Kering SA

PAR:KER

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Kering 2021 First Quarter Revenue Conference Call. [Operator Instructions] And just to remind you all, this conference call is being recorded. I would now like to hand over to Jean-Marc Duplaix, Kering Chief Financial Officer. Please go ahead with your meeting and I'll be standing by.

[Jean-Marc Duplaix]

Good evening to all of you, and welcome to Kering's First Quarter 2021 revenue call. Starting on Slide 4, group revenue reached EUR 3.9 billion in Q1, a strong year-on-year rebound, with sales up 21.4% reported and 25.8% comparable implying a 4.4 point FX headwind. Revenue from our Luxury Houses grew 26% comparable and our Corporate and Other segment, mainly comprising Kering Eyewear, was up 23% comparable. This sharp improvement is driven by solid performances across the board. Our Houses posted consistent growth with comparable revenue increases ranging from 23% to 33%. Looking at retail only, including e-commerce, our Luxury Houses are up 32% year-on-year in comparable terms. This strong start to the year is driving group revenue above Q1 2019 levels, as you see on Slide 5. On a 2-year stack, comparable group revenue is up 6%. Focusing on retail, all our brands posted higher revenue than in Q1 2019 with a 2-year stack growth of 6% here as well. This leads me to Slide 6, where we provide some granularity on our Luxury Houses revenue by channel. Retail, accounting for 78% of revenue, was up 32% in Q1 '21, as I noted. It is a material sequential improvement despite a higher percentage of closed stores, 17% on average compared to 10% in the final quarter of 2020. Most of the incremental store closures were in Europe, where 55% of the network was closed compared to less than 30% in Q4. The improvement in retail is also supported by healthy growth in e-commerce, with revenue more than doubling year-on-year. Wholesale was up 9% in the quarter and royalties and other grew 5% comparable. Combined, they represent 22% of revenue. And as you are aware, our ambition is to increase control of our distribution, gradually lowering the weight of wholesale in all our brands. Now moving to the regional performance of our Luxury Houses in retail on Slide 7. Western Europe was down 34% in Q1, still impacted by the lack of tourism as well as new lockdowns and store closures in key countries. This being said, e-commerce and distance sales offset some of the headwind as our Houses proactively and successfully reengaged with local clients. Sale of all our main brands to European customers in their home market were up double digits in the quarter. North America grew 46%, a strong acceleration compared to Q4 '20, fueled by sustained local demand. In-store traffic still below last year's level was more than offset by substantial improvement in conversion and average ticket together with another very strong online performance. Japan improved modestly and remained in negative territory, down 3% in Q1. Our larger brands are all growing nicely with locals, but for some of them, this was not enough to fully mitigate the absence of tourists. Asia Pacific posted an impressive start to the year, up 83%. The main driver was, of course, Mainland China, up high triple digits, but also Hong Kong, Macau, Taiwan and Korea, all posting substantial recovery or accelerating. Only a handful of countries in the region have not yet turned positive, mostly due to new lockdowns. Turning to Slide 8. You see that our online sales are continuing to gain speed. E-commerce revenue more than doubled in Q1 with particularly sharp increases in North America and Asia Pacific. Online penetration rose to 14% of retail sales. In Western Europe and in North America, where the base was already quite high, penetration reached record level and we made further headway in Asia Pacific, where the potential we still enjoy is huge. As you may remember, we have successfully internalized e-commerce at Saint Laurent and Alexander McQueen last year and at Balenciaga 2 months ago. Bottega Veneta will complete the setup this quarter. All KPIs confirmed that this migration is creating a lot of value from a brand and customer perspective. Our Houses are able to propose a full omnichannel experience. They improved the breadth of the assortment and the quality of service, allowing distance selling and enhancing the personalization of the relationship. I'll now comment house by house, starting with Gucci on Slide 9. Q1 revenue rose 25% comparable. Retail was up 34%, a 2% increase on a 2-year stack basis. Wholesale declined 26% as Gucci pursues the rationalization of this channel. In retail, despite the impact of new waves of lockdowns on our network, higher IURs and improving conversion drove Gucci's solid rebound together with increased traction with local clientele. E-commerce is also providing material support in all regions and the opening of Tmall Luxury Pavilion delivered strong results. By region, Asia Pacific and North America led the growth, supported by strong domestic demand, high level of client engagement and appreciation for the collections. In Western Europe, strategies targeted for each individual market, including specific assortments, dedicated events and retail activation are instrumental in engaging with locals. In all regions, the always on pace, applying to regular product drops from the collection, creative collaborations, capsules, innovative display formats and supported by digital engagement and clienteling activities, yield very positive results. Focus on high-end customers has been reinforced and many initiatives are now in place to fully leverage the potential of the brand in this important segment. A quick word on product categories, just to say that growth is broad-based and very well balanced across leather goods, ready-to-wear and shoes. Carryover seasonal introductions in existing iconic lines and Newness from the Epilogue and Overture collections have all performed well. I will just mention the success of the North Face collaboration, the Doraemon Capsule for the Chinese New Year and the Ken Scott collection. The brand will further