Kering SA

PAR:KER

Earnings Call Analysis

Kering's Ongoing Transformation and H1 Performance

Kering's first half of 2023 saw a reshaping of its leadership, with major decisions impacting Gucci and corporate organizational structure. The company pursued its investment in luxury desirability, visibility, and exclusivity. H1 revenue surpassed €10 billion, marking a 2% year-on-year growth; Q2's comparable growth was higher at 3%, driven by Bottega Veneta and Kering Eyewear, along with improvements across other houses. Retail sales increased notably, bolstered by a rebound in physical stores and tourism, particularly in Western Europe. Furthermore, Kering reinforced its commitments to environmental sustainability. Notable strategic shifts included the acquisition of a 30% stake in Valentino and progress toward potentially complete ownership by 2028, intensifying efforts to elevate brand prestige.

Kering's Significant Organizational Changes and Major Investments Set the Stage for Future Growth

Kering has strategically redefined its leadership structure to prioritize operational expertise, enhance stewardship of its Houses, and empower brands to focus on their core know-how, leading to a profound impact on long-term operations. The group has also invested in enhancing the desirability, visibility, and exclusivity of its brands through events, high-quality offerings, and sustainability commitments, further strengthening its market position.

Investment in Valentino and Kering Beauté to Fuel Expansion and Brand Elevation

Kering has shown strong ambition by acquiring a 30% stake in the haute couture house Valentino, with the prospect of full ownership by 2028. This move, alongside launching Kering Beauté and acquiring high-end fragrance maker Creed, will assist Kering's entry into new markets and enhance its brand portfolio.

H1 2023 Reveals Steady Revenue Growth and Robust Free Cash Flow Despite Challenges

Kering experienced a moderate revenue growth of 2% year-on-year, crossing the €10 billion mark, with a particularly higher comparable growth in Q2 2023. The group showcased resilience with various brands driving this uplift and a reinforced investment across its Houses to secure future growth, alluding to promising prospects for the coming periods.

Gucci's Transition Phase and Sustainable Investment Efforts

Although there was a slight downtrend in Gucci's revenue, Kering is in the process of revitalizing Gucci through strategic investment in retail enhancements, creative direction, and amplification of the new collection, indicating a short-term transition but with long-term potential for the flagship brand.

Optimistic Performance from Kering Eyewear and Confident Long-term Outlook

Kering Eyewear reached over €1 billion in revenue, with material improvements in EBIT margin due to scale benefits and margin accretion. Kering's corporate costs were well-managed with controlled CapEx, and the company maintains a healthy net debt-to-EBITDA ratio, paying dividends increased by 15%, showcasing a robust financial constitution that bodes well for its aspirational plans.

Kering Acknowledges Room for Growth and Readiness for Market Challenges

Kering's leaders are realistic about the present situation, acknowledging that the company is not yet at its desired performance level. Nevertheless, significant cash reserves and a solid financial position ensure that Kering remains poised for sustained enhancements in brand exclusivity and long-term success. The investment in Valentino and beauty, alongside corporate reorganization, spells a future of growth and increased effectiveness in response to market challenges.

Earnings Call Transcript 2023-Q2

[François-Henri Pinault, Chairman and CEO]

Thank you. Good evening to all of you, and welcome to Kering's 2023 Half Year Results Call. Jean-Marc Duplaix, our brand new CEO will go over the operational and financial highlights of the first half in a moment.

But before I give him the call, it's important for me to go over the rationale of the changes in our organization we announced last week. As you saw, I made a series of major decisions that will have a profound impact, and I want to make sure that they are well understood. As you have also seen, we've just announced that we are buying a 30% stake in Valentino, and I will also say a few words about that.

So why did I decide to modify our organization and why did I want to do it now? As I told you at the time of our full year results, we had some reasons to be satisfied, of course, but we had also reasons to be disappointed with our performances in starting with Gucci. I heard many calls for new brand leadership, some kind of musical chairs at the end of our Houses. But what we needed in reality was much more than just moving people around, I wanted to change the way we operate for the long-term.

In fact, in the past decade, we tripled the size of Kering as we leverage our brands' desirability and visibility to build their scalability. And then as we achieve that we'll continue of course to leverage the desirability and visibility of our brands, but at the same time, reinforcing the exclusivity is our top priority. And this requires another set of skills at group level to guide and to support the brands.

Over the past 10 years, we've made great progress in becoming an integrated luxury group. This transformation, however, is not yet complete, and we can still improve the way we steer our Houses, so then they can reach their full potential.

So in a nutshell, the rationale of our organization is the following: It is to elevate the operational expertise at the group level. It's about enhancing our stewardship of our Houses. And it is to empower them to focus on their core knowhow. And I'm certain that this reorganization is a decisive step, not only in getting our performance back on track in the short-term, but more importantly, to capture the growth of the luxury world for the next decade.

So in their new roles as Deputy CEOs, Francesca Bellettini and Jean-Marc Duplaix will scale the Group and its Houses in an efficient, coordinated, and determined manner.

Francesca has done a great job in her 10 years at Saint Laurent, transforming it into a luxury powerhouse, overseeing a successful designer transition and building a winning management team. And by the way, Saint Laurent has been the most consistent growth story in the Group. So from now on, all brand CEOs will report to her.

In over a decade, Jean-Marc has taken more and more responsibilities, in addition to his core finance belief and demonstrated that he has the right leadership skills to let all the Group's cooperate as well as financial functions. Francesca and Jean-Marc will report to me. And together, we will complete the strategy of the Group and its Houses. We will direct its execution and oversee their performance. And I'm looking forward to working directly with both of them in this new configuration.

Then I have decided that Gucci needed a change in leadership for this new period. So Marco will lead the Group on September 23rd after Sabato de Sarno's first fashion show. Jean-François Palus has been, as you know, by my side for several decades now, and he knows the Group better than anyone. He also knows Gucci perfectly, and he has worked with many Gucci executives over the years. So by teaming up with Francesca, he will be immediately operational to ensure smooth and efficient new chapter at Gucci. Jean-François will drop his Board responsibilities and he will be moving to Milan in September.

Over the next month, we'll iron out some of the details of this setup. I am confident that this team and this organization represent what the Group and all its Houses need to face the challenges and opportunities of the global luxury landscape. This being said, I wouldn't want you to believe that we pressed the pause button as we were working on this arrangement. In fact, H1 has been a busy period on many fronts. We pursued our investment in our Houses' desirability and their visibility, and their exclusivity. Their fashion shows, their events were among the most viewed in the sector, like for instance, Saint Laurent Men’s show in Berlin that you can see here. We organized a number of events to raise our profile in Asia, including the Gucci's highly accredited Cosmos exhibition in Shanghai and its cruise show in Korea or the Bottega Veneta repeat show in Beijing that happened last week.

We reinforced the top end of our product offer that is in high jewelry recollections at Gucci at Boucheron but also Pomellato, showcasing you the unique creativity and heritage of these Houses. And we further raised the quality of our distribution and client experience. For instance, here you can see, Bottega Veneta has recently reopened store. This is in London on Sloane Street, and this store was qualified by a fashion publication as a library of good taste.

Tightening our control over our supply chain is also a priority and we've made strides in this area as well. We've moved like the acquisition of UNT by Kering Eyewear, all the opening of Bottega Veneta's specialized atelier near Padua in the heart of Italian shoe manufacturing area.

Of course, a major highlight of the first half was the launch of Kering Beauté and its first concrete step with the acquisition of the France House of Creed, the iconic high end fragrance maker, which will propel our entry into the world of beauty.

