Kering SA (KER) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Kering 2021 First Half Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Mr. Jean-Marc Duplaix. Please go ahead.

Good evening or good afternoon. Welcome to Kering's 2021 Half-Year Results Call. I will go through the highlights of our excellent performance in the 6 months, and Jean-Francois will say a few words of conclusion before we take your questions. As you know, due to the busy reporting schedule in the sector, this call will last exactly an hour. Starting with Slide 4. The first half was marked by a sharp bounce back in revenue and profitability compared to 2020 when the pandemic took a heavy toll. In addition to year-on-year changes, I will provide 2-year stack comparisons with Q2 or H1 2019 when appropriate. Revenue first. In H1, sales exceeded EUR 8 billion, up 50% reported and 54% comparable with a negative 4-point FX impact. In Q1, revenue already stood above pre-pandemic level, and this trend further amplified in Q2. Recurring operating income was EUR 2.2 billion, 2.3x the H1 '20 number and near pre-pandemic level. Our EBIT margin was 27.8%, up 10 points and back to substantial profitability in this recovery phase as we continue investing to strengthen our brands for the long term. We also generated record free cash flow of EUR 2.4 billion, thanks to a very high cash conversion ratio. Our houses successfully managed their working capital. At the same time, we maintain our investment efforts with CapEx above 4% of revenue. Our brand resumed selective store openings and renovation programs, and we kept the pace of group investments in growth platforms. Our net debt, excluding lease liabilities, reached a historical low, just above EUR 600 million. On Slide 5, highlights on our strong top line growth. Looking first at H1, comparable group revenue grew 8% on a 2-year stack, a sharp rebound driven by our Luxury Houses and by Kering Eyewear. Zooming on Q2 revenues, the pace of recovery accelerated materially. Group revenue was up 95% comparable, implying a 2-year stack growth of 11% in Q2 after 6% in Q1. Our Luxury Houses, for their part, grew 10% over 2 years. Moving to Q2 analysis by channel for our Luxury Houses on Slide 6. Retail, accounting for 82% of revenue, drove the performance with growth of 98%. Lockdown eased gradually in the quarter when an average of 13% of our worldwide stores were closed. Some markets like Western Europe, Japan and a few Asia Pacific countries were more impacted than others. Tourism flows have not resumed and over 90% of total retail sales were to locals. Overall, retail showed a nice sequential acceleration in Q2, up 16% on a 2-year stack after a 6% increase in Q1. Wholesale and other revenue accounted for the other 18%. Wholesale was up 67%. This quarter, in addition to low comps, the overall performance was supported by the great success of the collections and high sellout generating reorders, notably from the U.S. but also from Hainan. Our wholesale strategy is unchanged. We continue to raise control of our distribution, cutting some doors and migrating to retail certain offline and online partnerships. Compared to Q2 '19, wholesale is down 10%. Royalties and other grew over 120% in the quarter driven by the remarkable performance of eyewear and to a lesser extent, perfume and cosmetics. Shifting to Slide 7, we provide retail trends by geography. First region to be hit in 2020, Asia Pacific was first to reopen and to improve trend as soon as Q2. This year, the region once again enjoyed sustained strength led by Mainland China and Korea. Taiwan and Australia were impacted by new lockdown restrictions. The region grew 53% in Q2 and 36% on 2-year stack, accelerating versus Q1. In Japan, even if Q2 grew by 93%, the 2-year trend was down 30%. With emergency measures entailing some store closures ahead of the Olympics, local demand could not offset the absence of tourists. The reopening of Western Europe was gradual and an average of 26% of stores were still closed in Q2. The successful re-engagement of our brands with local customers led to healthy double-digit growth in sales against 2019, but tourists represented close to 65% of the total back in Q2 '19 were still missing. As a result, sales in Western Europe, up 71% in Q2, were down around 40% over 2 years. In a buoyant North American market, our brand achieved triple-digit growth, combining a