Ladies and gentlemen, welcome to the LVMH 2012 Third Quarter Revenues Conference Call. I now hand over to Mr. Chris Hollis.
Sir, please go ahead.
Thank you. I am Chris Hollis. I'm Director of Financial Communications at LVMH. Joining me is Jean Jacques Guillenie, our Chief Financial Officer. I have a few remarks to make about LVMH's revenue for the Q3 and our 1st 9 months of 2012, which are reported in accordance with International Financial Reporting Standards, or IFRS.
After these remarks, Jean Jacques and I will be available to answer your questions. Before I begin, I must remind you, as always, certain information to be discussed on today's call is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially. So these are related to the Safe Harbor statement included in our English and French press releases. Turning now to the revenue announcement. Hopefully, you've had the tool had the chance to read our release, which was issued yesterday after the Paris market closed in both French and English.
The release is available on LVMH's website, www.lvmh.com, as are the slides that we are using to guide today's conversation. I'll start with several regulars and overview of the group's performance in the Q3 and the 1st 9 months of the year. Excuse my cold. As you saw in our press release, the group reported double digit revenue growth across all business groups over the 9 months. This includes delivering good performance in the 3rd quarter across the group despite a challenging economic environment in key markets around the world.
In particular, the group delivered sustained momentum in the United States and continued progress in both Europe and Asia even with mixed business trends in these regions. The group's results for the 9 months and Q3 also included a positive currency impact reflecting, in particular, the weaker euro that we've seen since earlier this year. In terms of business group performance, over the 9 month period, we saw good momentum at Louis Vuitton and strong progress at a number of the other fashion brands in spite of the difficult economic environment in several areas. And in the Champagnes and Watches businesses, inventory levels are healthy. On Slide 3, you can see the evolution of the group's revenue performance for the year to date.
Through the year end of the 9 month period, organic revenue was up 10%, which comes on top of the strong 15% increase a year ago through the 9 months. The 6 percent increase in organic growth we reported in the current year's Q3 primarily reflects a typical comparison base with the year ago's Q3 15% as well as a more challenging environment. This slide also shows the 9% currency impact that we've seen in the past two quarters. For the 9 month period, overall, currency had a 7% positive impact. Finally, for the 9 months, there is a 5% perimeter impact, which essentially reflects the full consolidation of Volgry since the second half of twenty eleven.
There was no perimeter effect in the Q3 of this year. Turning to Slide 4, you see the breakdown of revenue by region for the group. This is roughly consistent with the breakdown for the same period last year and remains well balanced between the principal regions. The largest region is Asia, which, including Japan, represents 37% Europe, including France, represents 30% and the United States and other markets represent 33%. Slide 5 looks at the organic revenue by region.
The group delivered gains across board, as you can see from this slide. The United States, including Hawaii, was the strongest, up 12% on top of 18% in the year ago period. This was followed by Asia, up 11% on top of 27% in the 1st 9 months of 2011. Europe saw a 7% gain similar to last year's growth rate. And Japan launch had been down 3% in the 2011 9 month period due to the impact of the tsunami and the other events in the region last year, grew 7% for the same period this year.
Now for the business groups, I will start. As always with Wines and Spirits, Slide 6. In this business group, revenue reached nearly EUR 2,800,000,000 for the 9 month period, including a 12% increase in organic growth, organic revenue and a 8% currency impact. It's worth noting that the good organic growth in this year's 9 months comes on top of 11% increase in organic revenue in the 20 11 9 month period. For the Q3, revenues surpassed the €1,000,000,000 while reflecting a 6% increase in organic revenue and a 9% currency impact.
To break this down, revenue from champagne and wine rose to nearly $1,200,000,000 for the 9 months. This reflects a 7% increase in organic revenue and a 5% currency impact over the period. In the Q3, revenue rose to €451,000,000 in the Champagne and Wines with a slightly positive increase in organic revenue and a positive currency impact of almost 6%. For cognac and spirits, revenue was nearly €1,600,000,000 for the 1st 9 months. This reflects a 60 like 10% increase in organic revenue and 11% currency impact over 9 months.
And for the Q3, cognac and spirits achieved a 12% organic revenue growth over the year ago period. Turning to Slide 7. On a geographic basis, Asia delivered the strongest organic growth, up 24% for the 9 month period. Japan was up 11%, Europe was up 6% and the U. S.
Was up 4%. To give some more details by business, champagne volumes were up 4% for the 9 months, reflecting a sustained level of consumer demand and inventory levels at distributors were optimized and healthy. The Estates and Wines sparkling wines continue to have good momentum, although this was slightly compensated by the quarterly prima deliveries of Bordeaux wines, which took place in Q2 of this year. Sotoniaac and Spirits Hennessy volumes are up 6% and revenue in this business has continued to benefit from the impact of last year's price increases. There continues to be particularly strong demand for the boots, cognac and spirits brands in China.
Turning now to Fashion and Leather Goods. Slide 8 gives you a revenue brings you the revenue in this business group growing by 8% on organic basis. That's on top of a 15% growth in the year ago period. Taking into account an 8% currency impact over the 9 months, revenue in this business group reached approximately 7.2 €1,000,000,000 For the Q3, organic auto revenue grew by 5% on top of an 18% increase in the same period last year. Slide 9.
