Ladies and gentlemen, welcome to LVMH first quarter revenue conference call. I'll hand over to Mr. Chris Hollis. Sir, please go ahead.
Hello. I'm Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us. We have some brief remarks to make about LVMH's revenue for the first quarter of 2013. As in previous periods, these revenue figures are reported in accordance with IFRS. After these remarks, Jean-Jacques and I will be happy to take your questions. Before I begin, I must remind you 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 press release. Turning now to yesterday, last night's announcements. I hope you had the chance to read our release, which was issued late last night after market, in both French and English.
As always, the release is available on LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's conversation. Turning to the second of those slides. Performance in the first quarter continued the trend we saw in the second half of 2012. We delivered 7% organic revenue growth, which came on top of a very strong 14% in the year ago period, a tough comparison basis. The growth in this year's first quarter was slightly offset by a negative currency impact, as I'll discuss in a moment. Overall, our positive performance reflects solid increases across all key regions, with the exception of Europe, and continued strength in emerging countries. In terms of business highlights, we saw continued progress at Louis Vuitton and the sustained development of other fashion brands. Again, on top of particularly strong increases in the first quarter of 2012.
The solid growth in wines and spirits and selective distribution businesses also contributed to the group's overall performance in this year's period. Looking at the revenue for the group in more detail for the first quarter, slide three. Total revenue rose 6% on a reported basis to nearly EUR 7 billion from EUR 6.58 billion in the year ago period. This reflects, as I mentioned, a 7% rise in organic revenue, offset by a negative 1% impact due to currency, primarily due to the impact of the Japanese yen and to a lesser extent, to the US dollar. We continue to have a well-balanced geographical mix. You'll see that on slide four. A key component, of course, of our strategy to maintain a diversified regional distribution of our revenue. As you can see, Asia excluding Japan today represents 33% of revenue as measured in euros.
That's up 2% compared to last year's first quarter. Europe, including France, was down the same amount and now represents 27%. The U.S., including Hawaii, was at 22%. Japan was at 8%, and other markets at 10% of revenue. All remain stable compared to last year. Changes in revenue by region compared to last year's first quarter. This is slide five. Revenue rose 12% both in Asia and in Japan. We saw a 7% increase in revenue in the U.S., excluding Hawaii, as measured in US dollars, while Europe was flat as the local situation continues to weigh on local demand and tourists, notably from Japan, reduced their spending there. As usual, I'll break down our revenue by business group, starting with wines and spirits on slide six, which delivered a very solid performance.
Organic revenue was up 7% for the quarter, driven by growth in Asia, the U.S., and Japan. This comes on top of last year's first quarter, when organic revenue had risen 16%. Total revenue in this business group increased to EUR 979 million from EUR 926 million in the first quarter last year. This marks a 6% gain on a reported basis, which includes the good 7% organic sales growth I mentioned, offset by a negative 1% currency effect. Breaking this down, champagne and wines was roughly flat. EUR 350 million in the first quarter compared to EUR 349 million in the year ago period. A 3% organic revenue growth was offset by a 3% negative currency impact. Cognac and spirits saw reported revenue rise 9% to EUR 629 million compared to EUR 577 million in the year ago first quarter.
This represents a 10% increase in organic revenue and a negative 1% currency impact. On a geographic basis, again, Asia saw the strongest rise in wines and spirits revenue up 12%, followed by 9% in the U.S. and a 7% rise in Japan. Volumes in the champagne business were down 1% in the quarter, which is traditionally the smallest quarter of the year for this business and also the most volatile. To give you some champagne business highlights, we saw positive effects of the price increases we implemented last year and good performance in Asia while Europe experienced slower demand. Our sparkling wines had a good start to the year. Turning to cognac and spirits. Hennessy volumes were up 5% in the first quarter, building on last year's 9% volume increase in the period.
There was a particularly strong momentum in the U.S., at least some continued progress in China. This business also benefited from last year's price increases and the solid volume growth of other spirits, in particular, Glenmorangie. Looking at fashion and leather goods on slide eight. This business was up 3% on an organic basis, a solid result coming on top of a 12% rise in the year ago period. On a reported basis, including a 3% negative currency impact, reported revenue was EUR 2.38 billion, up slightly from last year's first quarter. To give you some highlights of the quarter in this business, the principal change was linked to the weakness of the yen compared to last year. That meant that the Japanese clients were buying more at home than abroad.
Louis Vuitton, with a focus on innovation, its incomparable knowhow, and the highest quality of products and service for its clients, continued to demonstrate progress, particularly among its leather products. The success of the new Pochette Métis line contributed positively to its performance, along with the many iconic models. Ready-to-wear and shoes also performed well during the period. The fashion and leather goods performance also reflected strong growth at a number of other brands, notably in retail, while the wholesale was a little softer. Celine performed strongly, and continued its store network expansion, while Fendi recorded strong growth in its own stores, particularly for its bag and fur segments. Several other brands, including Kenzo and Berluti, continued their development. Looking now at our perfumes and cosmetics business, slide 10.
