Doug Guillenier, our Chief Financial Officer. Thank you for joining us. We have some remarks to make about LVMH's revenue for the Q1 of 2014. As in previous periods, these revenue figures reported in accordance with IFRS, including the recently implemented IFRS 10 and 11. After these remarks, Torrec and I will be happy to take your questions.
But before I begin, I must remind you that some information to be discussed on today's call is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially. So these are associated 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. As always, the release is available on LVMH's website of www.lvmh.com, as are the slides that we're using to guide today's conversation.
Starting with Slide 2, the group's performance in the Q1 affected a positive start to the year despite an ongoing challenging environment in Europe. Borrellana 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. And against the challenging backdrop in Europe, we are pleased to continue to demonstrate resilience in that region. As 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 selected distribution businesses also contributed to the group's overall performance during the period.
Finally, Wines and Spirits was impacted by the current destocking 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 Q1, Slide 3. 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 redefined the concept of the control of entities and so now jointly controlled entities are accounted for using the equity method.
You have more details on Page 126 of the Document de Reference. In the 2014 Q1, total revenue rose to €7,200,000,000 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 LoRa Piana, offset by a negative 5% currency impact. Our geographic revenue mix continues to be well balanced across regions, as you see on Slide 4. In the Q1, in Europe, Asia, including Japan, represented 40% of revenue Europe, including France, 37%, 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 and the other markets were up 1%, while all the other regions remained similar to last year's Q1. Turning now to the revenue. In terms of organic revenue change by region compared to last year's Q1, This is 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 1.
We saw a 4% increase in revenue in Asia, excluding Japan, which has been notably impacted by the current destocking in cognac. Dollar 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 6.
Compared to last year's Q1, organic revenue was down 3% for the quarter. In addition, there was a negative 5% currency impact for a total revenue of EUR 888,000,000 on a reported basis. By category, champagne and wines reported revenue of €339,000,000 up though only slightly on a reported basis compared to last year's Q1. 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 €549,000,000 compared to €629,000,000 in the year ago Q1.
A brief
a bright spot for this group in the Q1 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 cuvees. We also saw rapid progress in Japan and implemented price increases for sparkling and still wines in the Q1. 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.
There are certain segments such as the younger night clubs or MOT 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 digit, both in sell in and sell out as well as the continued strong growth volume growth in 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 Q1 and reached EUR 2,640,000,000 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 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 Farnesea. And last but not least, by any means, the first show of Nicolas Ghesquiere 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 affected positive development at a number of the other brands. Salim continued its targeted store network expansion, including a new London boutique, while Fendi, whose leather goods enjoyed a strong success in its first store in Munich. And several other brands, including Givenchy, 10DO and Baluti continued their development. As you know, we acquired Voro 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 Pertinent Cosmetics business group, Slide 10.
Revenue was up 5% on an organic basis. On a reported basis, revenue reached EUR 941,000,000, up 1% after a 4% negative currency impact compared to the year ago Q1. Looking at the highlights in this group, Bafarat Christian Dior, we saw strong performance in its iconic J'ador and Miss Dior perfumes with continued good progress of its addict makeup line. Dior Homme Colombe launched a year ago also continued to roll out in the Q1. Golar also contributed to a positive performance in the Q3 through the launch of La Petit Trovenir Couture perfume and the solid momentum of its Ave Royale skincare line.
Parfums Givenchy celebrated the 1st year of Gentlemen only. The benefit continues to demonstrate strong momentum and opened its 1st French boutique in Paris during the Q3 and to finish up in this business group, both Fresh and Make Up For Other, by 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 607,000,000, just about even with the Q1 of last year. Taken together, consistent with the 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 digit.
That said, Watch multi brand retailers took a more cautious approach in the Q1. On the other hand, at the recent bar, Watchfair, the brand's innovative new models were well received. Some examples are TAG Monaco Vifour Tourbillon, Hublot's classic Fusion Saint Laurent, whose diet is made with the densest and rarest natural element of Nium. Our Zenithal Priammo, lightweight, has been good examples. The quarter also saw solid performance from our jewelry brands.
