Kering SA (KER) Earnings Call Transcript & Summary

Good evening, everyone, and welcome to Kering H1 2026 results. This presentation will be made by Luca de Meo, Jean-Marc Duplaix and Armelle Poulou. [Operator Instructions] Luca, the floor is yours.

Good afternoon, everyone, and of course, thanks for joining us. Before Armelle takes you through the financial results, I would like to share some thoughts on the first half of 2026 and obviously, also about the progress we are making across the group. So H1 has been about turning strategy into action and action into results. Three months of our Capital Market Day, we started to execute our brands playbooks, reduce inventories, optimized our store network, significantly reduce our net debt and improve our key operational and commercial indicators. These actions translated into tangible progress in our performance and, in fact, the group returned to growth in the second quarter despite continuing to optimize its store network. This is particularly significant as we completed 84 net store closures in the first half, falling 75 net closures in 2025. So store optimization is not only about reducing our footprint. It is also about upgrading, renovating and elevating our most strategic locations. And the fact that we returned to growth while materially reshaping our network demonstrates the improving productivity of our retail operations. I think momentum improved across nearly all our houses. Gucci accelerated significantly on a sequential basis, and our operating margin improved. So more broadly, all the key levers that are within our control from brand execution and store optimization to cost discipline and inventory management are tracking in line with or ahead of our expectations. So we achieved this progress despite the market environment that, as you know, remains uneven and demanding. And in such environment, execution matters more than ever. This is why we remain focused on strengthening our brands and building a more agile, disciplined and effective organization. Our first priority is to reignite the desirability of our houses. Across the group portfolio, we have sharpened brand trajectories with detailed brand playbooks, clarified positioning and accelerated the rollout of creative directions. At the same time, we continue to deepen client engagement and strengthen our client development capabilities across the houses. Our ambition is to translate creativity into desirability by ensuring that product, merchandising, pricing architecture, marketing and retail excellence work together as one coherent engine. Let me now share some concrete example of the progress we have made since our Capital Market Day in April. Starting with Gucci. The Rinascimento plan is firmly underway. Most importantly, we are beginning to see encouraging signs in the business itself with Gucci retail improving by 7 points sequentially in Q2, and all regions showing better trends. Since the beginning of the year, we have accelerated the pace of newness introduction in stores from La Famiglia deliveries in January, followed by the launch of the prefall generation collection in April. And since mid-July, the rollout of Primavera, which, by the way, was the first Demna fashion show presented in Milan in last February. On the desirability front, recent initiatives have been well received, the Primavera Fashion Show in the Gucci Core Cruise show in New York Times Square, generated strong global media rest and ranked first worldwide in earned media value. And this reflects Gucci's ability to be back at the center of the conversation. The creative road map is clear. La Famiglia was designed to reconnect with Gucci's roots. Primavera aims at reigniting fashion leadership and Gucci Core Cruise collection expands the house appeal through a richer and more balanced offer. In addition, we are reinforcing our Leather Goods strategy through a more focused and coherent offer. Recent launches such as Borceto or Paparatso, together with the carryovers like Gilio are supported by dedicated product-focused campaigns, generating strong engagement, especially in Asia. We continue to bring Gucci's culture expression to life through La Gucci Vita, a platform that extends the house codes beyond fashion and strengthens relevance, engagement and, of course, desirability. We announced our partnership with LPN [indiscernible] from the 2027 season, which will lead to the launch of Gucci racing creating a new platform for visibility and cultural relevance with new products and experiences in sports as a territory of expansion. Another important milestone came on the July 7 with the announcement of the exclusive beauty license agreement between Gucci and L'Oreal, one year ahead of schedule. Thus, we are creating a strong platform for long-term growth. These initiatives are different in nature, but they reflect the same objective, strengthening Gucci's desirability, expanding its cultural relevance and building new engines of growth and global reach to the new audiences. While rebuilding brand desired takes time, our teams, I think, are fully mobilized across all fronts to restore sustainable growth as quick as possible. Switching to Saint Laurent, the House returned to growth in the first semester. We are consolidating fundamentals while working on the key pillars that will drive the next phase of growth. In Asia Pacific, we're sharpening execution through more localized campaigns and activations. At the same time, we are successfully scaling the men's category through a renewed product and retail strategy, which is also and already translating into stronger momentum. Product and marketing initiatives continue to support desirability, particularly in ready-to-wear and shoes, both of which delivered strong growth this quarter. In Leather Goods, our priority remains twofold, further strengthening hero products while preparing a rich innovation pipeline for early next year. Bottega continues to be one of the strongest growth engines within the group. Leather Goods remain at the core of the strategy. The House continues to enrich its product offer with the recent introduction of the new handbags, such as the Barbara or the [ Madison, ] further expanding the assortment while Dominion Damo has emerged as one of the houses strongest performing launches resonating broadly across regions, including China. Asia remains a strategic market for Bottega. The House is uniquely potion to capture the region's growing demand for craftmanship, exclusivity and cultural relevance. Building on this, Bottega Veneta continues to deepen its local engagement through partnerships with leading culture institution in Thailand and in South Korea to reinforce its brand at equity in the region. So as we look ahead, I am also pleased to welcome Roman Spitzer, who will join Bottega Veneta as a CEO in one month's time and his mission will be to build on the House exceptional momentum and accelerate this success story. Balenciaga is going through a creative transition as the house works to define the next chapter of development. Throughout this period, Leather Goods continued to demonstrate the strength and resilience of the brand delivering double-digit growth in second quarter and confirming the role is a core pillar of the business. At the same time, the house is progressively rebuilding and rebalancing its product offering with particular focus on ready-to-wear. The priority is to establish a clear and distinctive proposition reconnect with existing clients and attract new clients and new audiences through a more elevated feminine couture aspired expression of the Balenciaga Silhouette. The strong reception of the latest haute couture collection a few weeks ago, further reinforced Balenciaga's position as one of the few houses with genuine culture authority and creative legitimacy. Balenciaga is also enriching its footwear universe with new proposition, such the Radar, Jet and [ Triple S2, ] while continuing to perform strongly in markets such as South Korea highlighting the brand's relevance in one of the world's most dynamic luxury markets today. McQueen. McQueen is executing its transformation plan focused on simplification and operational discipline while refocusing the brand on its unique British tailoring DNA. This includes the rationalization of the store network with 20 closures in H1 2026, a rightsizing of the organization and a greater leverage of group platforms and shared capabilities. The recent appointment of Jan Franco dates as the CEO in my opinion remarks, an important step in the next phase of the house development. At the same time, the decision to bring the fashion show back to London reflects McQueen's ambition to reconnect more closely with its heritage and reaffirm its unique creative identity. Now Brioni. Brioni continues to demonstrate the value of its unique positioning in sartorial excellence while increasingly contributing its craftsmanship and manufacturing expertise across the group. This includes supporting know-how sharing and industrial synergies with other houses, notably Gucci and Bottega Veneta. The House continues to deliver solid