Kering SA

PAR:KER

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Kering 2019 Third Quarter Revenue Results Call. [Operator Instructions] I need to remind you this conference is being recorded today. And now, I would like to hand the conference over to your speaker today, Mr. Jean-Marc Duplaix, Chief Financial Officer. Please go ahead, sir.

[Jean-Marc Duplaix]

Good evening to all of you. We are pleased to review with you Kering's sales for the third quarter of 2019.To start with, a housekeeping note. Moncler has its earnings call immediately after ours, so we will keep this call to 1 hour.On Slide 4. Total reported revenue was up 14.2% to EUR 3.9 billion and 11.6% comparable, implying an FX tailwind of around 2.5 percentage points. There was no change in scope.Three elements are worth highlighting here. First, the increase in revenue was fueled by all our reporting segments. Gucci did account for over half of the growth in euro terms, but Saint Laurent, Bottega Veneta, our Other Houses and Kering Eyewear all contributed to our good overall performance.Second, in Q3, we achieved balanced growth across our portfolio. These 2 factors underscore the virtue of Kering's multibrand model, the desirability of our brand and the quality of the execution by our teams. And third, our trajectory from Q2 into Q3 shows a steady pace of consolidation on top of very high comps.All this was achieved in an environment that, as you know, has been subject to quite a lot of disturbance.Turning to our Luxury Houses on Slide 5. Altogether, they posted sound growth of over 11% comparable. Revenue came close to EUR 3.8 billion. The impact from currency fluctuations provided more than 2 percentage point support, with reported growth closer to 14%. Retail, which represented 76% of revenue, was up 12% comparable.By region. Asia Pacific achieved the best growth despite heavy disruption in Hong Kong, down more than 35% in the quarter. The weight of Hong Kong in our Q3 retail sales was less than 4% compared to roughly 6.5% in full year 2018. Mainland China and Korea posted high growth rates either in line with Q2 or slightly above. This is driven by strong domestic consumption, more repatriation and some redirection of purchases.Western Europe and Japan both grew 12%, roughly consistent with Q2. In Western Europe, Italy and the U.K. were in evidence, while in France, our brands had more contrasted showings, depending on the relative mix of local versus tourist in their respective clientele.In Japan, local drove the growth and brought forward some purchases in anticipation of VAT hikes in the last 2 weeks of September.North America was up single digit, with contrasted market conditions compounding a high comp base, exceeding 30% in both Q3 2018 and 2017. Overall, tourism was a drag in the region.Conversely, traveling North American clients were particularly dynamic at all of our brands, notably in Western Europe. More broadly, for our 3 main brands, all nationalities grew in the quarter. The sole exception was Middle Eastern customers as in H1.Once again, the Chinese cluster stood out and the repatriation of spending continued, with domestic purchases accounting for half of their worldwide spend.Our brand e-commerce grew a solid 20%, and wholesale advanced 9%. The trend in royalties from eyewear and beauty was also sustained. As you know, creativity of our Houses is core. All the Spring/Summer fashion shows, held in late September, early October, were widely acclaimed. Gucci, Bottega Veneta, YSL and Balenciaga all ranked high in the various top 10 list. They also demonstrated their ability to subtly open new chapters in their creative proposition and brand narrative.At group level and in each of our brands, we continue to develop our growth platform from online, CRM and AI capabilities to logistics footprint and capacity. Finally, as regards our retail network, we had 1,345 directly operated stores at the end of September.Let's turn to Gucci on Slide 6. Gucci delivered on its ambitions and posted very sound double-digit growth, up close to 11% comparable. Retail and wholesale rose 11% and 10%, respectively, and royalties were up more than 30%.By region, the performances are broadly similar to the trends I just mentioned. Gucci is implementing its strategy with determination, in line with the road map you all know well. Its brand desirability is strong and fuel healthy growth in key product categories. The design and merchandising teams are constantly innovating to maximize the efficiency of the offer across categories. They inject pure newness into the lineup while, at the same time, enlivening the strong carryover base.Regarding distribution. Growth is driven by continuing progress in retail metrics, first and foremost, conversion rates as well as ongoing rollout of the new store concept and effective customer engagement tools and campaigns.In addition, a steady flow of investments in marketing and communication initiatives are instrumental in further elevating brand experience.Moving to Slide 7. Yves