Good.
Ladies and gentlemen, welcome to the third quarter 2014 revenues. I now hand over to Mr. Chris Hollis. Sir, please go ahead.
Thank you, Charlotte. Hello, I am Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us. We have some brief remarks to make about LVMH's revenue for the first nine months of 2014. As in previous periods, these revenue figures are reported in accordance with IFRS. After these remarks, Jean-Jacques and I will be happy to take your questions. Before I begin, I must remind you that certain information to be discussed on today's call is forward-looking and is subject to important risks or uncertainties that could cause the actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release. Turning now to our third quarter nine-month revenue announcement. Hopefully, you have all had the chance to read our release, which was issued yesterday evening in both French and English.
As always, the release is available on the website www.lvmh.com, as are the slides that we are using to guide today's discussion. With that, let me start with Slide two. Performance of our brands in the third quarter continued the trend we saw in the first half of 2014, though we did see a reduction in negative currency impact compared to previous quarters. Overall, we demonstrated solid momentum in the U.S. and the Middle East and showed good resilience in Europe in the context of an ongoing challenging economic environment. While the Asian region was subject to some volatility, we are pleased to see Japan return to growth. At the brand level, we continued to deepen our focus on leather goods and distribution excellence at Louis Vuitton, while investing in our other fashion brands.
Wines and Spirits continued to be affected by the destocking in China. We saw strong progress in our jewelry segment, which was partially offset by ongoing destocking by watch multi-brand retailers. Sephora continued its strong performance. Turning now to the evolution of the group's revenue performance. We generated organic revenue growth of 4%, both for the quarter and for the nine-month period. The reported growth figure of 6% for the third quarter reflects a 2% structure change resulting from the acquisition of Loro Piana. There was only a very minor currency impact in the period. Our revenue mix continues to be diversified and well-balanced across geographies, as you see from Slide four. The graph on Slide four shows the revenue breakdown in EUR with Asia, including Japan, representing 37%, Europe including France 29%, and U.S. and others 34%.
Compared to last year's nine-month period, the 1% increase in weight in Europe over Asia compared to last year essentially reflects the integration of Loro Piana and the impact of softness of cognac in China. Now moving to, as you can see from our slide five, organic revenue growth for the first nine months was up across all regions compared to the prior year period. Revenue rose most significantly in Japan, up 9%, followed by the U.S. at 6%. The revenue from Europe and Asia grew 1%, demonstrating the group's continued execution against challenging backdrops in each region. For the quarter, geographically, we saw slightly higher growth in the U.S. and in Europe, up 8% and 3% respectively, while Asia was down 3% and Japan was up 5%. Turning now to the revenue by business group. Let's start with Wines and Spirits.
Organic revenue was down 3% for the nine-month period, driven by the continued destocking by Chinese distributors that I mentioned earlier. Total revenue in this group was EUR 2.6 billion compared to EUR 2.8 billion in the same period last year. Revenue in this business group was further impacted by a negative 4% currency effect. If you just look at the third quarter, organic revenue was down 7% compared to the year ago period. After a negative 1% currency effect, reported revenue was down 8% to EUR 948 million compared to the same period last year. Now if we look at the business group in more detail. For the first nine months of the year, Champagne and Wine's organic revenue grew by 6%. After a negative 5% currency effect, this resulted in a reported revenue of EUR 1.195 billion compared to EUR 1.181 billion in 2013.
For the third quarter, Champagne and Wine's reported revenue reached EUR 472 million, reflecting a 7% increase in organic revenue and a 3% negative currency impact in the quarter compared to the prior year period. If we now look at Cognac and Spirits, delivered EUR 1.4 billion in revenue for the first nine months, compared to EUR 1.6 billion in the year ago period. This represented an organic revenue decline of 10% and a negative currency impact of 3%. In the third quarter for cognac and spirits, while currency was only slightly negative, organic revenue declined 17%, resulting in a reported revenue of EUR 476 million compared to EUR 577 million in the prior year period. This demonstrates a marked break to the selling of cognac during the quarter.
Looking at slide seven, champagne volumes rose 4% in the nine months, reflecting solid progress of prestige cuvées and strong performance in the U.S. and Japan. Estates and wines also delivered solid performance. For cognac and spirits, Hennessy volumes were down 2%. This was essentially due to the persistence of the slowdown taking place in China, and this has resulted in de-stocking by local distributors of high-quality cognacs such as the VSOP and XO and prestige ranges. This was slightly offset by the rapid growth we saw in the U.S., combined with the sustained volume growth of our Glenmorangie and Belvedere brands. It's worth mentioning here that the difference between the declines in volume and value for the nine months is entirely due to product mix. Now looking at the fashion and leather goods.
