Welcome to the LVMH First Quarter 2015 Revenue Conference Call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.
Thank you. Hello, I'm Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean Jacques Guiney, our Chief Financial Officer. Thank you for joining us. We have some brief remarks to make about LVMH's revenue for Q1 of 2015. As in previous periods, these revenue figures are reported in accordance with International Financial Reporting Standards.
After these remarks, Jean Jacques and I will be happy to take your questions. Before I begin, I must remind you that some information to be discussed on today's call is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially. So these are associated with the Safe Harbor statement included in our press release. Turning now to yesterday's evening's announcement. Hopefully, you've all had a chance to read our release, which was issued in both French and English.
As always, the release is available on LVMH's website, www.lvmh.com, as are the slides we are using to guide today's conversation. With that, let's begin with an overview of our Q1 performance. We can see Q1 we see Q1 as a good start to the year, even with a tough comparison basis in Japan and volatile currencies, we delivered positive organic revenue growth. Our published figure was clearly helped by a strong positive currency effect. Overall, our positive performance reflects solid growth in the U.
S. And Europe and varying trends in Asia. In terms of our brands, we saw continued creative momentum at Louis Vuitton and the further progress of other fashion brands. Wines and Spirits brands demonstrated strong progress in the U. S, offset by the continued destocking of cognac in China.
DFS was impacted especially by a challenging environment in Hong Kong and Macau, while Sephora and Bulgari continued their strong performances. Looking at the group's Q1 revenue in more detail. Total revenue rose 16% on a reported basis to €8,300,000,000 from 7 point €2,000,000,000 in the year ago period. This includes a positive 13% currency impact and a 3% rise in organic revenue. As you recall, last year's Q3 was inflated by the increased spending ahead of the sales tax increase that took effect on April 1, 2014.
And it is, therefore, interesting to note that excluding the impact of Japan, the organic revenue growth would have reached 4% consistent to that of 2014. We continue to benefit from a mix revenue mix, which is well balanced across geographies, as you can see from Slide 3. The chart breaks down revenue in the Q1 in euro terms. You will see that Asia, including Japan, represented 38% of revenue Europe, including France, 25% and the U. S.
And others, 37%. Compared to last year's Q1, the weight of the U. S. And others is up 4 points, while the weight of Asia and Europe are each down 2 points. This essentially reflects the impact of the dollar's strength compared to the euro.
Now let's move to Slide 4, which shows the organic revenue by region. As you can see, organic revenue rose 9% in the U. S, showing the robust trends that continue in this region. For Japan, there was a 10% decline in revenue in yen. This was against a 32% increase in the year ago quarter caused primarily by the sales tax increase that I just mentioned.
Asia saw a decline of 6% organic revenue growth, reflecting in particular the continued destocking of cognac in China, but also to a more limited extent, the more challenging situation in Hong Kong and Macau compared to the year ago period. Finally, in Europe, revenue was up 10%, reflecting in part the strength of the dollar and consequent attractiveness of prices in Europe. Moving on to our revenue by business group. Slide 6 shows total revenue in Wines and Spirits increased to EUR 992,000,000 from €888,000,000 in the Q1 of last year. This marks a 12% gain on a reported basis and includes a 1% organic sales revenue decrease and a positive 13% currency effect.
Breaking this down, champagne and wine reached EUR 397,000,000 or up 17% on a reported basis compared to the Q4 of last year. This represented an organic revenue growth of 7% and a positive currency of 10%, so the champagne and wine. So cognac and spirits organic revenue declined by 7%, but a 15% positive currency effect resulted in reported revenue of €595,000,000 or an 8% increase compared to the year ago Q1. Volumes in the champagne business grew 5% with prestigious QVs outperforming, even though Q1 is traditionally the smallest quarter of the year for this business. To give you some other champagne and wine highlights, we saw continued strong growth in the U.
S. And Japanese markets and good momentum at Estates and Wines. In cognac, the destocking of higher quality cognacs by Chinese distributors in the quarter continued. However, Hennessy volumes were up 2% for the Q1, thanks to continued strong growth in the U. S.