Revenue reached EUR 932 million, up 4% on a reported basis from EUR 899 million in the year ago first quarter. Excluding a 1% negative currency impact, this was a 5% rise in organic revenue, on top of a 9% rise in the same period last year. Looking at the revenue by region in this business, this is slide 11. Performance was bolstered by a 6% rise in Asia and a 6% increase in Europe, and demonstrated market share gains in all key markets. Parfums Christian Dior continued its positive momentum with a strong performance from its Miss Dior and Dior Homme fragrances, the successful launch of Dior Addict Gloss, and the continued progress of Dior Prestige skincare.
Guerlain also contributed to this group's performance in the first quarter through the ongoing growth of La Petite Robe Noire perfume with the introduction of an eau de toilette in France, and good performances of the beloved Terracotta makeup line and the Orchidée Impériale skincare line. Parfums Givenchy successfully rolled out its fragrance, Gentlemen Only, whose muse is Simon Baker, and Kenzo launched a new Flower by Kenzo TV advertising campaign. Benefit Cosmetics has shown continued strong momentum, including from the introduction of online sales in France and Germany. To finish up the highlights for this group, both Fresh and Make Up For Ever are enjoying rapid growth in Asia based on their innovative products. Turning to watches and jewelry business, slide 12. Revenue in this group was EUR 624 million compared to EUR 630 million in the first quarter last year, including a negative 3% currency impact.
Organic revenue was up 2% in the period, which comes on top of a 17% rise in organic revenue in the year ago first quarter. The 2% organic revenue growth in this business group was on top of a particularly high comparison base in Q1 of last year, up 17%, and reflects a solid performance, especially within our own retail stores, while multi-brand retailers were more cautious in their buying. There was a good level of orders taken during the Geneva Watch Fair in January. TAG Heuer celebrated the 50th anniversary of its iconic Carrera Calibre 1887 line, and a new bigger and stronger partnership with McLaren. Hublot with its Classic Fusion line, and Zenith with its El Primero and Pilot lines, achieved a good start to the year.
Bulgari shared strong progress within its jewelry segment, notably with the success of its Serpenti line, and particularly in its retail stores, while continuing to be more selective in its distribution via third parties. The selective retailing group performed particularly well in the quarter. This is on slide 14. Up 16% on a reported basis to EUR 2.12 billion from EUR 1.82 billion in the year ago period. This reflects a 17% rise in organic revenue on top of an 18% gain last year, slightly offset by a negative 1% currency impact. By region, Asia drove performance in this business group with a 42% rise in revenue. The next largest contributor was the U.S. at 9%, followed by Europe, up 3%. DFS demonstrated continued strong momentum in Asia, particularly in Hong Kong and Macau.
This was in part driven by three new Hong Kong International Airport concessions that were taken over at the end of 2012. On the other hand, a weaker yen impacted travel destinations for Japanese travelers during the period. Sephora continued to generate strong performance, delivering market share gains in all regions. The business sustained its momentum in the U.S. and achieved positive comparable store sales growth in Europe despite the challenging environment in Southern Europe. Online sales were a strong contributor to Sephora's performance, and the business continued the expansion and renovation of its store network, opening a flagship store in Shanghai during the period with a great deal of fanfare. Last slide. Overall, our brands delivered solid performance in the first quarter in the face of ongoing economic uncertainty in Europe.
In a difficult economic environment, the group will continue to pursue its objective of increasing our leadership position in the global high-quality products market by focusing on our commitment to innovation and quality products and selective store network expansion in markets where we see good opportunities for our brands. Thank you. With that, we will now take any questions you might have. Stephanie, please could you open the line?
Ladies and gentlemen, if you wish to ask a question, you have to press 01 on your telephone keypad. Thank you. We have a first question from Mario Ortelli from Sanford C. Bernstein. Please go ahead.
Good afternoon. I've got two questions. The first one is on selective retail. I kindly ask you to let us know which part of the growth is driven by the three concessions that you won in Hong Kong. The second question is on the fashion and leather division. I kindly ask you to give us some more color about the new strategy of Louis Vuitton, a focus on the premiumization of the product. If you can give also us some ideas how this strategy is perceived by the customers in the different regions. Thank you.
Okay. Hello, Mario. On selective retail, the growth is, as you suggested, increased by the new contribution of the Hong Kong International Airport's three new concessions by about 10%. Roughly speaking, DFS sales are boosted by 20%, selective distribution by 10%, and the group's sale by 2%, more or less up to the end of the year. We had a little bit of an impact in November and December, the bulk of it will take place throughout the year. On your second question about what you call the new strategy for Vuitton, I think we made that clear that it was not a new strategy. The emphasis on retail experience and on the quality of product is not something new at Vuitton.