amplify its initiatives for the balance of this 100th year anniversary year, starting with spotlight on the Beloved Line, high visibility launches and innovative forms of experimental retail experience. I encourage those of you who haven't yet seen last week's Aria Show, unveiling Gucci's new collection, to do so without waiting for at least as soon as this call is over. The video really captures the energy and uniqueness of the House and has reached a record audience around the world in the House following its release. On Slide 10, Saint Laurent revenue jumped 23% in the quarter, confirming its solid momentum. Retail was up 31%. Sharp increases in Asia Pacific rewarded the House's initiatives to build brand awareness in the region as well as its expanding network. North America also delivered strong top line growth as did the Middle East. These performances highlight the appreciation of Saint Laurent's creations with local clientele across the world, resulting in solid double-digit growth in all product categories, led by leather goods. In particular, the Houses' iconic products were in high demand, notably carryover handbags. The colorful Spring 2021 collection launched in the quarter was also a hit. Now fully internalized, e-commerce sales more than doubled compared to Q1 last year. Wholesale was up 13% on delivery of the Spring 2021 collection, in line with the brand's new fashion calendar. As you know, the brand is increasingly concentrating its distribution on a focused portfolio of qualitative operators, and this move should accelerate throughout the year. In summary, Saint Laurent delivered a very solid quarter, strengthening ties with customers in its historical markets and growing the brand appeal in regions where its presence is more recent. On Slide 11, Bottega Veneta also had a strong quarter, the highest Q1 in its history against a pretty high base at the beginning of last year. Revenue rose 25% year-on-year and was up more than 35% compared to the first quarter of 2019. Despite lockdowns in Europe, a region that had been particularly buoyant in the same period last year and the high comp base in North America, Retail was up 24% year-on-year. The Houses' initiatives to strengthen its appeal with existing as well as new clients is delivering the intended results with a very balanced increase in sales to both segments. Bottega Veneta is pursuing its product offensive across categories which were all positive year-on-year, including men's, the last part of the offering to be fully aligned to the brand's new aesthetics. The sharp increase in retail in Asia Pacific was driven by Mainland China as well as a strong showing in Korea. The already solid performance in e-commerce should get a further boost from the migration to our internal platform during the current quarter. Growth in wholesale was commensurate with retail. As you know, Bottega Veneta works with a small number of exclusive third-party distributors. So all in all, we are very happy with Bottega Veneta's current trajectory and the huge success of its collections and clienteling initiatives. Altogether, our other Houses on Slide 12, delivered the strongest segment increase with revenue up 33%, driven by both hard and soft luxury. In Couture and Leather Goods, Retail and Wholesale posted strong double-digit growth. Balenciaga's retail performance was outstanding in Asia Pacific, fueled in particular by its successful Chinese New Year activation, while North America also did very well. All product categories were up by region, much of the same can be said of Alexander McQueen. The House saw a particularly sharp improvement in leather goods together with sustained performances in ready-to-wear and shoes. Both brands are hardily improving their category mix as they expand their product territories. Our Jewelry Houses experienced terrific growth on a 2-year as well as 1-year basis. Boucheron international growth strategy yield significant sales increases in China and Korea, with Japan also performing well. Pomellato sales bounced back in all channels and regions, including Europe. For its spot, Qeelin saw its sales more than doubled, benefiting notably from strong demand around Chinese New Year. Sales of our watch brands rose in the quarter with healthy sell-through from their network of prime distributors. A word on Kering Eyewear accounted for under Corporate and Other. Despite the continuing adverse impact of Travel Retail, Kering Eyewear delivered consolidated revenue of EUR 156 million, a great double-digit increase across all regions with North America in the lead. So turning to my conclusion, here on Slide 13, I want to reiterate our satisfaction with the acceleration all our Houses have delivered in the first few months of the year and the rapid rebound to pre-pandemic levels despite the many obstacles still in the way. The effort we all put in throughout 2020 to be in top shape for the recovery are paying off. In the meantime, we also continued working on our strategic initiatives and growth platforms at the group level. You are familiar with the various large-scale projects we are focusing on. But I want to put a spotlight on the recent opening of our Trecate logistics hub in Northern Italy because it is a state-of-the-art infrastructure that meets our objective across a great number of priorities: operational, of course, but also social, environmental as well as financial. As you've seen in this quarter's numbers, we are tightening control over our distribution. Finally, I'd like to say that while we are not out of the woods, we are confident in our Houses' ability to succeed in 2021 and beyond. Their first quarter achievements were fueled by exciting products and successful communications resonating with their clientele, and they all have many projects in the pipeline to extend these performances. I don't need to tell you that last year's peculiar profile might make comparisons differ from quarter-to-quarter in 2021. But with the solid start to the year we are reporting tonight, we are definitely heading in the right direction. Claire and I are now ready to take your questions. Operator?

