Hermès International Société en commandite par actions (RMS) Earnings Call Transcript & Summary

Thank you. Good day to everyone. Thank you for joining us for the disclosure of the 2021 full year results. This year, again, unfortunately, this is being done by RemoteLink again. In 2021, Hermès saw an exceptional year, boosted by the strength of its 16 métiers and the strong desirability of this product. First and foremost, I'd like to pay tribute to the passion, creativity and quality of the work of our employees worldwide. For 2 years now, we've been weathering an unprecedented health crisis, which unfortunately has affected many of us. In this context, it's been difficult, and our teams have shown their true commitment all the while. This is a model based on people, human beings with permanent ongoing dialogue between creation and excellent know-how to make objects that are made for the long term with the policy of corporate, social and environmental responsibility based very much on the talent and boldness of our artistic directors. Think of the momentum of Véronique Nichanian collections for men's ready-to-wear, and that is [ Vanhée-Cybulski ] for women's ready-to-wear and ambitious creations at the home department jewelry, shoes with [indiscernible], fragrances with Christine Nagel, Charlotte Macaux Perelman and Alexis Fabry for Hermès Maison. Our model is based on a belief, the importance of education and transmission of know-how, the gesture of the hand via ongoing training, learning trade for life and being versatile as well. Think of our leather sites and [indiscernible] and Lyon. Everybody in Hermès [indiscernible] to pass on their knowledge to the newcomers and to assist in production, all the while remaining faithful to our know-how. The opening of the Hermes know-how school with the new diploma for leather workers is part of this, also Manufacto and the Hermès foundation. These are ways of demonstrating our commitment. Since the beginning of the pandemic, Hermès has wanted to act as a responsible actor showing solidarity to its teams, local governments, partners, stakeholders and suppliers. Since 2021, we've continued several initiatives that it started in 2020. First of all, with awarding in France of an increase EUR 100 gross per month individual pay increases starting in January 2022. Worldwide, there's a onetime bonus, EUR 3,000, so that we can share the benefits of our growth with all of our employees and demonstrate them our recognition. Hermès has strengthened its support to the Paris hospitals, a new donation of EUR 7 million for the training of health care providers in addition to the EUR 20 million grant we provided them within 2020. Our business model is also based on a strong territorial anchoring, which means making -- creating jobs locally, revitalizing local territories and long-term relationships with all of our partners. So it's a unique model. It creates desirability in the eyes of our clients worldwide, and we attach great importance to maintaining this. But of conclusion, we're proud to be a house of creation, which shows solidarity and is responsible and remains true to itself. Now let's talk about business. In 2021, Hermes achieved an exceptional year, revenue reaching almost EUR 9 billion, up 42% at constant exchange rates compared to 2020 and up 33% over a 2-year period in both the first and the second half. Growth was especially buoyant in group stores, up 44% at constant currencies, very strong demand and very great involvement of our teams in the stores to serve local customers. In 2021, Asia and the Americas saw the strongest growth both compared to 2020 and compared to 2019. Europe also resumed growth versus 2019. More specifically by region. France, up 35%, confirming its recovery. Europe, excluding France, up 37%, booking in a good second half. Several stores reopened after enlargements, such as the Rue de Sèvres in Paris, also Zurich and Milan. Japan, up 25% and up 20% over the 2-year period, showing growth in sales that's especially strong and regular, thanks to the loyalty of local customers in spite of the health emergency that have been enacted up until the end of September. Asia, excluding Japan, up 45% over 1 year, up 65% over a 2-year period, continues its strong momentum, boosted particularly by Greater China, Australia and Singapore. The new digital platform was rolled out in Thailand in the first half of the year. The Americas, up 57% over 1 year, up 24% over 2 years, achieving excellent performance in spite of health restrictions in Q4 in several cities of the United States, 2 stores were open in Detroit and also a store in Miami, Florida. Now our geographical footprint is pretty much stable versus last year. It's very well balanced. Now let's talk about revenue broken down by sector. In 2021, all the sectors confirmed double-digit growth, both versus 2020 and versus 2019, with remarkable growth in the ready-to-wear and accessories and divisions as well as watches and other Hermès métiers. Leather goods, plus 29% for the year, plus 23% over the 2-year period, reaching an exceptional level after the beginning of the year that have been driven by strong deliveries end of 2020 and excellent Q3. Demand is buoyant, both for reinvented classics as well as the new models. Products for development continue with the opening of the Guyenne leather production site in September, ready-to-wear and accessories up 59% and up 44% over the 2-year period, continuing its strong momentum, thanks to the success of the ready-to-wear collections, shoes and fashion accessories. The silk and textile sector up 49% and 15% over a 2-year period, achieving excellent performance, thanks to the diversity of creation, materials and formats and sizes I'd also mention the new printing line was inaugurated in Pierre-Bénite near Lyon in the first half of the year. Perfumes & Beauty was 47% this year, plus 19% over the 2-year period, showing us growth, benefiting from the new success -- the success of new fragrance for men H24, 1 year after the launch of Rouge Hermès, we're continuing with the launch Rose Hermès in the last spring and Mains Hermès in the fall. Watches, plus 73% this year, plus 77% over 2 years, confirming some performance reflection our watchmakers know-how, the technical element and creativity in our collections and the success of the new men's watch, H08. Other sectors, up 57% in 1 year, up 95%, 2 years. This includes jewelry, art of living, tableware, and this shows their very strong momentum continues. The distribution of sectors remains pretty stable versus 