Finally, we remain at the forefront of the sector in terms of sustainability commitments. Here we published the Second Edition of our Biodiversity Strategy, reinforcing our deforestation and combustion-free policies. And we also became one of the early companies selected to pilot the world's first Science-Based Targets for Nature. And this busy period did not stop at the end of the first half

We are thrilled to have reached an agreement with Mayhoola to take a 30% interest in the equity of Valentino. The agreement could lead to Kering reaching 100% ownership of Valentino no later than 2028. And this is part of a broader partnership agreement, and we will explore potential opportunities that are aligned with our respective strategies. Valentino is a House that we have always admired. It's an amazing Italian name, rooted in Haute Couture and known all around the world. So we are very proud to be able to support the brand elevation strategy that's successfully implemented in the past few years. We are also delighted to work once again with Jacopo Venturini, whom we know well and his team that has been running Valentino for the last few years. I think I don't need to go over the details of the deal, which are included in the news release and summarized on this slide. Just I want to mention that we are hoping to close this operation by the end of this year. We are honored to have been chosen to work alongside Mayhoola on the development of Valentino as well as on other potential opportunities.

And now I will hand over the mic to Jean-Marc Duplaix to review our 2023 first half performances.

[Jean-Marc Duplaix, CFO]

Thank you, François, and good evening to all of you. On Slide 10, our revenue in the first half stood above the €10 billion mark at €10.1 billion, up 2% reported and comparable year-on-year. The 2-point positive scope impact from margin broadly offset the negative FX impact. In Q2, revenue was also up 2% reported, but with a higher comparable growth up 3%, scope contributing positively for an additional 3%, while FX was 4% negative.

In the first half, our total revenue breakdown by region changed quite substantially year-on-year. Asia Pacific accounted for 37% of total, up 3 points. Western Europe and Japan, both gained 1 point, respectively, at 27% and 7% of revenue. All these gains were at the expense of North America accounting for 22% of revenue, down 5 points. I will discuss the dynamics driving the geographic mix.

On Slide 11, we provide the breakdown of revenue by segments for Q2 and H1. Total overall growth in Q2 was higher than in Q1, driven by Bottega Veneta and Kering Eyewear as well as some improvements at our other Houses.

On Slide 12, let's dive into Q2 top line by channel and region. Retail accounting for 77% of revenue was up 4% comparable or 8% excluding e-commerce. Online channel penetration decreased to 12% of retail sales, an infection after the stellar growth observed in 2019 as customers returned to in-store shopping. In addition, the online channel is more exposed to aspirational product categories. Another feature of the second quarter is a confirmation of the recovery in tourism. Worldwide, tourism accounted for nearly 25% of sales with Western Europe and, to a lesser extent, Japan over-Indexing. Both North America and Asia Pacific were more skewed to local.

Turning to the regions. Western Europe moderated sequentially, up 4% comparable in Q2 on a varied demand income base on the back of some softness with locals. Growth was largely fueled by tourism, mostly American and Asians with a vital return of Mainland Chinese, although we are still standing 60% below Q2 2019. Conversion in North America remained under pressure, down 23% comparable, a picture that is not very different from Q1. Traffic was not supportive across most brands and sales were particularly impacted on entry price points. The U.S. cluster fared slightly better, down less than 20% in the quarter. Momentum in Japan was sustained with retail up 26% comparable, a trend similar to Q1. Growth is fueled by tourism, mostly in South Asia, notably from Greater China.

Moving to Asia Pacific. The region accelerated sequentially, up 22% comparable in the quarter. Greater China was a key driver, up more than 50% with a strong rebound in Mainland China and very high growth in Hong Kong and Macau. Some of our Houses performed better than others with YSL and Balenciaga standing out. The rest of Asia was less supportive partly due to catalog comps, but also to subsisting softness in Korea. And finally, Rest of the world was up 5% comparable mainly due to [indiscernible].

Wholesale and other revenue was down 1% comparable with very different situations: an 11% decline from our luxury Houses as we continue to enhance the exclusivity of their distribution; a strong performance at Kering Eyewear, up 21%, excluding the scope impact from Maui Jim; and a 13% increase in royalties and other revenue.

On Slide 13, an overview on recurring operating income, free cash flow from operations and net debt and another year of investment for the group. Recurring operating income was €2.7 billion, a limited year-on-year drop. EBIT margin stood at 27% and we maintained a very high level of profitability, although lower than last year. This reflects the ongoing reinvestment in all our Houses to nurture their desirability through their current trajectory or prepare for the next phase of sustainable growth.

Our free cash flow excluding real estate acquisition and disposal rose by 4% to €2.1 billion after more than €500 million in CapEx in the first half, a year-on-year increase of nearly 50%. CapEx to sales stood at 5.2% compared to 3.6% last year with some H1-H2 phasing. In the first half, we also acquired prestigious buildings in Paris, securing prime location for our Houses in Place Vendome and on Avenue Montaigne and sold a building in London. Taking this into account, CapEx was close to €1.9 billion and free cash flow just above €820 million.

Operating working capital for its part stood at 16.8% of last 12 months revenue, broadly in line with the ratio at year-end 2022. Net debt, excluding lease liabilities, ended at €3.9 billion after the increase in dividend paid and real estate acquisition.

Let's now look at Gucci in which we continue to invest during this transition phase. Starting from Slide 15. H1 revenue at €5.1 billion was down 1% reported and were up 1% comparable. Q2 comparable growth was similar to Q1 with retail in line with the House strategy, retail was again driven by higher AUR through a combination of enhanced collection structure and price increases across categories. Best performances came from handbags, travel and women's offer. Conversely, Men's and the entry-level segments were a drag as well as e-commerce, which, as you may remember, had reached very high penetration in North America. Wholesale was up 2% in the quarter, royalties and other revenue up 8%.

On Slide 16. Recurring operating income came at €1.8 billion at 35.3% margin. The increase in the cost base was driven by store expenses and design. In addition, Gucci pursued active communications initiatives to amplify brand desirability, investing in client and store experience elevation as well as in high-visibility campaigns and events. Gucci had 3 fashion shows in the first half, including the spectacular display in Korea in May and we invested substantially in Asia with the Cosmos exhibition in Shanghai. The House is, of course, getting prepared for the September fashion show of the new creative direction.

CapEx to sales stood at 4.5%, a 50% increase year-on-year, partly and seemingly more skewed towards the first half this year. The strategy is unchanged, selective expansion, network enhancement and investments to increase the efficiency of operations and control over the supply chain. For store network, I would highlight the opening of New York Meatpacking District and the relocation of the Milan Galleria store to a beautiful larger location. [indiscernible] delivered a robust first half, a testament to the house's desirability and consistent execution.

Turning to Slide 18. The revenue in H1 was close to €1.6 billion, up 6% reported and 7% comparable. Retail drove growth and now represents 80% of revenue. The second quarter was solid, up 7% comparable. Retail grew 8%. Product-wise, leather goods and ready-to-wear posted the highest performances, notably thanks to the strong success of Spring and Summer collections. The House also launched fine jewelry as part of its continued elevation and development strategy. It's a category where Saint Laurent is more of an [indiscernible] building on its legacy and DNA.

By region, YSL performed well across the board. North America was challenging as the House kept its very disciplined approach in a market that was difficult and somewhat promotional. The House also applied its distribution strategy consistently. Wholesale was down 7% in Q2, reflecting continuing retailization and downsizing the number of accounts.

You can see on Slide 19, recurring operating income came at €481 million, yielding a margin of 30.5%. Gross margin was boosted by favorable channel mix and pricing initiatives, both from pure increases and improved product mix. The House enjoyed positive operating leverage and kept reinvesting with 3 fashion shows in the first half and higher communication intensity. CapEx also increased from a relatively low base in H1 2022. Key area of investment for the House with selective openings included a [indiscernible]. You might be aware that Saint Laurent is preparing for a major flagship opening on the Champs-Elysees in Paris towards year end. Summarizing, we're also dedicated to strengthening production capacity and operations.

