Kering SA (KER) Earnings Call Transcript & Summary

Welcome to the Kering 2022 First Half Results Conference Call. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Mr. Jean-Marc Duplaix, Chief Financial Officer. Please go ahead, sir.

Good evening or good afternoon. Welcome to Kering's 2022 Half Year Results Call. I will go through the highlights of our performance before answering your questions together with Jean-Francois Palus, our Group Managing Director. As you know, due to the busy reporting schedule in the sector, this call will last exactly an hour. Starting with group revenue on Slide 4, the top line demonstrated solid momentum in the first half, reaching EUR 9.9 billion, up 23% reported and 16% comparable year-on-year. North America and Western Europe accounted respectively for 27% and 26% of revenue, both gaining substantial share in the mix compared to last year at the expense of Asia Pacific, representing 34% of the total. The relative contributions of Japan and rest of the world were stable. I'll discuss shortly the varied dynamics driving the geographic mix. In Q2, revenue was up 20% reported and 12% comparable. Scope was a minor positive, the consolidation of Lindberg offsetting the disposal of watches. FX was a significant tailwind, above 7.5 percentage points, mainly resulting from the continued euro weakening against the dollar and yuan. Before getting into details on Q2 revenue, on Slide 5, we provide more insight to assess our performance as the comparison base can make it a bit tricky. In H1, we are 28% above the pre-pandemic level and even 32% in retail, a notable achievement. It is also worth highlighting the quarterly consistency of our growth over this time frame. We posted steady progress in total revenue throughout the first half. It is even more evident in retail, which grew at precisely the same pace in Q1 and Q2 on a 3-year stack. On Slide 6, let's review our Q2 top line by channel. Retail, accounting for 78% of revenue, was up 12% in the quarter on a very high comp base. Most of our global store network was opened in the quarter, with the notable exception of Mainland China, where on average, 20% of stores were closed in Q2, 30% in April and May alone. Online sales remained dynamic, up 22% in the quarter, with the penetration of 16% of retail sales losses 14% in H1 last year. Wholesale and other revenue were also up 12%, reflecting an 8% increase from our luxury houses, a 17% drive at Kering Eyewear and a 31% jump in royalties and other revenue. Shifting to Slide 7, an analysis of quarterly retail trends by geography. Up 94%, Western Europe led the growth. Granted, the comparison base was less demanding than elsewhere. But the region's momentum reflects strong demand, both from local clients and from rebounding sales to tourists, which nearly quadrupled year-on-year. On top of intra-European travelers, American, Middle Easterners and some Asian nationalities came back. The region is now 14% above pre-COVID level, although sales to tourists are still 25% below Q2 2019. Japan also recovered nicely, up 45% in the quarter and is now on par with the pre-COVID levels though still driven by local only. Growth in North America decelerated, as expected, following the very sharp bounce that started in mid-2020. The region grew 8% in Q2, gaining pace sequentially on a 3-year stack, up 100%. This is impressive as Americans also resumed traveling and purchasing abroad. Now turning to Asia Pacific whose performance was contracted. On the one hand, Mainland China posted a significant decline in the quarter, impacted by strict lockdowns and mobility restrictions translating into traffic drops in many locations, not to mention complex logistical issues. The situation has been gradually easing since June but remains unsettled. Conversely, the rest of APAC was very dynamic from Korea to Thailand, Singapore, Malaysia, Australia, to name a few. All in all, due to the weight of China in the mix, the region was down 15% year-on-year in Q2. And finally, rest of the world also showed sustained momentum, driven by the Middle East and Latin America. On Slide 8, recurring operating income was EUR 2.8 billion, up 26% year-on-year. All our houses and segments contributed to the increase in EBIT, further demonstrating the benefits our group drove from hitting a diverse range of growth drivers. EBIT margin stood at 28.4%, up 60 basis points year-on-year. This reflects favorable operating leverage at group level, together with good control over the cost structure across all the houses. At the same time, all of them, starting with Gucci, are reinvesting to further sustain their long-term development. On Slide 9, some quick comments on our healthy cash flow generation and financial situation. Once again, we generated considerable free cash flow, above EUR 2 