On a geographic basis, for this business group, organic revenue in the U. S. Was up 14%, while Europe was up 9%, Japan was at 6% and Asia was at 5%, which came on top of a 24% growth in Asia in last year's 9 months period. UBITDA maintains trend of double digit reported revenue growth in the Q3 and in the 9 month period, reflecting good momentum in both U. S.
And Europe. Growth in Asia continued, though, as I mentioned, was more moderate than we had seen in the past. In terms of products, all segments contributed to the brand's ongoing growth, reflecting commitment to creativity and innovation that is Louis Vuitton's hallmark. Key lines performing strongly include Monogram and PRANCE and the epi line. Louis Vuitton also saw good success in the period from its collaboration with Japanese artist, Eiyu Kazama, in strong performances from dedicated pop ups to our locations.
The brand also continued its selective store openings, including the opening of the first Louis Vuitton Maison in Midland China and Shanghai at Plaza 66. This had been included a dedicated fashion show that received extensive positive media coverage. And finally, over the summer, Louis Vuitton opened its 1st high end jewelry boutique and workshop in Blas Vendome in Paris, which also received wonderful media coverage and has become an immediate attraction in the world's premier destination for the finest jewelry. Turning to other fashion and other brands, Celine continued to perform particularly well across all regions and through product lines. This affects the success of its luggage bag was of particular note.
Fendi launched its 2 jewel bag and continued to upgrade its store network while reducing its exposure to wholesale. And finally, Givenchy, Loewe and Marc Jacobs posted strong performances. Moving on to perfumes cosmetics, organic revenue rose $0.08 on top of a 10% increase in the year ago 9 month period, Including a 6% currency impact, 9 month revenue rose to EUR 2,600,000,000 in the current year. For the Q3, organic revenue in this business group grew by 6% over the year ago period. On a geographic basis, Slide 11, organic growth rose 14% in Asia.
The U. S. Was up 12%, Japan was up 8% and Europe 5%. PAFON Christian Dior continues to be a strong performer, driven by its iconic lines such as Tres Dior and New Orleans, including Prestige, Itay and skincare line. The brand is also continuing to roll out a successful gear Addicts fragrance supported by a new campaign filmed in Saint Tropez.
Golar also continued to perform well. The international launch of La Petite Robe Noir was successful and Opus De Montreal once again delivered a solid performance. At Parfang Givenchy, the brand is benefiting from the extension of its makeup distribution. Benefit continues to benefit from its product innovations. Vareal Mafdara continues to perform well and their new foundation, Halo FLAWLESS, is also contributing to strong growth of the brand.
And finally, Fresh opened its first store in Mainland China, which is off to a good start. This is a notable step for the brand in expanding into Asia. Now for the Watches and Jewelry Business Group. Organic revenue for the 9 months rose 7%, which comes on top of a very strong 26% in the year ago period, including a 7% currency impact and a 54% impact from the addition of Valgary since June 30, 2011. On a reported basis, revenue rose to RMB1.2 billion in this business group.
2,100,000,000, sorry, in this business group sorry, in the in the 1st 9 months of 2011 to cross the $2,000,000,000 mark in the 9 month period in the current year. For the Q3 alone, revenue reached €690,000,000 representing organic revenue growth of 2% after a 7% positive currency impact. Slide 13 on a geographic basis. Organic revenue in Europe grew 18%, reflecting in part a notable level of tourism in the region. Japan was up 12% and the U.
S. Was up 5%. The group saw some slowdown in demand in Asia, although it had delivered a 49% rise in inorganic growth in the region in last year's period, in part due to some high and some exceptional high end jewelry sales. Inventories are at an optimized level in retailers across the regions. To give some detail by brand at Bvlgari, the launch of the Octo watch will help to strengthen its male product offering, while the iconic Serpent C and B.
1 lines continue to show good momentum. At the same time, some qualitative improvements to the distribution of its products, including its perfumes, were carried out during the period. The Tag Heuer, both the new Linked Lady model and the Acuraisa Ceramic were rolled out in the Q3 and they're off to a good start. The King Power and Classic Fusion lines each delivered continued strong performance at Hublot. And Zenith performance benefited from the launch of the new pilot line during the period the brand also completed the renovation of its manufacture.
And Shonay, Fred and De Beers also sustained momentum in performance in their store networks. Finally, for the Selective Retaining Business Group, which is Slide 14, organic revenue rose 14% in this business group on top of the 19% rise in the year ago, 9 month period. On a reported basis, including a 3% structural impact, which relates essentially to the integration since June 1, 2011, of Ile de Butte, and an 8% guarantee impact, the business group grew, saw a revenue rise to nearly EUR 5,500,000,000 up from approximately EUR 4,400,000,000 a year ago 9 month period. For the Q3, organic growth reached 10% and there was a similar positive currency impact with no structural impact in the period. On a geographic basis, there was growth in each of the main regions for Flex Retailing.