Saint Laurent delivered another solid quarter with comparable revenue up nearly 11%. Retail was up 11%. The brand is somewhat penalized in Western Europe by its over indexation to France, and in Asia Pacific, by its relative underpenetration in Mainland China. In wholesale, Saint Laurent grew a sound 8%.Saint Laurent enjoys large untapped potential. Its brand equity is very distinctive and carefully nurtured through spectacular fashion shows, iconic products and silhouettes. When it comes to product categories, the brand also has significant headroom, especially in ready-to-wear and Shoes.And as I hinted on my comments by region, its network expansion is still ongoing, with opportunities to rebalance its country mix, increase its penetration and visibility in key markets and in travel retail. Recent openings in Mainland China and Italy are important milestones in this direction.On Slide 8, you see that Bottega Veneta's momentum is building up. Revenue was up 7% comparable driven by retail, up 8%. We are pleased with the progress of the brand and the great success of the new product introductions for women in handbags, Shoes and ready-to-wear, that are more than offsetting the downtrend of the previous collections. The response from both existing and new customers is very enthusiastic, especially with local clientele in Western Europe and North America.On the flip side, the brand is impacted in Asia Pacific by its exposure to Hong Kong, and to some extent, by the gradual ramp-up of new products and the adaptation of Bottega Veneta's production setup.The second fashion show, under Daniel Lee's creative direction, amplified the initial success of the more fashion-centric approach. Feedback is extremely positive and reinforces our confidence.Under its new CEO, Leo Rongone, the brand is investing to strengthen its teams, integrate new skills and capabilities and is accelerating its marketing and communications investments. Action plans are also in place to speed up production and ensure sufficient new product inventory level, a process that is likely to take another couple of months.Let's look at our Other Houses on Slide 9. Altogether, they delivered solid double-digit growth, with a particularly strong retail, up sharply in every single region.In soft luxury, both Balenciaga and Alexander McQueen had very strong quarters across the board. The Balenciaga fashion show, particularly well received, marked a new stage in the House's evolution, with a strongly emphasis on tailoring.Promising reception of recently launched handbags highlight the potential of the leather goods category for Balenciaga. Both Houses are demonstrating their ability to expand beyond their initial comfort zone, supported by a determined push into retail and greater control over their wholesale distribution.In hard luxury, Boucheron had a good quarter in jewelry and high jewelry, with a strong retail performance boosted by Japan in September. The Pomellato brand also continued to do well, notably in Europe. In watches, once again, the performance was constructed in a generally tight market, and Ulysse Nardin had some very encouraging breakthroughs, thanks notably to the success of its recent product launches.A word on Kering Eyewear, which accounts for the bulk of revenue from corporate and other, on Slide 10. Consolidated revenue was up about 30%, with solid double-digit growth in all channels and all geographies. Our largest brand continued to deliver outstanding performances while Balenciaga and Montblanc, launched more recently, are proving highly successful.So to conclude, as we've noted on Slide 11, we are pleased with the performance of our Houses in the quarter and confident in delivering another solid year.The desirability of our brand is undiminished, constantly nurtured through creativity in all directions and relentless attention to meeting the expectations of our customers.We are particularly satisfied with the response from existing and new customers to the relaunch of Bottega Veneta. We expect the House to gradually return to the status it deserves within our ensemble of brands.We are investing systematically and significantly in all our Houses, starting with Gucci, to activate the full growth potential of the group. We are doing this with an eye to maximizing the return on our spending, methodically allocating resources across Houses and within each one to the projects with the greatest brand-building impact over the long term.And the world around us is not getting easier to make sense of and to forecast. We have the right tools in place to monitor our environment and the right action plans ready to respond swiftly to changes wherever they come from.This being said, our growth is healthy, it is consistent with our strategy to build our Houses and the group for the long term. And we are confident in our continuing progress.With Claire, I am ready to take your questions.

[Operator]

[Operator Instructions] We will now take our first question, and it comes from the line of Antoine Belge from HSBC.