What we have in mind is that in some markets, aiming for always higher number of stores and expanding the footprint of the brand could lead to overexposure of the brand at some point. This is basically what was explained during the last conference in January. I don't have much to add on this. In terms of response by the client, nothing new. We said that the up-market products, such as soft leather, have a very good response from the clients, and the growth is extremely significant. As far as the other components of the strategy is concerned, it's probably a bit early to say. It's work in progress as it always is. A strategy is not something that you implement as of a certain date. It's an ongoing process. I cannot really comment on this.
Our next question from David Wu from Telsey Group. Please go ahead.
Hi. Good afternoon, everyone. I have three questions. First, can you comment on the growth rate for Vuitton, both total sales and like-for-like, and perhaps talk about your expectations for the brand performance this year? Should we expect about mid-single digits, especially given that you're slowing the rate of store openings? Also, if you're seeing any customer resistance to the price increases that you've recently implemented on the monogram bags. Just secondly, watches and jewelry also slowed a bit. Could you just update us on how inventory levels are faring at the retailers, especially in China, if the sell-ins are more or less in equilibrium with the sell-outs, and perhaps just update us on your investments to expand watch production. Just lastly, selective retailing, obviously very, very solid this quarter. How much of the growth was driven by DFS versus Sephora?
Could you provide us with the total Sephora comp along with the breakdown between Europe, U.S., and China? Thank you.
Thank you, David. You said basically you had three questions. In my view, you have a bit more than that. Anyway. As far as growth for Vuitton is concerned, as always, we don't disclose it as it's not materially different from the division's average for the quarter. In terms of price increase and the response of the client base on the price increases, as you know, it's always difficult to measure, particularly when you implement significant price increases as we did in Japan. We increased prices by, depending on products, by in between, let's say 10% and 15%, on average, about 12%, 13%.
We announce it in advance, we have a boost in sales price as the price increase and a bit of a depression thereafter. It's always difficult to figure out what is the real impact, because you need a bit of time to really see the impact for that. The only thing we can say is that as far as Japan is concerned for Vuitton, the quarter went quite well. We are growing double-digit, it's quite a long time since we haven't seen that. Obviously, there is an impact from the fact that a big chunk of the business we were doing in travel retail with Japanese clients now takes place in Japan with Japanese prices being much more competitive, if I may call them that way, than they were in the past. Japan benefited largely from this.
We had a big drop in Japanese travel retail business outside Japan, mostly in Asia and in Europe, and particularly in Europe. Conversely, we also had a boost in LV in Japan. As far as other geographies are concerned, I cannot say we implemented price increases ranging from 3% to 4.5%, which had no particular impact on the business, neither positive nor negative. The client base is used to that type of price increase, and they never distort the business in a major way. That's for Vuitton. You had a question on watches and jewelry and the inventory situation. I would say that as far as watches are concerned, we have, and TAG Heuer particularly is concerned, our sell-in is a bit lower than the sell-outs.
Particularly in the U.S., we ended the year with inventories being a bit high, not very high, but a bit high, and therefore, our sell-in in the first quarter of the year, which is normally a period when retailers replenish their inventory, the sell-in was a bit lower than we expected and a bit lower than the sell-outs. Nothing really worrying, but the situation will normalize pretty soon. As far as Asia is concerned, and particularly China, as you know, we do only a small fraction of our business there. The sell-outs seems to be quite soft in mainland China for the time being. Conversely, the sell-in has also proven a bit soft.
As far as watches and as far as jewelry is concerned, obviously it's a different story because we are talking about mostly a retail business with Bulgari, and retail operations at Bulgari went extremely well in the quarter. We registered a strong double-digit figure for growth at Bulgari, a bit boosted by high jewelry sales, but nevertheless, even taking this out, the business proved in retail to be very strong. We carried on cleaning the wholesale network, particularly in perfume and accessories. Overall, we are very pleased with the performance of Bulgari in the quarter. Finally, your question on selective distribution and DFS versus Sephora. If you take out Hong Kong International Airport from the DFS numbers, they end up to be pretty close to Sephora's, around low double-digit increase for the quarter for both businesses.
As far as Sephora is concerned, the U.S. business did better than the European business. No surprise. The U.S. business comparables were mid-single digit, whereas the European numbers for comparables were low single digit. China did very well. We had double-digit comparables in China. All in all, it was a good quarter, even if you take out the impact of Hong Kong International Airport, it was a very good quarter for selective distribution.
We have a next question from Mark Wilkins from Raymond James. Please go ahead.
Hello, good afternoon. Three question, if I may. The first one will be on the fashion leather goods. Could you give us an idea of the trends for the non-Louis Vuitton core brands in between the retail and wholesale, please?
That's the only question you have, Mark?
No, no. Okay, I have three questions. You have already a little bit tapped this issue, but could you be more precise on the watch businesses in between the retail and the wholesale trends, maybe on a global view? The third one will be on Louis Vuitton. Could you give us flavor on trends in China with the Chinese clientele worldwide? Thank you.
