brand and its new products is building up unabated. On Slide 9, revenues from our Other Houses were down over 5% comparable with a somewhat resilient wholesale and a more contrasted retail. On the soft luxury side, Balenciaga and Alexander McQueen were shielded to some extent by their relative underexposure to Asia Pacific, while benefiting as well from higher space contribution from last year's openings and from recent wholesale to retail conversions. Their retail performances in North America and Western Europe came close to compensating for the shortfalls in Asia Pacific and Japan. Wholesale was still up in couture and leather goods despite the turmoil at the end of the quarter. Conditions were tougher in hard luxury, which faced significant disruption in wholesale, a major channel for this division. In addition, on the retail front, both Boucheron and Pomellato are heavily dependent on Western Europe, where the closing of their network had a severe impact in the last weeks. On the bright side, we need to note the strong top line showing at Qeelin, which benefited from collaboration with new distribution partners and had a sharp rebound in its Mainland China stores in March. To end my presentation, I would like to first stress Kering's priorities, commitments and initiatives in the face of COVID-19. The group and its houses have all been strongly mobilized to support and protect our associates, our consumers and society. Corporate responsibility is one of our most fundamental values, driving and uniting our actions. You see on Slide 10 some of the initiatives we have taken. Many are aimed at supporting, with donations in kind or in cash, the work of health care workers in affected countries. All our houses are pitching in, putting their resources and capabilities at work. This will continue as long as required. Our top priority is to guarantee business continuity in this troubled period, to work on the short term, and make sure we are as prepared as we can be to restart our operations. We want to overcome this crisis as an ever more agile, more flexible and more relevant organization. On Slide 11, we have summarized our key areas of focus. Starting with supply chain and logistics. We are managing the Spring/Summer collection to ensure the best sell-through and reallocate inventories to the relevant regions and channels as efficiently as possible. Our brands are also working to extend the life of some of the assortment and adapting their upcoming collections in terms of volume and merchandising, focusing on fast-moving items, reducing the number of SKUs, and optimizing product allocation. This will be instrumental to match supply and demand, and to manage our overall level of inventory, keeping in mind that we maintain good coverage so far, even with our production capacity closed since mid-March. On the cost side, we are working hard to reduce our fixed cost base and, thus, to limit operating deleverage while continuing to invest in our brands. All key lines have been reviewed, from rent and store expenses, to A&P, SG&A and payroll. Of course, we are also postponing noncritical projects, delaying some CapEx related to store refurbs and openings, but are not making any significant change to the scope and schedule of our major projects, including the new logistics hub, digital and e-commerce capability and IT. We are carefully managing our cash and are comfortable with our liquidity level. You know we had a solid financial structure at the end of last year, with low leverage and EUR 3 billion of undrawn credit line. We have no major short-term bond redemption, and our debt maturity schedule is well-balanced over the coming years. We enjoy strong support from our banks and will extend our credit lines. All our teams are on deck. They are preparing to resume operations, from production facility to logistics and store reopening as soon as it is safe and the authorities give us the all clear. We know we will face a very difficult second quarter and a challenging year overall. But I can ensure you that we are not only adapting to this unexpected circumstances, we are also using these lessons to improve our efficiency, resilience and agility to emerge better prepared for this -- for the future. This ends my remarks. So we can move to the Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

Yes. So 3 questions for me. On Gucci, Jean-Marc, you mentioned that some of your brands were, if I understood correctly, were up in China year-over-year in April, and some of them were not with Gucci being in the camp of the brands which were up -- which have been up so far in April. So that's my first question. The second question is your wholesale performance was better than your retail performance at both Gucci and Saint Laurent. But sorry if I missed it, but could you just come back on why that was the case? That would be quite helpful. So these are basically my 2 questions.

[Jean-Marc Duplaix]