billion and maintained our investment efforts with CapEx at 3.6% of revenue. Net debt, excluding lease liabilities, remains low, just below EUR 950 million despite the increase in shareholder return in the first half through dividend and share buybacks. Let's now look at Gucci, which is moving forward in its elevation strategy. Moving to Slide 11. H1 revenue was up 15% reported and 8% comparable. Year-on-year, revenue grew 4% this quarter with retail up 2%. China was a clear drag, more than offset by strength in other regions. Excluding China, retail growth exceeded 20% in the quarter. In Western Europe, Gucci is further consolidating its ties with local clients as well as leveraging the rebound in tourism. North America is moderating on very high comps, but the region is slightly accelerating sequentially on the 3-year stack. Japan and Southeast Asia were supportive. Gucci activated many client and communications initiatives, focusing on its beloved line, seasonal drops and launches of [ Unis ] from Love Parade. All of them resonated well across product categories and regions. The relaunch of the travel offer was a resounding success, enabling Gucci to reclaim its prominence in this important subsegment of leather goods, especially for men's. The high-end offer was further nurtured by the new High Jewelry Collection in June. Back on full fashion calendar mode, Gucci held spectacular show in May, mixing sophistication and creativity. The House is making good progress in its road map, driving higher AUR through a combination of enhanced collection structure and price increases. Wholesale was up 21% in the quarter. The rationalization of this channel is over for the main categories and the performance is driven by healthy reorders. Recurring operating income neared EUR 1.9 billion, a 36.5% margin. Gucci pursued the step-up in communications initiated in H2 last year in the first half, with an increase in spending of 1 percentage point, reaching a more normative level. Healthy management of the rest of the cost base helped mitigate inflationary pressure stemming from wages. Finally, a slight margin dilution, around 20 basis points, came from FX and hedging combined. CapEx to sales stood at 3%. The store footprint increased on a mix of openings, largely in China and the U.S., together with buybacks in Saudi Arabia and the Philippines. Gucci is mobilizing its resources to implement its strategy focused on strengthening brand equity for the long term and is on course to deliver on the ambition it detailed at our June CMD. Saint Laurent delivered a remarkable first half, reaching new highs in revenue and profitability. Sales were just short of EUR 1.5 billion. Turning to Slide 14. The sharp top line increase, notably the 41% jump in retail in H1, validates the strategy and steadfast execution. The second quarter was extremely robust. Retail grew by 35%, thanks to a doubling in Western Europe where Saint Laurent enjoys great recognition from locals. North America and Japan also did well, and the performance in APAC outside China was very good. By product, revenue growth was well balanced with increases of over 30% across the board. Ready-to-wear led the pack, driven by demand for the summer 2022 collection. In leather goods, the success of the new [ Ika ] handbag underscored the house's ability to achieve higher price points. Wholesale was up in the quarter on strong orders from the partners that have met the house's stringent criteria. [indiscernible] rose sharply and the house added just 3 net units in the store network during the half year. Alongside the top line momentum, this translated into a jump in EBIT and a record H1 margin of 29.6%, up 330 basis points as the traditional discrepancy between half years lessens with the house's gain in scale. Saint Laurent's trajectory remains spectacular, on track to deliver the ambitions presented last month. Bottega Veneta pursued its advance to create value over the long term, reaching new milestones in its strategy. As you see on Slide 17, comparable sales were up 13% in H1 with revenue at EUR 834 million. Retail was up 19% in both the half year and second quarter from a stable store network, thanks to the brand's focus on the absolute quality of itself. In addition to its ongoing initiatives to cultivate close ties with local customers, Bottega Veneta benefited from the return of tourism in Western Europe. Once again, the share of new and existing clients was balanced and the house demonstrated its ability to broaden and rejuvenate its client base. Both newness and iconic pieces did well, and Bottega Veneta introduced new initiatives aimed at reinforcing its timeless ultra high-end positioning. Ongoing rationalization of the house's third-party distribution resulted in a double-digit decline in wholesale in Q2. Bottega