Asia was up 17%, the U. S. Was up 14% and Europe was up 8%. For DFS, specifically the 9 months still show a good performance in Hong Kong for which the which had the soft opening in its 3rd gallery during the period as well as in Singapore and Macau. At this stage and the stage is being set for continued growth for DFS in Asia, including with the award of new concessions of the Hong Kong airport during the Q3, which will start up at the end of the year end and the near completion of the first phase of the expansion of the Macau 4 seasons.
More recently, DFS told them it seems to have gone very well. At Sephora, the business continues to gain market share throughout the regions where it is present. Its comparable store revenue growth is a key reflection of this with continued strong growth in North America, the Middle East and China. Sephora has also continued to deliver strong online performance in both the U. S.
And France and looks to selectively expand in this area in the future. In 2010, Sephora took over the business of Saks, a premier online beauty retailer in Brazil, giving it a foothold in the market. This past summer, they opened the 1st Sephora store in Sao Paulo, which had lines around the celebrated new Iguana Mall and has had an extremely promising start. With the opening of this store, the Saks site was finally fully converted to Sephora branding. And at the 9 month period this year, the store network was at 1367 locations, slowly up 110 locations from the year ago period.
So in summary, then the continued growth delivered across the group in the Q3 and the first 9 months of 2012 reflects the resilience of the group's brand due to the passion, creativity and craftsmanship behind them and the strength in the geographic diversification. Looking ahead to the balance of the year, the group's brands will continue to focus on the innovation and quality they are team owned for as they selectively open stores in high potential markets and work to best manage costs taken together. This strategy is designed to allow LVMH to meet its objective for continuing to increase its leadership in the worldwide luxury goods market. With that, Jean Jacques and I are available for your questions. Can you please open the line?
Thanks.
Of course. Ladies and gentlemen, thank you. We have a first question from Mr. David Wu from Telsey. Sir, please go ahead.
Hi, thanks. Good morning, everyone. I have three questions. First, in watches and jewelry, could you provide the growth rate for Asia ex Japan? And how much of the slowdown would you say was driven by destocking, especially in China and where you think we are in the destocking process and what you're seeing in terms of the sell through trends in China, Europe and the U.
S? And secondly, on Vuitton, can
you talk about the performance
in the quarter on a constant currency basis? And as we look out sort of longer term, could you talk about sort of where you see the most compelling growth opportunity for Vuitton across product categories and regions? And what you think could be more of a sort of a normalized growth rate going forward? And just lastly, selective retailing obviously remained very solid. I was wondering how much of the growth was driven by DFS versus Sephora and could you provide the Sephora comps in the U.
S, Europe and China for the Q3?
David? Okay. Thanks, David. Fairly long list of questions, particularly the second one. So I will start with watches and jewelry in Asia, which figures if you take out the high end jewelry sales that Chris mentioned in his comment trend, which took place in Q3 last year in Asia, so you have to take them out to have a fair comparison base, we are virtually flat, I mean, slightly down but virtually flat in Asia for the whole division.
Destocking is still having some impact. We started the year with a high level of stock. I mean, both our sales and the retailers anticipated a strong level of sellout this year. Sellout was decent, but probably not as good as we had thought. So there was some destocking and consistently since the beginning of the year has been higher than sell in.
So this destocking is still taking its toll when it comes to analyzing the Asian figures of the Walt Disney Jewellery division, but to a lesser extent probably than in Q2, for instance. As far as LV is concerned, so the Q3 your first question is on Q3 constant currency analysis. What I would say there is that our figures for Vuitton are pretty comparable to Q2 figures. We have some slowdown here and there. But all in all, I mean, Europe is a bit higher than what it was in Q2.
The U. S. Is a bit lower. We are talking in both cases about high or very high single digit figures. The Chinese figures are very close to what they've been since the beginning of the year, so low single digit figures.
Asia is a bit slowing down. We will probably come back on this particular point, but the touristic flows in Q3 were much lower than in Q1 and Q2. And Asia was affected by that. And Japan was in line a bit lower than Q2. So all you know, our figures do not differ materially from what they were in the preceding quarter.
As far as long term growth opportunities, I will not elaborate a lot on this on such a conference call. The only thing I would say that obviously, the main avenue for growth in the future at Vuitton is soft leather products. We mentioned that many times. We are developing very seriously this segment Vuitton, which growth rate is extremely high and very promising in the term. Finally, your third question on selective distribution, DFS versus Sephora.
We saw in Q3 a fairly marked slowdown of DFS, again connected with a slowdown of tourism in Asia. DFS was mid single digit growth as opposed to very strong double digit in the preceding quarters. As far as Sephora is concerned, we saw a very consistent performance from the first half of the year into Q3 of this year, it's exactly the same growth level, so very consistent.
Thank you. We have the next question from Mr. Antoine Belge from HSBC. Please go ahead.
Yes. Good afternoon. Antoine Belge, HSBC. Three questions. First of all, to come back on your comment about the fact that Louis Vuitton was not that different Q3 versus Q2.
The division was 5% versus 8%. So does it mean that the other brands slowed more than Ruvito in the quarter? And also could you comment if which brands still were still growing double digit organically in Q1? And second question, I mean, still on Vuitton. In the first half, you said that selling surfaces increased by roughly 6% or 7%.
