Kering SA (KER) Earnings Call Transcript & Summary

Good evening to all of you. Welcome to Kering's 2025 Third Quarter Revenue Call. I will start with comments on the period and will be joined by Jean-Marc Duplaix, our CEO, for some concluding remarks before we take your questions. Starting on Slide 4. The quarter ended with a series of bangs in the form of highly rated fashion shows and presentations with 3 debut collections at our 4 main brands. At Gucci, Demna's La Famiglia looks and his presentation through a short movie, Tiger, stand out as a bold creative statement. Reimagining Gucci's coats through a modern-day prism, the collection reflects the various facets of Gucci's personality incarnated by A-list performers. At Bottega Veneta, restructured inaugural collection opened a new chapter, overlaying a confident vision to the house artisanal heritage. Our subtle interpretation of the interchapter motif and other house codes resonated strongly with audiences. Pierpaolo Piccioli gave the fashion world a refined version of Balenciaga, balancing couture craftsmanship with modern designs and accessories. Last, but not least, Saint Laurent staged another powerful show set against the Eiffel Tower. The collection reaffirmed the brand's core identity and showcased a fresh dimension through spectacular silhouettes and innovative materials. All 4 collections drew wide acclaim and attention, boding well for their rollout in H1 2026. Bottega Veneta, Saint Laurent and Balenciaga were among the most viewed runway shows with significantly higher live stream and replay views versus last year. Gucci, despite not presenting a runway show, received exceptional media visibility and generated record engagement and positive reaction across digital platforms. On Slide 5, you will find the key figures for the third quarter. Revenue was down 10% reported and 5% comparable with a significant 5-point negative FX impact. The 5% comparable revenue drop comes after a 15% decline in Q2. Of this sequential 10 percentage point improvement, only about half of it is attributable to the easier comp base. Looking at retail dynamics, all regions contributed to the sequential improvement. North America and Western Europe posted the best underlying momentum. In terms of KPIs, the drag from traffic moderated with some regions doing better than others. Continued increase in AUR driven by mix as well as higher average ticket provided some buffer to the drop in volume. I would also like to mention that full-price stores performed best. Our brands continuing to gradually reduce their outlet footprint and assortment. Online revenue for their part started to stabilize. On Slide 6, we have Q3 revenue by segment. All our segments improved sequentially compared to Q2. In terms of magnitude, Gucci and the Other Houses posted the best improvement, although starting from a lower point. Bottega Veneta confirmed its positive momentum on a high comp base. Saint Laurent's performance started to recover. The improvement in Eyewear and Corporate reflects an acceleration at Kering Eyewear. Our Q3 revenue breakdown by region evolved from 2024. As a percentage of the mix, Asia Pacific dropped 2 points and Japan 1 point. Rest of the World was stable, while Western Europe and North America gained 1 and 2 points, respectively. On Slide 7, let's move to the Q3 top line by channel. Retail, accounting for 74% of revenue, was down 6% comparable, a significant quarter-on-quarter improvement. Our footprint at 1,758 stores showed a net decrease of 55 units since year-end, of which 14 net in Q3. This excludes Creed integration of its China distribution back in Q2. Gucci was the largest contributor to our network optimization plan with a net decline of 8 units in the quarter and 26 over the first 9 months. As you know, our strategy concentrates on fewer but higher quality locations. It also entails gradually downsizing our presence in outlets with 2 additional closures in Q3. Wholesale and Other revenue accounting for 20% of the total was down 2% comparable. Wholesale revenue at our luxury houses dropped 11% in Q3, primarily due to the strategic downsizing of this channel and softer order intake. While these factors continue to weigh on performance, their impact is progressively moderating. In absolute terms, wholesale dropped more than EUR 330 million year-to-date. We are in line with our planned trajectory for the year that implied a minor decrease in H2. We are comfortable with our current wholesale setup and number of doors and do not expect any material impact from rationalization in 2026. This decline was partly offset by growth in wholesale at Kering Eyewear and Beaute, up 5% comparable and by a 1% increase in royalties and other revenue. On Slide 8, a closer look at comparable retail performance by region. Overall, it continued to be affected by soft tourism spending, while domestic consumption demonstrated greater resilience. In Western Europe, Q3 improved sequentially, down 7%. Local demand accounting for 40% of the total was the key driver. Tourism spending also improved from Q2, but to a lesser extent. North America turned positive, up 3% from a 10% decline in Q2. Sequential improvement occurred across the board with Saint Laurent and Balenciaga back to growth. Bottega confirming its strong momentum and Gucci's dropped now just 3%. Looking at the American cluster, it was nearly flat in Q3, marking a notable improvement over Q2, although a bit less than the region. Japan, down 17% comparable in Q3, improved on the back of easier comps, but was still the region most impacted by weaker tourism spending, while local consumption proved a touch better than in Q2. Asia Pacific declined 10% comparable in Q3, a 9-point sequential improvement. Better trends in the