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

[Interpreted] Good morning, ladies and gentlemen. Welcome to the presentation of the 2022 first half results for Hermès International. I'll give the floor now to Mr. Axel Dumas, Chief Executive Officer of Hermès International; and Mr. Eric du Halgouët, Chief Financial Officer. Gentlemen, you have the floor.

[Interpreted] Good morning, everybody. I would like to thank you for joining us for the publication of the results of H1 2022. I'm very happy that -- after an historical 2021 to present to you, once again, excellent results in terms of revenue and profitability. This performance rests above all on the quality of the work of our teams that I would like to warmly thank. These results illustrate the greater appeal of the House of Hermès. Our objectives are conceived in an artisanal manner with an approach of durability without any trade-off on quality. Our performance of H1 rests on a burgeoning creative with the asserted style and exceptional know-how that have carried forward the growth of our 16 métiers. It justifies to the desirability of the Hermès objectives with our customer, everywhere in the world, in sync with the expectations and values. The geographical balance of our network with the omni-channel and exclusive network allows us to be close to our customers and meet with new customers. This inset world shows that the solidity of our model, which carries forward the momentum and sustainable growth. And thus, we advanced with confidence, faithful to our values and our role as a socially responsible company in solidarity with our teams and our partners. This leads to a strong commitment in the creation of jobs, the revitalization of territories and the protection and transmission of know-how. Let us now come to the activity. Revenue is up to EUR 5.5 billion at the end of June, up by plus 24% at current exchange rates and plus 23% at constant exchange rates. All the regions have flagged very solid strong performance with a good resistance, resilience of Asia despite the health context in China. Growth was particularly sustained in the stores of the group, up by 23%. The wholesale activities have also been up by 25%, namely thanks to the resumption of travel retail sales. So the omni-channel network has developed and online sales have strengthened everywhere in the world. The sales of the second Q2 have reached EUR 2.7 billion, up by plus 26% at current rates and plus 20% at constant rates with a strong momentum of the 16 métiers. Let us look at the activities for geographical zone. So in H1 of '22, all the regions have flagged strong performance with strong double digit of progression. France, plus 41%; Europe, excluding France, plus 34%, have pursued their strong growth with loyalty and local customers and resumption of tourism flows in France, U.K. and Italy. Japan, plus 20% has shown remarkable performance once again, Asia excluding Japan, plus 15% has been carried forward by a strong momentum in all of the region, namely by a sustained activity in Singapore, Australia and Korea. Greater China has recovered strongly in June after having been penalized by new health constraints in closure of stores in April and May, mainly in Shanghai and Beijing. America, finally, plus 34%, pursues a very good momentum. The geographical distribution remains balanced, and the slight evolution reflected the drop in the weight of Asia to the benefit of Americas. Let us look at the activity for métier. At the end of June '22, all the métiers have confirmed the strong momentum with progression, remarkable progression of [ silk ] clothes, accessories, watches and other métiers [ availment ] That is haute bijouterie and home universe. The growth of leather plus 12% was based on a sustained growth and an increase of production capacity in sync with our annual objectives. The clothes and accessories métiers, plus 36% has pursued its beautiful momentum, thanks to the success of the collections of ready-to-wear fashion accessories and shoes. The new creations encounters great success alongside the iconic objective of Hermès. Silk and Textile métier, excellent progression for women and men silk. Hermès Perfume, plus 23% has benefited from the success of the launches of the new chapter of Hermès Beauty, Hermès Plein Air delegated to complexion and the collection of perfumes has been enriched by the Terre d'Hermès Eau Givrée. Watches plus 55% had a remarkable performance, thanks to the development of pieces with exceptional knowhow such as the watch, Arceau Le temps voyageur and the success of its stalwarts such as Heure H and Cape Cod. And finally, the other métiers of Hermès, plus 33% have pursued the strong momentum. The evolution of the distribution of the métiers with the strong progression of clothes and accessories and other métiers, and leather has pursued its growth in line with the objectives. And the management -- the artistic direction of [ Paris ] amongst the creations have been well received. Let us mention some in the first half of the year, the leather collection, the success of the R.M.S. suitcase, which is customizable, but also HAC à Dos, Bolide Skate and Della Cavalleria. The women's ready-to-wear collection and men's ready-to-wear collections have also met with beautiful reception during the Parisian fashion week. I'd also mention the table service called Soleil d’Hermès, perfumed oils, [Foreign Language] and the new cologne, Eau de Basilic Pourpre, home collections presented during the Milan Design Week 2022 were also wildly successful. The Hermès Pavilion had over 60,000 visitors this year there. Now we're investing to support production capacity in all our métiers, making about 1/3 of our investments this half year. Three leather production sites are being built and will be open in the next 5 years with an idea of establishing clusters of production. Work continues on the various leather sites in La Sormonne, Louviers, Riom. There also projects for the Espagnac island and Loupes, which we began this half year. In Lyon, there's the enlargement of the Pierre-Bénite textile site, which continues. Investments are also growing in other métiers such as shoes in Italy, perfumes in France, L'Heure De La Lune and watches in Switzerland, [ Andrew Ailie ]. Let's talk about our omni-channel exclusive integrated distribution network. There's a real complementarity of the retail and e-commerce network, which keeps us close to our local clients and opens Hermès' doors to new customers. We're continuing to increase our investments in the multi-local distribution networks, such as in stores in the U.S., opening our first store in Austin. This is our third store in Texas. We'll also be opening our first store in the province of Hainan and Changzhou. We are further extending renovating and enlarging stores in Doha, Dubai, the Middle East, Bangkok, Hong Kong and Macau locations in Asia. E-commerce is also an entry to the Hermès universe, and it's performed beautifully as well. We're seeing strong growth in traffic and sales in all countries, 78% of e-commerce platforms or new Hermès customers, first-time customers, thanks to omni-channel services. Thanks to a broader product offering, we're seeing positive momentum, great complementarity between the brick-and-mortar network and the e-commerce network in the first half of 2022. Our house that was very important to resume the events we organize to really show off the authenticity and the unconventional nature of our house. We had the 12th edition of the [ sac à malice ] in Paris. And we had a French writer who won the [ sac à malice Kevin Stoat ]. The Hermès in the Making is where we invite people to meet with our artisans and several tens of thousands of people attended these in Italy and the U.S. Lastly, there was the exposure Fabrique de la légèreté tying in the theme of the year and took place in Tokyo. Hermès pursues its commitment as a responsible employer. First of all, the group has accelerated its job creation by recruiting more than 800 persons. Over 600 in France in H1 where Hermès produces, as you know, more than 80% of its products. The acceleration of recruitment ought to be pursued -- will be pursued in H2 to strengthen the teams and all the makers of Hermès. After our first gross monthly increase of EUR 100, then a exceptional group bonus of EUR 3,000 for all the employees of Hermès. In February, we announced an increase of another EUR 100 gross monthly increase in July. This growth integrates the ambition of the House in terms of diversity, of the integration, the House is 6.4% of employees with disabilities going beyond the legal limit of 6%. The excellence of know-how and transmission are priorities of Hermès to accompany the growth of our activities that the in-house training systems have been continued. The École Hermès des Savoir-Faire has received a new promotion of artisans within the Ardennes leather cluster and all regional clusters of leather are opening stores. The next ones will be in the Southwestern [ over ]. The École des Artisans de la Vente opened its doors in Paris in April largely to accompany the sales associates of Hermès in their training. Our commitments in social environmental fields continue with our strong local anchor vertical integration and closest to our local suppliers. Our ambitions in environmental terms are in sync with our commitment in trajectory of lower than 1.5 degrees as validated by SBTI with different initiatives as records to renewable sources of energy. 100% of our suppliers are already in green electricity in France. And finally, Hermès has won the Grand Prix of Transparency for all categories, rewarding the House for the quality of the information published in support of the regulatory information of SBF 120. Now I'd like to give the floor to Eric du Halgouët, CFO of Hermès, who will be presenting the results to you. Thank you.