Is it still the same run rate of selling surface increases? And finally, when you look the performance of Vuitton, do you think that the slowdown is entirely macro related? Or is there anything that you think could be done in terms of merchandising or maybe marketing or any other initiatives to sustain the growth, especially ahead of the Q4? And also, I mean, have you adjusted your cost on CapEx given the slowdown we've seen since July?
Okay. Thanks, Antoine. So on the non LV brands, on your first question, yes, we saw a slowdown. But mostly well, I'd say entirely on the wholesale side of the business, which is roughly onetwo of the nonvitants sales of the division. The retail portion of the nonvitton sales in the division were growing exactly or more or less exactly in the same way as they were in H1.
And as far as wholesale is concerned, it's partly probably due to some slowdown in department stores but also due to the fact that we are much more selective in terms of choosing our business partners in this segment as we don't want to nourish parallel trade. And some of our brands, including Celine, Fendi, have been extremely selective in pushing their products into wholesale. So this has dented the growth rate in wholesale and therefore in the rest of the non Vuitton division. The selling surface of Vuitton 6%, 7%, yes, that's exactly the same figure for Q3. The slowdown at TLV, as I said, I mean, there is no major slowdown in Q3 compared to Q2.
Macro related, I would say that it's mostly to risk related. I mean, if you look at the slowdown that we have in the growth rate of Vuitton, it's mostly with the 2 big main tourist pool, the Japanese and mostly and to a lesser extent, the Chinese tourists. The reason is probably not a real weakness this year but a very, very high comparison base. I mean, last year, we had Chinese tourists growing 30% and Japanese tourists probably as much as 20% or a bit less than that. The anniversary of such very high figures is not that easy, and therefore, it has some impact on growth in the Touristic business in Q3.
That's really, in my view, the main reason for the different figures, and they mostly affect the Asian part of the business. Europe is hardly affected by that.
Okay. Just in
terms of cost and maybe needing to adjust some costs?
Well, you know that we are not very keen on commenting that type of thing. So we adapt ourselves to the environment, and we take the necessary measures. And we do what we think we have to do, but I will not elaborate further on that.
Thank you. We have your next question from Mr. Mike Vidal from Raymond James. Sir, please go ahead.
Yes, good afternoon. My first question will be on Europe. Could you give us a flavor of the overall trend within the whole customer? Then on Louis Vuitton, are there any news regarding the pricing issue? Have you recently increased your retail pricing in Europe?
And then the third question, just a follow-up on the sales growth. I thought I understood to probably the 10% same store sales in the U. S. And the 3% same store sales in Europe recorded in H1 could be extrapolated in a 9 month basis? Thank you.
Thank you, Marc. So local customers in Europe make more or less the same figures as the one we had in H1, a bit better. The French, the Brits and Germany were a bit and German were a bit better. Italy is not getting any better. We still have a drop in the Italian customer base.
But all in all, I mean, we have figured slightly better than what they were in H1. Increased prices. We increased prices by 8% from the 1st October onwards in Europe only. So no other price changing square in the world. And Sephora like for like, I think 9 months figures are exactly the same as they were H1.
I think the U. S. Is a bit higher, 1 point higher and Europe is 1 point lower, but nothing really different. Okay. Just in fact, maybe on Rubiton, you highlighted during the first half comment that the main clientele, Chinese, Japanese and American, were both growing on a double digit trend.
Is it the same than the one recorded in Q3? I think it was Q1 comment, if I'm not mistaken. But anyway You're right. On in Q3, it's same as Q2. Both the Chinese and Japanese are high single digits but not double digit.
Okay. Thank you.
Thank you. We have your next question from Louise Siglhurst from Morgan Stanley. Madam, please go ahead.
Hi, good afternoon. Hi, Jean Jacques, Chris. Just 2 or 3 questions for me, 2, please. Firstly, just on the Louis Vuitton on margin. Obviously, we saw weakness in the first half given the store opening you highlighted.
Can you talk to us about plans for the second half and directionally just impact on the margin? Secondly, have you got any comment for us on Golden Week? It's obviously recently finished in China. And any impacts there on tourists but also local demand? And then also if you could just clarify the price increase that you just spoke about on Louis Vuitton.
Thank you.
Well, I will not comment on the healthy margins. I mean, I would have to go in such a little bit of details, particularly on the currency impact. It will take too much time there, and I'd rather use it for the full year comments on the P and L. On the Golden Week, we had DFS was very pleased with the Golden Week, the registered growth, which was higher than what they had in Q3. So it went very well.
And Vuitton, it went okay at a lesser extent, but it went okay as well. And price increase was, as I said, 8% in Europe, and that's all 8% from the 1st October in Europe, full stop.
Super. And just one quick pricing question on champagne and cognac as well, expectations for the next kind of 12 months.
You mean in terms of pricing?
Yes, please.
We will not have any price changes in the rest of the year. I mean, it's pretty unusual, as you know, to pass on price increases in the last 3 months of the year. But as always, in the 1st 3 months of next year, so in terms of Q1, we will increase prices for both cognac and champagne, probably somewhere between 2% and 3%. But obviously, we are a bit far away from that, and we have not finalized any plans.