region were driven by Mainland China, Hong Kong, Macau, but also Korea. However, the overall improvement is in line with the easier comparison base. The Chinese cluster was down high-teens, substantially better than in Q2 and H1. In the quarter, more than 30% of spending by Chinese customers took place outside of their home market and close to 80% of their overseas spending remain in Asia, including Japan. Finally, Rest of the World swung back to growth, up 2% comparable in Q3. Moving to our houses, starting with Gucci on Slide 9. Q3 revenue was close to EUR 1.35 billion, down 18% reported and 14% comparable. Retail was down 13%, 10 percentage points better than Q2, driven by North America and Western Europe. AUR was up across categories, mainly through mix, supported by newness introduction in handbags and average ticket also increased, partially offsetting a minor drop in traffic. Leather Goods started their recovery. The injection of novelties initiated last year and accelerating since has begun to pay off, particularly in handbags, where we are seeing promising early sign of stabilization. This rejuvenation should gradually strengthen Gucci's carryover base. From the Emblem line to strategic revamps of Marmont and Ophidia, and the highly successful launch of Giglio in May, alongside Mini GG and recent introduction such as Beatrix and Siena, Gucci's product offering has been significantly strengthened and in terms of quality and rejuvenated across all price points. With the La Famiglia presentation in late September, Gucci has started regaining its fashion authority, reaching broader audience, including younger customers and refreshing existing relationships, notably with top clients. As you know, the looks were available only in 10 stores for 2 weeks. So this will not change revenue profile in Q4, women's and men's ready-to-wear accounting for the bulk of the sales. La Famiglia also supports traffic in stores and cross-selling opportunities for the fall/winter lineup. The full Famiglia collection will hit the whole network from January onwards. Wholesale was down 25% in the quarter. Turning to Slide 10, Saint Laurent. Saint Laurent Q3 revenue was EUR 620 million, down 7% reported and 4% comparable. Retail was down 2% comparable, but was up excluding outlets. North America turned positive, and Western Europe was only down 3%. The House confirmed its high desirability and new collections were very well received with both ready-to-wear and shoes up double digits. In Leather Goods, the revitalization of key lines such as Loulou and recent additions to [indiscernible] are yielding solid results. The acceleration in innovation and the fine-tuning of the product architecture are firmly on track. Group sale was down 16% in the quarter on phasing and further impact from rationalization. On Slide 11, Bottega Veneta's revenue came close to EUR 400 million, down 1% reported, but up 3% comparable. Retail remains a key driver, up 5% comparable, supported by sustained double-digit growth in North America despite high comps, and positive trends in Western Europe and the Middle East. APAC was nearly unchanged and Japan was moderately down. Growth was fueled by locals and high-end clients, as well as a continued AUR increase. Ready-to-wear and shoes were the fastest-growing categories and the launch of the Campana handbag delivered promising results. The value strategy, combined with strong cultural content and an efficient mix of global and local communication campaigns, continue to reinforce the brand's positioning. The acclaimed debut show of Bottega Veneta's new Creative Director paved the way for next stage of progress at the House. Wholesale declined 9% on a comparable basis, fully in line with the selective distribution strategy. Our Other Houses here on Slide 12 had revenues of over EUR 650 million on a comparable basis. They were up 1%, with retail unchanged and wholesale up 5%. In soft luxury, our houses also delivered sequential improvements. Balenciaga sharply reduced the gap with last year, thanks notably to positive sales growth in North America, but all regions and product categories did better. Compared to Q2, McQueen reduced its year-on-year shortfall with sales of women's ready-to-wear up and a reinforced handbag lineup. Brioni sales were up, boosted by solid double-digit retail increases in key regions. Jewelry was a particularly bright spot this quarter, up double digits. Boucheron's expansion in the U.S. continued to pay off, and the House posted positive retail and wholesale performances in other regions as well. Pomellato also had an excellent quarter, helped by retail, up in most regions with strong showings of killer lines and the new high jewelry collection. DoDo recorded another solid performance and Qeelin achieved impressive growth rates across Asian markets. On Slide 13, a focus on Kering Eyewear and Corporate with segment revenues of nearly EUR 450 million. At Kering Eyewear, comparable sales were up 7%. All regions, apart from Japan, turned in positive results with particularly good performances from Maui Jim and Lindberg as well as Cartier. The expansion of the portfolio continued, thanks to the contract with Valentino, which will lead to a first collection of color and prescription frames for spring/summer next year. At Kering Beaute, Creed's quarter primarily reflects differences in the calendar of product launches. The new Oud Zarian fragrance reached network in early September and is well received. The other highlight of the quarter was the introduction of the Balenciaga collection of 10 high-performing women's fragrances that recorded a hefty sell-out level. This wraps up my comments on the quarter, and I will turn the phone over to Jean-Marc for a few words of conclusion.