Veneta's EBIT margin is back above the 20% level on higher gross profit margin and operating leverage while it continues to invest in its visibility. Despite the stability of its retail footprint, CapEx was up on moves to upgrade its store network. Bottega Veneta is right where we expected it to be at this stage in its journey. Our other houses demonstrated again their formidable potential as reservoirs of top line and profit growth. On Slide 20, we have summarized the revenue performance. Altogether, after a 29% increase in comparable sales, they are close to the EUR 2 billion milestone in the first half. In the second quarter, sales were up double digits in jewelry as well as in soft luxury, even though exposure to China impacted some of the houses. For its part, retail was up 33%. At Balenciaga, Western Europe enjoyed strong performances while brand recognition and revenues in North America benefited from the first fashion show ever held on the floor of the New York Stock Exchange. Japan and all APAC countries outside of China also did well. Leather goods posted the best top line increase. Alexander McQueen also delivered solid double-digit growth across channels and categories and in all markets but China. Sales of leather goods and ready-to-wear were particularly buoyant. Brioni confirmed its rebound, with retail revenues up double digits from their Q2 2019 level. In jewelry, Boucheron and Pomellato delivered sharp growth while its exposure to China temporarily hampered Qeelin's momentum. At EUR 337 million and above 17%, the other houses achieved record EBIT in absolute and margin terms, with both soft luxury and jewelry contributing to this performance. CapEx was stable and allocated to further enhancing penetration and control of our distribution in key markets. We are continuing to invest in our other houses to unleash their huge potential. Kering Eyewear, on the left side of Slide 23, consolidated its status as a leader in luxury eyewear. It boosted sales from its existing brands, carried out the integration of Lindberg and prepared for that of Maui Jim. Kering Eyewear EBIT contribution doubled, yielding a substantial margin level, thanks to its changes in scale. But keep in mind, the activities usual skew towards the first half of the year. Kering corporate costs were roughly flat as we remain vigilant across the board. With the bulk of our investments in our growth platforms now behind us, CapEx was down significantly in the first half. Now moving on the remaining lines of the P&L on Slide 24. Other nonrecurring operating expenses were not material. Net financial charges amounted to EUR 19 million, a sharp year-on-year reduction. Excluding insurance on lease liabilities, the net financial result was positive EUR 39 million, a EUR 105 million swing compared to H1 '21. It includes EUR 80 million in cost of net financial debt, slightly down. Other financial income amounted to EUR 57 million, notably reflecting the change in the fair value of the equity derivative component of the Puma exchangeable bond. Corporate tax was EUR 747 million, a 27.5% tax rate on the recurring income. Group net income from continuing operations, adjusted for nonrecurring items, reached EUR 2 billion, a 34% increase compared to H1 '21. Comments on free cash flow and net financial debt are on Slides 25 and 26. In the first half, we generated over EUR 2 billion in free cash flow. Change in working cap is partly related to the operating component as our houses rebuild inventory from their low level at year-end 2021. Lockdowns in China also had some impact on H1 sell-through, but inventory is well under control, as is our operating working cap, representing just above 14% of last 12 months' revenues, a ratio on par with H1 last year. The rest of the change in working cap is related to many other pluses and minuses in other assets and liabilities with no specific item worth flagging. At June 30, net financial debt was EUR 942 million, excluding lease liabilities. In the first half, we paid EUR 1.5 billion in dividend, a 50% increase. We also repurchased close to 1% of our share capital for EUR 650 million, the second of 2 tranches having been finalized a few days ago. So to conclude, the group delivered a very solid performance in the first half, underlining the benefits of our strategy and business model. Our global presence and our stewardship of a stable of complementary houses enabled us to pursue the group's steady progression in revenue and profitability. Beyond the macro uncertainty that makes it even harder than usual to predict short-term trends, we are certain that continuing to implement this strategy is the best way to nurture the growth of our brands and of the group as a whole. And on this note, Jean-Francois and I are ready to take your questions. Operator?