growth, supported by the growing success of Maestria. This is the high-end bespoke offering, which grew by more than 30% year-on-year and now represents nearly 1/4 of store sales in H1 2026. Let's turn now to Kering jewelry, which continues to grow double digit. At Boucheron, momentum remains particularly strong reflecting the growing desirability of the Maison. The launch of the Cat XS has been a notable success, especially in Asia, demonstrating Boucheron's ability to continuously reinvent its icons. Both Boucheron and Pomellato further reinforce their desirability through their latest high jewelry collections. At Boucheron, the human being collection stood out as a remarkable demonstration of creativity and technical innovation pushing the boundaries of traditional high jewelry while remaining deeply rooted in the Maisons [indiscernible]. At Pomellato, we are amplifying brand visibility through a series of high-profile activations, including a dedicated exhibition at the [ Paledo Tokyo, ] further reinforcing its positioning as a benchmark in contemporary fine jewelry. At [ Jilin, ] we continue to strengthen the Maison unique position at the intersection of Chinese culture, fine jewelry and contemporary luxury market. Momentum remained particularly strong in Asia Pacific with outstanding performance in South Korea. As highlighted during our Capital Market Day, we also see significant growth potential in jewelry across our fashion houses. The recent high jewelry activation of Gucci in Times Square generated strong client engagement and illustrated the potential for expansion. At the same time, we continue to build a more integrated and scalable jewelry platform already delivering the first sourcing and industrial synergies. In eyewear, we continue to build one of the most successful platform created in the luxury over the last decade. The launch of the first Valentino eyewear collection, supported by high-profile events in Milan and in New York, marks another important step in the pension of our brand portfolio. Performance in the first half was notably driven by Cartier and by Bottega Veneta, both of which delivered strong double-digit growth reflecting the exceptional reception of the latest collection and the continued strength of their brand desirability. Maui Jim and Lindberg also delivered solid growth, supported by product innovation strong execution and continued momentum across key markets. Kering Eyewear delivered another period of strong growth and profitability demonstrating the strength of our luxury portfolio and our ability to translate brand desirability into category leadership. Alongside our brand initiatives, we have been restoring operational rigor across the group. This includes tighter control of inventory, more disciplined management of our retail network, a continuous focus on operating expenses and greater accountability across the organization. We have also evolved our leadership structure with the recent appointment of, as I already mentioned, [indiscernible], CEO of Bottega; Jean-Francois as the CEO of McQueen; and [indiscernible] Lopes of Saint Laurent in charge of product in this fantastic Mason. China is a top strategic priority for Kering. Last week, we were on the ground with our teams to launch a dedicated action plan aimed at accelerating execution and strengthening the relevance of our houses in that important market. Our priority is simple. Put the client back at the center of everything we do. We are adapting our organization to better combine the global vision of our houses with the insights of our low teams and to increase local relevance across product communication, marketing and retail. We are sharpening our focus on products, clients and activations that resonate most with Chinese consumer while accelerating our capabilities in clienteling, digital engagement and retail excellence China is evolving, as you know, rapidly and spending more selective, more local and more experience-driven. And in this environment, success is increasingly determined by desirability, relevance and execution. This initiative is built around clear objectives and measurable milestone, strengthening our execution in a country which remains one of the most important growth opportunity for luxury over the long term, is one of my key priorities for 2026, and I will return with the team in November to review the first tangible sign of progress. This is also the rationale behind getting craft. This is our partnership with Shanghai Fashion Week through a residency program supporting 10 promising Chinese designers. We are investing in the next generation of creativity while deepening local insight and connecting to the next generation of Chinese talents and clients. Restoring long-term performance is also about building stronger common capabilities across the group, I'm convinced. One of the most important changes underway at Kering is the construction of our group platform. Today, it is becoming operational, bringing together technology, client, industrial, sustainability and support functions to help our houses move faster, allocate resources more efficiently make better decision and scale best practice across the group. In an industry where investing in a stronger, more sustainable supply chain ecosystem to enhance quality foster greater collaboration across houses and unlock the full benefits of the group scale while preserving the uniqueness of each 1 of our houses. We are beginning to mutualize expertise and production capabilities through dedicated hubs for selected activities such as belt manufacturing, bags, cutting. And this approach is already translating into greater collaboration across houses with Bottega Veneta, Balenciaga and Saint Laurent, leveraging selected Gucci industrial assets. Beyond driving competitiveness, these initiatives also enhance traceability across our supply chain. So technology is becoming part of Kering operating system, helping us make faster, smarter and more informed decisions across the value chain. This is the ambition behind also behind augmented Kering, combining human expertise with data and AI to improve decision-making, enhance execution and scale best practice across the group. We are not starting from a blank page. The foundation are already in place. A single cloud-based data platform, digital twists across clients, products and supply chain and AI-enabled the use cases already delivering tangible results. We are notably deploying advanced planning and inventory management tools, improving visibility, replenishment efficiency and operational agility. These capabilities are helping us better anticipate demand and allocate resources more effectively. And the next step is to build on this foundation by progressively deploying AI agents capable of supporting and orchestrating execution across selected processes. And beyond operational benefits, these tools contribute to our sustainability ambition of buying fair production through resource efficiency, producing closer to demand, reducing waste and making better use of resources across the value chain. In the first half, we have advanced our road map around fair production, material innovation and craftsmanship. Sustainability is an integral part of how we build long-term value at Kering. Through our material innovation lab, we help our houses identify and scale next-generation materials. Today, the platform includes more than 11,000 sustainable materials, including 3,700 non-leather alternatives. We are also fostering innovation beyond our own organization through initiatives such as the Kering Generation Award, which supports and accelerates sustainability innovators across key regions like China, Japan or Middle East. Two pilot projects have already been launched with one of the winners from previous additions, and we will announce shortly the expansion of this initiative to a new country. Transformation starts with people. It requires a challenger mindset and fresh perspective. This is why we launched Accurin, gathering high-potential talents from across our houses functions and regions and exposing them to some of our most strategic challenges. Several ambitious projects are already moving into implementation. These initiatives span product innovation, AI-powered solutions to enhance client engagement and decision-making as well as the design of a global event aimed at inspiring and connecting the next generation with luxury. Occurring is a powerful illustration of the energy, the creativity and the entrepreneurial spirit that exists across the group. Ultimately, the AI-enabled tools we are developing are transforming the way we engage with clients. Client advisers can access relevant client insights and product recommendation through natural language queries created tailored selections and deliver more personalized experiences. To conclude, the first half of 2026 was about turning strategy into action. We continue to strengthen our houses, and we made concrete progress in building a more agile and disciplined organization. Now Armelle, it's time for you to take you us through the financial results in more detail.

