Earnings Call: Q3 2012

Oct 15, 2012

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'm Chris Hollis. I'm Director of Financial Communications at LVMH. Joining me is Jean-Jacques Guiony, our Chief Financial Officer. I have a few remarks to make about LVMH's revenue for the third quarter and the first nine 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, that 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. For these, I refer you to the safe harbor statement included in our English and French press releases. Turning now to the revenue announcement. Hopefully you've all had the chance to read our release, which was issued yesterday after the Paris market close 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 as always, with an overview of the group's performance in the third quarter and the first nine 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 nine months. This includes delivering good performance in the third 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 nine months and third quarter 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 nine-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. In the champagnes and watches businesses, inventory levels are healthy. On slide three, you can see the evolution of the group's revenue performance for the year-to-date. Through the year-end of the nine-month period, organic revenue was up 10%, which comes on top of the strong 15% increase a year ago through the nine months. The 6% increase in organic growth we reported in the current year's third quarter primarily reflects a difficult comparison base with the year-ago's third quarter, 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 nine-month period, overall currency had a 7% positive impact. Finally, for the nine months, there is a 5% perimeter impact, which essentially reflects the full consolidation of Bulgari since the second half of 2011. There was no perimeter effect in the third quarter of this year. Turning to slide four, 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 five looks at the organic revenue by region. The group delivered gains across the 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 first nine months of 2011. Europe saw a 7% gain, similar to last year's growth rate. Japan, which had been down 3% in the 2011 nine-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 & Spirits, slide six. In this business group, revenue reached nearly €2.8 billion for the nine-month period, including a 12% increase in organic growth for organic revenue and an 8% currency impact. It's worth noting that the good organic growth in this year's nine months comes on top of 11% increase in organic revenue over 2011 nine-month period. For the third quarter, revenues surpassed €1 billion, while reflecting a 6% increase in organic revenue and a 9% currency impact. To break this down, revenue from Champagne & Wines rose to nearly €1.2 billion for the nine months. This reflects a 7% increase in organic revenue and a 5% currency impact over the period. In the third quarter, revenue rose to €451 million in the Champagne & Wines, with a slightly positive increase in organic revenue and a positive currency impact of almost 6%. For Cognac & Spirits, revenue was nearly €1.6 billion for the first nine months. This reflects a 16% increase in organic revenue and 11% currency impact over the nine months. For the third quarter, Cognac & Spirits achieved a 12% organic revenue growth over the year-ago period. Turning to slide seven. On a geographic basis, Asia delivered the strongest organic growth, up 24% for the nine-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 nine months, reflecting a sustained level of consumer demand and inventory levels at distributors who are optimized and healthy. The Estates & Wines, sparkling wines continue to have good momentum, although this was slightly compensated by the quarterly premier deliveries of Bordeaux wines, which took place in Q2 of this year. Cognac & 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 group's Cognac & Spirits brands in China. Turning now to Fashion & Leather Goods. Slide 8 gives you the revenue in this business group, growing by 8% on an organic basis. That's on top of a 15% growth in the year ago period. Taking into account an 8% currency impact over the nine months, revenue in this business group reached approximately €7.2 billion. For the third quarter, organic quarter 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 nine-month period. Louis Vuitton maintained trend of double-digit reported revenue growth in the third quarter and in the nine-month period, reflecting good momentum in both the 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, Empreinte, and the Epi line. Louis Vuitton also saw good success in the period from its collaboration with Japanese artist Yayoi Kusama, including strong performances from dedicated pop-up store locations. The brand also continued its selective store openings, including the opening of the first Louis Vuitton Maison in mainland China, in Shanghai at Plaza 66. This opening included a dedicated fashion show that received extensive positive media coverage. Finally, over the summer, Louis Vuitton opened its first high-end jewelry boutique and workshop in Place Vendôme 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 our other fashion and leather brands, Celine continued to perform particularly well across all regions and for all product lines. The success of its luggage bag was of particular note. Fendi launched its 2Jours bag and continued to upgrade its store network while reducing its exposure to wholesale. Finally, Givenchy, Loewe, and Marc Jacobs posted strong performances. Moving on to Fragrance, Cosmetics. Organic revenue rose 8% on top of a 10% increase in the year ago nine-month period. Including a 6% currency impact, nine months revenue rose to €2.6 billion in the current year. For the third quarter, 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%. Parfums Christian Dior continues to be a strong performer, driven by its iconic lines such as J'Adore and Dior ones, including prestige at high-end skincare lines. The brand is also continuing to roll out its successful Dior Addict fragrance, supported by a new campaign filmed in Saint-Tropez. Guerlain also continues to perform well. The international launch of La Petite Robe Noire was successful. L'Homme Idéal once again delivered a solid performance. At Parfums Givenchy, the brand is benefiting from the extension of its makeup distribution. Benefit continues to benefit from its product innovations. Their They're Real! mascara continues to perform well. Their new foundation, Hello Flawless, is also contributing to strong growth of the brand. 