Kering SA

PAR:KER

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by, and welcome to Kering's 2021 Third Quarter Revenue Conference Call. [Operator Instructions] I must advise you the call is recorded today on Tuesday, the 19th of October 2021.I would now like to hand over to your speaker today, Mr. Jean-Marc Duplaix, Chief Financial Officer. Please go ahead.

[Jean-Marc Duplaix]

Good evening to all of you and welcome to Kering's Third Quarter 2021 revenue call.Starting on Slide 4. Group revenue reached EUR 12.2 billion in the first 9 months of the year, a strong year-on-year increase of 34.5% in reported terms and 36.6% comparable. Revenue is up 9% comparable over the first 9 months of 2019, a slight acceleration versus H1 when the 2-year growth rate was 8%. In the first 9 months, revenue from our Luxury Houses grew 36% comparable or 8% on a 2-year stack.Focusing on Q3. Reported group revenue was up 12.6% year-on-year, reaching EUR 4.2 billion. Comparable revenue growth was nearly equivalent, implying a modest FX tailwind. On a 2-year basis, group revenue was up 10% comparable, a consistent growth rate compared to Q2 and 2 points ahead of the H1 growth rate. Revenue from our Luxury Houses stood at EUR 4 billion in the quarter.On Slide 5, some insights on growth by channel. Retail, which includes e-commerce, accounted for 77% of revenue and grew 12% year-on-year, 11% on a 2-year basis. Worldwide, an average of 4% of our network was closed in the quarter, the bulk being in Asia Pacific where 8% of the stores were shut down. Wholesale was up 10% in the quarter and royalties and other grew 37% comparable.Now moving to the retail performance of our Luxury Houses by region on Slide 6. Western Europe was up 15% in Q3 and down 32% on a 2-year stack, still impacted by the lack of tourism when compared to Q3 '19. However, trend improved sequentially compared to Q2, supported by local demand and some inbound tourism slowly resuming so far, mostly intra-European, Middle Easterners and Americans. North America grew 31%. Compared to Q3 '19, growth was 83%, in line with Q2. The store network experienced a high conversion rate and increases in average ticket. All age groups contributed to the region's sales growth.Japan was up 3% year-on-year in Q3, improving on a 2-year stack, though still 21% below the 2019 level. Our brands are re-engaging with locals but this does not yet fully mitigate the absence of tourists. After a very strong H1, Asia Pacific was up 1% in Q3 and 19% compared to the same period in 2019. We enjoyed a good July performance, but softer trends emerged with the resurgence of COVID cases, mobility restrictions in Mainland China and new lockdown in other countries. Rest of the world was up 24% year-on-year and 44% when compared to Q3 '19, improving sequentially in both the Middle East and Latin America.Turning to Slide 7. You see that our online sales are progressing well. E-commerce revenue was up 24% in Q3 on high comps. Indeed, compared to Q3 '19, we grew online revenue 2.5x. In terms of online penetration, our worldwide average is 13% of retail sales. In certain regions, namely North America and Western Europe, penetration is already around 20%. In Asia Pacific, there is still plenty of room for growth.Our brand.com internalization is complete since Q2. This is yielding multiple benefits with the rollout of new omnichannel capabilities and services, reduced lead times, leveraging our new logistics infrastructure, enhance customer experience and KPIs. We are also making good progress on the conversion of online partnerships. We are satisfied with the development of our existing e-concessions, in addition to generating incremental business that significantly improve client service.I'll now provide comments on our individual houses, starting with Gucci on Slide 8. Q3 revenue rose 4% comparable with retail up 7%. Wholesale declined 19%. On a 2-year stack, retail is up 2% and wholesale down 44% as we steadily pursue the downsizing of this channel. In retail, Gucci had a contrasted quarter. In Western Europe and Japan, trends improved sequentially. In North America, once again, traction with local clients resulted in a very high growth rate.Asia Pacific, where Gucci enjoys significant positions, was more challenging. New COVID restrictions impacted store traffic and led to the cancellation of retail events and activations planned for the final chapter of the Ouverture collection. The pace of novelty injections tied to this collection was also milder this quarter. The key introduction was that of the Diana bag in early July, which delivered great results, showing the appeal of the brand across generations and allowing it to tap into the high-end segment with new and existing clients.If we look at overall growth drivers, Gucci is on the right track. The shortfall in traffic temporarily penalized volumes but the combination of price and mix is having a very positive effect on AURs. The structure of the Aria collection should further confirm this. In line with Gucci's calendar, Aria started hitting the shelves in late September with scores of launches and initiatives planned for Q4.On Slide 9, Saint Laurent's revenue growth versus 2019 accelerated this quarter. Comparable sales were up 28% year-on-year or 32% over 2 years, highlighting the house's continuing strong momentum. Retail was up 31% or 37% compared to 2019. Growth was particularly impressive in North America and Western Europe, while its resilience in Asia Pacific underscores growing brand awareness and the fruits from Saint Laurent's network building in a region where it still enjoys great potential.The house's performance was particularly well balanced across product categories, all up double digits compared to 2019 third quarter. Successful ready-to-wear attract growing numbers of local clients to stores. Carryovers continue to shine and