Indeed, as we said, we see that there are some obvious signs of improvements in APAC, thanks to Mainland China, principally. As you know, we have reopened store gradually in March. And therefore, in some cities, we have resumed -- just resumed retail operations very recently. So it's very difficult to see a global trend in China because the situation is still very contrasted from one city to another one. You know that there are still some restrictive controls, for example, in Beijing, which is an important city, of course, for our business. But globally, we saw a steady improvement in sales in many cities. First and foremost, in the southern and eastern part of the country. And it's starting to materialize also in the western and northern parts despite, as I said, more contrasted trends. So our stores may record, in some cities, double-digit growth on their sales compared to last year. It can happen in certain cases. And clearly, Gucci, being the largest brand, is clearly in that trend, and we are back to positive since the beginning of April for Gucci and for most of the brands. But for sure, Gucci is leading the pack in Mainland China. And still, e-commerce is still very positive in China, as I said before. Regarding wholesale, that's quite logical because we had a freezing of deliveries. Despite the decision we had to start to rationalize even more drastically the distribution or wholesale distribution at Gucci, still, we had some orders that we tried to deliver in due time. And despite the disruption, especially at the end of March, with the closure of the Saint Laurent warehouse we have in Switzerland, we have been able to ship according to the phasing of deliveries, which had been agreed with the distributors. So that it does explain why, of course, wholesale has been probably impacted, as we can see now with what is happening with the U.S. distributors. But still, we have delivered the products during Q1.

[Operator]

Your next question comes from the line of Thomas Chauvet from Citi.

[Thomas Vincent Chauvet, Managing Director]

I have 3 questions, please. The first one, on your Italian manufacturing capacity, how do you balance the reduction in inventory inflow for winter, while also perhaps needing to be ready to capture the rebound in future demand if it picks up, let's say, in the run-up to Christmas? How quickly can you resume a return to more full capacity? I saw the ArtLab was reopening, I think, today or yesterday, as a first sign maybe that Italy is reopening. Secondly, on your OpEx management, if there are 3 or 4 months where, roughly, half of your stores are closed and your employees are on temporary unemployment, how much of that heavy OpEx base are you able to recoup in the form of rent relief from the landlords or government support for employees in countries like France or Italy and the rest of Europe? And thirdly, on travel, you've got a pretty high share of tourist demand in Europe, in Asia, for certain brands like Gucci or BV. You talked about the continuation of repatriation phenomenon. If we think longer term, do you feel that this crisis will be maybe an opportunity to review your physical store network, consider maybe closures in markets where you have, historically, a lot of tourists, like Hong Kong, Macau, some European capitals, especially as your e-commerce penetration is increasing?

[Jean-Marc Duplaix]

Thank you, Thomas, for your questions. First of all, as regard to production, it's true that we're respecting completely the instructions and the regulation in Italy. We started to close our production facilities as well. And the suppliers also closed their operations. Also, we had to close ArtLab, which is, as you know, a development center. It had an impact, in fact, by -- because we are not always over -- let's say, able to produce as we would have expected, some carryover items. So that today, sometimes, we may miss a little bit some products in some key markets. However, we had a quite good level of inventories. We have been able also, along the quarter, to redirect some deliveries from one region to another. And still recently, despite the closures of some activities in Europe, we have been able to ship some products from European stores to Asia. As regard to collections, as you can imagine, it started with the summer collection, the summer part of the Spring/Summer collection, for which we have been able to adapt a little bit the volumes and the production to focus more on, let's say, our best sellers, carryover lines and fast-moving items. And as regards the Fall/Winter, the pre-fall was really quite well at a good level of manufacturing, of production. But it's true that when it comes to the winter part, we may have some delays. But globally speaking, if we think about inventories management, probably, we will, let's say, postpone some deliveries, and we will have a longer period in terms of sales for the Spring/Summer collection. And I think -- and we will focus also on the carryover lines. It will be clearly a priority for us to capitalize on our best sellers and our Evergreen products to rebound. So let's say that you're right to mention that we have reopened ArtLab since yesterday, after having received the approval of the authorities and after a discussion with the trade unions. So we are able to start to develop again some new products and to conceive new products, especially for the Cruise collection. So let's say that we don't feel that we have a major delay in terms of production. We are not able to recoup. There will be clearly an adaptation of the calendar this year. But I think also that if we consider the expectation of our consumers, we don't feel that it should be a major issue. I think there is still an appetite for buying Spring/Summer products because our consumers have not been able to buy them. So I think that you have globally an adaptation of the calendar this year. It's manageable. So that we will be able, with some 2 weeks to 4 weeks of delay, across the board, not only for Gucci, but across the board for all the brands, to deliver the products in our stores and to wholesale partners. As regards the OpEx, of course, like all the other luxury groups and brands, we are working to adapt the cost base and to work on the cost base, especially on the fixed part of the cost base. It does require a lot of discussions with, not only landlords, but also, more globally speaking, with all partners, suppliers and so on and vendors. I think that we have obtained already some good results in our negotiations. So when it comes to reduction of the minimum guarantee in the countries where rent are mostly variable, or reduction of the fixed part in the more mature economies, even if we are just at the beginning of the negotiations. But as you can imagine, there is a time to adapt the cost base. I think that we have a lot of measures as regards, for example, the personnel cost. I think all the measures that have been of support by the government are not the ones we will create the most of the savings. It's more about cost control, hiring freeze, merit increase freeze and so on, that will have an impact. But principally, that will play more during the second half. If we look at the Q2 and the comment I made previously about the trends, we can expect, if we do all our math about the situation in the major countries for Q2, we can imagine that the H1 margin will be hit by the fact that this adaptation of the OpEx base is taking time. And when it comes to savings on the rent, that's a good achievement, and I'm very happy by what has been done by the real estate team and by the brands. But of course, you can imagine that it's not enough to offset the loss of gross margin. Your comment about the travel and tourism is very interesting because I think it's -- the conviction that we have at Kering is that some trends, which were at play already in the past few quarters, will be confirmed and will be amplified to a certain extent. So we saw an acceleration of the online business. The trend to the repatriation of the purchases on the domestic market in China is obvious. And for example, Shenzhen is a brand -- is a city, which benefits a lot from this repatriation to a certain extent. And I think that also, there will be more and more local consumption, including in the European countries. So of course, you're right. It will push us to reconsider our store network. It's too early, of course, at this stage, to be precise and to provide you more information, more colors about what we will decide. But it will lead to, clearly, a reshuffling of the distribution, even if we are still encouraged by the fact that among the travel retail objectives we had, we are targeting to expand in some domestic airports or in some railway station as it can happen in Japan. And clearly, it will be a trend that we continue to be confirmed probably.