To give you some more detail, Bvlgari celebrated its 130th anniversary with the reopening of its emblematic Via D'Acconzetti store in Rome and the introduction of a new watch collection inspired by its rumour and culinary 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, sales rose by revenue rose by 5 percent to $2,220,000,000 up from $2,110,000,000 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 LA and New York airport concessions, Brat also demonstrated continued strong momentum in Asia, particularly in Hong Kong and Macau. The 3 Hong Kong international airport concessions were opened at the end of 2012 continue to be strong drivers of performance in the region. During the Q1, DFS, after accretive 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. And during the quarter, it rolled out Marc Jacobs makeup line in Europe, which outside and Marc Jacobs stores is being sold exclusively by Sephora. So overall, with the exception of cognac in China, all brands delivered good performances across the board in the Q1, 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.
And with that, we'll now take the questions that you might have.
Thank you, sir. 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, so in Q1 have been weak, including the 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. So something like probably minus strong double digit as 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 3 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?
And 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. So let's start. Thank you, Thomas, for these two important questions. So I will start with cognac, and 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 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, and we pointed out several times, we pointed this out several times, our selling 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, and I will try to give you some perspective to that. Our selling numbers are therefore poor.
Not only they suffer from our clients' but they compare to unusually favorable numbers last year. So hence, we have about a 30% drop in volumes in cognac business selling in Q1. The trend is more or less the one that we anticipated. The magnitude, particularly in IXO, is probably a bit worse than what we thought. 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, I mean, 10, 15 days, something like that. So they are pretty low. So we may expect a much lower, what I would call, the double squeeze impact. I mean, the comparison basis will be different in the months to come because we will have had less replenishment of inventories last year in Q2.
And on top of that, there will be less destocking of inventory this year from our clients. So this double squeeze should progressively disappear. So 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 selling. As far as sellout is concerned, where do we stand?
Actually, the situation is complex, but nevertheless quite favorable. Let's start with the difficult part, which is IXXO. IXXO, roughly speaking, from a sell out viewpoint, is down about 20%. This obviously comes from the impact the remaining impact of the anti X-ray Vaganza measures being currently implemented in China and explains the bulk of the job. But if you look at the other categories, the SOP and DS, I mean, what we call Classyum in China, we are slightly up for the SOP and strongly up for last year.
So 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. But all in all, a fairly lackluster performance for XO, but the rest of the business is doing fine.
So overall, 2 or 7 figures likely to remain under some pressure for the next few weeks, while underlying demand and sellout numbers seem to be really good reasonably well. So 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, I mean, the growth in LV doesn't differ materially from the growth in the Fashion and materially from the growth in the Fashion and Leather division. So 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 and Leather. It's a case for watches. It's a case for perfume and cosmetic, etcetera.
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 is has increased actually on the as of the second or the first of April 1st April. So there's been some impact. And 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 nationalities tourists excluding the Chinese. The Chinese did very well. The Chinese tourists did very well in the Q1 of this year. But all the other nationalities did poorly in Europe for Vuitton.
Hence, the fairly 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.
So we had a good business for Vito in the course of the quarter in Asia, particularly in China, where we had a good business, not only, as I mentioned, with tourists, but also domestically, we saw numbers that were higher than the one 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. I mean, you know that the Q1 of the year is a quarter in which we implement the bulk of the price rises. We had a 6% or 7% price hike in Japan in the mid of February that you knew about. There was a 3% price increase in cognac in the U. S.
There was 3% more or less across the board for retail in the mid of February as well. I mean, 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 Stacy Rabinovich from Consumer S. Richards. 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. So I will try
to make it short to make the answer short, as far as cosmetics are concerned, I mean, it's a very difficult question because the development of owned retail for cosmetic is actually just starting. So basically, if you compare a network, which is actually just starting with newly opened stores to existing network, the like for like, I mean, the numbers are very difficult to compare. So it's quite difficult. 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 certain party retailers, particularly when it comes to Asia, but also it's true in the U. S.
So that's the 2 comments I could make. As far as Fashion and Leather is concerned, the dynamic is not exactly the 1 on stores versus wholesalers because as for most of our brands, we are progressively retrenching from doing a lot of wholesale business. So the dynamic of the 2 is obviously entirely different.
Okay. But 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. Yes, 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 clients. So it's really a combination of various factors, but definitely this is something that makes sense, should not be the only way to distribute our product, but nevertheless something that makes sense.
We have the next question from David Wu from Telsey Advisory 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.
