Our Chief Financial Officer, thank you for joining us. We have some remarks to make about LVMH's revenue for the first quarter of 2014. As in previous periods, these revenue figures are reported in accordance with the IFRS, including the recently implemented IFRS 10 and 11. After these remarks, Jean-Jacques I'll be happy to take your questions. Before I begin, I must remind you that 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 Q1 revenue. Hopefully, you've all had the chance to read our release, which was issued yesterday in both French and English.
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. Starting with slide two, the group's performance in the first quarter reflected a positive start to the year, despite an ongoing challenging environment in Europe. Loro Piana was consolidated into revenue for the first time this quarter. There was also a negative currency impact due to the euro's strength, in particular against the yen and the dollar compared to last year. Despite this, we delivered 6% organic revenue growth. Overall, our performance reflects ongoing progress in the U.S. and Asia, with strong growth in Japan, due in part to the buying ahead of the April sales tax increase. Against the challenging backdrop in Europe, we are pleased to continue to demonstrate resilience in that region.
For the business highlights, Louis Vuitton continued to build on its creative momentum, and the other fashion brands continued their development with exciting shows, new stores, and new innovative products. The solid growth of the selective distribution businesses also contributed to the group's overall performance during the period. Finally, Wines and Spirits was impacted by the current de-stocking in China, which was in part offset by the brand's strong progress in the U.S. Turning to a more detailed snapshot of revenue for the group in the first quarter, slide three. First of all, I should state that the 2013 figures have been restated to reflect the application of the IFRS 10 and 11 on consolidation. These IFRS redefine the concept of the control of entities. Now jointly controlled entities are accounted for using the equity method.
You have more details on page 126 of the document de référence. In the 2014 first quarter, total revenue rose to EUR 7.2 billion, up 4% on a reported basis compared to the year ago period. This reflects the 6% rise in organic revenue that I previously mentioned, along with a 3% perimeter increase relating to the consolidation of Loro Piana, offset by a negative 5% currency impact. Our geographic revenue mix continues to be well-balanced across regions, as you see on slide four. In the first quarter, in Europe, Asia, including Japan, represented 40% of revenue. Europe, including France, 27%, while the U.S. and others, 33%. The weight of Asia is down 1% compared to last year, primarily due to the strength of the euro. The other markets were up 1%, while all the other regions remained similar to last year's first quarter.
Turning now into the revenue in terms of organic revenue change by region compared to last year's first quarter. Revenue rose a significant 32% in Japan, due in part to the increased spending we saw prior to the implementation of the sales tax increase, which took effect on April the 1st. We saw a 4% increase in revenue in Asia, excluding Japan, which has been notably impacted by the current destocking in cognac. USD revenue in the U.S., excluding Hawaii, increased by 5%, while Europe was up 1%, demonstrating continued resilience in the still challenging environment. Looking now at revenue by business group. I'll start with the Wines and Spirits on slide six. Compared to last year's first quarter, organic revenue was down 3% for the quarter. In addition, there was a negative 5% currency impact for a total revenue of EUR 888 million on a reported basis.
By category, Champagne and Wines reported revenue of EUR 339 million, up though only slightly on a reported basis compared to last year's first quarter. This represented an organic revenue growth of 7%, which was almost entirely offset by a negative 7% currency impact. Cognac and Spirits organic revenue declined 9% and was further impacted by a negative 4% currency impact, resulting in revenue of EUR 549 million compared to EUR 629 million in the year-ago first quarter. A bright spot for this group in the first quarter was the increase in Champagne volumes, which were up 3%, despite this traditionally being the smallest quarter of the year for this business. To give you some more color on our Champagne and Wines, we saw balanced growth across volume, price, and mix, and continued strong demand for prestige cuvées.
We also saw rapid progress in Japan and implemented price increases for sparkling and still wines in the first quarter. Turning to Cognac and Spirits, Hennessy volumes were down 4%, impacted, as I mentioned, by the current destocking going on in China, which is affecting the higher-end cognacs in particular. However, there are certain segments, such as the younger nightclubs or Moët, that remain dynamic and demonstrate the future growth opportunity in this market. We also saw solid momentum in the U.S., where volumes grew by double digits both in sell-in and sell-out, as well as the continued strong volume growth of other spirits. Looking now at Fashion and Leather Goods, this business group was up a solid 9% on an organic basis.