The group also saw sustained growth at Belvedere as well as Glenn Morangie and Adebec. Turning now to Fashion and Leather Goods. This business group was up 1% on an organic basis, which was impressive given the high comparison base of the year over year period, particularly Japan, as
I mentioned earlier.
On a reported basis, including a 12% positive currency impact, reported revenues were up 13%, reaching €2,900,000,000 from €2,600,000,000 in last year's Q1. Once again, it is interesting to note that if we exclude Japan, organic revenue growth in Q1 for this business group would have been 4% or similar to Q4 of last year. To give you some highlights of the quarter in this business group, on Slide 8, overall, we were pleased to see continued growth despite a tough comparison base. Louis Vuitton has started the year very well and continued to show strong creative momentum. The success of the new monogram and epi monogram contributed positively to performance as did the continued success of the Pharmacia line, such as the Capesene and Hulocme models.
The launch of the soft leather V line has equally been a success. We're also encouraged to see that the new products unveiled at the recent shows were well received. A few words on some of the other fashion and leather goods brands. Fendi's iconic leather lines performed strongly. Celine continued to demonstrate strong momentum across its product collections.
Laura Piana, our most recently integrated brand, continued to drive solid progress in its luxury goods division. And several other brands, including Givenchy, Kenzo and Verluti also had an excellent quarter. Looking now at our questions in cosmetics. This revenue surpassed the EUR 1,000,000,000 mark, delivering 6% organic growth and a total increase of 16% on a reported basis when accounting for the 10% foreign positive currency impact. Performance for this business group was driven by the strong momentum of makeup and skincare in
Asia and
the U. S. Christian Dior introduced a new advertising campaign for its iconic Miss Dior perfume, while the Dior Skin and Alik makeup lines made solid progress and the Capture skincare line contributed positively to performance. KENA also contributed to this group's performance in the Q1 of the ongoing rollout of LON Ideal and the launch of a petitrove noir, au Fleche. In addition, the brand delivered good momentum in its Abay Royale skincare line.
Perfume Givenchy successfully rolled out the DALIA DIVA fragrance and is showing great progress in its makeup lines. Benefit is showing good strong momentum with revenue in the U. S. And the launch of its innovative top off under eye gel driving performance during the quarter. To finish up the highlights for this business group, both Fresh and Make Up Forever, are enjoying rapid progress.
Now turning to our watches and jewelry business. Revenue in this group was reached EUR 723,000,000 compared to EUR 607,000,000 in the Q1 last year, including a positive 12% currency effect. Organic revenue was up 7% in the period. The strongest contributor to growth was jewelry where Bvlgari delivered a strong performance. The initiatives put in place last year are bearing fruit with its iconic collections, notably Serpentia Diva as well as the new Lucia watch, all of which are doing very well.
The watches component of this group continue to be impacted by this business group continue to be impacted by the destocking taking place at multi brand retailers. Looking at a couple of the brands, TAG Heuer continues implementing its strategy to refocus on its core offerings and took advantage of currency fluctuations to adjust some prices in line with this value strategy. Hublot saw a strong start to the year, including the celebration of big band's 10th anniversary and its new models presented at the Basel Watch Fair in March were well received. Finally, TAG Heuer announced a partnership with Google and Intel to launch a Swiss smartwatch. The Selective retailing group, Slide 13, performed well in the quarter, up 20% on a reported basis to EUR 2,600,000,000 from EUR 2,200,000,000 in the year ago period.
This reflects a 5% rise in organic revenue on top of a 10% gain in last year's quarter and a 15% positive currency impact. Within this group, Sephora continued its very strong performance, generating market share gains across all regions. The brand delivered double digit comparable store revenue growth on a worldwide basis with particularly strong performances in the Americas and the Middle East. The expansion of the network continued, and the Australian market opened at the end of last year, getting it off to a good start. Finally, online sales were also an important contributor to Sephora this quarter.