Okay. Let's start with the non-Vuitton brand. The figure for the non-Vuitton brand altogether are slightly higher than the average for the division. You have two very different trends. On the retail side, for most of the brand, if not all of them, we have double-digit growth in the quarter. The wholesale business is affected by some cleanups that we carry on doing something like at Fendi, as we announced last year, but also due to the fact that there is a little bit of caution from some retailers to buy goods at this point in time. The wholesale business altogether is quite low, and we are in slight negative territory on the wholesale business as opposed to the retail business, which is showing good, strong growth.
Just maybe if I may.
Sure
Interruptions. On the retail, as there were, I would say, many stores opening, how would you quantify the same-store sales?
I wouldn't. We never do that. We are talking about probably as much as six or seven or even more than that, different brands. I don't know the answer. There were some store openings, we are talking about double-digit growth in retail, and I would say that a big chunk of it, I don't know, two-thirds, maybe a bit more than that, comes from what you would call same-store growth.
Okay.
On watches and jewelry, we touched upon the retail-wholesale analysis. It's really watches and jewelry. The two trends are a bit different. As I said, Bulgari, we had strong growth in retail. Whereas, as far as watches and particularly TAG Heuer is concerned, the wholesale business was a bit under pressure. We have slightly positive figures for the wholesale business of TAG Heuer. We are not particularly surprised. The end of the year last year was very strong for TAG. Maybe the sell-in was a bit stronger than the sell-out, as I said. This quarter and maybe the first part of the current quarter will be affected a bit by the level of inventory. Again, nothing really worrying, and this will normalize pretty soon. Finally, your question on LV and the trend on the Chinese client base.
Basically, the Chinese client base is up mid-single digits, a bit higher than what we had in H2, actually, with domestic sales being flattish and touristic sales being high single-digit growth.
Okay, great. Thank you very much.
Our next question from Louise Singlehurst from Morgan Stanley. Please go ahead.
Hi, good afternoon, Jean-Jacques and Chris. Couple of questions for me, please. Just following on from those travel trends that you were talking about. Clearly you were impacted by the Japanese coming to Europe. Can you just tell us about how things have been in the last few weeks? Obviously January and February were quite distorted by the timing and the change in the Chinese New Year. Is it traffic, or is it more about the average ticket price that those consumers are spending? Then back into China, obviously mainland China remains pretty tough from what we can hear, but is there any change in the consumer environment that you'd highlight more towards the end of the period than the beginning of January, for example? Thank you.
Okay. The travel trend, you mentioned the Japanese. Obviously, it's been a big factor, as I commented before, in the quarter for Vuitton, which is the only brand at which we measure with some accuracy the trend in Japanese travelers. Overall, the business with Japanese clients was slightly up, but the business in travel retail with Japanese was down more than 40%. It was a huge impact in the business throughout the quarter, and we've seen that pretty consistently since the beginning of the quarter. The change in prices didn't have any big impact on this. Roughly speaking, be it with the Japanese or with the Chinese, we haven't seen much volatility in the trends in the quarter. The Japanese have been under pressure, mostly due to currency fluctuations.
As far as the Chinese are concerned, the business is good, in line with what we had, even maybe a bit better than what we had in H2 last year. We've seen, obviously, with the ups and downs of Chinese New Year and the little bit of lag, that two-week lag that we had. Despite this being taken aside, the trends in Chinese clients based outside China was pretty consistent throughout the quarter. As far as domestic China is concerned, the trend, I would say, remains a bit the same. We have been experiencing flattish sales for the past nine to 10 months in China. The first quarter is no exception to that. I would say it's mostly a traffic issue as far as we can analyze it. Traffic is down in most shopping malls. It's not really a ticket issue.
Again, no major fluctuations beyond the Chinese New Year period. No major fluctuations throughout the quarter in the trends in the business.
Thank you.
Our next question from Javier Escalante from Consumer Edge Research. Please go ahead.
Good afternoon, everyone. I just would like to hear your comments with regards to what seems to be a deceleration in comps in Sephora in the U.S. to mid-single digits? Do you think that this is an issue, to what extent this is an issue of comps, this is an issue of something in the consumer in the U.S., and does it have any read in terms of what your store expansion plan should be in the U.S.? That would be helpful. Thank you.
Well, it's slightly decelerating in the U.S. That's true. On the other hand, we are getting about 6% like-for-like growth for Sephora in the U.S. Believe me, if I could sign tomorrow for that type of growth for the next 10 years, I would definitely do it. We have a market share in the cosmetic market in the U.S., which is higher than 20%, and that's a fantastic performance to be able, like for like, without the impact of store openings, to get a 6% growth. It's really not a source of concern for us, although it's probably a bit lower than what we had last year, which was viewed as an exceptional year in many ways. Same thing for 2011. 6% is a very good figure and doesn't change at all our views as to store openings for the future.
We have a next question from John Guy from Berenberg. Please go ahead.