Revenue in this business was up 3% on an organic basis for the first nine months of 2014. Reported revenues were up 8% to EUR 7.7 billion from EUR 7.1 billion in the same period last year. This includes an 8% positive structural impact resulting from the integration of Loro Piana and a 3% negative currency impact. In the third quarter, on its own, revenue was EUR 2.6 billion, reflecting a 2% increase in organic revenue, a 7% positive structural impact, again, Loro Piana, and no currency impact. Slide nine gives a little bit more detail. Louis Vuitton continued its strong creative dynamic, focusing on the development of its leather products and the selective expansion of its store network in the quarter.
One exciting highlight of the third quarter was the communication around the iconic Monogram line, reimagined by six artists and designers, including Christian Louboutin, Cindy Sherman, Frank Gehry, Karl Lagerfeld, Marc Newson, and Rei Kawakubo. These products, which will be available in the fourth quarter, continue an exciting tradition of Louis Vuitton partnering with artists and other creative people to celebrate and reimagine the Monogram. Nicolas Ghesquière's first collection also rolled out into the stores during the quarter and is being well received. In terms of the other fashion and leather goods brands, Celine's leather goods and shoe collections delivered good performance, and the brand opened its second New York store in SoHo. Givenchy, Kenzo, and Berluti continued to show good momentum. Fendi's good performance also continued, driven by leather goods and furs, while it prepared for the opening of its New York flagship store.
Jonathan Anderson, Loewe's new creative director, presented his first show, which has received enthusiastic reviews. Loro Piana continued its smooth integration into the group, with its luxury goods division seeing rapid growth as it continues to develop its exclusive textile expertise. The business group also made some exciting new announcements in the quarter, notably the appointment of Sebastian Suhl as CEO of Marc Jacobs, which took effect in September, and the recent announcement that Caroline Brown will become the new CEO of Donna Karan in January of next year. Moving on to the perfumes and cosmetics business group. Revenue increased to EUR 2.8 billion from EUR 2.7 billion in the nine-month period of last year. This is on slide 10. Excluding a 4% negative currency impact, this represented an 8% rise in organic revenue. For the third quarter specifically, revenue in this business group reached EUR 961 million.
After a negative 1% currency impact, organic revenue was up 11% over the year-ago period, and all three segments, fragrances, skincare, and makeup, contributed to this growth in this, what was a fairly exceptional quarter. Overall, slide 11, this business group drove further market share gains in key regions, particularly driven by makeup in Asia. Turning to its brands, Parfums Christian Dior launched new communication initiatives for its iconic J'adore fragrance, had good success with Dior Addict, and continued to see solid growth for Miss Dior and Dior Homme. The Dior makeup line is performing strongly thanks to new additions to the Addict offering. Guerlain rolled out its new male perfume, L'Homme Idéal, internationally, and its Abeille Royale premium skincare line experienced rapid progress during the first nine months of the year. During the third quarter, Guerlain opened a new cosmetic production site, La Ruche, at Chartres in France.
Givenchy launched a new women's fragrance, Dahlia Divin, Benefit continued to enjoy strong momentum driven by the success of its latest eyeliner, They're Real. Fresh and Make Up For Ever both delivered excellent performance. Turning to our watches and jewelry business, slide 12. Revenue in this group was EUR 1.97 billion compared to EUR 1.93 billion in the first nine months of last year, including 5% organic revenue growth, partially offset by a negative 3% currency impact. For the third quarter on a standalone basis, revenue was EUR 706 million, representing an organic revenue increase of 8% over the year ago period, there was no currency impact. To give you some highlights in this business group for the first nine months, jewelry delivered excellent performance while watches continued to be impacted by a cautious purchasing environment among multi-brand retailers.
At the brand level, Bulgari had a robust third quarter in its 130th anniversary year. The key drivers behind its performance were the renewed and successful focus on jewelry, the full takeover of its distribution in the Middle East, and the promising launch of its new Lucea watch. TAG Heuer decided to optimize its production capacity and continued the destocking of its distributors as it focuses on its historical bestsellers. Hublot made strong progress, notably with Classic Fusion, and gained great visibility during this summer's FIFA World Cup through its partnership with FIFA. Finally, Chaumet demonstrated strong retail momentum. Now for the sector retailing, slide 14. This group delivered a solid 8% organic revenue growth, slightly offset by a negative 3% currency impact for the nine-month period. This comes on top of 19% increase in organic revenue for the same period last year.
For the third quarter on its own, revenue reached EUR 2.2 billion, up from EUR 2.1 billion in the third quarter of last year. This reflects organic growth of 7% and a very small negative currency impact. DFS saw further development of Asian tourism, which helped to drive performance but was partially offset by a weak JPY impacting travel destinations of Japanese travelers. Hong Kong airport concessions continued to perform well, but T Galerias in Hong Kong and Macau saw some softening due to the change in profile and frequency of the mainland Chinese clientele. The North American airport concessions also delivered strong growth, DFS also began the renovation of its Shanghai airport concession in Singapore. Finally, the loyalty program continued its successful rollout.