notable rebound in physical stores with sustained e-commerce. The region is accelerating materially, up 263% in Q2 and 86% on a 2-year stack. Rest of the world is also showing sustained recovery and acceleration driven by the Middle East and Latin America. Focusing on e-commerce on Slide 8, you see that trends were extremely positive, underscoring the successful internalization of our online activities and the boost from our omnichannel strategy. Online sales in the first half were 2.6x the H1 '19 level, reaching close to EUR 900 million. Penetration of total retail sales was 14% with discrepancies across regions, reflecting the phasing of store reopenings and specific consumer behavior. Turning to profitability on Slide 9. Our Luxury Houses delivered very healthy H1 performances. EBIT neared EUR 2.3 billion, yielding a 9.3 point year-on-year margin improvement to 29.8%. This reflects favorable operating leverage from top line rebound together with good control over the cost structure. At the same time, our brand, first and foremost, Gucci, are reinvesting in marketing, stores, communications, CRM and talent to further sustain their long-term growth. After a well-controlled margin dilution last year, we are firmly back on our profitable growth trajectory, already exceeding for some of our brands the record levels set in H1 '19. Let's look at Gucci on Slide 10. H1 revenue was up 50% comparable. In Q2, revenue grew 86%, with retail up 93% or 11% on a 2-year stack. All along a semester that was still somewhat disrupted by store closures, Gucci deployed a wealth of clienteling and in-store initiatives. They included high-AUR events, dedicated focus on the build online, innovative visual displays and seasonal drops that resonated with our clients. Gucci strengthened its positions across all customer clusters in the U.S. and Mainland China with notable success in the higher-end clientele segment. The House also leads the way in innovative approaches exploring emerging models on gaming platforms to tap into new audiences. The calendar should be even more intense in H2 with the acclaimed Aria collection hitting the shelves late September and an extensive program of events to mark the house's centennial. Wholesale was up 22% in the quarter from a very low base in 2020 and is down more than 40% on a 2-year stack, consistent with Gucci's strategy to increase control of their distribution. Recurring operating income was robust at EUR 1.7 billion with 37.8% margin. Considering the substantial intensification of advertising and promotion, the gradual improvement in profitability is firmly on track. Investments in brand and client engagement across all touch points are bearing fruit. The CapEx to sales ratio is 2.8% with CapEx back to H1 '19 level. Gucci's store network is mostly unchanged with very selective openings to enhance its footprint and sales opportunities with local clients such as the Gaok flagship in Korea you saw on my opening slide. On Slide 11, you have highlights for Saint Laurent. Q2 revenue rose 119% comparable with retail up 140%. Versus 2019, comparable retail was up 26% in the quarter with leather goods, ready-to-wear and shoes all up double digits on a 2-year basis. The house's iconic products enjoyed strong traction as did the Spring Summer 2021 collection with desert-themed digital fashion show last December garnered with wide recognition. China and particularly North America led the increase and sales to locals in Europe rapidly bounced back as soon as stores reopened. Compared to Q2 '19, e-commerce tripled. Saint Laurent's H1 EBIT margin already exceeded pre-pandemic level, notwithstanding the house's investment in expanding its footprint and building awareness in new geographies. CapEx was below historical levels but should catch up in H2 due in part to the house's new shoe manufacturing site. Bottega Veneta, on Slide 12, posted a 33% increase in H1 sales compared to 2019, realizing its highest ever quarter in Q2 2021. North America was extremely positive. In Asia Pacific, sales grew more than 30% on a very demanding comp base. Conversely, COVID did keep some clients away from stores in certain important geographies, notably Western Europe and Japan. Growth is consistent across retail and wholesale. The collections are successful with both existing and new clients across all product categories for men as well as women. The quarter also saw the