Thank you, Armelle. Hello to everyone on the call. As you have seen, the third quarter has been quite an interesting period, during which we started seeing positive signs of inflection. Some were helped by easy comps, others clearly reflect early impacts of our actions. Numbers are one thing. Another is the acceleration of our initiatives to regain our footing, and more broadly set our strategic priorities for the coming years. And on that front, we have not been sitting on our hands. Luca's arrival has reenergized the organization. He has met with dozens of managers across the group and across regions. And we are all working together on developing our strategic plan for the next years. As you know, we should unveil it in the spring of 2026. I don't think I will be spoiling the announcement of that plan when I tell you that our #1 priority is to reignite the top line. From that standpoint, the progress we made this quarter is encouraging, as is the response to the collections and launches that Armelle mentioned. Clearly, work on the product offer of all our houses ranks high among our strategic priorities. On top of that, as we told you we would, last February or last July, we are accelerating and amplifying our cost and efficiency initiatives. We are further rightsizing the store network and focusing on durably improving sales density. We are enhancing the productivity of our marketing investments, and we are using every available lever to reduce our cost base. Solid progress has been made on all these fronts, and we are keeping the pace. We also concentrate on cash generation, and we have launched a group-wide task force headed by Armelle to sustainably optimize inventory and working cap management. Our task is to implement structural solutions to the group's challenges and reduce our sensitivity to cycles. In this endeavor, there are no sacred cows. We are assessing every aspect of our houses from brand positioning to client excellence, as well as the role the group should play in such areas as supply chain, sell-through optimization, or customer relationship management. Speed is of the essence, but we are also fully aware that some of these actions will take longer than others. In the meantime, as you have also seen, we have been able to deliver on some key strategic initiatives. The announcements we made on Sunday to join forces with L'Oreal to boost the beauty potential of our houses represents a major step forward. This alliance with a global industry leader, a firm with which we share values and have a long-standing working relationship, secures the growth of our brands into beauty at an attractive valuation. As part of the alliance, Creed also gets to integrate into a bigger portfolio, demonstrating the unique attributes of this house and ensuring its next stages of growth. Finally, our planned joint venture with L'Oreal in luxury longevity and wellness enables us to combine our strengths in an area that is sure to reach new milestones in coming years. The deal with L'Oreal will also have a highly positive impact on reducing our debt leverage and as a top priority. Pushing back by 2 full years the exercise of the put option for the remaining 70% of Valentino enables us to focus on our existing activities at a time when they require our full attention. We are continuing to explore real estate transactions along the lines of what we have already done. As in any negotiation, it would be premature to put a date on them. But we are absolutely confident in reaching a favorable outcome sooner rather than later. So a lot has already been done. We will not stop here. We are looking forward to the coming months and to sharing our progress with you. Before we take your questions, I have an important announcement to make. This conference call, #48 is the last one under Claire Roblet guidance as she will soon be taking new responsibilities within the group. Claire's successor will be announced shortly and will be joining us in the coming weeks. I wish to take this occasion to give Claire a warm thank you for the 12 years she has spent leading Kering's financial communications. She has done a spectacular job in good and in less good times. We intend to maintain the very high standards she has established and to continue earning the trust of the financial community. Claire, thank you from the bottom of my heart. And on that note, we are ready to take your questions. Operator?