Turning to Sephora, this business once again grew strongly, increased its market share in all key regions, and continued to generate notable comparable store revenue growth in North America and the Middle East. Sephora's first stores opened in Indonesia during the quarter, online sales saw continued rapid progress. In summary, our ability to deliver 4% organic revenue growth in the third quarter and nine-month period, despite the cognac situation in China and against an ongoing challenging economic backdrop in key regions, demonstrates a good overall performance. In fact, excluding cognac destocking in China, all regions and business groups contributed to growth in the quarter. Going forward, LVMH will continue to focus on offering innovative, high-quality products combined with selective store network expansions and a focus on cost management, with the aim of further increasing the group's leadership in the global luxury goods market.
Thank you. With that, we'll now take any questions you might have. Charlotte, can you please open the line?
Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have a question from Paul Swinand from Morningstar. Please go ahead. Mr. Swinand?
Hello.
Your mic is open.
Hello, this is Paul Swinand.
Yeah. Paul.
Yeah, sorry, I wasn't sure if I was on the line. Thanks for taking the questions. First, just you mentioned that Nicolas Ghesquière's collections are getting good traction. Is there still some rollout to go? In other words, has he touched all of the different product areas, and is that ongoing through 2015?
Well, it's something we do progressively. Obviously, the ready-to-wear collection is the women ready-to-wear collection has Nicolas' touch. With regards to handbags, obviously, the influence of what he does will unfold progressively. There is, I would say, more to come.
Okay, thank you. You noted that watches and jewelry was a little bit better than expected, but the jewelry was the driver and watches still had some destocking. Can you comment, is the problem in watches isolated to TAG, and is it even around regions, or is it really driven by Hong Kong and the destocking in China?
Not really. As far as TAG Heuer is concerned, apart from Japan where we do a very strong business with TAG Heuer, the rest of the world, particularly the U.S., where TAG is historically very strong, but also Europe, is suffering. It's not really de-stocking. It's connected with the fact that the high-priced novelties of last year are slow movers, and slow movers in the system are preventing the retailers to reorder the fast-moving items and the best sellers. It's really a little bit of this situation that we are experiencing. It's not really de-stocking, it's the lack of ability by the retailers to buy the best-selling products. It's in Europe and obviously in the U.S.
You're saying that even in TAG in the U.S., the traditional sellers are doing okay, but it's just the comp against the novelties of last year?
Yeah. It's the fact that they have in the open-to-buy allocation by brand, they still have part of the open-to-buy money, which is stuck into slow movers. We expect these slow movers to diminish in proportion and to release some money that will be invested by the retailers into the best sellers. That's the situation we've been in since the beginning of the year.
Got it. Thank you very much. I'll let somebody else get in the queue. Thanks. Bye.
Thank you.
A question from Antoine Belge from HSBC. Please go ahead.
Yes. Hi, it's Antoine Belge from HSBC. I've got three questions. First of all, regarding cognac. I think in the Q1 conference call in April, you had called that de-stocking was over, and it was not the case. How can you be sure now that there is not a lot of inventories in the different tiers or sub-tiers of distribution in China? It seems that you've changed management in the Asian region. What's your view? Do you expect an improvement now to take place more like in 2015 rather than in the next quarter? The second question relates to the situation in Hong Kong. It seems that DFS was actually quite resilient in the quarter, but did you see a deterioration more recently? Also, could you comment on Hong Kong as a sort of broader topic for the group?
Do you think that this is a temporary situation, and do you expect actually to recoup some of the sale at a later stage, maybe at other destination? Finally, could you update us on your hedging policy, given especially the more recent move of the EUR? Not only just the hedging value, but also how you hedge. I know that you've been historically using options tunnels. In theory, you should be able to take benefit from part of the favorable movement as soon as Q4. Thank you.
Thank you for your three questions. One, starting with cognac. I don't really remember that I said that de-stocking was over in Q1. Maybe I had too much actually of the cognac product itself, but that's not really what I said. I said we expected de-stocking to be over by the end of the year. It's gone by the end of 2014. This is exactly what's going on. De-stocking is not over yet. The system in China, you have 2 levels of wholesalers. The first level of wholesalers, our direct clients, we see the level of inventories being reasonable, let's say, not ideal, but reasonable and in good shape to end up de-stocking. It's as of we speak.
As far as the 2nd level of wholesalers, we are talking about smaller people, smaller players, inventories in this part of the distribution system where we have less impact than in 1st tier, inventories are still too high, and it will take probably the rest of the year to clean them up. De-stocking is not over, that's what explain why our numbers in Q3 were particularly poor. Our selling numbers were particularly poor, as we are pretty serious in making sure that by the end of the year, this will be, if not entirely, but the vast majority of the issue will be behind us. That's as far as de-stocking is concerned. If you look at the market itself, what we can say, I don't have the numbers at the end of September. They are not ready yet.