[Interpreted] Good morning, everyone. Thanks to the great sales momentum the group achieved exceptional results in H1 2022, whether we're talking about recurring operating profitability or net profitability. The income statement in H1 has a significant currency effect due to the conversion effect. On that point, the impact on revenue is plus 6 points, which means EUR 257 million. At constant exchange rates, growth is 23%, that's especially virtuous. It includes price effect on the order of 4%, which is greater than previous years. The slight drop in the gross margin rate, 0.5% is mainly due to currency effects. Firstly, the dilutive effect of the conversion effect, furthermore, the negative -- slightly negative effect of currency hedges. These downsides are partially offset by a leverage effect on production fixed costs and an improvement in productivity. Furthermore, sell-through of our collections has been exceptional, both in fashion, métiers and other métiers as well. Communication spending reaches almost EUR 200 million, up 35% compared to the first half of 2021. Some events in Europe and in China were postponed for health reasons. An ambitious program has been set up for the second half to underpin growth. Sales and administrative expenses, which, among other things, include salesperson wages and support function wages as well as variable rent reached EUR 982 million. There's a leverage effect on operational profitability of 0.8% versus H1 2021. Other income and expenses reaching EUR 406 million, mainly here, we're talking about amortizations, tangible and intangible amortizations as well as amortizations of utilization rights. The recurring operating income, H1 reaches therefore, EUR 2.3 billion, which is up 34% compared to the same period in 2021. Recurring operating profitability, reaching its record level of 42% of sales improved by more than 1 point compared to H1 2021. Financial results are an expense of EUR 35 million that includes hedging expenses slightly down as well as lease liabilities and remuneration of cash. We can see that figure. The tax rate in the first half is 28.5%. This is the estimated rate for the full year 2022 as well. We expect a drop by 1 point compared to the reported rate for 2021 reflects a change -- the drop in corporate tax in France. Net income from associates, EUR 25 million. The growth is due to the strong momentum of our activities in the Middle East. Net income goes beyond EUR 1.6 billion, which is up 40% compared to H1 2021. Net profitability also reached a record level, 30% gaining more than 2 points compared to H1 2021. On this page, we can see an illustration of a very strong rebound in sales and net income after 2022, which had been impacted by the health crisis. Over a 10-year period, the compound average annual growth in revenue and net income is respectively, 13% and 17%. Since 1 January 2022, the group's been adhering to the IFRIC decision regarding accounting recognition of IT projects in SaaS mode. So EUR 22 million, which would previously have been capitalized where, in this case, booked as an expense. The group invested EUR 190 million in the first half of 2022. EUR 78 million spent on refurbishment and enlargement of the distribution and retail network in [ in our area ] with the construction of our future New York flagship called Madison 706, which will be opened next September. EUR 68 million spend on boosting our production capacities and other things in projects to build new leather production sites. Lastly, EUR 45 million or EUR 67 million using comparable accounting methods were invested in digital information systems and real estate to support métiers development. Operating expenditure will speed up in the second half should reach for the full year around EUR 550 million. Operating cash flow of EUR 2 million, growing 34% year-on-year. The change in working capital requirement results mainly in an increase in inventory and receivables, which is in line with the strong growth of sales. After taking into account operational expenditure and repayments of lease liabilities, available cash flow after adjustment reaches EUR 1.4 billion. Hermès International bought back 103,000 shares for EUR 150 million, paying EUR 850 million in dividends. Now the line item other changes mainly has to do with currency changes vis-a-vis the euro, that's the impact on cash flow. Restated net cash position gain, more than EUR 600 million for the half yearly period reaching EUR 7.7 billion as of end of June. Cash flow, over 50% of our assets, shareholders' equity, over EUR 10 billion, representing around 70% of liability. The group has consolidated a very sound financial structure, enabling it to preserve its -- maintain its independence and continue with this long-term strategy. I'd like to thank you for your attention and give the floor to Axel, who will be talking about the outlook.