On a reported basis, including a 7% positive perimeter impact relating to the acquisition of Loro Piana last year, and a positive 5% negative currency impact, reported revenue was up 11% compared to last year's first quarter and reached EUR 2.64 billion. To give you some highlights of the quarter in this business, Louis Vuitton continued to demonstrate good progress, building on its creative momentum. I will touch on a few highlights for them in the period. The brand launched new Monogram models such as the Montaigne, which have been very well received, and the creativity of the brand is also exemplified in the ongoing development of its leather lines, notably the Parnasséa. Last but not least, by any means, the first show of Nicolas Ghesquière received very positive reviews from media around the world, and there is much excitement about his designs and vision.
The Fashion and Leather Goods group performance also reflected positive developments at a number of the other brands. Celine continues its targeted store network expansion, including a new London boutique, while Fendi, whose leather goods enjoyed a strong success, opened its first store in Munich. Several other brands, including Givenchy, Kenzo, and Berluti, continued their development. As you know, we acquired Loro Piana last year, and we are pleased to report that the brand had a very strong start to the year in Q1 2014. Turning to our Perfume and Cosmetics business group, slide 10, revenue was up 5% on an organic basis. On a reported basis, revenue reached EUR 941 million, up 1% after a 4% negative currency impact compared to the year-ago first quarter.
Looking at the highlights in this group, Parfums Christian Dior saw strong performance in its iconic J'adore and Miss Dior perfumes, with continued good progress of its Addict makeup line. Dior Homme Cologne, launched a year ago, also continued to roll out in the first quarter. Guerlain also contributed to a positive performance in the first quarter through the launch of La Petite Robe Noire Couture perfume and the solid momentum of its Abeille Royale skincare line. Parfums Givenchy celebrated the first year of Gentlemen Only. Benefit continues to demonstrate strong momentum and opened its first French boutique in Paris during the first quarter. To finish up in this business group, both Fresh and Make Up For Ever are continuing to make rapid progress, especially in Asia. Now looking at our Watches and Jewelry business group on slide 12.
Organic revenue was up 5% in the period, including, however, a negative 5% currency impact. Reported revenue in this group was EUR 607 million, just about even with the first quarter of last year. Taken together, consistent with recent trends, the group's watches and jewelry brands continue to generate good performance, most notably from sales generated in their own stores, where retail sales grew by double digits. That said, watch multi-brand retailers took a more cautious approach in the first quarter. On the other hand, at the recent Baselworld watch fair, the brand's innovative new models were well received. Some examples are TAG's Monaco V4 Tourbillon, Hublot's Classic Fusion Firmament, whose dial is made with the densest and rarest natural elements, osmium, or Zenith's El Primero lightweight being good examples. The quarter also saw solid performance from our jewelry brands.
To give some more detail, Bvlgari celebrated its 130th anniversary with the reopening of its emblematic Via dei Condotti store in Rome and the introduction of a new watch collection inspired by its Roman and jewelry roots. Both are off to a good start. TAG Heuer opened a new store on Fifth Avenue in New York, and Hublot, which continues to deliver strong performance, kicked off the year with new partnerships related to the upcoming World Cup in Brazil. Finally, the Selective Retailing group reported a strong 10% rise in organic revenue on top of a 17% gain during last year's period. This growth was partially offset by a 5% negative currency impact, meaning that on a reported basis, revenue rose by 5% to EUR 2.22 billion, up from EUR 2.11 billion in the year-ago period.
To give you some detail behind these numbers, DFS generated good performance in the U.S. where it benefited from renovation and expansion projects in its L.A. and New York airport concessions. The brand also demonstrated continued strong momentum in Asia, particularly in Hong Kong and Macau. The three Hong Kong International Airport concessions that were opened at the end of 2012 continue to be strong drivers of performance in the region. During the first quarter, DFS, after a creative proposal, also secured the renewal of a liquor and tobacco concession at Singapore's Changi Airport. At the same time, spending by Japanese travelers was impacted by a weaker yen during the period. Sephora delivered further market share gains across all regions, sustaining its momentum in the Middle East, Asia, and North America, where online sales have been strong.
During the quarter it rolled out Marc Jacobs' makeup line in Europe, which outside in Marc Jacobs stores is being sold exclusively by Sephora. Overall, with the exception of cognac in China, all brands delivered good performances across the board in the first quarter, which is particularly encouraging in light of the ongoing economic uncertainty in Europe. The group plans to continue to advance its objective of increasing our leadership position in the global high-quality products market by focusing on our commitment to innovation and quality products which reflect the highest degree of craftsmanship and knowledge, and selective store network expansion in markets where we see good opportunities for our brands. Thank you. With that, we will now take the questions that you might have.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. We have the first question from Thomas Chauvet from Citigroup. Sir, please go ahead.