We have the next question from Mr. Thomas Chauvet from Citigroup.
Good afternoon. Three questions, please. The first one, if we look at Fashion and Leather and Watches and Jewelry in Q3, we see obviously very contrast trend in Asia and in Europe. Both division have different trend in Asia and Europe. When do you would you expect the price increase you've passed on in Europe to impact that shift in demand from one region to another?
And just to clarify, the plus 8% was only Vuitton. Were there other categories and brands involved? Secondly, on Watches and Jewelry, based on the discussion you've had with your retail partners, how long do you expect the destocking effects carry on for your brands, but also for your competitors like Richemont, Swatch or Rolex? They continue to report much, much more solid number, e. Perhaps more inventory buildup on their side in Asia.
And do you see any significant swings in market share taking place in Asia beyond destocking? And finally, on Vuitton, could you say what was the impact of the Plaza 66 reopening on that Q3 growth you mentioned, please?
Okay. Thanks, Thomas. So the impact on how long is it going to take to get some impact of the price increase in between Europe and Asia rebalancing? Well, it's a very, very hard question. As you know, I mean, impacts of prices are always very difficult to measure and to quantify.
I mean, the price price elasticity is not something very precise in the luxury industry. So we'll not take the risk to go into
some forecast as to how
long it's going to take. We think we're taking the right decision in order to reduce the price gap between Asia and particularly China and Europe. In the long run, it will certainly have some impact in terms rebalancing the business in between the two zones. But how long is it going to take? I'm absolutely naive.
The worst situation in Asia and the destocking, we think that destocking is coming to an end. The question is whether we will be able to replenish stocks for the year end season. We hope we'll be able to do it. I wouldn't mention any shift in market share. I mean, as you know, our market share in watches is quite small, and I don't think this will have any impact on our market shares in Asia.
Finally, the Plaza 66 impact, it's significant as far as Shanghai is concerned. Obviously, Shanghai is growing faster than what it was before the opening. At the level of China, Shanghai being only one city within China, it doesn't have a major impact, maybe a few a couple of percentage points, but nothing very significant, very immediately in figure a few terms. In terms of image, obviously, this has a much larger impact. We benefited from the opening to get extensive press coverage, extensive TV coverage.
And obviously, this has some impact, but hard to measure.
And just thank you, Jean Jacques. Just a follow-up on watches. When you comment, you said the destocking has come to
an end.
You're talking about your brand. I mean, obviously, some of your big competitors don't seem to have seen any fun destocking yet. So just trying to understand where do
you see the whole
marketplace evolving here with perhaps some of your competitors in a different situation?
Well, I will not comment on the competitors' situation. The only point I'm making is that we started the year with a fairly high level of inventory in anticipation of higher sellout than actually materialized. And this excess inventory is progressively being wiped out by sellout. And we are getting close to a normal position, and we should but it remains to be seen whether we'll get the well, further sell in for the year end season that would enable us to end up the year on a higher note. That's what I'm saying.
We have your next question from Mr. William Houching from Goldman Sachs.
Good afternoon. I've just got one question coming back to Watches and Jewelry. In terms of the impact from these high end jewelry sales, you said that exo sales, your watches business would have been flat in Asia. Can you give that the impact on a global basis? Can you also help us understand, because I understand that you still got price increases that are going through on your watches division, how much price versus volume impact you would have seen in the watches business in Q3?
That would be very helpful. Thank you.
Thanks, William. On the high jewelry, for the whole division in Q3, we're talking about 4% to 5% difference in the growth space. As far as your second question on volume price is concerned, it's quite difficult because there is no such thing as a global price increase. So I cannot answer. I mean, we had price increases here and there in the U.
S, in Europe. Volumes are pretty good in both U. S. And Europe. So I would say that volume growth are higher than price impact, but that's all I can say.
Okay. So just in terms of the 4% to 5% difference, you mean between jewelry and watches is the difference? Is it can we also pass?
It's the impact on the whole division, on watches and jewelry of this
Ladies and gentlemen, thank you for holding. The conference
Hello?
Anyone here? Hello?
Mr. Hollis, you can go ahead. The next question is from Thomas Pesmer from Cheuvreux. Please go ahead.
Jean Jacques and Chris. I've got two quick questions. First one on FLG in Q3 in Asia, which increased at plus 1% if my calculation is correct. Could you give us an idea about the split between mainland and Greater China? And if the problem is coming from traffic or ASB or something else?
The second one on Louis Vuitton and the price increases you mentioned. I just did some price checks on the website. And for example, the full medium size on the French website seems to be at the same price at last month. So have you increased prices in all the open countries and for all product ranges?
Yes. Normally, it should be a price increase across the board. Thanks for the information. I will check on the Internet. But as far as Europe is concerned, prices should have been increased more or less across the board.
As far as Asia is concerned, the slowdown is mostly due to a non China ocean of Asia connected with the high comparison base for touristy flows last year that I mentioned before.