newness is also doing very well. Wholesale was up 22%, primarily reflecting delivery of the Women's Fall 2021 collection. In line with our group strategy, Saint Laurent is working on making their channel ever more exclusive. All told, this was an extremely positive quarter for Saint Laurent with resilience with local, effective communications and distinctive styling translate into solid numbers.Turning to Slide 10, Bottega Veneta again demonstrated that the sound foundation it has built in recent years are delivering healthy balanced growth. Keep in mind as you look at these numbers that Bottega already had an outstanding performance in Q3 last year. This quarter, revenue rose 9% year-on-year and was up 31% from 2019. Retail was up 6% versus 2020 or 18% on a 2-year basis, all from a network that was essentially unchanged. All product categories contributed to 2-year growth.Bottega Veneta continues to do a great job attracting new clients with sales to younger generations growing faster than the average. At the same time, it is strengthening its appeal with existing customers, resulting in a very well-balanced client mix. At plus 18%, the increase in wholesale showed a sequential inflection. Bottega Veneta further streamlined and upscaled its third-party distribution, which remains an important channel for its shoes and ready-to-wear. Bottega Veneta is demonstrating quarter after quarter the success of our strategy as it expands the house's territory, tightens its exclusivity and turns into a truly global luxury brand.The Other Houses segment on Slide 11 achieved once again an excellent quarter. Total revenue increased 26%, with both hard and soft luxury up robust double digits against the 2020 and the 2019 quarters. In Couture & Leather Goods, Alexander McQueen as well as Balenciaga made further progress in strengthening their brand architecture, expanding their reach into new creative territories.Balenciaga continued to build its presence in the U.S., where it posted a sharp revenue increase against high comps and performed very well in China. Benefiting from the house's emphasis on couture and its well-rounded offering, all product categories were up, with notable performances in ready-to-wear and leather goods. Alexander McQueen experienced solid sales growth in North America and Asia Pacific. Retail sales were up double digits in all product categories on a 2-year basis with a notable showing in ready-to-wear.On the back of their acclaimed fashion shows presented in the past weeks, Balenciaga and Alexander McQueen should extend their successful run. As for Brioni, with a good Q3, it has returned to the 2019 level on a smaller network, supported by good performances at some of its flagships.In Jewelry and Watches, our houses posted notable sequential acceleration on a 2-year basis. The jewelry brands were all up double digits or more on both a 1- and 2-year basis. Boucheron sales jumped in Asia Pacific, notably Korea and Taiwan, in addition to Mainland China, combined with robust retail performances in Japan and Europe. Pomellato's permanent best sellers drove its sales growth while its high jewelry offering is heightening visibility. And Qeelin sales were again very dynamic at more than twice their Q3 2019 level. Our watch brands confirmed their return to positive sales growth in the quarter.A word on Corporate & Other on Slide 12. Revenue was up 24% with Kering Eyewear consolidated sales up 25% at EUR 138 million, though travel retail remains impacted. Growth was positive across the board. We closed on the acquisition of Lindberg on September 30 and started consolidating the brand in the current quarter.To conclude, on Slide 13. Kering delivered a very solid third quarter at the group level with revenue up 10% from Q3 2019, ahead of the comparable growth rate in the first 6 months. We are pleased with the performance of Saint Laurent, Bottega Veneta and the other houses, while Gucci transitions to a new collection and prepares for a fourth quarter that is rich in events and new developments.We are implementing our strategy in a steadfast manner, focusing on short-term priorities as well as on long-term imperatives. First and foremost is the upscaling of our brand positioning and of their distribution. We are working on their high-end offering to round out their presence across all relevant segments. In line with our road map, we are also reducing the overall contribution from wholesale, keeping only top-quality partners, and this move will continue.We are cutting down the contribution of third-party online retailers through a switch to e-concession and focus on our own brand.com development. Our businesses rely more and more on their knowledge of local conditions and familiarity with local clients. This is a long-term trend, not just a reaction to the events of last year. This requires increasingly agile logistics and sophisticated systems, notably to digitize retail activities, increase efficiency and attain retail excellence. Above all, it requires the right people and we are actively hiring, training and retaining our teams, so our infrastructure is getting more effective every day.Sustainability is central to our strategy, and we have achieved new ESG milestones in recent months, including our decision to go entirely fur-free and the Watch & Jewellery Initiative 2030 we launched with Cartier and the Responsible Jewellery Council a few days ago. It is open to all the players who share our commitment to a sustainable future for the industry.I'd like to end by stating that we are continuing to invest at all levels across our organization to secure our long-term trajectory emphasizing profitable growth and significant cash flow generation. As a group, we are confident that all the building blocks are in place to successfully pursue this journey. Claire and I are now ready to take your questions. Operator?