Thank you, Luca, and good evening, everyone. Luca has just outlined the action, let me show you the results. The group is back to growth in the second quarter. Profitability improved, our balance sheet is now much stronger. And we did all of this while continuing to invest in the desirability and future growth of our houses. On Slide 16, you will find a summary of the key figures for the first 6 months. Revenue was EUR 7.2 billion, up 1% on a comparable basis, with a return to growth in the second quarter. Recurring operating income came to EUR 921 million, a 12.8% margin, up 40 basis points year-on-year and 300 basis points versus the second half of 2025, delivering on the progressive improvement we have targeted. Free cash flow from operations reached EUR 2.6 billion including around EUR 800 million from real estate net proceeds and the Gucci Beauty agreement. CapEx amounted to EUR 419 million. Excluding real estate investment, CapEx was EUR 260 million, representing 3.6% of revenue. Net financial debt stood at EUR 3.3 billion at June 30, down EUR 4.7 billion from year-end 2025. All those indicators point in the right direction. On Slide 17, first half revenue was down 3% reporting and up 1% comparable. After a stable first quarter, the group posted comparable growth of 2% in Q2, a 2-point sequential improvement and the first quarter of growth in 12 quarters. This acceleration was reflecting was reflected in better trends across most of our activities. We achieved that while continuing to streamline our network. We ended June with 1,635 stores, down 84% since year-end on top of the net 75 closures completed in 2025. We remain and try to deliver at least 100 net closures this year. Beyond efficiency, these actions sharpen our presence, focusing on fewer higher quality locations and driving stronger store productivity. Foreign exchange remained a headwind. FX weighted on reported revenue by close to 4 percentage points over the half, largely concentrated in the first quarter. In Q2, the drag is to around 1 point, supported by the appreciation of the Chinese renminbi and the South Korean one. Looking at our regional mix. North America increased its contribution to 24% group revenue. Western Europe remained stable at 30%, while Asia Pacific, excluding Japan, was broadly unchanged at 30%. Japan represents 7% of group revenue, and rest of the world decreased to 9%, mainly reflecting the situation in the Middle East. I will come back to this in a moment. On Slide 18, you have revenue by segment for Q2 and H1, and sequential trends are positive across the board. Gaming fashion and Leather Goods was stable in Q2 on a comparable basis, a 3-point sequential improvement versus Q1, with trends at Gucci improving by 6 points versus the first quarter, leaving Q2 down 2% year-on-year. Gearing Jewelry delivered another outstanding quarter, up 18% comparable versus last year after 22% in Q1, confirming its role as a growth engine for the group. Kering Eyewear grew 8% comparable versus last year, accelerating slightly from Q1, once again, demonstrating the consistency of this business. Corporate and Other declined 6% on a comparable basis in Q2. Overall, the return to growth was broad-based. On Slide 19, the top line by channel. Retail, including e-commerce accounting for 73% of group revenue. It was broadly stable versus semester on a comparable basis and return to growth in the second quarter, up around 2%. Traffic remained under pressure across most regions, but conversion improved, and both average unit retail and average ticket increased meaningfully more than offsetting lower volumes. Within retail, e-commerce grew 3% comparable and represented around 12% of retail sales. Wholesale and other, which accounted for 27% of total revenue was up 5% on a comparable basis in the first half although this reflects two different dynamics. Wholesale revenue from Fashion & Leather Goods was up 1% as we continue to prioritize our own retail network while working with a more selective base of wholesale partners. Growth was driven by both eyewear and jewelry. Eyewear revenue increased 8% comparable reflecting the strength of a business model that is wholesale driven. Wholesale revenue was 7% comparable in the first half. After a strong first quarter with growth of 14% and Second quarter revenue was flat, primarily reflecting the conversion of some franchise locations to directly operated stores. On Slide 20, closer look at retail by region. North America was once again the group's strongest region, up around 10% in the second quarter versus last year. After 9% in the first quarter with positive contribution from most of our houses including Gucci, where brand equity is resonating particularly well with hurricane consumers. Western Europe improved markedly. Retail was down only around 1 percentage in the quarter, a 6-point sequential improvement as former local demand offset still soft tourism flows, even though those lows improved quarter-on-quarter. Japan was up 9% in Q2 after being down 3% in Q1. We driven notably by the outstanding momentum of our jewelry houses and a more favorable tourism dynamic than in the Q1. Asia Pacific was down 1% in Q2 with trends improving gradually. Performance remained mixed across the region, while Mainland China remained down, the rest of Asia and South Korea, in particular, delivered an excellent performance. Finally, Rest of the World remained challenging, down 8% in Q2, mainly reflecting the instability in the Middle East, even as retail in the region improved sequentially month after month through the quarter. The Middle East typically accounts for around 5% of group retail revenue. Its negative impact on group revenue growth was 1 percentage point in the second quarter, in line with Q1 when the disruption affected only 1 month of the quarter. Taken together, momentum improved across most regions. Let's now turn to profitability on Slide 21. Current operating income reached EUR 921 million in the first half, with a margin of 12.8%, up 40 basis points year-on-year and 300 basis points versus the second half of 2025. Our margin is now above both the first half and the full year of 2025. Two things drove it. Better commercial momentum and the discipline now embedded across the organization. Not as cutting for its own sake, but smarter spending, ensuring every euro supports brand desirability client experience or future growth. We optimize our store network, reduce discretionary spending, accelerated procurement initiatives and simplified our cost base. Group OpEx was down 5% in the first half at EUR 4.2 billion, driven in large part by fixed cost reductions that have structurally lowered our cost base. These are structural actions and their benefits will continue to build. Crucially, none of this came at the expense of our houses. A&P was maintained at around 9% of revenue sustaining brand visibility and supporting the momentum of our collections. That balance is deliberate. We are restoring profitability while continuing to fund creativity innovation, retail excellence and client engagement. And this is what gives us confidence in the durability of what we are building. Let me now review our segments, starting with King Fashion and Leather Goods on Slide 22. Revenues stood at EUR 5.8 billion in the first half, down 1% comparable. In the second quarter, revenue reached EUR 2.9 billion, and the segment turned positive, 3 points better than in Q1. Beyond Gucci, which I will cover in a moment, momentum improved across several houses. San Laurent delivered a strong quarter in retail with growth accelerating across most markets. The house performed particularly well in North America and Western Europe, supported by strong client demand as the new collection continued to gain