Okay. Maybe just a quick follow-up on watches and jewelry. Last time you mentioned that some distributors are favoring star brands and squeezing some other smaller brands. Is it still the case according to you?
I'm not so sure. I mentioned that last time, but that was probably implicit in some of my comments, but I don't really remember it. So I will just repeat what I said before. We had too many inventories starting the year, and the level of inventories within the trade had to go down. Therefore, Okay.
Thank you, Henrik. Thank you. We had an
Okay. Thank you, Henrique.
Thank you. We have the next question from Melanie Fouquet from JPMorgan. Please go ahead.
Yes. Good afternoon, Jean Jacques and Chris. I have four questions, if I may. The first one is on the Fashion and Leather Goods division. I was wondering whether you can share with us overall, I think in quarter 3 and quarter 2, we're basically running at mid single digit for medium term.
Can you share with us what does that play in Q3? Because in Q2, you had flagged some issues with product launches and that was supposed to be fixed in quarter 3. So can you share with us what is happening in quarter 3 in comparison whether the launches were not quite as favorable as you thought or the marketing and what to expect for the rest of the year? The second question is on tourism. You highlighted weakness within Asia.
I was wondering whether you can help us understand a little bit more what you attribute this weakness to other than the comparables and notably whether you think the transfer towards Europe is really the main cause. The third question is actually regarding the U. S. Overall, the U. S.
Has been strong, but if I'm not mistaken, it's actually softening in the number of new divisions, notably wine and spirits, fashion and delivery. I was wondering whether you can give us an update on what's happening in the U. S. For all these divisions. And lastly, very short one, cognac, just the quarter 3 sales growth organic, I missed that.
Okay.
I take a note of all this because I will forget otherwise. Thank you, Benoit. So what is up today in fashion and leather, I would say nothing really new apart from the fact that we benefited highly in Q3 last year from the level of tourist close. This
show no
sign of reduction, but the growth rate is actually slowing down. That's all. And we have to anniversaryize high volumes of last year. So I think the big issue for Q3 was to anniversaryize these big volumes we had with the Japanese and the Chinese in the last year. So that's at the same period.
So that's a big point as far as product launches are concerned. The big initiative was the Kusama line that you've certainly seen in our stores, which is doing as expected. So there was no particular disappointment or overachievement would have been difficult as we have sold basically all we had
to sell.
So that's in line with our expectations. Tourism in Asia, no, I have no other things to say than what I said before on the comparison base. I mean, it's really the level the absolute level is extremely high in terms of growth. It's lower growth is lower than last year, but the absolute level is extremely high and very, very satisfactory. We just have to follow the growth of last year, which was both Japanese and Chinese was extremely high.
The U. S. In wine and spirits, I think, yes, the figure is a bit lower than what it was in H1. 2 main reasons. First of all, is that the month of June in champagne was abnormally high.
So we had June and conversely, July, sorry, August were poor. As you know, 3 months is difficult to analyze in this business. You have shipments to the main clients, which are not linear in the year. So Q2 was probably a bit higher than it should have been, and Q3 is a bit lower than it should be. And cognac, Q3 I mean, cognac and Spirit Q3 figure, if I'm not mistaken, is
12%.
Can I just confirm, sorry, on what are you expecting then if it's a question of gross rates normalization compared to last year? What else should we expect notably in Q4 when your comparables are even tougher, at least at Fashion and Liquids division?
Well, see, I cannot I mean, you know that we never do any forecast in such calls. Yes, the comparison base will be quite tough in Q4 as well. We'll also have the marketing initiatives of Q4. I mean, it's a quarter in which we are normally pretty active. It's a different quarter from the other one, less wholesale, more retail.
So we'll see, but I will not make any forecast at this stage.
Are there also less tourists in Q4 traditionally?
Less tourists, when? Where?
In Q4, traditionally. Is this more local consumer base quarter?
Yes. It's more local customer quarter, but it doesn't make a massive difference. I just come back on one of your questions. The figure I gave you on crack is a full division. It's a worldwide organic growth figure.
It was not a question on the U. S, right?
No. And the U. S. For Fashion and Other Goods, can you tell us what you're seeing there? Because that seems to be decelerating.
It's a bit but not in a major way. It's a bit lower than what it was. We have some phasing issues with the bulk of the lower figures comes from Marc Jacobs, where the phasing of the wholesale business was quite different from what it was last year. We had much more business in June and less in July. So it's not at all a problem of business at such, but it's more a phasing question of wholesale for the fallwinter collection.
Perfect. Thanks so much.
Thank you. We have the next question from Mathias Eiffel from MainFirst.
Yes. It's Mathias Eiffel from MainFirst. Just a quick question on China. If you say slowdown is mostly due to non China, can we assume that you kept growing there at around 15% as you had Q1, Q2 on a group basis? And my second part of my question kind of related in the last conference call, you said there were some temporary factors that are slowing things down in China related to the leadership change?
Can we expect this to improve in the Q4? Or do we have to wait for next year for this kind of temporary effect to go away?