[Operator]

[Operator Instructions] Your first question today comes from the line of Antoine Belge from Exane BNP Paribas.

[Antoine Belge, Research Analyst]

Yes. It's Antoine at Exane BNP Paribas. Three questions, if I may. First of all, with regards to Gucci, I think you made some relatively positive comment about Aria and all the events that are expected to happen in Q3. So have you seen towards the end of September and already early October an acceleration? And maybe also just from the product themselves, but also the fact that maybe you may have noted a sort of wait-and-see attitude and clients knowing that there would be new products ahead, maybe postponing some purchases. So any sort of information on this would be great.Regarding still Gucci and the fact that probably Q3 was below what you had expected end of July because you couldn't really expect the COVID restriction and the typhoon, et cetera. So what are the implication on the margins outlook for Gucci in the second half from these lost sales, which are probably going to be difficult to recoup in spite of a fully strong Q4? And finally regarding Bottega, is it fair to say that after a first step of a recovery, there is a bit of a plateau happening, especially, I mean, Asia was negative and maybe there is now a different perception or I would say, stage of the recovery, maybe much obvious, more obvious in the U.S. rather than in Asia, if that's okay?

[Jean-Marc Duplaix]

Okay. Good evening, and thank you, Antoine, for your 3 questions. You may ask 3 questions indeed. First of all, I will start with Gucci and how the Aria collection is welcomed. And it's true that, as I mentioned during my speech, there was a transition between 2 collections. And you know that the previous collection had less SKU compared to Aria. It was a less comprehensive offer in terms of products. And it's true that there was a lot of expectations around the Aria collection among our customers.And as you may know, the collection has been introduced gradually since the end of September, with some teasing during the summer in many regions with some presentation. The worldwide advertising campaign was launched the 10th of September. And indeed, Aria is achieving extremely positive first results in all the regions. We had already an indication with some fashion show that we organized before the official launch.And as soon as the second week of October, if we look more specifically at the newness by season, we see really an acceleration and definitely. And what is very encouraging is that it's across the different categories. So women ready-to-wear, shoes, the new leather goods items introduced in the collection, the luggage and the GG retro as well as the handbags with some seasonal variations of the carryover that you may have seen during the show.So clearly, the impact of Aria because it's a broader collection, we expect some clearly increase both in terms of traffic and therefore, in terms of volumes with a good conversion. On top of that, you know that there is a mix in the collection that should push the average price, which by the way is increasing since the beginning of the year. And it's the work done by the merchandising team at Gucci, which is to work on the collections to gradually increase the average selling price. But clearly, there will be a boost thanks to the Aria collection.And just to conclude, you will have further drops along the season until the next collection, so let's say, February 2022, with a lot of animation in the store. On top of that, as you may know, we will have more animations, more activations in the store, a lot of activities to support the new collection.As regards the and it's a good transition in a way about the profitability. First of all, I would like to stress that, as you can see, the trajectory of the other brands is very impressive. And many of these brands are, as you know, are recording already a good, a very good level of profitability, especially if I think about Balenciaga or Saint Laurent. And so globally, we remain quite confident about the trajectory of the group as a whole in terms of profitability.That being said, it's true that compared to the last call we had, we may consider that we need to continue to invest in Gucci to support the launch of the collection. So our views are unchanged in the sense that we need to reinvest in all our brands to support their future growth, to create long-term value and brand equity. And we are actually convinced that it makes sense to invest even more short term to accelerate brand momentum when it's needed. So we will definitely always favor long-term value over short-term profitability.So the fact that Q3 may have been slightly softer for Gucci does not lead us to decide some cut in terms of OpEx for the last quarter. On the contrary, we think we need to push. So bear in mind what I said during the H1 call that in a more normative environment, the profitability of our brands should sequentially increase in H2 compared to H1, the magnitude being in the range of 1.5 to 2.5 points.For sure, considering the Q3 at Gucci and the investments we have in the pipe for the last quarter, we should be below that range for Gucci. But as I said before, what is important to me is more the trajectory of all the brands, both in terms of revenues and in terms of profitability.Regarding Bottega Veneta, I'm not really, I don't see really what you mean by this plateau in Asia, I must say, because for sure, it depends. In fact, if we look at the different regions or sub-countries in Asia because at the end of the day, like all the other brands, there was a deceleration in APAC in Q3 on a 2-year stack basis due to the store closures principally, as you know, in August.And clearly, APAC was still up strongly in Q3 on a 2-year basis, in principle, driven by Korea for sure. China was a little bit more contracted, but you may remember that the network in China for BV is not optimal in the sense that we have not a huge proportion of the store footprint where we can display the 3 categories. And also in Q3 '20, the performance of Bottega Veneta was particularly high in Mainland China with something above 100% of growth. So all in all, we believe that today, if we look at the performance over 2 years, the performance of Bottega Veneta is quite well balanced across the different regions, very balanced across the different categories and now also very balanced if we look at the gender between men and women collection.

[Antoine Belge, Research Analyst]

Just one follow-up on, is it possible to quantify the acceleration linked to Aria because, I mean, Gucci in retail in Q2 on a 2-year stack had reached 10% and now it was 2% in this quarter. So are you back to 10% mark on a 2-year stack basis? Or are you considering that, that's something that could be achieved for the fourth quarter? Are you coming back to the sort of trends you had back in Q2?

[Jean-Marc Duplaix]

Antoine, you know what is the situation of the industry today with a lot of volatility. You may remember that in August, we had a more challenging situation in Asia Pacific despite some improvement starting from September. In the U.S. also, you have some volatility from one city to another and from one way to another. So I would not make any predictions based on what's happening currently with the reception of the Aria collection.Let's say that, as I said, we are very pleased with the sellout we see today with the Aria collection products. We are very pleased with the price architecture and we are very pleased with the latest trends. But I will not make any sort of prediction for the last quarter. We have dimensioned in a way the investments to support a very robust growth and an acceleration in Q4, but I will not make further predictions.

[Operator]

Your next question comes from the line of Zuzanna Pusz from UBS.

[Zuzanna Pusz, Head of European Luxury Equity Research]

I have 3, please. So the first question will be on Gucci margin. I mean, you mentioned the investments, which are needed this year to help sort of launch the new collection, but would you be able to maybe give us a little bit more color on sort of the margin further out? So I know you don't guide but just to get an idea of, can these investments last into '22 and maybe how quickly, at this stage, was kind of the visibility you have, the brand could go back to the, I think it was peak 41% EBIT margin? That's my first question.The second one is also on Gucci. Sorry, I promise the last one on Gucci. So can you comment on Gucci's performance by nationality sequentially versus Q2? Because it looks like Europe improved a bit, although I think it may be a little bit less than what we've seen for some of your peers in Europe so. And I think there was a little bit of a return of tourism, but at the same time, maybe you're more exposed to locals that quarter, I don't know. So any color on kind of performance by nationality would be very helpful just to get an idea of where you've seen some sequential improvement.And the last question is more broad on e-commerce. So would you be able to maybe share with us the key learnings from the internalization of e-commerce? Are you happy with what you've kind of achieved so far? Would you be potentially interested in joining forces with some other e-commerce giants to support the development of any sort of bigger platforms? You probably know what I'm referring to, but I'm just trying to give it a go.