[Operator Instructions] First question is from Chiara Battistini, JPMorgan.

Thank you very much from my side to Claire for all the work together over the years. First question, maybe on North America, that was particularly strong really across the board, not just for one single brand. So can you give us more color? Can you talk a bit more about what you've seen with the American consumer throughout the quarter between traffic and conversion? And also whether you're seeing new consumers coming on Americans and maybe aspirational consumers coming back or rather the high-net-worth individuals and returning customers across the different brands? The second question on the beauty transaction. And I was wondering, are you now happy with the initiatives you put in place between beauty and real estate in terms of addressing liquidity constraints on the balance sheet? Or are you sort of revisiting all options, including potentially other brands in the portfolio? And with this beauty transaction and the cash inflow, should we be thinking about possibly also the urge of cost savings easing to stabilize profitability and availability of cash, or cost savings also remain a key focus at the moment?

Thank you, Chiara. On North America, we had a sequential improvement that occurred across the Board much beyond the comp base. Happy to see Saint Laurent and Balenciaga back to growth and Bottega confirming a very strong momentum in the region. In terms of consumer, traffic is improving, but the growth is also helped by the fact that the AUR is going up through mix. And in terms of customers, I would say, still a good resilience of the high-end customer, but also maybe some good performance on the e-commerce that is generally a channel where we see more aspirational customers.

Regarding your question about the beauty transaction and its implications about what we're going to do with the portfolio and the leverage? First of all, I think -- and I'm sure that there will be some other questions during the conference about the transaction. But the rationale behind the transaction was not driven by the deleveraging ambition that we had. I think it was, at the end of the day, a very win-win deal in the sense that it first fulfill completely our strategic objectives as well as the ones of L'Oreal. And of course, it does contribute massively to decrease the debt of the group. That being said, we have started a process of optimizing the structure of our balance sheet that we will not give up in the sense that, as I said, we continue to work on the refinancing of the real estate, which was something already as an ambition when we bought the assets 2 years ago. So nothing has changed on that side. When it comes to the portfolio, I want to be very clear, we'll review, of course, in a very open manner as we always did, the relevance of the assets we have in the portfolio. But I want to be clear that when it comes to Kering Eyewear, because I read some articles on that, Kering Eyewear is core in the strategy of Kering, is doing extremely well, is the leader on its segment and you can see that the performance in Q3 was more than robust. So we are very pleased with the investments we have in Kering Eyewear, which is instrumental in the development of the group. Beyond the portfolio, when it comes to the savings, we are working on with -- under the helm of Armelle, who is doing a brilliant job on that front, to be honest. As I said, we keep the pace because the idea is not to cut the muscle or to touch the muscle, but it's really to be sure that what we are doing and where we are investing, it's always bringing results and return. And there is no reason to stop there. I think it's really a good window for us in this period for the industry and for the group to continue this work of streamlining the organization to chase for the maximum of efficiency.