Yes, good afternoon, Chris and Jean-Jacques. A couple of questions from me, please. First of all, could you just talk about where the European pricing delta is now relative to Beijing for Louis Vuitton? Maybe just talk a little bit around the price mix increases for Louis Vuitton during the quarter and where you see that going out into 2013. Also with regards to the wines and spirits division, could you maybe talk a little bit about how you see the pricing strategy going forward for cognac? Some U.S. retail off-trade spirits data came out in March, looked like a very strong volume number, but value looked down and promotions seemed to go up quite considerably. I was just wondering if you could talk through the strategy certainly with regards to Hennessy. Thanks.
Okay. For the price gap, your question, John, is on China versus France, right?
I think previously we were talking about a 45%-47% pricing delta from Paris to Beijing. I was just wondering where that gap had effectively closed to today.
Following last year's price increase in Europe and the decrease in the U.S. dollar and in the Renminbi that took place at the end of last year against the euro, the price index is about 130, something like that, which is the type of price index which we think is appropriate given the fact that this market, the Chinese market obviously suffers much higher taxes than many markets, be it import duties or sales tax or consumption tax, et cetera. The landing costs obviously are much higher than any other market. As far as pricing is concerned, we are pretty satisfied with the level of the price difference for the time being between Beijing and Paris, to take this example.
As far as price mix in 2013 is concerned, we should get a few digits from prices, probably less so than last year, but a few digits from prices in the course of this year as we did in H1. Mix volume, we had only a marginal change in the first quarter of the year on this. I cannot really predict what's going to happen for the rest of the year. Finally, your question on Wines & Spirit s, the pricing strategy in the U.S. The only thing I can say is that we implemented in March a 3% price increase for the U.S. in the U.S., which is not something that we have done lately. It's really the first price increase implemented in many years. It went well. Obviously, we have a little bit of a boost in selling before and a bit of lower depletions afterwards.
Nevertheless, it went quite well, and overall, we are extremely pleased volume-wise and value-wise with the performance of Hennessy in the first quarter of the year in the U.S., and it bodes very well for the rest of the year.
Thanks, Jean-Jacques. Can I just have a couple of follow-ups? I just wanted to confirm that you said that Japanese tourism was down 40, 4-0%.
Yes, 40.
Yeah. Okay. Just one other one on costs. I know in the statement you said that obviously you're going to have a pretty tight control on costs. With regards to Louis Vuitton, LVMH in particular, is it fair to say that the balloon campaign costs will annualize in the fourth quarter, but will they necessarily be fully offset as you ramp up potentially an LV Perfumes & Cosmetics launch?
Why don't we discuss that when we discuss profits in July? I mean, that would be better.
Okay. Thanks very much.
Thanks.
Our next question from Catherine Rolland from Kepler. Please go ahead.
Good afternoon. I have two questions actually. The first question is about the Wines & Spirits price increases. You mentioned that you increased prices by 3% in the U.S. Could you tell us what was the price increase passed on in Asia for the cognac business, please? The second question is about the fashion and leather goods business. You said that business trends were flattish in Mainland China for Vuitton. Could you give us more color about the trends for the other regions, please? Thank you.
Okay. On first question, price increases in Asia, we increased prices for the VSOP by about 1.5% in March and a bit more for XO. I am talking about China. In Asia, was more as the same thing.
Okay.
I am sorry, your second question was about?
The fashion and leather goods business, the trends by region.
Okay. We had flattish sales in Europe and in Asia, mid-single digits in the U.S., and double digits in Japan.
Okay. Thank you very much.
The next question is from Olivier Delahousse from Natixis. Please go ahead.
Yes. Thank you. Hi, Chris. Hi, Jean-Jacques. Two questions from me, please, on the fashion and leather goods. First one is regards to the top line or organic growth. Consensus seems to be expecting like-for-like growth of somewhere between 7% and 8%. As the year develops, the comp basis will be less demanding. I was wondering if you could give us your feeling about that 7% to 8% top line for fashion and leather goods organic growth for the full year. Secondly, just back on the margin, still in the fashion and leather goods. I know it's early in the year, but can you give us some color as to the way we should expect maybe margin to be expected this year, after last year's degradation of the margin?
It was to a great extent related to one-off such as maybe overinvestment in Louis Vuitton and maybe Berluti as well. Are there any special messages you want to put through at this stage?
Thank you, Olivier. I normally try to answer the questions, but on this particular two, I will find it a bit hard. We never comment on consensus figures, as you know, and there will be no exception on this. As far as margins in fashion and leather, I would just repeat what I said at the end of last year, is that we had some specific factors that explained for the drop in margins last year, be that Vuitton, Fendi, Tom Ford, or Berluti. We do not expect further decrease, but on the other hand, the factors that have been in force last year will still be in force this year. Don't expect a major improvement on that front.
Shouldn't pricing help on this?
Obviously, pricing helps, but there are other factors that play as well.
Thank you.
Our next question from [Thomas Chauvet] from Cheuvreux. Please go ahead.