[Jean-Marc Duplaix]

Thank you, Zuzanna, and I will try to assume what you have in mind for the third question. I will work hard to find what you have in mind. Starting with your first question. Once again, I love this focus on Gucci, of course, and I understand it very clearly. But as I said before, there are years we have mentioned that we are managing a portfolio of brands, and it was particularly true looking at the trajectory of revenues. It's now also true when it comes to the trajectory of the profitability, considering the level of profitability delivered by many of our brands.However, here again, when it comes to Gucci, there is not an obsession to get back to the 41%. We know that the brand has the potential to deliver again this profitability, considering what we are doing in terms of elevation of the distribution, as regards the elevation in terms of average price plus the focus we are putting on the high-end segment and with very positive results during the quarter with an increase of the contribution of VVIP and VIP and also upper end multi-timers, what we call multi-timers, so people who are buying several times in a year. And therefore, the 41% does remain an ambition and we can exceed that profitability in the long term.But short term, the focus is about investing in the brand. So I will not give you any guidance. I already indicate to you that we would be below the improvement of EBIT margin we had mentioned during the summer call, so below 150 bps, and probably far below because we are working on the investment in Gucci, but we are still working also to have a sequential improvement of the profitability from H1 to H2. That does remain an ambition in this question of discipline but without impairing our capacity to invest in the brand. And therefore, in 2022, we will continue on the same trajectory but we won't deliver the 41% for next year. That's not the objective and it will not be sound considering what we are doing at Gucci.As regards the performance by nationality, obviously, if we focus on the quarter, it's globally very positive across the board. Of course, you can imagine because of some restrictions still in China and since the lack of tourism, we are still slightly negative compared to 2019 and flat compared to last year, 2020. But now if we look at all the other nationalities, we have posted very solid progress in almost all key nationalities. We are double-digit up with Western European clients. Of course, considering the share of tourism in 2019, it's not so obvious if you look at the performance of Western Europe because as a reminder, we had, for Gucci, something around 70% of tourist in 2019. But we have a double-digit increase with local clients in Europe in almost all key countries of Europe.We are, of course, as you can imagine, very positive with the American cluster. With the Korean cluster, which is a very important one, we continue to improve. And it's almost double-digit increase with the Korean cluster compared to '19, a year where the focus was more about tourism in Korea, which is according to me, a great achievement for the brand. So in fact, if you make your math and you look at the performance of Gucci for the quarter, the main difference comes from Asia Pacific plus on the Chinese cluster, something which is flattish compared to 2020 and still negative compared to 2019. However, since the beginning of the year on the Chinese cluster, we are remaining quite flattish compared to 2019 over 9 months. And clearly, the appetite of Chinese customers for newness, especially for a brand like Gucci, which has, as you know, fashion positioning, and clearly, there was a wait-and-see behavior before the Aria collection.E-commerce. That's a very good topic and I have a lot to say about this in the sense that, yes, definitely, the focus for us is about the brand.com business. It does remain the priority of the group. You know that also we are working on converting some partnerships into e-concessions and we have made solid progresses here again. And by the end of this year, we will have achieved all the discussions as regards Gucci business, not for the other brands, some discussions will be finalized rather next year. But at the end of '21, we will have a shift to the concession model for almost all the key accounts where we had started some -- with whom we had started some discussions.So today, the priority is given first to the brand.com business; and two, to finalize the conversion to e-concessions. As regards the e-concessions, I must say that we are very happy, as I mentioned in my speech, about the quality of the experience for our customers, the delivery lead time, the display of products, the pricing policy so. And by the way, for Gucci, the e-concession contribution to online revenue growth of the business today is made on brand.com.

[Operator]

Your next question comes from the line of Luca Solca from Bernstein.

[Luca Giuseppe Solca, Research Analyst]

When we look at Gucci and take 2 steps back, Gucci has produced an incredible revival in the most recent 5 years. But the impression is that in the most recent 1.5 years, it was punching below its weight. And given that this seems to be a traffic issue, is traffic low because consumers know what to find at Gucci? And would it be important for you in reviving and pushing Gucci to get new ideas in the brand, in the shape of this Aria contamination that you have and potentially building on that, possibly strengthening Alessandro Michele's team, making the most of the momentum that you will achieve in the fourth quarter? Or do you stick to the sort of prima donna creative director model that has worked well for you in a number of situations?My second question is on Balenciaga. I think that or I assume that Balenciaga is producing a lot of the other house's organic growth, probably together with Alexander McQueen. Is it fair to say that it's now in size of Bottega Veneta in terms of size or maybe above it already? The Simpsons initiative is pure genius. And I wonder if you have any feedback on brand momentum for Balenciaga, specifically more than what you already disclosed.And thirdly, hard luxury plans. There were speculations in media, I think, that watches are about to exit the perimeter of the company. But I wonder in jewelry as well, how satisfied are you with the progress of Boucheron and Pomellato in the jewelry category?

[Jean-Marc Duplaix]