[Antoine Belge, Global of Consumer and Retail Research]

It's Antoine at HSBC. Three questions. I think Gucci showed stabilization in several region. One of the causes of negative is the U.S. I think you mentioned that it's only in September that you were able to do marketing again, et cetera. So could you maybe comment a little bit on the progress there? And if you're confident that you could maybe return to positive growth in the fourth quarter. Second question relates to Hong Kong. As you mentioned, sales down 35% in Q3. I guess July was not that bad. And then probably September, more negative than the 35%. And it seems that golden week in Hong Kong has been very, very weak. So could you comment and so there? And are there any action that you could take? And finally, on Bottega. Purely looking at the numbers, it seems that it's really Europe and U.S. that have picked up on the new Bottega products. So is this the case? Or is it more that actually there is demand attraction in Asia, but because of the exposure to Hong Kong -- actually, it's not a question of the different consumer reception that modified the impact of Hong Kong.

[Jean-Marc Duplaix]

Antoine, thank you for your questions. You mentioned the stabilization. Let's say that what we see is the consolidation of the growth in many regions. It's true that we see a stabilization of the traffic, which was expected. And that's the reason why we have put the emphasis on all the KPI, all the metrics regarding retail, and that we saw an improvement of many retail KPIs. As regards more specifically to the U.S. It's true that besides all the comments we have already made in H1 about the macro environment, which has not improved definitely in the U.S. with the drive of tourism and consumer sentiment which is deteriorating, let's say that after 2 years of massive growth, it's true that we have a situation in the U.S. for Gucci where there is, here, a decrease of traffic but an improvement of the retail metrics. This improvement is not enough, of course, to offset the decline of traffic.It's true that we have started some initiatives. We have raised some initiatives at the time of the back-to-school, especially, for example, with the windows of Saks from the Fifth Avenue. We had also store events to promote personalized engagement around newness. We had some more communication activities. Of course, we have more diversity engagements. So this was what was scheduled. Of course, we can expect that it should rather bear fruit in the comings months. But at the end of the day in the U.S. compared to Q2, Q3 was more or less in line with Q2 with no further deterioration but not any improvement. And let's say that the main patterns of consumption we had described for the U.S. in Q2 were still the same.As regards -- and just maybe your point, which is important to mention, just to conclude on that question on the U.S., and it's very important to us is that overall with the American cluster, Gucci is up in terms of sales. If you consider the American cluster, with a slight improvement even compared to Q2. You know that U.S. tourism has been particularly strong in Europe in Q3, and Gucci has benefited from this positive impact. So overall, it's positive with the U.S. cluster even if it's not the most dynamic one of course.In Hong Kong, just to comment or to elaborate a little bit on your question. I would not say that July was not too bad. It started to deteriorate. June was -- the end of June was already more complicated. July was negative. And it's true that there was a massive deterioration, especially in August. In September, what we can say overall is that there was probably sometime or lag before repatriation of some purchases to other destinations so that there was more offset of the lost sales in Hong Kong in September. So August, overall, was not -- is the best month of the quarter. And what we can say that the golden week has been not strong at all in Hong Kong definitely. Of course, Hong Kong is particularly impacted with the lack of Chinese buyers. But also, with the local clientele, there is a decline even if we saw some shift of consumption to other regions and especially Europe from Hong Kong. Overall, let's say that the trends are -- they are still negative so far in Hong Kong.Regarding your question on Bottega Veneta. I think, that definitely, I think that the new styles resonated very well with the local customers of the major countries, so U.S. and Europe. The Japanese client, which is an important cluster for Bottega Veneta, is also growing but more modestly. You know that this is generating clientele which is more conservative, and we saw that at the time of change in particular at Bottega Veneta.And the Chinese culture for -- at the time of the change at Gucci, sorry. And the Chinese cluster is, for the time being, lagging a little bit behind. Still up on the domestic market. But of course, we -- Bottega Veneta is penalized by the situation in Hong Kong because Hong Kong was a very strong market for Bottega Veneta.But overall, I think it's really what we were targeting. It was to start with the ready-to-wear part, with the Shoes also category. It's true that we have launched some very sophisticated bags which are resonating well with all the clienteles but first and foremost, with the clientele of the major countries. And I think that it's really what we have to do in order to rejuvenate the brand and maybe we will have the occasion to discuss about this. But the profile of the customers has changed. We have been able to attract existing clients, but -- which is also very important for us to attract new clients and younger clients.