And then how inventory levels generally are trending there and the retail channel is still pretty robust in the region? And then just secondly on Sephora, can you provide perhaps the first quarter comps for the U. S, Europe and China? And then also talk about your store expansion plans for this year? And then just lastly, in Fashion and Leather Goods, can you give us an update on Celine?
What's sort of the growth strategy now between sort of ready to wear and leather goods and sort of where you see the biggest opportunity for growth? Thank you.
All
right. So Asia, I'm not so sure where your question comes from actually. So 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 will, to some extent, show a slowing down. The reality is different. I mean, the 4% that we show for the Q1 of the year is definitely impacted by the Wine and Spirits business.
Without the Wine and Spirits business, we are double digit growing double digit in Asia. So definitely, the Asian business in the Q1 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 a case for cosmetic and it's a case for selective distribution where we have had very, 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. So basically, these are different trends. I cannot really comment. The number of Montesquiat, Chris, would
you Yes. 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. And your third question on Selim, I will not elaborate
a lot on this, but I would say 2 or 3 things. One is that still today, Sellin has a network, which is probably smaller what I would say is smaller than the brand actually or Celine would deserve a retail network, which is bigger than the one they have today. Obviously, this isn't done in 5 minutes, and we need a little bit of time to deploy the network. But definitely, the main strategy gap is to develop the retail network of Celine. So 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. But 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 a next question from Catherine Rolland from Kepler Cheuvreux. Madam, 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? And could you also say something about the new product launches that could be on the cards for Vuitton? 2nd, seeing 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? And also, could you remind us your sales split between Ixo, VSP and Versus in China? And last question, in the U. S, could you tell us a bit more about sales trends for the Connect business in Q1, please?
Thank you.
Sorry, I missed your question, Kathleen.
Q1 trends in U. S, right?
Yes, exactly in Q1 in value and in volume too.
All right. All right. Herve, let's start with China. So the customers the Chinese customer altogether is growing about double digits with high very high single digits domestically and double digits in local currency outside China. So very strong business with the Chinese customers in the first half of the year.
I will not really comment on new products. I mean, this is something pretty sensitive, so I will not elaborate on this. You know the philosophy. I mean, 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's more or less the same. I mean, it's minus 30% in volumes and 27% or something like that, if I'm not mistaken, in value. I mean, there is not a big difference. In terms of spread of the business in volume terms, The VSOB business is about 70% of the business. The XO business is 20% to 25% and the rest is the fast growing BS business, mainly the newly introduced quality in China.
I'm just talking about the Chinese business. And 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%. So we have in both sell in and sell out.
So we had a very, very strong quarter for the business in the U. S. In cognac in Q1.
And in value, it was around 30%?
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 a next question from Anni DeBetzmann from Raymond James. Madam, please go ahead.
Hi, good afternoon. Most of my questions have been answered, but 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 is seems to be holding well in this country? So is there any division that have decelerated in the U. S. In Q1? Thank you.
As always, in Q1, it's always the cosmetic business decelerates. I mean, I've seen I don't really know why, but I've seen many, many times Q1 being softer in the U. S, especially in cosmetic than it was in the preceding quarter. So we had a reasonably soft it was exactly the same last year, but we had a reasonably soft perfume and cosmetic business in Q1. Fashion and 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 Mo Jacobs. I mean, the phasing of shipping of goods was not exactly the same. It's never the same, but it was not exactly the same as it was in the preceding quarter. So we had a little bit less business than we anticipated because of this phasing issue, but it's not a big deal obviously. We'll recover that later on in the year.
So there were a few things like that, which explains why the U. S. Market is a bit softer. But we think that Q1 is always a very tricky quarter to analyze, and we it happened many times in the past of the year on a fairly modest tone and to end up on a much higher one afterwards. So I would be quite cautious on my comment at this point in time.
Okay. Thank you. Just another question on selective repaying. Can you give an indication of DFS growth versus CIFORA? Thank you.
Well, DFS and CIFORx were along the same I mean, we have 10% of the division and both of them are around 10% organically for the quarter. So no real differences between the 2.
Thank you. Thank you. We have a next question from Antoine Belge from HSBC. Sir, please go ahead. Yes.
Good afternoon. Antoine Belge of HSBC. Three questions. First of all, on Louis Vuitton. I think last year, you mentioned that over the full year, the price mix FX was 8.5%.