Yes, good afternoon, Jean-Jacques and Chris. I've got two quick question. First one on Europe. We understand that tourist flows are under pressure, notably Japanese. Could we have some comments regarding the local demand in Europe? Do you see some improvement or deterioration? The second one on Louis Vuitton. Jean-Jacques, you explained during full year that, in the midterm, LV should be close to double-digit growth, splited between positive product mix, prices, and volume. We understand that Q1 is definitely close to somewhere close to 3%. Which drivers are missing today, and when do you expect these drivers to materialize? Thank you.
Thank you, Thomas. On Europe, local demand is a bit better, but nothing to write home about, to be frank, but it's a bit better. Obviously, I'm answering on Vuitton. This is the only brand where we can monitor that. It's a bit better than it used to be. Yet we still have the big difference between Northern Europe and Southern Europe as far as Italy and Spain are concerned. We still register negative figures for local demand, but it's a bit better. As far as LV is concerned, the drivers are missing, to take your words. Obviously, what is missing is a strong demand from the eastern part of the world. Half of the business is done there, more or less, directly or indirectly. For the last nine to 10 months, we have had flattish growth from this part of the world.
That's the big driver that is missing. We feel that our business model is suited for much stronger growth than that. Nevertheless, at this point in time, we miss demand from the Asian part of the world, which is obviously a key driver.
Thank you, Jean-Jacques.
Our next question from Paul Swinand from Morningstar. Please go ahead.
Wanted to dig down on your comments that you wanted to focus on innovation. Would you say that there is more innovation than last year at this time? Is the focus more on the flagship brands such as Vuitton? Finally, I guess it's three parts to one category. When you're focusing on innovation, are you driving the higher-end business or is it
at the middle lower end categories or is it more even across all business price points?
Well, innovation is a state of mind. I would say we try to innovate everywhere. We try to innovate as far as products are concerned, advertising, stores, store management, client experience, and supply chain, et cetera. As far as products are concerned, which is more your question, I would say that we try to have innovation everywhere. In products that are best sellers, obviously, but also in products that are carrying a lot of image. We are investing, for instance, heavily at Vuitton in our luggage line. Luggage is a small fraction of our business, but I don't have to describe how important and emblematic it is for a company like Vuitton, which DNA is based on traveling.
It's something quite important in which we invest and innovate quite a lot, although we know that it's not going to change the growth rate of a company of that size altogether. It's really something that goes across the board, and I wouldn't say that there is a particular emphasis on one or another aspect of innovation within the company.
Roughly you would say it was equal to last year, but maybe you're just investing in various innovative products on the marketing side. Is that how it's presumed made?
Not really, because you're asking me to quantify something which is purely qualitative. It's extremely difficult to say more or less on a highly qualitative thing. I cannot really answer. Sorry.
Okay, great. Best of luck, and thanks again for taking the questions.
The next question is from Matthias Eifel from MainFirst. Please go ahead.
Yes. Hi, Matthias Eifel from MainFirst. First question I have is if you could say anything about the rate of store openings in fashion and leather, if there was trends compared to how you grew last year, the store base. Second question would be, is there any kind of meaningful difference in terms of performance between mainland China and Hong Kong? Also related to that, in terms of what is making the Chinese consumer more cautious or what was the issue the last 9 to 10 months for the reasons, have you done any analysis on that?
Store openings, we had a very small number of store openings in the quarter in the fashion and leather division, particularly at Vuitton, where the number was basically flat compared to December. We had some openings at Marc Jacobs, which is the biggest number of openings that we had. Otherwise, we have a few increase here and there, but it's not a big jump. In brands other than Vuitton, where there is a specific strategy as to store openings for other brands, the access to retail and the better control of retail is obviously one of the axes. We opened a fairly low number of stores with the exception of Marc Jacobs. It's not significant of a strategy which is, on the contrary, aimed at developing our retail experience.
As far as mainland China versus Hong Kong is concerned, numbers were a bit better in Hong Kong. They've been very depressed in the last 6 months in H2 last year. We saw them a bit better. I commented already on China, which is more or less on the same trend as it was in H2 last year, but Hong Kong was a bit better. We don't really give precise figures on this, but it was a bit better.
Okay.
As far as China is concerned and the reason why China and Asia are concerned and the reason why we've seen over the past 10 months a drop in demand there, I think the number of explanations, economic growth is not what it used to be. Although viewed from the Western world, the type of GDP growth they enjoy is something that most European countries would like. Nevertheless, viewed from China, it's clear that a 100-basis point drop in GDP growth has some consequences on the propensity to consummate by particularly access customers. That's one explanation. The change in political leadership and the consequences in terms of gifting was also another explanation.
Certainly, the fact that last year, due to a big rise in the renminbi versus the euro, the price gap, it was mentioned in a question before, went to unprecedented levels, such as 150 compared to European prices, caused a lot of mainlanders to defer their purchases till they had the opportunity to go to Europe. There was a deflationary impact in mainland China from this price gap. The price gap, as I explained, is now back to normal, but it takes a while for people to realize that things are not what they used to be price-wise, and it is less interesting to go outside China than it used to be.