Good afternoon, Jean-Jacques, Chris. I've got two questions. The first one on cognac. Given some of your competitors are suggesting depletions around Chinese New Year, Q1 has been weak, including in the lower price segment. Is it fair to say that destocking has been perhaps a bit slower than you would have expected? Should we expect these Chinese trends for Hennessy to continue in the next few quarters? Something like probably minus strong double digit is probably was the case in China in Q1. Secondly, on Louis Vuitton, I think we all need a bit of help here on understanding, on the one hand, Japan and the other region. Firstly, on Japan, it looks difficult to imagine that a three percentage points tax hike would have had such a big effect in demand compared to the huge pricing that you have passed on over the last year.
Can you try to dissociate the impact of that VAT tax hike from the pricing and tell us what pricing was placed also perhaps in Q1 this year in Japan? On the other region, could you indicate what was fashion and leather in Asia, Europe, and U.S.? I know you don't like to give that, but it's probably useful for us given the distortion of Japan, and comments in those three regions on traffic conversion and what are the pricing and mix effects. Thank you.
All right. Let's start. Thank you, Thomas, for these two important questions. I will start with cognac, I will try to summarize a little bit the situation on cognac in China so that we try all to get a good understanding of what's going on from both a sell-in and sell-out viewpoint. Starting with sell-in. To understand the current trends, one has to go back to last year's period in which, as you remember, unlike our competitors, we were actually replenishing inventories at our clients, basically the primary wholesalers. At the time, we pointed this out several times, our sell-in numbers were significantly higher than our final clients' sell-out numbers. Today, we have the exact opposite actually. Our clients have been destocking for a while and continue to do so, I will try to give you some perspective to that.
Our sell-in numbers are therefore poor. Not only they suffer from our clients destocking, but they compare to unusually favorable numbers last year. Hence we have about a 30% drop in volumes in cognac business sell-in, in Q1. The trend is more or less the one that we anticipated. The magnitude, particularly in X.O, is probably a bit worse than what we sought. Nevertheless, we note that the inventory level are now with our clients, with the primary wholesalers. The inventory levels are now pretty low. We are talking about a few, 10, 15 days, something like that. They are pretty low. We may expect a much lower, what I would call the double squeeze impact.
The comparison basis will be different in the months to come because we will have had less replenishment of inventories last year in Q2, on top of that, there will be less destocking of inventory this year from our clients. This double squeeze should progressively disappear. We expect Q2 to be under some pressure, but not of the same magnitude and probably the last quarter of pressure on our selling numbers in China. That's for sell-in. As far as sell-out is concerned, where do we stand? Actually, the situation is complex, but nevertheless quite favorable. Let's start with the difficult part, which is X.O. X.O, roughly speaking, from a sell-out viewpoint, is down about 20%. This obviously comes from the remaining impact of the
Anti-extravaganza measures being currently implemented in China and explains the bulk of the drop. If you look at the other categories, V.S.O.P and V.S, what we call Classivm in China, we are slightly up for V.S.O.P and strongly up for Classivm. We are pretty pleased with the business. Obviously, not all the segments will perform the same way. Some segments are performing very well, like the modern on-trade and the off-trade to a certain extent. Some, like the Chinese restaurants, for instance, are not doing well at all. All in all, a fairly lackluster performance for X.O, but the rest of the business is doing fine. Overall, poor selling figures likely to remain under some pressure for the next few weeks, while underlying demand and sell-out numbers seem to be holding up reasonably well. That's the situation for cognac. Your question about LV.
Well, the few things I can say on Vuitton. First of all, that the growth as always, the growth in LV doesn't differ materially from the growth in the fashion and leather division. That's the first point. Secondly, as far as Japan is concerned, you've seen that the growth for the Japanese business for the group in Q1 was 32%. It's more or less the case for all businesses, all brands. It's not unique to fashion leather. It's the case for watches. It's the case for perfume and cosmetic, et cetera. We have definitely seen in Japan in Q1, a big upsurge in business, which origin at least partly comes from the fact that the tax consumption rate has increased actually as of the 2nd or the 1st of April. There has been some impact.
Definitely, if you look at the Japanese business, which was growing 10% last year, it's growing 30% more or less this year. Definitely, I don't know whether the bulk of the difference or all the difference or more than the difference is explained by this VAT situation, but definitely it has some impact. As far as LV is concerned, if we look at other geographies, the business in Europe was mid-single digit as well as in the U.S. We had a business in Europe which was affected particularly, again, by the Japanese tourists, but also by other Asian nationality tourists, excluding the Chinese. The Chinese did very well. The Chinese tourists did very well in the first quarter of this year, but all the other nationalities did poorly in Europe for Vuitton, hence the mid-single digit. I mean, the mid-single digit growth rate for Vuitton in Europe.