At the end of August, the VS business, I'm talking about sell-outs, the VSOP business, sorry, is -4%, more or less in line with what I told you at the end of June. I think it was -3% at the end of June. The month of August was a bit difficult, nothing really worrying. XO is more difficult. XO is -15% for the first eight months of the year. It's really the discrepancy between these numbers, which are not very good, not very bad either. Our selling numbers that are causing the de-stocking, hopefully will make the stocks to a normal level by the end of the year. That's for cognac. Hong Kong, the other question on DFS, I would say that the DFS situation in Hong Kong is a little bit complex to analyze.
If you look at DFS numbers in Hong Kong, they were about +7%, +8% in H1, they were very slightly breaking even, or growth was negligible in Q3. Definitely, we have already seen in Q3 some negative impact on the business, which is mostly coming from what is currently culminating with the protests in Central, where the sort of anti-Chinese sentiments that progressively crystallized in the course of the quarter, which affected a bit the business there, particularly when it comes to top-end customers, independent travelers as opposed to the group travelers. That's what we've seen in Q3. Obviously, the big demonstration started on the 30th of September, the business itself in Q3 was not affected by that. What we've seen ever since is quite complex to read.
Our numbers are not too bad in the first part of October, bear in mind that they compare with very low numbers last year because there was a change in the regulation in China regarding group travels, and our figures were extremely poor in Hong Kong last year at the same period. Basically, the situation is, I think we are down something like 5% or 6% in Hong Kong in the first 2 weeks of the month, which is not bad in itself, but hides a very easy comparison base. On top of that, I would say there is more to come. As you know, the Chinese authorities decided not to grant any visas to group tourists as of, I think it was the 7th of October or something like that. We hardly see anyone now.
As far as groups are concerned, we don't see many people in the stores. It's a little bit too early to really assess the impact of the current situation, which, by the way, is not over. Really a bit early to assess the impact of the current situation. The comments I'm making and the figures I just gave you are Hong Kong downtown. The point to bear in mind is that the airport is not particularly affected by that. The first 2 weeks of October, the airport is about up 10%. It was up also 10% in Q3. We are doing good business in the airport, which has nothing really to do with what's going on in Central. That's really the situation in Hong Kong. As far as hedging is concerned, obviously we took advantage of the recent drop in the euro to improve our hedging.
We now have a hedging rate more or less the same on USD and JPY, about 72%, 73%. Obviously, the average rate for hedging in 2015 reflects the fact that the bulk of the hedges were put in place earlier on this year at a much higher level for the EUR/USD and the EUR/JPY, 135 for the USD and 138 for the JPY. Nevertheless, it goes into the right direction. With regards to the hedging strategies, we either bought in the past plain vanilla put options, we have no issue whatsoever. If the euro continues to soften, we'll benefit from the rates that we will get on the market as opposed to the rates of the hedging strategies. Sometimes we have tunnels, with we buy put option, and we sell call options.
At the current level, we are pretty far from the level of the call options. We should benefit from a further strengthening of the currencies against the euro in a very major way if it happens.
Thank you. Maybe just a follow-up on Hong Kong, I was wondering what was the situation for LV as well. Maybe just also on cognac, I think Chris mentioned that there was a lot of mixed impacts. In terms of pure pricing, talking to each of the main three players, it seemed that everyone is accusing the other two cut pricing. Can you comment on pure pricing, and where do you see mix pricing, especially for the XO category in China?
We're not accusing anyone of lowering prices and be particularly aggressive, which doesn't mean that we are doing it. The situation, if you want the real answer, it's a little bit complex. I will try to summarize it. Basically, what happens is particularly on trade, we are paying fees to the outlets we have contracts with. As you know, we've been pretty aggressive in contracting with more outlets, particularly in the modern on-trade segment, but also with the nightclub segment over the past few months. Which means that with modern on-trade being up, I think that if you look at sell-outs for the first part of the year, the modern on-trade for the VSOP, for instance, is at 27%.
It's quite a substantial increase, which means that the fees we are paying, which are based on actual sales by the outlet, are also up in a significant way. Technically, the way we book for it is that these fees are not costs, but they are offsetting sales. Our sales are sell-in. We have a combination of much lower sell-in numbers, and much lower sales, as we explained before, and higher fees being paid to the outlet. In percentage of sales, the fees we paid to the outlets is obviously increasing quite significantly because of this discrepancy between the basis for the fees and what we have set them against. I hope it's clear. On the face of it, you can say that actually the level of fees, which is a sales incentive, is increasing in percentage of sales.
It's only apparent because we have set it against sell-in and not sell out, as we don't have the ability to do it. The economic logic of it is this one.
Okay. We have the next question from Mario Ortelli from Bernstein. Please go ahead.
