Ladies and gentlemen, welcome to LVMH Group's First Quarter Revenue Conference Call. I'll now hand over to Mr. Chris Hollis, Director of Financial Communications. Sir, please go ahead.
Hello, I'm Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us. As always, we have some brief remarks to make about LVMH's revenue for the first quarter of 2012. Consistent with previous practices, these revenue figures are reported in accordance with IFRS. After these remarks, Jean-Jacques and I will be happy to take your questions. I must remind you that certain information to be discussed on today's call is forward-looking and is subject to informed risks and uncertainties that could, of course, result in materially different outcomes. Please refer to the safe harbor statement included in our press release. As always, the release is available in both French and English on LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's conversation. With that, I'll begin.
As you see on slide two, as you heard Bernard Arnault mention at our AGM earlier this month, the first quarter has been another robust period for the group. In fact, we saw a better performance in Q1 compared to the fourth quarter of last year, which was itself a strong period of revenue growth. LVMH, once again, delivered strong double-digit organic revenue growth in Q1. This was fueled by a number of sources, including the continued excellent performance of Louis Vuitton, driven by the enduring excitement about the brand and the innovation which supports it. It was also driven by revenue gains across all key regions. The U.S. and Asia were both excellent contributors. Japan performed well as we passed the anniversary of last year's terrible earthquake. In spite of the mixed trends across Europe, the group saw steady growth in this region too.
We also saw a positive currency impact in the period, reflecting the strength of the dollar against the euro compared to last year. With that, let's now turn to the specifics, starting with slide three, which is looking at the revenue for the group for the first quarter. Total revenue rose 25% on a reported basis to EUR 6.6 billion from EUR 5.25 billion in the year-ago period. This reflects a 14% rise in organic revenue, a 4% positive currency impact, and a 7% perimeter increase, mainly due to the addition of Bulgari, which we consolidated into the group in the middle of last year. This is particularly encouraging because it comes on top of the group's 14% rise in organic revenue in last year's first quarter. As you know, having a balanced geographic mix is central to our strategy and has served us well for many years.
This is reflected in the breakdown you see on slide four. To quickly go through this breakdown, Europe, including France, was 29% of revenue and has given up 1% to Asia, which, including Japan, now represents 39% of revenue. It should be noted that the relative weight of Asia is a little higher at this time of the year due to the impact of Chinese New Year. Finally, the U.S., including Hawaii, as well as the rest of the world, represents 32% of revenue, stable compared to last year. Now, for the change in revenue by region compared to last year's first quarter in local currencies and on a same structure basis, this is on slide five. The first thing to note is that we recorded double-digit growth in all the regions. Asia saw a 17% rise in revenue, coming on top of a 24% rise in the year-ago quarter.
The U.S., excluding Hawaii, was up 16%. Europe was up 10%, and Japan was up 12%, making a recovery from being down 9% last year due to the impact of the earthquake. Given the enormity of the events in Japan, the business there rebounded faster than expected, which is a testament to both the resilience of the Japanese people and the commitment of our teams on the ground, whose dedication enabled us to stabilize and grow the business in spite of the challenging events. Moving on, I'll break down our revenue by business group. I will start, as always, with Wines and Spirits, which had a very strong quarter, as you can see on slide six. Organic revenue rose 16% in the period, coming on top of a 17% rise last year.
Total revenue in this business group rose to EUR 926 million from the EUR 762 million in the first quarter last year. This marks a 22% gain on a reported basis and includes a strong organic revenue growth of 16%, as well as a positive 6% currency impact. Breaking this down, Champagne and Wines saw a 12% gain in reported revenue. That's EUR 349 million over the EUR 311 million in the year-ago period. That represents a 9% increase in organic revenue and a positive 3% currency impact. Cognac and Spirits saw a 28% gain in reported revenue of EUR 577 million compared to the EUR 451 million in the year-ago first quarter. This represents a 21% organic revenue growth increase and a 7% positive currency impact.
Turning to slide six, looking first at revenue by region in this business in local currencies, you can see that most of the gains came from Asia, which was up a strong 24%. Japan, again reflecting the recovery, was up 25%, and Europe was up 16%. Looking at the Champagne and Wines business first, specifically, volumes in Champagne were up 5% in the quarter, which is traditionally the smallest quarter in the year for this business. As I mentioned, there was solid performance both from Europe and Asia, and there was continued progress in the brand's prestige cuvées. We also implemented price increases across our main regions in March for our Champagne brands. I should also note that it was a very good start, also a good start to the year for our wines, especially the higher-end ones.