Bottega Veneta kept reinforcing its position in the ultra high-end universe. As you see on Slide 21, comparable sales were up 2% in H1, with revenue at €833 million. Here again, retail was a growth driver, up 6% in the half year and 7% in the second quarter, posting a sequential acceleration. By region, the House proved resilient in North America and performed well in Western Europe and Japan. It did have shared benefit from strong tailwinds in Asia Pacific. Bottega Veneta is now accelerating its initiatives to enhance its visibility in China, as you have seen, with a beautiful repeat show held in Beijing last week. Product-wise, demonstrating the appeal of pillows, Icon and Nugnes, leather goods and ready-to-wear were the best-performing categories with significant increases in AUR. Ongoing rationalization of third-party distribution resulted in a double-digit decline in wholesale in Q2.

Slide 22. Recurring operating income was €169 million, confirming an EBIT margin above the 20% level and higher gross profit margin. Bottega Veneta continued to invest in stores, communications and activations to amplify brand resonance and visibility across markets. CapEx was up on initiatives to upgrade the store network, including relocations, refurbs, expansions, conversion into retail and store opening.

Our other Houses had a soft first half, but increased sequentially, thanks to growth in retail and sustained performance of our jewelry Houses. On Slide 24, you see that the revenue was down 5% in reported and comparable terms in the first half at €1.9 billion seeing a decline limited to 1% in the second quarter. Retail was up for all Houses in both quarters, but accelerated in Q2. Balenciaga's gradual recovery was driven by Asia Pacific. Alexander McQueen performed well in its core ready-to-wear category. Brioni was nicely up on a healthy mix of revenue from formalwear, leisure wear and bespoke. Wholesale was still down sharply on rationalization strategy and a challenging U.S. market. On jewelry Houses Boucheron, Pomellato and Qeelin were up strong double digits in both channels, reflecting the appeal of their creation and the investments we have made to broaden their visibility. We are extremely pleased with the development of our jewelry activity quarter after quarter and in their growing contribution to the group's top line.

Slide 25. At €224 million, recurring operating income was down from a very high base. EBIT margin was 12.1%, quite in line with H2 last year. That's when we first recorded the full impact of our step-up investments in the brand retail expansion alongside wholesale rationalization. We kept fueling their long-term growth revenue which translates into some negative leverage at Balenciaga and Alexander McQueen in the short term. CapEx is allocated to selected store opening, further enhancing penetration in key and new markets.

Kering Eyewear, on Slide 27, delivered a record first half with €869 million in revenue, up 51%, including the contribution of Maui Jim, or 16% comparable. For Q2 only, comparable revenue was up 21%. All brands continued to be successfully developed and the integration of Maui Jim is going on smoothly. Kering Eyewear's EBIT contribution improved again materially, yielding a 21.5% margin, thanks to both benefits of scale and accretion from margin. It's worth keeping in mind, however, that some investments to further develop and expand Maui Jim are ahead of us and that there is a seasonality in eyewear in its revenue and profitability more skewed towards the first half. Kering corporate costs were well controlled. CapEx was €93 million, a limited increase year-on-year as we have reached a quite normative level to support our Houses in IT and logistics upgrades. This is excluding, of course, the acquisition of the building previously mentioned.

Now looking at the remaining lines of the P&L on Slide 28. Net financial charges amounted to €204 million or €134 million, excluding interest on lease liabilities. Cost of net debt stood at €40 million on higher debt level and interest rates. Other financial expenses were €94 million compared to €57 million income last year. The major part of the swing comes from recognition in H1 '22 of a fair value gain on Puma exchangeable bond derivatives. Corporate tax was €692 million, a 27.1% tax rate on recurring income. Group net income from continuing operations adjusted for nonrecurring items reached €1.8 billion.

Free cash flow and net financial debt are on Slide 29 and 30. In the first half and excluding real estate, we generated over €2.1 billion in free cash flow. The change in working capital was negative but to a lesser extent compared to H1 last year. The various components of operating working cap are indeed well under control. We provided the presentation, excluding and including real estate impacts.

On Slide 30, I give the structure, net financial debt was €3.9 billion with a healthy net debt-to-EBITDA ratio of 0.5x. In the first half, we paid €1.7 billion in dividends, a 15% increase.

So to conclude, while there is no hiding that we are not yet where we want to be, I also want to echo François-Henri's confidence in the future. We continue to generate considerable cash flow and enjoy a very healthy financial situation, while investing in the long-term success of our brands and increasing their exclusivity. The acquisition of Creed that provides a cornerstone to our expansion in beauty and the investment in Valentino that we announced today marks new milestones in the development of the group. We are the right people and the right culture to face today's environment. And we just announced a major organizational change that will make us stronger, faster and more effective.

And now we are ready to take your questions. Operator?

[Operator]

[Operator Instructions] The first question is from Thomas Chauvet with Citi.

[Thomas Chauvet, Citigroup]

Firstly, on Gucci and the transition, the appointment of Jean-François Palus as Interim CEO and his relocation to Milan seems like a strong sign of determination to implement some changes at Gucci. Could you elaborate on what will be the key priority for him and the Gucci team until a permanent CEO is appointed? What do you want, perhaps, to speed up as part of the strategic plan you presented a year ago in Paris? And how long would you expect the CEO transition period to last? Secondly, still on Gucci and the numbers, if we look at H2 '23 consensus, it's about plus 7%, I think, constant FX for the revenue, EBIT margin down 100 bps. Is that, Jean-Marc, a sensible scenario in light of what you're seeing in July? And then would you expect the management transition at Gucci to drive a bit of maybe a slight reset of '24 expectations, which are also expecting mid-single-digit revenue growth and some margin expansion?

And finally, on Valentino, very interesting acquisition of a 30% stake. What potential are you seeing in this brand? How does it fit in the group portfolio? Would you then have 100% of the capital? And on that point, the option to buy the remaining 70% by 2028 could lead Mayhoola to become a shareholder in Kering. So what do you think Mayhoola would bring to the group if they were to become, I don't know, 5%, 6%, perhaps shareholder in Kering as opposed to Kering buying the remaining 70% with new debt? And you're talking also about the potential joint opportunities? Are you mainly thinking about eyewear and fragrance?

[François-Henri Pinault, Chairman and CEO]

Thank you, Thomas. So I will start with Gucci. I'm not sure about the first question because you were very difficult to be heard.

[Jean-Marc Duplaix, CFO]

It was probably about if it will change the strategy presented in the past few months into the market there.

[François-Henri Pinault, Chairman and CEO]

Okay. All right. So to start with the organizational changes at Gucci, of course, Gucci, as you all know is our main asset. So it was for me important to be pragmatic and very efficient in making sure that the transition phase and the relaunch of the aesthetic of Gucci was very well orchestrated and very efficient, day 1. So I asked, as you know, Jean-François to take the temporary custody of Gucci. First reason, of course, is I trust very much his judgment, and I know that I can rely on him to take the right decision. Jean-François is someone that, as I said, knows the Gucci organization inside out. He knows all the executive already. He's been running the group on my side for many years, as you know. So I know that he's going to be immediately operational, and that was, again, my key concern to have immediate efficiency and the new appointment to make sure that we'll be launching the amplification of the vision that Sabato De Sarno will bring to Gucci through this new aesthetic will be immediately operated at Gucci with the organization. So Jean-François will, of course -- has already started on that priority, the relaunch of the aesthetic and making sure it's not just a fashion show, but also the month after the fashion show where we have a full program of amplification that he is working on right now.