Good morning, Jean-Jacques. Good morning, Chris. Some question about Louis Vuitton. We have seen that in Q3, the Fashion and Leather division had that organic growth of 2%. Can you give us some color about the performance of Louis Vuitton in comparison to the other brand? Always in Louis Vuitton, can you give also an idea if Louis Vuitton has done any price increase in the last quarter or has opened any new store? I know that it is a [difficult] call , but if you can reassure us that the margins of Louis Vuitton are still stable. Thank you.
Thank you, Mario. Well, LV versus others, LV is a little bit lower than the others, but not very far off. As always, with a little bit of a difference, but not a very significant one. The price increase, nothing new. We had a price increase in France to align French and other European prices. I think it was in early July, but apart from that, there was nothing in the quarter. There were probably a few store openings and closures as always, but I think the store count remained flat in the course of the quarter. Nothing really significant. As far as margins is concerned, to date, margins are in line with what I said before, i.e., they are stable.
Thank you very much.
A question from Laura Levy from Barclays. Please go ahead.
Hi, it's Laura Levy from Barclays. Another question on the Fashion and Leather Goods division. Can you give us a bit of color by region? Did you see Asia down 3% in line with the group? Also the moving parts for Hong Kong and the Mainland? I have another question that is about the Hermès sales distribution. Can you remind us about the tax and balance sheet implications? Lastly, a question on Europe that accelerated over the last quarter. Can you tell us about the dynamic between tourism spending and local demand? Thanks.
Thank you, Laura. Fashion and Leather by division--
By region.
By region. Sorry. We didn't see a lot of changes there. I think Europe was a bit better. The U.S. was a bit better. Japan as well, and China and Asia were a bit lower. No big discrepancy compared to Q2 and H1, with the exception of Japan, which was obviously quite negative in H1, sorry, in Q2. H1 was positive in Q2, and which is flattish in Q3. The changes in Fashion and Leather were not tremendous. Hermès. The tax impact as far as LVMH is concerned is about EUR 350. It will depend obviously on the valuation of Hermès on the day of the distribution, but about EUR 350 million in taxes. The balance sheet impact will also depend on the valuation of Hermès on the day of the distribution.
Basically, the impact is 24.3 million shares multiplied by the share price of Hermès on the day of the distribution, plus EUR 350 million of taxes. That gets down to the global impact on the shareholders' equity of the group. Europe, as you said, is slightly better. Tourism is better with Chinese customers, and I would say worse with all the other customers, particularly South American, Japanese, and other Asian countries. All in all, tourism is. It's difficult to draw conclusions for the whole of the group. As you know, we just monitor tourism in a precise way for Vuitton. All in all, tourism in Europe is slightly up, but more or less in the same trend as what we've seen so far this year in Europe.
Okay. Last question on just Louis Vuitton. Looking at the Chinese spending overall, globally, did you see any change in trends in Q3 versus H1?
It was a bit lower. You remember that the Q1 was very strong. Q2 was less strong. On average, we were a bit lower than H1. We were up a few percentage points compared to H1, which is something like 5% or 6%. It's a bit lower, nothing really significant. A few percentage points lower.
Okay, perfect. Thank you very much.
A question from Thomas Chauvet from Citigroup. Please go ahead.
Good afternoon, Chris, Jean-Jacques. Three question, please. The first one on perfumes and cosmetics and Sephora. Can you just elaborate a little bit on what happened there? Very strong in perfume and cosmetics as well as, I think Sephora in the U.S., and some emerging markets. Can you provide perhaps like for like for U.S., France, and let us know whether China and Asia for Sephora have been weaker, in recent months? Secondly, in terms of profits, for the second half, just was wondering whether we should be aware of any potential one-offs in the first half. I think, the restructuring charge at TAG Heuer, rental inflation at DFS Los Angeles, San Francisco, and Marc Jacobs startup cost had quite a big of impact. Are there anything else we should be aware of, and are these effects in the first half going to carry on in the second half?
Finally, on more the group's vision and strategic moves, obviously, you've announced the disposal of your entire stake in Hermès. Some of investors are probably seeing that as a strategic move, but would you consider that LVMH will be focused on organic growth from now on? Are you happy with the current depth of the brand portfolio, or are there still some gaps that you would like to fill? I see you investing, for instance, in European travel retail with DFS. Question more on the group portfolio, after the Hermès disposal. Thank you.
Thank you, Thomas. Perfume and cosmetic, we saw improvement more or less everywhere in the world, in the U.S., in Asia, particularly in Asia. I thought we had a very strong quarter in Asia, but in the U.S. too, and in Europe. A bit of this comes from a few launches, such as L'Homme Idéal at Guerlain or the eyeliner, Diorshow, Benefit, but even if you take this out, the quarter was pretty strong. The business did very well. With regards to Sephora, I will give you the like for like, but they were exactly the same as what we had in H1 . About 14% in the U.S., flattish in Europe, 7%-8% in China. I don't remember the figures in Middle East, but pretty high. Something like 20% or something like that.