For Cognac and Spirits, Hennessy volumes were up 9%, and all qualities performed well in the period. We also saw a strong positive impact from price increases in this business. The growth trend that Hennessy had been experiencing in China continued. For the growth for the group's other spirits, there was strong volume growth in the period, driven by the higher-end products from Glenmorangie, Ardberg, and Belvedere. This is a quarter which is impacted by many factors, most notably the timing of Chinese New Year, the restocking and destocking following the previous year's fourth quarter demand, and the price increases that are usually implemented during the quarter. As a result, it is generally considered a volatile quarter. Having said that, we are pleased with the numbers and are satisfied with the stock levels and the depletions that we have seen to date.
Now for Fashion and Leather Goods, which was once again a strong performer. This business saw a 17% increase in reported revenues, rising to EUR 2.4 billion from EUR 2 billion in last year's first quarter. This includes a 12% increase in organic revenue, on top of a 13% rise in last year's first quarter, and a 5% positive currency impact. Looking at the highlights in this business group on slide nine, the main growth regions were the U.S. up 18%, Europe up 12%, and Japan at 11%. Good, robust growth, reflecting the diversity of our clientele and their sustained ongoing desire for our brands in all major regions around the world. This is, of course, particularly true for Louis Vuitton, which saw double-digit revenue growth in the period, driven, as always, by the combination of craftsmanship, creativity, and innovation that is its hallmark.
This is evident in some of the key successes in the period, such as the historic Monogram and Damien lines continuing to be top sellers due to their enduring appeal, as well as the addition of 15 new colors to the Epi line, which also drove considerable demand. The brand also continues to be celebrated by the fashion and design world, including an exhibit showing right now in Paris titled "Louis Vuitton Marc Jacobs: Les Arts Décoratifs," which has been widely publicized and acclaimed. If you've not seen it, I encourage you to do so. It runs through September 16th. Louis Vuitton also continues to selectively enhance its store network to be an exceptional showcase for its products. One stunning example is the opening earlier this year of its first Italian Maison in Rome.
It's the brand's 14th Maison and was built on the site of the iconic Etoile, Rome's first movie theater, and was designed to reflect the heritage of its site and of Italian cinema. The other fashion brands also continue to show good progress. Fendi is a good example of this, as is Donna Karan. Some are performing exceptionally well, most notably Céline, which has become a revered fashion industry leader in just a short time under the creative direction of Phoebe Philo. Now moving on to perfumes and cosmetics, revenue reached—this is slide 10—revenue reached EUR 899 million, up 12% on a reported basis from EUR 803 million in the year-ago first quarter. This includes a 9% rise in organic revenue on top of an 11% rise in the same period last year, as well as a 3% currency impact.
To give you some more detail, in local currencies, revenue in the perfumes and cosmetics business was up 15% in Asia and up 27% in the U.S. As you know, growth in this business across our iconic brands is driven by a combination of the enduring appeal of historic products, new launches that generate excitement, and marketing that reflects the exceptional quality and innovation behind our products. Reflecting this, apart from Christian Dior, our largest brand continued its momentum, driven by its perennial leader, J'adore Dior, as well as Miss Dior and Dior Homme fragrances. Skincare in particular was also a good performer. That after the successful launch of La Petite Robe Noire perfume, while its Orchid Imperial skincare line continued to deliver a solid performance. Parfums Givenchy, the advertising campaign for Very Irresistible Electric Roses featuring actress Liv Tyler, has been very well received.
Kenzo recently launched Kenzo en Sport in Europe, extending the reach and presence of the iconic Kenzo brand. Finally, this business saw continued strong momentum from Benefit and Make Up For Ever. Now turning to our Watches and Jewelry business, slide 12. Revenue in this group rose to EUR 630 million from EUR 261 million in the first quarter last year. This, of course, reflects the addition of Bulgari to our business, which we began consolidating as of June 30th, 2011. Excluding the impact of Bulgari, organic revenue increased 17%, which comes on top of a 20% rise in the first quarter of last year and continues a stream of solid growth for the group's watch and jewelry brands. This is now, of course, being augmented with the addition of Bulgari, which is also performing strongly. The reported results in this business group also reflect a 5% favorable currency impact.