Okay. The growth in Q3 for China was 11% as opposed to 14%. I'm talking about as opposed to 14% in H1. So a bit lower but not significantly lower, and a chunk of it comes from the hydro read that I mentioned before. As far as the leadership change is concerned, this is some form of obvious explanation for attendees on the side of customers.
I doubt this will be normalizing tally in the course of Q2 of Q4. So it will take probably a bit longer than that.
Excellent. Thank you.
Thank you. We have the next question from Mr. Olivier de Percon from Natuzzi. Sir, please go ahead.
Yes. Thank you, Jorge. And Chris, sorry to comment on the Wine and Spirits. I must have missed some numbers. I was just wondering if you could clarify the first of all, the for the total Wines and Spirits Q3 organic growth, is it 6%?
And then can you break that down between you mentioned 12% for Cognacated and spirits?
Yes, it's slightly positive for Champagne and Worcesters.
Okay. And so are there you mentioned that there would be no price increase further price increases, let's say, before Q1 next year. Can you remind us of the price increases that were done over the last year on firstly? And secondly, can you regarding inventories in the trade, can you I mean, overall inventories, is there also some kind of sell in, sell out effect that we should be aware of for the champagne and spirits?
So thanks, Luigi. The price increases, we had price increases normal price increases, I would say, in March or early March in the U. S, in Europe and in Asia in between 3% 2.5 percent and 6%. It was a bit lower. It was more 2.5%, 3% in Europe and in the U.
S. And higher in China with some differences between categories of spirit. So this obviously will have some impact in the rest of the year as we have not yet anniversaried these price increases. As inventories are concerned, very low in China I mean, very low in Asia. And as far as the U.
S. Is concerned, they are normal in cognac and quite low in Champagne. But I doubt if you if I understand your question about will this have any impact in the future, I doubt this will have a significant impact, neither positive nor negative, on selling sell in figures as opposed to sell out.
Great. Thanks, Francois.
Roger. We have a next question from Paul Swinin from Morningstar. Sir, please go ahead.
Good afternoon and thanks for taking my questions. A quick question on the wine and spirits business, just a little more long term. I know there's been some discussion about poor harvests in many regions of France. But with your between blending and aging of cognacs and obviously not all Champagne are vintage. Could you explain how long that cycle would take and what any 1 year would have as an impact and when would that show up?
And I guess the follow-up would be, is it would that impact prices upward as there's lack of supply or is it end up just sort of being neutral throughout the years?
In Cognac, it depends on the categories. I mean, DAS is 3 years. So basically, price increases would be carried into inventories for 3 years, and then the bottles that are going to be sold in 3 years will be impacted by raw material price increases. 7 years is for VSOP. And as far as champagne is concerned, on average, we are talking about full years.
So you have a little bit of a time lag in between the two.
Is your business mix roughly sixty-forty high end versus the low end?
Well, it depends whether you're talking volumes or value. And we as far as our wine and spirit business is concerned, we sell mostly I mean 90% or 95% of what we sell is above $25 per bottle. So it's considered premium or high premium spirits. So we consider that everything we sell is premium.
Okay. And then a quick question on Selective Retailing. I think in the prepared remarks, you said in the Q3, Sephora 8% currency and 2% organic. And then in the presentation, it says network of 1567 stores plus 110 stores, so that's the 9 months. Were there any was the store opening effect about equal through the 9 months?
Or is it all front loaded?
Well, the answer is I don't know. I should know, but I don't know. I doubt it. I mean, normally, as we opened quite many stores in the year, the number of openings on a quarterly basis is fairly stable. I mean, we would open 30 to 40 stores per quarter, maybe a bit more, but 5 or 6 more and 5 or 6 less, nothing really different.
So I from my memory, we don't have big swings and big differences between like for like and full growth. Okay. So
would DFS and Sephora space growth be above 2% in its the total Selective Retailing space growth would be above 2% at the Hood quarter, correct?
For Sephora, yes. I mean, we opened about I mean, we don't really count in square meters, but in number of stores, we have an increase in number of stores of about 7% per annum. So chances are the number of square meters growth in the same ballpark. As far as DFS, it's less linear we open stores from time to time. We just opened a fairly substantial store in Heisen in Hong Kong.
But before that, they were 2 or 3 years in which we didn't do anything. So it's not linear.
Okay. Thank you very much, and best of luck for the holidays.
Thank you. We have the next question from Mr. Rogerio Fujimori from Banach Suisse. Please go ahead.
Hi, everyone. I have a small question on Banach on Vuitton. In previous periods of slowdown, Jean Jacques, you flagged the traditional, I think, monogram and dummy airlines outperforming, but not in the past couple of quarters. So I was just wondering if the high end leather lines are generally outperforming within Vuitton stores today? And are there any meaningful mix changes and adjustments in supply change that we should be aware of?
I will not mention the high end or entry price, but the level line are growing faster. It's not new. I mean, it's been going on for years years, but the level lines are growing faster than the kind of the Canvas line. That's been to a point where the level line represents a sizable portion of total sales now. But in this respect, I mean, 2012 is not particularly different from the other on the years.
This is something we've seen for quite a long period of time.
