Ladies and gentlemen, welcome to the Q3 2014 Revenues. I now hand over to Mr. Chris Hollis. Sir, please go ahead.
Thank you, Charlotte. Hello, I'm Chris Hollis, Director of Financial Communications at LVMH. And with me is Jean Jacques Guilleniere, our Chief Financial Officer. Thank you for joining us. We have some brief remarks to make about LVMH's revenue for the 1st 9 months of 2014.
As in previous periods, these revenue figures reported in accordance with IFRS. After these remarks, Jean Jacques and I will be happy to take your questions. Before I begin, I must remind you that certain information to be discussed on today's call is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially. So these are referred to the Safe Harbor statement included in our press release. Turning now to our Q3 9 month revenue announcement.
Hopefully, you've had the
you all had the chance
to read our release, which was issued yesterday evening in both French and English. And as always, the release is available on the website, www.lvmesh.com, as are the slides that we're using to guide today's discussion. So with that, let me start with Slide 2. Performance of our brands in the 3rd quarter continued the trend we saw in the first half of twenty fourteen, 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 continue 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.
And 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 9 month period. The reported figure growth figure of 6% for the 3rd quarter reflects growth figure of 6% for the 3rd quarter reflects a 2% structure change resulting from the acquisition of La Repiana and 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 4. The graph on Slide 4 shows the revenue breakdown in euros with Asia, including Japan, representing 37 percent Europe, including France, 29% and U. S. And others, 34%. Compared to last year's 9 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 the softness of cognac in China.
Now moving to, as you can see from our Slide 5, organic revenue growth for the 1st 9 months was up across all regions compared to the prior year period. Revenue rose most significantly in Japan, 9%, up 9% and followed by the U. S. At 6%. 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 business group. Let's start with Wines and Spirits.
Organic revenue was down 3% for the 9 month period, driven by the continued destocking by Chinese distributors that I mentioned earlier. Total revenue in this group was EUR 2,600,000,000 compared to EUR 2,800,000,000 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 3rd quarter, revenue was down 7% compared to the year ago period. After a negative 1% currency effect, reported revenue was down 8% to €948,000,000 compared to the same period last year.
Now if we look at the business group in more detail, for the 1st 9 months of the year, champagne and wines organic revenue grew by 6%. After a negative 5% currency effect, this resulted in a reported revenue of €1,195,000,000 compared to €1,181,000,000 in 2013. For the Q3, champagne and wines reported revenue reached EUR 472,000,000 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 €1,400,000,000 in revenue for the 1st 9 months compared to €1,600,000,000 in the year ago period. This represented an organic revenue decline of 10% and a negative currency impact of 3%.
In the Q3, for cognac and spirits, while currency was only slightly negative, organic revenue declined 17%, resulting in a reported revenue of
EUR 476,000,000
compared to EUR 5 77,000,000 in the prior year period. This demonstrates a marked break to the sell in of cognac during the quarter. Looking then at Slide 7, champagne volumes rose 4% in the 9 months, reflecting solid progress of prestige cuveys and strong performance in the U. S. And Japan.
States and Wines also delivered solid performance. For cognac and spirits, Hennessy volumes were down 2%. This was essentially due to persistence of the slowdown taking place in China, and this has resulted in 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 sorry, Glenmorangie and Belvedere brands. It's worth mentioning here that the difference between the declines in volume and value for the 9 months is entirely due up 3% on an organic basis for the 1st 9 months of 2014. Reported revenues were up 8% to €7,700,000,000 from €7,100,000,000 in the same period last year. This includes an 8% positive structural impact resulting from the integration of impact. In the Q3, on its own, revenue was EUR 2,600,000,000 reflecting a 2% increase in organic revenue, a 7% positive structural impact again in Laurepiana and no currency impact.