[Operator]

[Operator Instructions] We have a question coming from the line of Antoine Belge from Exane.

[Antoine Belge, Research Analyst]

Yes. It's Antoine Belge of Exane BNP Paribas. I've got three questions. First of all, I think you highlighted the strong demand from local clientele in both Europe and the U.S. What can be attributed to some sort of wealth effect? And what can be attributed more to the retail activation initiatives that you've alluded to? Second question, I mean, would you agree that the performance at Gucci has been ahead of your expectation? And then this could maybe have some implication in terms of margins? I think you mentioned that you had a willingness to reinvest, but maybe with this higher-than-expected leverage this could change things a little bit. And my third question is actually on the other brands. I think some could have expected that with higher exposure to Europe and certain product categories, these divisions could have been impacted a bit more by store closure, but it doesn't seem to be the case. So if you could elaborate maybe on the performance of certain brands, which seems to have been surprisingly better.

[Jean-Marc Duplaix]

So starting with your question about local clientele, of course, it would be very difficult to split the growth into what is underlying in terms of macroeconomic trends and especially in the U.S., where -- with the stimulus checks and more globally, the positive consumer environment, there is a boost of luxury goods consumption and what can be attributed to the work done by our brands. What's for sure is that I would make -- I would maybe comment on the different regional trends. In APAC, that's the continuation of the trends we have observed. Last year was clearly an acceleration, which is primarily due also, of course, due to the comp base, but also due to all the activations we have in our brands currently in the region. When it comes to the U.S., as already commented by LVMH, clearly, the environment is very sporty for the luxury goods consumption. But on top of that, that we have brands which have an offer, which is caught on with the current demand in the U.S., plus the fact that since last year, Gucci is regaining market shares in the U.S. after a more difficult year in 2019.When it comes to Europe, I think clearly, here we can say that it's the performance in Europe with, of course, the negative impact of the lack of tourism. But if we look now at the local clientele where our brands are growing double digit, if we combine, of course, offline and online, it's really due to the work done by our brands to reengage with our local clients, with a lot of activations of -- in the stores, but also online with a lot of activity with distance sales. So I think we have a setup in Europe at Gucci and also in the other brands, which clearly does contribute to this good performance with locals. I would add also that, as you will have observed, in terms of offer, in terms of merchandising strategy, Gucci has worked very hard to have a more targeted approach when it comes to local -- to the European clientele. And I think that it start to pay off. And I'm very confident that in the year, we will have a lot of other activities and activations that will contribute to continue to improve the trend within Europe. Coming to the results delivered by Gucci and the performance of Gucci, I will not qualify more the performance than I did in my preliminary comment. I think we are very pleased with performance of Gucci. I think that during the full year results conference call, Mr. Pinault had demonstrated some confidence because we knew what was in the pipeline and we had, let's say, listed a certain number of actions and very successful collaborations at the beginning of the year with the new pace of deliveries of products in the stores. And clearly, we are very pleased with the performance. And in fact, it does not change our views when it comes to the profit -- the profile or the trajectory in terms of profitability. We will be very vigilant to have a very balanced approach when it comes to the incremental margin. There is a need to reinvest in the brand to sustain the growth, to continue to lead the way in terms of communication, and you will have also observed that there is -- the brand is regaining traction on the different social media with very good results. So we need to sustain this trend. But you can count on us also in terms of financial discipline. So we will have exactly the same approach as we had described during the full year results, when it comes to Gucci profitability for 2021. Regarding the other brands, of course, you're right to mention the share of the European business for some of our brands, which are in that bucket. However, in the past few years, we have made a significant investment, as you know, in APAC and in America to increase the penetration of Balenciaga and McQueen, and still this year, these brands will contribute to a significant share of store openings because we have plans to continue to expand for these 2 brands. And it's also the demonstration that the investments we made at Boucheron and, of course, Qeelin, to expand their presence in APAC also are paying off. We are very pleased with the success of Boucheron in China and more globally in APAC. So in fact, the brands -- most of the brands in that bucket of other brands have been able to offset the weakness we see in Europe due to the lack of tourism, but still with very good performance with locals, thanks to this expansion in new territories.

[Antoine Belge, Research Analyst]

Maybe just a follow-up on Europe. So are there any nationalities within Europe, which are still lagging behind a bit or are maybe a bit more reluctant to -- or where the initiatives are not as effective?

[Jean-Marc Duplaix]

I think that it's not really linked to the brands and to the Kering portfolio. I think that globally speaking, there was a very good response of the clients to the activations and also to the -- and also an expansion of the online business in many countries. We have increased the penetration of online massively in Germany, in Italy and France. So as a result, the trends with these nationalities are very good across the board. I would just mention maybe the U.K., where the environment is more challenging, of course, with more stores closed during the period, they have just reopened very recently and also maybe a consumer environment, which was late favorable.

[Operator]

Ladies and gentlemen, the next question comes from the line of Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

Yes. So three questions on Gucci for me, please. So the first question, I know Jean-Marc it's a difficult exercise on Gucci, but if you had to rank the drivers of the sequential acceleration between product, communication and distribution, what would they be? I'm sure you're going to tell me it's a bit of everything, but what was really the main thing in Q1? If we look specifically at Gucci on the product side, sorry, you had mentioned for a few quarters now your intention to have a slightly more balanced mix between carryover, iconic products and Newness. But where are you in that journey to kind of rebalance a bit the mix? And then maybe last question on Gucci to finish, it seems that industry chatter is kind of indicating that Gucci is up to a solid start in Q2 on an underlying basis. If you could please confirm? It seems that you've alluded to that already, but if you could please confirm that, that would be great.

[Jean-Marc Duplaix]