The U.S. is more or less the same, and Asia, excluding Japan, is close to double digits. We had a good business for Vuitton in the course of the quarter in Asia, particularly in China, where we had good business, not only as I mentioned with the tourists, but also domestically, we saw numbers that were higher than the ones we had seen before.
Thank you, Jean-Jacques. Any notable price rise for Vuitton or for cognac or any major business that you have passed on that you want to highlight?
That I want to highlight? No. You know that the first quarter of the year is a quarter in which we implement the bulk of the price rises. We had a 6% or 7% price rise, price hike in Japan in the mid of February that you knew about. There was 3% price increase in cognac in the U.S. There was 3% more or less across the board for Vuitton in the mid of February as well. There were normal price increases, I would say, in the course of the quarter.
Okay. Thank you very much.
Thank you. We have the next question from Stacie Rabinowitz from Consumer Edge. Madam, please go ahead.
Hi. You had talked about, for the watches and jewelry business, sales in own stores versus the overall retail outlet. Can you speak also to, for the fashion and leather goods and for the cosmetics, how sales performed at company-operated venues versus larger retail?
Yes. Well, it's a fairly large question. I will try to make the answer short. As far as cosmetics are concerned, it's a very difficult question because the development of owned retail for cosmetics is actually just starting. Basically, if you compare a network which is actually just starting with newly open stores to existing network, the like for like, the numbers are very difficult to compare. It's quite difficult. For watches and jewelry where the network is more established, I would say that on average over the past few years, we've seen growth being higher in our own network than what it was with third-party retailers, particularly when it comes to Asia, but also it's true in the U.S. That's the two comments I could make.
As far as fashion and leather is concerned, the dynamic is not exactly the one own stores versus wholesalers, because as for most of our brands, we are progressively retrenching from doing a lot of wholesale business. The dynamic of the two is obviously entirely different.
Okay, are you seeing at least in terms of where you've been changing the dynamic, are the stores where you're still present seeing a benefit from that then?
Yes, of course. We do it because we think it's a better expression of the brand that we can sell more in a more profitable way and ensure a better brand expression for the client. It's really a combination of various factors, definitely this is something that makes sense. Should not be the only way to distribute our product, nevertheless, something that makes sense.
Right.
We have the next question from David Wu from Pivotal Research Group. Sir, please go ahead.
Hi. Thank you. Hi, good afternoon, everyone. First, can you perhaps elaborate on the slower trends that you're seeing in Asia, ex-Japan, whether it was tied mainly to weakness in the wholesale channels, just from retailers being more conscious, conservative with orders? How inventory levels generally are trending there, and if the retail channel is still pretty robust in the region. Just secondly, on Sephora, can you provide perhaps the first quarter comps for the U.S., Europe, and China, also talk about your store expansion plans for this year. Just lastly, in fashion and leather goods, can you give us an update on Celine? What's the growth strategy now between ready-to-wear and leather goods and where you see the biggest opportunity for growth? Thank you.
All right. Asia, I'm not so sure where your question comes from, actually. I will try to understand it by saying that you look at the numbers, it's 4% for the quarters, which is much lower than what we've shown in the past and would, to some extent, show a slowing down. The reality is different. The 4% that we show for the first quarter of the year is definitely impacted by the wine and spirit business. Without the wine and spirit business, we are growing double digit in Asia. Definitely the Asian business in the first quarter of the year has proven extremely robust. It's very much the case for fashion and leather, as I said before, I mentioned Vuitton. It's the case for cosmetic, and it's the case for selective distribution, where we have had very strong numbers.
The difference in this market between wholesale and retail, frankly, I could not really elaborate. The bulk of our fashion business goes through retail in this area, and the bulk of our cosmetic business goes through wholesale in this area. Basically, these are different trends. I cannot really comment. The number on Sephora, Chris, would you.
Yeah. The comparable store growth for Sephora in the U.S. is still double digits, around 10%. For China, it's very high single digit, almost at double digit, and Europe is low single digit.
Okay, your third question on Celine, I will not elaborate a lot on this, but I would say two or three things. One is that still today, Celine as a network, which is probably smaller, what I would say is smaller than the brand, actually. Celine would deserve a retail network which is bigger than the one they have today. Obviously, this isn't done in five minutes, and we need a little bit of time to deploy the network. Definitely the main strategic axis is to develop the retail network of Celine. That's for in terms of distribution. As far as products are concerned, we are obviously very pleased with the handbag business we have with Celine.