Don't forget that, in the new organization, Jean-François will team up and has already started to team up with Francesca to make sure that all the components, all the areas of expertise are covered immediately at Gucci, product-wise, image-wise, communication-wise, and this is the case. So Jean-François is assessing the organization, looking at where we still have weaknesses to be corrected immediately, assessing the capability of our key leaders in Gucci, which is already partially down. And of course, the top priority is to restore the momentum of the top line of Gucci going forward through the relaunch of the aesthetic of Gucci. So -- and on that, again, my point here was to appoint someone that could be immediately operational at Gucci. Adding in mind that having a CEO coming from the outside, which was another option, of course, that I considered, will have -- considering the size, the complexity of Gucci and the phase of relaunch of Gucci would have taken an adaptation of several months, if not a year, and I didn't want that. So I decided to go to the direction of this transitional period with Jean-François that I know that will be immediately very efficient starting in September.

Then the length of this period of transition, Jean-François is not here to stay forever as I mentioned in the communique of the organization. We will assess the organization, we will put back Gucci on track regarding the growth momentum of Gucci. We will assess the management team, the organization. And of course, Jean-François with Francesca and myself will define the right profile for the CEO to recruit for Gucci and we will start the search starting in September, October to make sure that we take the time to have the right person at the right moment to lead Gucci for the years to come.

[Jean-Marc Duplaix, CFO]

I will jump on your question about the margin on the resets by starting first to say that the macro environment, globally speaking for the industry is quite uncertain that you indicated for all the brands of the group and starting with Gucci, we remain focused on implementing our long-term strategy, including short-term pain like typically the wholesale-run transition process on brands and some of the decisions regarding Gucci. So yes, definitely, 2023 is a transition year with soft revenue trends so far for Gucci. H1 margin may be, in a way, a good proxy for the full year, that did imply a slight margin improvement in H2 year-on-year. But I want to be clear that we will support all initiatives that the new management and the new design team at Gucci, we would like to launch in H2 and going forward to reignite the brand for the long run. So I don't know if it's per se a reset, but we will support all the investments needed. And as already stated, the potential of the brand in terms of revenues and EBIT margin is immense and intact compared to what we had the occasion to present, but the trajectory to reach that objective might not be linear and comprise some phase of investments.

[François-Henri Pinault, Chairman and CEO]

Okay. So then you mentioned, of course, the operation that we just announced about Valentino. So as you saw in the communique, you have the exact size and profitability of Valentino as of last year. So the potential, as we look at the brand from the outside, of course, is very important. And it's more importantly very complementary with our brand. It's an iconic Italian brand. It's rooted in haute couture in very high-end and sophisticated segments, which is the point that is very complementary with the rest of the portfolio. And with the discussion we had with the management and with the shareholders, we know where the brand can improve in the future.

So we are very confident in the capabilities that we will have partnering with Mayhoola. Don't forget that we start with 30%, we will be being our expertise to the management to make sure that we can speed up the growth and the development of Valentino going forward. So the brand is, for me, typically the brand that we were looking at, respecting the criteria, as I always mention, when it comes to our M&A strategy, with our portfolio and the potential of this brand is, in our opinion, quite significant for the next years to come. And we are -- and I'm very happy to specify that we're also very pleased with the management that we met. Of course, we knew Jacopo when he was in Gucci and we are very, very pleased with the management and the team around Jacopo that is leading Valentino right now and for the future.

When it comes to the investments that we're making and the fact that Mayhoola may become a shareholder of Kering, of course, they have the opportunity and they mentioned the possibility for them to buy on the market to strengthen their relationship with us. In case of -- in the second phase of the part to control, if we were to pay partly in shares, there won't be any dilution due to that operation going forward. And then again, it's important to re-mention because it was the spirit from day 1 of our discussion with Mayhoola, of course, the collaboration, the partnership starts with Valentino, but then we will broaden the opportunities that could arise in front of us, and we will work together to see those opportunities or align with our respective strategy to work together on some opportunities. It's too early, of course, to say what would be those opportunities. But for me, it has to broaden our scope of looking at the luxury market in the future.

[Operator]

The next question is from Anne-Laure Bismuth with HSBC.

[Anne-Laure Bismuth, HSBC]

I have two questions, please. The first one is coming back on the management synergies. So given that [indiscernible] you have to ensure the transition at Gucci, can you share with us what are the quick areas you are looking at for a new CEO at Gucci? Does the candidates have to be well known in the luxury industry? Or are you willing to give a chance to a newcomer? My second question is about the midterm targets that have been shared by the former CEO at Gucci of sales reaching €15 billion sales and an EBIT margin of 41%. Is it still valid? And my last question is about Francesca Bellettini who was appointed Kering Deputy CEO. Who is going to lead the Saint Laurent firm going forward?

[François-Henri Pinault, Chairman and CEO]

Thank you for your questions. So regarding the first question, and it's part of my decision to rely on Jean-François to define that. But again, short term, we'll restore the top line, the momentum, the growth of Gucci because the potential is completely intact, and I'm very confident that what is coming up in September, will brought us back on the path of growth at Gucci. So that's the first thing. And then, of course, we will, by the in-depth assessment of the organization, of the leadership, we will define very precisely what is the right profile for Gucci. So it could come from the industry or not. We will really, with Francesca and Jean-François, analyze the different criteria that we want to consider. But for me, it's all the options are open.

Again, the CEOs in our industry that are already experienced at that size are very, very few. So it's also a good reason to open to the external world. I won't want to rush that. It's not the main concern today. Again, I have a very strong team inside Gucci and now under the responsibility of Jean-François to restore the growth and reposition Gucci in terms of aesthetic in the coming months. And with the help and the support and the expertise of Francesca, we are all in place to restore that momentum of the top line in the short term. And then, of course, I will work very actively with Jean-François and Francesca at the end on finding the right profile to lead the brand for the next years to come.

[Jean-Marc Duplaix, CFO]

Concerning your question about the ambition for Gucci, I partly answered previously to Thomas. I think that, obviously, first of all, the strategy that have been defined by Marco, we have fully endorsed the strategy. And I already mentioned, the question was now about execution and speed of execution and efficiency in the decision and the strategy is still, I think, relevant when it comes to exclusivity, selective store openings and so on and also rationalization. So there is no change on that side. And obviously, also just a second reminder, I would like to give, in the past few years, we have always delivered our ambitions and our objectives for Saint Laurent, for Gucci, for Bottega. So I think there is no reason concerning the scale of Gucci and the brand position that we should not reach midterm the €15 billion mark and the profitability going with that level of sales. As said before, I think the trajectory will not be linear and we are not afraid to invest, if needed, whatever the impact on the profitability short term.

[François-Henri Pinault, Chairman and CEO]

To answer your question regarding Francesca. So to be clear, with no ambiguity on that, I asked Francesca on top of becoming the Deputy CEO of the group in charge of all the brands and asked her to keep direct responsibility of Saint Laurent. This is very important for me. So she will remain the CEO of Saint Laurent. This is very clear. Why that? Because, first of all, she has built a very strong leadership group inside Saint Laurent, she has very strong teams in place. Of course, following the appointment, we've been working with her to streamline our organization to make sure that she has an organization that enables us to be very efficient on both sides, and this is the case already. And on that, I'm very, very confident that things will work very well. Again, maintaining a leadership of Saint Laurent will allow her, and this is very important for me, to stay grounded in operations, which is a very important factor to steer the development of all our brands.

Don't forget that Francesca has 20 years of experience inside the group. She has worked for 3 different brands over those 20 years, and she has worked directly with me for the last 10 years. So I know her very well. I know how she works. I know how she can work. And I'm very confident in her capability to run the Deputy CEO position, which is, of course, different from running a single brand. I know her so well that it was obvious for me and obvious situation to offer her this position and I have no doubt of the efficiency of this organization going forward with Francesca leading not only the older brands of the group, but keeping a very strong foot in Saint Laurent in the coming years.