And you're right to say that your first one is not an easy one, and I'm not sure that I will be very good in that exercise, but I will try anyway. I think that we had been very candid when we commented the 2020 results about the fact that we had maybe underinvested during the year, in terms of marketing activities. And also, we had mentioned or highlighted maybe some lack of products and Newness. We started the year with clearly an acceleration in terms of marketing activities, Mr. Pinault had announced a number of events in the store with a lot of pop-up and pop-in activities, which are very instrumental to go along with the always-on approach, which is to have these regular drops from the collection between the 2 fashion show, with the creative collaborations we had, for example, with North Face or also the tribute to Ken Scott. We had also some Capsule collections like the Doraemon I mentioned in -- for the Chinese New Year. So all of this activations are clearly -- are paying off in terms of performance. They are contributing to improve all the key KPIs in terms of conversion, in terms of units per ticket with, as a result, an increase of the average selling price. Because you can imagine that in the stores, the traffic is still down compared to last year or compared to 2019. So I would say that we have a good combination of marketing activities and in a broad sense, meaning animation in the stores, but also all the campaigns we had since the beginning of the year, some of them, let's say, target -- very targeted, especially on the European clientele. So -- and the perfect combination with the products, and we started a journey in 2021, where we will launch several Beloved Lines, and we had launched at least at the end of the year with the Jackie 1961, and we will have another one in the coming months, probably during the summer. So I think it's really the result of these different action plans. which have been, I must say, very well executed by the Gucci management. Just a few words about the merchandising and the product mix you have here because, in fact, we have not really changed our strategies there for now several seasons. If we look at the leather goods, the share of carryover lines is still around 70% to 75% of the sales. When we say carryover lines, we are talking about meaning existing lines with, of course, some seasonal animations, new functions and so on, but still existing lines. And we have around 25% of Newness. We will have more or less the same type of split In the shoe category, you can imagine that in ready-to-wear, of course, you have more units compared to leather goods in proportion. So in fact, we have not really changed our strategy there. But of course, what you can expect for 2021 and especially when the Overture collection will hit the shelf or you can still find some -- you can already find some items in the stores. But more and more, you will see that you have an increased number of SKUs, both in the seasonal items and in the carryover lines because, as I said before, we are missing maybe some products in 2020. Lastly, you had a question about the start of Q2. So I don't know to what you referred to because in fact, we have not make -- we have not made any comments about the start of Q2. As you can imagine, we had a quite strong exit rate if we look at Q1, which is totally normal considering the lockdown measures, the impact of the lockdown measures last year. Of course, in April, we can imagine that considering that April 2020 was a trough in terms of store closures and in terms of performance, we have a very easy comp base. So if you combine this easy comp base plus all the animations and all the actions we have across the board in our different brands, you can imagine that we have a quite strong start of Q2. But you may remember that the situation last year gradually improved during the quarter. And that in June, we had more or less a normative month or a month which was quite distant in terms of business.

[Edouard Aubin, Head of Luxury Goods]

Yes. But again, I'm not asking for any figures, but I was asking on an underlying basis, are you more related to 2019. So if you can confirm that you're still happy with the trends on a 2-year basis stack, again, without obviously sharing any figures with us.

[Jean-Marc Duplaix]

Definitely, I won't share any figure. I would just say that, as I said before, we are very happy with the execution of the strategy at Gucci and the performance, which has so far, delivered.

[Operator]

And our next question comes from the line of Thomas Chauvet from Citi.

[Thomas Vincent Chauvet, Research Analyst]

I have three questions on Gucci, please. The first one, if we look at the Overture and the Aria collections, are these collections leading to an underlying increasing ASP across the various cost categories because it's more sophisticated, there's a bit less street wear as it seems? And what are the wholesale partners saying about Aria that was just presented? Secondly, on wholesale, it was down 26% for Gucci, very consistent with your guidance. We know why. Can you provide more color on what was the impact of doors closures if you have a, I don't know, rough euro million number? And then what was perhaps the underlying growth for the remaining doors? I guess, must be quite strongly positive. And thirdly, coming back to Edouard's question or rephrasing it, maybe to get a bit of color from you, Jean-Marc, on the trend. If we look at Gucci retail, the 2-year stack in Q1 was about 2%, plus 2%. It was more or less similar to Q4, actually. Now with all what you said about activation marketing initiatives, the new drops, virtual Aria, et cetera, and perhaps reopening of European stores, does it make sense to think there will be a sharp acceleration in that 2-year stack for Gucci retail in the coming quarters? And is that confirmed already in April?

[Jean-Marc Duplaix]

Okay. Let's start with your first question on the profile of the collection and its impact on the average selling price. More globally speaking, I think it's not new that the strategy of Gucci is to have a very balanced offer across the different price segments. It's the reason why also Gucci has a lot of clienteling activities with the very important customers. That's the reason why also we have this launch of a high-end watch business together with additional investments in the high jewelry segment. So I think it's the overall strategy of Gucci, like the big Houses in the industry to have a very comprehensive offer across the board. It's true also that the Overture collection has contributed in all the different categories, but especially in leather goods and ready-to-wear to increase the average selling price, and we have still the carryover lines for certain -- to, let's say, to fulfill certain price segments or to address certain categories of clientele. And you can imagine that once the Aria collection will be fully edited, you will see that it will contribute also to this average selling price increase. I won't give any additional color, and I don't want to quantify more what is the impact, if I understand well, your question of the door closures and how it does transfer to the retail business. We have already mentioned that the reallocation of that wholesale business, which is now closed, would be very gradual, and we cannot expect that we will see the full effect as soon as this year and even in 2022. As a reminder, by the way, we are still working on the conversion of certain accounts into concessions, especially when it comes to e-tailers. And the full effect of this conversion will be rather in 2022, because we do it gradually based on the launch of the collections, or the shipment of the collections. So it's -- and clearly, we are very passionate about that because we know that it will be very gradual. And what was more important was clearly to gain in terms of exclusivity and in terms of control of the distribution. And a good example of that is if we look now at the products which are available in China on the online environment, with Tmall, on which we are operating under concession, in fact, we see that we have a dramatic increase of the control we have over the distribution in China. And that's the prime objective for us. Your last question, I don't want to elaborate on this guess and these speculations you are making, Thomas, because a lot of things can happen. We are still in a very uncertain environment. We -- I can know what may happen in April, but what will happen in the coming months, obviously, it's too difficult. You can imagine that we have some ambitions for the Gucci brand. And I think we have been very clear about what we had in the pipeline for this year. We had already commented during the full year results, what we were activating in terms of action plans for this year. We are confident that this will be successfully executed as it has been already done in Q1. But to predict what will be the impact on the organic growth compared to 2019, I think it's too soon, and it will not be wise on my side to make any prediction on this guess.