traction, better retail execution and stronger product availability drove robust growth among both VIC and core clients, while Mainland China and the Middle East remain more challenging. Bottega Veneta once again outperformed with retail trends accelerating across most markets. The acceleration was particularly strong in North America, Japan, South Korea and Western Europe, supported by excellent momentum in Leather Goods. Balenciaga faced a more challenging quarter in retail, as [indiscernible] continued to work through its [indiscernible] transition and rebalance its business. Leather Goods, driven by the [ City and Rodeo ] delivered a strong performance, a reminder that the underlying product engine remains sound. McQueen accelerated the execution of its repositioning under its new CEO, strengthening the foundations of the brand and rightsizing its distribution network. [indiscernible] continued to deliver another quarter of strong performance. Segment liability also improved. Recurring operating income was EUR 828 million, a 14.3% margin, up 0.7 points versus the first half of 2025, reflecting cost discipline throughout the segment. Focusing on Gucci, now on Slide 23. The House recorded sales of EUR 2.8 billion in the first half, down 5% comparable. In the second quarter, revenue reached EUR 1.4 billion, with a decline narrowing to 2%, 6 points improvement versus Q1. New collections continue to gain traction, driving stronger brand visibility, renewed client engagement and positive retail trends. Leather Goods returned growth in the quarter supported by the successful launch of Boseto and [ Papa Rado. ] Performance in retail improved across all regions during the quarter, with North America remaining the key growth driver. Western Europe and Asia Pacific showed encouraging signs of recovery, while Mainland China remained challenging despite a gradual improvement. The quarter was firmly execution-driven with a refocused product architecture, faster product introduction and continued upgrades to the distribution network. The House recording 19 net store closures in the first half, while continuing to invest in the refurbishment of selected stores. There is still work ahead, but the actions taken across products, retail and organization are visibly paying off. Recurring operating income reached EUR 468 million, a 17% margin, up 1 point versus the first half of 2025. This reflects continued cost discipline. And importantly, it did not come at the expense of investment in the brand, as Luca showed earlier. On Slide 24, Kering Jewelry was once again one of the standout performers. First half revenue reached EUR 521 million, up 20% comparable. In the second quarter alone, revenue reached EUR 252 million, up 18% comparable. Boucheron continued to deliver exceptional performance, reaching new record levels with particularly strong growth in Japan and Asia Pacific, supported by the successful launch of the new cat excess variation of the House iconic gas collection. Pomellato also maintained strong momentum, driven by continued strength in Japan as well as in North America and the sustained success of its key collections, though recorded a more challenging quarter against a demanding comparison base. Finally, chilling growth moderated during the quarter, although performance in Asia Pacific remain outstanding, particularly in South Korea. Recurring operating income of EUR 30 million in the first half, a 6.2% margin, up 2.7 points versus the first half of 2025. In the quarter, these results confirm both the strengths of our jewelry houses and the scale of the opportunity ahead. On Slide 25, Kering Eyewear delivered yet another strong quarter. First half revenue reached EUR 965 million, up 8% on a comparable basis. Second quarter revenue totaled EUR 476 million, also up 8% on a comparable basis, with growth supported by all major regions. Performance benefited from a series of high-profile product initiatives. The Lindberg 40-year anniversary, capsule collection, the relaunch of the optical category at Maui Jim and the successful debut of Valentino's Eyewear collection. The business keeps demonstrating the strength, consistency and scalability of its integrated model, and remains a reliable source of profitable growth and diversification for the group. Recurring operating income was EUR 222 million, a 23% margin, up 2.9 points versus the first half of 2025. On Slide 26, a brief word on Corporate and Other, which is not material at group level. Revenue was up 1% comparable over the first half and down 6% in Q2, primarily reflecting the end of rental income following the real estate transactions despite a very strong performance, double-digit performance at from [indiscernible] The Corporate segment reported a recurring operating loss of EUR 152 million. Now looking at the remaining lines of the P&L on Slide 27. Total nonrecurring items amounted to a net expense of EUR 223 million in the first half, primarily reflecting costs associated with real estate transaction but also impairment charges and penalties related to the store closures as well as restructuring measures. Net financial charges amounted to EUR 280 million, or EUR 160 million, excluding interest on lease liabilities. The cost of net debt amounted to EUR 122 million, down 26% year-on-year, benefiting from higher interest income supported by the group's strong cash position as well as lower interest expenses resulting from reduced average long-term debt. As anticipated, the effective tax rate on recurring income is 32.5%, down 3.5% plc compared with fiscal year '25. We continue to expect the tax rate to gradually return to its normative range of 27% to 28% over the next 2 to 3 years. As a result, group net income from continuing operations, excluding nonrecurring items, reached EUR 355 million. On Slide 28, a quick look at CapEx and free cash flow. CapEx amounted to EUR 419 million. Excluding real estate investment, CapEx totaled EUR 260 million, equivalent to 3.6% of sales. Free cash flow from operations reached EUR 2.6 billion. Excluding real estate net proceeds and the Gucci Beauty agreement, free cash flow from operations amounted to EUR 1.8 billion, up 68% versus H1 2025. On Slide 29, you can see you can see a more detailed view of the free cash flow generation with one element I want to flag. The change in operating working capital amounted to EUR 62 million, representing an improvement of EUR 863 million year-on-year and reflecting continued discipline in inventory management. Reducing inventory remains a priority, and our EUR 1 billion reduction target for our fashion and Leather Goods, Houses by year-end is well within reach. Team is a healthier, faster rotating inventory base, freeing up cash while continuing to fund the newness our collections required. This cash generation has allowed us to strengthen our balance sheet which I will turn to on Slide 30. At [indiscernible] 30, net financial debt stood at EUR 3.3 billion, a reduction of EUR 4.7 billion compared with year-end 2025. Three elements contributed, the EUR 4 billion proceeds from the disposal of Kering Boutique. And real-estate transactions completed over the period included -- including the EUR 700 million proceeds from the sale of a [indiscernible]. Net debt to adjusted recurring EBITDA stood at 1.4x, which we consider a healthy level. In the first half, we paid EUR 490 million in dividends in line with our payout policy. Our capital allocation, [indiscernible] Galena unchanged. M&A restricted to selective Bolton acquisition, reinforcing supply and expertise and a disciplined approach to shareholder returns. So growth returning, profitability improving and a materially stronger balance sheet. That is the financial picture at the half year. Luca, back to you.