[Operator]

The next question is from Edouard Aubin with Morgan Stanley.

[Edouard Aubin, Morgan Stanley]

So three for me. Sorry, just to come back on Valentino. So first of all, congratulations, essentially you had no M&A or retail M&A over the past 10 years, and you have two in about a month. But Valentino with Gucci is a great brand, which experienced a bit of pedestrian growth in the past 4 to 5 years. Are you going to be able to generate synergies right away, given that they're going to have a minority stake? And I don't know if you can comment, is the reason for Mayhoola to move forward the fact that they might have found it difficult as an independent midsized brand to grow and therefore, they could clearly benefit from the scale benefit of the Kering group? So that's number one.

Number two, on the management change, sorry to come back on that, but is one of the rationale not the fact that -- or maybe the fact that Jean-François becoming temporary CEO and Francesca based -- who's based in Paris, to strengthen kind of Kering's supervision or involvement of Gucci, which might have been an issue or not? I'd be curious to have your view on that. And then #3, in terms of, if you could please provide some indication by nationality and the Chinese cluster on the two years back, my apologies if I missed it, between Q1 and Q2 and then the Americans on a year-over-year side. That would be helpful.

[François-Henri Pinault, Chairman and CEO]

Thank you for your questions. So regarding the Valentino, of course, synergies are very important. The positioning of the brand is different from what we have. This is the main interest of the move, of course. But of course, will bring synergies on the table. Of course, going forward, it could be a real estate. It could be organization logistics. It could be human resources, of course, if necessary. So yes, the fact that the group will be supporting Valentino is a very strong element of the decision of Mayhoola to partner with us on the future of Valentino. And on that, I'm very, very confident and the discussion we had with the management of Valentino during the process of the acquisition reinforced our confidence in what we could bring to Valentino in the coming years to not only to continue to develop strongly the brand but also to reinforce significantly its profitability.

[Jean-Marc Duplaix, CFO]

Just on that point, I will repeat and remind that we are starting with a 30% shareholding. We will get Board representation and governance quite commensurate with its 3% shareholding. Of course, when we mention a partnership and collaboration, it does encompass some initiatives to help Valentino to develop further, but you can easily imagine that, of course, we will be at full speed in terms of synergies when we have the full control. And when it comes to the motivation of Mayhoola, you can imagine that we cannot elaborate on that.

[François-Henri Pinault, Chairman and CEO]

So you asked also a question about the new organization, not only at group level but at Gucci. So as I said, taking perspective here, my top priority in November was to push and to speed up the aesthetic change at Gucci that was necessary considering that the top priority was there. And then my focus was on the design team, and of course, on the creative direction of Gucci at the time. This is why I started by changing the artistic direction because I couldn't see the change coming out. As you know, when we do that, the time lag to recruit, to put in place, to organize a fashion show and then to produce and deliver the new aesthetic installed, is a year. So I have to make sure that we reduce that as much as we can. So we were able to define the right profile very carefully with the team at Gucci and with the team at Kering in finding Sabato. Sabato has been recruited, Sabato has been rising. Gucci was fully operational starting in May. He already traveled to the key market, China. He is right now in America, he's working very closely already with the merchandising team, the communication and marketing team of Gucci to prepare the show and the amplification of the show going forward. So that was really the first concern that I had.

Then I did consider that we needed also a new vision considering this new chapter of Gucci. Gucci is a company, never forget that, that grew very fast in a very short period of time. So I think there was a lot of positive elements in bringing a new leadership at Gucci. And this is the role of Jean-François to really be -- as I said also, I wanted to be very efficient, very pragmatic. I don't have years in front of me. I want to put back Gucci on track with this new aesthetic. And this is what Jean-François will bring by, as I said, knowing Gucci very well, knowing all the person, all the key executive of Gucci very well, not only in Milan, but also in the regions.

And of course, Jean-François coming from the group, there's some fields where his expertise is not yet sufficient, and this is where Francesca, as Deputy CEO of the Group, will support him and help him when it comes to the product field, when it comes to the image or communications field of expertise. So this is why we have there a combination that is, for me, ideal in such a transition and a relaunch of a brand of the size of Gucci. So I'm very confident. We're not changing the growth strategy of Gucci. The elevation strategy that we started in '19 is continuing. We are speeding up on that. It's not yet where we want to be. Of course, it takes more time to build. But we need, meanwhile, a strong fashion engine to restore the growth and the top line of Gucci going forward.

[Claire Roblet]

Edouard, this is Claire. For your -- the question on the cluster, so year-on-year, so versus 2022, the Chinese cluster is up plus 60%, so 6-0 for the group. Of course, you know that Chinese consumers have resumed traveling. So just to give you an indication, I think in Q2, roughly 25% of the Chinese spend was abroad, so not on the domestic market. And compared to '21, so on a two-year stack, we were up something at group level around mid-single digits, with quite wide, I have to say, performances depending on the brands. As Jean-Marc mentioned, you have two brands that are really outperforming with the Chinese cluster, mainly YSL and Balenciaga and two brands for different reasons, which are a bit below for sure in terms of costs with this cluster.

[Operator]

The next question is from Luca Solca with Bernstein.

[Luca Solca, Sanford C. Bernstein]

Congratulations, François-Henri, on securing yet another fantastic Italian brand. They say that there's no Italian luxury conglomerate like Valentino palace in Milan and the palatial headquarters in Milan, that's just in the French-Italian conglomerate like their products. Congratulations to Jean-Marc and the new position. My first question is on how to interpret the changes at Gucci. I can only imagine how difficult it must be to replace the CEO of the largest brand in the group just ahead of a major new fashion chapter that is going to open with the catwalk show of Sabato in September. What didn't work in declaring an idea of Gucci or execution at Gucci and how long is it going to take to fix it? Or are we to understand that there were roadblocks there and with this change, actually things are going to be sped up? So is this a situation where we have to wait more or where we have to wait less, I wonder?

My second question is on the overall organic growth performance of the brands. You've been focusing a lot on Gucci clearly and the market has been focused on Gucci. But if we look at the organic growth of other Houses tonight, Saint Laurent, Bottega Veneta and so on, they seem to be suffering a gap between some of the other peers. If you step back, what is the reason for this gap? And is there possibly a need to invest more to support the brands from a marketing viewpoint and a confirmed competition that is possibly taking more of the limelight, I wonder?

And then third, your strategic vision for beauty, I was wondering how Creed can become the platform to execute for more beauty ambitions? I thought, but maybe I'm wrong, that you would need scale in order to play in beauty because this is a very fragmented retail environment in local care to organize supply chain properly and so on. But I would be very interested in getting your vision on how this brand can be a platform for your beauty ambitions and how things could potentially compound from this initial asset path.

[François-Henri Pinault, Chairman and CEO]

Thank you, Luca. Thank you for your comments, your initial comments for Jean-Marc and for me. Okay. So first question was about the change of Gucci and how difficult was that. Well, no, it's -- we have succession plan. My role is really to always make sure that I have the right executive at the right place at the right moment. So even though it was the biggest brand of the group, we have a succession plan that we review annually every -- of course, annual review, of course. And I just decided, considering what was happening in the phase of transition, that instead of making a regular recruitment for a brand that was on its path --on a growth path, which was not the case considering the [indiscernible] transition, that I need a different setup to make sure that we were playing efficiency, urgency of the situation to restore the growth in term of Gucci.

So it was -- of course, Marco has brought a lot to the group. But again, it's a new chapter. We need a new vision, a new leadership to accompany the new chapter of the brand, and this is the decision I took. I wanted to make it properly because you don't transform a €10 billion brand like that. You need to make sure that the setup that you're bringing is the right one for the company, which I'm absolutely convinced that we took the right decision there. I mean we see the results in the short term.