[Thomas Vincent Chauvet, Research Analyst]

Understood, Jean-Marc. And just on the wholesale point, so you're basically saying that the shift from wholesale to retail, whether for instance, e-tailer conversion, is not having yet an impact on your retail growth, a material impact?

[Jean-Marc Duplaix]

No. In fact, you're right. I think what has an impact is when we are entering into a new concession model as we did with Tmall, typically because it was a completely new account. So it has clearly an incremental effect. But when it comes to the other wholesale business, whether it has a negative impact because we have not shipped to certain accounts because we have decided to stop working with certain partners. And in that case, of course, the business has not yet been totally transferred or reallocated to retail. And in some other cases, we are still in the negotiation or the negotiation has been achieved, but with an impact that would be gradual.

[Thomas Vincent Chauvet, Research Analyst]

Would you like to convert net -- a part of the concession?

[Jean-Marc Duplaix]

I don't give any name. You can imagine that we have discussions with all the different partners. It's a global discussion we have at group level as a reminder.

[Operator]

Our next question comes from the line of Chiara Battistini from JPMorgan.

[Chiara Battistini, Co]

I also have three. The first one is on the Chinese consumer, more broadly across the brand portfolio and maybe if you can also comment specifically on Gucci. I was wondering, this very strong performance you're seeing there besides the comps also on a clear stack, to what extent do you think this is driven by recapturing the existing customers locally? Or rather recruiting a new consumer? So if you could give us any color on what you think is a recurring customer versus new recruited consumers there. If -- and then I was wondering if you could share any color on pricing at Gucci in 2021? What has been done so far this year? And also your thoughts the rest of the year? And maybe last question, if you can, if you could share with us any later thoughts on M&A, please.

[Jean-Marc Duplaix]

Starting with the Chinese cluster and more globally, these nationalities, where we are very happy for the performance we had in Q1 across the board for all the brands of the group in that we're above 2019 for the key nationalities for all the brands, including Gucci. So America and Chinese, Korean and Japanese, in most cases, most of the European nationalities, which is very satisfactory. My guess, and what we have observed is that the bulk of what we see in China is really due to some recruitments of new clients, as the region where the share of new clients is the highest in terms of mix compared to some other regions. Of course, there is a chunk of business that has been clearly repatriated from other regions in Asia or from Europe. But I would say that what has boosted the performance in China is more globally the very positive consumer sentiment or the incentive of clearly decided and pushed by the Chinese authorities to boost the local consumption. And clearly, that's contributed to the performance of the luxury industry as a whole and of our brands. So I think it's really a market where we are recruiting some new costs of clients. When it comes to pricing, let's be very clear. First of all, I think that some price increases, which have been passed in 2020, had some impact on the Q1 performance. I would remember that we had 2 price increases last year, first an increase in June and a second one in October, with also an objective, which was to keep more or less stable the price differential among regions. We had some additional price increases on selected carryover items at the time of the introduction of the new Overture collection. So it happened end of March and early April. You know that we are generally -- and it was not a very significant increase and still also with the objective to face the opportunity to have the launch of a new collection and seasonal items to also increase the prices of the most successful carryover lines. But at the end of the day, you know that Kering is always very, let's say, prudent when it comes to price increases. We will be very pragmatic, and we will look at what is the evolution of the FX. Also, what is the momentum of each brand and at Gucci specifically to decide if there is a need to have some additional price increases in the year. So we are there so far, and I will not elaborate more on what's going to happen for the rest of the year in terms of pricing policy. As regards, M&A, let's be very clear. Our message has not changed for several months. I won't elaborate on all the speculations we have heard or read in the past few weeks, because they are pure speculations. And I must say that we are a little bit tired about this -- all these speculations without any, let's say, reasons and clearly, you know that we have a very low leverage. It does give us some flexibility in terms of capital allocation, that's for sure. We are also committed to a steady return to shareholders. But when it comes to what could be our M&A strategy, I think Mr. Pinault provided a very comprehensive and very clear answer during the fiscal year results call.

[Operator]

Perfect. And now the next question comes from the line of Zuzanna Pusz from UBS.

[Zuzanna Pusz, Head of European Luxury Equity Research]

My first question, I'm sorry I have to ask it, but I was kind of almost provoked, so you said that there was an acceleration towards the end of the quarter for Gucci. And I was trying not to ask about it, but now I have to. So basically, I know it's quite difficult to look at performance month-to-month because obviously, comps are all over the place and the Chinese New Year comes at different times. But would it be fair to say that basically, if you look at the absolute level of sales for Gucci January, February, March, was March actually the highest? I guess, that will be the easiest way for us to really understand if the exit -- what was the trade versus the average growth. And obviously having in mind here, retail. Then maybe just a follow-up on wholesale. So there's just obviously quite a lot happening across all of the brands for the right reasons, of course, because they're trying to optimize their distribution. But how should we think of wholesale for each brand? I mean, when can Gucci's rationalization end? And I think B.V. is also meant to see some changes this year. So maybe some comments on by brand would be very helpful. And then also a related question to wholesale. So I think for Gucci, you are converting -- I could be wrong, but I think you're converting some of the accounts or franchise stores into owned retail and also seeing the concessions online. So when do you think, if at all, we can see some kind of small positive impact from that coming to the retail network? That's just my three questions.

