Operator: [Interpreted] Ladies and gentlemen, welcome to the financial results of Hermes for the first half of 2026. We're now going to hear from Axel Dumas, CEO of Hermes International; and Mr. Eric du Halgouet, Financial Director. Gentlemen, over to you.
Axel Dumas: [Interpreted] Thank you very much. Good morning, 1 and all. I'm very happy to present to you today the financial results of the first half of 2026. At the end of June 2026, Hermes has a solid dynamism with a revenue of EUR 8.2 billion, up 6% at constant exchange rate and up 2% at current exchange rate. Q2 at plus 7% and marks a speed up compared to the first quarter. Operating margin is at plus 41%, very high level and our available cash flow is up 18%. Hermes remained its course, remains balanced, whilst staying true to our values. The renewed confidence of our clients and the exemplary commitment of our teams are the very foundation of this performance. I'd like to thank them. Our clients have turned up once again. They appreciate the creativity of our 16 divisions and the uncompromising quality of our objects in the first half of the year, Hermes continued to invest in its production capacity to secure its supply chain, guarantee its quality and traceability of raw materials. We've also continued to extend and renovate our exclusive distribution network to support our growth. We've also created new jobs and training courses, created 600 new jobs in the quarter. And we have more than 27,000 people, if you work for Hermes, 61% of which are in France. Let's now come to the highlights. Inspired by the theme of the year, venturing beyond divisions have given fee rain to their creativity. Let me give you some examples. Amongst the new handbags, added to our collection, we have Dublon and Kelly Robo that we'll be able to discover in September in our stores. The women and men's ready-to-wear collections have been very well received everywhere in the world. mentioning the fashion show of Tokyo in February to commend the talent of Veronique Mesan in L.A. in May -- for the second after the collection by Nadesan. The creations of the home universe were presented to 36,000 visitors in the Milan furniture fair. And finally, we unveiled in Paris the ninth high jewelry collection into the hole cape inspired by a question route, which met with immediate success amongst our customers worldwide. Hermes has continued its investment in additional production capacity in line with its vertical integration strategy at the service of quality. Last April, we inaugurated a 25th leather workshop in up Inground. Work is continuing into other production sites, Charlene Median the Arden and Colonel in the Calvados which will open, respectively by 2027 and 2028. We have also announced setting up a new other workshop in ondeliz in the by 2030. Investment in additional production capacity has also been made in new production site of Kozak for table where extension of the production site in amo in Switzerland for watches and development of arms manufacturing the metal demand. We continue to secure our supplies with our long-standing partners with this contribute to strengthening our local anchoring expanding sectors of excellence and job creation, particularly in France. Let us now come to our retail network. We have inaugurated many unique locations to a multi-local approach of our meters which allows us to have our collections reach our customers wherever they are. In the first half of the year, amongst the extension and renovations of our stores, I would like to mention Berlin in Germany, Osaka in Japan or again, Hong Kong elements in Greater China. -- we have also celebrated the opening of 2 new stores, 1 in Beijing and the other in Nagoya, without, of course, forgetting the inauguration of our sixth Maison in London. -- so in the world. In fact, it is a pleasure for me to show you a video that illustrates the admirable work that was carried out by our teams of artisans and partners here we go. [Presentation] The opening of this new Maison 166 newborn Street in London Mark, an important step in the history of Armas in the United Kingdom, bringing together historical buildings at the heart of Mayfair. Masonite embodies a new expression of AMS in 1 of the most dynamic cultural capitals of the world. The Maison which extends over 2,000 square meters and room showcases are meters and creates a unique universe for each of them. In the first half of 2026, we continue to talk about the universe of our metro a communication, which is offbeat and Joy full spirit. -- the OMS in the Grand Palin Paris, an annual meeting, much appreciated by riders or mystery at the grooms and immersive experience, which took place in Seoul after, Shanghai, New York and Tokyo. And finally, over 15,000 visitors discovered with our artisans, the wings of manufacturing of our objects during the Hermes and the making event in Shanghai. Let us now come to the responsible approach of as the first half of 2026, the group pursued its commitments. Firstly, as a responsible employer participating in the revitalization of the French regions, thanks to job creations. The group increased its teams by 600 employees, of which more than 300 in France. These recruitments testify to the confidence in the future and our capacity to draw talent the misses continues to act in a responsible way to face up to climate change to preserve biodiversity and natural resources. Within this framework, we are in line with our objectives of reduction of CO2 that we've already reduced by 69% for scopes 1 and 2. And finally, we continue to assert our attachment to the territories in which we set ourselves up and pursue the rolling out of Ecomaster, which delivers a leather diplomas sands. Let us now come to -- has flagged a strong momentum in 2026, revenue amounted to EUR 8.2 billion, up by 6%. All the matters are growing, except for the Middle East, and Botin Beauty. America, Japan and Europe, excluding France, have shown remarkable progress in the first half -- first quarter and second quarter. Q2 sales reached EUR 4.1 billion, up by 7% at constant exchange rates, slightly accelerating as compared with Q1, namely notably in France, Japan and the Middle East as well as across leather goods and salaries, ready-to-wear accessories, textile and watches. Let us look at the activity in geographical. A1, all regions posted growth, except Middle East with a slight drop. Europe bar France is at plus 9%. So still strong dynos in there across the country in the region, France, plus 2%. -- recorded good growth in Q2, driven by its local customer base but also with a tick-up in tourist flows. Japan, plus 11% enjoys strong progress with a strong footfall and loyal local clients. Asia bar Japan, plus 2% continues to grassfecially in Greater China. Korea performed exceptionally well. America plus 15%, continues with its remarkable performance in keeping with the figures of Q1 with a solid and balanced growth. The area, others, minus 4%, which is mainly made up of Middle East continues to be resistant in spite of geopolitical instability. Now the geographical balance is maintained with a slight increase for America and Europe. Let's take now a look at the division or met breakdown. Leather Goods and sadly 10% solid performance of a speed up in Q2, driven by the strong desirability of our collections, clothing and accessories, plus 2% is growing with an uptick in Q2 with ready-to-wear. Silk and textile plus 10% is performing remarkably well especially in Q2, thanks to our creativity. Perfume and beauty minus 4%, continues to grow -- to grow its offer with the launch of its Hermes Foundation watches is stable with a good progress in Q2 based on age 8 and the Aramark as an exceptional piece. The other divisions, plus 5% in mainly jewelry and home universe continues to grow. The division breakdown remains unchanged and shows the good momentum of leather goods in H1. Over now to our Finance Director, Erik Dengue for the results.