Thank you, Eric, for these good results. I may now come to the outlook of the group, which is unchanged. For 2022, the impact of COVID-19 pandemic remains difficult to assess as a result of the evolutions, which are perceived in the different geographical zones. In the medium term, despite the economic, geopolitical and monetary uncertainties in the world, the group confirms an objective of the progression of the revenue at constant rates and which is ambitious. Thanks to this corporate model, Hermès strategy, the development of long-term funding creativity, plus we have know-how, communication, which is original. In H2, Hermès continues to -- will continue to complete this positive dynamics or solution of this jobs multi-local and multi métier as well as the strength investment in the métier. The different strategic areas, environmental terms, namely through the global biodiversities, going different certifications. The next semester will be marked by the development of the network, namely the new flagship 706 Madison in New York, followed by other openings in the U.S. and Asia, but also the e-commerce platform, which will be rolled out in Brazil. Faithful to métiers creators, we have just presented the haute bijouterie collection, Les jeux de l’ombre is exhibited even today in the [ provost ] store, which has met with great commercial success. We will present at the women's ready-to-wear collections during summer 2023 during the fashion week in October in Paris. Second, H2 -- the exhibition opened to the public, [Foreign Language], they will be in Paris and [ La Vilette ] and [ members that are making ] will be traveling to Kyoto. The Hermès Corporate Foundation pursues its commitment in education and sensitization of the use in the métiers of craftsmanship with manufacturer and the study of biodiversity with [Foreign Language]. In conclusion, I'd like to thank our teams which endeavor every day to the success of Hermès and of our customers everywhere in the world. We are now available with Eric to respond to your questions. Thank you.

[Interpreted] [Operator Instructions] Here comes the first question. From Luca, Bernstein.

[Interpreted] Yes, good morning. In the financial community, there is discussion of a possible slowdown in demand due to the likely recession. I'm wondering, have you seen any signals of any kind of slowdown? I see the Hermès figures are very strong indeed, for that matter. We just saw some very strong weeks in June. So that was the first question. Another point regarding digital developments, you're talking more and more about integration with physical retail and retail stores. In the various regions, is it possible to buy in the store for home delivery or buy from home for a store pickup? What are your plans in this area in terms of digital development, if you could just give us the thrust of your policy here, your digital strategy.