Slide 9 gives a little bit more detail. Louis Vuitton continued its strong creative dynamic and focusing on the development of its leather products and the selective expansion of its store network in the quarter. One exciting highlight of the Q3 was the communication around the iconic Monogram line, reimagined by 6 artists and designers, including Christian Louboutin, Cindy Sherman, Frank Geary, Karl Lagerfeld, Mark Newsome and Ria Kawabeau. These products, which will be available in the Q4, continue an exciting tradition of Louis Vuitton partnering with artists and other creative people to celebrate and reimagine the monogram. Nicolas Ghesquiere'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 brand, Celine's leather goods and shoe collection still have a good performance and the brand opened its 2nd New York store in Zoho. Givenchy, Denzel and Belluti continued to show good momentum, and Fendi's good performance also continued driven by leather goods and furs, while it prepared for the opening of Itz, a New York flagship store. Jonathan Anderson, Loewe's new Creative Director, presented his first show, which was received which has received enthusiastic reviews. And 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 by
to €2,800,000,000
from €2,700,000,000 in the 9 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 Q3 specifically, revenue in this business group reached €961,000,000 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. Perth and Christian Dior launched new communication initiatives for its iconic Jadore fragrance, had good success with Dior Addict and continued to see solid growth for Miss Dior and Dior Homme. And the Dior makeup line is performing strongly, thanks to new additions to the Addict offering. Guerlain rolled out its new male perfume on Ideal internationally and its Abbe Royale, a premium skincare line experienced rapid progress during the 1st 9 months of the year.
During the Q3, Gala opened a new cosmetics production site La Roche at Charre in France. Givenchy launched a new women's fragrance, Dahlia Divan. Benefit continued to enjoy strong momentum driven by the success of its latest eyeliner, They're Real and Fresh and Make Up Forever both delivered excellent performance. Now turning to our Watches and Jewelry Business, Slide 12. Revenue in this group was €1,970,000,000 compared to €1,930,000,000 in the 1st 9 months of the last year, including 5% organic revenue growth, partially offset by a negative 3% currency impact.
For the Q3, on a stand alone basis, revenue was €706,000,000 representing an organic revenue increase of 8% over the year ago period and there was no currency impact. To give you some highlights in this business group for the 1st 9 months, jewelry delivered excellent performance while watches continued to be impacted by cautious purchasing environment among multi brand retailers. At the brand level, Bvlgari had a robust Q3 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 Lucia 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 Soccer World Cup through its partnership with FIFA. Finally, Chaumet demonstrated strong retail momentum. And now for the sector, Retaining. Slide 14, this group delivered a solid 8% organic revenue growth, slightly offset by a negative 3% currency impact for the 9 month period. This comes on top of 19% increase in organic revenue for the same period last year.
And for the Q3 on its own, revenue reached EUR 2,200,000,000, up from EUR 2,100,000,000 in the Q3 of last year, and 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 yen impacting travel destinations of Japanese travelers. Hong Kong airport concessions continued to perform well, but Galleria's 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 and DFS also began the renovation of its Shanghai Changi Airport Concession in Singapore. And finally, the Loyal Tea 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 1st stores opened in Indonesia during the quarter and online sales saw continued rapid progress. So in summary, our ability to deliver 4% organic revenue growth in the Q3 9 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. And with that, we'll now take any questions you might have. Charlotte, can you please open the line?
Wish to ask a question, please press 1 on your telephone keypad. We have a question from Paul Frenen from Morningstar. Please go ahead. Mr. Svenen, your mic is open.
Hello. This is Paul Frenen.
Yes, Paul.
Yes, sorry, I couldn't I wasn't sure if I was on the line. Thanks for taking the questions. First, just you mentioned that Nicolas Ghesquiere'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?
It's something we do progressively. Obviously, the ready to wear collection is the women ready to wear collection, as Nicolas touched. With regards to handbags, obviously, this will I mean, the influence of what it does will unfold progressively. So there is, I would say, more to come.
Okay. Thank you. And then 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 Paravelin 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, it's apart from Japan where we do 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 destocking.
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. So it's really a little bit of this situation that we are experiencing. So it's not really destocking. 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.
So you're saying that even in TAG in the U. S, the traditional sellers are doing okay, but it's just a comp against the novelties of last year?
Yes. It's the fact that they have the open to buy allocation by brand. They still have part of the open to buy money, which is stuck into slow movers. So we expect these movers to diminish in proportion and to release some money that will be invested by the retailers into the best sellers. So but 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 Bege from HSBC. Please go ahead. Yes.