So as you have seen, the action taken over the past months are beginning to generate encouraging signs. The return to growth in the second quarter was, I think, an important milestone. But we are still at the beginning of the journey. And we remain realistic, really realistic about the challenges ahead. So our priority now is to execute reconquering road map, to continue improving profitability and further strengthen the foundations of caring for the long term. On that basis, I'd like to take the opportunity to confirm the guidance we shared earlier this year. And the guidance was growth and improved profitability in 2026 versus 2025. I think we are now available, of course, to answer all your questions. Now open the Q&A session.

[Operator Instructions] So we'll start with Edouard Aubin, Morgan Stanley.

Yes. CI think that's -- can you hear me well.

Yes.

Luca and team, so yes, congratulations for the -- clearly, the encouraging developments. So two questions for me on Gucci. The first one, Luca, you talked about progress in terms of product distribution capitation, et cetera. I mean, fundamentally, what makes you confident that Gucci now is really on the right track. So that would be question number one. And then question number two, in terms of the -- from a commercial standpoint and the trajectory of the recovery. If you look at consensus, expecting already whose despite a more difficult comp base, do you think that's within the possibility. And then you had talked initially when you charge the ball sheet being positive for the full year, which for now consensus does not assume do you think that's still achievable for Gucci to post a positive performance for the full year. So that would be my two questions.

Look, I think we see -- there is a lot of work going on at all levels in Gucci from retail to product to the industrial system, the work that's done on suppliers, et cetera, et cetera. What makes me confident is that Gucci is an incredibly popular brand. Of course, all the eyes are on Gucci. But when it turns positive, everybody will actually realize what's going on because everybody is looking at it. I think we have a strong management team there. They work very well together. They're becoming faster. There's a lot of things that they have to fix. Look at what we did in retail. I remember that we were guiding at not on Gucci on the overall on the group 100 store closures net by the end of 2026. We are already 84%. Part of it is the work done at Gucci. So they are rationalizing a lot. I think that you have to take into account that the real first complete collection of Demna is actually hitting the stores right now. We will start to communicate in the next weeks a lot with a very strong campaign. What we have done so far was activating a couple of collections that partial collections. When I look into the numbers, I can clearly see that newness works. I can clearly see the leather goods is very positive. So the thing is there's nothing you -- in fact, you have completely to reinvent about Gucci. What we need to do is to do the right things for Gucci. And I feel like we're doing them. Now looking ahead, I -- in -- through the year, I think what we can commit is as I said before, the growth. This is visible for the group. I don't think it's going to be linear. Potentially, we have a more unfavorable, let's say, comparison with last year on Q3. We see, at this stage, Q3 maybe being flattish. But we are people that are there to fix problems, find solutions and overcome the challenges. So far, it seems that the machine is under control. One of the things I'm more proud of is apart from the dynamic of the team internally, and the way we work with the brands is the fact that all the things that we can completely control the internal things, as Armelle mentioned before, from stocks to cash, to margins, et cetera, et cetera. We -- so far, we have been good at doing at least what we've promised. So I can for sure commit that the team will be fighting and even a Gucci team from now to the 31st of December to comply with the commitment we've made. But I feel based on what I said before, that it might not be linear, but that's to me, is not particularly important. Important is that we continue to progress as including Gucci, in the first -- in the second quarter as proved.

We'll now switch to Anne Bismuth from HSBC.

My first question is on Gucci. So just to confirm that on the recently launched Primavera collection, you are seeing continuing improvement on the back of this launch in July and if it took across all categories, so you talk about the fact that you are building the momentum for the long term, but along the turnaround of Gucci in China can take even that the bond desirability has been damaged. And my second question is for me about OpEx management. OpEx went down 5% in while it was guided to be flat for the full year. You said during the presentation that the benefit of cost discipline will continue to build. So should we expect the same decline in -- same decrease in OpEx for the full year, meaning around 5%.

Maybe you want to start or you want me to start with the Gucci. I'll start with the Gucci part. I think it's relatively soon to actually make an assessment we see very positive sign as much as we have seen that with the previous couple of collections, especially on newness. The collection has hitted the first story. It's a part of it on the 15th of July. We'll start communicating by the end of August. And by then, all the pallets and all the offer will be in the stores. So I think we'll be able to talk about that next time we see each other. But I think we -- let's say, we're pretty confident, as I said before, that is the first complete collection that the new creative -- the new Artistic Director as the performance is very important. On China, you're right. There is a lot of work that has to be done, fundamental work. That's why we were there last week altogether. I think we -- the first thing we have to do is to make sure that we have -- we can clean this table from maybe an orthodox practices that we had in the past into that market. We have to respect that this is becoming one of the most challenging and competitive market in the world. But the good news is that we know the things that have to be done. And the point is somehow so low that I feel there is a lot of potential in China. It's going to take weeks, I don't think so. I think it's probably one of the most important handier we have, not only for Gucci, but for all the brands because, as you know, carrying in China, in general, has captured all the potential of the market. But it's an opportunity and an upside if you do it right. I think we deserve a bigger market share, even if we know that everybody is competing for that thing. But naturally, we should be better than where we are. and Gucci, for sure, the first symbol of that kind of return, but we are very committed to execute this project.