migration to our internal e-commerce platform with great results, notably in reducing lead time, improving product availability and omnichannel services. Recurring operating income is already above pre-pandemic level and margin not far behind, reflecting the house's investments in building its global stature. CapEx was focused on upgrading the quality of the store network. Our Other Houses on Slide 13 are achieving excellent performances since the beginning of the year. In Q2, total sales more than doubled versus 2020 and were up 20% on a 2-year basis fueled by very strong retail and wholesale at virtually every brand. Balenciaga, focused on local clienteling actions, delivered exceptional results with solid growth across regions, notably in North America. All product categories posted growth in the quarter. Balenciaga's return to haute couture a few weeks ago represents a major building block in its elevation strategy, benefiting its positioning and fueling its future performance. Alexander McQueen also achieved outstanding growth with sales up high double digits against 2019 in the quarter and first half driven by the U.S. and Greater China. Our jewelry houses all posted sharp rebounds with significant triple-digit increases across channels and geographies in Q2. Boucheron and Pomellato leveraged their recent successful expansion in Asia Pacific, Mainland China, in particular. Qeelin also had a truly spectacular first half, trebling its H1 '19 revenue level. Revenue in watches was also up triple digits in the quarter. Ulysse Nardin's quest for exclusivity is paying off, while Girard-Perregaux is consolidating its turnaround and starting to reap the benefits from its collaboration with Aston Martin. EBIT and profitability of the Other Houses were up significantly while CapEx focused on reinforcing the geographical coverage of our houses. On Slide 14, our Corporate and Other segment. Kering Eyewear had total revenue of EUR 383 million in H1, resulting in consolidated sales of EUR 326 million. The team delivered an impressive Q2, particularly in North America and EMEA. Consolidated sales in the quarter were up more than 180% versus 2020 and 34% above 2019. With the recently announced acquisition of Lindberg scheduled to close in H2, Kering Eyewear confirms the prominent status it has built in the industry in a few short years. It adds to its portfolio a brand with exclusive know-how and established legitimacy in optical frames that should further enhance its growth potential and profitability. Recurring operating result was a negative EUR 59 million, a material improvement due to Kering Eyewear's growing positive profit contribution and to corporate cost well under control. CapEx-wise, we kept investing in our growth platform to provide our brands with best-in-class backbone in terms of online and omnichannel services, IT and logistics. Now moving on to the remaining lines of the P&L on Slide 15. Other nonrecurring operating expenses were EUR 17 million, down materially from last year. Net financial charges amounted to EUR 126 million. Excluding interest on lease liabilities, financial charges were EUR 66 million, down 25% year-on-year. They include EUR 22 million in cost of net financial debt, down 28% on lower average bond coupon. Other financial charges amounted to EUR 44 million, encompassing, as usual, the financial component of hedging. Corporate tax was EUR 595 million, a stable 28.2% tax rate on recurring income. Group net income from continuing operations adjusted for nonrecurring items reached EUR 1.48 billion. Comments on free cash flow, balance sheet ratios and net financial debt are on Slide 16 to 18. In the first half, we generated free cash flow of EUR 2.4 billion, a record level. All brands skillfully managed their working capital. Operating working cap stood at 14.5% of last 12-month revenue, a 1 point improvement year-on-year, taking into account the technical reclassification of certain items you see in the footnote on Slide 17. At June 30, net financial debt was EUR 619 million, excluding lease liabilities. This represents a significant drop compared to year-end, mainly driven by high free cash flow generation and to a lesser extent, by the disposal of an additional 5.9% stake in Puma. Our financial situation is extremely solid with net debt to equity ratio below 5%. I will now turn over the phone to Jean-Francois for concluding remarks.