[Interpreted] Thank you, Luca. This is Axel. To answer the first question, yes, so in our figures, we've seen no signs of any slowdown in any business activity whatsoever worldwide. There continue to be COVID-related crisis situations, for instance, the stores in Macau still closed, but we have seen no signs of any kind of slowdown. Of course, we all read the newspapers with great interest what's being said. We see various notes and so forth being written, saying this and that. But you know that Hermès traditionally tends to be impacted after others. Fairly infrequently, are -- we the first to be affected. Let me say that regarding certain comments, what's striking is the quick rebound of China in June. So that's that point. Now digital, very early on, we moved in the digital direction under Florian Craen's management of retail, we started to bring together major stores and retail to have an omni-channel approach or to put it simply, we wanted the customer to be able to choose how they wanted to come to Hermès. We love to ask to them, offer them the very best way to do so using the various retail channels. We're continuing to make large investments. Upcoming investments will be mainly in capacity. We've seen the success of our website, it's significant. So we have to make large-scale investments to continue supporting the big ramp-up in traffic. Another interesting thing, this a way of attracting new customers. I mean it's major. I said 70% of internet customers are brand-new first-time customers. And this is their entry to the Hermès universe. And afterwards, they come into our stores, certainly, many of them do. And you're right, these are services we're proposing today. You can buy in the store, for home delivery. And remember, we already had a lot of delivery systems previously in our stores and also goes the way around, you can buy something on the Internet and pick it up in the store. That's very frequent now. We're seeing people -- our customers very much like to come into the stores, even if they've bought from the Internet. We can say that we've got a big percentage of people that do that, fairly typical probably. Great deal of click and store traffic.

[Interpreted] We have another question from Thomas Chauvet from Citi.

[Interpreted] Two questions, if I may. The first one on the profitability, which was exceptional H1 -- maybe not exceptional. Maybe it has become something that is structural. I wanted to have your feeling on the expected profitability of H2. If you look at the cost phasing, catching up of expenses of last year, which was higher in H2 as compared to H1, even if you have a lot of projects for H2 this year, the comparison basis is already integrated. Is it possible to plan improvement in operational margin year-on-year in H2 close to 40%? That's my first question. My second question concerns the resale market, certain luxury brands, watches, [ Berotil, Masse ] And CHANEL have production capacity constraints structurally for the supply/demand of iconic products. And so the secondary apparel market, which does resale activity for which the prices sometimes are quite exuberant. Thanks to your teams. Have you been able to measure the volumes for Hermès -- volumes that this represent as compared to your own production volumes, the new production of new products sold in your stores? And what is your view on these resale platforms? And how are you sort of engaged in debate and discussions with these platforms, which finally, do parallel retail in parallel to those -- of yours with your own customer service in your own stores? Eric?

[Interpreted] On your first question, traditionally, the group's profitability in the second half is lower than profitability in the first half. The reasons for this -- well, first of all, communications actions this year project communications tended to be postponed due to COVID, especially in China, as I said earlier, now we have a slight -- for significant communication in the second half around EUR 550 million. Second point we said is we're strengthening our production capacities here as well. Our expenditure will go from EUR 200 million in the first half to probably EUR 550 million in this -- for the full year. Third point will also be adding to our employee base to contend with in-store traffic and provide the quality of service we intend to maintain. And as Axel already said, we've announced new wage measures, particularly an increase by EUR 100 per month for all European employees, even in other countries as well as of July 1. This will necessarily have an impact on the second half.

[Interpreted] Well, thank you, Eric. Indeed, I must admit that Hermès -- that the group has not headed as a function of operational profitability. We are a company of growth and ambition and creation. And at the end of the half year or the year, we do the accounts. Now obviously, we had H1, which was incredible on our products. So the currencies went in the right direction, the activity in our stores was quite incredible. Which in a company where there are a certain number of fixed costs has a leverage effect on profitability. But this must not prevent us from investing, continuing to progress and plant the trees of tomorrow, that is essential, indeed. Concerning the resellers, I think that in the parallel market that you mentioned, we don't have any relations with them and all the more substances to the detriment of our normal customers that come to the stores. Now obviously, our role and you know that the demand for leather, for example, since my childhood for the last 20 -- 30 years has always been higher than the supply. So we've been confronted to this for many years. And our role is to receive as many customers as possible to propose to them our products. And that some really for gains as old as the world maybe -- it's a pity. This is not something that is encouraged by Hermès, and this is, in fact, something that we don't approve of. Because it obliges real customers to buy products that are much more costly in other situations and sometimes mixed with counterfeit products. And this is something that we don't add all support knowing that there is a certain hypocrisy in the secondhand when it's products that are almost new.

[Interpreted] Next question, Anne-Laure Bismuth from HSBC.

[Interpreted] I've got 2 questions. First of all, profitability. Current consensus for the full year margin. Do you think this is too high? Changes in the margin in H2 would be around 32%. Let's make sure we're all on the same page. Could there be a stable margin or an improvement in margin in H2. Second question on the recovery, China, June -- could you flesh this out? You were seeing double-digit growth in June in China, right?