And also on OpEx, as you say rightly, we are very satisfied with the performance of the first half because we managed to decrease OpEx by 5%, and this was mostly done on fixed costs. So you remember rightly that we guided at the beginning of the year to flat OpEx. But considering the performance of our action that were done across the organization, notably in store expenses but not only, while -- and I remind you, continue to invest strongly behind the brands. We are quite confident that we can reduce OpEx on the full year.

So we now have a question from Oliver Chen, TD Cowen.

Regarding Gucci, what are the key catalysts in terms of the collections ahead? And would you expect the North America performance, which has been tremendous, I suppose, to outpace Asia Pacific and as North America has been somewhat super normal but very encouraging with so much wealth effect. Second question is on supply chain and artificial intelligence. How are you interacting with AI relative to driving both inventory management, which is a huge opportunity and cultural relevance as you've had that cultural relevance dashboard.

So the second one is a complicated one. Take me 1.5 hours to explain to you what are the main things we're doing. I would start from that one. I think that I mean, the objective is to make of carrying one of the company that better uses the opportunity of this new technology. I think the good news is that we actually have also compared to other companies, the right infrastructure to start and to become pretty core into pretty core application in -- of AI in our daily life. I think there are three areas where there is really potential. I'll use slogan as I tell to the people we follow the money. We follow the product and we follow the client. So these are the three areas where I believe that AI can really boost our performance, increased productivity, maybe more than double our speed on many of the things. And it's I wouldn't say -- I mean, it's -- again, it's the beginning of a journey that will last years, et cetera, but we are determined to take the advance and the opportunity for AI. And next time we meet, maybe we spend a little bit more time on the detail of the project, but it's a core activity for us as a team. As you know, we have also onboarded new competencies in the house. People that have already done that in other companies. So I'm very positive about it. On the Gucci thing is, yes, it's a process. The -- we were out with the collection at the beginning in the year like called La Famiglia. There was a way to kind of reconnect to the routes of Gucci. It worked very well. We had a generation collection, that was extending and enlarging the product offering not going only because I think Primavera was in probably 20 SKUs distributed in the beginning in a few stores. And of course, with the new one, we are covering the whole thing. So if I project simply the performance of the first two collection and multiply them by the variety of products that will come with the collection with the Primavera, I feel that we are in a better place. But it's not only this. A lot of things are going on Gucci. We have to become better at -- in many dimensions, which we are doing. I think Francesca is on many, many fronts. Part of it is the product, the merchandising, the retail merchandising, the pricing, the availability of product, the quality, you name it. So I think it's a big work, but we -- as I said a few minutes ago, I think we know what we have to do, and we are doing it.

If I may, I would add something, Luca. When it comes to the specific situation of North America because it was also your question. Of course, there is a wealth effect, but it does benefit to the whole sector globally. But what is very encouraging when it comes specifically to Gucci that where the brand equity is the most sound and it's true that in the U.S. or in North America, historically, Gucci brand equity, brand perception remains quite high. You see that there is an immediate impact of the new collections, which are very well received compared to some other markets where probably the brand image has been more damaged.

So we now have a question from Lucas Solca, Bernstein.

I have two questions. One is about your thinking on price and mix. We seem to see that some of your peers are struggling with the middle class aspirational consumers, especially in South Lake, there seems to be an affordability issue, that luxury companies are confronting. I wonder how you're thinking your strategic thinking is on where the core brands should be pricing I think you've shown your march to reach down to some of the aspirational middle-class consumers, and I wonder how -- you see the development going forward. There was in the past two years, a lot of emphasis on stretching upwards and pricing higher, but this seems to be the wrong thing to do at the moment. I wonder how you think about it anyway. Second question is about the remarkable achievement in reducing net working capital. I have a question on inventory. I believe you have voiced ambitious plans to reduce inventory by about EUR 1 billion in 2026. I wonder how the dynamic of inventory reduction is going to play out? How much is it connected to reducing inventory that was present in the company, how much is it coming from the ability to play more flexibly and in a leaner manner. And how this is going to impact the off-price versus full price mix? If you give us a bit of a granularity on the off-price channel at the moment, that would be fantastic.

On the pricing mix, I mean, both questions that would require a lot of time to be on because both of them are on multidimensional, let's say, issues. I think we have embedded in the plan, right, from the beginning, a scenario where inflation would not help us compensating from inefficiency in what we were doing. So I think that we actually took scenario where the inflation that was possible maybe a few years ago is not possible anymore. There is a lot of way of repositioning products. On one side, we are cleaning up and reducing everywhere we can. And in every way we can -- the off-price practices because I think we have to protect for price. This is the strategy. We are looking at as a very competent and analysts you -- I'm sure you have seen that the new collections on most of the Ventec, for example, Gucci is competitively priced on the new product. And we have also, in a few cases kind of reposition some of the products because I have the feeling that in some categories, we kind of went too far and play with the elasticity. And I have to tell you, I cannot kind of build details, but sometimes that had a very big impact on the volume. So the elasticity was not exactly linear, was exponential. So we continue to look at the pricing structure, and we are very much determined and trying to align pricing to intention to buy desirability. And at the same time, there is a lot of work that has been done so far, and it is embedded in the plan to push on quality content because that's the way you create desirability and you create. We are in the luxury market. So we are here to sell dreams here to sell excellence. So the best way you can do that is improve product quality and execution and the services. So my simple message is, we are very much aware of the fact that the market will not necessarily give us the the comfort of turning our problems into -- for the customer. We have to come up with a very competitive product, very high-quality product. very creative product at the right pricing. On the stocks, I have to say and then maybe I'll leave the word to Armelle because also to honor the work that has been done by the team. We committed to EUR 1 billion reduction on the stocks. We are on track on that. So we confirm that this is, let's say, our target for the end of the year. I believe that we have come, I would say, pretty fast on that. Of course, the first hundred of millions are easier and then you get to a system -- I mean, to a assent of this, where it's more difficult to reduce unless you don't change the system completely. This is what we are also planning. Now to give you an example, the way we are able to -- the the way we are able to produce, the way we're able to refurbish and to replenish, sorry. The stock is one of the discussions we are having on the industrial side. And Gucci, for example, is changing the way they are buying and integrating faster replenishment cycle, but it requires a kind of reengineering of the [indiscernible] process plus the ecosystem of the suppliers. But that's the intention. We want to continue to go down. And we know exactly where are the benchmarks at what level of the bench. And we are determined to build a carrying or houses of caring being amongst the most competitive in this field. The [ i8 ] stocks, I think it's not a good thing. So we will have to design a machine that is different. Right now, we are drawing the machine very, very well, and we are hitting all the, let's say, the target we gave ourselves. It's also true that I cannot reveal exactly the number, but it's also to that we made some very brave decision on reducing production for this year. And I'm not talking about a few percentage points. So this is part of the story. Challenges, of course, is in the next months to continue to sell, to increase sell-through so that we can continue to go down and work on the quality of the stock. Do you want to add something, Armelle?