We had a very good quarter at Sephora again, I would say, and no sign of slowing down or weakness in Asia. Our Southeast Asian business is doing really well. It's improving. It will break even this year. We have not been in this business for a long period, we are breaking even probably faster than what we thought in Southeast Asia. The Chinese business is holding up extremely well with nice like for like figures. We are pretty satisfied with the evolution of the business. Second question on the one-offs, you mentioned H1 one-offs. I would say that as far as the three you mentioned, TAG Heuer, Marc Jacobs, and DFS, what you saw in H1, you will also see in H2.
The comparison base in 2013 for H2 doesn't take into account a pretty complex situation at Marc Jacobs and at DFS with the mix being unfavorable to DFS. The comparison will play in a negative way again in H2, and it's the same for TAG Heuer. We expect to have some more restructuring and exceptional expenses to be booked in the second half of the year. Apart from that, it's a bit early to say, but I don't see major points worth mentioning. For your last question on Hermès and our acquisition strategy, basically you imply that Hermès was an acquisition or an attempt to acquire something. I view this more as a financial investment. Anyway, your question on whether we would have some interest in European travel retail, for instance. Frankly, I doubt it. It's an airport business.
We are more excited with downtown locations as shown by our projected investment in Venice. I don't see us, as of today, be investing into big airport operators through combinations or very large-scale strategic move. As far as our overall acquisition strategy is concerned, you know that we are purely optimistic and, what do they say, opportunistic?
Opportunistic.
Opportunistic. That we have nothing in mind. We try to concentrate, as you suggested, on organic growth, which is obviously the most important thing for us.
Thank you, Jean-Jacques.
A question from Mélanie Flouquet from JP Morgan. Please go ahead.
Yes, good afternoon. I have three questions as well, sorry. The first one is on fashion and leather goods. I was wondering whether you can go back a little bit on the mainland China point, because the FX well Q1 was actually pretty strong. If that surprised you on the upside, Q2 had then deteriorated. I'm trying to understand a little bit better what happened in Q3, not in comparison to Q1, but in comparison to the Q2 trend. Did you recover a bit? Notably, how was the price increase that you put into Q2 absorbed into Q3? The second question is on Cognac. You gave us a sell-out trend for VSOP and for XO up to August. Would you be able to give us your selling, to compare that two and to have maybe a better sense of how aggressive the destocking is actually already?
To follow on to that, what would you expect in terms of Q4, if you can give us any sense of whether we should expect another sharp decline or a little bit less given what's happened in Q3, which seems to have been pretty aggressive. Last, sorry, it's really housekeeping for me. I missed the European growth in quarter three for the group. Thank you.
I missed your last question, Mélanie.
The last question is on, I missed Europe sales growth in Q3, sorry, during your presentation. Thank you.
The what? Sorry, I didn't hear you again.
Europe growth.
Europe growth. Okay.
Thank you. In Q3 for the group.
Okay. Let's start with mainland China in fashion and leather. Our growth was a bit lower than what it was for Q2, shared by most of the brands. Vuitton probably a little bit more than others. We saw more action taking place outside China than within China. With Chinese customers, obviously. The tendency for Chinese customers to shop more abroad than they do at home is still there in Q3, so it had a little bit of an impact on our figures. All in all, we are a bit lower than what we were in Q2, a bit more compared to Q1, but lower than Q2, but nothing really striking. Unlike Cognac, where our sell-in numbers in China were sharply down in terms of volumes in Q3, we were down about 50%, a little bit more than that.
You will find it a bit hard to reconcile this and sell-out numbers because the basis is entirely different. I will not go into all the details with the number of cases, et cetera, but as I said, the destocking is not over as we speak, and we expect it to be almost over, if not over by the end of the year. We'll take the necessary measures in terms of reduction in selling to make sure that we meet this objective. Europe growth in Q3 was 3%. Is that-
Can you give us any indication of the sort of magnitude of decline that you would expect in quarter four, given that I think you're basically saying the second layer you're less exposed to, and that's the one that needs to be cleaned up?
No, I can't tell you. Frankly, you're adjusting the numbers from both the sell-outs, depending on how the sell-out happens, and on the amount of stocks, and it could create a lot of volatility in the business. On top of that, we get, as you understand, the sell-out numbers with a little bit of delay. As we speak, we don't have the sell-out numbers by channel, at least at the end of September. If we really want to adjust inventories by the end of the year, chances are that we'll have to anticipate a little bit on the business. It's quite complex monitoring of the business there. I really cannot tell. I don't have any idea on this.
Thank you.
A question from Stephanie D'ath from Bank of America. Please go ahead.