Thank you, Luca, and thank you for your first question because it's not an easy one but it's good to start to remind what has been the trajectory indeed of Gucci. If we look at the last 5, 6 years, the average growth of Gucci is still above the market. However, you know that there was a need, and you were among the first to highlight this a few years ago, to reposition Gucci at the core, at the center of the fashion industry.And to do so, considering the DNA of Gucci, we thought that creativity was absolutely needed and we put a big emphasis on creativity. There was a time when there was clearly a need to have a different recipe to pursue the trajectory of Gucci. It was about being more exclusive in terms of distribution. And also, it's important to remind that in the performance of Gucci, you have something like minus 45% on the wholesale revenue part, which is quite significant.We have not extended the number of stores. So a lot of initiatives to elevate the brand while keeping the creativity at the core, which is absolutely needed. You know that we are working also on the more timeless positioning of the brand, and the centennial is a good occasion to remind this and to work on that very important component of the brand. And Aria typically is an extension in terms of number of SKUs but also in terms of type of products, a way to re-engage with the broad base of consumers.So what you have described in a way as an action plan is exactly the one which is implemented at Gucci with a reinforcement of all the structures in the different layers of the organization, including in the studio to support Alessandro. And I think typically, that in the past few years, and it's something maybe that is not very visible from your standpoint, but there was a need to reinforce globally the structure because Gucci grew very rapidly. And it's exactly what we have done. And when I was mentioning that we were hiring, it was on purpose.Definitely, even if we are not communicating every day about this, there is a huge reinforcement among the Gucci teams with very high profile, more skills in all the different areas, the merchandising, more communication, marketing, CRM and of course, creation. So I think there is an evolution in the way we are organizing our brands. And what is happening at Gucci will happen also at a point in all the other brands the more mature they will become. And by the way, I think that you know perfectly well the personality of Alessandro. He never behaved as a prima donna and is someone really working very well with a lot of people around him, supporting him in the different domains of the creation.We don't provide figures about Balenciaga, but we have already mentioned that it's a brand which had exceeded the EUR 1 billion mark some time ago. So you can imagine that in terms of size, it's not something which is very far and very different in terms of revenues as Bottega Veneta, but with a slightly different, let's say, breakdown of the sales with a higher contribution of wholesale and a higher contribution of e-commerce, also considering the positioning of the brand and its penetration among the young customers.I think that here again, like Gucci, there is work which is done to have the right balance between creativity, innovation, fashion and also timeless. And the haute couture collection had really an impact in terms of perception of the brand. And the brand momentum is obviously very excellent, with probably a shift to certain categories with a lower contribution gradually of sneakers and casual wear, but also more contribution of more formal shoes and ready-to-wear. Good results also in terms of leather goods.So that's exactly the evolution we were expecting for the brand with a gradual rebalancing to certain categories and certain clientele. Of course, it does open some new opportunities in terms of store openings. It's like Saint Laurent, typically a brand which has a huge potential in terms of store footprint.Finally, as regards to Watch and Jewelry, of course, you may imagine that I won't comment on the rumors. But I can answer you about the progress made in our jewelry houses. We have been, at Kering, very impressed by the work done by our teams at Boucheron, Qeelin and Pomellato. Boucheron is doing extremely well now in all the regions with more penetration in APAC. You know that Boucheron was very strong in Japan. But now we have opened some new stores in Mainland China, in Hong Kong and in some other countries in the region with great success, I must say.And we see that for a brand like Boucheron with such a legitimacy in high jewelry, when you are investing in communication, you have the right products, there is an immediate response of the market. So very pleased with the development of Boucheron. Qeelin continues to perform very well in China, as you can imagine. This is a true Chinese brand in a way. And we are very pleased with the development we have, both in terms of, let's say, store expansion and also reception of the products and the sell-through we have in all the different categories. And we start to have also more high jewelry, more high jewelry offer also at Qeelin with also very good response of the market.And finally, Pomellato is doing very well with, so far, limited investments because you may remember that we had decided to push first Boucheron. But here again, very good results both in the carryover lines, especially with the Nudo collection perfectly, but also now more and more traction in the more high-end segment and high jewelry. So globally, we are very, very pleased with the success and the trajectory of the jewelry brand. And there is no intention at all to dispose these assets. On the contrary, we'll continue to invest and to push them.

[Operator]

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

[Louise Susan Singlehurst, Managing Director]

I'm just going to have a follow-up. I'm afraid we're all trying to ask the same question but in different ways. But if we just go back to Gucci and the performance during Q3. We know widely across the peer group that August was softer, particularly for China with the COVID restrictions. Can you give us any kind of comment in terms of what you saw during September and the end of the quarter?And I suppose as we reflect back and what we've heard from the peer group so far, the consumer environment remains pretty good for luxury consumption and that's very broad-based and across price points. What, in your view, apart from the timing of Aria, what else is there that you think Gucci was missing? Were there any executional kind of misses or delays or something that happened during that quarter to change the course or the path versus Q2 commentary?

[Jean-Marc Duplaix]

It's the same question but with a different angle, definitely, but I will try to answer anyway. Yes, it's true that August was softer. I think if we look at the portfolio of brands, the trend started to improve in September, but there's still a certain degree of volatility. So we had still some regions or some cities where we had less traffic than in some other.The fact is that when the traffic started to resume in China, we had, as I mentioned before, maybe less product available in the store, waiting for the introduction of Aria. And clearly, there was probably a lack of newness at that time in September. We cannot say that there was an issue with the Chinese market in August, by the way, because if I look at the trend in online month by month, August was very strong in August for the online business of our brands, showing in a way that it was really due to the COVID restrictions that there was a decline of traffic in the stores, in the offline channel.So September improved, but clearly, Gucci was impacted partly because of the lack of newness. And as soon as we had the introduction of new products, we had a very good response of the market. For sure, we continue to, let's say, to be impacted considering the size of Gucci by what happened in 2020 with the COVID issue we had in Italy, particularly. We had mentioned in 2020 that we had some, let's say, a question of phasing in terms of product development. So clearly, September specifically may have been a little bit more impacted by that. But at the end of the day, what we see here, again, is that Aria is receiving a very good response of the market, whatever the region. And in China, we see a rebound that I will not qualify.When it comes to execution, I would not dare to assess if there was an issue of execution. I don't think it's the case at all. Because when I look at the lead time in terms of delivery, shipping of the products to China, there is no specific issue on the logistics side. In terms of quality of the retail network, I think that 10 years ago, there were some debate about the quality of the store, but now I think we have a very sound network in China. So nothing to say about execution.

[Louise Susan Singlehurst, Managing Director]

And just one follow-up, if I may, on the timing for the launches coming up for the end of the year. Can you just remind us if there's any change as planned for the Gucci by Balenciaga? I think that was for November, just to hopefully give us some clarity around that into year-end.

[Claire Roblet]

Louise, it's Claire. No, I can confirm The Hacking Project will be in the stores in November.

[Operator]

Your next question today comes from the line of Anne-Laure Bismuth from HSBC.

[Anne-Laure Bismuth]

Anne-Laure Bismuth from HSBC. Actually, I have 2 questions. The first one is, if you can come back about the calendar of marketing events that is planned in Q4 for Gucci and especially the initiatives around the 100 anniversary for Gucci. And with regard to Europe, the launch of the movie House of Gucci in November, end of November. And actually, I have 3 questions.My second question is about the wholesale strategy for brands such as Saint Laurent and Bottega Veneta. What do you plan in terms of wholesale exposure for these 2 brands? How long the process of the streamlining of wholesale will take? And when it will start to have a more meaningful impact on Saint Laurent and Bottega Veneta? And the last question is about M&A. Is there anything different in your approach regarding M&A?