DFS demonstrated continued good performance in North American airport concessions, offset by a challenging environment in Hong Kong and Macau, where the conditions of the Q4 continued into the Q1. At the same time, a weaker yen continued to impact travel destinations for Japanese travelers during the period. Overall, with the exception of cognac in China, our brands delivered good performance in the Q1 in the context of a volatile economic, monetary and geopolitical environment. Going forward, the group will continue to pursue its objective of increasing our leadership position in the global luxury goods market by focusing on our commitment to innovation and quality products and selective store network expansion in markets where we see the most compelling opportunities for our brands, while maintaining a strict control over costs. Thank you.
And with that, we will now take any questions you might have. Arletta, can you please open the line?
Thank you. We have a first question from Mr. Thomas Chauvet, Citigroup. Sir, please go ahead.
Good afternoon. I have three questions, please. The first one on the pricing strategy and in particular, Louis Vuitton. I wanted to know, in strategy and in particular Louis Vuitton. I wanted to know as of today you have passed on or intending to pass price decrease in Greater China or price increase in Europe in order to bring back the price gap to more normal levels?
And if so, what initiatives can you take to protect China margin? Or should we assume, as you said in the past, that the margin gap between China and Europe is not as high as we think? That's my first question. Secondly, on Japan, I would I believe the growth rate is probably back to normal now in the 1st week of April or even perhaps higher considering the easy comp. I have a more general question on Japan.
We're seeing strong Chinese tourist data into Japan over the last year, 1.5 years. Do you think this is really a new type of luxury travelers or simply temporary arbitrage on the Japanese yen weakness? And how much do Chinese tourists now contribute to Japan domestic luxury demand, for instance, in a city like Tokyo? And finally, on FX, I was surprised to see the translation impact on sales to be 13%. If I do a simple math of your invoicing currency exposure, I don't 13%, I get more like 9% or 10%.
So I think the difference might be related to other smaller currencies we don't look at. If you're not hedged on those currencies, how do these smaller currency fits with the bottom line? I mean, is it pure profit? Or is it not as easy to repatriate that profit into Europe? Thank you.
Thank you, Thomas. I'll start with the last one. I mean, believe me, the 13% is the right number. We got it right. And hedging has nothing to do with the level of revenues.
I mean hedging, when it takes place, and obviously, there is not much of hedging gains in the beginning of the year, plays against the cost of goods and not in favor or at the detriment of sales or revenues. So it has no impact at all, but 13% is a right with roundings, but it's a right number.
I'm thinking, Jean Jacques, sorry, I'm more thinking about some smaller currencies you're not hedging that might explain the 13 rather than 10. And if so, does that fit through the bottom line easily?
That's my point, Tom. Whether we hedge or not doesn't make any difference to the revenues, could make a difference in terms of gross margin. But as far as sales are concerned, we get the level of sales, which is a conversion of the amount of currencies we get on a given trade converted at the end of the month rate. Whether hedging will help or create some difficulties, a different question, but it has no impact whatsoever. So the 13% is obviously a combination of a much stronger dollar or renminbi and Hong Kong dollar, a flattish yen and some a stronger Swiss franc and some decreasing currencies such as ruble.
So that's on the first part. On the pricing strategy, Let me make on this a general comment on this. One is that as we discussed many times with you, what currencies have done and what the current situation is a fair outcome of currencies fluctuations. So what currencies have done, currencies can undo it. So it's not a stable situation in this respect.
2, we have seen currency fluctuating a lot in the past in both ways. Maybe it's a little bit extreme these days, but we've seen that in the past. And basically, as far as we are concerned, the only relevant lesson from the past is do not act in emergency. It's quite important not to act too quickly and think about it. Certainly, the second comment I would make is that we do not think a unified pricing structure makes any sense for Luxury Brands.
The main reason being that a unified pricing structure does not allow for sufficient flexibility to address precisely currency fluctuations. So that's why we don't think it makes any sense. So that's what I wanted to say on price structures. Secondly, on your question on Japan, you're right to say that the comp is quite heavy in the beginning of April as we had the morning after the big party in Q1 2014, so the economy did come. On your question on tourism, we think it's quite obviously, this comes from currencies again.