Hi. It's Antoine Bege from HSBC. I've got 3 questions. First of all, regarding cognac, I think in the Q1 conference call in April, you had called the destocking was over and it was not the case. So 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 like you've changed management in the Asian region. So what's your view? And 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?
So could you comment on the Hong Kong as a sort of broader topic for the group? Do you think that this is temporary situation? And do you expect actually to recoup some of the sale at a later stage maybe at other destination? And finally, could you update us on your hedging policy given especially the more recent move of the euro, not only just the hedging value, but also how you hedge. I know that you've been historically using options tunnels.
So in summary, 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. 1, starting with cognac. I don't really remember that I said that this talking was over in Q1. I mean, maybe I had too much actually of the cognac product itself, but that's not really what I said. I said destocking would be we expected destocking to be over by the end of the year.
So it's gone by the end of 2014. So this is exactly what's going on. Destocking is not over yet. We are the system in China, we have 2 levels of wholesalers. And the first level of wholesalers, I mean, 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 the destocking.
It's as of we speak. But as far as the second level of wholesalers, and we are talking about smaller people, smaller players, inventories in this part of the distribution system where we have less impact than in 1st year, inventories are still too high, and it will take probably the rest of the year to clean them up. So the destocking is not over, and 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 destocking is concerned.
If you look at the market itself, I mean, what we can say, I don't have the numbers at the end of September. They are not ready yet. But at the end of August, the Versus business, so I'm talking about sellouts, the VSOP business, sorry, is minus 4%, so more or less in line with what I told you at the end of June. I think it was minus 3% at the end of June. So we had the month of August was a bit difficult, but nothing really worrying.
And Ixo is more difficult. Ixo is minus 15% for the 1st 9 months sorry, the 1st 8 months of the year. And it's really the discrepancy between these numbers, which are not very good but not very bad either, and our selling numbers that will cause the destocking to that are causing the destocking and hopefully will make the stocks to another 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 is in Hong Kong is a little bit complex to analyze. And if you look at DFS numbers in Hong Kong, they were about plus 7%, 8% in H1, and they were very slightly in breakeven or growth was negligible in Q3. So definitely, we have already seen in Q3 some impact, some negative impact on the business, which is mostly coming from what is currently culminating with the protests in Central, but the sort of anti Chinese sentiments that progressively crystallized in the course of the quarter and which affected a bit the business there, particularly when it comes to top end customers, I mean, independent travelers as opposed to the group travelers. So that's what we've seen in Q3. Obviously, the big demonstrations started on the 30th of business itself was 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 1st part of October. But bear in mind that they compare with very low numbers last year because there was a change in the regulation from in China regarding group travels. And our figures were extremely poor in Hong Kong last year at the same period. So basically, the situation is I mean, I think we are down something like 5% or 6% in Hong Kong in the 1st 2 weeks of the month, which is not bad in itself, but hides a easy comparison base.
And 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 October or something like that. So we hardly see anyone now. As far as groups are concerned, we don't see many people in the stores. So it's a little bit too early to really assess the impact of the current situation, which, by the way, is not over.
So 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. And the point to bear in mind is that the airport is not particularly affected by that. The 1st 2 weeks of October, the airport is about 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. So 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 same on dollar and yen, 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 euro dollar and the euro yen, €135,000,000 for the dollar and €138,000,000 for the yen.
But nevertheless, it goes into the right direction. With regards to the hedging strategies, we either bought in the past plain vanilla put options. So 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. And sometimes, we have tunnels.
I mean, we sell we buy option we buy put option and we sell call options, but we are pretty far at the current level, we are pretty far from the level of the call options. So 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 mean, I also I was wondering what was the situation for LV as well. Maybe just on cognac, I mean, I think Chris mentioned that there was a lot of mix impact. But in terms of pure pricing, talking to each of the main three players, it seems that everyone is accusing the other to cut pricing.
Can you comment on pure pricing? And where do you see pricing especially for the exo category in China?
We are not. We are not accusing anyone of lowering prices and be particularly aggressive, which doesn't mean that we are doing it. The situation, if you really want to 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.
And 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 sellouts for the 1st part of the year, the modern on trade for VSLP, for instance, is at 27%. So 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. But our sales are sell in. We have a combination of much lower sell in numbers and so much lower sales, as we explained before, and higher fees being paid to the outlet.