Okay. Thank you.
Our next question from Rogerio Fujimori from Credit Suisse. Please go ahead.
Well, hi everyone. Two questions from me. First, could you talk a little bit more about Bulgari? You flagged strong growth in owned stores, and I was wondering if the performance, excluding high-end jewelry, is due to the actions taken to refocus the brand, or is the external environment for jewelry improving a bit versus the second half? How far are you from your target rationalizing the wholesale distribution for perfumes and accessories? Last, have you been taking prices up in jewelry in recent months? Thank you.
I hope I will answer your question, but I couldn't hear very well all you said. You said you will be so kind as to ask for the questions if I don't answer entirely. On retail, as I said, we had strong double-digit figures for Bulgari in the first quarter of the year, boosted a bit by Asian high jewelry sales. But high jewelry is also part of the business, so I'm not sure we should be taking this out. But even if we do, we end up with a figure which is double-digit growth for retail sales at Bulgari, which is a bit contrasted from one country to another. We do very strong business in the Middle East, in the U.K., in Hong Kong and Macau, particularly in Singapore.
Less so in Korea and mainland China, although mainland China, particularly when it comes to jewelry of a certain price, is not necessarily that significant from one quarter to another. We are pretty pleased with the retail performance, and it's obviously in line, if not better than our expectations. This is offset in a significant way by the cleanup in the wholesale business, particularly perfume and accessories, where we want to be much more selective in the number of doors we have, I mean, number and quality of doors we have. We also felt a bit of pressure on the franchisee business, which orders were much lower than they were last year. We had a big drop in franchisee, which is not a big chunk of the business, but nevertheless, a big drop even in a fairly limited fraction of the business, had some impact.
All in all, the business did well. There were price increases implemented here and there, but given the fact that there are a lot of novelties, it's quite complicated to analyze price increase for a business of that kind.
Thank you, Jean-Jacques. How far are you from your target in terms of rationalization of the wholesale distribution? Is it still a long way to go?
In perfumes, yes. I think there is still some way to go. We may expect some pressure there. We want a lower number of doors to implement the marketing strategy we want to implement. In accessories, where the business is much smaller, we are not that far.
Thank you.
Our next question from Antoine Belge from HSBC. Please go ahead.
Yes, good afternoon. Antoine Belge, HSBC. Three questions. First of all, regarding Louis Vuitton. Obviously, you mentioned that the growth is coming mostly from price, basically there is a bit of a change in terms of volume. How is it affecting your manufacturing capacities, and how are you planning for actually a lower component of volume? Does it mean that you're maybe changing your plan in terms of future factory openings? Second question, you were asked about the situation in China. I think your answer was that actually it's more linked to GDP and also some currency fluctuation. Yet it seems that other brands are growing at a faster rate. Is it just because they're smaller and are basically benefiting from the fact that they have more potential because of the size effect?
Or do you think that something could be done more specifically in terms of merchandising or in terms of the product offering in China to maybe solve the issue? Finally, on cognac, we are hearing a bit of conflicting trends about the Chinese consumer. Last year, the trends were still very strong, and it seemed that they are becoming a bit softer. What type of consumer insight do you have about the Chinese consumer for cognac in China?
Thank you, Antoine. The impact on manufacturing at Vuitton, obviously, we have to adapt ourselves, but it's not that complicated. We are used to fluctuations in productions one way or the other. We have overtime. We have a way to deal with that. It's not a major issue. Production is fairly flexible within the company, and we shouldn't find it too difficult to adapt to any type of conditions that one may foresee. We are not worried about that. As far as China is concerned, I'm not so sure about your question on the others are doing better, is there a magical recipe that you can implement to do as well as the others? I'm not so sure I'm the best one to answer this type of question.
We think that the reason why, in some instances, our growth in mainland China could be lower than that of competitors is mostly due to the fact that we slowed down fairly significantly in opening stores way before the others, we don't benefit from the like-for-like impact. That has been a great boost to the business for many years. We don't benefit from that as much as some other brands may, be it inside the group or outside the group. A lot of brands within LVMH still benefit from that, particularly Celine or Marc Jacobs. We don't have that at Vuitton, that's probably the explanation. If there was something obvious to be done, one, I wouldn't share it with you, and two, it would have already been implemented. I don't have more comments on this particular point.
Finally, your question on cognac and in China. As far as Q1 is concerned, we had a very good quarter selling-wise. Our volumes were high single digits, and value was double digits, it went very well. Nevertheless, our depletions were lower than our selling figures, and there's been a bit of build-up in the inventories of wholesalers. We expect Q2 to be on a lower tone than Q1. Nothing really worrying, nevertheless, Q2 will certainly, volume-wise and value-wise, be lower than Q1.