[Claire Roblet]

Zuzanna, this is Claire. I'm going to take the first question because I think we clearly are not going to comment month by month, to be honest. So we are not going to comment on absolute value on rate or growth rate or whatever. So for this one, I'm sorry, but we will not answer. Jean-Marc, the second one?

[Jean-Marc Duplaix]

Yes. We will not answer because you rightfully mentioned the fact that each month is very peculiar. Last year, in January, we had a super strong month of January, as you may remember. So the comparisons month-by-month does not make sense to us. What we see is more of the trend. We look at the trend, the trajectory, the brand hit and all these indicators are heading in the right direction and are showing that the strategy we have for this year, for 2021, is paying off. And that's what we are tracking. And we are not obsessed by the figures day by day, week by week or month by month. When it comes to wholesale, I can clearly answer to you on that because -- so as you will have noticed, we had a quite solid performance at Saint Laurent for this quarter. But as we had already mentioned, there was a shift of some deliveries from Q4 to Q1 at Saint Laurent. Even at Gucci, you had an impact due to Hainan because Hainan had a very good start of the year. So compared to our initial expectations, we had probably a slightly better performance in also because we were betting rather around minus 30%. So we are slightly above at Gucci. So a shift in terms of deliveries at Saint Laurent. But going forward, we should see normalization in terms of growth and clearly, even the first impact of that rationalization that we should see in H2 rather. So in H2, you will see the impact on the wholesale figures of Saint Laurent, of some decisions to close some doors or to be more exclusive. And more or less the same with Bottega Veneta, we are very happy with, let's say, the development of the brand in some key accounts. As we already -- we have already explained, in fact, the growth in wholesale was also due to the fact that compared to the past, first, the brand has regained market share. And on top of that, in some accounts, some accounts have decided to sell not only leather goods, but also the new categories. We have broadened the offer at Bottega Veneta and also with the key wholesale accounts. So it does explain why in the 2, 3 past years, you had an increase of the sales in the key wholesale accounts. Now we should have a rather -- stabilization and also here some impact of conversion to concessions or some closures of accounts in a very limited number of cases. So as a result, considering the very strong result of wholesale at Bottega Veneta during H2 2020 and at the beginning of this year, the growth should also moderate at Bottega Veneta going forward. And for the other brands, we are not yet -- if we consider Balenciaga and McQueen, no. We are not yet at the stage of maturity, of course, of Saint Laurent, Bottega Veneta. But even for Balenciaga, which has already quite high share of retail business, we should start to see by the end of the year also some moderation of the growth in wholesale. We saw an impact on the overall performance of the other brands in the wholesale channel. So in fact, you will start to see the impact of this strategy of exclusivity in our brands or rather in H2 and with more impact, even more impact in next year. Your last question is more or less the same as the one asked by Thomas. And as I told you, it's not about science. And as I told you before, the fact that we have closed some wholesale accounts has clearly contributed to reduce the number of products which were available on some platforms and some marketplaces. So it's here, again, a question of exclusivity and control. We may imagine that part of the performance we see on Tmall is also due to that cleaning of the market. So in a way, we can say that we have already recuperated part of what we have closed in some regions. But I guess that it will take 1 or 2 years before seeing a full, let's say, recapture of the -- what we will have lost in wholesale in retail. And as we said before already, it won't be one-for-one, but because of the differential between retail price and wholesale price at the end of the day, in the 2 coming years, we can imagine that we'll have offset that rationalization short-term impact.

[Zuzanna Pusz, Head of European Luxury Equity Research]

Perfect. Just sorry to follow up on wholesale for Gucci, so for B.V. and for Saint Laurent, I understand that in H2, that's probably when the rationalization will kick in. Is it possible that for Gucci, it's going to kind of start slowing down -- is it going to start to slow down in H2? Or are we going to still see similar kind of levels of decline for wholesale as in Q1? Have to double-check.

[Jean-Marc Duplaix]

No, no. You have to be very clear, the minus 30% we had more or less elaborated on for 2021 during the full year results is what we could see for the full year, globally speaking. So maybe 25% to 35%, we don't know exactly what will be really the landing point. But if it's exactly what we see for the full year, considering that at the end of the year, let's say, the bulk of the rationalization will have been made, with probably some additional actions going forward, but the main impact will be taken in 2020 and 2021.

[Operator]

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

[Louise Susan Singlehurst, Managing Director]

I'll keep it brief. Just a couple of quick follow-ups for me, please. Just In terms of the Newness that we've obviously focused on for Gucci in Q1, Jean-Marc, can you tell us a little bit more about an anecdote in terms of the customer engagement, recurring versus new? You just touched on it with regards to China, but I thought the 51% growth in North America retail was particularly interesting. And then secondly, with regards to China, I think you mentioned in the presentation a high triple-digit for Mainland China for Gucci Group. I know Gucci brand is never far away. But can we just confirm that Gucci brand itself was doing a triple-digit number for Mainland China in the period? And related to that, can you let us know if -- does Pavilion have a particularly impact at this very early stage? I realize it was only launched at the very end of December. Whilst I'm here, I'm going to ask a cheeky third one as well. Just in terms of the Newness for Gucci specifically, given it's such a big year this year with the anniversary, is there any particular lumpiness in terms of new launches? We've obviously just had a lot for spring/summer but is it -- should we be expecting this regular cadence throughout the year? Or is there any particular shape we should be aware of?