Then you asked about the new fashion chapter, considering how long this could take, again, Gucci is a fashion authority. So the desirability of Gucci has been rebuilt over the last 20 years on the strength of its creativity going forward. It was the case with Tom Ford, it has been the case with Alessandro. So we are bringing a new aesthetic to bring back, in a very short period of time, a momentum to Gucci. Of course, it's never the first fashion show, the first fashion show will establish the new vision. We will start the amplification of that. This will have already an impact. And of course, the second and third fashion show would be very key, as usual, as you understand, and as you saw in the past in many luxury brands.

So no, it won't take time. I'm pretty sure that we will resume because again, it's a change of aesthetic, it's not a change of full organization at Gucci. It's not a change of strategy at Gucci. It's just we are reigniting the creative engine, which is the key engine at Gucci, still building on the side, the more elevated part of the brand, which is building up very well. We have very good results. But of course, it's not yet at the scale that we need to be more balanced between the fashion side and the elevated side of Gucci.

[Jean-Marc Duplaix, CFO]

Thank you very much for your compliments. I think that, obviously, we cannot contest what just you said about the performance of our brands compared to the market and the peers. Let's start with a more qualitative assessment. I think that our brands are as desirable and as creative as ever. You may have seen the fashion show, the exhibitions, and you see that there is still a very strong brand equity for all the brands. Some of our brands are doing pretty well, sometimes above the market, if I think about Kering Eyewear, if I think about our jewelry brands. Our jewelry brands are clearly outperforming the market, especially Boucheron.

When it comes to the other brands, first of all, we have 2 specific issues that you know very well, first Gucci and we mentioned it, but also Balenciaga. Balenciaga, as you know, there is a rebound after last year's controversy, this is a gradual rebound, very strong rebound in Asia Pacific, still some improvements -- some room for improvements in the U.S. or in the U.K., while in Continental Europe, we see that the brand is regaining traction. But obviously, there is a drag from that controversy last year.

Now if we look globally, first, we had some brands with high exposure to wholesale in the context where we have still this wholesale rationalization. Plus, clearly, weakness of the U.S. department store distribution, it did impact the performance. Now if we look at the retail performance, there's also drag from online. It's true that we are very -- I think we were convinced that we needed to develop the online business, and we have now the right setup to completely embrace the full potential of that segment, but it's true that this is a context where online is suffering. So without online, you see that we gained few points in terms of growth and quite materially for some brands.

And there is also a question of distribution and brand presence. You know that Saint Laurent and Bottega Veneta are much stronger in North America and are more recently built -- built their visibility in Asia -- from last year, building the visibility in Asia. So with China as the main engine of growth in luxury, we delivered neutral performance. The situation can't last forever, it can turn around pretty fast.

Lastly, there is all this elevation strategy, which is to rebalance our brands between China and fashion in a context where there is a weakness of the more aspirational segment. Clearly, there is a hit on the performance. And we see that our brands are performing very well in the higher price point segments. We have very solid results and achievement at Gucci, at Saint Laurent and of course, at Bottega Veneta. And to be honest, we didn't want to deviate from the strategy we have in terms of price discipline, in terms of elevation strategy, full price sales. I believe you know that at Gucci [indiscernible], the nature of outlet business will not decrease. But overall, we have to stick to strict discipline in terms of pricing with less promotional activities. So that's, according to me, the performance gap. Now regarding Creed, I will pass the mic to François.

[François-Henri Pinault, Chairman and CEO]

Thank you, Jean-Marc. So you asked me about the Creed acquisition, how this acquisition could help the Kering Beauté platform that we want to build. But first of all, let me remind you that Creed is the largest independent luxury fragrance player with a revenue last year that was above €250 million. So the scale is already very significant. As you know also, they have very high EBITDA margin. And the positioning of Creed, this is important, is in very high-end segments of the cosmetic market or the fragrance market. And this segment is the fastest-growing segment of the industry, growing at a CAGR of 15% and is forecasted to continue at that pace. So not only Creed is already scalable and bringing its scale to Kering Beauté, this industry is -- the scale is quite important. It's meaningful to grow, to build something consistent in this area.

Again, what Creed is bringing short term immediately is 2 things: product development capabilities, they are very strong at that, they have proven that; and the second element, they are bringing, immediately, a distribution network that we won't have to build. The experience that we had with Kering Eyewear, the success of Kering Eyewear was highly correlated with the capability we had to build the distribution network worldwide to reach directly at the point of sales. And this took us many years at Kering Eyewear. And thanks to Creed, we will reduce very significantly the time to build those distribution capabilities that we need to distribute our products. But that's Creed for Kering.

But Creed itself, you have to have in mind that we have significant growth opportunities there. If you take the geography of Creed, the exposure that we have in China and more broadly in APAC is very limited today. The €250 million are mainly built in Europe and in America. So this is a huge potential for growth for Creed, still remaining in the positioning of the high-end segment of the fragrance business.

Then in terms of categories, Creed has been developing very successfully on the Men's segment, they have developed some women fragrances, but we have the room to grow there going forward, and this is what we intend to do with the team of Creed to push also on the women lines. And in terms of channels of distribution, there is a very significant potential there on 2 areas. One is duty-free channel, Creed is almost absent on the duty-free channel as of today, but also on e-commerce, Creed is very, very limited in terms of development on e-commerce. And this is 2 areas also of potential for the brand. So not only we have already a significant scale, but we have strong growth opportunities for Creed, and it will bring, as you understood, capabilities that we're going to have to build going forward. And I'm very, very confident that we will speed up our capability to build Kering Beauté going forward.

[Operator]

The next question is from Charles-Louis Scotti with Kepler Cheuvreux.

[Charles-Louis Scotti, Kepler Cheuvreux]

I have three questions, please, a follow-up on Sabato De Sarno in Gucci. Could you please help us understand how fast will be the ramp-up of the share of Sabato De Sarno new collection into Gucci, total product assortment? He will present his first collection in September, but I suspect it will account for a modest share of total products at the beginning. So when do you think it will start becoming relevant at the brand level?

On the deal with Valentino, can you confirm that the option you have is a call option? And do you have a right of first offer over this asset? And also Mayhoola has other luxury assets, notably Beymen. Is this something you could consider as well, as part of the joint opportunities you mentioned in the press release?

And the third question on the price you paid for the stake. If I'm not mistaken, the EBIT was €147 million last year with €1 billion net debt including IFRS 16. So it would suggest something like 46x EBIT last year. Do you think this multiple makes sense? And I'm also curious to know on what basis the valuation for the remaining 70% will be set, if already decided upon.

[François-Henri Pinault, Chairman and CEO]

Regarding the first part of your question and the arrival of Sabato and the ramp-up cadence of his new product offerings, so as you mentioned, the show is in September, products in the stores in Q1 next year. And when you heard me about the amplification, how important is the amplification just after the first show, it's all about that, making sure that with this visibility of the product, even though the availability is not yet here, we give a strong visibility in the key flagship, for instance, on some key products faster than others, having the right window, having the right campaign because that new aesthetic will also have an impact on the existing product of Gucci. It will be wrong to think that we will only sell when all the products designed by Sabato will arrive in store. We will have a meaning that if the amplification is rightfully done, which is what Jean-François with the support of Francesca, Susan Chokachi, marketing communication and [Maria Cristina Lomanto] are working on to make sure that we have an immediate impact on all the product categories on all existing products as soon as the aesthetic go to the market. So we expect to have an impact not just when the products arrive, but before that, thanks to this amplification.