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. For the Watches & Jewelry business group. Organic revenue for the nine months rose 7%, which comes on top of the very strong 26% in the year-ago period, including a 7% currency impact and a 54% impact from the addition of Bulgari since June 30, 2011. On a reported basis, revenue rose to EUR 1.2 billion in this business group. EUR 2.1 billion, sorry, in this business group. Terrible. This was in the first nine months of 2011 to cross the EUR 2 billion mark in the nine-month period in the current year. Sorry. For the third quarter alone, revenue reached €690 million, 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%. The U.S. was up 5%. The group saw some slowdown in demand in Asia, although it had delivered a 49% rise in organic growth in the region in last year's period, in part due to some exceptional high-end jewelry sales. Inventories are at an optimized level in retailers across the regions. To give some detail by brand, at Bulgari, the launch of the Octo watch will help to strengthen its male product offering, while the iconic Serpenti and B.zero1 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. At TAG Heuer, both the new Link Lady model and the Aquaracer Ceramic were rolled out in the third quarter. They're off to a good start. The King Power and Classic Fusion lines each delivered continued strong performance at Hublot. At Zenith, performance benefited from the launch of a new Pilot line. During the period, the brand also completed the renovation of its manufacture. Chaumet, Fred, and De Beers also sustained momentum in performance in their store networks. For the selective retailing business group, which is slide 14. Organic revenue rose 14% in this business group, on top of a 19% rise in the year-ago nine-month period. On a reported basis, including a 3% structural impact, which relates essentially to the integration since June 1, 2011, of Ile de Beauté, and an 8% currency impact, the business group saw revenue rise to nearly €5.5 billion, up from approximately €4.4 billion in the year-ago nine-month period. For the third quarter, organic growth reached 10%. 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 selective retailing. Asia was up 17%, the U.S. was up 14%, and Europe was up 8%. For DFS specifically, the nine months still show a good performance in Hong Kong, which had the soft opening of its third Galleria during the period, as well as in Singapore and Macau. 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 third quarter, which will start up at the year-end, and the near completion of the first phase of the expansion of the Macau Four Seasons. More recently, DFS Golden Week 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 Sack's, the premier online beauty retailer in Brazil, giving it a foothold in the market. This past summer, they opened the first Sephora store in São Paulo, which had lines around the celebrated new Iguatemi mall and has had an extremely promising start. With the opening of this store, the Sack's site was finally fully converted to Sephora branding. In the nine-month period this year, the store network was at 1,367 locations, slowly up 110 locations from the year-ago period. In summary, the continued growth delivered across the group in the third quarter and the first nine months of 2012 reflects the resilience of the group's brand due to the passion, creativity, and craftsmanship behind them, and the strength of its 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 too known 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 of 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, if you'd like to ask a question, please press zero one on your telephone keypad. Please lift your handset before you ask your question. Thank you. We have a first question from Mr. David Wu from Telsey Advisory Group. 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.? Secondly, on Vuitton, can you talk about the performance in the quarter on a constant currency basis? As we look out longer term, could you talk about where you see the most compelling growth opportunity for Vuitton across product categories and regions, and what you think could be more of a normalized growth rate going forward? Lastly, selective retailing obviously remained very solid. I was wondering, how much of the growth was driven by DFS versus Sephora, could you provide the Sephora comps in the U.S., Europe, and China for the third quarter? Thank you. David. Okay. Thanks, David. Fairly long list of questions, particularly the second one. 