[Antoine Belge, Global of Consumer and Retail Research]

Just to make sure that I understood. So you expect that progressively, whatever the situation in Hong Kong, you -- there would be a bit more repatriation or, let's say, ability to recoup the lost sales in Hong Kong as we're -- after a visible lag?

[Jean-Marc Duplaix]

I think that's what I said, to be -- trying to clarify what my answer is that August probably was the weakest month because there was not, at that time, such a massive repatriation or shift to other regions. September was better in that sense. So that overall, at the end of Q3, we cannot say that 100% of the sales, which has been lost in Hong Kong, has been recouped as well.I think that we have also adapted the replenishment process and the supply chain in order to be able to deliver the other regions and to reallocate some products initially that was -- that were initially intended to be sent to Hong Kong to other regions. And we believe, clearly, that there is a repatriation, which is obvious when you consider that you have half of the purchases by the Chinese clients, which are made on the domestic market.

[Operator]

We will now take our next question. It comes from the line of Thomas Chauvet from Citi.

[Thomas Vincent Chauvet]

I have a few question on Gucci exclusively. The first one on sales outlook. Very good set of numbers, Q3. It feels that you're talking about a stabilization in trend. Would you be able to give us a flavor of your expectations for the fourth quarter? I think you did that about a year ago. Chinese spend is good. You have easier comp, anniversary of the yellow vests, step up on marketing in the U.S. Should we expect more stable trends from here, i.e., potentially double-digit growth at Gucci in the fourth quarter than your normal? And on the margin side, secondly, I know it's a sales call, but I want to come back to what you said at half year about the next year and the year after. You -- can you confirm that you are still expecting about 150 bps gain at EBIT margin level for Gucci and the other brands from the repatriation of the Swiss-based logistics center into Italy? And this was, I think, because of the free trade agreements. Could you just recap those markets that will benefit from those free trade agreement? I think there was Korea and a few other EM. That would be useful. And just a very quick word on, thirdly, on beauty and the Gucci makeup launch. Are you satisfied about the first few months in terms of sell out, if you've seen the data in terms of the product range, the quality of the doors? And is your relationship with Coty improving on the overall beauty business? I'm thinking the fragrance part in particular. Is it a business that you could consider taking over at some point when the license agreement expires?

[Jean-Marc Duplaix]

Thank you, Thomas, for your questions. And next time, we will organize no more a sales call but more budget or forecast call so that we can answer your questions about the EBIT margin for next year and 2021. Trying to answer to your question, and in fact, I want to answer. Basically, because what we say is that -- and that's very important to us. I think that the Gucci teams have worked very hard to deliver the trajectory in terms of sales, in terms of profitability that had been presented by Marco Bizzarri during the capital market day in June of '18. And in fact, we continue and this is the objective to deliver. We know that the environment is more complicated. We know that we had a weakness in the U.S., but overall, we consider that we are in line with our growth ambition going forward, but also basically starting with the fiscal year 2019.And I've mentioned previously during our H1 call, I think that high single-digit growth for H2 is something that is marginally achievable. And there is no reason to make any changes to this ambition. So I won't comment further on that ambition, which is super clear and we won't deflect from that ambition. And I will make the same comment for next year in terms of condition of sales. I think you have to stick to the presentation made by Marco.As regards to margin, let's clarify a little bit. What we had mentioned during the H1 call is that we should benefit from some savings or some, let's say, reduction of tariffs due to the transfer of some -- already some logistic activity, not all, but we are starting to move some flows to Italy in order to benefit from free trade agreements. And that should mitigate both of the increase of the tax rate that we have mentioned. So we have said at the time that it would offset as -- in the long run, but already next year. But in the long run, it should offset as of the tax average rate increase. And it was not a comment about the EBIT margin. You can imagine that -- and I was probably one of the first one to mention that in this industry that to increase EBIT margin was more challenging today in this environment when -- where we are struggling to get and protect market share. So we have still ambition concerning the growth of the top line, to increase EBIT margin. And once again, we are, let's say, quite comfortable with the trajectory we had shared with you in June '18 and that we have occasion to comment on since then. So I will stick to this ambition and to also improving the profitability of the brand.Now regarding the beauty license. It's true that we had very interesting developments recently, and I think that the most recent launches have been quite successful at Gucci, especially with the new fragrance, Mémoire d'une Odeur, which was really a very successful launch. That was amplified by some very interesting activities on social media. And we had particularly a very stronger and interesting activity on that. I think on Instagram, Instagram beauty, where we had gained very rapidly a very significant number of followers. So it's very encouraging. Now we are just at the beginning of this relaunch of this segment, this activity. So now, we have to contemplate in the long run how this development will be sustained.If Coty will be able to be successful with the animation of this fragrance, new fragrances. Also with the animation of the other fragrances, existing fragrances. The lipstick has been a success definitely with very significant units already sold. And we saw that the market share of Gucci on the market was increasing. That's very positive definitely, but I think it's very early to comment on. Let's see in the coming months how it will continue to develop. But I think it was interesting to see that the combination of the investments we made with the new people in the teams plus the work done by Coty start to bear fruit.