Eric du Halgouët: [Interpreted] Thank you, Axel. Good morning 1 and all. At H1, the operating income stands at EUR 3.4 billion in spite of negative currency impacts. The operating profitability remains at a high level to reach 41%. Available cash flow is up 18%. These results illustrate the group's solid performance in an uncertain geopolitical context. Revenue reached EUR 8.2 billion after taking into account the negative exchange rate effect of EUR 360 million that reduced growth by 4.5 points. This impact stems mainly from the depreciation versus the euro of the yen, the U.S. dollar and the currency is titled and also the Korean one. Gross margin stands at 71.1%, up 0.4 points versus the first half of 2025. That is thanks to an excellent management of stocks and an exceptional sell-through rate of our recent collections. The negative currency hedging of close to EUR 100 million or minus 1.2 points was offset in large part by the accretive impact of the conversion effect. Also based on current monetary parity, that conversion effect will be close to 0 across the year as a whole. Communication expenditure stands at EUR 301 million, i.e., 3.7% of sales as for H1 2025. As Axel mentioned earlier, we had a major event in H1, the inauguration of new Bond Street store in London. Other sales and admin expenses reached EUR 1.6 billion, up 4%, growing slightly faster than revenue. The group continues to support the midtier and the regions as they grow, whilst rolling out a new information system for the distribution network and for logistics. Other income and expenses stand at EUR 558 million, made up of fixed assets depreciation and use rights. That also includes the expense for the free share plan for employees in 2023. Recurring operating income for the first half of the year reached EUR 3.4 billion. It improved slightly in spite of the negative currency impact of nearly EUR 200 million, half of which is attributable to hedging the other 2 conversion. In spite of the negative exchange impact of 1 point. Operating profitability reached 41%, so close to last year's level. This graph illustrates the high profitability of the group across the last 6 years. Net financial income is the result of EUR 90 million versus EUR 148 million for the first half of 2025. Income on cash stands at EUR 160 million. It's slightly down because of interest rates. Whereas the cost of currency hedging has slightly gone up. Tax expense for the first half of the year is close to what it was last year, strongly impacted by the exceptional contribution on profit for large French companies. This additional tax of 41.2%, which applies to the average tax on profits for 2025 and '26 is estimated at EUR 360 million for the whole year. For H1, it makes up a total of EUR 270 million, i.e., 8 points for the half year tax rate that now reaches 35.4% as for 2025. Income of associated companies stands at EUR 23 million versus EUR 26 million last year. This is mainly made up of our share of the profits in our activities in the Middle East, bar UAE. Net income group share, therefore, stands at EUR 2.2 billion, stable compared to 2025. Factoring in the exceptional contribution, it reaches EUR 2.5 billion as for 2025. Excluding the exceptional contribution, net profitability stands at 30.7%, close to the high level of 2025 in spite of the negative exchange impact and the significant drop of the financial results. Between 2016 and 2026, the annual average growth rate of our revenue and net income stands at 13% and 15%, respectively. Over the last 5 years, revenue and net income, excluding exceptional contribution has increased nearly twofold. Operating investments have reached EUR 344 million for the first half of 2026. EUR 197 million versus EUR 159 million in 2025. We're devoted to the renovating and extension of our distribution network, first of all, in Europe, with the completion of the Mersin Newborn Street in London and the extension of the Geneva store. Investments were also made in the U.S. with the move of the San Diego store in July and the opening projects in the second half of the year in Williamsburg and Manhattan. Finally, Japan completed its renovation in Nagoya that opened in June. EUR 75 million were devoted to reinforcing our production capacity, mainly by opening new leather workshops but also in the Mizone division with the new printing site in Cusi in France and also in watchmaking where we extended our production site in Lahore, Switzerland. And finally, EUR 71 million were invested in real estate, IT, digital, logistics and information systems. As per usual, operating investments will speed up in the second half and will reach EUR 1 billion across the year as a total. Cash flow reaches EUR 2.7 billion versus EUR 2.3 billion last year. This strong increase plus 16% and is mainly down to the changes in our working capital requirements, which is close to 0 because we very well manage our stocks, both in production and in distribution and the sell-through rate of our recent collections have reached record levels. After factoring in operating investment and repayment of added, adjusted available cash flow stands at EUR 2.2 billion, up 18% compared to the first half of 2025. Financial investments are mainly made up of the shares that we buy up under our vertical integration strategy, EUR 1.9 billion worth of dividend was paid out. Hermes International bought up 95,000 shares for its employee share plan. The rest is made up of the stronger currencies of other currencies versus the euro. Restated net cash stands at EUR 12.9 billion at the 30th of June 2026, so close to the levels of 2025. The structure of the balance sheet remains the same. Cash makes up 50% of equity, which stands at EUR 19 billion. This financial structure, allows us to remain independent and to continue with our long-term strategy with confidence. Thank you very much for your kind attention. And over now to Axel for the outlook.