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, which took place in Q3 last year in Asia, you have to take them out to have a fair comparison base. We are virtually flat, 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. Both ourselves and the retailers anticipated a strong level of sell-out this year. Sell-out was decent, but probably not as good as we had thought. There was some destocking, consistently since the beginning of the year, it's been higher than sell-in, this destocking is still taking its toll when it comes to analyzing the Asian figures of the watches and jewelry division, but to a lesser extent probably than in Q2, for instance. As far as LV is concerned, 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, 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, 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. Japan was in line, a bit lower than Q2. All in all, 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 at Vuitton, which growth rate is extremely high and very promising in the long 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 digits 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. Thanks a lot. Excellent. Thank you. Thank you. We have a 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%, does it mean that the other brands slowed more than Louis Vuitton in the quarter? Could you comment which brand was still growing double digit organically in Q1? Second question, 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? Finally, when you look at 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 fourth quarter? Have you adjusted your cost on CapEx, given the slowdown we've seen since July? Okay. Thanks, Antoine. On the non-LV brands, on your first question, yes, we feel a slowdown, but mostly, well, I'd say entirely, on the wholesale side of the business, which is roughly one half of the non-Vuitton sales of the division. The retail portion of the non-Vuitton sales in the division were growing exactly or more or less exactly in the same way as they were in H1. 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 trades. Some of our brands, including Celine, Fendi, have been extremely selective in pushing their products into wholesale. 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 LV, well, as I said, there is no major slowdown in Q3 compared to Q2. Macro-related, I would say that it's mostly tourist-related. If you look at the slowdown that we have in the growth rate of Vuitton, it's mostly with the two big main tourist pool, the Japanese, mostly, and to a lesser extent, the Chinese tourists. The reason is probably not a real weakness this year, but a very high comparison base. 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. 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, thank you. 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. We adapt ourselves to the environment, we take the necessary measures, we do what we think we have to do, I will not elaborate further on that. Thank you very much. Thank you. We have a next question from Mr. Mark Vidon from Raymond James. Please go ahead. Hi, yes, good afternoon. My first question would be on Europe. Could you give us a flavor of the overall trend within the local customer? On Louis Vuitton, are there any news regarding the pricing issue? Have you recently increased your retail pricing in Europe? The third question, just follow up on the Sephora. As far as I understood, probably the 10% same-store sales in the U.S. and the 3% same-store sales in Europe recorded in H1 could be extrapolated on a nine-month basis. Thank you. Thank you, Mark. Local customers in Europe, more or less the same figures as the one we had in H1, a bit better. The French, the Brits, and Germans were a bit better. Italy is not getting any better. We still have a drop in the Italian customer base. All in all, we have figures that are slightly better than what they were in H1. Increased prices, we increased prices by 8% from the 1st of October onwards in Europe only. No other price changing elsewhere in the world. Sephora, like for like, I think nine-month figures are exactly the same as they were H1. I think the U.S. is a bit higher, one point higher, and Europe is one point lower, but nothing really different. Okay. Just if I may, maybe on Louis Vuitton. You highlight 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 a Q1 comment, if I'm not mistaken, but anyway. You're right, it's Q1. Same as Q2. For now, both the Chinese and Japanese are high single digits, but not double digits. Okay. Thank you. Thank you. We have a next question from Louise Singlehurst from Morgan Stanley. Madam, please go ahead. Hi. Good afternoon. Hi, Jean-Jacques, Chris. Just two or three questions from me too, please. Firstly, just on the Louis Vuitton on the 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? Because obviously recently it finished in China and any impacts there on tourists, but also local demand. 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 LV margins. I would have to go in such a level of details, particularly on the currency impact, that it will take too much time there, and I'd rather leave it for the full year comments on the P&L. On the Golden Week, DFS was very pleased with the Golden Week. They registered growth, which was higher than what they had in Q3, so it went very well. Vuitton, it went okay. At a lesser extent, but it went okay as well. Price increase was, as I said, 8% in Europe. That's all. 8% from the 1st of October in Europe, full stop. Super. Thank you. Just one quick pricing question on Champagne and Cognac as well, expectations for the next 12 months. Thank you. You mean in terms of pricing? Yes, please. We will not have any price changes in the rest of the year. It's pretty unusual, as you know, to pass on price increases in the last three months of the year. As always, in the first three months of next year, so in the course 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. Super. Thank you. Thank you. We have a next question from Mr. Thomas Chauvet from Citigroup. Sir, please go ahead. 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 contrasted trend in Asia and in Europe. Both division have different trend in Asia and Europe. When would you expect the price increase you've passed on in Europe to impact that shift in demand from one region to another? Just to clarify, the +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 more solid number, i.e., perhaps, more inventory buildup on their side in Asia. Do you see any significant swings in market share taking place in Asia beyond destocking? Finally, on Vuitton, could you say what was the impact of the Plaza 66 reopening on that Q3 growth you mentioned, please? Thank you. Thanks, Thomas. 