[Interpreted] Recovery in China -- Let's talk about profitability first. Profitability. I mentioned the 4 main points, boosting of our investments, our communications spend, increased wage effects impacting the second half, but we're keeping our ambitious objective for the full year. Regarding China, listen, I'm not going to exactly answer your question, but I suspect you won't be disappointed. Anyway regarding China, in the first half, we're growing for the period. To achieve the growth, yes, it's true. In June, there was double-digit growth.

[Interpreted] Next question comes from Zuzanna Pusz from UBS.

Sorry. I would be in English. So first of all, on maybe on your communication spend, I'm just a little bit -- may be confused or maybe if you could give us an update, what is now your sort of targeted communication spend? I remember historically, that's been roughly between 5% to 5.2% of sales. And my understanding was that last year, maybe in H1, the demand surprised you positively so, and the communications spend was a little bit lower and then you caught up in H2. But now in H1, once again, the communications spend seems lower, I think, roughly 3.6% of sales. So it will be just -- it would be just useful to know what is really your new targeted communication spend and it helps us a little bit more to model our margins going forward? Secondly, would you be -- would you be able to tell us what sort of were the gross margin drivers and add a little bit more detail, maybe any impact from FX mix and anything you could share would be very helpful also to give an idea of how we should think of the gross margin in H2? And then finally, are there any update on pricing for the second half of the year? I mean I know you have a specific strategy of trying to price your products in line with the inflation you're seeing. And this year, I believe pricing was roughly 2.5% and globally. But clearly, inflation continues to surprise to the upside. So if you could share any details on pricing for the remainder of the year, that would be very helpful.

Okay. Maybe I will answer communication and pricing. And Eric, you can take the growth driver after?

Yes.

Okay. Communication. Well, let's put that in a broad picture. For us, communication, let's say, there is 2 type of communication. There is the events where we pamper our client globally or new, and there is the media spending. I will say that the specificity of Hermès compared to the rest of the industry is that we have for what we call the events, very large share compared to the media compared to the rest of the industry, where globally, it's more media and less event. Which means that we are quite impacted in our budget by closing of unsanitary (sic) [unsatisfactory] procedure. That's why you can see that you can have a variation. I don't think we are missing any budget on communication because we are doing everything that we want on that. The flotation in terms of percentage are more because we had a higher sales than projected sometimes or better results or sometimes closing of a few events for other reasons. So we are totally following the trend that we have on communication. And we adapted it, of course, taking into account the evolution. We are spending now more on digital communication than before and that it is very important that we keep this really these 2 legs of strong events and also the media spending. Regarding the pricing. Thank you for remembering that we are increasing the pricing of our cost of goods. I really think that our product are so incredible and incredibly made that we don't need to have, let's say, luxury image by increasing with that ground our product, even if we can. Regarding that, we decided to increase the price of 3.5% this year to take into account the inflationary pressure. It will go up to 4% because we increased a little bit out 1st of July in jewelry and watches because of the price of gold and other metals, mainly. And we'll be able to pass the inflationary pressure in 2023 because we have the chance to, I think, have been always constant and coherent in this pricing policy.

Regarding the evolution of the gross margin, we have, in fact, 4 main drivers. The first one is, as you know, the currency impact where we expect a slight negative impact due to our hedging positions. It was a fact in the first semester. And also regarding the currency impact, we have the translation impact, which is quite difficult to anticipate and will depend on the evolution of the euro-dollar parity. The second one is related to the absorption of our fixed indirect production cost, and as you know, it will depend on the level of sales of the second part of the year. And finally, we have also the productivity of our workshops where we had in the first semester, a good productivity, and we assume depending on constraints, sanitary constraints we could have, but which assume to maintain at a good level. And maybe the last point, of course, is the cost of labor and the cost of materials. As we mentioned before, the decision we have taken to protect our employees, and this cost will, of course, impact the second part of the year.

Just to follow up -- clarify. So on communication spend is roughly 5% to 5.2% of price still your sort of target that the range you in normal circumstances will try to stick to? And on gross margin, that was very helpful. But can you tell us where we're roughly the drivers of the slight -- I mean I had expected a slightly bigger drop in gross margin in H1. So that I'd be curious to know what were exactly the drivers? Was effect the biggest, let's say, negative anything incremental for H1 specifically?

So the biggest impact for the first half was the currency impact both hedging and conversion. And it was, as I mentioned before, offset by better productivity this year. In the first semester last year, we were impacted by sanitary measures and also the collections were very successful, and we had some sell-through rates, which were exceptionally high in the first semester.

Yes. I think -- I mean, I cannot comment too much about your own calculation. I'm sorry, I'm sorry. What I will say is that generally, I don't know where did you put the turnover of the group. But if we have a higher turnover because we have a lot of fixed cost, there is always a leverage effect, which is -- if you are not right on the turnover, which have an increased effect on the profitability of the group. I think that's the main driver. What is also -- what has been incredible during this semester is the success of our collection. And which means that what we produce is sold and there is no constitution of stock, which is not exactly a normal situation when you are a growing company and regarding your working capital. So I think the scope of the success has been extraordinary, which leads to an extraordinary profitability. In all the sense that you can take extraordinary, it emerge directly also. That's for it. And for the communication, it's around that probably below a little bit, but it's a fair assumption. It's a fair assumption.