Maybe what I can add is that this achievement has been done by teaming people from the different brands altogether. I think that was a great opportunity to benchmark the practices between brands and at the end of the day to decide to have one process getting the best of each of the brand experience. And I think it was -- it's very important. And now we are really working improving the integrated business planning within the group, also investing in [indiscernible] that we can leverage on all the different brands, even if each brand keeps its specificity. So for me, it was very interesting experience in how we can team between the brands behind a very strong and demanding target. And that's really what we are doing in many different directions.

And maybe to conclude on that question, let's say that the performance of the quarter or the semester has not been driven by discounted sales. The full price sales have been very robust in terms of growth, especially across the board and two important message. We had presented some ambition during the Capital Market Day in terms of reduction of store footprint, including the outlet network. And this ambition is still the same, and we are closing some outlet stores. So that's still part of the journey we are engaging in.

So let's now switch to Antoine Belge, BNP.

It's Antoine Belge, BNP. Congratulations on those results. I know the focus is on Gucci, but I think Luca yourself, you said that the group is not just about Gucci. And in as much as I hate to call them non-Gucci run. So it seems that the other brands curated were up 2% in the quarter. Maybe there is some rounding, which would be the similar growth rate than in Q1. So I mean, could you say if the maths are correct, and which brands may have accelerated and maybe another brand might have decelerated notably on the main one, BV, Saint Laurent, Balenciaga. And the second question is I think before the results you had indicated that the H1 margin will be lower than H2. So with this very strong beat in H1, are we reconsidering this like it was a conservative assumption. Could we think that 12.8% is like a floor and then yes, you will be at least doing 12.8% in the second half. And if you could say something on the gross margin evolution, that would be great.

Look, I think all in all, you're right, so all the non-Gucci as you called on Gucci banter growing 2% is a mix thing. Saint Laurent and Bottega Veneta are doing great. on the fashion side. Balenciaga is in the middle of a creative transition. So I think we have a very good performance on Leather Goods, and we're trying to find ourselves more on the ready-to-wear and on the shoes. So we have to give the team time to regain a certain positive dynamic. But San [indiscernible] Bottega very, very good, I have to say. And then don't forget the jewelry part that Jean-Marc is leading as a division now and the Kering Eyewear. They're giving us a really positive surprise, very strong and very solid measurement of those two categories. That's what I can say. And the -- we commit to growth in 2026 to 2025. We told you that will be better also in terms of profitability. The good thing is we -- in H2 '25 were, I think, at 9.8%. So this is -- we're 12.8 million on H1 2026. So we keep going -- Armelle told you that we continue to reduce the cost in an intelligent way. It's also important for me to say that if you look at the numbers, the cost reduction is not actually, let's say, impacting the -- our ability to invest in the brand. If you look at the money we're putting on communication or investment we're putting on refurbishment and relocation of stores, et cetera, et cetera. I think we'll continue to do that. So it's not that we were cutting on the flash, if you want. So we keep investing. So if you look at that, you can expect us to continue to work on a profitable -- a profit for 2026.

Yes, maybe to answer to your question, no, we confirm that we expect H2 margin to be higher than H1 margin.

Maybe on the gross margin, I don't know...

Yes, sorry. On the gross margin. Gross margin is very difficult to forecast. What we see is that -- on one hand, we have some positive from the channel and the product mix, especially recovering in Leather Goods and handbags. And then we have probably some -- in terms of regions, offering in China is less sensitive for gross margin. But all in all, we see ups and downs, but in the gross margin, and nothing very special to comment.

So we'll now switch to Evan [indiscernible] from Goldman Sachs.

Evan from Goldman Sachs. Congrats on stabilizing sales and delivering higher margins on fashion leather. So two questions, please. One on nationalities. I'm wondering if you could tell us about sales growth by cluster, the Europeans, the Chinese, the Americans. I'm wondering if think that the renminbi means that Chinese are maybe doing a bit better broad than at home. Similarly, our Americans growing more abroad than at home. And I think, Luca, you mentioned a few times, Korea as a standout is the weight of the ran nationality relevant and are you seeing any volatility in terms of demand given the volatility in terms of wealth creation in that market. And then secondly, on channels, you have wholesale and fashion leather relatively aligned or even slightly better than retail. Does that mean that channel is clean and should we expect also in H2 to be aligned with retail trends? And if I can squeeze a little 1 more on channels, the retail down dining, so net closures of 100 units this year. How are you seeing that next year? I think you said, Luca, that you were executing very quickly on that. Maybe you have a clearer view of how many you might shut in '27.

Well, I think I'm going to ask last, let's say, start from the last one, maybe then leave it to Armelle or Jean-Marc, if you want to for the other 2. But I think we're going relatively fast. One thing that's important is that the all work, of course, we do it with the brands, but we have pretty much centralized the whole discussion on real estate under Jean-Marc's leadership, okay? So we have a system where it's not shopped brand by brand. but we are able to coordinate with the brand and make this kind of decision and execute the plan. We said a few months ago at the time of the -- in April that we would look at closing 250, let's say, stores across brands by 2028. We did 84.

2030.

2030.