I mean, the situation the relative pricing of Japan compared to China particularly is reasonably attractive for the time being. But also, if you think about it, I mean, there are some similarities from a cultural viewpoint between Japan and China. There are some differences as well. But we think that the attraction of Japan for Chinese customers is quite important. Therefore, we tend to think that this is this business is there to stay.
The magnitude of the business we do with Chinese customers varies a lot from one city to another. Just to give you a number for Vuitton, Vuitton is a little bit less than 10% in Japan with non Japanese. It includes all different tourism tourists, but the bulk of them being obviously Chinese tourists.
Thank you.
Thank you. We have a next question from Mr. Antoine Belge, HSBC. Please go ahead.
Yes. Good afternoon. It's Antoine Belge at HSBC. Three questions. First of all, could you comment a little bit about the Louis Vuitton trends and by geographic region and segmenting between local clients versus tourists?
2nd question, actually a follow-up on pricing harmonization. There is another way of actually trying to mitigate the issue is through new products. When you are going to introduce new products, are you going to introduce them with sort of a lower price differential of, let's say, not higher than €130,000,000 or are you going to reflect the existing difference of €150,000,000 or €160,000,000 And final question is on cognac. You seem to have called at least in the press release for the end of the destocking in China. So could you maybe comment about the trends in China and maybe differentiating between the SOP and Ixo?
Thank you.
Okay. So on the trends on for LV, basically, we have 4 relevant areas in the world. 2 are doing very well, one being Europe, fitting from big flows of tourists into Europe. The second one being the U. S, which success was there already last year, which is still quite significant in Q1 of the year.
Japan is a third big deal, and I don't think I have to comment on that. Obviously, it is down as the comparison base last year was inflated by the change in the sales tax. And the 4th loan is Asia, which is suffering for different reasons, one being the specific situation in Hong Kong and Macau and also more generally from the shift from domestic consumption into tourism or travel retail consumption, which
is affecting
most Asian markets. So basically, to summarize, I mean, the Eastern part of the world is under pressure, whilst the Western part of the world is doing very well. As far as pricing organization is concerned, your question about introducing new products at lower price differences, it's not something that we intend to do. We may change our mind in the future, but for the time being, it's not something that we intend to do. Certainly, on cognac, well, the very day I get information from the competition on the SOP and so I gave the numbers to you.
But as it is not the case, I won't. But nevertheless, I will comment on the situation for cognac in China. The first point I wanted to say is that the peak you know that we had a big pickup in a big increase in inventories in the last few years, but the peak in inventories was the end of March 2014. So basically, we have a pretty tough comparison base. Although volumes were slightly down last year, we were stocking probably less than in the year before, but we are still stocking.
So we are comparing ourselves this year to a period last year in which the restocking was still there. Probably, it was not a willingness on our side, but probably the lack of reliability of sales data caused us to we stopped a little bit more than what we should have done in 2014. So we are comparing our sales to this pretty difficult period, which explains why our selling numbers are under pressure.
As far
as destocking is concerned, we think it's by and large behind us. There is probably still a little bit to come on the SOP and maybe a little bit on IXO as well. But nothing really significant and nothing that should prevent our selling numbers from growing. It's we are very comfortable as far as H2 is concerned, as Christophe Nagar told you when we implemented our full year numbers back in February. So we are very comfortable for H2 and also quite comfortable for Q2, maybe a selling numbers starting Q2.
So hopefully, Q1 is the last quarter of decreasing selling numbers.
Okay. Maybe just a follow-up on Louis Vuitton. In terms of quantification, compared to the group regional trends that you've mentioned? I mean, are there any region where the figures are materially different for LV versus the group? And you didn't really mention the mainland China.
What was the you get sort of stable to slightly up trends in the mainland or negative?