[Interpreted] We have another question from Edouard Aubin, Morgan Stanley. You have the floor.

[Interpreted] Two questions. Firstly, at same page 2021, you talked to us about revenue growth for non-leather goods in métiers would be capital limited due to production constraints that you had in several métiers. Production constraints, of course, aren't as strong there as for leather goes. Nonetheless, you did mention this. We disclosed growth in the order of 30%. That was which we reported, 30% revenue growth in those categories in Q2. So theoretically, what kind of growth might you continue reporting what are production constraints in upcoming years and these other métiers? That was the first question. Second question on commercial density. Revenue per square meter is very, very high, over EUR 3,000 per square meter per annum Does this harm customer experience should you revise your store openings plan? Could you give us an order of magnitude in terms of growth in square métiers, you're opening stores that tend to be bigger and bigger. Could you give us orders of magnitude, additional square métiers this year and next. Last point, clarification on accel in China you indicated double-digit growth in June. Is there any reason to think this might slow down in July? Was any of it just sort of pent-up spending in June?

[Interpreted] Okay. You've got 3 questions about the métiers. I have to confess, I can't always perfectly answer. I'm sorry for this the questions you have on our capacity since it's not exactly how we tackle this. Let me say that I'm extremely proud at the leather results. for quite some time, demand has gone beyond supply. We've continued opening leather sites, 5 underway right now over the next few years. It's like the [ R.M.S. ] Swiss watch, we get 10% growth per annum this way. And the size is amazing. So we can say that sometimes, we read some analyst notes they talk about almost a conspiracy that we don't produce on purpose. That's not true. What we do produce is one single idea in mind, quality. If we can't achieve the quality due to lack of know-how, due to lacking beauty materials, I prefer not to produce. That's crystal clear. So there may be bottlenecks because we haven't received a certain bit of leather, or haven't completed some training sessions or haven't found the right supplier and some of the métier that is up to requisite quality. So I cannot give you a theoretical growth rate. We can say this is a period when the strategy we wanted is coming to fruition, having growth drivers in other métiers aside from leather, which is successful in each of them taking their own position, becoming leaders in their own business field. That's wonderful. Think of jewelry, I think of watches, think of beauty products, major results. Home department. Here is why we apply the sell same strategy. We try to produce to cover demand, but always being uncompromising on authenticity and being very demanding in quality. To make an Hermès bag. It takes 15 hours of manual labor done by hand. We're not investing in machinery or cutting corners or what-have-you. We are keeping that quality. That's what helps us be resilient. That's what gives us our strength. And that's some of the magic of Hermès products. Right now, I hope, maybe sometimes things will differ, but I hope that other métiers will continue growing even faster than leather. We can see there is demand out there. Unfortunately, our experience in managing leather demand has shown that it can also branch out at other métiers where sometimes demand grows faster than supply. But our imperative is always -- our quest for quality and quality isn't just the quality of the finished product, the quality of the manufacturing process, quality of the material, quality of the relationship involved in selling the product. So I would say that this is absolutely essential.

[Interpreted] I'd like to add to that first point, all these métiers, non-leather métiers, we're developing value strategies. They're developing ever more price -- product in the home department in jewelry and elsewhere, we're seeing that strategy. It's an important point.

[Interpreted] Yes. Thank you, Eric. Next, on commercial development, it's entirely true that one of the specific things we've seen in the last year or 2 -- Well, it's not just that our great customers have continued coming back and helping be resilient. But in addition, we've seen many, many new customers often through digital, but also through our stores to begin with. I know that you looked very carefully since I've been CEO, we've almost not increased the number of stores. We've enlarged stores. We've included ever more products in métiers in our stores, which has fueled growth. But we haven't actually increased the number of stores, we actually reduced by around 10 number of stores overall. Aside from all these points, slight change in Hermès -- so a slight within I'll call we realized and it's not to fuel growth, it's for the sake of customer service. We wanted to increase our stores in Asia and the Americas, opening new cities. That's always been a strategies such as in China this year, we opened our first store in Ren'an -- Hunan, one of the provinces. Also the Americas, you're opening in new cities or sometimes we're doubling the size of certain stores in certain cities. So our idea is to increase scope slightly very carefully and reasonably so. For instance, we already started this year. We've got opening in Austin, another store in Florida, in Naples, Florida, also in China, elsewhere in Asia, in Tokyo, Korea. We have a new store in Changzhou, China. So moderate, but nonetheless, a slight change shifts in stores opening in new cities, attracting new customers in sometimes smaller cities.