[Jean-Marc Duplaix, CFO]

Yes. Just to conclude on that first question, don't forget also that in the past few years, the brand has worked through -- also retailed some iconic products, especially handbags. So you don't forget, I imagine that 2/3 of the products in handbag as you saw are in the leather goods where it's carryover lines, and of course, we won't change overnight the carryover lines and anyway it's part of the game to have every year some [indiscernible]. So of course, it would be gradual. But at the same time, we want to see quite rapidly some impact with a clear new aesthetic being presented.

I just want to answer the details of the agreement with Mayhoola. I think that it's quite clear that we have -- for the second tranche, there are some multiple exit figures through options until 2028 with the latest -- so precisely in 2028 with a call, and I won't to elaborate more because as you can imagine, it's quite confidential in terms of deal. Beymen is not part of the deal, and it's not contemplated at this stage that there will be something around Beymen going forward.

When it comes to the price, you may know that -- or you know perfectly that Valentino being not a public company, and you have a few data about Valentino, but some of them have been made public regarding the performance of 2022. You have mentioned the EBIT. But typically, this type of operations that we are looking at is at the EBITDA and you may have noticed that the EBITDA was closer to €350 million in terms of EBITDA recurring, and it's really the basis for the valuation that we have mentioned, valuation of [100%].

[Operator]

The next question is from Antoine Belge with BNP Paribas Exane.

[Antoine Belge, BNP Paribas Exane]

Three questions. First of all, I think you mentioned that Valentino was quite unique and complementary to the portfolio. My view, it's equal to your brand and Saint Laurent is [indiscernible]. So if you can, I'd like to understand a bit the specific positioning or hear a bit more about how Valentino is really that different from a brand like Saint Laurent. And my second question is coming back on the previous question of [indiscernible] about the underperformance that you did, with the more normalization of certain bonuses in Saint Laurent in the U.S., because in the U.S. the retail performance was down 21%. So the impact of wholesale is somewhat high-end, so not so much about cash involved. And I don't think it's more in line than any other brand. So yes, I mean, should we be worried or whether it's something exceptional to see a further deterioration, down 21% is quite substantial.

And finally, regarding Gucci, if I understood correctly, in terms of margin for the full year, you said H1 was a good proxy for the full year. But in the previous earnings call, you had mentioned that in March, Gucci retail was at 10% like all the other brands, and then you ended at 1%. So I would expect that in June and probably July, on tougher comps, there was no COVID in China in those two months that the Gucci brand at the worldwide levels must be running negatively. So if that's the case, then please confirm that. And is it even seen to be maintaining the margin? I'm not saying maintaining, there's a slight decline, but at a time where as you [indiscernible] as analyst estimate, you could even -- invested even more than we saw, you were talking about teams increasing marketing. So that's where I don't really understand -- I was not expecting you to maintain a 35% margin this year.

[François-Henri Pinault, Chairman and CEO]

Thank you, Antoine. So coming back on the first part of the question regarding Valentino, the complementary or not with the portfolio and particularly Saint Laurent. Well, already, if you look at the campaign and the products, you can already see that the positioning is quite different statistic-wise. The aspiration in Saint Laurent, the silhouette and the attitude is at the heart of the aspiration of the brand. The sophistication of Saint Laurent is very different from the sophistication of Valentino, as we mentioned, coming from haute couture, which is not the aspiration at all of Saint Laurent. And when you look at the customer of the 2 brands, it's very rare that we have an overlap among our customers. I look at that with Saint Laurent, of course, but our customers are -- very, very few of them customers of Valentino at the same time.

So it's really two different positioning. One is a quirkier inspiring, the ready-to-wear. The other one is the vision of Anthony and through the -- because of the [indiscernible] of Saint Laurent of the vision of the world that is coming through the attitude and the silhouette of the Saint Laurent women that is driving the positioning of Saint Laurent. One is much more on the cocktail/red carpet type of positioning. The other one is little bit different from that. So for me, there is absolutely no overlap with Saint Laurent when it comes to Valentino.

[Jean-Marc Duplaix, CFO]

Thank you for your challenging question, Antoine. We never said that there was not a situation in the U.S., and we don't say that everything is coming from wholesale performance. You know that we provide always very transparent and candidly about the situation. It's true that there is signs of deceleration for Saint Laurent in North America. But Saint Laurent, like the other brands, is in a process of elevation. We have already mentioned the ambition that the brand has to increase the share of [DFC] in its total business, which is precisely the case. I can tell you and I can really confirm you that the figures are showing that we are growing fast in the high-end segment.

The context is that, in the past few years, if you compare the size of Saint Laurent in 2018 or 2017 and the size of Saint Laurent today in the U.S. or in North America, Saint Laurent has dramatically increased its footprint in terms of sales, not necessarily in terms of network, but in terms of sales, which is a self-entity, which is increasingly high still today. And it's true that it has been made through the expansion of online through the capacity of the brand to engage with more aspirational clients, but we are at a time when some products which we're targeting -- not targeting, but which we are very successful with aspirational clients, today, with the elevation of the brand, are above the equivalent of €2,000. So it's true that in that case, we are leading among the most aspirational clients.

To be honest, also, I can confirm also that the U.S. market being very challenging with the department store with some peers being very promotional, we decided not to have some marketing activities in the U.S. adding to the detriment of the business.

The last question is also a question which is coming quarter after the quarter, as if we were making the choice to protect the EBIT margin at any price without being conscious that we need to invest. The point is that, as we said already, is that first, we need to be sure that the investments we are making are paying off that we have the right level of investments with the right level of the quality of initiatives that are productive and are paying back. I can tell you that in the past few years, we have increased massively the resources allocated to [indiscernible] that we have increased a lot of the budget allocated to stores to communication and so on, and we will continue to do so.

But it's not because we will open [indiscernible], we have a lot of events if they are not well prepared, well anticipated, it will not produce a positive impact. That's the reason why we are changing also the organization to be sure that we have the right people at the right level in all the different layers that all the initiatives we have will pay off. And of course, as we said before, and I think I was very clear, if there is a need to invest more, we won't hesitate and if there is a part of reset to be made, we will do it. But as long as Jean-François has not given back his sentiment and his feeling and determined action plan together with Francesca and François, it's little early to tell you what will happen and to speculate on what will be our decision.

[Antoine Belge, BNP Paribas Exane]

Okay. Regarding my comment about Gucci being negative so far in July?

[Claire Roblet]

Antoine, I think it's -- we're not going to comment on a monthly basis. So -- and it's already -- I take the opportunity to say we're already having 1.5 hour of conference almost, so we're going to take the two last questions.

[Operator]

The next question is from Chiara Battistini, with JPMorgan.

[Chiara Battistini, JPMorgan]

I have one follow-up on Gucci and the management transition. And I was wondering in terms of the appointment of the permanent CEO, is there anything you need to see for that to happen in terms of maybe inflection of the organic growth or any positive signs or you're going to transition to the permanent CEO once you have identified the CEO even if the brand is not showing inflection? And on the elevation strategy of Gucci, is it just a matter of driving the mix up and introducing and pushing the higher end of your product portfolio? Or do you think there is a bit of cleanup also to do on the volumes and maybe on the more affordable side of the product portfolio? And last question on Japan, that was very strong in Q2 for Gucci and also generally better versus my expectations on -- for all Houses. Can you just remind us how much of the Japan is now tourism? And any indication on the Japanese cluster specifically and whether you are planning further price increases in Japan for the second half of the year?