[Claire Roblet]

Yes. This is Claire also. I think, I mean, going into Q4, we already mentioned the centennial celebration. You already have the collection that is on the shelf for this one in October. Then you will have The Hacking Project with Balenciaga, as we mentioned, for November. For December, it has not been disclosed yet and then you will have a succession of additional activation, of course, to cover for the gifting season and then to cover for early Q1 next year.So it's a pretty full agenda and this is about product introduction, taking also into account that there is a, I would say, a collection, a main collection that is not about only capsule or drops of collaboration, where you will have, I would say, every month some launches, some introduction to cover for all the seasonal needs of this collection. So that's what I can say.Now in terms of events around, you're going to have, of course, a big mix of client activation in stores. That's going to be a big one. You're going to have what we call pop-in. You're going to have, of course, as usual, some pop-ups also activities. And then you will have, of course, I would say, a bigger picture marketing events when it comes to the new fashion show that will take place early November in the U.S. And then you know also that Gucci has not commissioned the movie, but the movie is going to provide, for sure, another halo on the brand, and that's going to be end of November.

[Jean-Marc Duplaix]

As regard wholesale, as we had mentioned, there is a group strategy, which had been decided and approved by all the CEO at the end of '19 with a gradual shift to concessions or reduction of the number of accounts we are working with across the board. Of course, some initiatives, we have already at Saint Laurent or Balenciaga or Bottega Veneta are not obvious because of the success of the collections and also because we, as I mentioned during my speech, it's very important as long as we have now the full network at the Bottega Veneta to support the development of the ready-to-wear and shoes collections to rely on some very qualitative accounts in wholesale.So in wholesale today, part of the expansion of Bottega Veneta is really driven by these 2 categories certainly, but also clearly, it's quite new for Bottega Veneta to have such a penetration in these categories. But starting from Q4, we start to have a moderation of the growth at both Saint Laurent and Bottega Veneta. Of course, it's too early to predict what will happen in 2022, but it could turn negative or being flattish if we continue to decide to work with some accounts. But globally, the objective is to reach a number of accounts which is very comparable to the one we have at Gucci and to push the retail.M&A, I will be very fast, quick on that because I think if I remember well, Mr. Palus had answered to that question during H1 call. I think I could repeat exactly the same. Our views have not changed. But when it comes to M&A, at least we have closed the Lindberg deal, which is a very smart deal according to us. And we are very pleased to welcome the Lindberg brand, the Lindberg people in the Kering family.

[Operator]

Your next question comes from the line of Ashley Wallace from Bank of America.

[Ashley Wallace, Equity Analyst]

I have 3 as well. The first question is on Gucci retail, sorry to keep going on about this. But in Q3, the quarter was obviously quite disruptive due to COVID in China. But as we move into the fourth quarter and the backdrop has largely normalized, in addition, you will have Aria in stores, the movie and generally a lot going on at the brand, is there any reason that Q4 Gucci retail won't go back to 11% 2-year stack growth in line with the second quarter? And I understand you don't want to give guidance, so this is more like a qualitative question around any incremental headwinds that might exist in Q4 that were not there in the second quarter.My second question is just on the supply chain. Many other industries are facing COGS or supply chain pressure. While we believe that luxury is largely immune from this, I was just wondering to hear how you think about some of these rising input cost pressures and if there's anything to call out from a supply chain perspective. And then my third question is just on Saint Laurent. Obviously, very solid performance there accelerating in the U.S. and EMEA most notably. Is that improvement all like-for-like or is there anything else boosting the acceleration in the quarter, please?And then if I might, just a clarification on the last question that you answered for Zuzanna. I think the line dropped out when you were saying the percentage of Gucci online revenues from e-concession, brand.com and wholesale. If you wouldn't mind repeating those, that would be great.

[Claire Roblet]

This is Claire. I'm going to take the first one because, I mean, we're not going to give any quantification. I think Jean-Marc mentioned already. We can just reiterate that we are confident for Q4 at Gucci that the brand can reaccelerate compared to Q3. That was a transition quarter and not probably a good proxy to assess the brand trajectory. Now we hope, as we all do, I guess, that Q4 would be more normalized in terms of business condition. But if things are clearly more normalized, we are confident in the ability of Gucci to clearly reaccelerate on the 2-year base. I think that's the comment we can make for the first question.

[Jean-Marc Duplaix]

On the supply chain side, in fact, let's look first at the manufacturing process. In fact, we are not facing particularly issues. Our manufacturing activities are either internalized or relying on long-term partnerships with selected suppliers principally based in Italy. So no issue on this side even if that there is a competition to internalize some capacities.And in terms of raw materials, we have secured the sourcing, and we have no identified so far any specific issue as regards the raw materials. When we look rather at the logistics side, there is, clearly, on the cost of transportation some inflation, some shipping costs which are increasing, but we have adapted the freight strategy to either offset or contain that inflation with more volumes concentrated on some freight operations. Keeping in mind that at the end of the day, considering the level of margin, we can absorb this inflation on the transportation cost. So not really an issue there.Thank you for asking the question on Saint Laurent because here, again, we have already highlighted that Saint Laurent had much room to grow further through a higher degree of penetration of certain markets. And it's true that year after year we are adding some units in the store footprint of Saint Laurent. But what is very sound with that brand is that even if we look at the like-for-like growth, it's very strong, very strong in all regions if we compare to '19 with, of course, the exception of Europe because of the lack of tourism, which is not a surprise, as you may imagine.So globally speaking, the growth is very well balanced as it has always been the case at Saint Laurent between like-for-like growth and space expansion. Just, I'm not sure to have understood your question about e-concession, but yes, because the end of my answer unfortunately was cut. I don't know if there was a sound issue at the time. But what I was saying is that as regard the e-business of Gucci, the wholesale contribution of e-commerce should reduce and be focused on a very limited number of partners as it would be the case for the offline distribution.And what I mentioned is that the repatriation of some businesses through e-concessions at the end of the day, the vast majority of the online revenues of Gucci are the ones made through the brand.com business. So there is generally some, let's say, a lot of debates and discussions about e-concessions for Gucci in the market. But at the end of the day, I re-insist on the fact that the priorities given to the brand.com business, which represents the large majority, the very large majority of the e-commerce of Gucci, the contribution of e-concession is material but is not significant in the total.