Next question is from Ed Aubin, Morgan Stanley.

Armelle and Jean-Marc, so congratulations, obviously, for this very encouraging development. And just Jean-Marc, I just wanted to echo your comments on Claire. So just a huge thank you, Claire, for your time, your patience and your professionalism, so you will definitely be missed. So on that, just Armelle, if you could please come back on the it looks like, but, maybe I'm wrong, that there was some gradual improvement during the quarter in terms of the trend. So if you could comment on that in terms of September and what you've seen so far in Q4 in the Golden Week? So that would be question number 1. And so sorry, just to come back on the sale of the beauty unit to L'Oreal just to talk numbers to the extent you will be willing to share any. But I think some of the players have indicated that the cosmetic sales of Saint Laurent is about EUR 3 billion versus Gucci at about EUR 500 million. So it looks like there is a really huge opportunity there to grow the business. When you look at that, should we be aware of any fundamental structural reason why Gucci in the medium- to long-term cosmetics business should not be more or less the same size? Obviously, Saint Laurent has a bit more heritage there in terms of perfume and cosmetics, but that would be one. And then the last one is, which is quite important and maybe the most sensitive, is for the investors to judge about the merit of the transaction, obviously, it would be helpful to understand what type of royalty fees are going to be paid by L'Oreal. So I think the industry norm is about high single digit to maybe sometimes 10% of sales. Again, I don't know what you're going to be willing to share, but if you can just give us a little bit more color in terms of the structure of the deal. I understand that Saint Laurent, the fees are substantially lower than that today that you're getting from L'Oreal. So any comments would be much appreciated.

September performance was in line with the quarter. August was weaker, but it was the month with the toughest comp base -- yes, July, sorry. July was -- and then August was the best month, but September was in line with the average of the quarter. In terms of current trading, it's very early in the quarter. I'd like also to remind you that the comp base in Q4 is much tougher than in Q3. That being said, retail trends in key regions are in line with Q3, but be mindful that October shows the easiest comparison base in the quarter.

So when it comes to the size or the potential size of the beauty business for our brands, and this business should encompass at the end of the day, if you have -- you look long-term, fragrances, makeup, and to a certain point, the more mature brand is skin care. Of course, I cannot disclose any figure. I think that maybe you got some figures from L'Oreal management. But it's true that we consider that if you look at the profile of luxury brand, I would say that we know that the beauty category, if we think in terms of retail price or penetration of the market should be higher than the one we have currently, or that we had historically for Bottega Veneta and Balenciaga. And that's the reason why we have decided to repatriate these brands and to internalize the business with the success. We know because you may remember that we had very successful launches, and we are very pleased with what has been done so far by Kering Beaute. And we can imagine also that Gucci brand would deserve, let's say, a higher penetration on that segment, especially if you look at the ranking of the fragrances in different geographies. I think we need to develop more of this business across the board for our brands, and that's the rationale behind the transaction with L'Oreal. So for sure, I think all the brands relatively to their respective size has the potential to grow quite massively with, of course, an incremental level of royalties for us. And it does make the transition with your last question on which, of course, you can imagine, I will disappoint you. But as we always did with Coty being very careful about not disclosing any contractual obligations, we will not disclose what is the content of the contract we signed with L'Oreal.

Next question is from Oliver Chen, TD Cowen.