If we wanted to give you the numbers, we would do it. We don't. So I will not comment precisely. The only thing I wanted to say about the main lenders, which is by far the most relevant information for them, that if you take the main lenders globally, including what they do in China and what they do outside China in terms of business with Vitor, the category and this clientele is growing in excess of 5% in Q1 of this year, which is more or less in line with what they did last year actually. So it's quite favorable, although there are some shifts from one area to another.
I mentioned the fact that Macau and Hong Kong are under some pressure. Altogether, we benefit from a Chinese client base, which is growing in excess of 5%. So I think it's the most relevant way to look at
it. Thank you very much.
Thank you. We have a next question from Mr. Oliver Chen, Kalia and Company. Sir, please go ahead.
Thank you. We had a question on the U. S. Profile in terms of domestic consumption versus tourism. Also the U.
S. Market has been in a tougher environment with traffic. So if you could comment on your thoughts on traffic versus ticket and the opportunity there, that would be great. And then also on Bvlgari, congrats on all the momentum there. I'm just curious about the like for like pricing opportunity versus volume as you evolve into really reinvigorating that portfolio.
Okay. Well, thank you for your questions. Well, the first one is particularly difficult. I mean, we have a mixture of different businesses. Some of them are wholesale, some of them are retail.
So it's quite difficult to figure out what's the impact of traffic and what's the impact of average ticket in the middle of all that. The only thing I would say as far as the U. S. Is concerned is that both our wholesale businesses and our retail businesses are doing very well in the U. S.
Today. Traffic is improving. We are not very dependent from the touristic business in the U. S. Most of our products come from Europe, and they are cheaper in Europe than they are in the U.
S. So the U. S. Is not necessarily the right place for tourists to buy our brands. And therefore, the share of tourists in our businesses is extremely low.
But basically, we benefit from a very strong business there. The like for like pricing opportunity at Bvlgari, difficult question again. I mean, it's usually, in this business, one does not increase prices on a given item. I mean, there could be novelties introduced at the higher prices and higher margin than existing products. But on a given product, you don't really do such a thing as a like for like price increase.
Obviously, some prices are being changed due to currency fluctuations. But apart from that, it's given the fact that we are introducing new families of products, etcetera, we put them at the price after pricing, which we feel barring any significant currency fluctuations are relevant and make sense for us in the long run. So we don't really expect them.
Okay. And we just had a final bigger picture question. The Sephora technology in terms of the mobile experience and your app has been really cutting edge. What are the major catalysts ahead for us to think about your online businesses as a whole and where you see the most opportunity and how we should focus on that? In the U.
S, we've seen mobile gain to about 50% of traffic. So I'm just curious about your thoughts there as we look ahead.
Well, we tend to view mobile as an opportunity to do additional business, but also an opportunity to enhance our customer experience. As shown at Sephora, I mean, most of our customers would shop in the stores, but also on the web. And it's this new experience that makes sense for us, and we have to make sure that the two experiences reinforce each other. So it's quite important to view the digital experience as a way to reinforce the global clients' experience by allowing in the future things like the click and collect or home delivery or the type of thing in most of our brands. It's not the case today, and I don't think it's the case for anyone in the industry, but that's something we should we are looking at and that will be implemented in the future.
So e commerce, yes, but beyond e commerce, reinforcing the customer's experience. I will limit my answer to that. We could send the rest of this conversation on this. It's a critique, global and complex subject, but in a nutshell, that's we feel about it.
Thank you. Best regards. Thank you.
Thank you, sir. We have next question, Mario Ortiz Bernstein. Please go ahead.
Good morning, Jean Jacques and good morning, Chris. Two questions, if I may. The first one is about Europe. How do you see the local demand in Europe and there is a difference among the different countries? And how is linked to this part of the European question?
If you have increased the prices of the return in the Q1 of 15 in Europe and what is the pricing your pricing strategy for the return in Europe for the rest of the year? The second question is about the margin differential. Have you got a significant margin differential? And if you can quantify it of the sales of return in Europe in comparison to Asia? Thank you.