That's great. And a small follow-up. In the press release, you referred to market share gains for Vuitton throughout the world. Do you believe it's also the case in Greater China or Vuitton? And do you think Vuitton has been disproportionately impacted by the pullback in gift giving this year?
Thank you very much.
It's a global comment. You've seen the Autogany paying estimate for the luxury industry in the year of about 10%. Vuitton is growing faster than that. So we feel Vitorn is gaining market share. That's what I have to say.
Thank you.
Thank you. We have the next question from Kathleen O'Hornan from Kepler Markets. Please go ahead.
Good afternoon. I have three questions, if I may. First of all, you quoted the airport concession in Hong Kong that you're going to start operating at the FS by the year end. I just wanted to know if you could give us some color about the impact on the DFS business growth? 2nd question about cognac in the U.
S. Could you tell us what was the trend in Q3 for the cognac sales in the U. S? And what was was there any change in trend versus H1? And third question about Vuitton.
You quoted some marketing initiatives in Q4. So could you tell us a bit more about these marketing initiatives, please?
On this last point, the answer is no. We'll not make comment for fairly obvious reasons. So I'll try to answer your first two questions. So Hong Kong Airport, it's we are talking about $800,000,000 business U. S.
Dollars, not Hong Kong dollars, business that will develop progressively in between December of this year March of next year. So we shouldn't have this year the full impact of the business in 2013. Obviously, this will be at a lower margin than the rest of the business, as you know. As far as cognac in Q3 in the U. S.
Is concerned, figures are a bit lower. I mean, not very different from Q2, but a bit lower. The main reason being that the SOP is we are decreasing voluntarily the business of the SOP in the U. S. To shift the volumes for into China.
We feel that we could get better value in China than in the U. S. And we concentrate the U. S. Business progressively on Versus But the Versus business in the U.
S. Is doing really fine. Our depletion rates for the year are pretty good. So we are very satisfied with the cognac business in the U. S.
Okay. Thank you very much.
We'll take one last question if there is one.
Yes. We have a question from Mr. Xavier Escalante from Consumer Edge Research. Sir, please go ahead.
Good afternoon, everyone. I just would like to have a sense of the growth trajectory during the quarter. It seems to me that a lot has to do with travel retail and DFS and tourism as it percolates to the leather goods and to the watch business. So I would like to know whether you can comment on July August versus September, how did it grow the growth rates where have you seen an improvement in September or not? And secondly, also trying to understand what is the baseline for the growth of DFS.
You mentioned that the concessions in Hong Kong would add $800,000,000 So the opening of the store, Galleria, what would have been on the 6% growth in DFS? It would be lower than that. Just if you can let us understand what is the baseline of the travel retail growth? Thank you.
Okay. Well, I will not elaborate on July versus August September. The only thing can say that I think most of you already know is that August September, the sales were higher than growth in terms of growth rate. Obviously, what's growth rate was higher in August September than what it was in July. July, for some reasons, I mentioned like business taking place earlier in June as opposed to July, etcetera, was a fairly soft month, and August September were better.
As your second question is concerned, I'm not so sure I understand what you mean by baseline for travel retail. I mentioned the fact that in Q3 DSS had a slower growth rate than in the first half of the year, connected with the fact that the touristic business altogether, including Chinese and Japanese, was suffering from a very, very high comparison base last year. That's the only comment I will make on this.
I meant on Galleria, the opening of Galleria.
Yes. Well, but to answer your question on the opening of
Well, basically, to see what was the impact on DFS because they all have no Galleria.
It was towards the end of July, and it's one area among many other. And it's a small area. On top of that, it's 5 1,000 square meters as opposed to most of Galleria is linked twice as big. So the impact was not particularly meaningful.
Thank you.
Thank you. So just a few closing remarks. I would like to make 2 or 3 points. Obviously, I would say that our Q3 figures reflect a tougher environment and I will not deny it. Yet I would like to stress a few factors that are worth having in mind in order to have a good assessment of the situation.
First of all, we are growing at 15% in Q3 with all our divisions being positive after a fantastic year in 2011. So you shouldn't see the bottle half empty in my view. 2, despite a tougher environment, we didn't change our discipline, particularly in terms of distribution. I mentioned that a few times, but some forms of wholesale distribution are not positive for our brand. We kept them even though in the current environment, it is proving a bit painful.
I mentioned Fendi and Bvlgari. I could also mention Celine, TAG, Xiaomi. A lot of brands are doing that. 3, and this is probably the most important point, which I mentioned a few times, tourist sales in Q3 last year reached record less with both the Japanese and the Chinese. I mentioned DFL being up 30 percent in Q3 last year and RV being also up 30% with Chinese last year.
Universalizing these volumes was a challenge. We did it with most, if not all, of our tourist exposed activities being positive in this quarter. So all in all, we are operating in a tougher environment, but we are reasonably confident for the near future. The assessment of the Chinese situation is not simple, but the strength of our wine and spirit business and of our perfume and cosmetics business there show that the appetite for Luxury Goods is there. That is all I wanted to say.
Thank you for your attention, and I look forward to meeting you in February to discuss our 2012 figures. Thank you, and goodbye.
Thank you. Ladies and gentlemen, this concludes the conference call.
Thank you.