So in percentage of sales, the fees we paid to the outlet 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. So 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, but it's only apparent because we have set it again, set in and not sell out as we don't have the ability to do it. But the economic logic of it is this one.
We have the next question from Mario Carty from Bernstein. Please go ahead.
Good morning, Jean Jacques. Good morning, Chris. Some question about Louis Vuitton. We have seen that in Q3, the and Leather division had an organic growth of 2%. Can you give us some color about the performance of Louis Vuitton in comparison to the other brand?
What we think 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? And I know this is a sales conference call, but if you can reassure us that the margins of Louis Vuitton are still stable. Thank you.
Thank you, Marco. Well, LV versus others, LV is a little bit lower than the others, but not very far off. So as always, I mean, with a little bit of 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 nothing 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, so nothing really significant. And as far as margins is concerned, today, margins are in line with what I said before, I. E, they are stable. Thank you very much.
A question from Laura Levi from Barclays. Please go ahead.
Hi, it's Laura Levy from Barclays. So 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 and also the moving parts for Hong Kong and the Mainland? I have another question that is about the Hermeje distribution.
Can you remind us about the tax and balance sheet implications? And lastly, a question on Europe that accelerated over the last quarter. Can you tell us about the dynamic between tourism spending and local demand?
Thank you, Elain. So fashion led by division by region, sorry. What we we didn't see a lot of changes there. I think Europe was a bit better. U.
S. Was a bit better. Japan as well, and China and Asia were a bit lower. But no big discrepancy compared to Q2 and H1 with exception of Japan, which was obviously quite negative in H1 sorry, in Q2. H1 was positive in Q2 and which is flattish in Q3.
But the changes in fashion and leather were not tremendous. Hermes, so the tax impact as far as LVMH is concerned is about €350,000,000 It would depend obviously on the valuation of Hermes on the day of the distribution, but about €350,000,000 in taxes. And the balance sheet impact will also depend on the valuation of Hermes on the day of the distribution. But basically, the impact is 24,300,000 shares multiplied by the share of Hermes the share price of Hermes on the day of the distribution, minus plus €350,000,000 of taxes. That gets down to the global impact on the shareholder 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. So 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 Vifor. But 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.
Again, last question on just to review TON. Looking at the Chinese spending overall so globally, did you see any change in trends in Q3 versus H1?
It was a bit lower. You remember that Q1 was very strong. Q2 was less strong. And 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 So it's a bit lower, but 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 and Jacques. Three questions, 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 Safra has 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? And finally, on more the group's vision and strategic moves. Obviously, you've announced the disposal of your entire stake in Hermes.
Some of investors are probably seeing that as a strategic move. But would you consider that LVMH will focus on organic growth from now on? Are you happy with the current depth of the brand portfolio? Are there still some gaps that you would like to feel? I see you're investing, for instance, in European travel retail with DFS.
So question more on the group portfolio after the Hermes disposal.
Okay. Thank you, Thomas. Perfume and cosmetic, we saw improvement more or less everywhere in the world, in the U. S, in Asia, in particularly in Asia. I thought we 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 Omidyala, La Guerlain or the Eye Liner, the real benefit, but it doesn't even if you take this out, I mean, the quarter was pretty strong. So the business did very well. With regards to CFOA, I will give you the like for like that they were exactly the same as what we had in each one, about 14% in the U.
S, flattish in Europe, 7%, 8% in China. And I don't remember the number the figures in Middle East, but pretty high. I mean, something like 20% or something like that. So we had a very good quarter at Sephora again, I would say, and no sign of slowing down or weakness in Asia. I mean, our Southeast Asian business is doing really well.
It's improving. It will breakeven this year. It's not such we have not been in this business for a long period. So we are breakeven probably faster than what we thought in Southeast Asia. The Chinese business is holding up extremely well with nice like for like figures.
So we are pretty satisfied with the evolution of the business. 2nd question on the one offs. You mentioned H1 one offs. I would say that as far as the 3 you mentioned, Heuer, Marc Jacobs and DFS, I mean, what you saw in H1, you will also see in H2. I mean, the comparison base in 2,003 for H2 doesn't take into account a pretty complex situation at Marc Jacobs and at DFS with the mix being unfavorable to DFS.