Okay. Let's start with the first one. Europe airport demand is definitely improving, although it's overshadowed by the strengths in the touristic and the travel retail business, we see a gradual improvement in most domestic client bases, including the French, the Germans. And in South Europe, in Italy and Spain, we see some improvements. We are not talking about massively positive figures, but nevertheless, it's getting better than it was in the past.
The margin difference in between Europe and Asia, well, I'm not so sure I ever commented on this particular point. So there are some differences in gross margin. But all in all, at the end of the day, the operating margins between Europe and Asia are not that different. So it doesn't make a very tremendous difference for us to sell so that in Europe or in Asia. Obviously, there are some areas in which the business is particularly profitable, particularly in Asia.
But overall, it doesn't make a lot of difference. I think I skipped your question on price increases in Europe in Q1. We increased prices by a little bit less than 3% in Q1 in Europe. And as of today, we have no intention to increase them further in the short to medium term.
Thank you very much, Patrick.
Thank you. We have a next question from John Guy, MainFirst. Please go ahead.
Yes. Good afternoon, John, Jacques and Chris. A couple of questions. The first one just on cognac. And you gave us some pretty detailed information around sell in.
But with regards to sell out at XO level, can I assume that you're still assuming the XO sell out numbers to be relatively tough in 2015, volume is potentially down around 20%? And if you're looking at indexation, say, between Ekso and VSOP, Ekso being 4 to 5 times higher in terms of price. Can you talk about how effectively you'll be able to offset the mix dilution? That's my first question. My second question is with regards to DFS.
I mean clearly the Selective Retail business generating a 5% organic, it appears to be driven a lot more by Sephora. Could you comment a little bit more as to how Hong Kong and Macau actually fared for DFS during the quarter? And finally, just on TAG, the repositioning and the refocus of pricing around the €1,500,000 to €2,000 level. This is a I don't course of the last
few years. What sort of
the course of the last few years. What sort of volume gains are you hoping to see on the refocus of this particular pricing bracket? Thanks very much.
Thank you, John. So on cognac, yes, I confirm that we expect HEXO volumes, big sell in or sell out actually, to be still under pressure in the course of this year. The uncertainty from against some measures are still taking their toll, and we expect the global business, once they are gone to be lower than where it is today, minus 20% is not the forecast. It's a number I mentioned as an assumption that we're using for our budgeting exercise, but not a forecast. In terms of mix dilution, well, we expect to see better numbers in the SOP, particularly due to the end of the destocking and the comparison base, which in the last three quarters of the year particularly will be easier than it's been in the past.
So we'll see a pickup in the VSP business. It's unclear as of today whether this will be sufficient to offset the negative impact on VSOP. The main reason being that don't know the magnitude of the negative impact on the HEXO sorry, the negative impact on HEXO. So it's hard to say whether the pickup in the VSOB business, which we don't know either, will be sufficient to offset the first one. So it's quite a complex question to be frank.
The FS in Hong Kong and Macau, obviously, situation is quite difficult there. I don't think I have to elaborate the situation in both Hong Kong and Macau where both locations are under severe pressure. As far as the FS is concerned, in Hong Kong, we see a flattish business at the airports, but it's down significantly in downtown location. And as far as Macau is concerned, it's the same trend. So we have double digit down both in Hong Kong Downtown and Macau for DFS.
Certainly, the TAG price repositioning, basically what you're asking is what type of rolling pickup do we expect? The answer is really, I don't know. I mean, we think
that the pricing and product strategy of TAG is the right one. How long
will it take? Repositioning at the end of the day? Is it truly difficult to say. So for the time being, we are in a transition phase. And we see some the business is under pressure.
So it's down in Q1 in most geographies. We probably have a few quarters ahead of us with difficult comparison base and numbers. It's only in a few months I will be able to answer this type of question.
Many thanks. Maybe just one follow-up, Jean Jacques, on DFS. I think you paid the Hong Kong or the Hong Kong airport concession fees were about €340,000,000 in 2014. You've got, I think, is it 5 years now running on those concessions? I mean, how profitable do you think those concessions can be?
Well, I don't know.