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 hard question, as you know. Impacts of prices are always very difficult to measure and to quantify. The price elasticity is not something very precise in the luxury industry. We'll not take the risk to go into some forecast as to how long it's going to take. We think we are 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 of rebalancing the business in between the two zones. How long is it going to take? I've absolutely no idea. The watches and jewelry situation in Asia and the destocking, we think the 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. As you know, our market shares 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 couple of percentage points, but nothing very significant, very immediately in figure 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. Thank you, Jean-Jacques. Just to follow up on watches, when you comment, you said the destocking has come to an end. You're talking about your brand. Obviously, some of your big competitors don't seem to have seen any sign of destocking yet. 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 sell-out than actually materialized, and this excess inventory is progressively being wiped out by sellout. We are getting close to a normal position, and it remains to be seen whether we'll get further sell-in for the year-end season that will enable us to end up the year on a higher note. That's what I'm saying. Thank you. Thank you. We have your next question from Mr. William Hutching from Goldman Sachs. Sir, please go ahead. Good afternoon. Just got one question coming back to watches and jewelry. In terms of the impact from these high-end jewelry sales, you said that ex those sales, your watches business would have been flat in Asia. Can you give the impact on a global basis? Can you also help us understand, because I understand that you've 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'd be very helpful. Thank you. Thanks, William. On the high jewelry for the whole division in Q3, we're talking about 4%-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. I cannot answer. We had price increases here and there in the U.S., in Europe. Volumes are pretty good in both U.S. and Europe. I would say that volume growth are higher than price impacts, but that's all I can say. Okay. Just to clarify, the 4%-5% difference you mean between jewelry and watches is the difference. Can we also- No, it's the impact on the whole division on watches and jewelry of this- One more question. 5% just from high-end jewelry. It's great material, isn't it? Ladies and gentlemen, thank you for holding. The conference will start. Hello? Can anyone hear it? Hello. Mr. Hollis, you can go ahead. We finished answering the questions. Is there a next question, please? The next question is from Thomas Mesmin, from Cheuvreux. Please go ahead. Jean-Jacques and Chris, I've got 2 quick questions. First one on FLG in Q3 in Asia, which increased at +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 ASP 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 Neverfull medium size on the French website seems to be the same price as last month. Have you increased prices in all the open countries and for all product ranges? Thank you. Yes. Normally, it should be a price increase across the board, thanks for the information. I will check on the internet. 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 portion of Asia connected with the high comparison base for touristic flow 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. That was probably implicit in some of my comments, but I don't really remember it. I will just repeat what I said before. We had too many inventories starting the year, level of inventories within the trade had to go down. Therefore, sell-out was higher than sell-in for most of the year, sell-in was pretty poor, we expect this to normalize pretty soon. Thank you, Jean-Jacques. Thank you. We have the next question from Mélanie Flouquet from JP Morgan. Mélanie, go ahead. Good afternoon, Jean-Jacques and Chris. I have four questions, if I may. The first one is on the Fashion & Leather Goods division. I was wondering whether you can share with us, overall, I think in Q3 and Q2, we're basically running at mid-single-digit for Louis Vuitton. Can you share with us what was at play in Q3? In Q2 you had flagged some issues with product launches and with marketing that were supposed to be fixed in Q3. Can you share with us what is at play in Q3 in comparison, whether the launches were not quite as favorable as you thought, or the marketing, what to expect for the rest of the year? The second question is on tourism. You highlight a 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 a number of key divisions, notably Wines & Spirits and Fashion & Leather Goods. I was wondering whether you can give us an update on what's happening in the U.S. for these divisions. And lastly, very short one, cognac, just the Q3 sales growth organic. I missed that. Thank you, Antoine Belge. Okay. I take a note of all these because I will forget otherwise. Thank you, Mélanie. What is at play in Fashion & Leather? I would say nothing really new. Apart from the fact that we benefited highly in Q3 last year from the level of tourist flows. This has shown no sign of reduction, but the growth rate is actually slowing down, that's all. And we have to anniversarize very high volumes of last year. I think the big issue for Q3 was to anniversarize these big volumes we had with the Japanese and the Chinese in the last year. That's at the same period. That's the 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. There was no particular disappointment or overachievement would have been difficult as we have sold basically all we had to sell. 