Definitely we feel that ready-to-wear and shoes, in particular, could be very strong contributor to growth in the future, and a lot of emphasis will be put on these two categories in the years to come.
Excellent. Thank you very much.
Thank you. We have the next question from Catherine Rolland from Kepler Cheuvreux. Madame, please go ahead.
Yes, good afternoon. I have several questions, actually. First of all, regarding Vuitton, could you be a bit more precise regarding sales trends in China and to Chinese customers in Q1? Could you also say something about the new product launches that could be on the cards for Vuitton? Second theme about cognac. If I correctly understood, you indicated that volumes were down by 30% in China in Q1. Could you tell us what was the sales trend in value? Could you remind us your sales split between XO, VSOP, and VS in China? Last question, in the U.S., could you tell us a bit more about sales trend for the cognac business in Q1, please? Thank you.
Sorry, I missed all the questions at the end. Q1 trends in the U.S., right? For cognac.
Yes, exactly, in Q1.
All right.
In value and in volume too.
All right. LV, let's start with China. The Chinese customer altogether is growing about double digits, with very high single digits domestically and double digits in local currency outside China. Very strong business with the Chinese customers in the first half of the year. I will not really comment on new products. This is something pretty sensitive, so I will not elaborate on this. You know the philosophy. We intend to launch more products in soft leather in the months to come, and you will see some introduction of products in Q2 and mostly in Q3 and Q4, but I will not elaborate. On cognac in China, your question was about value and volume drops. It is more or less the same. It is minus 30% in volumes and 27% or something like that, if I am not mistaken, in value. There is not a big difference.
In terms of spread of the business in volume terms, the V.S.O.P business is about 70% of the business. The X.O business is 20%-25%, and the rest is the fast-growing V.S business, mainly the newly introduced quality in China. I'm just talking about the Chinese business.
As far as Q1 in cognac in the U.S. is concerned, we grew the business in volume about a little bit more than 10%. We had in both sell-in and sell-out. We had a very strong quarter for the business in the U.S. in cognac in Q1.
In value, it was around 13%?
It was a little bit more than that. We implemented a price increase in the course of the quarter, so it was probably a little bit more than that.
Around 15.
Probably around 12% or 16%, something like that.
Okay. Thank you very much.
Thank you. We have the next question from Emilie Debetsmann from Raymond James. Madam, please go ahead.
Hi, good afternoon. Most of my question has been answered. Just another question on the U.S. market. I've seen strong deceleration this quarter compared to Q4. Can you maybe elaborate on that considering that cognac seems to be holding well in this country. Is there any division that have decelerated in the U.S. in Q1? Thank you.
Well, as always, in Q1, it's always the cosmetic business that decelerates. I don't really know why. I've seen many times Q1 being softer in the U.S., in perfume and cosmetic, than it was in the preceding quarter. We had a reasonably soft, it was exactly the same last year, we had a reasonably soft perfume cosmetic business in Q1. Fashion leather was not also as strong as it was in the preceding quarter. The main reason is phasing of wholesale business at Donna Karan and Marc Jacobs. I mean, the phasing of shipping of goods was not exactly the same. It's never the same, it was not exactly the same as it was in the preceding quarter. We had a little bit less business than we anticipated because of this phasing issue, it's not a big deal, obviously.
We'll recover that later on in the year. There were a few things like that, which explains why the U.S. market is a bit softer, we think Q1 is always a very tricky quarter to analyze and it happened many times in the past to start the year on a fairly modest tone and to end up on a much higher one afterwards. I would be quite cautious on my comment at this point in time.
Okay, thank you. Just another question on selective retailing. Can you give an indication of DFS growth versus Sephora? Thank you.
Well, DFS and Sephora were along the same. We have 10% for the division and both of them are around 10% organically for the quarter. No real differences between the two.
Thank you.
Thank you. We have the next question from Antoine Belge from HSBC. Sir, please go ahead.
Good afternoon, Antoine Belge at HSBC. Three questions. First of all, on Louis Vuitton. I think last year you mentioned that over the full year, the price mix effect was 8.5%. Could you maybe comment on that? Also, I think you've highlighted that you are very happy with the new Monogram lines. Could you maybe elaborate? It seems that as you change a bit the design that actually the consumer is now buying again that type of product. Any qualitative comments would be useful. Second question relates to Bvlgari. Could you maybe comment retail versus wholesale and, in terms of product launches, how you see the year? Finally, maybe an update on your hedging policy for the yen and the dollar.