To give us some more detail, Europe experienced the strongest growth at 29%, followed by Japan at 21%, Asia at 18%, and the U.S. at 12%. Combined, Geneva Baselworld shows resulted in record orders for all of our watch brands, reflecting the compelling attraction of our talent pieces to a discerning trade audience. While we continue industrial integration, there is sustained excitement and momentum across all of our watch and jewelry lines. TAG Heuer introduced Link Lady with its new brand ambassador, Cameron Diaz, in a partnership that will also serve to benefit a number of programs that help empower women. Hublot had continued success with its Classic Fusion line and introduced a new watch in its new in-house alloy, Magic Gold. Zenith also continued its success with its classic El Primero Open model and introduced a new watch, the Pilot LNS.
Bulgari had robust growth in all categories around the world. Its [fancy] jewelry collection was particularly successful and introduced the Octo Maserati and the Diagono Ceramic watches at Basel, which were very well received. Chaumet and Fred both experienced double-digit growth. Finally, the Selective Retailing business continued its outstanding performance. This is slide 14. On a reported basis, revenue was up 28% in the period, rising to EUR 1.8 billion from EUR 1.4 billion in the year-ago period. This reflects an 18% rise in organic revenue. That's on top of a 17% gain last year, as well as a 4% currency impact and a 6% perimeter impact due to the consolidation of Ile de Beauté since June 2011. Similar to last year in the first quarter, Asia showed the strongest growth, with revenue up 26%, followed by the U.S. at 18% and Europe at 10%. This is all on slide 15.
As CFS expands its product offerings and services for customers, we see strong momentum continue in the flow of tourists, especially to Asian destinations, which resulted in excellent performance in Hong Kong, Macau, and Singapore. Before the end of this year, High Stand Hong Kong Galleria will open to further solidify our presence in the region. Sephora has continued to deliver solid comparable store growth, revenue growth, resulting in market share gains in all regions. To give you some highlights, Sephora recently began opening stores in Mexico and will soon expand its Latin American presence with new brick-and-mortar locations in Brazil, where it already has an online presence through LVMH's acquisition of Saks in 2010. Later this year, it will open its first store in Scandinavia, another new market.
Sephora.com has continued to experience rapid growth due to its position as a premier source of all things beauty on the web. Overall, Sephora continues to position itself for leadership in the prestige beauty sector through both its selection of brands and the information and innovative services it offers clients, which continue to strive for store performance. To wrap up, the year is off to a very good start with strong demand across all our business groups. While there is uncertainty in the European economic environment, the group will continue to focus on executing the core strategies that have always driven our success: a commitment to innovation and quality products driven by talented and entrepreneurial teams, and selective store network expansion in key markets. As we do this, we'll continue to tightly control our costs in order to maximize productivity and profitability.
Taken together, we expect these strategies to increase our leadership in the global high-quality products market. With that, Jean-Jacques and I are ready for your questions, and I'll pass it back to Stephanie.
Ladies and gentlemen, if you wish to ask a question, you have to press zero, one on your telephone keypad. Thank you. We have a first question from Mr. David Wu from Telsey Advisory Group. Sir, please go ahead.
Hi. Good afternoon, everyone. I have three questions. First, Europe, obviously, you know, had a nice rebound in the first quarter, and I was wondering if you could talk a little bit more about the regional complexion there and if it was driven more by stronger tourist spending in the first quarter relative to the fourth quarter. Do you think perhaps, you know, some of the slower trends that we've been seeing out of China could be attributed to more Chinese spending abroad, just given the more favorable currency dynamics? Secondly, just on Sephora, you know, I know the China business there is slightly above break even now. I was wondering if you could give us perhaps, you know, a sense of timing on when China could become potentially as profitable as the U.S.
and France businesses, and if you could provide the Sephora comps for the U.S., Europe, and China. Thank you.
Okay. On the Europe rebound, I think two main factors there. One, you mentioned it, is tourist flows, which have proven extremely strong throughout the quarter. They were already strong in the first quarter of the year, but the first quarter, which coincides with Chinese New Year, was particularly strong. It explains part of the rebound. I would say that secondly, in Q4, as you may remember, we had some runoff last year due to the comparison base with the same period, Q4 of 2010. Particularly in the yacht business, we had big transactions in the first quarter of 2010, which did not replicate in 2011 and therefore weigh on the total performance of Europe. Obviously, the first quarter of 2012 is not affected by that. That's the two main reasons for the rebound you mentioned on Europe.
As far as Sephora is concerned, as you said, the business is roughly breaking even or being slightly positive. It took about 10 t o 12 years for France and for the U.S. to reach the type of visibility they have today. We opened China five or six years ago, so I would anticipate that within five or six years, we should be in a position to show similar type of margins as the ones we have in Europe or in the U.S.