Thank you, Jean-Marc. Hello to all of you. Our performances in the first half were excellent, consistent with the path we outlined at the beginning of the year. We are not slowing down the pace of our strategic initiatives. We are on track to elevating our distribution and rightsizing wholesale. Internalization of e-commerce is complete now that Bottega Veneta has joined our platform, and it is delivering the expected improvements. Deployment of all our other growth platforms is also on track. The pandemic is not behind us, and we are fully aware that we are operating in an environment that can change rapidly. This being said, as far as factors we can control are concerned, we are firmly back on our profitable growth trajectory. Our brands are highly desirable and well positioned in their respective segments. Our strategy is straightforward, and we have the financial resources to pursue our goals. With an abundance of initiatives and activations across the board scheduled for the second half, we are confident in our prospects for the full year. On this note, Jean-Marc and I are ready to take your questions. Operator?

[Operator Instructions] And your first question comes from Zuzanna Pusz from UBS.

I have 2. So my first question will be on, well, actually, both will be on Gucci, sorry. First one will be on Gucci performance in retail. If we look at the performance by region, sequentially, it looks like majority of the improvement was driven by the U.S., which I guess we've seen across many companies. But there's been also some, I'll say, encouraging signs. You've seen an acceleration, and I could be wrong, so please correct me if I'm wrong, but also some acceleration in APAC sequentially in retail and also in the rest of the world. So maybe if you could kind of give us some color on sort of if these trends have been continuing and sort of maybe accelerating and if maybe sort of most recently, you've been seeing also Western Europe reaccelerating sequentially. If there's any color you could provide just to give an idea if other regions apart from the U.S. have been also reaccelerating, that would be very helpful. And my second question is on margins. So Gucci obviously maintained a very healthy level of profitability in H1. But I guess we've been also hearing from some of your peers that they are seeing structurally higher profitability in the industry. And given that, obviously, the bigger groups, including Kering, have been gaining lots of share in the market, so I would be just curious if you could give us, maybe tell us what you think of that, if this is something that you're actually also seeing in the business. And also, maybe kind of more specifically, how should we think of Gucci's margins in H2 and also how quickly you think you could return to the, I think it was 41% EBIT margin for Gucci pre-COVID. I appreciate that is very specific. I'm probably going a bit too far, but any incremental color in terms of timing, which you could share with us, that would be very helpful.

Thank you, Zuzanna, for your questions. I will start about the retail trends, and I will try to be very simplistic, conscious of time. Indeed, we had an acceleration in many regions during Q2. I think it was due to all the activations we had with a lot of animations in the stores, very consistent with the strategy we had presented during the full year results with some drops of collections, some pop-up and pop-in activities. Also, we had a lot of animations around the deliveries in the stores of the virtual collections. We regained traction also in Asia Pacific, especially in China, in June with the Aria show, which was presented in China. So I think it's really the result of all the strategy we have implemented in different regions to engage more with customers. And there is probably more to come with, of course, the delivery of the Aria collection during the second semester. And we will keep the pace in terms of investments. But for sure, U.S. is doing extremely well across all the different age groups and all the different clusters of clientele; China, definitely. Korea also where Gucci is regaining traction and clearly has completely offset the lack of tourism in the country. In Europe, of course, tourists are still missing, but we have, compared to '19, double-digit growth with local clientele, both offline and online. And where the market is clearly more challenging due to some additional closures is clearly Japan, where we didn't see and we didn't observe acceleration, as it was the case in some countries where there were also some more lockdown measures like the countries of Oceania and Taiwan, for example. When it comes to the margin, I won't comment or I won't elaborate on what has been said by some peers. But for sure, I think that we are in a situation where we have such an operating leverage that we can continue to invest in all the actions that I've mentioned and still targeting an improvement of the profitability without, let's say, of course, it's not about science. But let's say that considering that we are back to a more normative situation in 2021, I think that what you have observed in the past in terms of sequential improvement of the profitability between H1 and H2 should happen again this year. As a reminder, depending on the brand, but that was the case for Gucci, generally, the margin of H2 is 1.5 to 2.5 points above the H1 one. And I'm quite confident that while still investing in the brand, we will be able at Gucci, but also for the other brands to deliver this improvement of EBIT margin on H2.

Your next question comes from Edouard Aubin from Morgan Stanley.

In the interest of time, I'll limit to 2 as well and 2 questions on Gucci. On the product, some newness...

Sorry, Edouard, your line is very, the noise is terrible, so we cannot hear you. Can you repeat, please?

Can you hear me better now?