Also how should we think about costs such as advertising in a year where FX are going to be a big headwind as you change your attitudes towards cost management? Thank you.
Well, I will have a hard time answering your question because I couldn't hear you very well. I understand that your first question was on price mix for Vuitton, which is a question I normally don't answer, so that will make it easy. We had some price increase, obviously. Price is a component of the growth we had at Vuitton in Q1, but I will not elaborate on the various components of the growth. The second question, if I'm not mistaken, was on Monogram and the fact that we are pleased with the new introduction. We have actually some bags like Metis, Marais, Montaigne or Pallas, which are Monogram lines, which have been introduced this year or introduced later on last year, which are doing very well. We are quite pleased with the business we do with Monogram.
This has been the case for quite some time, Q1 is no exception to that. Certainly on Bvlgari and retail versus wholesale, I mean, the retail business did better than the wholesale business. The wholesale business is biased toward watches and basically jewels did better than watches in the first quarter of the year. There is no surprise that the retail business did better. Nevertheless, we had a fairly strong comparison base last year with a lot of high jewelry sales at Bvlgari, particularly in Asia, which have not materialized this year to the same extent. We had some high jewelry sales, but not to the same extent. The comparison base was quite tough. As you know, this high jewelry business is not particularly predictable and may happen at any point in time in the year. All in all, it was fairly strong.
The underlying business of Bvlgari in jewels and in retail, excluding high jewelry, was very strong during the first quarter. Finally, on hedging, on 2014, we have hedged about 80% of our sales. The hedging rate is about 132 for the dollar and same thing for the yen with an average rate of 126. At current market rates, fairly favorable hedging policies in place.
Okay. Just maybe one follow-up. You didn't mention weather as a negative impact on the U.S. Can you confirm that it was not the case?
Weather, you mean the storms and snow and things like that, which never happens in Q1 in the U.S. normally? I never mentioned that, so don't expect me to mention weather as an excuse for the business.
Okay. Thank you.
Thank you. We have the next question from Warwick Okines from Deutsche Bank. Sir, please go ahead.
Good afternoon, Jean-Jacques and Chris. I appreciate this is just a sales update. I was just wondering if you would care to make any comments on the margin outlook for the first half with regards to a couple of areas. Firstly, is there any technical factors for champagne that would either increase or decrease the margins? Secondly, what looks like a negative mix effect in cognac. Thirdly, whether or not you think that DFS Hong Kong may be break even or profitable in the first half. I recall you saying it was, I think, EUR 20 million loss-making in the first half last year. Fourthly, whether or not Loro Piana is going to undergo any sort of reinvestment or repositioning that might mean that last year's margin is not reflective of maybe this year's margin. Thank you.
I shouldn't answer. I will do it anyway. I shouldn't answer. This is Q1 numbers, this is sales number. I normally don't answer on margins. Nevertheless, I will give you a few comments on this. Champagne, no, there are no particular technical things that should affect margins in H1. Mix in cognac. Yes, we are selling less X.O than we used to. We have a negative mix impact on margins stemming from lower X.O than anticipated. DFS breaking even in Hong Kong, too early to say. We are doing well today. We have already under our belt the Chinese New Year, which is the most favorable period from a traffic viewpoint at Hong Kong Airport. Obviously, we pay the same rent month after month, although the business is obviously fluctuating depending on the season. It's too early to say.
Loro Piana, we are investing behind the business obviously, this is why we bought it. The impact on margins shouldn't be particularly significant.
Thank you. That's very helpful, Jean-Jacques, actually. I will ask you one question about sales. The Louis Vuitton sales to the European customer, could you just say whether or not you've seen a quarter-on-quarter improvement in that trend?
Yes, we saw. The sales in Europe with domestics was up, which if I remember correctly, was not the case. It was basically flat last year. This time it was up. We see a slight improvement, don't take me wrong, but a slight improvement with European at Vuitton in Europe, so with the domestic customer base.
Thanks very much indeed.
Thank you. We have the next question from Omar Saad from ISI Group. Sir, please go ahead.
Hi. Thank you. This is Vick Mohan in for Omar Saad. I was wondering if you could talk a little bit about the luxury ready-to-wear business and if you see this as a growth driver going forward. Also, a little bit about global tourism trends and how you think tourism is going to look for the rest of 2014. Thank you.