Excellent. Thank you very much.
We have a next question from Catherine Rowland from Piper. Madam, please go ahead.
Yes. Good afternoon. I have two questions, please. First of all, could you give us more color about the price increases that you have on for the Champagne and the Cognac businesses? Maybe if there's some trends, some different trends by region. This was my first question. My second question was about the Fashion and Leather Goods business. Could you give us more information about the sales growth in Asia X Pacific? It seems that maybe we could have a slight acceleration there just to see if it's correct or not and how things are, what were the trends in Asia-Pacific and [spanning] Q1. Thank you.
Okay. On price increases in Cognac and Champagne, I will not be too specific for competitive reasons, but what we implemented, as always, in the first part of the year are 3% to 4% type of price increases across the board. What I mean by that is that it was implemented not only in Europe, but in the same way in the U.S. and in Asia. One exception to that, which is Moët & Chandon in the U.S., where we increased prices for Moët Imperial by about 15% as we thought that the positioning of the brand in the U.S. justified such a big price increase. Second question about Fashion and Leather Goods growth in Asia. The figure is around 10%, I would say. It is a bit lower than what we were used to see.
We feel this is mostly connected with the tourist flows, which went predominantly to Europe. Due to currencies, price differentials are extremely high these days between Asia and Europe. We had a shift in the business from Asia to Europe. That is the main reason for this.
Could you tell us what is the price difference today between Asia and Europe, more or less?
I can only comment on Louis Vuitton, but Louis Vuitton is showing a 45%, 47% premium to French prices in mainland China, for instance, and about 30% when it comes to other countries in Asia. An important factor to bear in mind is that due to the recent weakness in the yen compared to the dollar, yen prices are actually lower than what they are in most countries in Asia, which means that the incentive for Japanese customers in Asia to buy Louis Vuitton goods is much lower than what it is. It's as high as ever in Europe, but it's lower when it comes to Asia.
Okay, thank you very much.
We have another question from Mr. Julian Easthope from Barclays. Sir, please go ahead.
Hi. Good afternoon, everyone. Just a couple of questions, if I may. First of all, is it possible to give some indication on pricing at Louis Vuitton over the last that you've had in the first quarter? Secondly, coming back to tourism, I think you've traditionally said around 50% of European sales come from tourists. Given the sort of big shift that we've had, has that increased as a percentage? I think with also China stated to be around 30%. If it's possible to give an update on that, it would be great.
Pricing itself in Q1, normal within normal price increases, mostly in Europe. We have not taken any action anywhere else. It's in Europe, 2.5% to 3%, and that's all. As far as tourism is concerned, yes, we mentioned a 50% share at Louis Vuitton. It's only at Louis Vuitton of tourist business in a percentage of total.
The rise in tourism business has been higher than the rise in domestic customer base. This proportion has increased to some extent, but not in a very spectacular way.
Thanks very much.
We have a next question from Mr. Thomas Chauvet from Citigroup. Sir, please go ahead.
Good afternoon. Three questions, please. The first one on Fashion and Leather. When you talk, Jean-Jacques, about a shift from Asia to Europe, I mean, it's quite a big shift. Are you thinking of a more structural shift, or is it just temporary? I didn't quite understand that. Secondly, on Cognac, what was the timing and the magnitude of the price increase? The 3%, 4%—was it a comment just on Champagne or also for Cognac? Because it looks like it was probably stronger on Cognac. Can you remind us what was the timing and the magnitude of the price increase in Cognac last year? Was it in the same quarter or later? Finally, on M&A, could you just remind us the stake you have in Hermès today?
Do you have any comments on last night's surprising price speculation that you might be interested to enter the German perfumery channel with Douglas? Thank you.
Okay. The shift I'm mentioning, it's something that we've seen in Q1. We don't expect, obviously, this to be permanent. It's mainly connected with price differentials that are above our normal target and obviously causing customers to shift their purchases when they have the ability to do so from mainland China, from Asia into Europe. No decision has been taken yet as to what we should be doing with the price structure. Obviously, we are very much in a wait-and-see attitude in this respect. I mean, should the franc and the dollar, for instance, not stay where it is today, obviously, the price structure would be affected if the dollar was to be softer.