Could you maybe comment on that? So 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? So any qualitative comments would be useful.
2nd question relates to Bvlgari. Could you maybe comment retail versus wholesale? And in terms of product launches, how you see the year? And finally, maybe an update on your hedging policy for the yen on the dollar? And also, are you how should we think about costs such as advertising in the 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. So I understand that you have a question your first question was on pricemix for Vuitton, which is a question I normally don't answer. So that will make it easy. We have some price increase, obviously. So 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 new introduction. We have actually some bags like Metis, Marie, Montaigne, or Palace, which are monogram lines, which have been introduced this year or introduced later on last year, which are doing very well. So we are quite pleased with the business we do with monogram. This has been the case for quite some time, and Q1 is no exception to that. Certainly, on Bulgari 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 Q1 of the year. So there is no surprise that the retail business did better. Nevertheless, we had a fairly strong comparison base last year with a lot of hydro resales at Bvlgari, particularly in Asia, which have not materialized this year to the same extent. We had some hydroly sales, but not to the same extent. So the comparison base was quite tough.
But as you know, I mean, this hydro brewing business is not particularly predictable and may happen at any time at any point in time in the year. But all in all, it was a fairly strong the underlying business of Bvlgari in Jewels and in Victor, excluding high jewelry, was very strong during the Q1. And finally, on hedging. We have hedged about between 25% and I mean, that's for sorry, 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.
So current market rates and favorable hedging policies in place.
Okay. So 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?
On weather, you mean 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 a next question from Rory Kokines from Deutsche Bank. Sir, please go ahead.
Yes. Good afternoon, Jean Jacques and Chris. I appreciate this is just a sales update. I'm just wondering if you would care to take 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, the what looks like a negative mix effect in cognac. Thirdly, whether or not you think that DFS Hong Kong may be breakeven or profitable in the first half. I recall that you're saying it was I think €20,000,000 loss making in the first half last year. And 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.
Well, I shouldn't answer. I will do it anyway, but I shouldn't answer. I mean, this is Q1 numbers, this is sales number, and I normally don't answer on margins. So 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 XO than we used to. So we have a negative mix impact on margins stemming from lower XO than anticipated. The DSS breaking even in Hong Kong, too early to say. I mean, we are doing well today, but we have already under our belt the Chinese New Year, which is the most favorable period from a traffic viewpoint at Hong Kong Airport. And obviously, we pay the same rents month after month, although the business is obviously fluctuating depending on the season.
So it's too early to say. And in Orocana, we have no particular reason to I mean, we are investing behind the business, obviously. This is why we voted. But the impact on margins shouldn't be particularly significant.
Thank you. That's very helpful, Jean Jacques. I will ask you one question about sales then. 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. And this time, it was up. So 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 Integra Group. Sir, please go ahead.
Hi. Thank you. This is Vik Mohan in for Omar. 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? And 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 part 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 the Korea. We some Asian countries, particularly Thailand, etcetera, were subject to a little bit of unrest.
So all this had some impact on the business. But the underlying business seems to be holding up reasonably well. I mean, the Chinese travelers are doing okay. So basically, there should be 3 different things. One is the Chinese should continue to do well.
2, the Japanese, which are deeply affected by the drop in the yen, which signs of turning around, the Japanese should be also should be negative. And 3, 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 Q1 of the year, but which we may expect to recover some speed in the last part of the year. So all in all, we think the as always, the tourism the global tourism trends should play in our favor. Your first question, sorry, I mean The luxury ready to
wear business. Luxury. Luxury ready to wear business is a growth driver.
Well, it's definitely it's an important 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. But in terms of image and in terms of traffic generator, this is a very important business. The connections are being renewed at the very least 4 times a year. With some brands, it's more 6 times than 4 times.
These are opportunity for clients to come back to the stores. So it's very important that we are pretty active in this business with a very solid proposition to our clients. So in numerical terms, it's not a very, 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 Melanie Fouquet from JPMorgan. Madam, please go ahead.
Yes, good afternoon. Thank you for taking the questions. My first question is regarding Fashion and Lezegout. If I take out potential Japan ramp up sales, is it correct to assume that Fashion and EBIT was running at plus 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 VAT the pre VAT ramp up?