Well, I will answer on tourism first. We are reasonably hopeful as far as tourism is concerned. We've seen a fairly difficult first half of the year, not with the Chinese, as I said, but with other nationalities, probably coming from the fact that the Russians traveled less in Q1. There were some issues with Ukraine. Some Asian countries, particularly Thailand, et cetera, were subject to a little bit of unrest. All this had some impact on the business, but the underlying business seems to be holding up reasonably well. The Chinese travelers are doing okay. Basically, there should be three different things. One is the Chinese should continue to do well. Two, the Japanese, which are deeply affected by the drop in the yen, which shows no signs of turning around. The Japanese should be negative.
Three, there is a little bit of a pool of unknown with the non-Chinese, non-Japanese nationalities, which have been affected a bit by various factors in the first quarter of the year, but which we may expect to recover some speed in the last part of the year. All in all, we think as always, the global tourism trends should play in our favor. Your first question, sorry, I missed it.
The luxury ready-to-wear business
Luxury retail business is a growth driver. Well, it's technically a very important business for us, not necessarily in terms of global numbers. They would count, depending on the brand, in between 15% to maximum 30% of the total business. In terms of image and in terms of traffic generator, this is a very important business. The collections are being renewed at the very least four times a year. With some brands, it's more six times than four times. These are opportunities for clients to come back to the stores. It's very important that we are pretty active in this business with a very solid proposition to our clients. In numerical terms, it's not a very big business, but it's a very important business as a marketing tool, I would say.
Thank you very much. That's very helpful.
Thank you. We have the next question from Mélanie Flouquet from JP Morgan. Madam, please go ahead.
Yes, good afternoon. Thank you for taking the questions. My first question is regarding fashion and leather goods. If I take out the potential Japan ramp-up sales, is it correct to assume that fashion and leather goods was running at +5% organic excluding that impact? Is there anything that you think would be a structural upward shift in the Japanese that could mean that this could last rather than the pre-VAT ramp-up? My second question is on actually excluding this, if it is 5%, the big positive surprise still remains China. There was other markets that were a little bit softer, but China was up high single-digit from being flat before. I was wondering whether you can comment on what you see going on in that market and why you think it has picked up. My third question is on the mix.
Can you actually quantify how the mix at Louis Vuitton has changed year-on-year in quarter one? I know this is very specific, but just to get an idea of the trend, given Monogram seems to be picking up again. I wondered whether you would care to comment on the sequential trend within the quarter and notably about March. Thank you.
Okay. You're going to be less lucky than usual with my answers to your question, because I don't intend to answer much to most of your questions. Well, ex-Japan, for what it means, the 5% is more or less correct. What does it mean is the key question, and I don't know. It's very difficult to assess in what happened in Japan in Q1, whether this is entirely structural, partly structural, will disappear immediately or not. It's way too early to say. I'm very reluctant to go on commenting trends without Japan or with Japan, et cetera. I think it's pure speculation at this point in time. It's a little bit the same with your question on China. Definitely China is showing stronger numbers in Q1. If you take out cognac, you will probably be close to double digits, if not higher than that.
Higher than a 10% mark at least. It's favorable. A quarter never makes a trend, I'm also very reluctant to comment on this. I'd rather have it this way than the other way around. Nevertheless, I find it extremely difficult to analyze it for you and two, to extrapolate this for the quarters to come. We look at the business, we try to do our best to improve it. Numbers seems to be a bit better, it's way too early to make it a trend. The mix on LV, I have already not answered the question to Antoine before, I will not answer it this time. The sequential view on the quarter, March was a bit stronger than the other two months, Japan was also a bit stronger. The growth gathered speed a bit in Japan in March as well.
The March improvement is probably connected, to a significant extent, to a further upsurge in the Japanese business in March.
Thank you very much. Just to confirm, you said that for fashion and leather or for Louis Vuitton, it was close to double digits, right? China. Double digits for everything, except cognac and close to double digits for-
Yes.
Thank you.
We have the next question from Paul Svendsen from Morningstar. Sorry. Sir, please go ahead.
Good afternoon, and thanks for taking all the questions. I wanted to ask, you said that the U.S. business of cognac is very strong. Are there specific strategies you've taken, and have you opened any new particular retailers or distributors that are selling strongly for you?
Not particularly and not recently, but the strategy that has been implemented by Hennessy in the U.S. for the past few years is definitely paying off. As you know, in the U.S., we are not distributing our products ourselves. The three-tier system obliges us to go through partners, local partners, to distribute our products. Our strategies in the U.S. are mostly marketing as opposed to distribution, are mostly marketing strategies. Definitely the marketing strategy that we have implemented, which is both a push and a pull strategy, are paying off. I cannot really elaborate and go into details. These are fairly detailed and complex marketing strategy that wouldn't be implemented exactly in the same way, whether you're talking about California or the Northeast of the U.S.