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. The absolute level is extremely high in terms of growth. Growth is lower than last year, but the absolute level is extremely high and very satisfactory. We just have to follow growth of last year, which with both Japanese and Chinese was extremely high. The U.S. in Wines & Spirits. I think, yes, the figure is a bit lower than what it was in H1. Two main reasons. First of all, is that the month of June in Champagne was abnormally high. So we had conversely July and 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. Q2 was probably a bit higher than it should have been, and Q3 is a bit lower than it should be. And Cognac & Spirits Q3 figure, if I'm not mistaken, is 12%. Can I just confirm, sorry. What are you expecting then, if it's a question of growth rates normalization compared to last year? What should we expect notably in Q4 where your comparables are even tougher, at least at Fashion & Leather Goods division? We'll see. You know that we never do any free 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, and it's a quarter in which we are normally pretty active. It's a different quarter from the other one. Less wholesale, more retail. We'll see, but I will not make any forecast at this stage. Are there also less tourists? Sorry, Mélanie? Are there also less tourists in Q4 traditionally? Less tourists where? In Q4, traditionally. Is this more a local consumer base quarter? Yes, it's more local customer quarter, it doesn't make a massive difference. I just come back on one of your question. The figure I gave you on Cognac is a full division. It's a worldwide organic growth figure. It was not a question on the U.S., right? No. The U.S. for fashion and leather goods, can you tell us what you're seeing there? 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. It's not at all a problem of business as such, but it's more a phasing question of wholesale for the fall-winter collection. Perfect. Thanks a lot. Thank you. We have a next question from Matthias Eifert from MainFirst. Your line is open. Yes, it is Matthias Eifert 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? 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 fourth quarter? Do we have to wait for next year for this kind of temporary effect to go away? Okay, thanks. The growth in Q3 for China was 11% as opposed to 14%. I am talking about renminbis, as opposed to 14% in H1. A bit lower, but not significantly lower, and a chunk of it comes from the high degree that I mentioned before. As far as the leadership change is concerned, it is some form of obvious explanation for attentism on the side of customers I doubt this will be normalizing entirely in the course of Q4. It will take probably a bit longer than that. Excellent. Thank you. Thank you. We have a next question from Mr. Olivier Desboires from Natixis. Sir, please go ahead. Yes, thank you, Jacques and Chris. Sorry to come in on the Wines & Spirits. I must have missed some numbers. I was just wondering if you could clarify, first of all, for the total Wines & Spirits Q3 organic growth, is it 6%? Yes. Can you break that down? Did you mention 12% for Cognac & Spirits? Yeah, slightly positive for Champagne & Wines. Okay. You mentioned that there would be no further price increases, let's say before Q1 next year. Yeah. Can you remind us of the price increases that were done over the last year, firstly? Secondly, regarding inventories in the trade, overall inventories, is there also some kind of sell-in, sell-out effect that we should be aware of for the Champagne and spirits? Thanks, Olivier. The price increases, we had normal price increases, I would say, in early March in the U.S., in Europe, and in Asia in between 2.5% 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. 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 Asia. As far as the U.S. is concerned, they are normal in cognac and quite low in Champagne. I doubt, 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 sell-in figures as opposed to sell out. Great. Thanks, Jacques. Thank you. We have a next question from Paul Swenlin from Morningstar. Sir, please go ahead. Good afternoon. Thanks for my questions. A quick question on the Wines & Spirits business, just a little more long term. I know there's been some discussion about poor harvests in many regions of France. 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 one year would have as an impact and when would that show up? I guess the follow-up would be, would that impact prices upwards as there's lack of supply, or does it end up just sort of being neutral throughout the years? Well, in cognac, it depends on the categories. VS is 3 years. Basically price increases would be carried into inventories for three years, and then the bottles that are going to be sold in three years will be impacted by raw material price increases. 7 years for VSOP. As far as Champagne is concerned, on average, we are talking about four years. You have a little bit of a time lag in between the two. Is your business mix roughly 60/40 high-end versus the low end? Well, it depends whether you're talking volumes or value. As far as our Wines & Spirits business is concerned, 90% or 95% of what we sell is above EUR 25 a bottle. It's considered premium or high premium spirits. We consider that everything we sell is premium. Okay, thank you. A quick question on selective retailing. I think in the prepared remarks you said, in the third quarter, Sephora 8% currency and 2% organic. In the presentation it says network of 1,367 stores plus 110 stores. That's the nine months. Was the store opening effect about equal through the nine months, or was it all front-loaded? Well, the answer is I don't know. I should know, but I doubt it. Normally, as we open quite many stores in the year, the number of openings on a quarterly basis is fairly stable. We would open 30-40 stores per quarter, maybe a bit more, but five or six more and five or six less, nothing really different. From my memory, we don't have big swingings and big differences between like for like and full growth. Okay. Would