Claire, it's been really wonderful to work with you as well. Congrats on the next steps. Thanks, Armelle and Jean-Marc, we appreciate it. I'd love, one, you mentioned early signs in handbags and also carryover. What are the early signs you're seeing? And can you accelerate the flow? You've done that in the past in terms of working very quickly there. Second question is on traffic. Does traffic continue to be fairly volatile, given that Tiger was such a success, should we expect traffic to get better? It sounds like you're doing a great job with AUR and managing conversion very well. And third, in your prepared remarks, you mentioned reduced sensitivity to cycles. Just would love for you to let us know what you mean there in terms of -- we've seen so many cycles between hard luxury and softer luxury, as well as thinking about aspirational, and also beauty is a great category, but it's a great deal you're conducting in terms of partnering with a world leader.

Regarding handbags, you know that we've done a lot of work since the end of 2024 by reintroducing many new lines in the offer at Gucci, but also at Saint Laurent. And the performance that we have on newness in handbag is very positive. We've been suffering from the underperformance of carryover that was offsetting the good -- very good performance of the newness. But we are on handbags, coming to a point, where it equals, and we are very happy to see the performance of the handbags at Gucci stabilizing this quarter. Regarding -- so there will be, of course, a lot of new introductions in Q4. Some of them that you've seen during the Cruise show in France and of course, some other in 2026. So the trend is very positive. In terms of percentage in the mix, you have some seasonal effects. But at the moment, I would say, in handbags at the end of September, we were at more than 60% of the sales in handbags were coming from newness. And of course, the newness from last year is now feeding the carryover base. Regarding traffic, traffic improved sequentially during the quarter. It's still largely impacted by Japan and APAC.

Yes. I think when we -- I mentioned in my speech, cyclicality, it's not only a question of the mix of activities we have in the group. And by the way, even if the beauty business is no more internalized, what we hope and what is the best is clearly to increase the level of royalties, which is a solid base -- a solid contribution in terms of EBIT, as you can imagine, and to explore the full potential of our brands in that segment. So in any case, we'll still benefit from this cycle of the beauty business. The hard luxury does represent still a quite substantial part of the business, not yet at the full potential. But if you combine the sales of our jewelry brands, but also the Jewelry businesses of our fashion brands, we start to have a quite substantial business. And it's clear that also our jewelry brands are quite relevant in the different segments of jewelry, so meaning high jewelry, fine jewelry and more accessible jewelry. So with also this capacity to absorb some shocks in terms of demand, especially when aspirational demand is weaker. And behind this also, there is the work that we have started at group level and in each brand and that probably and surely, by the way, Luca will present more in depth and more in details during next spring, is to -- and it's a journey that we have started, but clearly, there is the ambition to accelerate this journey, which is to rely more and more on science to be stronger in terms of predictions, in terms of merchandising, in terms of supply chain so that we can gain in efficiency and to be less, let's say, exposed to aspirational demand to be stronger in terms of carryover lines, replenishment strategy. And that's the reason why we have always said that in our industry, it's a combination of art and science. And clearly, even if we have made some progresses in the past few years, we need to accelerate to be sure that also we have -- and that was the spirit of what I was saying about what the group could bring to our brands. It's also some expertise that we will have at group level to push our brands to do better in that direction, which is to be more disciplined in terms of sell-through and things like this, which are reducing, obviously, the risk of cyclicality.

Yes. Okay. That's really helpful. One quick follow-up on Mainland China customer. How would you characterize what you're seeing now? Are you encouraged in terms of raise of light and stabilization? Just color on what you think is happening in that dynamic market?

So consumer spending in Mainland China is still not very supportive, but we are seeing some sequential improvement. We are working on the product offer, the retail network and things are progressing. Of course, we will continue going into Q4 and next year. Things are going in the right direction. We are seeing still some polarization in the customer, but we are progressing in the right direction.

Next question is from Antoine Belge, BNP Paribas Exane.