[Operator]

Your next question comes from the line of Louise Singlehurst from Goldman Sachs.

[Louise Susan Singlehurst, Managing Director]

Just following up on the working capital and the inventory question. I wonder if you can just help us understand plans and thoughts around, obviously, the unsold stock, particularly for Gucci for Spring/Summer. And then just following up on the distribution channel. It sounds as though the contraction of the wholesale channel will probably very likely be accelerated this year. Is that the plan, to shift more of that online? Or to recoup that within the own retail operations? And then finally, obviously, good news pre-COVID-19, on the pickup in the U.S. for Gucci on a normalized environment, and I know nearly impossible to talk about a normalized environment given the circumstances. But can you just tell us about how that's worked in the U.S. for Gucci in January?

[Jean-Marc Duplaix]

Thank you, Louise. I will make a general comment about working cap because I want to be very clear also on the fact that we will respect strictly all the terms of -- and conditions or the contracts we have with the suppliers. So we won't -- you won't see any impact on the payables because I think it's really the responsibility, the duty of a large group like Kering not to play on that side, and we have decided to -- on the contrary, to support, clearly, our suppliers and our vendors. When it comes to receivables, also, we should not improve -- we should not expect any improvement. You know that it's a quite difficult environment for many of our clients. We are very careful about the situation. But also here again, we are ready to help our best-in-class clients, and to reconsider, when needed, terms and conditions to support them. So the core, in a way of the issue, when it comes to working cap, it's about inventories. So we have some objectives in terms of inventories for the end of the year. Normally, of course, we have made some projections for the second half, so that we are working on adapting the open to buy, and I think that we can keep a quite good sell out -- sell-through ratio because we have adapted, clearly, the open to buy. For sure, at the end of H1, we should have a peak in terms of days of inventories. That's obvious. I think that, with the extension of the Spring/Summer period, it will help to improve the sell-through. And of course, you can imagine that we will have also some actions in terms of sales and discount, markdown activities, to boost the sales, and it will be probably across the board. But as you saw, we'll do it in a very smart way. And we won't, of course, have any markdown activities on the best sellers, the carryovers. It would be on selected items. And of course, more on the seasonal items that we'll have markdown activity. But for sure, compared to last year, you can expect that across the board, not only for Gucci, but also globally not speaking for all the brands of the group, we will have an extension of the markdown compared to last year. On wholesale also, I would like to be very clear. I think it's really a good occasion and an opportunity, for Gucci especially, to reconsider its distribution at a time when exclusivity will be even more paramount than before. And I think that, of course, you know that the priority of Gucci was very clear and very clearly stated by Marco Bizzarri a few years ago about the need to increase the share of the retail distribution and to boost retailization in online, so we are starting some discussions with our partners, whether to adapt the volumes or to push through retailization. And we are not afraid to close some doors, if needed. It would be a comprehensive review of the partnerships we have at Gucci, and you can expect a decrease of wholesale in 2020 for Gucci. Of course, the objective is to redirect the traffic to -- whether to -- or the gucci.com or to our retail network. And I think it's another wave of rationalization to maintain a high level of exclusivity at Gucci. But I think we are very encouraged by the trends we saw in the past quarter when it comes to online directly operated by Gucci with the very good figures we had across the board, especially in China. And when it comes to the pickup we saw in the U.S., in fact, the U.S. market was the last one to enter into the crisis because the closures happened later compared to the other regions. And in fact, January and -- if we combine January and February, we had a double-digit increase of sales for Gucci. And what was very positive. It was across the board, so across all the different categories. It was not specifically driven by 1 category. I think it was very well balanced. And I think it's really the result of all the investments we made in the past few months in terms of marketing, in terms of clienteling. And I think it was a confirmation that the brand is still very strong in all the markets. And more globally speaking, I would say that if we look at the performance of Gucci in January, it was positive across all regions and very sound in terms of quality of the sales.