Axel Dumas: [Interpreted] Thank you, Eric. I now come to the outlook of the group that remain unchanged. In the medium term, Hermes confirms an objective of an ambitious objective of revenue growth at constant exchange rate. In Q2, Hermes will stay the course true to its long-term vision and will increase investments in all the divisions in all geographical areas. After Sydney in Australia and San Diego in the U.S.A., in the course of July, we'll be inaugurating the stores of Chicago and Brooklyn in the U.S. as Brazil, in Brazil, Chengdu in Greater China and Geneva and Switzerland. We'll continue iterate jobs in France and internationally within the framework of our production capacity development of selective network in distribution, we'll be crossing a new step in its development with the presentation of first collection of Cut in January '27 in Paris. In conclusion, we'd like to thank customers for their loyalty as well as our teams because this success above all is the fruit of the everyday work, which makes Hermes a livelihoods. We are now available with Eric to answer to your questions.
Eric du Halgouët: [Interpreted] Ladies and gentlemen, [Operator Instructions]. The first question comes from Luca Solca of Bernstein. You have the floor.
Luca Solca: [Interpreted] Axel and Eric, 2 questions if I may. the first on the Chinese customers. We read in the press a few statements with regard to the dynamism, which remains quite anemic in China. I'd like to better understand how the Chinese demand is developing either in China or a broad outside of China. The second question is focused on understanding the demand with regard to the price level and the price positioning of your products, we to today about res effects, something positive. My question is -- do you have a feeling of a better progression in the upmarket rather than the accessible part of your collections? And in your opinion, what are the greatest opportunities for the MAS brand in the very upmarket in the top of the range.
Axel Dumas: [Interpreted] Thank you, Luca. Now for China, may I caught myself. -- a year ago, 6 months ago, I already said that I see a situation that has stabilized in China, but I do not see an improvement.. I don't see a great improvement. You know my position, which is to say that today, what drives purchases today is the real estate market in our country and the stock market more than the growth. In China, we have seen that they are digesting a drop in the real estate market, which represents it a large part of their savings and in fact, we see that the Chinese have increased their savings, which is there for question of expenditure, which is made, but it has -- there's a question of revenue than savings. The citric and I congratulate our teams and in particular, the Chinese team. So the excellent work we've never sort of dropped in China. I can't say that some see a rebound. You can drop to minus 15%. You could do a plus 10% than plus 2%. But our strength is that we never went drop down -- and after COVID, we became the first brand, which is not the case before Covid. So we have a stability in our situation in China but it still doesn't have the past governs past momentum. I know Luca, that you love to find KPIs that are interesting. So I'll give you 1 of my KPIs. I look at 2 things. One is the real estate market that is really important, but a less obvious KPI is the price of pork. That's interesting because the price of pork is very low. -- you might say there's a question of supply and demand, et cetera. But pork is eaten particularly during banquets and in restaurants. That is what I was reading in 1 of the Chinese article. So it is a good indicator of the desire to celebrate and spend time together and have banquets. So the price is low. I'm not saying that our clients are all sensitive to the price of bulk. But I'm waiting for the rebound, which will be a good indicator of optimism and the desire for something joyful because what we want is to give with products -- a lot of people in is working very hard on the products to give the pleasure to our customers who come and buy them. So much for the Chinese. For the rest, I continue -- we see that we have an aspiration of customers who are suffering more than the resistance of more well the customers. And you see the systems of Hermes is progressing from quarter-to-quarter. From that standpoint, and I think from that point of view, we not changing our strategy. We try to always make the best products possible whatever the product segment make the best makeup possible, the best is possible, whatever the price, the best bags and the best jewelry. We have in July had a high jewelry event and the success went way beyond our expectations, and we are delighted. So that is the trend. And then you have to be very careful and allow me to say that sometimes in the comments on our figures, we reason too much in percentages. The percentage itself doesn't mean everything with regard to the absolute value. Today, if I could take division, the biggest progression on the Chinese market, you would have jewelry, perfumes and makeup and Silk. So 2 midyears that are not the highest. However, it's not necessarily linked to a very strong increase of traffic and more the loyalty of habitual customers to complete.
Eric du Halgouët: To add to what Axeda is saying on China. It is -- the figures have remained overall stable, likewise for other areas, Europe, Asia and Japan. The next question comes from Erwan from Morgan Stanley. The next question is from Erwan Hamburg from Goldman Sachs.