Three questions, if I may. First of all, I think you updated a bit the amount of stores that were closed, first of all, at the group level, but at Gucci. Could you maybe comment a bit like not anecdotes, but when you're closing notably maybe a store in China that's quite close to another? Like how much of the business are you recouping? Are you quite encouraged that you're really not losing too many consumers? What you're obviously improving the cost base? And also, I understand that it's not a 1-year effort because I think you're probably waiting for some leases to expire. So net-net, compared to, let's say, the fleet at Gucci at the peak and maybe 2 years down the road, where -- how many stores could end up being closed? My second question is on the sort of overall group EBIT for this year. In July, you had mentioned that gross margin in H2 could be quite supported notably by FX hedging elements. And also you had given a very precise target for OpEx. So given that Q3, and correct me if I'm wrong, was probably ahead of your own expectations. Are you deciding maybe to spend a bit more on OpEx? Or are you happy to see consensus, which I think was at EUR 1.7 billion of EBIT, maybe creeping up to EUR 1.8 billion on the fact that trends are -- seems to be quite good at the beginning of the quarter. And finally, on beauty, EUR 4 billion is -- seems to be a good number for disposing beauty, but I guess it's a combination of 2 things. One, selling the current business and then probably valuing what could happen in the future. So is it possible maybe to have an idea, especially of the -- I mean, are you going on -- purely on the Creed on existing beauty business? Are you going to have to post a loss on asset disposal? Is that -- what is attributed to that is less than EUR 3.5 billion you paid? Or actually, that's not the case and you managed to get even higher price than you had paid initially?

Thank you, Antoine. Regarding the store closure, as I mentioned, we are progressing and we have closed 14 stores in the quarter, 55 year-to-date. Half of it roughly is attributable to Gucci. What it means in terms of recouping the business? Of course, it varies from one store to another because it depends on the location, it depends on the store. But I could say that generally, we recoup between 30% and 80% of the business. Of course, we pay a lot of attention. We generally move the sales assistant from the previous store to the next store. We make sure that we call the clients, we invite them to the new store. So I must say we are quite satisfied with the dynamics. Of course, it will have to be measured more in the long term, but we are seeing good dynamics in that front.

If I may, I will add that going forward, we will continue to work on the network rationalization. Here again, we will have an occasion to be more specific already during the full year results, but even more during the spring investor meeting. But this is an ambition to continue to look at the network to consider what are the stores, which are the less profitable or which delivering is the lowest returns. We want to concentrate on some key locations and not to distract our brand with too many locations to operate because also it has an implication sometimes, which is to increase the structure and the costs associated with the structure to manage all these stores. So we knew, and I think among the weaknesses, that we have acknowledged in the past few years was probably that we went a little bit too far in terms of expansion of the network. So without providing any figures, you can assume that in the two coming years, we'll continue to rationalize quite drastically the network.

Regarding your second question. I can confirm that we are delivering our plan on cost efficiency. We are -- so I can confirm the indication that I gave in July, which is that we expect OpEx to be down at mid- to high single digit in the full year. Regarding gross margin, here again, I can confirm that we expect gross margin full year -- or H2, to be at the same level of H1 at constant currencies. Of course, if currency rates stays where they are today, there will be a hedging effect that will be a tailwind in the gross margin. But all in all, you have to keep in mind that FX and hedging combined could have a negative impact up to EUR 50 million in the EBIT. And then more generally in the EBIT, I also can confirm that H2 EBIT margin will be declining year-on-year, but much less than in H1.

Regarding the price, you said that EUR 4 billion was a good number, that's your assessment. But I think that if we reach a deal with L'Oreal is that -- we were thinking on both sides that, that was a good number. And it's a comprehensive deal. So through which L'Oreal and Kering are becoming long-term partners in Beauty. This deal encompass the sale of Kering Beaute as a company with all the subsidiaries and all the activities. It means, in other words, that the sale of Creed has a house, the fact that we are granting the Bottega Veneta and Balenciaga license to L'Oreal. And in the price, there is an option or the right to grant the Gucci license, of course, at the expiration of the license with the current terms and conditions we have with Coty. So to make it simple, it's Creed plus two licenses plus an option to grant a license. We don't split the price so far. What I can tell you is that in terms of capital employed at group level in our balance sheet, the capital employed attached to the Beauty business is below EUR 4 billion. So you take it the way you want. But at the end of the story, it will be a net gain before tax for the group. Then the recognition of this profit, it's something we need to continue to work on in terms of -- because from an accounting and tax standpoint, there will be probably a need to allocate the price. But what has been negotiated is a global price. And again, I think it's a good price for both parties considering the ambitions we have on both sides for our beauty brands, but also for the joint venture because don't forget that in the deal also, there is a joint venture, which is very promising.