Yes, hi. My first question is on the timing of the Hermès share distribution, if you can please give us a bit more clarity on that. The second question is inside the quarter, and especially maybe the exit rate, were there any deterioration? My third question is, given Asia grew 3% in H1 and only 1% in nine months, that implies negative growth in the third quarter. Could you maybe specify which divisions were maybe not negative in Q3 in Asia? And also comments on the Russian consumers, please.
Okay. Hermès, you'll get all the details soon. Probably at some point next week, we are going to have a press release on this. I cannot really elaborate as of today, but it will be as we said, before the end of the year and in the course of the months of December. You'll get all the details probably by the end of next week. I'm sorry, I missed your second question.
Inside the third quarter, were the trends in terms of growth the same, or was the exit rate, the end of the quarter, maybe a slight deterioration?
Not really. We had some changes, obviously. Not all the months were equal, but nothing outside the normal volatility of monthly performance. The month of September was in line with average of July and August. Thirdly, on Asia and the division analysis. All the divisions are positive with the exception of Wine and Spirits. All the other ones. If you look at Asia, excluding Wine and Spirits, the region that did +4%. The bulk of the impact on the Asian numbers was the impact of the Wine and Spirits, and after China, obviously, destocking.
Russia.
The question on Russia, I don't know. I should know, but I don't, frankly.
Okay, thank you.
A question from Warwick Okines from Deutsche Bank. Please go ahead.
Good afternoon, Jean-Jacques and Chris. 3 questions from me as well, please. On currencies, can I ask the hedging question in a slightly different way to before? In the first half you said that currency was a EUR 235 million drag on profitability. Can you give us any sense of whether H2 is materially better than that or a similar sort of pressure? Secondly, could you talk about pricing for Vuitton? I think you worked pretty hard to reestablish the traditional price differential between different markets given all the currency swings. Do you think that's the right thing to do on a longer term basis, or do you see some compression of prices between markets over time? Thirdly, if I could just come back to your answer to the question about fashion and leather by region.
You compared the performance of Q3 with the Q2 and H1 numbers, I don't think you actually gave all of those numbers at the time of the call. Apologies if I missed it on the H1 call. Could you just be a bit more specific about the regions? I think you're saying that Europe was a bit better, which I think you did say was flat in H1. U.S. a bit better. I'm not sure what you had said for the first half. Japan, can you just confirm you actually said it was flattish for Q3?
It's for fashion and leather or for the group?
For the group.
Sorry?
That's for fashion and leather, please.
Fashion and leather. I will comment on that. The first question, no, I cannot give you answer. Give me exchange ratio, and I will give you the currency impact. The only thing I can say is that chances are that the breakdown of the impact will be entirely different from what it was in the first part of the year. In the first part of the year, we had a big negative coming from conversion of profits, a big negative coming from the impact of currencies on exports, and a positive coming from higher hedging gains.
Chances are that it will be the other way around in H2, with no hedging gains, almost no hedging gains, but obviously better EUR, not JPY, but at least EUR/USD and probably not EUR/JPY, but EUR/USD conversion ratio that would enable us to get some benefit from the conversion and the export number. Whether we'll end up with a much more favorable figure, more favorable or less favorable, I don't know at this point in time. Particularly, I don't know at which level I should be making the calculation. Pricing. Your question about long-term pricing and differences between markets is an interesting question. I would say that we don't do price differences just because we want to impose higher prices to non-European customers.
The idea is also to reflect higher lending costs, more importantly, in many markets, including the U.S., obviously most Asian markets, tariffs, import duties, and different consumption taxes. It's particularly true for China. As far as we are concerned, as long as there will be differences in terms of taxes in the various markets, we expect to reflect that in selling price. It wouldn't make any sense to subsidize transactions and business in a given country at a price which doesn't reflect the various taxes we have to pay. We definitely expect to keep a price hierarchy that will show these differences. That being said, these differences may vary in the future. There's been a lot of discussions or rumors about import duties in China being lowered, about consumption tax being different from what it is today.
Obviously, if there were some changes there, we would immediately reflect that into our local prices. For the time being, and as long as this doesn't happen, we think the price hierarchy is a logical one, and we intend to keep it. The fashion leather by region, the numbers I mentioned were the comparison between Q2 and Q3. I said it's a bit better in Europe, much better in Japan as Q2 was obviously reflecting the VAT, the aftershock, I would say, of the VAT increase. They were better in the U.S. and a bit worse in Asia. Again, very comparable from one quarter to the other.
Could you give us the Q2 U.S. number? I'm not sure I've got a record of what you said at the time.
I probably didn't give it to you, so that's why you don't have a record. In the U.S., it was flat in Q2, and it's slightly positive in Q3.
Great. Thank you very much.
A question from Hermine de Bentzmann from Raymond James. Please go ahead.