[Thomas Vincent Chauvet]

And when does the contract, the agreement, the licensing agreement expire?

[Unknown Executive]

Thomas, it's Claire. You know we never comment on any expiry date.

[Operator]

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

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

The first one will be on APAC. Could you maybe share with us -- I know the comps were pretty similar on a 1 year basis but they were fairly complicated on a multiyear basis in APAC. So I was wondering what -- clearly, Hong Kong was a very big negative impact. What are the markets that actually compensated this? Did you see an acceleration more specifically in Mainland China? And what did the Mainland Chinese cluster actually do for you in quarter 3 compared to the previous quarters? That's my first question. The second is on byproducts. Would you be able to share with us whether there were some standout products within the Gucci performance this quarter, please?And my third question is on Yves Saint Laurent -- on Saint Laurent, sorry. It was penalized by your lower exposure in Mainland China. Is this something that you foresee you will address in the coming quarters that you will seek to accelerate the expansion in Mainland China more actively given the background of Hong Kong persisting?

[Jean-Marc Duplaix]

Thank you, Melanie, for your questions. Yes. I think that if we look at APAC, and my answer will be on the -- all the luxury houses. And if we look at retail, it's true that in Q3, if you look at the different indicators, the 2-year stack, 3-year stack growth, in a way, Q3 has been very consistent with Q2, but with some, let's say, changes in terms of destinations.And it's true that what we saw is that there was a massive repatriation, as we say, in Mainland China, which grew very strongly, especially on a very high comp base because Q3 '18 EBITDA and, in particular, was strong in Mainland China compared to Q2 '18.And it's true that we have reached not the peak, but a very high level of purchases made on the domestic market, 50% overall for the whole portfolio of brands is clearly something we're not used to.If we look at the other regions in the -- at the other countries in the region. Definitely Korea has been particularly dynamic still thanks to local clientele, but also of course benefiting from the repatriation of Chinese purchases, especially in the Duty Free channel because of course the price gap is very favorable in Korea. Singapore has benefited a little bit also, as Australia. Macao was finally not too bad, especially at the end of Q3. The beginning of the quarter was not good in Macao. And at the end of the quarter, it has improved. So overall, there were clearly some countries which have benefited from this repatriation. These are the countries that I mentioned. Otherwise, in the region, trends were okay or fairly okay, but there's no evidence of repatriation. And if I consider Japan, clearly, Japan has not benefited from this shift, probably because of course of the price gap. Now if you look at the Chinese cluster, it's still up, massively up. Of course it's very difficult to analyze considering also the comp base we have. And what we have mentioned about what is underlying in your question on Saint Laurent. But overall, it's very positive. And once again, it's quite well balanced across the different tiers in terms of city. And at least, it's true that the anniversary for the Chinese revolution may have slightly impacted the traffic in Beijing at the end of Q3 and especially at the beginning of Q4, but with marginal impact at the end of the day.Your second question was about the product categories. I think that all key categories at Gucci grew quite well. It was particularly strong with the leather goods, of course. The handbag category is continuously posting very solid results. And clearly, the iconic pillars have confirmed their success and are key drivers of the group. But we also have some very successful launch, and I think the performance of newness is also very positive.I think that also small leather goods [ and retail ] performance is strong. But you may remember that this is where -- what we think about categories which were maybe a little bit longer to revamp and to change, so they are benefiting from that. And Shoes and Ladies Wear are posting robust trends, but normalizing on a very strong comparison base over more than 2 years, especially Western Europe and in the U.S. And this category is probably a little bit more -- obviously a bit more penalized by the situation in the U.S. And what is more interesting is that this category is driven by a strong appreciation of both carryovers and novelties from the season. So that's quite encouraging to see that the performance is well balanced between newness and carryover. And when it comes to all the other categories, which are the traffic drivers, they are performing extremely well.Your last question was about Saint Laurent. Yes. So it's a very fair point. Saint Laurent came in China or penetrated the Chinese market later compared to Gucci or even to Bottega Veneta. It's a brand which awareness in China is quite strong, but probably not comparable to the level of [ Brioni ] and reputation that the [ Brioni ] have in Europe or in Japan, of course, in Korea or in America. So that in the beginning -- 10 years ago, it was probably more difficult to get the best locations. So now, we are catching up, so that we have been able to open 3 new -- the first 3 flagship stores for Saint Laurent in the country, very recently, at the beginning of '19. And clearly, it's one of the region where we'll continue to invest. You can imagine that the plan now is not to accelerate in Hong Kong, and there is no, let's say, a plan of opening stores or [ rooftop businesses ] I think we have the right size of network. And even we can consider what we will do in terms of network or at least in terms of renegotiations of [ France ]. But in China, clearly, we have some opportunities in front of us. And among the openings we have planned for Saint Laurent, China was one of the regions where we had a significant amount of openings.