It's better. It's better. Yes.

Okay. Sorry for this. So just 2 questions on Gucci. One on the product front, which one of your key objectives this year was to inject some newness at Gucci. And just wanted to hear from you if you were happy so far in terms of the changes. And given, Jean-Marc, that you talked about new launches like Aria coming in the third quarter, should we expect further sequential acceleration on a 2-year stack at Gucci in the third quarter versus the plus 11% you printed for Q2? So that's question one. And question 2 on the wholesale front. If you wouldn't mind just giving us a quick update on the rationalization. You kind of already talked about it, but you're targeting about 5%, if I remember correctly. When you are expecting to get there? And related to that, in terms of the progress you've made on the gray market and drying up the gray market at Gucci. And lastly, sorry, on the wholesale front is, specifically on online, the update on the shift away from wholesale to concessions that you've been talking about earlier in the year. So when should this transition be achieved when it comes to online?

Thank you, Edouard, for your questions. In fact, just to start with a general comment on the performance by category at Gucci, what is remarkable is that in Q2 '21, we have seen strong trends across all product categories. And in the different categories, strong performances with pure carryover and still valid items but also with newness. Considering that, broadly, the split between, at least in leather goods, the split between carryover and newness remained unchanged, so broadly, 70%, 30%. And when we think about newness, we were not yet at full speed because most of the newness were rather seasonal introductions. And in fact, if we look at the virtual newness performance, it was mainly driven by some recoloration, some introduction of new details in the handbags more than pure newness. And I think, clearly, with the launch of Aria collection, but also with the introduction of the Diana bag starting from the end of June with, let's say, a special introduction in Japan and then in the other regions, we see clearly some traction, very strong traction in the handbags. For sure, for the other categories, shoes, they have more benefited from newness with clearly an impact on the price/mix because overall, all the introductions we made during H1 have also boosted the average price. It will be even more relevant when we will launch the Aria collection. You know that there are more also, let's say, precious items in the Aria collection. When it comes to wholesale, it was important to remind in my speech that the relevant comparison is with '19. So it's still minus 40%, 41% and the trend we will see during the year with further retailization negotiations. By the end of the year, when it comes to virtual concessions, we will have achieved the conversion of all of the accounts we were targeting in terms of retailization so that the full impact when it comes to pure e-tailer conversion will be rather next year. When it comes to the pure wholesale doors, we'll have some further progress to make in 2022, the end of the year in 2022. So that next year midyear, we should have achieved also, let's say, the wholesale rationalization so that the 5% we are targeting with a limited number of doors, we will see rather this percentage in 2023.

Your next question comes from Luca Solca from Bernstein.

I wonder what you could tell us about your growth dynamic by nationality and in particular with Chinese consumers. Young Chinese consumers, at least in my expectations, would be the ones to react most positively to the new introductions and new products that you bring into the market in the second half with Gucci, in particular. But I wonder whether you have more explanations, more insights and different expectations than that. The second question is more a general question about how your thinking is evolving about managing the teamwork in a team or in a brand, I should say. You perfected this trio of CEO, Chief Merchandising Officer and Chief Creative Director. I wonder how this could evolve as brands like Gucci, for example, become very big. Could there be a more inclusive approach to the creative process involving more people in coordination with the star designer that is Alessandro Michele? And then anything else that you could say on the product mix evolution at Gucci, that would also be very helpful.