My second question is on actually excluding this, if it is 5%, the big positive surprise still remains China. So there was other markets that were a little bit softer, but China was up high single digit from being flat before. So I was wondering whether you can comment on what you see going on in that market and why you think it has kicked off? My third question is on the mix. Can you actually quantify how the mix And 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. But what does it mean is the key question. And I don't know.
I mean, 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. So I'm very reluctant to go on commenting the trends without Japan or with Japan, etcetera. 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 the stronger numbers in Q1. If you take out cognac, you will probably will be close to double digit, if not higher than that, higher than the 10% mark, at least. So it's favorable. A quarter never makes a trend, so I'm also very reluctant to comment on this. I'd rather have it this way than the other way around.
But nevertheless, I find it extremely difficult to analyze it for you and to extrapolate this for the quarters to come. We look at the business. We try to do our best to improve it. Number seems to be a bit better, but it's way too early to make it a trend. The mix on LV, I've already not answered the question to on to end before, so we'll not answer it this time.
And the sequential view on the quarter, March was a bit stronger than the other 2 months, but Japan was also a bit stronger. The growth gathered speed a little bit in Japan in March as well. So it's probably the March improvement is probably connected to a significant extent to an upsurge a further upsurge in the Japanese business in March.
Thank you very much. Now just to confirm, you said that for Fashion and HFO for really point was close to double digit, right? The China, double digit is for everything ex cognac and close to double digit is for?
Yes. Thank you, sir.
We have the next question from Paul Flynn from Morningstar. 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 going 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 3 tier system obliges us to go through partners, local partners to distribute our products. So our strategies in the U. S. Are mostly marketing as opposed to distribution are mostly marketing strategies. And definitely, the marketing strategy that we have implemented, which is both of a push and a pull strategy are paying off.
I cannot really elaborate California or the Northeast of the U. S. California or the Northeast of the U. S. But 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 1 quarter that is growing fast in the U.
S. We've been enjoying a significant growth in the Versus business in the U. S. Over the past 3 years. I mean, we had a recession that started way early in 2007 in the U.
S. 2007 to 2009 were pretty tough years for us. But it is a time when these marketing strategies were decided and implemented. And from 2,009 onwards, we've registered a fairly substantial growth in the U. S.
So that's all to the credit of the Hennessy team locally.
Is that more home consumption then, do you believe?
It's both actually, but the market obviously in the U. S. Is more home consumption. I mean the off trade market is much bigger than the on trade market in the U. S.
So it's mostly home consumption, yes.
Great. Thank you. And then just quickly, I know you're 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. But 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'd like to give us in Europe?
Frankly, our numbers in Europe are reasonably flat. I mean, we are plus 1%. We've been plus 1%, 2% for the past 24 months more or less. It would be 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.
But 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 that the direct translation of that into our businesses and marketing strategies. So it's really too early to say, frankly.
Is there still do you believe a tourist shift from Europe to the U. S. Continuing?
Tourist shifts from Europe, we don't really see that. I mean, 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 Ojana Bastianelli from Krogsbrasnes. Madam, please go ahead.
Hi, good afternoon. Thank you very much, but my questions have been already answered. Thank you.
Okay. Thank you.
Thank you, Mariel.
I will take one last question.
So we have a question from Gael Colcumbay from MainFirst. Sir, please go ahead.
Yes. Good afternoon, gentlemen. You have mentioned a new creative momentum going on at AV. And in particular, in regards to the new design of your hired Nicolas Descartes, when what are your expectations in terms of the new collections? And when are they 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 mean, we I don't intend on this call to get into the details of the products and marketing strategies of the brands. So I find it very difficult. I mean, Nicolas de Scaer had his first show with us months 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 will be definitely selling in the stores. This is something 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. I mean, the process is exactly the same. We try to build 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.
So that's 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 onetime contribution of the Hong Kong Airports concession. So basically, some real consistency in the level of growth we are experiencing.
Secondly, I want to highlight the currencies, which are proving to be throwing a serious headache this year, biting about 4% in our overall growth for the quarter. Although the market actually and our sales expect some currencies to strengthen, the U. S. 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. Certainly and finally, I have to admit that our numbers for the Q1 are not that easy to read and are significantly impacted by exceptional factors such as the Chinese current situation on the negative side and the Japanese consumption tax on the 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 all 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 your attending. You may now disconnect.