[Operator]

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

[Thierry Cota, Equity Analyst]

Actually, I'd like to stay on Saint Laurent from 2 angles. First, on the retail growth number, the 11%, could you give us an idea of the breakdown: how much was space, how much was like-for-like [ enhance ] and maybe mix and price because I'm worrying if volume, on a like-for-like basis, hasn't gone down a lot if not to zero or lower. And secondly, you did mention the weakness in terms of geography. I was wondering if there were not some comments also to be made from a product viewpoint and some of the -- maybe some issues to address on some of the product categories, if you could elaborate on that. And maybe on a different point on Hong Kong. If we could get some granularity, some differentiation on what happened in Q3, this minus 35%. If you could give us an idea of whether between product categories or locals versus tourists or wholesale versus retail or even different brands, if there was some interesting or relevant differentiations to be made or if everything was pretty uniform.

[Jean-Marc Duplaix]

Thank you, Thierry. As regards to Saint Laurent, I think the answer is quite simple because it's exactly in a way that had been presented by Francesca Bellettini, the CEO, in June '17, meaning that there would be a point where the sales density would reach a point in the existing network when the contribution of the space would probably become higher than the like-for-like growth, which is exactly the case now where we are able to increase the sales in the existing footprint. But it's true that there is a contribution of store opening, which is completely needed considering what -- the comment I made about China and some other regions where we are clearly, we have untapped potential for the brand.And definitely, when it comes to the like-for-like growth, and it's very connected to your next question about the categories. It's true that, as we already mentioned also, Saint Laurent is particularly strong historically in ready-to-wear and Shoes because this is part of the DNA of the brand. But when we look at the recent growth of the brand, it has been clearly driven by the success of the leather goods collection. And we need to amplify the developments of the ready-to-wear and the Shoe category. So there was some work done in terms of collections but also in terms of price architecture to be sure that we are addressing a broader scope of clients, a broader base of clients with, as a result, not a decrease of the prices, but more because of the ForEx architecture has changed on the price mix. So that, at the end of the day, in terms of average selling price, there was some impact. So overall, what we saw in Q3 was an improvement in terms of the volume sold in ready-to-wear and Shoes, which is exactly where we were targeting, but not translating directly into the same percentage of increase of sales because of this rebalancing on this price architecture. So I think that to conclude on Saint Laurent both for the retail trends and for the split by categories. In fact, Saint Laurent is just executing the plan, which is now to continue to invest in new markets, open new stores where clearly the brand is underdeveloped, but also working on the category so that we have development which is more balanced across categories. And clearly, we have room for improvement in some categories. I can tell you that as you -- maybe you will have a look at the recent fashion show. And I think it's going really clearly in the very right direction.