[Operator]

Your next question comes from the line of Thierry Cota from Societe Generale.

[Thierry Cota, Equity Analyst]

Three questions for me. First, you mentioned potentially low margins in H1. Is there a rule of thumb that you could give us where this need to drop for the group to be around breakeven at the EBIT level? Is -- I would say, is 30% to 40% range a good estimate with the cost base that we have today? Secondly, on online, if I'm not wrong, I think the growth rate of online in Q1 was not very, very different from that of the earlier quarters. Now you did mention that there was technical issues with logistics. Do you think this is the only reason? Or would there be other reasons in the context where, if I'm not wrong, you're not the only brand or -- in that situation? And lastly, I was wondering whether you were formally using the state-sponsored portion unemployment schemes across Europe where they exist, and, notably, in France and in Italy?

[Jean-Marc Duplaix]

As you can imagine, Thierry -- but it was a good try. I want to answer to your first question. As a reminder, let's try to help, to a certain extent. You knew that we have approximately, depending on the brand, 70% to 75% of the costs which are fixed. Of course, all of them are -- can be managed. If we think about communication, you can imagine that we have reduced, by definition, all A&P costs, because a lot of activities have been stopped. So -- but if you consider the drop of sales, we could expect and you can modelize for H1, you can imagine that we won't cut fixed cost at the same level in terms of percentage. Despite all what we do, it's almost impossible. Otherwise, it would be a restructuring activity, which benefits will be, in any case, rather in the long run, and I think it's too soon to consider any form of restructuring, which is a good transition to me for the last question, and then I will come back to your second question. The priority of the group today is to protect the employment, the job. It's to safeguard the level of remuneration of our employees, including the ones working in the stores. So we have the commitment so to pay 100% of the fixed salary, and to certain -- in certain conditions, we are also compensating so far, part of the variable package that our sales associates are not receiving because stores are closed. So the priority for us at this stage, even if we have frozen all the recruitment, is to send out the employment. And the reason why, case by case, country by country, depending on the situation, we could have some -- we could apply for some unemployment or partial employment measures. And once again, it's case by case, country by country, brand by brand. Sometimes it's a regulation which can be local, so you cannot just make a general rule. By chance, in France, we have a very centralized state. And also in France, we won't use any scheme regarding partial employment. We won't use any scheme for our brands for our headquarters or retail activities, for production, or in most of the production activities, we won't choose them. So don't expect any major savings on this side and especially in France, where it should be close to 0 on that side. And of course, it's obvious, but it's important to remind it, of course, we have not asked for any support when it comes to cash management. And we are paying all our obligations, including income tax, on due time, and we have not asked for deferred payment. I think that concerning the situation of Kering, it would be, of course, insane. And regard the online business, I think that what you need to understand is that we have a contrasted situation in online. Overall, the online business was very good in January. It was booming in January. It was, as usual, above the pace of growth in the retail, in the off-line business. In Feb, it continued to be very strong, especially in China, where we had triple-digit increase of online sales. So that now China, at least for Gucci, became the second market after the U.S. in proportion, just before the U.K. So it's something new. And now in a way, because of the specific situation we had in China, the share of online business in China was quite comparable to the average of Gucci. And what happened is that, in March, I think the consumer confidence in the U.S. and in Europe, especially more in Europe, was not so good. So they didn't buy -- or they have reduced their purchases online, so that we had an impact on the online business. On top of that, we had to close some warehouses and logistics facilities during the last week of March, so that even if we have not completely missed all the sales at the end of March because we have been able just to ship from some stores and some which we are still open, in any case, we had a very weak week, last week of March, in online. On a worldwide basis, more or less, even if we had enough inventories in the U.S. or in China locally to serve our clients. But in Europe, which is still an important market for online, if we consider that U.K. is still very important. And Germany also grew quite rapidly in the recent months. We have lost some sales in the last week of March.