[Operator Instructions] And your first question comes from Louise Singlehurst from Goldman Sachs.

If I could start with the U.S., please. I know, Jean-Marc, I think you said at the Capital Markets Day that you're expecting a performance fairly consistent with what you're seeing on a pre-pandemic basis. So that would be very much in line with that kind of minus 1 that we've seen for Gucci. I suppose how are you feeling about the underlying consumer kind of sentiment today? Can you help us understand what you're seeing across the group? And if you're feeling as confident today as you were kind of 3 months ago, is there anything in the underlying trends that you're seeing that you can help us think about the potential move going into Q3? And then secondly, on Gucci, we talked about obviously the benefits of that full fashion calendar as we come into the second half. Can we just confirm we're on track for September? It was obviously a quiet month, an important month last year. But will we be able to see that the focus on the more evergreen and the icons coming through that you spoke about at the Capital Markets Day? And in addition to that, is there likely to be a step-up in marketing to support it, thinking about the margin trajectory?

I want to talk with the -- your question about the U.S. market or the North American market. Definitely, in fact, if we look across the board to performance of all the brands in Q2, it's true that the trends were very consistent with Q1 if we compare to 2019 on a 3-year stack basis. So we didn't identify any so that -- on the contrary, when there was rather the sequential acceleration, if we were to look at a 3-year stack. Now you know probably that Q2 last year was very strong, so we have a very high comp base. On top of that, I would mention 2 elements to take into account. First, as we mentioned during the speech, some consumers to the European market with more American tourists in Europe, it has quite [ improved ] and we are over the level of 2019 in terms of purchases by an American consumer in Europe. The second I would like to flag is the fact also that if we consider more specifically Gucci, there is this elevation work ongoing. And the consequence also in terms of the price architecture, in terms of offer, there is an elevation to run more, let's say, the more high-end segment and with more tenders consumers. So clearly, it's a little bit too early to flag any evolution of the U.S. market. I think it's very difficult to comment on such short trends. And when we look further in Q3, how things are changing. And still in Q3, I think we will benefit from higher inflow of tourism in Europe and Americans continue to see an acceleration of all sales to the tourist -- the American tourist in Europe. So your second question was the -- about the return to the fashion calendar. As you know that we are back in addition to the fashion calendar at the beginning of the year, but clearly, now we should be at full speed. Regarding the offer, definitely, I think we -- the world in processes to strike the right balance between, as we always try to do, between the evergreen part of the collection and [ newness ]. And I think that globally, if we -- if you look at the mix of the sales, it has not changed so much in terms of breakdown of sales. But what is more interesting is the elevation of the collections with an increase of the average selling price across the board. And so there will be still a focus, of course, on the evergreen collection but still with the introduction of newness. And definitely, in terms of H2 marketing spend, in fact, there was a step-up during H1 or -- since H2 last year. Normally, there should be a normalization in terms of spending in H2, so H2 '22 should be more comparable to H2 '21 in terms of weight of the marketing spend. And in terms of investments, there will be a lot of activation and animation, both in terms of number of top-up and [ parking ] activities but also with some special events in the store, like the exclusive you will see. You will have the cruise collection in store in November. So the other animations to -- that would be supported by that project, but with no specific inflation to expect compared to H2 2021.

And your next question comes from Antoine Belge from BNP Exane.

It's Antoine at BNP Exane. Three questions. First of all, regarding China. Is it possible to have an idea of the decline in Mainland China for Gucci in Q2 and maybe some comment about the exit rate and the start in July? And then second question is on the Gucci margins. I think you mentioned an FX dilution, so is it possible to have the impact? And if so, as the hedging will sort of fade, maybe some comment about how the margins could be impacted by FX in the second half and then maybe in 2023. And finally, I'd like to have a bit of a clarification about the reorganization of the Design Studio, especially this newly-established role of Design Studio director. So is it possible to have a bit more information about this new person and which is -- who is now overlooking the main collection? And I think as someone who has worked with Alessandro for a while, so maybe reminding us exactly what this person will be doing as opposed to what Alessandro is doing.