[Interpreted] On China, we've just opened for the moment. We don't see any changes compared to the month in July. We don't see any changes compared to what we were able to see knowing that in Hermès when we opened, there's always a very strong demand for bags in the other which have not been sold during the closure. However, like everybody, we are somewhat penalized by the closure of Macau as well for health reasons, sanitary reasons which is a very good result. And I'd like to emphasize the very good results of Hong Kong as well, which thanks to strong anchoring with the local Hong Kong customers has allowed us to this remain in a sustained manner despite the reduction in tourism floors. So July, yes, we're confident, yes.

[Interpreted] We have another question from Chiara Battistini, JPMorgan.

I'll switch to English, please. I just have one last actually. On tourist inventory flows in Europe. Historically, you've been more reliant on domestic spend versus your peers. And now we are seeing tourist flows coming back to Europe. I was wondering whether you're seeing now a big pickup in tourist spend also on your side from the U.S. and from Middle East? And if you see different trends from these consumers as they travel and they buy Hermès? Maybe because Hermès in the meantime has strengthened in terms of brand in brand perception locally. And also, I was wondering whether you could help us understand where tourist spend in Europe stands today versus 2019 levels, please?

Okay. Well, I mean, it's one of our strengths is to be strong on local clientele. And I think that's one of our specificity. But that doesn't mean that we don't sell gladly to tourists when they come. It's just that all our country are made for local clients and are there to welcome everybody and tourist included. I think there is a different trend in the tourists that you can see now. I will say there is a trend of leisurely tourists and to be glad to travel again worldwide and with less health restriction. So we've seen tourists going from the Middle East to Europe. South Asia also is traveling again very, very nicely and also the American are coming back. And I will say in most of the European country and the Middle East, that's true because there are tourist from the Middle East, but also tourist from South Asia or there we are traveling to the Middle East also. So the Middle East is also sending tourist and receiving -- and receiving tourists, but I will say Italy is doing well. France with our flagship doing fine And there is the second layer, I will say, of this tourist is the exchange rate. And all the countries which are a little bit linked to the U.S. are also traveling to Europe to benefit from the euro-dollar conversion, which is probably also an increase of the spending of the tourist globally, and we are probably part of it also. So tourist has been a little bit more buoyant and it will change, I think, depending also on the currency effect. The second question, that was it for tourists?

No, just a follow-up with in the tourism. I was wondering how much -- or if you can give us any color on how much of your European sales in H1 or Q2 were linked to tourist sales and how that compares to 2019, please?

No, I don't have it. I have to say it remained strongly on the local client still very much. We are happy to see tourists getting again. But I will say it's not -- it's really fundamentally a local spending. Where we hope that will be -- and it will need -- we need to have the re-open of Asia also a little bit more is we hope that the travel retail, which has been deeply impacted by the COVID and it's not yet probably one of the only part, which is not at the level of what it used to be. For example, Hong Kong Airport, which will not be open, we hope that we will be able with these tourists to open again fully travel retail network.

[Interpreted] Our next question from Antoine Bregeaut, BNP Paribas.

[Interpreted] Two brief questions. You talked about production constraints. In H1, 12% growth for leather, 8.5% growth in Q2, the slowdown in demand. Would you be able to achieve 6%, 7% volume growth in the second half? Second question, you talked about prices and your usual policy on prices. There are also currency impacts, though, I believe, today a product that costs EUR 100 in Paris -- costs having EUR 135 in the U.S. premium's usually around 15%. Do you think that you can continue with this difference? Or you need to do something regarding price increases in 2023 that might not be harmonized across geographies maybe just in Europe? Or are you considering cutting prices in the U.S.

[Interpreted] Yes. Well, let me say that on leather. If you don't mind my saying so we're not necessarily talking about the same thing. You're talking about retail sales. And we often talk about production. On production, we've got a plan, well established. It's basically sort of a 5-year plan, 6% to 7% growth thanks to our team efforts. Some of your notes don't thank the teams enough to my mind. So I'd like to thank them on your behalf. We do manage to achieve some pretty marvelous growth. But again, we are artisans -- we are human beings. There can sometimes be a big, I don't know, stark flu epidemic that leads to employees being off and slight reductions and sales and production. But it's all about quality of leather and quality of materials. The net retail sales also fluctuate. It's difficult for me to agree with you quarter-by-quarter. That's not our target. There can be variations. Sometimes China may close, hard hit in April, didn't sell leather as usual, sometimes as a replenishment of inventory to serve customers, it's all about customer service during the Chinese New Year. Same thing during the Christmas period here. So if I were you, I'd look at it on an annual basis rather than on a quarterly basis using cutoffs and especially if you consider our COVID experience, where there was a real mixed bag of experiences in different geographies. So in line in leather. As you said, 6% volume growth and price effect and value effect, difficult to quantify. The Birkin bag, well, so [ EUR 25 ] not the same price as [ EUR 35 ]. So lots of differences that have to be factored in quarter-by-quarter. On prices, you're running 2 points. Inflation, cost of materials and then wages because we -- twice, we've increased EUR 100 wages for employees plus their EUR 3,000 bonuses. This will be reflected in our prices. There's a currency effect. You saw it in the H1 results, which helps us out. It's fairly infrequent for us to do price increase as unilaterally globally. They're always targeted. We're take all the factors into account when we set them for 2022. We depend on spot considerations as well. Currency spot prices in '23, and we'll look at your forecast carefully when we do our annual budget. But to answer your last suggestion, almost never do we -- you should never say never, but almost never do we cut prices at Hermès. Thank you very much.