Thank you, Luca, for your questions. I will leave the second question to Jean-Francois and I will take #1 and #3. I will start with general comments about nationalities and then we will look at the age groups. If we consider the performance at Gucci, of course, like the other brands of the group and probably the industry, the most dynamic segment is the American cluster. Chinese, of course, cluster is doing extremely well. It's, of course, very strong compared to '20 because it's double-digit growth compared to 2020. And it's positive against 2019, so now we have the full effect of the repatriation. But you know that I don't love so much the concept because it's more about the boom of the consumption in China, which is positive for the Chinese cluster. European cluster is double-digit also against 2019, as I mentioned before, which is obviously driven largely by the online sales boom, but also we are regaining traction in the stores. We have more traffic with local clients. What is interesting is that because of the surge in terms of performance with American clients, the share of Chinese clients in the total has not changed so much. It's quite stable. Now if we look at the generations, it's obvious that also in terms of profile of clients, it's quite also stable in the sense that now we have millennials plus Gen Z representing still around 2/3 of the sales on a worldwide basis with, as you may assume and that as you have mentioned, some more and more loyalty from the Chinese millennials and especially the older millennials because we see a dramatic improvement of the retention rate with the old millennials. And clearly, the recent launches by Gucci are really spot on with this clientele. So we have very, very good results with this clientele in China with more purchasing power, but we are still doing extremely well with also the younger millennials and the Gen Z. Just to mention about the U.S., where we see that our brands and especially Gucci are growing in all the group ages, not only the young clients, but also with older clients with more purchasing power. As a result, if we look at the segmentation by product, we are not a dramatic evolution or a dramatic change in the sales breakdown by category. I guess that because of the launches we have in front of us, maybe and it's what we expect, we should regain some points in terms of share of leather goods in the total because you may imagine that because of the lack of tourism, it has impacted a little bit more in terms of proportion of sales the handbag segment. But with the launch we have and we see that already in Q2, we should see some further acceleration in this category, especially with all the actions we have on the high-end segment with more purchase schemes in some items. We are animating through special events like the Gucci spaces where there are some events with very important clients. Jean-Francois, the second question.

Regarding the team working within the houses, you are right to mention the importance of the tripod that is, in our view, quite crucial to the success of our brands. What I would say is that more and more, we have additional interactions with the regions on the one hand and with also client intelligence on the other hand. With the regions, the tripod tries to include in their thinking the feedback from merchandising and communication people and also people in the stores to be really spot-on on their choices for being locally adapted to the client demand. And from a client intelligence, there is a very good interaction with the CRM teams as well as the guys who are looking at the social media, looking at the brand heat and the brand risk and the response to the client appeal to the brand. So again, the same tripod is operating, but with more interactions with local and also client intelligence.

Your next question comes from Antoine Belge from Exane BNP Paribas.

It's Antoine at Exane. Three questions, if I may. First of all, following up on your bullish comments about the U.S. When you're doing analysis on the strength of that business, what's the, in your view, what is a bit cyclical due to the stimulus, et cetera, and something a bit more structural in terms of how the U.S. luxury consumer is evolving, especially with sort of the younger consumer maybe more interested in the industry? Second question relates to Bottega, it seems like it's the only brand which actually decelerated a bit on a 2-year stack basis. So any sort of specific reason for that, maybe because of the geographic mix or any, I don't know, issue around maybe availability of product. And also here, a bit like what you did about Gucci, maybe giving some indication how the margin could fare in the second half. And thirdly, a question on eyewear. Actually, 2 question in one, one about it seems that it's part of a positive surprise in terms of profits. So any indication about how the margins have evolved. And also a comment about the acquisition of Lindberg announced recently and how this M&A deal fits into your overall M&A strategies, i.e., is it something a bit special or a sign that a bigger deal is not on the agenda?