Okay. Maybe just a follow-up on China. At the analyst meeting, Bernard Arnault said that Louis Vuitton could easily sell many more logo products if it wanted. Basically, would that mean that maybe the growth at Louis Vuitton is lower in your view because you're less aggressive than other brands? Is there for you an issue in terms of how different brands are approaching the market, and maybe you're suffering over the short term but confident that over the longer term, that's the right strategy?
Obviously, I think Bernard Arnault was pretty clear at the conference that he is aiming at long-term growth of the company. That's the objective, and the beauty of this type of objective is that if you're doing the right thing long term, normally short term, it would pay off as well. That's what he said. I also think that what he said as far as China is concerned is that there could be quick wins in China if we were to open, for instance, many more stores in China, in certain cities. That would certainly pay off rapidly. We are not so sure that this is the right thing to do long term for the brand exclusivity, and we are not doing it. That's what he said.
Thank you very much.
Maybe one last question, if you don't mind.
Last question from Will Hutchings from Goldman Sachs. Please go ahead.
Hi, Jean-Jacques and Chris. Just one quick question on this point on the Louis Vuitton brand. I got the impression that there were a number of initiatives as well going on the production side and supply side. Mr. Arnault sort of inferred that in a way, that it was a supply issue of not having enough of the right product in the stores that have potentially seen you have softer sales. If that is the right way to think about the business, when should we see the supply of the full leather handbags, the soft leather handbags, come into the stores so you have the assortment that you would like to have in the stores already there?
Thank you, Will. That's a good question. Obviously, we have to adapt. When it comes to adapting ourselves in production at Vuitton, we are not talking about tens of thousands of products, but hundreds of thousands of products. It takes a bit of time. Not necessarily from a pure manufacturing viewpoint, but from a supply viewpoint, and having the skins of the right quality for such a large number of bags is a bit of a challenge. We are working on that. It's very hard to give you a precise answer as to when we think we will have enough, our upstream supply system will be as good as we want it to be. It's more a question of years in my view than months.
In the meantime, we'll nevertheless benefit from a supply that will be strong enough to enable us to grow the business of soft leather bags in a very significant way. I would say that longer term, it's a little bit of a challenge because we intend to sell much more soft leather bags than we do today. Short term, you have to walk before you run, and the number of bags we are selling is compatible with our supply constraints. We shouldn't suffer too much from the lack of availability of raw materials in the short to medium term.
Just one follow-up on that, just on the cost related to this. I'm not asking a question on margin. I'm just trying to understand the different process that goes into the production of, say, your monogram bags or your soft leather bags. Is there a significant difference in just the actual production process? Because I've heard some people talk about it being a significantly harder process to create, to produce the bags. Is that the right thing, or is it just a physical capacity, the issue that we're talking about here?
No, manufacturing the same bags in leather and in canvas doesn't take the same number of hours, and obviously the cost of supply is not the same. Fortunately, the sales price is not the same as well. Yes, it takes longer to do a Speedy bag, a Speedy Empreinte, and a Speedy Monogram. It doesn't take the same time. It's much longer for the Speedy Empreinte, but we sell it at a much higher price as well.
Okay. Thank you very much.
Maybe just a few closing remarks to conclude. As always, I would like to stress two or three points. One is that I'd like to mention the fact that our numbers do not always give credit to our businesses for their performance. We mentioned a few things. Bulgari, where retail is showing a very satisfactory performance, whereas the global figures are a bit lower than that. The brands other than Vuitton in the fashion and leather division , and a strong retail are really moving from strength to strength, which is a bit overshadowed by the drop in, or the lower growth in wholesale. We didn't touch upon Perfumes & Cosmetics , but it's clear that our selling figures in many markets in Perfumes & Cosmetics are lower due to destocking than our sellout figures, and we are gaining market share everywhere. That's the first point.
The second point, the wholesale business. We touched upon that a few times, but the wholesale businesses, with the notable exception of Wines & Spirits , are under some pressure. As I said, part of it is self-inflicted, as we intend to increase the control over our own distribution. We only mentioned fashion brands like Fendi or Celine, but also Bulgari, where a big push is made on our own network. Sometimes this happens at the expense of our wholesale activity. Part of this pressure also reflects some caution from retailers in their purchases. We have seen that in cosmetics, watches in the U.S. in particular. Yet we are very far from the type of drop that we got three or four years ago in the middle of the recession time. Third, I would like to make a word about LV.
There were many questions on LV, obviously, today. Some of you will be tempted to see the bottle half empty with decelerating growth in Asia for now about 9 or 10 months, taking its toll. I would say that absent significant door expansion, we can only rely in this part of the world on demand growth, which for various reasons I touched upon briefly, is under pressure. Yes, I would like to stress our confidence in the long-term development of the brand. Basically that's all I wanted to say. Thank you for attending this conference call. I really look forward to discussing first half numbers with you at the end of July. Thank you very much. Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all very much for attending.