Unknown Analyst: [Interpreted] I hope that you can hear me. Congratulations to the team for the great results, and thank you for this new KPI on the pork market in China. Two quick questions. You gave us the operational margin of 41%, which is very high. I was just thinking of what is the outlook for the second half of the year? If you look at the growth rates for different regions and the spot rates, what are we to expect for the second half of the year in that area? And secondly, there is a strong contrast between France and the rest of Europe when it comes to growth. Now I believe that in the past, you told us that there were more tourist flows in France than in other European countries. So does that explain the contrast in Europe? Or is it because of the opening of new stores in Germany, London, -- how do you explain that 7 percentage point gap between Europe and France.
Axel Dumas: [Interpreted] What I'm going to answer these 2 questions. And I'll start with the first question. First of all, thank you very much. Thanks for noticing that the operational margin at 41% is outstanding. And cash flow is also up 18% and that shows the desirability of our products because if our cash flow is up, it's because we've been able to grow without increasing our stocks because we've sold a lot, especially a lot of lever goods. the goods that we had produced in. I'd like to congratulate Eric -- do Alvito stuck to our core stack to our model. As you mentioned earlier, the luxury market has been shaken up, but we are sticking to our fundamentals and our fundamentals are very healthy. Over to you, Eric, for the operating margin.
Eric du Halgouët: [Interpreted] So for the margin side of things. There's the hedging effect, which was EUR 100 million and now EUR 210 million. So a negative impact, which will be quite strong across the year. For the first half of the year, we had a long accretive effect conversion of 0.5 percentage points. So in net, it's minus 0.8%. And this accretive effect, if you look at current monetary priority levels. It will actually be close to 0. If you look at it across the whole year. So the hedging effect is something that we know and the accretive conversion effect was very positive in H1 but we need to wait and see what it looks like for H2. The second thing I want to say is that we're going to be speeding up our investments, and we'll be reaching EUR 1 billion across the year. we're going to organize more external communication events, and we're going to continue to recruit, targeted recruitments to increase our sales force in U.S., Japan, Korea, areas that are growing quickly. And we are also going to continue to roll out our IT projects.
Axel Dumas: [Interpreted] Well, thank you very much, Eric. So Erin, paraphrase the former President of the Fed. If you've calculated the margin based on what Eric has said is that he hasn't probably explained it properly. Now on the gap between Europe and France. There is something quite unique you need to understand about RMS, of course, we produce a lot of what we make in France, 75% of what we make in France. But we also have a lot more stores in France than we do elsewhere. In Gev, in North, but we have stores across the country were created in France in 1827. So we have a strong network of stores in France. I mentioned it last year, but no 1 was paying attention but be assured that it's the same inside the company. I am slightly concerned about the situation in France. I think that we should be a bit more careful about growth and the companies and the growth of companies in France. What I do see is that French clients continue to come to our stores but with a smaller basket than in other European countries. And we've seen a lot of dynamism in Italy, in North European countries recently and also in Germany. So what happened in the first half of 2026? Well, we continue to have our French clients. We have fewer tourists in the first half of the year, especially tourists coming from the Middle East, for obvious reasons. They haven't traveled as much. They've stayed in their countries a bit more. And this has affected our French stores. especially Parisian stores. And we now have a speed up in Q2 with stores in France outside of Paris that are performing well. And stores inside Paris that are working also quite well and an uptick in stores on the French Riviera. And then in Italy, we have a lot of clients in Milan. We also have the Bond Street effect in London. Greece performing really well. So there is very strong momentum across Europe with strong tourist flows, but also local customers. And to add to what Eric mentioned earlier, local clients is a very important indicator. Our client customers, mainly buy in China. And I have a slightly different look at our good results. When you look at Japan, Korea, these results are mainly driven by current clients in Korea and Japanese clients in Japan. So we have this specificity of wanting to sell our products to our clients in their home countries. Thank you very much.
Eric du Halgouët: Thank you. The next question is from Eduard order from Morgan Stanley.
Edouard Aubin: [Interpreted] Thank you very much for giving me the floor. Axel at the top of your presentation, you talked about your program of opening new leather workshops until 2030 with the plus 6% that you mentioned. Some investors are asking you to reduce volumes in that category for the next few years? Why would you think that would be a bad idea to reduce the volumes for leather goods going forward? Hermes has been telling investors for quite a few years that the BKC in the bag mix is quite -- I'm not expecting you to give us any figures on how that share has changed for the whole bag mix. But tell us if indeed, there are fewer Burkina, et cetera, amongst the bags.