[Jean-Marc Duplaix]

Well, in Q1, I would start with a global comment about the profile of the clients of Gucci in Q1. In fact, what is very interesting is that during Q1, of course, the share of new clients is still very -- it's quite similar to what we have observed in the past few years. So let's say, something around 50% of the active clients and slightly below, if we think about the contribution to sales. But we had, in fact, a further increase in the contribution from existing clients, so whether retained and reactivated, which is clearly the result of all the work done by the Gucci people to reengage with some clients and to reactivate some clients. I must say also that we if we look at the profile of the clients, as I said before, we had rather an increase of the contribution to the sales of high-end clients, so that the mix in terms of clientele profile has increased. So now if we consider in some regions, of course, in America, you had a lot of new clients as it was the case, as I mentioned on China. But still in America, you had a lot of clienteling activities. So as a result, at the end of the day, even if, of course, you had a contribution of new clients, you had also quite a good level of business with reactivated or retained clients. So it was very well balanced in the U.S. The main -- of course, the main market where we have more new clients is typically China, whereas in Europe, it was more a market because of also the store closures, where we have been able to reengage with clients existing in our customer base. So that at the end of the day, in fact, it was rather -- there was a big push from a big contribution from the existing clients. Otherwise, when it comes to the profile of the clients, nothing specific to say, the weight of Gen Y and Gen Z has not changed dramatically. And that's it when it comes to the client profile.

[Claire Roblet]

Yes. Just maybe, Louise, on the anecdotes on the product that went fine in Newness. I mean, Ken Scott, for example, has been super successful in the U.S. which is good, also engaging with probably a slightly older customer base and with quite nice average selling price. So that's maybe what we can say.

[Jean-Marc Duplaix]

And it's true that we had, in China, a triple-digit performance for Gucci, I confirm. And in fact, it was really due to, as I said before, the -- an increased, let's say, allocation of resources in terms of marketing activities, plus the success of a lot of animations in the stores plus the Capsule collections we had in -- for the Chinese New Year. And when it comes to the cadence of Newness, it's -- let's say that, as I said before, that we are now with this concept of always on collections. So with regular drops along the season, plus this Capsule and collaborations to constantly, let's say -- or to create a constant excitement of our customers and to have a constant emotional engagement with the brand, it's also a way to have a lot of digital communication around these drops and these special collections. It's true that we are just at the beginning of the Overture collection in product shipments to the stores, where we have been able to increase the number of SKUs. We had a quite good start of the year, because thanks to the work done by the Gucci team, we had already increased the number of SKUs for certain seasonal items and for the carryover lines. But clearly, there will be an acceleration with the Overture collection. And gradually in the year, we will continue to see more introduction, especially with the Aria collection to come rather for end of Q -- pre-Q3, the beginning of Q4. Plus all the events we will have with the 100th anniversary that will give an occasion to have a lot of pop-in and pop-up activities with some special launches you will discover during the year. And as I mentioned, we have the last pillar of the Beloved Lines to be introduced during the summer that will be also -- that will contribute also to increase the number of SKUs in the assortment at least in leather goods.

[Operator]

Our next question comes from the line of Graham Renwick from Berenberg.

[Graham Ian Renwick, Analyst]

I just have three, please. Just firstly, on Hainan Island, which is a region that's seen impressive local growth in China, but you recognize that in wholesale. How big is Hainan now of sales? And what sort of growth did that contribute to Gucci's wholesale business? Secondly, just on Tmall, you launched that on -- you launched Gucci on Luxury Pavilion just towards the end of Q4. Can you give us a sense of how that's performing for Gucci and contributed to growth in China in Q1? And lastly, just to clarify on wholesale, what percentage of Gucci sales is currently represented by e-tail wholesale, which is then expected to switch to an e-concession model just to give us a sense of the possible boost to sales and profit?

[Jean-Marc Duplaix]

And I fear that I will disappoint you because I won't be able to answer to many of your questions. First of all, I will not give any indication of what is the share of business we have in Hainan in wholesale. But you will have noticed that in any case, you have still a massive decrease of wholesale at Gucci. And you know also that a part of the traffic we had Hong Kong is moving to Hainan. So I think that now Hainan is at full speed. And I don't see how the business in Hainan would increase more, except if we have some additional openings, which is still an option, because we have some brands which have just 1 store in Hainan. And clearly, you know that we prefer generally to operate directly. So we will see going forward, if there is room to have a discussion to see if we can add more grip on the business. But I won't give you any indications when it comes to the size of that business. When it -- on Tmall, I can be a little bit more vocal. First of all, by starting and it will help also to understand what is the size of the business with e-tailers, if we look now only at the concessions, so I'm talking not on the e-tailers on the wholesale part, but in the -- to the concession specifically. It's just a small contribution to the total business we have online. The bulk of the business we have at Gucci or for the other brands is made through the brand.com business. And any tools, already the case in the past, so we have, for many years some questions, about Farfetch, for example, there's the contribution of Farfetch in the total online sales of Gucci is very small. Of course, you can imagine that we had -- and we have already commented that we had a very good start with Tmall, with a low level of cannibalization with the existing business, which is very positive. Tmall is very interesting because it's very instrumental also to push certain categories and typically the beauty category. And the profile of the client is not fundamentally different from the one we have at Gucci.cn. Maybe a little bit older, maybe a slightly higher share of male customers. But the average order is almost similar, and we have no major differences in terms of carryover versus Newness or a product mix or even if we look at the city tiers, it's also very similar. And as I mentioned before, it was a very smart way to have a more direct control on Gucci products in the online market in China. So we are very pleased with the start of the year with Tmall and clearly, above our initial expectations. If we look specifically at the Chinese market, it will be a significant contribution to the online business in Mainland China. But if we look at -- on a worldwide basis, still, the vast majority of the business would be operated through the brand.com or brand.cn site.So when it comes to the e-tailers business, within the wholesale, obviously, you see now what is the share of wholesale. At Gucci, it's less than 10%, in which you have, in fact, the royalties business. You have also some franchises, some also the business to distribute the watch business. So at the end of the day, the contribution of wholesale in the key categories is very small. So the contribution of e-tailers within that generally, e-tailers were representing 50% of the business now or something like this.