[Thierry Cota, Equity Analyst]

Okay. So what you're implying is that you have already -- the ASP is actually potentially in some categories, falling or being be adjusted to get to a pricing that you think could be -- could continue to boost volumes. Is that what you're implying?

[Jean-Marc Duplaix]

What I say is that there was a need to be more balanced in terms of price and just to be sure that we can address all the different types of clientele, I remember here also that, for example, in Shoes, there was no -- also in the sneaker category, the objective is not to increase that category because it's not a necessary clear run with the DNA of the style of the brand but there is room to add a sneaker offer, which tend to be very successful both in the store and online. But as a result, in terms of average selling price, it's done. And it's not just to push the volumes. It's just because we want just to be more frugal as a brand, and we need to engage with different profiles of clientele.

[Unknown Executive]

Yes. So Thierry, coming to your first question about Hong Kong. I think there's nothing very specific here, to be honest, to mention. I think Jean-Marc gave you the Q3 sales decline in Hong Kong. All the brands have been more or less in the books and [ were quite ] so, I would say, between minus 30% and minus 40% more or less.Now of course, depending on the brand, their exposure to tourist is slightly different, but it can be, I would say, 70% to 80%, depending on the brand positioning. And of course, the bulk of the decline comes from the district part. And for the Hong Kong resident, all the brands have negative but to a much lesser extent. I mean they're also seeing negative growth, but much more moderate than what we saw with tourists. But there's nothing specific to call out without any product -- specific product category or whatever.

[Operator]

Your next question comes from the line of Rogerio Fujimori from RBC Capital Markets.

[Rogerio Fujimori, Analyst]

I have 3. The first one is about Gucci retention rates. I was just wondering if you could share with us any color on roughly how much of the growth for Gucci is coming from new customers? How much from existing customers? And how this compares to what you've seen in recent years in terms of contribution from new versus existing customers? Just trying to spot if there has been any change in trend. The second question is about an update on e-commerce growth for Gucci globally and in the U.S., in particular. Update on your progress in Asia and preparations to internalize lineup operations in a few months' time, still expecting you [ through ] any impact next year? And my third question is about the next 7 store openings for Gucci between June and September, which is mostly selected buybacks. And should we expect a similar number of net openings in Q4?

[Jean-Marc Duplaix]

What has been noticed, what is noticeable for Gucci in terms of KPIs is that what has improved massively is the conversion rate. I think that we had, in the past few years, a lot of traffic in the stores but not necessarily of people who were buying. There was more curiosity sometimes about the brand. So what is important is that today, and it was also the [ top board ] of putting in place a lot of tools and laborers to capitalize on the existing clientele base, was to work now about clienteling and also engage in a better way with the people entering the stores.So the conversion rate has increased. The average ticket is also up, the units per ticket, and also the -- there is the cross-selling. When it comes to retention, I think that it's very mixed depending on the regions. There are some regions where, of course, the retention rate slightly declined. But overall, it's quite stable. There are some regions where we are making some progress. Also, if we consider certain cohorts of clients, you may see some stabilization. We have reached, I think, quite normative levels in terms of retention, so it's not a KPI where we expect to observe a now massive increase because we are at a level we are expecting for a brand of this size and also considering the positioning of Gucci, which is probably a little more fashion confident compared to some other brands, with, let's say, more stable base of clients.I think we are at the right level. So overall, nothing to mention specific on the retention rate. And also because -- as it was the case for the overall trend, it's a somewhat contracted situation across the board. So overall, I'd say that it was satisfactory in terms of retention.E-commerce grew double digits for Gucci in the third quarter. It was slightly above 20%. And it was a very strong growth in almost all regions. In Europe, Europe was very strong. And China. Of course, China developed very rapidly. We are very happy with the progress made in China. So that's not on a year-to-date basis but just for the quarter. Let's say that China, in terms of size, was number 2. On a year-to-date basis, it's #3 in terms of online business just behind the U.K. It's clear that in the U.S., the situation was more challenging. And I think that generally speaking, the online business is a good proxy of the business that we can make in the stores. So that's normal considering the situation of the U.S. And also basically because -- and again, the comp base is very high on the online business which was very massively in the past few years that -- in the U.S. The traffic was still up online but with a lower conversion globally speaking online. Just your question on the lineup. So it's not concerning, of course, Gucci. We are talking about the Others brands. I think that there is nothing to add compared to what has been already explained and especially during the digital Capital Markets Day. We are on par with the plan. And the teams are working hard to be ready. And I think that's the right moment now to internalize that business which is developing very well with the brand. And I was mentioning the fact that online is a good indication of the evolution of the offline sales. And that's interesting to see that, again, it plays very strong online, it's a very strong rebound of the business online.There is more or less a doubling of the activity online [indiscernible]. What's even more important now to internalize the business, but nothing to say about the timing and impact on the P&L, which I think already described during the capital markets day.