2020. Leather goods in line with growth in production capacity. Ready-to-wear and other accessories, jewelry achieved excellent performance as well. As we reminded as creation is at the heart of our model. Under the artistic direction of [indiscernible], there's very rich [indiscernible] creation renewed all the time and nourished by constant curiosity. For example, in the leather goods collection, this excess of the models such as Della Cavalleria, Mors de Bride and the R.M.S suitcase and the beautiful welcome of the women and men's ready-to-wear collections, the successful launch of the Kellymorphose jewelry as well as the opening of new chapters of beauty. Our furitful collaboration with Apple celebrated its sixth anniversary in 2021. Apple Watch Series 7 received an excellent reception. [ Attached ] to the transmission and dialogue between know-how, we pursue our investments in our production capacity, through our regional competence centers. We construct durable relations with actors of the employment basin locally, such as the [indiscernible] and pay special attention to training by partnership schools and École Hermès des savoir-faire. In 2021, we inaugurated the leather manufacturing units of Montereau, Seine-et-Marne in June and Guyenne, Gironde in September. The 18th and 19th leather workshops of Hermès, all human sized. The work of the leather workshops of Louviers, Eure is being pursued for being in 2022. We are posing the first stone for the Sormonne in Ardennes, plan to open in 2023, and the Riom project in Auvergne will be opening in 2024. In Lyon, the enlargement of the Pierre-Bénite site to accompany the growth of silk and textile is being pursued. Let's come to our integrated omnichannel and exclusive distribution network. In an unstable environment, our teams have shown dynamism and creativity to be as close as possible to the customers rethinking their métier by taking initiatives with the omnichannel logic. In 2021, the operational investments pursued in the stores allowing for people to discover the collections at the heart of the cities and closest to the local customers. We just continue the extension of the network in Shenzhen in China, Tokyo, Japan and Detroit in the U.S.A. as well as through numerous renovations and extensions of stores. The year 2021 confirm the very strong performance of e-commerce and the pursual of our digital strategy via wide offering of products, which are unseasonally enriched. Opening of the new digital platform in Thailand as well as new services with strong attractiveness. 78% of the e-commerce customers are customers for Hermès. The group has thus responded in a flexible and successful way to the strengthening of online sales and users that are evolving. In a new dynamic world, Hermès was able to keep and renew its link with its customers in each country with a multi-local approach. Hermès deeply attached to moments of sharing to being together wanted to celebrate the possibility of coming together again, while adapting to each health situation with namely events dedicated to the public at lies such as HermèsFit in Chengdu, in China, Tokyo, New York, Paris, around the collection of accessories. And Hermès in the Making in Copenhagen, an invitation to the public to meet our crafts persons and discover expert gestures and original client events at the local dimension. The Artisanal model of Hermes strongly integrated favors, creation of employment, qualified jobs on the territory. In 2021, Hermes pursued its recruitment and has strengthened its numbers by 1,000. At the end of December 2021, the group employed 17,600 persons, of which 11,000 jobs in France. The enrichment and the transition -- transmission of know-how trust is the strong commitment of Hermès in favor of training in all the métiers. As has already been mentioned, with the CFA and its first promotion in Fitilieu in the Auvergne Rhône-Alpes region. Hermès is convinced indeed that the diversity of talent is a source of richness, creativity and innovation with the ambition of going even further the role as a responsible and committed employer. Women are strongly represented in the group. They represent 60% of the executives, 54% of the top management and half of the members of the Supervisory Board. In 2021, we are welcoming the entry into force of the group-wide disability agreement. Our model is based on a very strong vertical integration and local anchoring. The 52 production sites of Hermès are organized by regional expertise centers. On an average, a leather workshop is opened every 12 to 18 months, which contributes to the revitalizing of the territories in France. The opening of new production sites are made according to 3 criteria: the respect of local expertise, the preservation of know-how and the desire to create local jobs. Hermès keeps long-term relations with its stakeholders, namely with its suppliers. We accompany them to attain the level of demandingness that the group has fixed itself in terms of environmental and social impact, namely through the purchasing policies developed in 2021. This year, the house has 530 certified ESS suppliers in France. This year, we have strengthened our commitment against climate warming. Hermès is structurally low emitter of CO2. Hermès wish to strengthen its policy for the reduction of greenhouse gas emissions. Our trajectory of reduction lower to 1.5 degrees has been validated by SBTi. This will go through the reduction by 50% of the carbon footprint per square meter of real estate surface and the putting in place of 100% of renewable electricity within the direct operations by 2025. We have renewed our commitment to livelihoods by supporting the 3rd carbon fund launched in the 30th of June, 2021. And the group finalizes the inventory of its impact on biodiversity to the global biodiversity score method and will start special action plans on major scientific subjects identified clearly. Finally, numerous initiatives of reuse have been launched for several years, all of métiers have a road map in terms of circular economy. The exceptional progression of Hermès in the extra financial ratings reflects our commitments on the CSR as well as the durable dimension -- sustainable dimension of Artisanal model. The A rating of MSCI inclusion in the CAC 40 index of ESG and the [ classicifaction ] of Sustainalytics, second best actor of textile and ready-to-wear. And the House is positioned at the leadership level with the CDP valuation 2021. May I now give the floor to Eric du Halgouët, our CFO, who will present to you the annual results. Thank you.