[François-Henri Pinault, Chairman and CEO]

Thank you for your questions. So I will start with the management transition at Gucci. So again, my key word, my key priority was efficiency in putting back on track, Gucci, in terms of top line growth, particularly when we are approaching the relaunch of the new aesthetic of Gucci. So I'm not going to go back on that. I didn't want to have another transition because I was bringing at this moment of transition, a new CEO coming from the outside, discovering the company or even discovering the industry. So that was for me not an option. So we need to go through this transition, making sure that we are back on track. And then as soon as this is done, we will fine-tune the organization, fine-tune everything that needs to be reinforced, could be product development, it could be the supply chain also. And then we will, based on that, brought on board -- bring on board a new CEO in a company that is full speed going forward, where the priority is the development of Gucci above the market growth in the coming years. So this is when I will launch the search.

Again, you understood that we have, for years, at each brand, a permanent search -- a permanent succession plan, not only with internal candidate, but also with potential external candidates. So we already have a short list of potential people that could be suited. I don't want to urge that. It's not the priority today. The priority you understood is to rebuild the momentum of the brand. But as soon as we are ready, we already have some very clear idea of the profile that should be leading Gucci for the next 10 years.

[Jean-Marc Duplaix, CFO]

Realization strategy, you have a lot of different angles to look at it. Clearly, the point is not necessarily to elevate the brand by alienating the aspirational clients. It's just a question of being relevant in all the different clusters in terms of price and [indiscernible]. You know that we already mentioned historically that our brands and especially Gucci was very concentrated on a quite narrow range of price points. I think there is -- and on that point, we are making good progress in the more elevated part of the collection, still being quite okay in the core offer. And we need to continue to develop the entry price segment that maybe are missing relevance in certain cases in the offer. It's true that in H1, and it's particularly true in Q2, the growth was driven, first of all, by price, by AUR, volumes were negative. It doesn't mean that there is no cleanup to be made in the sense it's typically what Maria Cristina Lomanto is doing at Gucci, which is a simplification of the offer with the reduction of SKU in certain cases.

And what is even more important, it's about distribution. So I mentioned previously that, of course, it's not in the transition year, we will start to rationalize further the distribution. We made a huge effort in the past few years about ultra, but I can tell you that, going forward, there will be also some additional cleanup in terms of distribution, and that will contribute also to brand elevation. I will pass the mic to Claire as regards Japan, that it's true that Japan is doing extremely well. And before giving you some indication without tourism versus local, it's important to see that if our brands are successful in Japan with tourists and also local, it means that they are still very desirable, Gucci and the other one. So it's a good sign that our brands, to bounce back on previous question, are still demonstrating desirability and relevance of the market.

[Claire Roblet]

Yes. Thank you, Jean-Marc, and hello, Chiara. So for the mixtures, local is in Japan in Q2, tourists was roughly 30% of the mix, so more or less back to where we were in '19 before COVID, so 70% locals. You're right, Japan is quite attractive in terms of pricing. If I have a look with the currency movement, of course, Japan is more or less on par with Europe in terms of prices. So it's clearly the cheapest area now to shop in Asia. I will not comment on upcoming price increases, but there is, for sure, a question open on Japan, whether or not to adjust the prices, keeping in mind that there is good momentum with tourists, of course. It's a bit softer with locals in Q2, but the comp was very high with locals in Q2 last year. So that's a good question, but I will not provide indication on what we're going to do on the pricing there.

[Operator]

And the last question is from Louise Singlehurst with Goldman Sachs.

[Louise Singlehurst, Goldman Sachs]

We've got a lot of information in understanding just what you've been doing in the first half. So I'll keep them brief. Just going back to the Gucci and the management change and the transition, we've obviously had a lot of information and background already. But just to confirm, and given, I guess, the operational focus that we've seen from Jean-François over the years, can we just check that there's nothing more operational that needs a bit more focus at Gucci that we might be underestimating from the outside or anything that needs to happen, I don't know, supply chain distribution that could impact the growth profile above and beyond, obviously, the brand performance? And then the second question for Jean-Marc, just going back to the margins. I suppose, we're surprised at the moment with the level of investment that's going into Gucci, given the fact that we're waiting for a lot of the new product. Optimistically, can I ask whether this is a smoothing of the margin profile, i.e., despite the investment up ahead, we shouldn't see a step-down in margins next year, all else equal, for the brand and the new product coming through? And then actually, I will ask a third one, very briefly, just going on the Valentino deal. I wonder if you can just talk about timing. Why have the stars aligned in 2023 or whether that's been going on for a long time?

[François-Henri Pinault, Chairman and CEO]

Thank you for your questions. So to answer the first one about the management change of Gucci, as I said, Jean-François is immediately operational. I should have started my different comments over the different questions, but we have a very strong team in place at Gucci. We have -- as you know, we made some key change last year with -- in merchandising, in communication. So Jean-François can rely immediately on very operational and very skilled people at Gucci. Of course, there's always room for improvement. I know for instance, that in the elevation strategy of the brand, we need to raise our game in terms of quality of the products, for instance. There's also probably more agility to find in our supply chain to be able to go to different market that is better than we are doing now. Never forget that we scaled this brand in a very short period of time. So this has been achieved brilliantly by the team. But of course, we need to strengthen that and making sure that we can continue to go further. The potential of Gucci is, in my opinion, in the foreseeable future, above €15 billion. So Jean-François will, of course, work on the product development side, on the supply chain side also.

For the time being, the focus is, as I said, on the forefront of the brand, which is the new aesthetic and the amplification of that new vision in all the touch points of the brand, in the stores, in the campaign, in the events, making sure that we're not waiting another 6 or 8 months for this aesthetic to be established. So the amplification strategy that is being put in place just after the show would be absolutely key and all the teams, merchandising, communication under the leadership of Jean-François and the support of Francesca is already working actively on that.

[Jean-Marc Duplaix, CFO]

Before answering your two last questions, I would like first to apologize because I understand that there are still few people to ask questions. I think François has been very generous with his time today. But clearly, as usual, the IR team will be available to take any follow-up, so sorry, again, and we'll try to be as comprehensive as possible in our answers.

When it comes to the margins, I can just repeat what I said before, I understand that, first of all, it's a little bit too soon to say what would be the profile of the margin going forward, starting with H2 and even more for next year. I think that I want to be clear again on the fact that there is no obsession on our side or sort of dogma to increase by few bps the EBIT margin. That's not the [indiscernible]. We are very lucid, we have a new organization in place, and we will work because we know that the competition, not only the big competitor, but globally in the market, you have a lot of investments. You will have noticed that we are not afraid to invest in the supply chain as we did this semester, we are not afraid to invest when needed to -- in real estate or to gain some locations, not only by buying assets but also sometimes by negotiating some rent. We are not afraid to also engage with celebrities and ambassadors. We are not afraid to organize big events. So if we need to go further, and once again, if we need to hit the EBIT margin of Gucci going forward, we will do. But still, with this objective, which is, I think, quite realistic to reach the €15 billion mark with profitability and we'll be closer to the 40% margin.

Last point regarding Valentino, I want to be very clear on the fact that we have started to discuss very recently, and we went quite fast on the discussion and the reason why we announced today because we wanted to sign a deal before the summer, and it was part of the theme of the discussions to go very fast.

[François-Henri Pinault, Chairman and CEO]

To complete that on the M&A strategy, and that's my role at the group level, I keep relationship with many of our colleagues on the luxury market. I see them regularly. We had contact in the past years with Mayhoola. And you know they were not selling nothing, but it's also by entertaining those good relationships with potential company that could fit in the portfolio, that things happen. So we were proactively working on some targets, and this is how it happens.

[François-Henri Pinault, Chairman and CEO]

So thank you very much for participating in our call and for your interest in Kering. I hope that Jean-Marc and myself have convinced you that all our actions and initiatives contain the seeds of our future success. The recent changes in our organization, also the Creed acquisition and now our investment in Valentino, all open to an exciting new chapter in our history, and we are very, very enthusiastic about the coming period.

I wish you a pleasant evening and a very nice summer. Thank you very much.