So the comparison will play in negative way again in H2. And it's the same 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. So your last question on Hermes and our acquisition strategy, I mean, basically, you imply that Hermes was an acquisition or an attempt to acquire something. I view this more as a financial investment.
But anyway, your question on whether we would have some interest in European Travel Retail, for instance, frankly, I doubt it. I mean, 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. And as far as our overall acquisition strategy is concerned, you know that we are purely optimistic and what did you say?
Opportunistic. Opportunistic. Opportunistic and that we have nothing in mind. And 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 Melanie Flucasse from JPMorgan. Please go ahead. Yes, good afternoon. I have three questions as well, sorry. The first one is on fashion and level goods.
I was wondering whether you can go back a little bit on the main on China point because ferricol well Q1 was actually pretty strong. Did that surprise you on the upside? Q2 had then deteriorated. And I'm trying to understand a little bit better what happened in Q3, not in comparison to H1, but in comparison to the Q2 trend. Did you recover a bit?
And notably, how was the price increase that you posted in Q2 absorbed into Q3? The second question is on cognac. You gave us a sellout trend for VSO P and for XO, October. Would you be able to give us your selling to compare that to and to have maybe a better sense of how the destocking how aggressive the destocking is actually already? And 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?
And lastly, sorry, it's really upkeeping from me. I missed the European growth in quarter 3 for the group. Thank you.
I missed your last question, Melanie.
The last question is on I missed Europe sales growth in Q3, sorry, during the presentation. Thank you.
The what? Sorry, I didn't hear again.
Europe growth.
Europe Growth, okay.
Thank you, in Q3 for the group. Okay.
So 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. We sold probably a little bit more than others. We saw more action taking place outside China than within China I mean, 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, I mean, 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. So you will find it a bit hard to reconcile this and sell out numbers because the basis is is entirely different. So I will not go into all the details with the number of cases, etcetera.
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. And we'll take the necessary measures in terms of reduction in selling to make sure that we meet this objective. And Europe growth in Q3 was 3%.
Could you give us an indication of the magnitude of decline that you would expect in quarter 4 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. I can't tell you. Frankly, I mean, you're adjusting the numbers from both the sellout depending on what how the sellouts happens and on the number of 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 sellout numbers with a little bit of delay.
As we speak, we don't have the sellout numbers at the end of by channel, at least at the end of September. So if we really want to adjust inventories by the end of the year, Chances are that we'll get we'll have to anticipate a little bit on the business. So it's quite complex monitoring of the business there. So I really cannot I don't have any idea on this.
Thank you. A question from Stephanie Datt from Bank of America. Please go ahead.
Yes, hi. My first question is on the timing of the bit more clarity on that. And the second question is inside the quarter, whether and especially maybe the exit rate whether any deterioration? And then my third question is given Asia grew 3% in H1 and only 1% in 9 months, that implies negative growth in the 3rd quarter. So could you maybe specify which divisions were maybe not negative in Q3 in Asia?
And also comments on the Russian consumers, please.
Okay. So Ernest, you'll get all the details soon. Probably at some point next week, we are going to release to have a press release on this. So I cannot really elaborate as of today, but it will be as we said, I the end of the year and in the course of the month of December. But you'll get all the details probably by the end of next week.
I'm sorry, I missed your second question.
Inside the Q3, were the trends in terms of growth the same or was the exit rate, so the end of the quarter, maybe a slight deterioration that we that's when we
Not really. I mean, had some changes, obviously. Not all the months were equal, but nothing I mean, nothing outside the normal volatility of monthly performance. So the month of September was in line with average of July August. And thirdly, on Asia and the division analysis, I mean, how the division I mean, 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 plus 4%. And so the bulk of the impact on the Asian numbers was the impact of the Wahgnion period and after China, obviously, destocking.
Okay. Thank you.
A question is from Ralik O'Kees from Deutsche Bank. Please go ahead.
Yes. Good afternoon, Ashlag and Chris. Three questions from me as
well, please.
Firstly, 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 €235,000,000 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? And 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, but 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. But 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. And Japan, can you just confirm you actually said it was flattish for Q3?
So it's for fashion and leather for the group.
Sorry?