Good morning, everyone. The group's 2021 results are exceptional, whether you're talking about growth in revenue, current operating income or net income. Operational profitability reaching a record level over 39%, and cash flow generation, especially strong. Now let's look at some of the results in greater detail. As Axel mentioned, revenue at constant currencies is up 42% over 1 year and 33% over 2 years. This organic and virtuous growth includes in 2021, as in 2020, price increases that are below 2 points. Scope effects are limited. Growth, therefore, is mainly thanks to strong growth in volumes, generating a significant leverage effect on profitability. Improvement in the gross margin rate by 2.8 points, as in the first half, comes from leverage effects fixed production costs, improved productivity and also exceptional inventory sell-through rates. Inventory in our stores end of the year reached especially low levels in several sectors such as ready-to-wear watches, home and shoes. Communications spending reaching EUR 422 million, which is 4.7% of sales, after having stepped this up in the second half. Overheads, which include wages for employees in stores and support functions as well as variable lease payments, reached EUR 1.7 billion. Although the group speeded up hiring in the second half of the year, the leverage effect is significant, both compared to 2020 as well as compared to 2019. Other income and expenses reaching EUR 734 million, mainly containing amortizations of right to use and intangible -- tangible assets, sorry, also include expenses for granting free shares to employees, EUR 122 million, donations and sponsorships. EUR 122 million is 8.2% of sales versus 10.9% of sales in 2020 due to strong growth in sales, and we continue our investments all the while. Recurring operating income reaching EUR 3.5 billion, up 78% and compared to 2020. Just to remind you, operating income in 2020 included a nonrecurring profit of EUR 91 million due to the deconsolidation of Shang Xia. After an exceptional first half, profitability reaching 40.7%, the second half has 38.1% profitability after speeding up hiring and communication spends as well as a negative currency effect in the second half of the year, thanks to very good sell-through rates of our collections and positive leverage effects on fixed expenses. Recurring operating profitability in 2021 reaches a record level of 39.3%, growing 5 points versus 2019 and growing 8 points versus 2020. And financial results and net expense of EUR 96 million versus -- sorry, EUR 96 million versus EUR 86 million in 2020. This expense includes currency hedging as well as lease debt. Now our tax on profits reaching the threshold of EUR 1 billion tax rate, 29.5%. Net income from associates demonstrating the good performance of our businesses in the Middle East. Net income reaching EUR 2.4 billion, up 77% compared to 2020. Net profitability reaching a record level of 27.2%. On this chart, we see an illustration of the strength and buoyancy of sales in 2020, 2021 and a very strong rebound in net income, thanks to the leverage effect. In spite of the impact of the health crisis, average growth rate over 10 years is 12.2% for sales and 15.2% for net income. The group maintained its strategic investments in 2020 and stepped up projects in 2021. Operating investments reaching EUR 532 million. EUR 220 million was spent on refurbishments and enlargements of our exclusive distribution network. This amount in [indiscernible] includes the construction of our future flagship store in New York, Madison 706; the enlargement of our Milan store in Italy; and also the opening in Japan of the Omotesando store and also the moving of the Beijing, China World store and extension of Plaza -- Shanghai Plaza 66 in China. EUR 169 million spent on production in the various sectors, mainly leather, but also tanneries, textiles and perfumes. Lastly, EUR 143 million invested in IT systems, pertaining to supply chain and digital projects, but also for real estate projects to underpin and support the growth of this group. Business-related cash flow reaching EUR 3.4 billion, strongly up in terms of cash flow and a significant drop in WCR. After taking into account OpEx, which we alluded to previously, and the repayment of fixed lease debt, available cash flow of EUR 2.7 billion, which is twice the level of 2019, the group bought back in the first half 142,000 shares for the amount of EUR 162 million, paying an ordinary dividend of EUR 4.55 per share, the same amount as the dividend paid in 2020 and 2019. Other transactions are in 2021, a reflection of favorable currency effects due to the uptick of certain strategic currencies towards the end of the year, such as the Renminbi and the U.S. dollar. Restated net cash went up by EUR 2.2 billion, going beyond the threshold of EUR 7 billion at the end of 2021. The dividend proposed for approval at the AGM slated for April 20 will be EUR 8 per share, which is a payout of 34%, up 76%, as you can see in the simplified balance sheet to growth in assets, mainly thanks to cash. Under liabilities, the increase in current debt is a reflection of a strong rebound in business in 2021. shareholders' equity reaching almost EUR 9.4 billion, representing around 70% of the total balance sheet. The group, therefore, has strengthened its already strong financial structure so that it can move towards 2022 and confidence. Thank you for listening. I'll give the floor to Axel, who will talk to us about the outlook.