[Operator]

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

[Thomas Vincent Chauvet, Research Analyst]

It's getting late so I'll try to be brief. I have 3 questions. One on e-com strategy, the second one on the share buyback and three on watches. On the fashion tech investment strategy, which seems to have intensified. You've done Vestiaire Collective. You've invested in Cocoon, a rental business, and more recently in this live shopping app. When you did the spin-off of Puma in 2018, you said Kering was now a group focused on personal luxury goods and that non-luxury investments would be done at the Artemis level. What is the criteria today given all that's happening in the e-com world for Kering but also for Mr. Pinault, who heads Artemis, to decide what tech investment should be part of Artemis, like, for instance, Farfetch, and which ones make more sense to integrate within Kering, I think, of Vestiaire or Cocoon?Secondly, on the share buyback, you've bought back, I think, nearly 500,000 shares, if my calculation is correct. So that's nearly all of the first tranche of 0.5% of the capital. With luxury shares obviously under pressure since mid-August, are you tempted to launch quickly the second tranche? Can you do that and confirm maybe that's the best use of cash in the absence of a large M&A transaction?And finally on watches, I understand, Jean-Marc, you're not going to confirm a potential divestment of Ulysse Nardin and Girard-Perregaux. Nevertheless, for that to happen in a sensible way for all parties involved, I guess you need to be ideally close to cash flow positive. Can you talk about where you see the evolution of losses, the magnitude of also the capital needs at this unit so that you can comfortably either continue to invest and keep the asset or divest it with a decent outcome for the parties involved?

[Jean-Marc Duplaix]

Yes. Regarding the investments we are making, I think there is a big difference. We continue to consider that. The investments we have made with Vestiaire Collective and all the other names you have mentioned are managed by the innovation team at Kering. And the mission of this team, led by Gregory Boutté that you have met, is really to clearly to accelerate our learnings about some new business models.And that really the point we have here, it's not about the financial investment. Of course, we believe we are very vigilant about the quality of the investment. But it is really to have some, to set some collaborations or to have a seat at the Board to make some tests with the partner. When it comes to the investments made at Artemis level, there is no need necessarily to have some collaborations with the Kering brands and it's a completely different approach.So the criteria is more about, can we develop some collaboration, make some test with the target. And it has to do with our business model to a certain extent, whether it's because secondhand, because it's subscription, it's about the usage and the new practices in the industry that we want to test. And we believe that sometimes to have a minority stake can help to accelerate our learning or learning curve on this aspect. So clearly, the criteria is about what's going to happen with the brands of the group and what will be the intensity of the collaboration because sometimes you may have some collaboration between companies in which Artemis has invested in our brands but generally it's more, something which is not pushed. It's just because there is already sometimes an existing collaboration. So that's really the main difference.And of course, the way it is analyzed is different. We have already an angle which is brought by the innovation team. And we continue also to have really a venture capital approach. We have invested in some venture capital funds, by the way, also to continue to track some good opportunities for the group, not as a majority shareholder, but rather as we could do in terms of collaboration and new business model.The share buyback, you're right, we should finalize the first tranche in the coming days. It's too soon to react about what are our intentions for the next tranche when it will happen. First of all, we'll analyze what has been the outcome of the first tranche. And we will work on the allocation of the shares between what will be allocated to cover, to hedge the free share plan and what will be the destination or the ones which will be canceled. And we will keep you posted, of course, if we would resume another tranche this year or next year.When it comes to watches and sorry to be politically correct, but let's first celebrate what has been done by the brands, the watches brand during the quarter. There are a lot of encouraging signs both in terms of revenues, but not only in terms of revenues, it's also about the quality of the offer, the quality of the distribution that has improved dramatically. So I think the team working on Ulysse Nardin, on Girard-Perregaux is doing a great job. The visibility of the brands has increased massively.So we are very pleased with a lot of initiatives with the Vendée Globe, with Aston Martin. And clearly, the brand awareness is increasing. You know also that the group is very agile and very flexible. And we generally try to measure and to follow all the different options we have in hand. You know perfectly that these brands, I'm very confident that these brands can improve their trajectory. They are excellent brands with a very good reputation. But globally, on the market, Kering is quite small on the watch market, which has an impact in terms of distribution because it's more challenging, of course. So we will take the right measures in due time. But for the moment, as you will have noticed, we have invested massively to support our brands with good results, I must say. So we keep all the options open so far.

[Thomas Vincent Chauvet, Research Analyst]

And Jean-Marc, when you said that watch has returned to growth in the quarter, do you mean 2-year or is it just year-on-year?

[Jean-Marc Duplaix]

It's year-on-year.

[Thomas Vincent Chauvet, Research Analyst]

Year-on-year, so it's still down significantly on a 2-year basis, I guess?

[Jean-Marc Duplaix]

Yes. It was already the case in Q2 where we were back on growth with an acceleration in Q3, but we are not yet at the level of '19, of course.

[Thomas Vincent Chauvet, Research Analyst]

Okay. And good luck with the turnaround.

[Claire Roblet]

Yes. Maybe if I just, we still have a few questions lining up and it's already 7:15, so if I can ask everyone in the line to just stick to one question, that would be super nice.