I'm not saying that we anticipate the dollar to be softer, but anything could happen on the currency front, and things could come back to a more normal structure in terms of prices pretty quickly if the currencies were to move. By no means do we feel that this is a permanent move. As far as Cognac prices are concerned, the comment I made is on both Champagne and Cognac. We had price increases for Cognac in the U.S., which is something that we haven't seen for quite a while, and in China, just to mention the two most important areas for the Cognac business. On the M&A front, Hermès, no change in the position that we have in the company. Douglas, I mean, this is market rumor, and we don't comment on market rumors.
Thank you.
We have a next question from Mr. Warwick Okines from Deutsche Bank. Sir, please go ahead.
Yeah. Good afternoon. Could I ask a couple of questions, please? Firstly, could you give us the U.S. performance in Wines and Spirits for the quarter? Secondly, could you talk about the exit rate in Fashion and Leather? What was the performance in March and in early April, please?
Sorry, I didn't catch your second question. Which rate?
The exit rate of Fashion and Leather Goods organic growth through the quarter in March and early April, if you can comment on that as well.
What do you mean? I'm sorry, I don't catch your question. What do you mean by exit rate? Sorry, Warwick.
The exit, the trading, your organic growth rate. Maybe you could just talk about the patterns through the quarter, and if you have any comments on early April.
Okay. Let's start with Wines and Spirits in the U.S. We are slightly positive in the U.S. in Q1, with Champagne being a bit down. I already mentioned a big shift in prices, a big push in prices at Moët, which is our biggest brand in Asia. Obviously, we made sure before the price increase, which was implemented early March, not to sell organically the full year before the price increase. We retained volumes ahead of price increases. Obviously, this is a soft period in the year with such a big price increase. We have a fairly soft business in March, and we may expect for the next couple of months to have a fairly soft business at Moët. It will take a little bit of time for customers to get used to the new pricing structure.
Otherwise, Cognac and Spirits were pretty good, had a good quarter in the U.S. Nevertheless, bear in mind that the first quarter, as I always say, is not the easiest to read, particularly in the U.S., due to these price increases being implemented on the 1st of March and distributors trying to buy before and we trying to sell after the price increase, obviously. On the Fashion and Leather, you're asking a very precise question as to the March growth in the U.S. I find it pretty difficult to answer to that. You have the figure for the full quarter, which were pretty strong. I have no reason to feel that March figures were any weaker compared to that. I think we were in line.
Thank you very much.
A next question from Mrs. Melanie Flouquet from JPMorgan. Madam, please go ahead.
Yes. Hi. Good afternoon. I was wondering whether you could give us Perfumes and Cosmetics in Europe. Sorry, whether you could also make a further comment on Fashion and Leather Goods in general, which I believe came in lower than expected. Even despite the transfer that you're referring to into Europe from Asia-Pacific, whether you are seeing some region being weaker than expected to explain the disparation from +16% to +12%. Thirdly, whether you can actually share with us your depletions on Wines and Spirits because you did comment that there was a selling effect. How is the sell-out looking like? Thank you.
Okay. Perfume and cosmetics is slightly positive in Europe. Fashion and leather, I'd like to comment on the deceleration, but I mean, a 12% growth for this business in Q1. Remember that in Q1 last year, we had 13% growth. It's not very, very dissimilar. I don't view this as a deceleration. I cannot really comment on what I think is a pretty strong performance for the business. Depletions, I can give you the figures, but they are not particularly easy to read because of the price increase I mentioned. A lot of purchases were made by end customers, so basically, the trade to the distributors prior to the price increase. Traditionally, in February, we have very high depletions. Traditionally, in March, when we increase prices on the 1st of March, as we normally do, we have very weak depletions. It is exactly what happened.
Overall, the trend is not too bad. For us, it's worse. Again, it's very, very difficult to read. We are slightly positive for champagne despite the various movements I mentioned. We are quite positive, I mean, double-digit positive for cognac in the first quarter of the year. That's for the U.S., obviously. For China, we are in volumes, double-digit growth.
Your comment that the inventory level is satisfactory, how do you assess this if you can't base it on the depletion trend?
Sorry, I missed your question.
You commented during your presentation that the inventory level was satisfactory. How do you assess this if the depletion is around 3 at that precise point in time?
The inventory level is a fact. We know that it has to be below a certain threshold, and it is below this threshold everywhere, basically. We have no particular worry that in the coming months, selling what or sell-out will be much lower than selling due to the level of inventory. The level of inventory is no source of concern at this point in the year.
Thank you.
We have a next question from Mr. John Guy from Berenberg. Sir, please go ahead.