[Claire Roblet]

I think we -- I still have lots of questions, but we are running a little bit out of time. So maybe we can take the two last ones, but that's going to be it.

[Operator]

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

[Thierry Cota, Equity Analyst]

Three questions for me, which are mostly follow-up. Jean-Marc, you mentioned retail migration online. You mentioned pop-up stores. Has space been, in any way significant, in Gucci retail growth in Q1? Or would you consider it to be immaterial? Secondly, the U.K., we opened about 8 days ago with extended hours. I was wondering what you are seeing there, whether there is any sign of pent-up demand, of catch-up that could be positive, and I would say almost a blueprint for the rest of Europe when it reopens? And lastly, on balance sheet, you made comments on M&A. You've been extremely transparent and detailed over the years on all your criteria and priorities for M&A, but no large deal has been announced. So I was wondering whether you could be equally transparent on the other uses of cash as you're moving towards more or less a 0 net debt situation in the coming quarters? And I was wondering if you can update us on the view on share buybacks, on external dividends or on the high payout ratio or on the opportunity to let cash pile up and kill a sizable M&A possibility unfolds?

[Jean-Marc Duplaix]

I will start with a more general comment about the space contribution. Yes, you had a contribution of the pop-up activities to the sales. But at the same time, as you will have noticed, we have quite reduced the number of stores we had at Gucci. So all in all, I would say that the space contribution, if we combine the two, is almost 0. And even if we look at the pop-up activities, it's a minor contribution. If we look at the overall growth in retail of Gucci plus 34%. So it's very minor. I think it's a good addition to the business. You know how pop-up activities are very instrumental in animating the brand, in penetrating new markets, launching new products, so of course, we intensify the pop-up activities during the year. And it will be -- it will clearly contribute to the performance of Gucci this year. But as far as Q1 is concerned, it was not a major contribution. I was mentioning the U.K. for the performance over Q1. I didn't comment on Q-on-Q U.K. current trading performance. I think that as we said previously, we are very happy with the business we had in Q1 in most European countries with local clientele, which was up double digit across the board. So I think it's too soon to know how to predict based on what we have observed in the recent days in the U.K. And again, my comment about the U.K. was more about what happened in Q1 and not in the past few days. And I won't elaborate again on the current trading situation. Last question about the balance sheet. I'm sorry, Thierry, but I think that here again, the management -- Kering management has been very clear and very transparent about capital allocation about the priorities we have. So I will remind you what has been said by Mr. Pinault already 2 years ago, I think he was saying that he would not stay or he will not sit on a pile of cash and is that if we would not resume M&A, we would be very pragmatic and very agile in terms of return to the shareholders. But you can imagine that we are not yet in that situation. We are just at the beginning of the year. So all the options could be on the table, but not short term.

[Thierry Cota, Equity Analyst]

Okay. But among the different options, none is excluded? In terms of using up the pile of cash or whatever cash is generated for shareholder return. There is no, on principle, any exclusion?

[Jean-Marc Duplaix]

We don't love dogma at Kering. So once again, we can be very pragmatic and very agile. But I hope that the stock price will increase. So in that case, I'm not sure that share buyback will be the best solution.

[Operator]

And our next question comes from the line of Rogerio Fujimori from Stifel.

[Rogerio Fujimori, Analyst]

I have actually just one on Gucci handbags. I think you flagged a special focus this year on strengthening the handbag offer with new signature lines and you have the Bamboo relaunch coming in June. I think you said all categories performed well. But I was curious to hear about how the results in Q1, I think, compared to your plan to revitalize Gucci, especially with local customers in Europe, U.S. and Japan? Any surprises relative to -- in terms of your product and market initiatives in Q1?

[Jean-Marc Duplaix]

What we can say is that there was a very good response of the market to the different subcategories in handbags, meaning the different price cluster, the carryover and seasonal products. So I think that carryover continued to perform very well, especially with the lines you know quite well. GG Marmont, Gucci, Horsebit, Sylvie arm, and we had, of course, a very strong start of the year for Jackie, even if we have not yet the full range of SKUs in the Jackie. A pillar of Newness had outstanding performance in the period with new functions and seasonal animations introduced. And virtual Newness, which were introduced more recently, late March and beginning of April, had a very promising start, I must say. And as you will have understood, that will be further enhanced by the introduction of the Bamboo bag with [ bundle ] this year. And with more animations, you will discover along the year. So very good start of the year in the handbags with very good reception in all the markets. I mentioned before that we started to see a very significant improvement in Japan also, so -- which is definitely very encouraging. So I think -- thank you all for being on our call, for your questions and for your interest on incurring Once again, we are very happy with the results we have shown for this first quarter. It does demonstrate that what we had announced and the strategy we are implementing is paying off. With Claire in our team, we look forward to post to you our conversations. Have a nice evening and stay well.

[Operator]

Ladies and gentlemen, thank you for your participation today. This concludes today's conference. You may now disconnect your lines. Thank you.