Fashion and leather, please.
Fashion and Leather. So I will comment on that, okay. Well, the first question, answer. I mean, give me exchange ratio, and I will give you currency impact. The only thing I can say that chances are that the breakdown of the impact will be entirely different from what it was in the 1st part of the year.
In the 1st 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 would be the other way around in H2 with no hedging gains, almost no hedging gains, but obviously better euro not yen, but I think eurodollar and probably not euro yen, but euro dollar conversion ratio that will 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. And 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, but more importantly, in many markets, including the U. S, but obviously, most Asian markets, tariffs, I mean, import duties and different consumption taxes, it's particularly true for China. So 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. So 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 There's been a lot of discussions or remorse 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. But 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. So the fashion leather by region, the numbers I mentioned were the comparison between Q2 and Q3.
So 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 better in the U. S. And a bit worse in Asia. But again, I mean, very comparable from 1 quarter to the year ago.
Sorry then. Could you give us the Q2 U. S. Number? Because 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. Thanks very much.
A question from Hermine de Bazemann from Raymond James. Please go ahead. Hi, good afternoon. First question please on watch and terunary. Currently, the quarter was quite dynamic.
Can you precise a bit the performance by region, please? And if you 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? And my second question, can you discuss about the recent trend that you saw in Taiwan, Singapore and South Korea? Thank you very much.
Okay. So by region, the watch and jewelry business was in line in Europe and in 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 that I mentioned before for Fashion and Leather.
It's exactly the same thing. And it was much better in Asia for what it's worth. As you know, I mean, our particularly our watch business in Asia is relatively small. So but 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 Karloon and Karloon is less affected than Central.
So don't have precise numbers for the jewelry business and for Bvlgari as I have for the FX, for instance, But it will have some impact. Way too early to assess it, so I cannot really say. And 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 they were packaged tours that were going from China into Malaysia into Singapore, Malaysia and Thailand and 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 did which had a good year and a fantastic quarter, we see more and more Chinese tourists in Korea. I mean, basically, the people we don't see in Singapore and we see less in OtterCon tend to go to Korea.
So the Korean business was very good in has been good since the beginning of the year and was good in Q3.
Okay. Thank you very much. A question from David Damaya from Orai BDC. Please go ahead.
Yes. Good afternoon. My question is already answered. But maybe on Jewelry, is there any kind of exceptional and very high end sales which can explain the sharp rebound 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 Bvlgari. 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 Bvlgari, we did well, but it doesn't affect a trend. If you take out BNL, I mean, the rest of the year and the rest of the business is really doing okay.
So we really had a good quarter at Chaumet and at Guguri, in particular, which was sort of magnified by the P and L impact. Okay. Thank you.
The last question from Javier Ascalante from Consumer Edge Research. Please go
ahead. Yes. Good afternoon, everyone, and thank you for taking the call. I just would like to if you can comment on both in 2 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. And 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 help us 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 low inventory business. They have a few weeks of inventories. So there is it's very rare that we end up with a big discrepancy between sell in and sell out. It may happen in one quarter if particularly if you have loadings of product ahead of a big launch, which happened a bit, as I said before, to us with L'Omidial and the real eyeliner.
So numbers were positively impacted by that, but to a limited extent anyway. But all in all, I mean, the sell in and sell out numbers are always the same. If you take over 2 or 3 quarters, they're always the same. So we have no particular worry that the current situation would end up in low selling numbers because of excess stocking. I mean, 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 sellout is concerned. But as I said, as of today, I mean, the business is doing okay. The geographies which are doing well, like the U. S, the UK, etcetera, are still doing well. And some geographies like Russia, for instance, are improving.
They were pretty poor in the 1st part of the year, and 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, but it's not a big market. As far as Selective distribution is concerned, I have no memory of commenting on conversion rates at DFS. But maybe I did.
As I said, I mean, sales at DFS in Q3 were flattish, with the division being plus 7% in organic terms and DFS and Sephora being more or less half half. I'll let you draw the conclusions as to the type of growth that Sephora got in the course of the quarter, obviously, a very, 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 1st day of February. Thank you. Bye bye.
Ladies and gentlemen, this concludes the conference call. Thank you for your attending. You may now disconnect.