Axel Dumas: [Interpreted] Thank you for this question. Thank you for asking this question because sometimes the same notes. I read are they producing too much and not therefore, being too exclusive or are they not putting enough for the growth rate. So either way I -- I mean, 1 way I lost you win. To answer at best this question, we have a very high demand for the handbags. You see -- and I come back to my story in working capital requirements, everything that we produce has been sold, hence, this positive cash flow. So there's a great desirability whatever be the model. Now -- it is indeed important. Two things are important for me. One, it's good to say we're desirable. We're desirable, but it's better if you're desirable and if your sales increase. So I do have the ambition to grow. Second thing that's important is that I'm very proud to create jobs in France -- every time we open a leather workshop is 300 jobs. It's young people that we train people who retrain, who get diploma. And I've feel there's a responsibility to create jobs when we can. So have the plan of 1 leather workshop per year up until 2030. And we could make 2 if we wanted to, but 1 a year is a good thing. But what to me what is the first guarantee of this without giving any scope, we do very little volume. Hermes handback is 15 hours of hand stitching compared to the industry volumes are low. And so despite the increase in production capacity, we keep great exclusiveness. And that is why we are also thinking with Guillemin, who heads production to have a new post 2030 installation go to other region, we'd be chosen quoted, but I project myself on the long term here. That's important. And then I'm sensitive to this because I had a leather before being the CEO in 2008 and 2011. We have for a strategy of several bags and not have 1 single pillar. The balance of geographical areas is a very important balance of divisions very important as well different materials. And within each MTA, each division a different object. So many banks are in demand really strongly. You talked about the Kelly, the Bergen, the constant. Thank you for adding the .But the Picot as much in upon the Evelyn as well, we have the Garden we in so many other bags, and that is truly important for us to launch cells in this diversity of models and -- so the 2 things I'd like to add here is the limits of the know-how and quality. I'm very strict with the teams here. if it's not Hermes quality, then we don't produce. And that is why it is important that we take the time to train people. We take the time to make a new model, and we also take the time to find the right raw material. One of the bottlenecks today for me is the quality of leather. I often complain industrialization of animal husbandry has led to a reduction in quality. That's why we make big investment in tannery. So with the scale that we have, we can increase the quality of the leathers that come out of the tannery. We've got some new data leathers this year, which will be in the stores we have the fleet where we can't produce large quantities but a lot of small quantities, super leather quality of leather comes into play. And the idea is that our watch dog is quality, quality above all before the results before growth and before the 6%. And if I may, and this is an important subject to you all look at it is to say, yes, we have a 6% growth. But don't forget that growth is in Hermes is mainly made up of ours. -- bags are made by hand. So it is growth first in hours. And then what do you do with that? It's not the same thing to make a Kroger bag or the big bag or a small bag. So sometimes I get quite moved, if you just add 6 plus the price increase to come to what the figure of leather. We did a plus 10 this semester last one, plus 15. So all of this is not a systematic addition, there's a lot of inputs that come into play. The weighting of the leather distribution, the type of model that we make, the productivity of the different artisan and it's not the exact sort of signs of mathematics, but we are confident. And we're confident with 2 pillars. This is something that really interesting about that's why give you a long answer. The creations. We must find new bus. We don't rest -- we don't rest on our laurels. When I was young micron father here at the football that who would draw the bag, it was made in the workshop next door and then we put it in the Window display and see whether it was sell. And if it did, then we make another one. Today it's more structured because we have 294 stores, but creation has to remain at the very hot as well as the know-how. I don't produce if we don't have the right quality of leather that we're interested in or the level of quality to make our bags. That is the biggest guarantee as it were for keeping a desirability and exclusiveness for our customers.
Eric du Halgouët: [Interpreted] The next question is from Scott Chan Luis from Kerry one.
Charles-Louis Scotti: [Interpreted] First question, I'd like to go back to the Asia Pacific region, bar Japan, which seems to be following the same trend as Q1. In spite of the speed up in Korea. Does that mean that Greater China is going to be slowing down in the future? And is that slowdown explained by a different breakdown between the local and offshore expenditure of Chinese clients, even though you did mention that most of your revenue comes from cal clients in the countries. Secondly, you talked about the impact of Middle East for the first half and the impact on growth, especially Q1, can you give us an idea of the impact on Q2? And maybe give us an update on the local situation in the Middle East? And tell us also about the money that your Middle Eastern clients spend broad. Do they spend abroad or not. So give us an update overall on the Middle East and what you can tell us at the beginning of the third quarter.
Axel Dumas: [Interpreted] So to answer your question. For Asia Pacific, we don't see any changes in trends for greater China compared to what I announced. You've seen the industry results over the last couple of years. You know that the revenue has dropped slightly in China. We have always grown, however, in China, that's worth mentioning, and we don't see any changes in trends in the future. What we do see, however, is very strong growth in Korea, which is important. And then in Southern Asia, so in Thailand, there is a slowdown in the growth that we used to enjoys, but we're close to the trend. But China remains a strong foundation block for us. A word now on the situation in the Middle East. Now I'm not going to criticize Eric, because he mentioned 1%, it's costing us 1% of growth. I remember 1 boss who told us, if you take away all the bad news all that is left is good news. Now of course, as you know, the situation is quite complicated in the Middle East, but the Middle East is quite resilient, as you can see in Q2, but the Middle East was area where there was double-digit growth, and there is now, of course, much less dynamic growth there. But we do see nonetheless, resilience in the Middle East. We see that our clients in the Middle East because the mall have stayed at home when their home countries. In any case, in previous years, they used to travel, especially at this time, of the year because there's a very warm part in these countries, but now they're staying in their home countries. So we have slightly lower figures. But you shouldn't read too much into it. What we can see, however, is a strong level of resilience also people who continue to very much like what Hermes produces and people who stay in their home countries when it's difficult to travel abroad. And our clients are very resilient in many different ways. And just to add to this, I'd like to confirm that the impact in Q2 is the same as for Q1, so 1.5 percentage points for Middle East. We calculated based on our initial assumptions. And we reached this figure of 1.5 percentage points. And our stores in retail in the UAE, we've compensated the drop in footfall by an increase in value, so much so that we have pretty much balanced things out. It's a bit more complicated in Kuwait, Qatar, Bahrain, where we have these concession stores, but where the performance was nonetheless quite good for Q2.