Yes. Good afternoon, Jean-Jacques. A couple of questions from me, please. First of all, with regards to the record orders that you talked around at Baselworld, could you maybe give us some additional color on the order books, especially for TAG Heuer and for Bulgari? My second question is just around the comments that Mr. Hollis had been talking about increasing the tax on luxury goods in France from 19% to 30%. Have you got a view on that, please? Thanks very much.
Okay. Order books is a very difficult question on watches for both brands, particularly at TAG, where Baselworld and Geneva are not that important. I mean, it's much more important for Zenith and Hublot. The order book is okay given the strength of the orders that we took at both fairs, but it lacks significance for the big brands and particularly for Bulgari and for TAG Heuer. As far as taxes are concerned, I think the comments made yesterday were a bit confused, I would say. My understanding, I mean, our understanding is that there is no such thing as a high level of VAT. I mean, either you are at a reduced rate or at a normal rate, but there is no such thing as a high level of VAT. We hardly see how this could be implemented. Even Mr.
Holland was pretty cautious when saying that that's something that he might be looking at, but he's not sure that it makes any sense. At this point in time, we are not particularly concerned with this move.
Many thanks, Jean-Jacques.
We have a question from Mr. William Hutchings from Goldman Sachs. Sir, please go ahead.
Good afternoon, Jean-Jacques and Chris. I just have actually just one question. It's a similar question to the question on Wines and Spirits, but just on Watches and Jewelry in terms of if you can give us any color on sell-in versus sell-out because I think it was interesting that your numbers were a faster year-on-year growth rate in Q1 than it was in Q4. I wonder if you have any color on what inventory levels are like for Watches and Jewelry.
The Q1 in Watches and Jewelry is traditionally a quarter where sell-in is higher than sell-out because distributors deplete inventories at the Christmas season, and they replenish inventories in Q1. Traditionally, our level of sell-in is higher than the sell-out in this period of the year, which is kind of quiet from a business viewpoint. This year is no exception to that. Nevertheless, the sell-out figures that we monitor—it's not always easy—but the sell-out figures that we monitor are pretty good and not that far away from the sell-in figures. We think we have a normal replenishment of stocks, but the level of inventories within the trade, be it in the U.S. or in Europe, are at a normal level.
Thank you.
We have a next question from Mr. Rogerio Fujimoto from Credit Suisse. Sir, please go ahead.
One simple question from me. Given the special figures in Japan, I was wondering if you could tell us how much Japan accounted for global sales of Louis Vuitton brand in Q1. Am I correct to assume that the Louis Vuitton brand grew in line of the 12% growth for Total Group in Japan in Q1? Thank you.
Sorry, I was looking. It's Vuitton. Let me check the figure because I don't have it in mind. Hold on.
Yeah, Mr. Chris.
It's 15%. It's mainland Japan, I would say, domestic sales in Japan. Sorry, while looking at this, I missed the second part of your question.
No, it's just, Jean-Jacques, if the Louis Vuitton brand grew more or less in line with the 12% reported at Total Group level.
It's a bit below.
Okay, thank you.
A next question from Mr. Olivier Delahousse from Natixis. Sir, please go ahead.
Yes. Hello, gentlemen. Two questions from me, please. First one is with regards to Bulgari. I was wondering if you could provide us some data regarding the performance of the business on a standalone basis. I'm guessing it's not included in the 17% organic growth, which I guess is your legacy business. I mean, preexisting watches and jewelry. Can you comment on how the brand has fared if you compare it to the Q1 before you owned it? Secondly, I was wondering if you, coming back on the volumes of wines and spirits, your stance has been pretty consistently that the volume growth is under constraint due to, let's say, reduced capacity. I was wondering if you could give us a little more color on this matter after a Q1 that, let's say, surprised favorably in terms of the volumes.
Cognac growing 9% in volume and Champagne 5% is rather above what we had in mind. Can you comment if this is something that is sustainable, actually, or is it really a special for this quarter?
Okay. Bulgari Q1, the division 17%, as you said, I mean, Bulgari figures are not included in the division's organic growth figures. Bulgari figures are a bit below that, but not very far away. As far as growth in volumes in wine and spirits is concerned, I think as far as Champagne is concerned, the 5% we had in Champagne is sustainable. I'm not saying that we will obviously do it, but it's sustainable from an inventory viewpoint. The 9% for Cognac would be a bit stretched from an inventory viewpoint, but I don't think this is really sustainable for the rest of the year. We should end up the year with a lower figure than this, in my view.
Okay. Thanks,
Jean-Jacques.
We have a next question from Mrs. Louise Susan Singlehurst from Morgan Stanley. Madam, please go ahead.