Thank you, Eric. I'd like to now come to the outlook of the group that remain unchanged. For 2022, the impact of the COVID-19 pandemic remains today difficult to assess as a result of the evolutions, which are being pursued in the different geographical zones, areas in the medium term despite economic, geopolitical and monetary uncertainty in the world. The group confirms the objective of progression of its sales at ambitious constant rates. So it is with pride and recognition that we closed 2021 on the theme of Odyssey. This year, 2022, opens a new brand, which is that of lightness, full of depth and it's also created vitality. We pursue a [indiscernible] of employment, multi-local, multimetand creative to engineers. Investments continue in the production capacity, and we will continue to invest equally in the retail network with openings, enlargements of stores, namely Madison in New York, Saint Petersburg in Russia, Shanghai and Wuhan, Barcelona in Spain and Doha in Qatar. 2022 will once again be a year of strong creation with the launch in March of Plein Air fourth chapter of Hermès Beauty, the launch of the table [ service ] Soleil d’Hermès and the seventh collection of haute bijouterie in Paris, high jewelry in Paris. And we are very happy to be able to renew with the public in March during the 12th edition of the Saut Hermès at the Éphémère Grand Palais in Paris. Thank you very much, and we are now available with Eric to answer to your questions. Thank you very much.

[Operator Instructions] We have first question from Thomas Chauvet from Citi.

Two questions. The first one on the gross margin, which was 71.1% in the second semester, up by 40 basis points year-on-year and 50 basis points over 2 years with a favorable mix because of the overperformance of leather. Can you indicate the factors that will allow you to increase the gross margin? And is 71% a good basis for 2022 for the gross margin? That was more or less flat as compared to 2021? Secondly, with regard to the production constraints that you mentioned in the first semester, the increase of cost and other than the incremental cost of the recruitment for [indiscernible], the 3 leather workshops What are the wages for the Hermès luxury leather to be able to retain its artisans? And with regard to constraints of production because of the artisans, when we see ready-to-wear jewelry in the fourth quarter, do you see any constraints in production because of the [indiscernible] artisans that you have to train?

On gross margin, as we mentioned, in 2021, whether you're talking about overheads or indirect production expenses. We saw the benefits of a exceptional leverage effect. All in all, our fixed expenses were up -- went up twice slower than sales went up, a nonrecurring positive effect. 2022 factor in 2 things. First one, negative currency effect, we think, should be approximately EUR 60 million, around 0.2 points on profitability. As we mentioned, in 2021, we also saw exceptional sell-through of our inventory in nonrecurring due to the Hermès business model due to the wealth of our collections over 50,000 SKUs.