Eric du Halgouët: [Interpreted] The next question is from Jean ago.
Jean Danjou: [Interpreted] I have a first question on the gross margin to specify what you said, everything being equal, the gross margin for second half of the year will be minus 30 basis points because it will be the non-offset exchange rate and can you also please specify the terms of the debate for price increase for 2027. Taking into account inflation for raw materials, will there be a price increase as compared to 2026.
Axel Dumas: [Interpreted] Well, you did understand the exchange effect on the gross margin. So I don't have any other elements to add. So on price increases, we are initiating our budgetary processes. It is still a bit too early. What we can estimate today is that the price increase would be slightly lower than the 1 that we applied this year. The main increase is necessarily the French situation because production is mainly in France and then the currency effect, which are weighted the size of the country. It's a bit early to quantify it for the moment.
Eric du Halgouët: [Interpreted] Next question comes from David Dama CIB -- you have the floor.
Unknown Analyst: [Interpreted] Thank you taking my questions. I'd like to come back to 1 of the good surprises of the semester. There's no custom duty reimbursement, which gives us this gross margin in first half, the gross margin progress, thanks to the sell through of exceptional products -- are you comfortable with the levels of inventory to generate growth, which is still measures for the second half of the year. Are there any problems in capacity -- production capacity constraints because of the home fires. For example, will there be an impact on the manufacturing units that are located in the region.
Axel Dumas: [Interpreted] Well, thank you for asking the question. I won't give an answer on the margin. Eric, because you might want to add something. But I confirm that it is very good operational management of inventory. We have a level of inventory in most of the divisions, which is optimal in compliance with our objectives with the sell-through rate in the ready-to-wear division, which are exceptional. So the operation has driven the improvement of the gross margin. After each success has its is drawbacks as it were, we've sold everything that we produced practically over the 6 months. Hermes is quite organic. There's something really wonderful, which is the podium where there is a great freedom of creation. We don't have a marketing department. And we, at the board and present all the novelties to all the buyers, and they are the ones who decide what to buy, what they like, what they don't like and the volume they want to buy. So we have something really quite organic as compared to others who are quite centralized in terms of their head office or the merchandising departments trying to find a French word, but I can't find it. But for us, it's at the level of its tower manager. We received over 700 people from 40 countries in Porta to show them the collection. So the way we manage our inventory is quite organic and it's an addition of small stores, which leaves us with great flexibility which will be more or less adjusted. Now if I was producing more weather, will I sell more leather? Yes, because the desirability is there. But as I said, we ran within our criteria of recruitment, training and know-how. Now obviously, we were all at that touched by -- we're present in France by the fires in Fontana, we have one leather workshop in Nonunion other workshops were quite far from the fires. So our production tools have not been impacted, but necessarily the people have been touched and impacted. People in Fontenot and helped in the Ceron, there are families that were affected that had to be moved, and we are a company of artisans made up of women and men. And therefore, there's a strong stress in the region for their families themselves. And obviously, we are with them wholeheartedly with them. And the impact will be limited because the production tool has not been affected. The workshops have not been affected, but the stress and the attention which for me is high, will -- we had the voluntary fireman from a company and the voluntary fireman have been solicited have been called upon and participated, and I'd like to thank all the voluntary of our company. We now move to a question in English now.
Operator: The next question is from Melania.
Melania Grippo: This is Mario from BNP Pariba. I've got 2 questions. First, I would like if you could please give us a little bit of granularity on the performance of nonleather business, in particular, the jewelry, you did say that it was quite good, but if you could please add something and ready to wear as well and also see that the Silk has done pretty well. I want you to understand if there is any trend that you see in this category. And finally, perfume since that is a bit weak. I mean anything that you can add around it. And my second question is on the space contribution. I understand that Q2 maybe also closer to flat to 0. So should we assume that the 1% that you expect for the full year would be entirely achieving to Income half.
Axel Dumas: Sorry, Mine, I didn't get the beginning of the second question. For the other Meisel, but the other one, the 1% you are targeting.
Melania Grippo: Yes, the space contribution for the ER should this be something that is in the second part of the Aero store openings.
Axel Dumas: Well, the automate are doing all -- if I want to summarize, I will say the high-end meter are doing great. ready-to-wear jewelry, and the volume meter a little bit -- I'm not struggling because we are growing, but I would say, with a lesser growth, we say, shoes, silk, for example. After -- as I said, I think we should not -- sometimes too much thing just in terms of percentage, but also in terms of absolute value. The comparable for Silk was a little bit weaker than the other one. So the percentage on tele. Having said that, I'm very proud of the result of Silk because they had an incredible collection. We see that the people are happy to wear it and to have such a growth in Silk is a very good sign. And apparently, we are selling also well our ties. Perfume. Perfume is a little bit complicated. And I think there is a thing that we have -- we should have done better -- there is a difference between perfume and make and beauty. Beauty is doing well. Perfume is doing well in our store. Outside our store is more complicated. And I think we need to work on it, and it's part of the job. For perimeter effect, it's a funny -- for me, it's funny, but maybe it's not funny at all. But the Fini because when I started to be the CEO of the company, we had 313 stores. Now we have 294 stores. So actually, we were able to grow the turnover of the group with the reduction of the store. So a perimeter effect is not our main growth driver. But we are fortunate enough at Hermes to have Larian ran as a General Manager, and he's next to me, so I can say to him that I think he is brilliant. We had a strategy of having flagship. So yes, we have the same -- we have a little bit less number of store, but it's not the same store than when I started 13 years ago. They are bigger stores, and that allow us to show all the meter, and that was the main driver for the growth of the odometer. So I don't think that now at this level because we don't want to increase dramatically the number of stores, the growth will come from the perimeter effect. But there will be volume growth in each of the store, thanks to a better way to present all our meter. That's the idea. So the perimeter effect will remain in the same range.