Yes. I will start with a comment on China and not specific to Gucci because I think what happened in China is something we observed across the board, of course, depending on the penetration of each brand in the country and the majority of the network. But as you may remember, in May and June -- I'm sorry, April and May, we had around 30% of the stores which we have closed approximately. Not exactly at the same time because you they remember that we had some lockdown measures, I think first, Shenzhen and then Shanghai that you had some soft closures. In Beijing, you got some cities like [indiscernible] which we are where we had some closings. So at end of the day, the average minus 30%. We saw the improvement, of course, in June with less store crew but still a decline of traffic. Concerning the overall environment, the sanitary environment in China and this year of some consumers to go in the malls to shop. So of course, this minus 30% does not give a good proxy of what has been the impact on the sales because you can imagine that most of the closures affected [indiscernible] stores so with a higher percentage. In terms of [ segment tune ] we saw an improvement. We are not yet back at full speed, of course, in China as we can imagine, but there was an improvement, and we continue to see somehow of improvement in July. Let's see, of course, what will happen in the coming weeks. And as you can imagine, it's very difficult. So overall, we were around -- for the quarter, around minus 30 to minus 35 in average for our luxury houses in China in Q2. Moving to the margin. In fact, yes, you see a few elements to mind if you compare the margin of H1 '21 and the margin of H1 '22. There was a slight dilution due to the combination of FX and hedging, which was the only one rent to the FX because of, let's say, geographical mix, which is, of course, less towards Europe compared to some of the other brands. So there was something like 20 basis points of impact due to that combination of FX and hedging. Plus, as I mentioned before, there was clearly more -- some marketing expenses during that semester [indiscernible] interest impact something like 100 basis points the EBIT margin of Gucci. So you can guess that we have been able to have a good financial discipline when it comes to the other line of the P&L in a context where you can imagine also that there is some inflation on wages and so on. So quite good control. But for sure, the H1 event has reached probably a low point because of that step-up in terms of AP investments. So we can expect that there will be a more normalized cost base in H2. And we, therefore, are far more normative operating leverage. We will come back to some operating leverage you had experienced in the past. So we expect somehow our EBIT margin improvement, of course, versus H1 '22, but also [indiscernible] '21. I will now comment on the margin expected for '23. I think that we had a Capital Markets Day a few weeks ago. And obviously, our performance in H1 does not, let's say, impair our nations in terms of trajectory, profitability trajectory for Kering. And we are very confident that we'll continue to deliver that trajectory at each level.

Regarding your question about the design office, first, I want to emphasize that the design office at Gucci remains under the current interaction of Alessandro Michele and [indiscernible] Besides, we are investing in strengthening the structure dedicated to the development of main collections. And to do so, a senior member of the studio who's been working with Alessandro for a long time, will take the new role of studio director, aiming at overseeing the team and reporting to Alessandro, okay? So it's just something on -- the guy will be in charge of an ancillary functions and reporting to Alessandro.

Maybe just a clarification because I'm not sure I heard the -- so the FX dilutive impact in H1 was, did you say 20 basis points or -- I wasn't -- the line was not super good, so just...

So 20 basis points were the combination of FX and hedging in H1 and very difficult to predict for H2, of course. And if we can get that since we'll not be positive. But the magnitude of the negative impact is very difficult to predict at that stage.

Your next question comes from the line of Chiara Battistini from JPMorgan.

My first one would be on pricing actions, please. I see a headline saying Gucci increased prices early June globally. I was wondering whether you could give us any quantification on these increases and whether we should expect more in the second half as well. Second question on wholesale and wholesale rationalization at Bottega. And also I thought there was some coming also at Saint Laurent. So I was wondering whether you could give us an indication on what to expect for the second half in terms of wholesale, how to think about that. And also for Gucci, if from here, it's going to grow slightly as you refresh the collections or whether we should be expecting flattish development. And sorry, one clarification just on the margins. I think on Gucci, you mentioned we should be starting to expect improvement from H1 2023 on H1 '22. Does that mean and therefore, H2 '22 should be flattish or should we still expect further investments in the second half of this year?

I will start just with your last question because we didn't mention any guidance for '23. We have just mentioned that because of the normalization of the base cost compared to H2 '21, in H2 '22, assuming that the top line will continue to grow, which is what we have in mind, there will be more operating leverage than we had during H1 to some improvements of the H2 margin. But we didn't make any specific comments about 2023.