Hi. Good afternoon to you both. Just two questions to finish up with then, please. Firstly, just on Wines and Spirits, just going back onto the prior question. I know, Chris, you highlighted about three or four reasons why Q1 is so volatile. Can you just give us any idea in terms of the pricing impact and the pulling forward of orders, just to give us a bit more color of growth going forward throughout the year? Secondly, just in terms of China, there's been lots of talk about gift-giving and potential pullback in expensive items. Do you see any risk for Cognac or the other brands across the group? Thank you.
Okay. On Wines and Spirits, I mentioned the magnitude of price increases for 2012. A big impact will come from the four-year impact of price increases passed onto customers in 2011 already. We expect for both Champagne to have something like 3% throughout the year. When we get the anniversary of Lachaise increase, we should have the impact of this year's increase. Roughly speaking, we should have 3% throughout the year. As far as Cognac is concerned, it's a bit more complex, and it depends whether we'll be implementing or not further price increases in the rest of the year. It's hard to tell. For the time being, the impact of prices in Cognac is a mid-single-digit figure, and we would expect to get that for a significant part of the year, with fading away in the latter part of the year.
Thank you. Just.
The gifting in Cognac, no, we don't expect this to have a significant impact. The gifting issue in China is, in our view, more geared toward, as you said, expensive items. Not necessarily what we do in China. The bulk of our business is Wines and Spirits, Louis Vuitton, and Christian Dior. We don't feel particularly concerned with curbing on the gifting business in China.
Thank you.
We have a next question from Mr. Mark Williams from Raymond James. Sir, please go ahead.
Yes. Good afternoon. First question will be on Sephora. Could you give us the like-for-like for both the U.S. and Europe? The second question will be on the Fashion and Leather Goods. Obviously, you mentioned that the travel retail grew significantly, could you give us a flavor on the overall trend for the local demand, mostly in Europe, once again for the Fashion and Leather Goods? Thank you very much.
Sephora, like-for-like, is 14% in the U.S. and 5% in Europe. Overall, that's about 10%. It's a pretty strong figure. As far as Fashion and Leather, obviously, we cannot answer for the whole division as we have a variety of situations, including wholesale, license, etc. It's impossible to answer. As far as Louis Vuitton is concerned, we have a contrasted situation with North Europe, including France, local customers being growing, but South Europe, mainly Spain, Italy, and Greece, being quite negative. Overall, we have a slight growth in the domestic business, in domestic demand in Europe, and the bulk of the growth, obviously, in Europe comes from tourist flows. As far as Asia is concerned, we have double-digit growth in the demand from Chinese customers. Although, as we mentioned before, a shift occurred from mainland China to other parts of the world.
Some areas in Asia were pretty soft, like Taiwan and Korea, for instance, from the point of view of local demand. Finally, the business made with Japanese customers was also up double-digit. Locally, we were up, but the bulk of it took place also outside Japan. If you look at Louis Vuitton, for instance, in terms of local demand, the three main client bases, American, Japanese, and Chinese, are growing double-digit in the first quarter of the year.
Yeah, locally, that's local sales.
No, I'm talking about global demand.
Local demand.
Local demand, whether they are buying at home or buying outside home.
Okay, thank you very much.
A next question from Mr. Javier Escalante from Consumer Edge Research. Sir, please go ahead.
Thank you. Good afternoon, gentlemen. I have two questions. One on the Cosmetics division and the other on Selective Retailing. On Cosmetics, the U.S. shipment growth of 27%, which is sell-in. Our data shows that the consumer takeaway was more around 18%. If you can explain the disconnect between these two figures, shall we expect your sales in the U.S. to accelerate, I mean, retail sales to accelerate in the second quarter, or shall we see shipments to trail retail sales in the U.S. because of the pipeline fill that seems to be happening in the first quarter? The second question has to do with the travel retail channel. It seems like, from what I understood earlier in the call, Sephora organic growth was 10%. That means that DFS grew well ahead of that. Does that mean that you are gaining share or is it that the channel is accelerating?
If you can comment, what are your expectations for travel retail growth going into the second quarter? That would be excellent. Thank you.
Okay. U.S., first of all, I cannot confirm the sell-out figure of 18%. As of today, I don't have the figure at the end of March, so I cannot really confirm. The first two months were pretty strong. They were higher than that, but I don't have the figure at the end of March. I would make the same comment as the one I made on Watches and Jewelry in the U.S., I mean, globally, but it's very true in the U.S. The first quarter of the year is the inventory replenishment quarter. Traditionally, sell-in is higher than sell-out in the first quarter of the year. We see very, very good demand, as shown in Sephora with a figure of 14% like-for-like growth. We see very, very strong demand for Cosmetics in the U.S., and our brands are benefiting from that, both in sell-in and sell-out.