Hi. Good afternoon. First question, please, on Watch and Jewelry. Clearly, the quarter was quite dynamic. Can you precise a bit the performance by region, please? What kind of slowdown do you expect in the division in Q4 due to the recent protest in Hong Kong that may impact this division? My second question, can you discuss about the recent trend that you saw in Taiwan, Singapore, and South Korea? Thank you very much.
Okay. By region, the Watch and Jewelry business was in line in Europe and the U.S. with what we've seen, a bit better in Europe, but not actually meaningfully better. It was obviously comparing Q3 and Q2 much better in Japan for the reason I mentioned before. For Fashion Leather, it's exactly the same thing, and it was much better in Asia for what it's worth. As you know, particularly our watch business in Asia is relatively small. Definitely it was better, not a big change overall, a big impact on the business overall, but it was better. What's happening today in Hong Kong will have some impact probably although a big part of our business takes place in Kowloon, and Kowloon is less affected than Central. I don't have precise numbers for jewelry business and for Bulgari as I have for DFS, for instance.
It will have some impact. Way too early to assess it, I cannot really say. Your last question was on Taiwan. Taiwan, I have no idea. I think the market is quite soft. Singapore is down quite significantly, I think 5% or 7%, something like that. This is mainly connected with the Chinese customers not visiting Singapore and Malaysia and Thailand because there were package tours that were going from China into Singapore, Malaysia, and Thailand. For reasons connected with the political situation in Thailand and the airplane crash in Malaysia this business is under pressure. Singapore was not doing too well, unlike Korea, which had a good year and a fantastic quarter. We see more and more Chinese tourists in Korea. Basically, the people we don't see in Singapore and we see less in Hong Kong tend to go to Korea.
The Korean business has been good since the beginning of the year and was good in Q3.
Okay, thank you very much.
A question from David Zumaya from Oddo BHF. Please go ahead.
Yes, good afternoon. My question have already answered, but maybe on jewelry, is there any kind of exceptional very high-end sales which can explain the sharp upturn recorded in Q3 in this business?
Yes, a bit, but not to a great extent. As you know, we had the Biennale in Paris earlier on in September, which went well for Chaumet and Bulgari. I think it's more significant for Chaumet because the numbers were pretty good, and compared to the rest of the business, it's significant. For Bulgari, we did well, but it doesn't affect a trend. If you take out Biennale, the rest of the year and the rest of the business is really doing okay. We really had a good quarter at Chaumet and at Bulgari in particular, which was sort of magnified by the Biennale impact.
Okay, thank you.
A question from Javier-
Hermine.
Yes. The last question from Javier Escalante from Consumer Edge Research. Please go ahead.
Yeah. Good afternoon, everyone, and thank you for taking the call. I just would like if you can comment on both in two businesses, the one that did well, cosmetics and selective retailing. On cosmetics, could you tell us whether you have visibility about actual retail sales versus shipments? Because I think you were lapping a very easy comp in cosmetics, and if you can help us understand what is sustainable going forward on the cosmetic side. On selective retailing, last time, you discussed about the low conversion rates for DFS and that you wanted to have more time to understand what was driving this. If you can tell us what your findings were in the context of what was the growth rate of Sephora versus the growth rate of DFS, and that will be very helpful. Thank you.
Okay. On the cosmetic question, bear in mind that the cosmetic business in retail is a low inventory business. They have a few weeks of inventories. It's very rare that we end up with a big discrepancy between sell-in and sell-out. It may happen in one quarter, particularly if you have loadings of product ahead of a big launch, which happened a bit, as I said before, to us with L'Oréal and They're Real! eyeliner. Numbers were positively impacted by that, but to a limited extent anyway. All in all, the sell-in and sell-out numbers are always the same. If you take over two or three quarters, they're always the same. We have no particular worry that the current situation would end up in low sell-in numbers because of excess stocking.
That's not something that we have in mind, that we expect to alter the business in Q4. The visibility, nevertheless, is as good as yesterday's sales, and you never know as far as sell-out is concerned. As I said, as of today, the business is doing okay. The geographies which are doing well, like the U.S., the U.K., et cetera, are still doing well. Some geographies, like Russia, for instance, are improving. They were pretty poor in the first part of the year, they are definitely improving. Travel retail is improving as well. Obviously, there is a little bit of unknown as far as the Hong Kong situation is concerned, it's not a big market. As far as selective distribution is concerned, I have no memory of commenting on conversion rates at DFS. Maybe I did.
As I said, sales at DFS in Q3 were flattish, with the division being plus 7% in organic terms. DFS and Sephora being more or less 50/50. I let you draw the conclusions as to the type of growth that Sephora got in the course of the quarter. Obviously, a very strong performance.
Thank you very much.
Thank you. This ends this conference call on the Q3 numbers. Thanks for attending the call, and I look forward to discussing with you our full-year numbers probably in the first day of February. Thank you. Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your attending. You may now disconnect.