[Interpreted] David Da Maia.

[Interpreted] Two questions for me. The first one to come back to the record profitability of H1, you managed to attain a level of record profitability, while the growth of leather is weaker. And we know that in your métier, that leather is the métier, which has the margins for you. On the contrary, the margins of your 16 métiers are more homogenous and close to the average in maybe that of leather or do we see here further, a strong progression of profitability of certain métier, mainly linked to growth, but also the strategy of valuation that Eric mentioned a while ago? And that's the first point. And the second question to China to talk of strong rebound since June, can we then consider that growth over the last 2 months or rather since June, is equal or higher than that of Q1, given the catching up? Just to have an idea of the momentum, the dynamic of the market.

[Interpreted] On your first question, profitability. Our target is to see convergence of profitability of all métiers to bring them fairly uniform. In fashion, métiers ready, men and women's ready-to-wear, fashion accessories one of the points in the equation is sell-through rates. These are difficult to anticipate. But in forecasting prices, we try to have gross margins that are fairly uniform across the board for our métiers.

[Interpreted] Thank you, Eric, for this answer. I've tried to make often we try between the métiers to have the same margin, whatever be the métier in order that it is not much impact on the profitability of the group when some métiers are more popular than others. And similarly, I specify that we have the same margin of our products within the métiers, whatever be their desirability. It can be different from other companies that use marketing where you have same margin, whether it's a very desirability or you have one that stays on the shelf. So there's no special margin. The profitability margin depending on its popularity. It depends on the production cost. Coming to China, I won't be able to answer to give you a normality in a world that is not very normal whatever -- what is sure is that we've had a very good Chinese New Year in January, which was extraordinary and that we have a very good rebound after the opening that corresponds also to 2 things. One is catching up because we have inventory and also because there's a demand that continues to be very strong from our Chinese customers for our products. So this is a conjunction of the 2. And I think the most important point for me at least is the attractiveness that Hermès continues to have and the speed with which it shows -- and then the amplitude will be assessed according to local events and different health pressures. You've seen that in Wuhan, there's some lockdown, et cetera. I think this is the last question. First of all, I'd like to thank you all very much for your questions. And I would like to be humble in the face of the results for which I congratulate the teams and which in a complex and complicated world. Hence, your questions on all the macroeconomic uncertainties on China and on the duration of this. I think we have to get used to -- I think we have to get used to a world which was not the case before, a world which is fragmented -- fragmented in 3 ways. Fragmented in the globalization. You've got growth areas which are different. One in Asia, in the larger sense of the term, which is quite phenomenal and disconnected maybe from the historical ones from the other areas. Interesting to see results of Australia, Thailand, Korea, Japan, Western Coast of the U.S.A. and economy turned towards the Pacific, which works a lot with its internal market. And then U.S. area, which has a fragmentation between the West Coast, East Coast and the center and 3 are in progression in this case in point with different momentum. And then in the European area, which is making up for lost time, but which may have more macro difficulties in the medium term. And this fragmentation is something that we have to live with time-wise. And I'm sorry for certain models, they're not linear as we see them. All of a sudden, China has to close down not a 5% drop because it's a demography. So you can have quarter-by-quarter ups and downs. So there's a temporary fragmentation, which is less linear, which is exponential. And then there's a fragmentation within our countries. So very clearly, between different realities, there's a function of whether you are in a dynamic economy or whether you are in a more difficult sector. So I think we have to learn to live with this fragmentation which will allow us to show certain corporate organization is different from others. Ours will be based on 3 things, at least I hope so. The long term, we take long-term decisions together with our employees, characteristic of Hermès is that we have very few departures and we invest in the long term in employees, and we take a vision, which is long term. And second is our resilience. So this is important for us to have enough leeway to have cash treasury. And the last, which I hope I have communicated to you is the authenticity. There is authenticity of our prices, of our mode of manufacturing and certain authenticity of our communication. We try to present ourselves as we are and dealing with the situation with confidence because there's good news in the world as well, certain successes and structures and with caution in the face of uncertainties, which are there. And then we take all of this with modesty. We are producers of handbags and carriers, which are there to make our customers dream in the four corners of the world. And so we are also in the field of imagination and pleasure, which has never guaranteed. So a big thank you to all of you to have listened to us. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]