Okay, perfect.

Then coming to your question on the price increases. Just please to remind that we had the first wave of price increases at Gucci with the magnitude of -- to mid-single digits in February and principally carry over. And then we had an additional price increase mid-June, end of June, depending on the regions, and still carry over a introduction of products. And depending also on the country, the price increase was between high single or -- high single digit, let's say, between mid- and high single digits. That's for Gucci. With the other brands, then we have some price increases also with the introduction of seasonal items, and we had also some transactions in May on some leather goods bestsellers and shoes. That being said, you should take -- keep in mind also that there is, let's say, also this war which is currently ongoing on the mix, which is clearly the main driver of the average price increase. I would say that [indiscernible] the average price increase is due to the mix and it's not due to the pure price increase. Looking at -- looking forward is always difficult to say what's going to happen in the rest of the year. You know that FX can fluctuate. It could change also the general pricing. So to guess and anticipate what will be decided in H2, it's too early. We are now in the wait and see mood in that case, and we will be reacting if needed, but nothing to say about future price increases in our brand. So wholesale, I would -- let me comment clearly not to look at wholesale trends only by quarter because you have always some shift in terms of deliveries. But what I can say is that when it comes to Gucci, the bulk of the rationalization [indiscernible] You have seen some few accounts in which we may have some discussions. But overall, the main impact is behind us. By the way, if you look at the performance of Gucci on the prior stat, may have 35 in wholesale. So it means that what you see in terms of increase for the semester or for the quarter does not reflect some reorders from the other accounts we are still working with. You see that in the list index, which is [indiscernible] So it really shows how the brand is appreciated and how the new collections are received by the professional buyers. So as we are Gucci, from the rest of the year, nothing to say, but we don't anticipate further decrease to the wholesale business. For Saint Laurent and Bottega Veneta, what is important is to look at the 3-year stack performance as well because you know that Bottega Veneta has regained a lot of market share along the key accounts. And therefore, what we see here is the first, the impact of rationalization. But still, we continue [indiscernible] with Bottega Veneta in some key accounts. The same with Saint Laurent. Saint Laurent is doing extremely well. I think you can see in retail. The retail performance is reflected also in wholesale performance in a way also the rationalization of the impact because we have more reorders and more orders taken by the existing accounts. So for the rest of the year, it's always [indiscernible] and also in the whole sale performance, it will -- in a way, also the rationalization and the impact because we have more reorders and more orders taken by the existing accounts. So for the rest of the year [indiscernible] collections but we can expect that we will see more impact of the rationalization both on Bottega Veneta and Saint Laurent during H2 because we start also to contain the orders and delivery to some accounts.

Your next question comes from Zuzanna Pusz from UBS.

So first of all, just a question on margins for YSL. I think you mentioned that -- well, obviously, the margin, very impressive, close to 30%. I was wondering if you could just maybe tell us a little bit more about the exact drivers behind that, what we should think of the H2 margin. I'm asking because we've seen, most in the past, Gucci momentum being extremely strong, same BV and their margins were going up pretty quickly. And then at some point, we had to hit a period of reinvestment. So I was just wondering if you could explain us what is the maybe communication spend? And how are you thinking of really making sure that we don't maybe -- that YSL doesn't really reach a, let's say, peak margin too quickly? So the question is more about, are you reinvesting enough? Let's put it that way. And then the second question on Gucci. I think you mentioned that the communication spend is back to a more normalized level. Would you be able to maybe tell us what it is more or less? Would it be high single-digit percentage of sales? If I remember correctly, I think roughly, 2019 was probably something like low single-digit percentage of sales. I could be wrong. But just any idea around that would be very helpful. And my final question, you probably won't like it but I'll give it a go. On Gucci, I mean, obviously, the brand is underperforming a little bit in China because a lot of the management changes, and there's been quite a bit of volatility. So it would be quite helpful to get an idea of what you're really seeing at the brand right now, especially that my understanding is that Gucci has been historically quite overexposed to tourism in Europe. So I would imagine it should be perhaps benefiting right now from such a big return from tourism. So any help on that, on giving us an idea of maybe Gucci's exit rate or what Gucci's doing right now would be very helpful.