[Operator]

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

[Thierry Cota, Equity Analyst]

Well, I had a few questions on Gucci but let me stick to 2. I was wondering whether you raised Gucci prices, as you do often around new collections? And Jean-Marc, you mentioned the mix effect of Aria to be positive. So I was wondering whether you could measure for us what you expect in terms of price/mix in Q4 for Gucci. And maybe just one small thing. You commented earlier in September about 100 basis points rise of Gucci margin versus H1. Given the Q3 sales that you've just reported, is that still something that you think is doable or not?

[Claire Roblet]

Yes, Thierry. I think the second question, sorry, has been answered already so we won't take this one. For the price impact, what I can say is that, yes, there is a pure price increase also coming with Aria collection, which is low single digit, I would say, in average worldwide. So some SKUs have not been increased. Some SKUs have a higher increase in terms of percentage. But the comment I'm giving is on the average. And then, yes, we do expect a positive price/mix in Q4 as it has been the case already since the beginning of the year.

[Thierry Cota, Equity Analyst]

So when you combine the 2, high single digit is possible, mid to high?

[Claire Roblet]

I'm not going to give any quantification.

[Operator]

The next question comes from the line of Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

Sorry, just one question in the interest of time. In terms of on Gucci, so just to make a slightly different question. We understand that the interest is obviously the focus is on newness and Aria, obviously, given the DNA of the brand. But in recent quarters, you had launched, focused slightly more and more timeless product, putting slightly more emphasis on some of your iconic lines, also launching more higher price points like the Diana bags.So just, I guess, 2 questions related to that is, to what extent you've been broadening your customer base, both in terms of income or in terms of nationalities and with Europeans? And also related to that, is there any way to kind of derisk the Gucci brand or because of the nature of the brand being a fashion-forward brand, it will just go through cycle and there's little you can do about that?

[Jean-Marc Duplaix]

Yes. It's important to clarify, when we mention Aria, it's not only about newness. Aria is an environment in which you have both newness and also seasonal variations of carryovers. And you will see a lot of bags of the famous beloved lines with new fabrics, new leather, new patterns. So it's always a collection, a combination of carryover and pure newness. And that's the reason why we continue to assert that you have something at least in the leather bags or in the leather goods segment, something like 2/3 of the products which are carryover.So it's not contradictory at all with what we have mentioned before. What we just mentioned is that there is a broader offer with Aria, which is the first collection for where you have such a coverage of all the different functionalities and all the different clusters of clients. And by the way, I've mentioned also the successful launch of Diana bag, which hit the shelves starting end of June, the beginning of July, beginning of July, if I remember well, starting with Japan with a very good reception in the mature countries but also in some other markets and the price point is quite high.And I was mentioning before, if you listen to me, that we had also increased the contribution of the VVIP and VIP, which is a demonstration that we are working on the offer in a way to also engage with a more high-end segment. So everything is very consistent in a way in the approach. I would say also that Aria is the first collection marking really an evolution in the aesthetic. It was not yet the case with the Ouverture collection. So Aria is the first one where you have, let's say, a rebalancing between the different types of products, both the timeless component and still the fashion-forward component.We believe that today, the brand has a maturity of the positioning, the distribution to work in a different way on this balance between timeless and fashion forward. For sure, the brand, considering its DNA and its history, will remain a brand with a strong component about creativity. But you will see when you will visit the stores that you have that balance between the 2 components.

[Operator]

The next question comes from the line of Rogerio Fujimori from Stifel.

[Rogerio Fujimori, Director & Analyst]

A quick one on Gucci. Just anything to call out on the sequential trend in e-commerce in Q3 and Gucci's performance on Tmall Luxury Pavilion in the first 10 months since joining the platform in January relative to your expectations?

[Claire Roblet]

It's Claire. No, I think, I mean, the performance of Gucci in China has remained very, very strong and including on Luxury Pavilion, so both on the brand.com and on this platform. So it's very satisfactory. I think where Gucci is already very penetrated, namely in Western Europe and in the U.S., the trends have been a bit softer, but on a very high comp base, as you can imagine. So I think nothing to mention.The only region where really online is penetrated and is more difficult and where you clearly don't see any, I would say, shift when the stores are either, I would say, with restricted hours or more difficult to get in the stores, you don't see any shift on online is really Japan. So Japan is still a region where online is clearly behind. But for the rest, Gucci is, I mean, is doing super well online and very well in China. I think we are going to take maybe the last question now.

[Operator]

Your final question comes from the line of Carole Madjo from Barclays.

[Carole Gladys Madjo, Research Analyst]

So just one question for me, please. To come back on the U.S. market, which was, of course, very strong in Q3, how do you expect this market to evolve going forward with the end of the stimulus? Do you see already any signs of normalization?

[Jean-Marc Duplaix]

Thank you, Carole, for your question. In fact, we had some volatility in September, and we are guessing what was -- we are looking at what could be the cause for this volatility we observed in September. But at the end of the day, as soon as the first day and the first week of October, we observed a quite sharp rebound of the business in America. So we cannot really say that the end of the stimulus so far had an impact. It's something we are hearing a little bit looking at the volatility in September, combined with some other events like some bad weather conditions.But at the end of the day, it's not so obvious when we look at the most recent trends that there is any sort of slowdown beyond just clearly a normalization of the growth because we start to have a very demanding comp globally speaking. Another point which is interesting is that in the U.S., we have a level of retention rate which is quite good with also some new customers, which came back to the stores so that we have a frequency of sales or repeated sales, which is clearly above the average of the trends we see on a worldwide basis.So far, we believe that the U.S. environment is very supportive besides some restrictions that could occur because of COVID, but so far here again, it had not had any sort of drag on the business. So far, the U.S. environment remain very strong and for all the brands in the group.So thank you all for being on our call and for your questions. A lot of questions today. We appreciate, of course, your interest in Kering. And as always, with Claire and her team, we are available to answer any question you might still have and continue this very fruitful and pleasant dialogue. Wish you a very nice evening.

[Operator]

Thank you. That does conclude your call for today. Thank you all for participating, and you may now disconnect.