Thank you, Antoine from Exane. So let's start with the U.S. I think that, obviously, there is a situation where there is a very high degree of confidence of the U.S. consumers, which is not only due to the stimulus checks because these checks had an impact for sure that they have been deployed from mid-March to early April with some residual payments until the end of May. We observed some boost in April, but it was not so material. And as I said before, the trends in the U.S. were sustained throughout the quarter with all the different clusters. So we are fully aware that there is a situation where there is a high degree of confidence and there is a reallocation of wallet benefiting to, clearly to the luxury sector. Maybe it won't last. But what is interesting is that we have more and more new generations and new profile of customers coming to our stores. And I think that it's something that is sustainable in the long run. So it's very difficult to predict what will happen short term. In the long run, we are very confident that we have been able to attract new clients and that we should continue to invest in the U.S. to be sure that we can re-attract this client in the store. We see that thanks to some clienteling activities and marketing actions, we have repeated sales from these type of customers. So we are able to convert one-timer to multi-timer buyer. So that's very encouraging. When it comes to Bottega Veneta, thank you for asking the question about Bottega Veneta because it does give me the occasion to stress again the outstanding performance of Bottega Veneta because as a reminder, it was one of the largest brands, one of the rare largest brands last year to deliver a positive performance along the year. So of course, we have a quite demanding comp base. I must say also that we had last year because of the inventory management issue some markdown activities, especially in Q2 that we have not this year. We have massively reduced markdown activities in the stores so that if we restate from that, probably we would have exactly the same level of stack growth. On top of that, it's typically a brand where we have not, as you will have noticed, not expanded the store network. Rather the contrary, we are very vigilant about the quality of the distribution, and we don't want to push too far the brand, as we already said. We had some price increases during the quarter. So at the end of the day, I think it's a question of managing the right way the growth of Bottega Veneta and to avoid to milk the brand. When it comes to Kering Eyewear, I will, of course, let Jean-Francois answer about the M&A and the acquisition of Lindberg. I think that you know that there is somehow a form of seasonality in the eyewear business or at least at Kering Eyewear. H1 is generally stronger than H2, so that we have reached a profitability for H1 at Kering Eyewear which is probably above what we will deliver for the full year, but it already happened in the past. But for sure now that we have no more the depreciation of the indemnity paid to Safilo, we have more or less now a more normative profile of EBIT margin. And I can tell you that thanks to the very hard work of the teams at Kering Eyewear, we are really on track to deliver a profitability for this activity which is really on par with the ratio you may know for the industry. But for sure, H1 was particularly strong thanks to the rebound of the revenues, while operating expenses should be more linear in the year.

Antoine, regarding the acquisition of Lindberg, I would say that our position regarding M&A has not changed. Lindberg is an add-on acquisition that completes the portfolio of brands of Kering Eyewear with a brand that has a high reputation and that brings a lot of complementarity not only in the manufacturing process, but also in and particularly in the product. Lindberg is specialized in optical frames. And as you know, Kering Eyewear so far was more focused on sunglasses. Also, at Kering Eyewear, we are more geared to women eyewear, whereas Lindberg is more for men or unisex. We will also have some synergies in terms of manufacturing and in terms of distribution network. So this is really an add-on acquisition and this is not exclusive of a more transformational move.

Antoine, sorry, I forgot to answer to you on your question regarding the BV margin. I think that my answer will be the same as I provided to you probably for the last quarters. We are investing in the brand so we won't regain or we will improve gradually the profitability. And my comment about the seasonality of EBIT margin on Gucci could apply also to BV. So we expect some further improvement of the EBIT margin during H2, but we are still in a phase of investment. As you know, we have increased dramatically the percentage of A&P at BV. So as we said, here, again, it will be a very gradual improvement, but we are fine with that, very comfortable with this trajectory and very happy to see that our investments are paying off.

Maybe just a follow-up on your answer regarding M&A. So without talking about specific targets, but in general, what's the outlook? Because it seems that especially in Italy, there seems to be talks within Italian brands and sort of unwillingness to fall into French hands. And so isn't it fair to say that maybe there are not that many targets available and would it make sense to look at one target which has 100% free float, which is Burberry?

Look, regarding Italy, we do not comment rumors, as always. And luxury is about scarcity. So indeed, there are very few targets. But we are very active on watching the market, and we are working to find the best target and at very good conditions, as always. And it's what we've been doing for the past years and what we will do in the future.

Your next question comes from Thomas Chauvet from Citigroup.