Thank you, Eric. I'd like to answer on the production. I'll give a wide answer because it's a subject which is something that we're really interested in and it occupies us. This simple rule in Hermès. Firstly is the quality and know-how. Now even in periods of great success like this, it is important indeed for me, the quality and know-how should never be an adjustment variable. And sometimes I prefer not to produce rather than produce a product that would not be up to the level required by Hermès. And we are lucky to have a very strong demand, which is higher than our production capacity, and you have seen this in the low inventory that we have. And there are 2 subjects here. There is a leather production, as you know, which is very manual. And Hermès handbag is 15 hours of handcrafting made by an artisan. And I'm very proud of the results of leather. Over 2 years, we have -- leather has grown by plus 23%, which is beyond our objectives that we fixed for ourselves, which was a progression in volume of plus 6% or 7%. Plus the price increase, which as a result, also used a lot of inventory. And then we had some constraints because our leather is 100% made in France. And as you know, the situation -- health situation being what it is with the lockdown and difficult for children to go to school when they had to kept at home very human. But the dynamism of production has allowed us to make plus 23% of the 2 years, and I wish to congratulate them for this. And then there are the other métiers, other sectors and what is maybe new in this period of crisis is that all the sectors, all the métiers have had an incredible demand, while we've seen in the past that leather was the métiers that amortized the crisis. But all the métiers, if I do say, have progressed very strongly. And here again, sometimes other sets of production, the jewelry, watches, we are integrated, as you know. We have a manufacturing unit in [indiscernible] and some constraints in here. We use know-how that is sufficiently cutting edge and difficult, and that is the part of the beauty of the Hermès product to continue in this vein and sometimes the careful production capacity beyond the capacity. And we've never stopped our investment in our industrial tool even in the beginning of the crisis, even when some worried we will continue to invest in manufacturing plants, the textile printing in Lyon, we continue to invest in Switzerland, in leather workshops. And today, we are bearing the fruit of this. So if I may -- you might say that I am satisfied a little, but after around [ 165 ] years of history, we have had the most beautiful year and first 33% compared to pre-COVID. And I, of course, would like to congratulate all the Hermès teams for this. Now concerning the inflation and increase of global prices. On this subject, I would like to say 2 things. In Hermès, we have prices as a function of the increase of the manufacturing costs. It is true that with [indiscernible] growth, we have an organic growth strategy. But maybe less focused on scope effect and price effect, which is not related to our price increases. This is something that we're really strict on with regard to some practices in the industry. So we increased our price by about 3%, which represents inflation of our costs annually. And depending on the currency, the world that could lead to more or less different averages, but be around 3.5% this year. So we have an inflation which is limited maybe also as a result of our mode of production, which are very artisanal and handcrafted. So maybe we are less subjected than others to the increases in the price of energy and such like. So with regard to your question on inflation linked to the artisans, I hope and of course, each maison has its own policy. I hope we are not followers and that we are not -- we're ahead in terms of training, in terms of know-how. And this is something that we are very watchful about, very careful about it, and I'd like to say on this subject that we increased all our artisan, but also our sales associates over and beyond the general increase or individual increase of EUR 100 gross -- a month end of bonus of EUR 3,000 has been given to each employee worldwide Hermès. And so if you calculate, that's about EUR 17 million. And also something specific to Hermès, we believe a lot in the shareholders -- salary to shareholders. 70% of [indiscernible] have Hermes shares. And to give you a salient since I took on the operational job, we've got a free share distribution, which has allowed us to distribute to employees -- nearly EUR 800 million worth of shares to our employees, which is part and parcel of our pleasure to integrate everybody into this family-owned business.

Next question, Luca Solca from Bernstein.

Hello. Good morning, everyone. First of all, your strategic positioning for your brand. I have a question about this, and the consequences of your price policies. What we're seeing in the marketplace is your competitors are currently increasing prices in a big way. So Hermès is becoming less expensive compared to them in relative terms. Also, limits for leather production capacity are such that demand is probably focusing on products that are somewhat lower priced, like beauty products, fragrances and so forth. So maybe more volumes sold of those products out in the marketplace. My question, is this the current concern to you in terms of your rule governing price increases, which you've recalled for us? So that was the first question. On the other hand, I'd also like to ask you about digital policies we saw in the pandemic. Online sales grew significantly. So digital presence for all brands is very important. I just want to know your most recent outlook on your digital presence?

Thank you, Luca, for the questions. I'm not sure everyone, including [ Carole ], is saying good morning to you as well. So regarding our strategy. Yes, I was just rereading your question. As I said, well, our first point, my uncle [indiscernible] used to say, I don't look at what the other guys are up to because that might influence me. So that's not our way of doing things. We don't follow what others are doing. And with [indiscernible], who's brilliantly led the retail activity this year. We do not intend to use prices as a way of ratcheting up further growth. But I also said, I do not believe, and I think this is one of the reasons we're so successful during difficult times. We're genuine about all this. The price you are paying at Hermès is the genuine price. Its the actual price, it cost to make that product. That's why there's a real rapport of trust between us and customers. And I wouldn't want to jeopardize that. Now of course, you raised a point that I agree with completely, i.e. our products, yes, are costly, but they're not expensive. Our prices aren't related to desirability, but they're related to hours of labor and so forth that are required to make the products. I believe what's interesting and what we're seeing now is that all métiers have done well regardless of their price positioning. So yes, we're very proud of our success with beauty products coming at precisely the right time. Sometimes we're also right to have a little luck and we launched just before the lockdown. And in France, if we look at the amazing success of our furniture, the amazing success haute bijouterie with items sold at price points, hitherto unseen -- so I think this just goes to show how attractive this house is, and that's what's special about our success this year. Everything went in the right direction was -- everything was successful regardless of price positioning. So I believe we just want to make the right products with the requisite creativity and know-how at the right price, the right price, meaning the cost it took to produce it. Now on the digital policy, we've seen this, and it's something fairly surprising. An increase in digital sales really ramped up during the crisis, especially when the stores were closed. The surprise was when the stores reopened, the trend didn't really dip down. So I think we've really gone beyond a particular threshold. I mentioned 78% of our digital customers are new customers. So we're bringing on board a new customer base that we didn't have previously in our actual stores in our brick-and-mortar stores. So this is not cannibalization of store customers. It's additional customers. So strong momentum in retailing and online. If we look at all of our digital business now, retail -- the online retail is the biggest store of our group, so to speak, and I'm very glad to be able to say that. Thank you very much to Axel.