Definitely the consistency in which Hennessy's team and MH USA team have implemented the marketing strategies of Hennessy over the past few years has enabled the business to grow fairly fast and fairly significantly over the past few years, because it's not only one quarter that is growing fast in the U.S. We've been enjoying a significant growth in the V.S business in the U.S. over the past three years. We had a recession that started way early in 2007 in the U.S. 2007 to 2009 were pretty tough years for us. It is the time when these marketing strategies were decided and implemented, and from 2009 onwards, we've registered a fairly substantial growth in the U.S. That's all to the credit of the Hennessy team locally.
Is that more home consumption then, do you believe?
It's both, actually, the market, obviously, in the U.S. is more home consumption. The off-trade market is much bigger than the on-trade market in the U.S. It's mostly home consumption, yes.
Great. Thank you. Just quickly, I know you were saying it's still a difficult environment in Europe, and obviously the financial crisis is something that's going to take a while to undo. At the same time, we are hearing some positive comments from various consumer companies. Are there any bright spots that you would like to highlight or color that you would like to give us in Europe?
Frankly, our numbers in Europe are reasonably flat. We are plus 1%. We've been plus 1%, 2% for the past 24 months, more or less. It would be a bit surprising on my side to highlight bright spots with such numbers. I think we are not doing that bad after all because being slightly positive in the current environment is not too bad. Nevertheless, I see no particular reasons to cheer up. The macro, well, it is apparently improving in some countries. It's a bit early to see the direct translation of that into our businesses and marketing strategies, it's really too early to say, frankly.
Do you believe a tourist shift from Europe to the U.S. continuing?
Tourist shifts from Europe, we don't really see that. If you're talking about Asian tourists shifting from Europe to the U.S., we don't really see that.
Okay, great. Thank you. Best of luck for the rest of the quarter.
Thank you. We have a question from Oriana Bastinelli from Kepler Cheuvreux. Sorry. Madam, please go ahead.
Hi. Good afternoon. Thank you very much, but my question has been already answered. Thank you.
Okay. Thank you.
Thank you, madam.
I will take one last question.
We have a question from Gaël Colcombet from MainFirst. Sir, please go ahead.
Yes. Good afternoon, gentlemen. You have mentioned a new creative momentum going on at Louis Vuitton. In particular, in regards to the new designer you've hired, Nicolas Ghesquière. What are your expectations in terms of the new collections, and when do you expect them to actually reach out to the stores? Thank you.
I find it extremely hard to answer to this question. I don't intend on this course to get into the details of the product and marketing strategies of the brands. I find it very difficult. Nicolas Ghesquière had his first show with us a month ago, very well received, with a lot of new products, a lot of different things, a different energy, a different message being sent to the client. We all think this is highly positive. This will derive progressively, as always in this business, into products that we will be selling into our stores, not only show products as the one you've seen, but products that we'll be definitely selling in the stores. This is a process that will unfold over the next few months. There is nothing different from what we do with him than what we were doing before with Marc Jacobs.
The process is exactly the same. We try to get the best of the creativity of such an outstanding Artistic Director and to use these strengths to derive products that will be selling well. That is exactly the same logic.
Great. Thank you.
Okay. Well, thank you for your questions. I would like just to make a few remarks to conclude this conference. First of all, I would like to stress the overall quality of our sales performance in Q1 of this year. We are growing about 6%, as I said, in a fairly adverse business environment. Such growth being more or less in line with the type of growth we experienced last year if we take out the one-time contribution of the Hong Kong Airport concession. Basically, we are consistency in the level of growth we are experiencing. Secondly, I want to highlight the currencies, which are proving to be frankly a serious headache this year, biting about 4% in our overall growth for the quarter.
Although the market actually in our sales expect some currencies to strengthen, the US dollar in particular, this is becoming long overdue, and currencies are definitely taking their toll, both in terms of sales growth and obviously in terms of profit. Thirdly and finally, I have to admit that our numbers for the first quarter are not that easy to read and are significantly impacted by exceptional factors such as the Chinese cognac situation on the negative side and the Japanese consumption tax and the impact on business on the positive side. Fortunately, these two factors are more or less of equivalent magnitude and offset each other, thus not impairing the significance of our reporting numbers. That's basically what I wanted to say. Thank you for attending this call, and I look forward to discussing with you the first half numbers at the end of July. Thank you. Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for attending. You may now disconnect.
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