Let's say -- yes, your first question was YSL. I will start with a gentle reminder, which was the ambitions presented by [ Francesca ] recently. You know that there is an ambition to be at the midterm or short term at a 30% margin with EUR 3 billion of sales. So you see that today with the sales we have reported for this semester and the margin we are reporting is quite consistent with the [indiscernible] delivered by Francesca. I would add also in terms of -- to address your concern about potential business in Saint Laurent, you may remember that the increase of profitability of Saint Laurent has been very high over the past few years. And we had rather some comments from the investor community that -- the analysts that there was not enough fat in terms of improvement of the EBIT margin. So we have attended in the past few years in terms of specific pension but also in terms of communication, in terms of brand equity. So I think the investments we are now a normalized base of cost base and the increase of profitabilities were due to a very positive approach to leverage. It has happened among some of our peers in the recent years with such an increase of sales, it's not surprising to us such a decrease of profitability. And I can tell you that we continue to reinvest in this brand quite massively. So I think that what is demonstrated here by Saint Laurent is quite consistent with the direction of revenue and with the ambition we have presented recently. It's -- I know your second question, Zuzanna, and you may expect that I will give you some more precise numbers, but I will not. In fact, what we can say is that, yes, you're right, historically because of the success of the brand and how the collections were resonating and despite massive investments, it's true that in proportion of the revenues, the A&P budget was quite low in terms of percentage. You know I think the average of the industry fashion in the good industry in terms of watch and jewelry business, which is substantially different. But for the fashion and leather goods business, I'd say that now Gucci is back to something which is quite consistent with the rest of the industry. And just as I said before, answering to Antoine, the impact was 100 basis points on the EBIT margin, which does demonstrate the intensity of the investments we made in terms of AP as we shared.

Regarding the management in China, the new President, whose name is [indiscernible] has taken in position and have been meeting with the team and taken already some decisions and particularly implementing the plans that are -- that have been prepared. And so he is now fully on board and up and running. Regarding the exposure to tourism, I would like to emphasize that when tourist were down, we took the opportunity to strengthen our work on locals, our clienteling, our relationships with our [ BLTs ]. And this is something that is now paying off since the share of logos in Europe and in China, in the U.S. but also in China has significantly increased. So when tourism will -- is resuming, we will benefit from it and we will not forget about our local client of course. So it will be all additional. And this is something that is still in progress in China, of course, knowing that we don't have Chinese tourists, neither in Japan nor in Europe.

That's very helpful. So just to follow up. So given that you mentioned that -- I mean, you confirmed Gucci's normalized marketing spend, is it fair to assume that the margin we saw now as of H1 is probably the kind of bottom Gucci could see? I mean, obviously, keeping everything constant because the world is a little bit unpredictable. But in terms of, let's say -- let's put it this way, in terms of level of communication spend, you're happy with it. You don't think that you may have to invest even more above the industry average?

I answered to Antoine that H1 EBIT margin was a low point, that now we have a more normalized comp base. It does not mean that we'll continue to invest in communication and marketing. We are not stuck to a percentage point. We don't -- the way we [ reason ] but we believe that we have sufficient control over the other lines of expenses to continue to increase the A&P [indiscernible] but with less impact than the one we had in H1.

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

Yes. So just 2 questions for me. I guess one for -- the first one for Jean-Marc and the second one for Jean-Francois. So Jean-Marc, the other division, profitability came in quite nicely above market expectation. I guess a few quick questions. First of all, can you just please give us a sense of the magnitude of the losses at the watchmaker division last year? That would be one related to that. And Balenciaga seems to be firing on all cylinders. So would an EBIT margin in excess of 25% in the medium term be something that you could be -- the brand could be achieving? Or it seems that you're still investing quite heavily behind the brand and with the haute couture launch over the past few months and so on, the -- we could see margin being capped in the medium term for Balenciaga? So that's question number one. Question number 2 is during the CMD, Jean-Francois, if I understood correctly the body language, maybe I didn't. But it seems that you are considering potentially expanding into cosmetics. First of all, did I understand correctly? And second of all, if that's the case, could you just please remind us when your license for Gucci and Saint Laurent would be expiring? My understanding is that Saint Laurent is extremely long term. It's not at perpetuity but if you could just comment on that, that would be helpful.