[Operator]

Your next question comes from the line of Omar Saad from Evercore.

[Omar Regis Saad]

I have 2 questions. I wanted to ask maybe a little bit further on the -- what you're seeing in the China. As sales and consumer behavior recovers there, are you seeing a differentiation between younger and older consumers? Are indoor centers behaving differently than the outdoor centers? Obviously, digital versus stores, you've talked about. Are you seeing any signs of pent-up demand? And would you expect a similar curve in the recovery curve in the U.S. and Europe? And then my second question, I'd love to know if you're -- how you're thinking about -- the company's portfolio of brands is so well-known for fashion, innovation. Given this potentially more prolonged, subdued environment, how do you think about fashion, and fashion and innovation in this environment? And is there an opportunity to use data and AI to help you figure out some of these equations that we've never seen before?

[Jean-Marc Duplaix]

I think regarding your first question, it's important to remind that we -- as I said, we started to resume some -- the operations in some cities only at the end of March. So that in a way, if we take a step back, we have only 15 days with all the stores open in China, and still with some restrictions in some cities. Sometimes with restricted schedules. So someone would try to, based on that, extrapolate what could be the shape of the recovery? What could be the speed of the recovery? What could be the change in terms of consumer behaviors, I think it's very early. And I'm not very confident in doing such predictions, so I would remain very modest, very cautious when it comes to that. What we can see and what we can expect is that globally, the emerging countries' economies should recover quicker. We feel that the consumer confidence is higher compared to the -- probably the mature countries. We feel that there is an appetite for purchasing again. It's not obvious that there is a difference in terms of behaviors or in terms of consumption patterns age by age. But I think we need to have more, let's say, visibility and maybe more 1 month or 2 months of activity to have a better assessment of the situation. We can only see that we are very encouraged by the signs we see, by the steady increase of traffic in the stores. We believe that in China, but once again, it's a very early statement. We don't see -- we don't expect a major inflection in terms of consumption patterns, except about what I have mentioned about repatriation and acceleration of the online business. When it comes to your second question, I think that, first of all, I'm sorry to be very down to earth, but the priority, as we said, is to be prepared to restart operations. So before thinking about artificial intelligence, and you know that we have some development there, and we have some investments in that area, and we will continue, by the way, it's typically an area we won't -- we don't want to stop our investments. But the priority today just is to restart the operations with ensuring the safety, the health and protecting the health of our clients and our sales associates. You may know that it's a struggle today on the market to buy masks, to buy protection for our people. So that's a priority. Of course, I think you're right to have a relevant offer to be smart in terms of merchandising, to be accurate in terms of deliveries, to be accurate in terms of assortment and replenishment will be very instrumental. I think our brands are well prepared, and we will continue once again to invest, and we have decided not to cut the CapEx when it comes to innovation, when it comes to logistics, you know that we have a big program in terms of logistics upgrade, so we'll continue to invest, definitely.

[Claire Roblet]

It's Claire. Just wanted to say, we're probably going to take our last question because we would like to end at 7 p.m. sharp, Paris time.

[Operator]

Your next question comes from the line of Melanie Flouquet from JPMorgan.

[Melanie Anne Flouquet, Head of European Luxury Goods and General Retail]

The first one would be regarding the warehousing issues that you experienced at the end of March. Would you have any visibility? I know it's hard, but as to when those might reopen and smooth? Or do you feel that now, you're better prepared to reshuffle from the stores and have smoothened this impact anyway, in another way? My second question is regarding wholesale, which, in particular, outside of Gucci, was down a lot less than retail. There may be a situation of wholesale partners having too much stock on the back of this quarter 1. Would you be -- are you considering retaking some of the stocks from your partners? Or do you think you'll smooth this with the quarter 2 orders? My third question is on CapEx. Would you be able to share with us what's your plan for this year? If that's not too early yet. As you mentioned, down 40% for full year '20, so maybe you have a broad idea already yourselves as to what the decline will be year-on-year? And sorry, I'll squeeze in a last one. How does the current situation change your M&A agenda, please?