Two questions, please. The first one on pricing. If we take this year and last year's price increase at Gucci, what is your estimate, your best guess of the cumulative pricing you've passed on, on the carryover, obviously, wherever you can measure it? And do you think that same level of pricing is sustainable, if we take, let's say, the next 2 years combined, so '22 and '23, if you could comment on the return of pricing at some of the major brands, including Gucci? And secondly, a question on China. I mean, it's been another volatile day in the Chinese market. We're seeing, as you know, a lot of regulation by the Chinese government in a number of sectors where corporate debt may have been rising quite a lot through the pandemic. Can you share some thoughts on what you or your China management team thinks about potential risks that the Chinese government intervenes on the luxury industry, whether that's new taxes, further clampdowns on Daigou, control of the way you sell your products online or the way you advertise on social media? I would think that nothing suggests that they want to prevent consumption from rising further domestically, but we've seen a lot of regulation in, as you know, in some sectors in the last few months.

So regarding the pricing, as a reminder, we had 2 main price increases in 2020 in June and October without some more tactical price increases. And we had another price increase end of March, beginning of April on virtual collection. So each time, we are talking about low to mid-single-digit price increase. So you can make your math with the accumulation of these 3 price increases between low and mid-single digit. On top of that, as usual, more important and more interesting is what we are doing in terms of architecture of the collections. And we have reintroduced also some items, and we had also some actions to engage with more high-end customers to rebalance the offer and rebalance all the marketing actions to be sure that we are engaging with all profiles of clients. And we see already the results so that the increase, the performance this year or during the first semester, if we look at the growth, the growth rate is made part of, of course, traffic or volumes, but also from an increase of the average in price, which is not only due to the price increase, but which is also due to the product mix which is very encouraging. And what we observe and what we can guess for the second semester is that this trend will amplify. So this is, my comment is applying to the comparison to 2020. So you can imagine that in 2019, the growth being driven principally by traffic, it means that in terms of average selling price compared to '19, we have a quite substantial increase.

You are right in saying that China regulation are evolving quite rapidly in all the domains that you mentioned. And we are very much attentive to this. And we put ourselves in a position to be very flexible and agile in order to adapt our operations and setups and systems to those changes in regulations. I will not get into the details, but what I can say is that overall, we consider that China is more an opportunity than a risk.

We will take the last question from Rogerio.

I have a quick one, just one on Gucci. Any comments on the gross margin evolution in H1? And do you see A&P as a percentage of sales in H1 for Gucci already back to a level you consider healthy to support Gucci top line objective in H2?

Yes. We had an improvement of the gross margin during H1 at group level and first and foremost at Gucci, which is due to different factors. The contribution from FX and hedging is very slightly positive, but it's not the main explanation for the variance. The variance is mainly driven by, as I mentioned before, the product mix, which is more favorable. The increase of the retail due to also the retailization we have compared to 2019 and 2020. So the distribution mix, the regional mix, the product mix are more favorable. On top of that, we did also illustrate, let's say, the capacity of Gucci to maintain its margins. It's also a demonstration that we will continue to be able to do so. And whatever the increase of the inflation of some raw materials, I think that our brands are able to reflect this price increase in the price, just to rebound on the question of Thomas. So I think we have some purchasing, clearly some pricing power at Gucci. And I will remind also that last year, we had been quite cautious in terms of inventory depreciation considering the situation and the sellout due to the closures of the first semester. And this depreciation had an impact on the gross margin. The second question about the A&P, definitely, we will continue to increase the A&P in absolute terms. But also in terms of percentage, we are not yet back at a normative level. That's the reason why I was mentioning before the fact that we will have an intensification of marketing and clienteling actions during the second semester, more animation in the stores, more special events, more drops, so that we should see an increase of the A&P. But as you can see, we have been able during the first semester to have a good control of the other costs so that, to rebound on the first question of Zuzanna, I think that we are able both at the same time to increase the profitability, but also to make the necessary investments in communication and marketing. So this is the end of this session. Thank you all for participating in our call and for your questions and interest in Kering. As always, Claire and her team are available to address any remaining inquiries you may have. It's a busy day and a busy week. So before we let you go, we just want to wish you a nice and hopefully relaxing summer. Have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.