Operator: Next question is from Ashley Wallace of Bank of America.
Ashley Wallace: It's Ashley Willis. I have 2. And then a small follow-up question, please. The first question is on leather goods, Leather is up in half 1. I think this is slightly below the algorithm expected for the full year. which, if I'm not mistaken, is 11%, made up of 6% volume growth and mid-single-digit contribution from price. So would you please be able to help us understand what the volume growth contribution was in half 1? And if there is some element of catch-up to come in the second half, maybe actually linked to your point about perimeter or space contribution coming in, and that driving volume momentum. Can you help us understand if we should expect later to continue to accelerate in the back half of the year? And then my second question is just on the composition of growth in the second quarter. In Q1, I think you kindly gave us a split out of retail performance. I was wondering if there's any difference between retail and wholesale in or if you could share, again, retail performance for the second quarter? And then my follow-up was just on if you could explain again what the conversion effect is? Sorry, it wasn't so clear on the English translation.
Axel Dumas: [Foreign Language] You raised an interesting point about later growth. where, if I may, I have a slightly disagreement about how you do the calculation. We said that our long-term growth is 6% growth volume for leather. And as I said, most of our volume growth is actually a growth of working hour because our bags are made by and that it's technically, we are growing with people doing that. So there is always discrepancy between how many hours we can have. And what also is what also is the hour that they are producing. It's not the same to produce bag in crocodile for 1 hour, then produce a note the bag. It's not the same to produce a smaller bag than a big bang. I'm not sure about -- by just adding 6% plus the price increase. I will also say that price increase is really a question mostly of also currency difference which is not reflected, for example, on our leather allocation. So when you add the 2, and I have to justify 0.5 or difference between what you expect I have to say, I'm afraid the calculation, which is just adding price increase and 6% doesn't match up. To give you an example, for example, we are always in the same trend last year for Q2, we have plus 15%. But it's -- there is some effect and like that. So we continue to have our ambition of growing leather. As I told you, we have up to 2030, almost 1 new manufacture per year that is -- that has been scheduled, and we are thinking ahead of 2030 to have a new region where we can implement our production in France. And so we continue our plan. And our plan is based on 3 things, I would say. First one is, of course, our production, productivity rate, what happened in France, our .com. The second one, which is very important for me, is maintaining and preserving craftsmanship which means we are delivering diploma, French diploma, SAP to our worker. It's very important that I don't compromise in craftsmanship. And I will say, I won't produce if it's not at the level of core. And the third one which is not exactly in this figure is also the ability to find leader at our level for -- and I will say this is 1 thing that worries me is that with the industrialization of farming, we find less and less good skin. To compensate, we invest more and more in our tiny in order to get better quality of the skin, thanks to our investment. But I have to say what is the main important thing for me is to keep the quality of MS and keep the quality of Hermes bag. So we are producing as much as we can in a term of quality. And I would just say on the slide that the calculation to estimate although your calculation is not that is quite good for the year. But the -- you cannot just add 6% to the price increase to get the expected leather turnover. And that's for Second question was related to wholesale. Wholesale is slightly decreasing, mostly due to the travel retail business. which was strongly impacted in the first quarter, but the business is improving in the second quarter for Travel Retail and concessionaire which is also a little bit penalized by the situation in Middle East. Regarding the conversion or translation impact, I explained that it was quite strong for the first half of the year, and it is expected to decrease based on the current exchange rate. Why do we have such a significant impact because 80% of our sales outside of the Eurozone, while a big part of our costs are based in France, and therefore, based in euro. I hope this is clear.
Operator: The next question is from Suzanne as UBS.
Zuzanna Pusz: I actually have just one. I'm just trying to -- well, I'm wondering, I guess, how much visibility do you think you have in terms of the volume growth of leather goods of let's say, non-quota back. I'm wondering because, I mean, clearly, you've done a great job over the years diversifying the business away from the 2 core Kelly Birken bags. But because you've done such a great job, I mean, the business is quite big. It's what, EUR 7 billion, EUR 8 billion that are good is roll bigger than some of your peers that are making more than us back. So I'm just wondering if this maybe in some way, reduces your visibility when it comes to volume growth. I mean we've been accustomed to just saying as 1 of my peers me. We look at the volume growth, we had pricing. But at some point, probably you have less control of the volume growth because there's just enough bad out there and especially on some other values below the retail value. So I'm just -- well, it's a bit of a philosophical question, I guess. But I'm just trying to understand if you think you really have enough visibility to be able to tell us of the volume growth and be able to actually deliver it going forward. I'm not sure if that's clear, but this is here in my head, but I can explain it otherwise.