We have another question from Edouard Aubin from Morgan Stanley.

I just wanted to come back to the 2 questions that Thomas asked in the beginning on the production constraints. The first one on production constraints in the leather. Can you give us an indication of your level of inventory at the beginning of the year? Is there a deliberate will to think that there's more inventory, which explains the difference between the fourth quarter and the first quarter? In the beginning of the year, can we actually come back to the 6%, 7% volume growth in leather with the second question on leather is the growth in capacity on category other than leather. Once again, just like what Thomas asked, what is the reality of the constraints in production really on these categories? In the last 2 years, you grew your sales by 15%, 20%. Is that a pace that you could actually maintain in the medium term?

Well, these are very specific question to be able to modelize '22. Well, I understand -- let's first take production or even the figures of the group. Let's take as a reference '19, which was an excellent year. Today, growth as compared to 2019 is 33%. So we've grown after [ 165 ] years by 1/3. That's a lot and that was with a big effort on production. And indeed, with the use of inventory, strong inventory, that's why we have less inventory, and that is also why we have a good cash flow as you were able to see. Now if I were to sum up plus 33% over the year. Now if I go to the lower rungs plus 33% in the first and there's plus 23% the second half. If I look at the first half of the year, I could say it's plus 33% in Q1 and plus 33% on Q2. Now it so happens for us plus 33% for reasons of cutoff and also for comparison because we were one of the first houses to have had a very good first quarter last year, and we've had a small difference with the two, but the average remains 33%. So there is no break of trends. And I'm not announcing any change in the global trend either. Now there is nothing contrived or in steering. The Chinese New Year for us is an important period, and these stores equipped as they should be for this important moment, just like that is the case for an important moment, which is Christmas. We are a multi-local company. So each subsidiary really manages its inventory and its purchases, and that is one of our specificities. We don't have any merchandising department that changes -- uptakes goods from one sort of the next depending on the weather, but really as a function of their commitment, their long-term outlook prospects. And so for leather, we follow our path, and we remain on our prospects that we've announced, 6% to 7% plus a price effect. Then there's a value effect that also comes into play. You need 15 hours to make a handbag in size 25, 15 hours to make a handbag in size 30, and the price of a bag 30 is higher than the size 25. And that depends on, of course, also on the size, the leather used. So there's lots of different factors. And at this buoyant moment, there's a growth, which is higher than habitual objectives. Now for other sectors of the métiers, it depends. We're integrated for some métiers very strongly, such as tableware . In particular, silk the leather you've already mentioned this, watches. And we integrated it for a lot of métiers, that is a specificity of Hermès. We produce a lot, a lot in-house, much more than the majority. So we follow this more or less. And what is really important for us is to keep quality. And for other métiers, you have suppliers, you have capacity, but we will increase the capacity only when we required capacity. Some people may say that we really [indiscernible] on quality, but we always try to find the specificity of the Hermès product that takes the time it does to be made. Let me give you an example that is dear to me, silver jewelry. It's one of the rare Hermès jewelry that is treated like the gold jewelry with all the requirements, and it takes longer to make it compared to other companies. So we are always respond to demand. We always try to please the customer and we are always very sad, contrary to what others think, to say no when we don't have it, but we want to do this with the most beautiful object possible. And as I often say, the object is -- the product is not an adjustment variable. So we do it as best with our criteria of quality and certain rigidity when it comes to this quality criteria.

We will now take a question from Melania Grippo from BNP Paribas Exane.

I have 2 questions. One is regarding your EBIT margin. So in light of a lower gross margin and your OpEx investment. What could we expect in terms of profitability for 2022? I mean, could we expect around 36%? And if this is too high, what could be realistic? And my other question is regarding the beginning of the year. If you could please give us some comments, some qualitative comments on how is the Chinese New Year progressing, if you've seen any rupture in the plan?