I wouldn't mention an abnormal level of stock replenishment. We are doing business as usual there. As far as travel retail is concerned, I should be more precise on the figures. The 10% figure I mentioned for Sephora is not organic. It is like-for-like. You have to adapt to that, the opening of stores, to end up with organic figures. Organic growth for Sephora in the first quarter of the year was pretty close to the average for the division. The travel retail business is also, by definition, pretty close to the average for the division, which are very strong figures.
Thank you.
We have a next question from Mr. Paul Swillen from Monitor. Sir, please go ahead.
Good afternoon, and thanks for taking my question. First, I wanted to ask, you mentioned online sales being particularly strong in Sephora. Can you comment on the other divisions and maybe give us some color on what you're doing as far as trying to grow the online sales and how important you think it could become? My second question is just on the Watches and Jewelry division. Could you comment on the inventory cycle length and the timing of the flow of cost of goods into the actual products that you're selling? I know some of the other companies have quite long inventory cycles. Thank you.
All right. On the online sales, the bulk of our business takes place at Sephora, where we have the largest business there, both at Sephora and Saks, as Chris mentioned before. For the rest of the group, it's a growing channel. We cannot really elaborate on our strategies there. I mean, they are quite confidential. We feel that it's important to be involved on the internet and on the various channels on the internet. We are growing this segment pretty fast, both as a selling tool and as a marketing tool, which in both dimensions are extremely important when it comes to online business. As far as watches and jewelry inventories are concerned, the answer is yes. It's quite a capital or inventory-intensive business, as we all know.
As far as LVMH is concerned, the integration of Bulgari is obviously having some impact on our overall level of inventories in the division. It varies a lot. When comparing inventories to sales, for instance, it varies a lot from one segment to another. For low to medium price or entry to medium price segments, the inventory intensity is not that high. When it comes to high-end jewelry, obviously, we could have inventories which would count in a number of years of sales.
Thank you very much.
We have a new question from Mrs. Melanie Flouquet from JPMorgan. Please go ahead.
Yes. Hi. I have two follow-up questions. Sorry. The first one is on mainland China for Louis Vuitton. I understand the overall number is double-digit for the Chinese consumer base, but could you give us mainland China and the growth rate you've experienced in mainland China and whether it is a slowdown? You've seen a reversal of that trend in March when the Chinese New Year was out of the equation. The second question is on the outlook in your release. It talks about targeted investments and a focus on cost-cutting. I was wondering whether you had at all changed your CapEx expectations for this year and whether your cost-cutting focus was bigger than it was three months ago. Thank you.
The comment I made was on the growth for the Chinese customer base buying at home and buying internationally, which is double-digit. Mainland China sales are not double-digit; they are lower than that.
Could you tell us what they are and whether this reversed in March? That was exactly my question.
No, I will not be. I mean, we normally don't disclose any figures on Vuitton. I think I was pretty precise on all the trends at Vuitton. The big shift, as you know, were in January and February because the Chinese New Year is taking place two weeks before. Obviously, the pattern was not the same in January and February. Overall, as I said, we had lower figures for mainland China than we had for the whole Chinese customer base. The outlook in our release, no, we have not changed our outlook. We think in the current environment, we have to be flexible. That's what we mean by that.
We have a new question from Mr. Mark William from Raymond James. Please go ahead.
Yeah. The follow-up question, if I may, on the Louis Vuitton network. Could you give us the number of the Louis Vuitton stores globally at the end of the first quarter, 2012 versus 2011, and the same number for just mainland China, please?
No, we don't disclose the figures for Louis Vuitton stores. We had two openings, one in Rome and one in Japan, in Tokyo. We had a few closures, particularly of small stores in the U.S. The number is slightly below what it was at the end of last year. As far as China is concerned, there is no change in the number of stores in the first quarter of the year.
Okay.
We have no more questions.
Okay. If there are no more questions, a few closing remarks. We are very pleased to report these figures. The environment is, yes, a bit more challenging than what it used to be. Our businesses and our business model help us to balance changing conditions. I would like to highlight two or three key features of the quarter. First of all, all our regions are growing double-digit in local currencies. I do not think it happened many times in the past. Secondly, all our business or nearly all our businesses are growing double-digit.