Axel Dumas: Question. Yes, it's hard philosophical and in half. So I will start with the philosophical one. As a manager and especially in the environment, which is changing so much. There is event every time, earthquake yesterday in Japan, which is one of our great countries, I'm not sure you can have certainty or control about anything and much more game-to-type. So you need to have Gametootand adjust about it. And if I take philosophy, when I read when I read analyst note, I have 2 I say, can they continue to grow on their volume because they grow so much? Or are they not growing too much, it should reduce because it will prevent exclusivity. So my line is to try to do it. First of all, is to do our bags with the level of quality we expect. And this is a tendency that limit our production because we need to have the right craftsmanship, we are training the people very hard from the beginning with difficult craftmanship so that we know that they can evolve with us. And we need to find the right materials and leather especially, which is a constraint on production. On the other hand, I have to say, I'm very happy to create a job in France. I'm very happy that we have a dynamic. And I think it's -- on that, and I'm very happy that we have a demand which is much superior of what we can produce. And I think it's at the level sometime you see sometimes complain about Hermes is that I didn't find what I wanted. So to create clarity is not only plus -- so I'm really looking also to please our client by free product that they wish. So with taking that into account, yes, I continue to have. And I don't increase it despite the size, but I don't reduce it also. One new crash shop per year up to 2030 with the training each new craft shop is approximately 300 new people, and we're going to continue in this region. And one thing that I'm very keen on and you're right, is that there is a diversity of models that we are able to attract with novelty, a new client, see execution is something. There is a lot of opportunity in the men, for example, there is a lot of thing to do, and I'm quite excited to do it with One thing about the game Tory is that we are having Craftsman. We are very nelegeable. We have a lot of craft and they are able to do different model. We train them for meter for craft, not by model. So they are able also to change, and we have the flexibility also to adapt our workforce to the demand. Thank you.
Operator: The next question is from Victoria Petrova, Barclays.
Victoria Petrova: I have 2 short questions. One is basically silk watches ready-to-wear all performed better than expected and also showed acceleration in the second quarter. Does it give any early signs that aspirational consumer globally is doing a bit better? Could you provide any color on that? What what you are seeing on the ground? And my second question, when we look at APAC in the first quarter, you mentioned that pricing in APAC was similar to leather goods, so probably around 5%. And that suggests that we see negative volumes in APAC once again. Do you think -- what needs to happen for that to stabilize? And finally, when we look at consensus expectations, second half is between 9% and 10%. In the current environment and in your kind of expectations of the global consumer performance, does it look too ambitious?
Axel Dumas: I will take the BT and you take the other question, Eric. No, for the -- I will say we are lucky to grow the Q2 by 7%. And you grow by 7% because most of your media, as I said, apart from perfume are growing themselves. As I said, I'm less obsessed about percentage growth because sometimes there is a comparable effect. We had -- sometimes it's the difficulty of last year that made you shine in terms of percentage, but the volume itself not that well. So I'm less keen on postage. What we see is, we see in all our desirability I think 1 thing is the environment. But you should also be you take also your own responsibility for your work. Should I have worked better in perfume and beauty probably, did we do the great job in Silk with the collection, yes, and it pays. So we are not only, I think, in the industry under the spell of the macro of the world and of the development. It's also what we do our creativity, our own choice. And do I make 100% good solution every day, probably not. So there is -- and which is great because that means we can improve on a few things. So I'm very happy about the situation of the other meter. As I told you, if I take not a quarter-to-quarter percentage analysis, it's the met at I valued work the most. I will say later, of course, but jewelry, ready-to-wear, with us. The mid-tier ad volume is a little bit more struggling because there is less -- sometimes traffic in some area which is highly compensated by our strong clientele. So I see really the same tenants after you'got in the Middle East that you don't expect, you have that. But I see for the last year and going forward, the same tenancy which at plus 7% is good on a modest opinion.
Eric du Halgouët: So for the -- regarding the trends for the second half of the year, for the time being, we do not observe any change in trends in Americas, United States, in Japan or in Korea and Europe. So the question remains on France, but we -- as we mentioned, there is an improvement in Q2 versus Q1. And the question is also on the Middle East, where nobody can predict what will happen. Regarding your question on Asia Pacific, between Q2 and Q1, the trends are quite the same and as we mentioned before, Greater China is still growing in Q2. Korea is putting the growth while the situation in Thailand, for instance, is a bit more difficult. Those are the main trends.
Axel Dumas: Yes, we are potent enough in Q1 in Greater China to have a great Chinese New Year, which help us also.
Operator: We have no further questions for the end.
Axel Dumas: Well, thank you very much for taking part. Thank you very much for your questions. Thank you also for your loyalty because some of you will ask questions at every single turn. I'd like to thank and congratulate the teams. The exco of Hermes because the success of RMS is very much a collective one. and the fact that we are growing that we're at plus 7% and that we have a good operational margin and good cash flow, which is a very important indicator as far as I see it. because it speaks to the health of our business. These figures and positive trends make me feel very confident about the rest of the year and I look forward to continue to work together. There will be some unknowns. There will be some difficulties. But I mean, this is what we've been doing over the last few years, who could have predicted Covid, Fukushima or war in the Middle East in Q1, but the fundamentals there, and I can assure you that even beyond your quantitative questions, what is important for us is quality. So respecting product, our know-how and been very demanding on quality and respecting the people who make our products and sell them. So thank you very much to all of you. And Eric will be very happy to walk you through Q3 in a few months' time. Thank you very much.
Operator: Ladies and gentlemen, the conference is now over. Thank you very much for your participation. You can now sign out.