For the time being, we are I mean, we've been in this. The total duration is 5 years, and we've been in this concession for a little bit less than 2.5 years. So we have 2.5 years ahead of us. So the clock is ticking, I would say, to get the profitable business that we usually get at the end of the concession period. So that's the first comment.
The second one is that the amount of fees we paid is related to the traffic in the airport. And for the time being, the traffic in the airport is growing slightly above our own business, which is obviously a negative which has a negative impact on our business. In other words, the rent the rental fees are growing faster than our revenues. So it exerts a significant pressure on our profits. So we thought last year we were in good shape to be profitable this year.
I think breaking even or being slightly negative is probably more realistic as of today given this mismatch between revenues and traffic.
That's very clear. Thank you very much indeed.
Thank you. We have the next question, Louise Singlehurst, Morgan Stanley. Please go ahead.
Hi, good afternoon, gentlemen. Just two questions for me, please. Just going back to the pricing question. I wonder if you could tell us if you've seen any particular change in the gray market with the FX exacerbating the price differential since the beginning of the year. If you've noticed anything, not specific just to yourselves, but industry wide.
And then secondly, if you've seen anything in terms of market share differentials, what was Chanel lowering prices? I realize it's only on 3 of their bags. Thank you.
Sorry, Louise, I missed your second question. Sorry.
It was just about any differences in market share or competitive environment that you've seen with Chanel having lowered prices, I realize, on 3 of the bags? Thank you.
Well, the price movements of Chanel, I'll start with that one. The price changes of Chanel are pretty recent. So it's very difficult. And as you obviously know, they don't report figures on a very regular basis. So it's quite hard to know how much they do.
So I frankly have no idea. I mean, obviously, we've seen queues in front of some stores in Hong Kong and China, but probably most of the queuers where people are willing to significant. Significant. As far as gray markets is concerned, industry wide, I would say, when you have soaring currencies and increasing profit caps, obviously, this has some impact on the gray market. So we see some form of gray market being the Daigou be it the Daigou in China or some shipping of product in secondary networks or channels.
We see that a lot in particularly in Asia as Asia is usually the destination and for most of the gray market products. So yes, definitely, this is an interesting trend.
And have you taken any specific action internally to try and control the gray market? Or is it too early to really tell us? As
far as we are concerned, it's a little bit in this respect even as usual. I mean, we are trying to go into the market as we can. We have, as far as Vuitton is concerned, some very restrictions as to the amount of products that somebody can buy in Europe with a view of avoiding products to be shipped into China. Yet when you see somebody in the store at Vuitton Paris, you never know whether this person is buying the handbags for themselves or to be restored on the Internet in China. So it's difficult to control.
As far as wholesale is concerned, we are improving the flexibility of our product to make sure that the people we sell to are not reselling themselves into Asia at a lower price that could compete with our own product. So I'm not saying that this is entirely bullet proof. I'm just saying that we didn't wait the current situation to take measures to limit as much as we can in a growing market. We know that they are not 100% efficient, but they are efficient to avoid a big chunk of it.
Great. Thank you.
Thank you. We have our next question, Melanie Fourier from JPMorgan. Please go ahead.
Yes. Good afternoon, Jean Jacques and Chris. I have several questions. The first one is on Japan, sorry. We don't have the plus 1%.
You are saying it was on plus 4% including Japan. Okay. So my question was on Japan, sorry, for Fashion and Leather Goods. You said it was basically plus 1% issue if you have Japan in it and plus 4% issue excluded Japan. If Japan is 12% of sales for the Fashion and Network division, it must have been down 25% even if we're allowed for rounding.
Is this correct?
You're not far. You're not far.
In which case, sorry, last year, was it more than 35?
No, it's below 20%. I mean, we are minus, but below 20% in fashion and leather in Japan.
Okay. And in which case, what's happening to the other regions? Can you give us a bit more granularity on what's happened to Asia Pacific, Europe and the U. Please, sorry?
So for question, we are up in Europe, up in the U. S, down in Asia Pacific and down in Japan, as I said.