[Unknown Executive]

Yes. When it comes to the store opening of Gucci, Rogerio, I think it's a healthy mix of what we've said. I mean, in Q3, for example, we opened high [ storey ] in [ indiscernible]. There was a big [indiscernible] opening [ here ] in Shanghai because we were waiting for quite a long time to move to plus 66%. So that is done. It doesn't mean that, at the same time, the same quarter, we have slowed there over the others, so we had in [indiscernible] just in front of it. So you might have a little detail of, I would say, saving impact. Then I think there were 2 or 3 openings in travel retail in some new airports, which is in line with the [indiscernible] so achieved a healthy mix. You also have to have in mind that since we are now on this building approach, the next slightly different [indiscernible] in a building but you still have one, it's not captured that in the same way as it used to be when we were counting on a directly operating approach. So this is a previous approach. So you should also keep that in mind that we can elaborate after the call, if you wish.

[Jean-Marc Duplaix]

Okay. Since we are running a little bit out of time, Ina, we are going to take a last question.

[Operator]

Your last question will be from the line of Omar Saad from Evercore ISI.

[Omar Regis Saad]

One clarification, and I have a couple of questions. Did you guys say that your business with the North American consumer globally turned positive in the third quarter? Was that the message when you were talking about the U.S. on a global basis?

[Jean-Marc Duplaix]

Yes. It was already positive in Q2, and it's still positive and it's slightly improved compared to Q2, yes.

[Omar Regis Saad]

Got it. Okay. So I just wanted to ask as a follow-up to the capital markets day. Obviously, at that meeting, you spent a lot of time talking about your digital and technological capabilities. Are there any updates on some of the key initiatives you talked about there, whether it's the app for the consumer or the salesperson app or the AI machine learning, where you really see those benefits starting to trickle into different parts of your business?

[Jean-Marc Duplaix]

Okay. I will try to answer very shortly because I want to give the floor to our friends of Moncler.I think that what we can say that we continue to roll out the [in share] solution, which is the app for the sales associates across -- also across all the brands and we have extended the geographic coverage. And we have more stores now with where we have some of the associates equipped with the application. And it clearly does help in the improvement of the retail KPIs. It's very instrumental.As regards artificial intelligence, we will start to implement further some prediction models for replenishment and allocation, starting with the new collection of the next season. So it's very gradual, but when it was more the pilot or test, and now, it will be based on real data and real deliveries. So that's another important stage. So I mentioned [indiscernible] clearly here, there is an acceleration of the initiatives because we need to be ready on time. And as regards the -- all the implementation of the different solutions, we are working. It should ready on time also for all the [ ATP ] solution and all the solutions to be plugged on a CP.So I think that what we can say that there was no impressive milestone achieved, but at least we continue to roll out with the different solutions. And I think really that the results achieved by our brands and especially Gucci is really the outcome of the initiatives that we had implemented for a few years as regards clienteling and tools to be provided to our sales associates.So now, we are just on time. So well, thank you for -- all for being on the call today, and thank you for your questions. I know, unfortunately, that there were a lot of questions, and we were not able to answer to all the questions in the pipeline. So we are really sorry we couldn't answer all of them. So I wish you a very nice evening. I know it's going to be a busy one for many of you, so we made sure we finished on time. And if you have some other questions, of course, please call Claire and the team.

[Operator]

Ladies and gentlemen, this does conclude your conference for today. Thank you very much for participating. You may now all disconnect.