Sorry, 2030. And the -- but we were -- we are faster right now. There's no reason why we shouldn't look at all the opportunities. I think we can do at least a similar thing in 2027. But of course, the first one is easier. The last one are more complicated. But the good news is that we are doing it. So it's not like a promise that stays up in the air is real. At the same time, we also committed to relocate or renovate 2/3 of the network. So all the brands and Gucci and Saint ran and Bottega et cetera, also accelerating the plan of renovation of the thing or relocation. So it's something out and something in store. So we'll try to keep the pace. I think that the drag -- I mean, because 84 stores is like on the papers like 5% of the entire network, right? And the drug of this staying having less sales point has not particularly impacted the H1 result. It shows that we're doing the thing properly, and moving people from one store to another and finding other solutions. So we are confident that by doing that like this, we can continue the process in a healthy manner without impacting fundamentally the performance. And if possible, and this is the plan to make it all better because we're going to close outlets like Jean-Marc said or places that are not productive, okay? Then you have a question on whole sales dynamic and nationality.

Yes. So let me answer to you on the nationalities first. So American -- so actually all nationalities improved sequentially to Q1 albeit in the buying degrees. The Americas improved. Now they improved actually to high single-digit positive both locally, but also as tourists, especially in Europe, but also in Japan. Other regions, mostly driven by Korean turn positive, like European customers also turned positive in Q2. And Chinese customer as a clientele stayed negative, but improved from Q1 sequentially as Japanese and middle Ion customers. So basically, all nationality improved with a strong high single-digit positive for American customers, both locally and when traveling. Regarding wholesale, you sometimes have some phasing like in wholesale. So it's not always very easy to forecast, but the idea is roughly to stay roughly flat in H2.

Maybe I will add a few colors, both on the retail network and on the wholesale. First, regarding the retail network, just as a reminder, during the Capital Market Day, the idea of reducing by 250 was phased the following: 100 in '26, around 100 in '27 and '28 and the remaining stores around '29 and '30. What is clearly -- what we clearly is that we can move faster. And as said by Luca, clearly, if there are some opportunities because we need always to assess the risk and reward of closing a store, the risk being -- not being able to repatriate the demand in another store and close the cost to close the store. So we try to balance everything. But I think that reasonably, we could go faster than the initial plan in terms of reduction. When it comes to wholesale, I will just add that beyond the figures and your expectations for the rest of the year. What is here interesting is that there was a cleanup globally of the wholesale because we did it, but also because there was a natural cleanup of the wholesale distribution with a few distributors which have disappeared. So in a way now, there is a more clear picture when it comes to the quality the qualitative distribution. So after a phase of plateau, probably, we have no [indiscernible] with Luca when it comes to distribution, be it online or wholesale will be some opportunities to regain some market shares and business with some wholesale accounts gradually.

I just wanted to follow up with Armelle on the Chinese cluster, just at home versus abroad. I don't know if you're seeing benefits from a stronger renminbi, how thing Chinese brought [indiscernible].

We saw sequential improvement both at home and when traveling.

And let's now switch to Thomas Chauvet, Citi.

The first one, maybe, Luca, on production and quality at the CMD, you explained how product quality was to drive client trust, how you wanted to be more powerful as a group to to impose better quality standard to your suppliers. Could you give us a bit of color on what you've already initiated and also remind us the gross margin implication. I remember you said it would have a negative impact on '26, maybe '27. Secondly, on jewelry, could you quantify if this was material, the tailwind of the conversion of, I think, franchisees from wholesale to retail in Q2, is that going to last for more than just a few quarters and which brands and regions benefited from that as a big gap in growth between retail and wholesale, particularly in Q2. And just maybe for Armelle clarification, OpEx, you said down on a full year basis now rather than flat. So is it perhaps flat in H2, so down low single digit on full year? Are you also working on reducing costs in H2.

So I'm going to take the quality part, and then I'll leave it to the second one to the master of jewelry that is sitting on my left for you on my right. So what -- let's say, what we did is, first of all, it's important to say that we have established a central industrial platform, okay, or a team who is taking care of different topics, including manufacturing standards, suppliers, purchasing design of, let's say, engineering the ecosystem of supplier, logistics and quality, okay? So which we never had before. And the objective being trying to have one approach, a luxury approach to quality, okay, which of course, we had here and there because otherwise, we would not have some of the best houses on the planet, but there was a formal expression of the practices and the standards to them. Very important thing is that we -- I feel, and I felt like right from the beginning that we need to have a different, let's say, set up between us and the lie. We need to die and this is what we're doing what we make, what we buy on the different categories. We have a plan to integrate almost, if I remember the numbers correctly, but almost, in some cases, double the percentage of things that we produce inside of our plants also because we need to fill the capacity because we have something like 37 plants in Italy, that are not completely utilized. So I will reintegrate part of the tank selectively. When you do this, it's easier to control the quality standard and to set methodology of doing it, especially also because you can embed right from the beginning, the concept into the product. I think there is room to reduce the span and the numbers of suppliers. When I was in Florence, I told you that we had more than 4,000 suppliers across the, let's say, the brands. I'm talking about the fashion, Leather Good part. 25% of them would do 98% of the production. So there's a long queue into it. When you have is less easy to control. So we're going to concentrate our flection, our externalization on a smaller number of suppliers and they would give us a chance to set very, very clear standard and to have rule of engagement with the supplier. That are clear to everybody. The other thing that -- given that the supply chain in Italy has a lot of layers. I think it's probably the 3, 4 layers supply chain. We probably to consolidate and basically flatten the supply chain. And this will give us a chance to secure higher standard in quality. Last thing I want to say, you say that this quality push, et cetera, would have an impact on 2026. What I said at that time, is that we have embedded into the plan, let's say, the idea that we could spend more COGS to improve quality, okay? That's what -- and this is still true. That means I don't want the industrial people to take the excuse that they don't reach some quality let's say, levels that we need and we pretend just because of money, okay? And that's already in the system. And that is changing a lot of things. I mean we are taking Leather Goods where some famous bags where we have originally had a certain quality of leather. And then someone decided a few years ago that we should change the quality. And now we're going back and we're putting something that is even better than what it was at the beginning. This is an example, but there are 10s of examples like this in the house. I mean we are a luxury house. So there is only one level of quality, this is excellence. It's very simple. And we have to ensure it. You have the one on Jewelry.