DFS and Sephora space growth be above 2% in the total selective retailing space growth? Space growth would be above 2% in the third quarter, though, correct? For Sephora, yes. We don't really count in square meters, but in number of stores, we have an increasing number of stores or about 7% per annum. Chances are the number of square meters growth in the same ballpark. As far as DFS, it's less linear as we open stores from time to time. We just opened a fairly substantial store in Hysan Place in Hong Kong. Before that, there were two or three years in which we didn't do anything. It's not linear. Okay. Thank you very much, and best of luck for the holidays. Okay. Thank you. We have a next question from Mr. Rogerio Fujimori. Please go ahead. Hi, everyone. I have a small question on Vuitton. In previous periods of slowdown, Jean-Jacques flagged the traditional, I think, Monogram and Damier lines outperforming, but not in the past couple of quarters. I was just wondering if the high-end leather lines are generally outperforming within Vuitton stores today. Are there any meaningful mix changes and adjustment in supply chain that we should be aware of? I will not mention or discuss high-end or entry price, but the leather line are growing faster. It's not new. It's been going on for years and years, but the leather line are growing faster than the canvas line. That's been at a point where the leather line represents a sizable portion of total sales now. In this respect, 2012 is not particularly different from the other years. This is something we've seen for quite a long period of time. 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 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 Altagamma Bain estimate for the luxury industry in the year of about 10%. Vuitton is growing faster than that. We feel Vuitton is gaining market share. That's what I have to say. Thank you. Thank you. We have the next question from Catherine O'Neill from Kepler Capital Markets. Madam, 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 DFS by year-end. I just wanted to know if you could give us some color about the impact on DFS business growth. Second 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 was there any change in trend versus H1? Third question about Vuitton. You quoted some marketing initiatives in Q4. Could you tell us a bit more about these marketing initiatives, please? On this last point, the answer is no. We will not make comment for fairly obvious reasons. I'll try to answer your first two questions. Hong Kong Airport, we are talking about $800 million business, U.S. dollars, not Hong Kong dollars, business that will develop progressively between December of this year and March of next year. We shouldn't have 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. Not very different from Q2, but a bit lower. The main reason being that we are decreasing voluntarily the business of VSOP in the U.S. to shift the volumes 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 VS. The VS business in the U.S. is doing really fine. Our depletion rates for the year are pretty good. We are very satisfied with the cognac business in the U.S. Okay. Thank you very much. I will take one last question if there is one. Yes, we have a question from Mr. Xavier de Enault 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. I would like to know whether you can comment on July and August versus September, how did it grow, the growth rates, have you seen an improvement in September or not? Secondly, also trying to understand what is the baseline for the growth of DFS. You mentioned that the concessions in Hong Kong would add EUR 800 million. The opening of the third 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. I will not elaborate on July versus August and September. The only thing I can say, that I think most of you already know, is that August and September, the sales were higher in terms of growth rate. Growth rate was higher in August and September than what it was in July. July, for some reasons I mentioned, like business taking place a year in June as opposed to July, et cetera, was a fairly soft month, August and September were better. As far as your second question is concerned, I am not so sure I understand what you mean by baseline for travel retail. I mentioned the fact that Q3 DFS 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 high comparison base last year. That's the only comment I will make on this. I meant on Galleria, the opening of Galleria. Yes. What's your question on the opening of Galleria? Well, basically just to see what was the impact on DFS because of the opening of Galleria. It was toward the end of July, it's one Galleria among many others, it's a small Galleria on top of that. It's 5,000 sq m as opposed to most of Galleria being twice as big. The impact was not particularly meaningful. Thank you. Thank you. Just a few closing remarks. I would like to make two or three points. Obviously, I would say that our Q3 figures reflect a tougher environment, 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. One shouldn't see the bottle half empty in my view. Two. 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 brands. We kept them, even though in the current environment it is proving a bit painful. I mentioned Fendi and Bulgari. I could also mention Celine, TAG, Chaumet. A lot of brands are doing that. Three. This is probably the most important point, which I mentioned a few times, tourist sales in Q3 last year, which we called less with both the Japanese and the Chinese. I mentioned DFS being up 30% in Q3 last year, LV being also up 30% with Chinese last year. Anniversarizing these volumes was another challenge. We did it with most, if not all, of our tourist-exposed activities being positive in this quarter. 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 strengths of our Wines & Spirits business and of our perfume and cosmetic 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 all.