Next question is from Zuzanna Pusz, UBS.

I also like to say thank you so much, Claire, for all of the years and all of your wonderful help. I agree and we all miss you. So well, three questions from me. First of all, on the Chinese consumer, in case I missed it, I don't think you commented on the sequential performance of the Chinese consumer. And I was just wondering if you have seen any improvement? I think that was sort of the key surprise from one of your peers. So if you could tell us a little bit, maybe especially for Gucci, how that has -- the cluster has performed? And then secondly, on the store network rationalization. Just to follow up because Jean-Marc, you mentioned that if I understood correctly, for the next 2 years, we should still expect some further rationalization. And I remember you mentioned in the past that the space would be flat despite some store closures because the existing stores will be made bigger. So I just wanted to confirm if that's still the case? And then finally, just a follow-up on current trends. Just because -- well, I guess I wanted to understand, I mean, the comparable -- because we don't know the comparable basis across every month. So I just wanted to understand because you mentioned August was the best. September was in line with the quarter, which surprised me a bit because I would have thought it would be better given the -- sort of a little bit more excitement around Gucci. So I'm just trying to understand, like is it reasonable given that in Q3, you had seen an improvement ahead of the comp? And you are seeing comp getting tougher. But is it still likely that Q4 is going to be better than Q3? Or that improvement ahead of the comp is sort of a bit slower now and we should actually expect sales to be weaker again? Just to get a rough idea around that.

Thank you, Zuzanna. So the Chinese cluster improved slightly sequentially for all brands. The improvement is driven both by the domestic market and by the tourist with slight improvement on the tourists, but still double-digit negative trend in all regions, especially in Japan due to the higher comp base and also the less attractive price.

Yes. When it comes -- as regard to store rationalization, I think we -- our position has evolved to be clear, in the sense that we -- it's not a secret to say that the sales density is not on par with our expectations, and I would not dare to say on par with the competitors. So here, there is a need first to recover in terms of sales density. So it does mean, in other words that, of course, if you look brand by brand, maybe it's difficult to say that all the brands will see both a reduction of the store count and of the square meters. But globally speaking, at group level, we envisage to reduce the total store base, even if probably the reduction will not be exactly at the same level in terms of percentage than the total number of stores because still some brands in the group deserve to have a decent size. If we take -- and it's always the same example for many years, Bottega Veneta, it's true that now considering the growing share of ready-to-wear collections and footwear and the success of these collections, we need, in some cases, to have larger stores. We have not enough flagship for this brand. Even for Balenciaga, we may have some situations where we will need to consolidate in a larger store. But overall, and directionally, over 2 years, there will be a reduction of the number of stores and of the square footage.

So August was the best month of the quarter on easier comp and September was in line with the performance of the quarter. It's true that we launched Balenciaga product in September, but it was only 10 stores. So it cannot change completely the picture on the September performance. Going forward, what we see for Q4 is that, of course, consumer confidence is still uneven. There is a lot of uncertainty. From what we see so far, I would say that we could expect that Q4 sales decline year-on-year could be in the same order of magnitude of Q3 despite a tougher comp base.

Okay. So just to clarify, so basically, despite the tougher comp base we can expect -- is it across the group or for Gucci, specifically Q4 to be in line with Q3?

It's for the group.

And for Gucci? Sorry, I'm being very demanding today.