[Jean-Marc Duplaix]

Thank you, Melanie, for the last question. The last but not the least. But you have the right to the 3 questions, so I won't answer to the fourth question. Of course, I will do. When it comes to warehouse, in fact, we are preparing. First of all, to be precise, in fact, we had to close the logistic activities in Italy, where we have the warehouse on the logistic operations of YNAP, serving some of the brands in e-commerce. We had to close partially. In some operations, we have started to do from Italy, for all the food trade agreements part. And of course, we had also to close the activities of Gucci e-commerce, which are based in Italy. And also because of the proximity, Ticino -- the Ticino county in Switzerland, and also to close the operations. So overall, most of the operations from Europe were closed. It was not the case of the operations we have in the U.S. We have been able to continue to operate at reduced pace but still. And in Asia, our logistic activities were not so impacted since we have reopened. In fact, we are preparing the reopening. The online business of Gucci is restarting again. Already, we have the authorization, and also, of course, once again, a discussion with the trade unions. And we are preparing gradually the gradual reopening of Switzerland. And I think also that YOOX Net-A-Porter is working on the reopening of their activities. So in the coming days, a few -- or weeks, quite rapidly, I think we will be able to restart normally the operations. The point is just to be sure, because you saw what happened to Amazon in France, so we want to be very careful about the health and safety conditions we have in place. And we prefer to defer a little bit the reopening and the restart, but just to be well prepared. And of course, as it will be in all activities, it would be a very gradual restart, and we won't be at full speed in the coming days. When it comes to wholesale, I think that if you look at the performance of our brands, and especially of Gucci, in fact, Q1 has been managed quite carefully to avoid, let's say, too many deliveries to certain partners. We have a very centralized approach when it comes to shipments to wholesale, and it depends on the credit management, which is under my responsibility. So if we are above certain thresholds, we don't ship without my authorization. So I think we had a quite cautious approach. Still, we had experienced when Barney's went to Chapter 11, it's true that the challenge we have with some partners is not so much about the receivables, but about the inventory situation. But we are not yet in a situation where we want to -- or we are prepared to buy back some products. However, it's a global negotiation. I mentioned the retailization, or the objective of retailization we have. I've mentioned the fact that we want to be more and more selective and to pair it directly with some concessions. So it can be part of the game, but it will depend also on the flexibility on the wholesale partner side. CapEx. I think that our friends of LVMH have provided a lot of figures. In our case, I would like just to say that we had a very drastic approach at broad level, and we are reviewing all the projects we had. And by definition, we have been obliged to postpone some projects because all construction companies were stopping their activities. So naturally, there is a cut in terms of CapEx. So when it comes to brands, of course, it's a strong double-digit decrease you can expect in terms of CapEx. I won't quantify them. But in terms of magnitude, let's say that it's quite significant, especially compared to the budget, at least. But still, as I mentioned before, there is still the ambition to pursue some strategic projects we have at group level. I mentioned logistics. It's still the case and when it comes to IT, CRM and innovation. So that at group level, we are making some savings in terms CapEx, but not to the same extent as we can do when it comes to store network. So it means that, overall, we can expect significant cuts. And at the end of the day, the objective is to stay in the range of 6% to 7% in terms of CapEx to sales. That does remain an ambition. And ideally, to be just in the middle of that range would be ideal, and we are working in that direction. Of course, it will depend on the evolution of the sales, which is very difficult to predict so far. When it comes to your last question about -- I was not expecting this one, but it came in any case. I think that, again, the priority for us is to focus on the operations to be ready to restart. Once again, I mentioned in my speech that we were quite confident about and comfortable in terms of liquidity level of the group. But once again, and I share with Jean Jacques Guiony the fact that we don't know and nobody knows what will be the evolution of the situation in the coming months. To talk about M&A and opportunities, it's clearly not the right moment. It's not a priority so far. You know that we are open in the long run. But short term, the priority is about managing our operations and ensuring the health and safety of our employees and our clients. So just to conclude, thank you all for joining us this evening, for your continued interest in Kering and for all your very good questions. We have shared with you, I think, as candidly as we can, our views of the few certainties we do have. But also the many uncertainties we have also. Among the certainties, is that each one of us at Kering in our brands is working really hard to mitigate the impact of the situation, both on the company and on all its stakeholders, and to be absolutely ready for all future scenarios. As always, but if you don't mind from their respective homes, Claire and her team will be around to answer whatever questions we were not able to get to tonight. I wish you a good evening. Stay safe. Keep healthy. Take care.

[Operator]

Thank you. Ladies and gentlemen, that does conclude your call for this evening. Thank you all for participating, and you may now disconnect.