So for this year, we keep the same ambitious target. However, compared to last year, we will reinforce our teams support functions, sales functions. We will accelerate CapEx, and we will also increase our communication expenses. We were penalized last year by the [ coronavirus ]. As explained by Axel, we have reflected in the price increase of 3.5% at the global group, the cost of products. However, we did not reflect in this increase the currency impact I mentioned before. So this is the main drivers for this year. I will not give you a percentage, but we keep our ambitious target. Yes, for the beginning of the year, people who have listened to me during the presentation -- previous presentation, know that I'm not going to give a figure about the first quarter for one thing because there is the Chinese New Year, which is changing its date from every year, and we change the perspective that you can have on the first figure. As I told before, I can say globally that I don't see a change of trend. I will tell you just one thing -- I will tell you 2 things. The first one is that, and it will be globally and not about Hermès, is that the Chinese New Year change from the 21st of February to the 1st of February. So the Chinese New Year is very early. What you could expect in the industry, and I'm not talking about Hermès, what you could expect normally into the industry is to have a very hot January, a lukewarm February and a normalizing March to know exactly what will be the result of March. So your question allows me to do something that in French, we called [ La Palisade ], which means that we will know the result of the first quarter at the end of March. And I will be very happy to communicate it in due time.

Our next question from HSBC.

Hello, good morning. I have various questions. First of all, regarding regions, Europe and France, very strong in Q4. What about tourism, what's your thinking about tourism over the period? Who of the tourist [indiscernible] have come back to the stores? And what are your forecasts pertaining to a return of Chinese tourists to Europe. That was question one. Question two, the United States. Growth is slightly weaker than your competitors in Q4 in the U.S. Are there reasons for this? Less inventory to allocate or what have you? Could you talk to us about the U.S. If I might there ask a third question about China. What are your plans for Hainan?

Yes, thank you for 3 very specific questions. Regarding Europe and France. My strategy has always been and the CEOs of our various Hermès countries know this. I pay special attention to local customers. I track these figures every single year. So we've got a very strong local customer base, larger than some of our peers, which is one of the reasons why when tourism slowed down, we were able to continue with a true positive momentum. Now track record, some quarters were more or less good and so on and so forth, some variations, especially comparing to quarters where stores were closed. For instance, in London or Germany or where have you, so there are sometimes big swings in one way or another. But we can say local customers very much enabled us to offset the drop in tourism in Europe broadly. Yes, it's true. Towards the beginning of the year, we saw a return, especially in France of U.S., tourists. Then it stop pretty quickly when Omicron arrived. More tourists in November than December. So Europe is up versus 2019 for local customers. The only one slightly down France, minus 3%, related to fairly strong drop in tourists to the Paris region, but very much offset by online sales and also provincial sales, which are amazing and also in the Balearic Islands. Chinese tourism, you can try to forecast this as well as I can. I won't forecast any better than you considering Omicron and various health policies in different countries, it's not on the agenda yet. The return is not on the agenda yet. But everything can happen very quickly and change very quickly. So I wouldn't stick my neck out to make any forecast there. I'll stick with market consensus, let's put it that way. Regarding the United States, we had fantastic results. Several things coming together at the same time, a couple of points. Q3 very strong, so a little bit less inventory maybe in Q4. But still, most importantly, I'd say Omicron. That factor made us close stores in December. Our health policy has been very strict to have to -- especially, we closed the biggest store. That's where it was greatest in store traffic and potential contagions. So I'm not in any way worried about the situation in the U.S. We've got a development plan for the United States. On an annual basis, like for other geographies, we're seeing no break in the trend. To talk to you about China. China is always a country I'm very interested in. You may not know, but I lived there for 2 years when I was a youngster. So I have various recollections of China. [indiscernible] is in charge of Commerce led our Chinese subsidiary for many years, 5 years. So we often discuss Chinese cuisine. Now in 2010 -- you're going to get a long answer to a quick question. In 2010, we made a decision, a joint decision. We have a lowest number of stores in China very successful. We kept Hermès exclusivity. We didn't decide to open up in every single store. We knew digital would help us out already, and we decided to keep an entrepreneurial spirit there by opening a store in one new city each year. That's broadly what we've done. Pre-COVID, we slightly shifted -- changed that strategy. We kept the entrepreneurial spirit and the idea of rather than opening just one store per year, maybe 2 per year additional stores, maybe sometimes doubling some locations, Shenzhen or where have you, maybe having a fourth store as we go next year in Shanghai, and then open up in new cities, Zheng Zhou and so forth this year. So even though it won't happen in 2022, we're considering Hainan at a special status. We have not made any decision so far as to how to tackle this. There's lot of duty-free sales, duty paid in China is a big business. So we're making roads in the market, but not in 2022 at any [ way] . Thank you.

We have another question from David De Maia, CIC.

Good morning. A question on the profitability. We've finally seen that the drop in margin in 2021 was quite limited as given or despite the strengthening investment to support growth. Can we consider that you've actually crossed a big step in terms of structural profitability given the size of the group today, which is nearly EUR 9 billion in revenue. And on leather, just to sum up everything that was said beforehand, can we suppose that the slow down of Q4 was just in passing and that there's going to be a return of positive growth on leather since the beginning of the year because we've understood that the demand still remains very high, and the production capacity, which will guide the business this year, once again. And then last question on the digital, you spoke about your omnichannel strategy. I know that historically, the website is managed as a physical store in terms of its inventory levels. Today, are you going to switch over to a unified inventory strategy at the level of the group in order to bring greater omnichannel service to your customers?