First of all, thank you for the question to both of us, which is great. So starting with the [indiscernible] if there was an impact due to the disposal of the watches business. I will not give you precise figures, but just to help you to understand, there was an impact of something like 30 basis points at group level on the EBIT margin. So you can mention [indiscernible] for the other brands. But however, what I'm saying clearly is the improvement of the EBIT margin of all brands in that segment due to the operating leverage, due to the rebound of the [indiscernible] due to the exceptional development of Boucheron. So locally, all our brands are on fire. And when it comes to Balenciaga, you can guess what is the strength of Balenciaga. So without also giving you more detail, margin at Balenciaga at around 25% is something we can envisage short to mid term, considering the dynamic of the brand.

Regarding beauty, it is a natural extension of our brand's territory. So -- and you know that currently, we offer the license mode. But our success with Kering Eyewear demonstrates that we can create a lot of value for the brands on the one side and as a consequence for the group by taking some disruptive and innovative approaches. So beauty is definitely an area where we could contemplate some in the future, and all options are open.

And the expiry of the licenses, sorry, would you share that with us?

I did hear the question but I would not reply to it.

Give us the answer.

Shall I go to the next question?

Yes. We will take the last question, unfortunately, because we want to stick to the schedule because of the communication to come. So last question.

The final question today comes from Thierry Cota from Societe Generale.

Two questions for me. First, on margins. I wanted to have a sort of update on the target of the margin of Bottega Veneta this year, this -- yes, for the whole year, given the good H1 performance. If still up to 20% is the idea or if you could get above? And on Gucci, despite all the explanations, I did not fully understand whether for the whole year, we could still be flat versus last year, if not up, as I think with the target at some point or whether the situation has changed. And my second question is much broader and maybe irrelevant but at least I would make the answer fast and rapid. We know that Europe is rationing the use of gas by 15% from August to March '23. So can you elaborate on the energy cost as a percentage of sales of the use of gas for you and/or your suppliers as a proportion of total energy use? We know that in Italy, the dependence on Russian gas is particularly pronounced. And I was wondering if you could elaborate on your strategy around there -- around that, helping or supporting the suppliers, trying to find alternative sources of energy and the price action as well that could be envisaged. So just comments on gas, energy and Italy could be interesting.

Okay, we'll try to answer quite fast. When it comes to the ambitions we have for the margin that we -- I think that you see what has been the performance of BV in H1, there is no specific reason why BV performed at more or less the same level of profitability in H2 and rather the contrary. And it is now something scale, there is less seasonality in terms of profitability if you compare the 2 semesters that's the case for Saint Laurent. And for [indiscernible] we should expect some improvement, but it is not an improvement in that because there is more, let's say, [ inheritization ] of the expenses along the year. So definitely, this should be above a 20% margin for the full year. When it comes to Gucci, I think we have been quite transparent and candid about the situation. You know what is the EBIT margin for H1. We mentioned that we give some indications on what could be the evolution of the EBIT margin for H2. So you make the sum and you are normally the EBIT margin for the full year.

Okay. Regarding gas consumption, it is true to say that Kering has very little direct and indirect exposure to gas, even for Scope 2 and 3. Roughly 20% of our consumption of LNG last year was related to natural gas and primarily to heat some facilities. So we're not worried about that. However, we have to prepare a contingency plan to deal with that, should this occur. Okay. Thank you, Thierry. Thank you all for your attention, your interest in Kering and your questions. We are pleased with the group's results in the first half and working hard to sustain the strong performance going forward in somewhat uncertain typical circumstances. We know that there were a few more questions in the pipeline. Claire and our team will be able to address them directly with those of you who are still waiting. We wish you all a nice summer and see you again soon. Have a good evening.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.