Very well. I'm going to answer on the margin. And Eric will correct me. So I'll give you an answer more frankly than question of an analysts. The group is not steered by margin. What we're trying to do is sell with our price policy, as we mentioned, product and to try and attract our customers and margin is the result of the work well done. But we don't do any retro business starting with the target margin that we want to have and work on the objectives. Now in 2021, all the indicators were positive. As you have seen in the cash flow, we have sold very well, and we have managed the costs because growth was higher, plus 33%. We don't have inventory métiers, all of this was very positive. But where you are right, we are an industry of overheads. The real costs in Hermès are the wages of artisans and our sales associates, our rent, which are fix in the Asia zone. And amortization of manufacturing in our central system and our stores, which are relatively spread over time. The variable within our industry could be as a function of the success of a lot of communication and particularly the inventory. But inventory counter-cyclic when things are at work, they go up when it goes well, they go down. So the only variable actually worsens that a problem rather than solving it. But anyway, this being said, we have strong ambitions necessarily of success and of size, which obliges us, and we won't -- [indiscernible] steering on the margin. But of course, I may be contradicted by the CFO. He made all the points. H2, we mentioned, saw inventory sell-through at remarkable levels. We started bolstering our teams. The full year effect we'll see in 2022. I won't repeat the subject regarding currencies. I already talked about that.

Now for the [ lever ] important subject. Now as I could repeat till [indiscernible], we remain in a growth plan of 6%, 7% on the year volume, plus the price increase. So we -- a growth over the year. So we will meet in March to talk per métiers, per sector. We remain with great dynamic for our métiers, and we remain a very manual métiers, which depends on the health situation of everyone. On the digital, you are right. You would have asked me the question a few years ago, I would have said, well, maybe we'll put it on the back of big flagship so that they have a greater inventory. Now today, the first source of inventory, there's not everything on the digital for the moment because there are products where we don't have inventory in our stores. So that is the case also for the digital. But the digital can help out our brick-and-mortar stores with the inventory, but what is really important, we've kept our sense of responsibilities. The digital store is headed by a digital store manager who makes his choice as the freedom of purchase like everybody else with the budget, a very big budget. So this is something I'm truly attached to in Hermès that in work, we have the responsibility and the capacity to take decisions on behalf of the group. The artisan has his or her responsibility for their bag. They make it for 15 hours on their own. They know what they've done with the interlining and so forth and marks it with their individual hallmark, and they know that they've made it, and it is the pleasure for them to market. That's an important step when they are given this hallmark when they apply to the bag they've made, for example. And the same thing is true for the stores. We ask them to buy the inventory, some of them they would buy for me to make it easier for me, no, it's their responsibilities as part and parcel, the responsibility of the store manager, the Internet store manager, whatever the size to make their purchases for it. And then in fact, if this was the pleasure at the beginning of the year, every year, we have a podium. The podium in Hermès is the moment where we present all our novelties to all our stores. So everybody makes their big shopping, and we have been able to see the appetite of everybody to buy new creation, which is also great pleasure at the [indiscernible] stores. So if I understand correctly, the hermes.com store can feed the physical stores in inventory, but not the other way around. Sorry, I wasn't clear enough. You remind me of great [indiscernible] if you understood me, that means I wasn't too clear enough. I mean, we couldn't imagine this, what we wanted with [indiscernible], the fluid omnichannel. So if you're in the store, you can have access to the Internet inventory. And when the Internet, you can have access to the store inventory. So there is a fluidity. And that is why we have integrated the digital into the global retail. The idea is that there's no difference -- for there to be no difference for our customers, and one can go to one or the other depending on the SKU. And then everybody is, of course, responsible for the inventory . Everybody has taken their bet and everybody has their own customers, their clientele. And what is surprising is that the stores, the digital or digital customers rather are also are very digital customer and then you've got those very physical. So everybody has their own dynamic and their logic. So when there is omnichannel, then it moves. I think that the board has become -- have become quite porous, with this crisis, the physical stores have worked on the omnichannel when the stores were actually closed and did shipping and Internet also functioned and our customers, when the stores are open, send messages, digital messages to our sales associates. So the idea that we had was to remove the barriers, remove the silos and to be at the service off. And so there is a great porosity between all of this, and this is headed by the same boss who is with Florian. Is that clear?

Yes, it was very clear. Very clear. Perfect.

There are no further questions.

Thank you Very much. Enough for a day. So we can just be very pleased for a few moments with Eric at these 2021 results, and we're rolling up our sleeves this year to tackle 2022 and to continue on this beautiful trajectory with great ambition and confidence and especially creativity and lightness. Thank you very much. We'll maybe hear you again soon for the... [Statements in English on this transcript were spoken by an interpreter present on the live call.]