And Asia Pacific was down, what, mid single digit?
It was down. That's what I said.
Sorry?
I said it was down. So I
will not go into further details.
Okay. As far as
it's quite significantly down, as you might may guess. I mean, we have Hong Kong. We have Macau. We have a shift of business from Mainlanders into touristic locations, including Japan and Europe. So obviously, it has some impact on the business.
Okay. Perfect. And then on price decreases potential in Asia Pacific, I appreciate that you don't want to take a hasty decision, but the price differential is really very big and it's been going on for a while now. What is the point of tension? You've decreased prices in the past in Japan because of these arbitragers across markets.
Why is it different this better maybe?
I think it's we're a lot nervous. As I said,
I mean, what currencies have done, frankly, is going to do it. I mean, look at Russia. We increased prices in Russia in a very significant way following the ruble collapse only, what, 2 or 3 months ago. Now the ruble came back from 70 something to 55, and we are ending up being extremely expensive Russia again. So that's the only point.
And if you have to quickly, you end up in a situation that you don't control. So you have to look to see and if you have to take decisions, you need a little bit of understanding of what's going on. And this is too early. I mean, it's been only going on. You said for a while, yes, but the while is what, 4, 5 months maximum.
So it's not enough, in our view, to really assess a new pricing situation that would cause for action. So we are not there yet.
Okay. Thank you very much.
Thank you. The next question is from Luca Solca, Exane BNP Paribas. Please go ahead.
Yes. Good afternoon, Chris and Jozse. One question about handbags. We see a number of European is going back to the drawing board and planning to come back to the market with new entry price point handbags, that lower entry price point handbags. Prada is seemingly working along this line and Gucci was mentioning this purpose earlier in the year.
I wonder where you stand on this and whether you're anticipating a new wave of heightened competition within the handbags business. Vuitton has been coming to the market with a number of very effective campaigns, and I think that you possibly were continuing to benefit from the anniversary collection that you launched in the Q4 this quarter. But I'm asking you whether this is the case and whether you are pulled up to counteract this move by close figures and what you're planning to do on this side. Connected to that, I was wondering how you're faring with your smaller, so to speak, Fashion and Leather Goods business, where you see accelerating momentum and whether you could tackle a couple of problem situations. I think you mentioned here in the year, one in in particular connected to your designer brand.
Thanks very much.
I will try to answer your question.
So although I didn't hear much about it, so the line was extremely bad. So I understand that your first question is about handbags and whether we intend to introduce, as some competitors are doing, some mid priced novelties in basically between leather goods and the sort of core price range. I think the examples you're referring to are a little bit different from what we have, particularly at Louis Vuitton. I mean, if you look at the spectrum of the price spectrum of product at Louis Vuitton, we've been working a lot on that over the past few years that we cover basically all the different ranges in the spectrum from the entry price to the top top end. And we try to be present in all the various price ranges with relevant product.
I mean, it's not an anecdotal presence. It's really having strong products in the enterprise, having mixed up the offer, particularly from monogram, above €1,000 reference for instance, introducing top leather at higher price points, etcetera, etcetera. So as far as return is concerned, we think we were the first to recognize the need for a comprehensive coverage of the full price spectrum. And I think with the product introduction that we have done over the past few years, we are there. So we see no necessity no particular necessity to reinforce or to cover a price range that we wouldn't cover.
Apart from what we said about the strategy of the brand, which is to elevate its image through the introduction of highly priced product and strong image carrier. So there is nothing new in this respect. I also understand, too sure that your second question was on small leather goods and the trends there. It's a category that is suffering a bit from the Japan decline, I mean, or the comparison base in Japan and the drop in the Japanese business. As Vuitton, Japan has always been a market, a very strong market for small leather goods.
We benefited highly from that last year in Q1 with the boom in Japan. This year with a drop in the Japanese activity, we are having a little bit of pressure.
To
Thank you, Jean Jacques. There was a question also on the smaller fashionable leather goods brands. So I was wondering whether you're seeing continuing momentum at Sandy, for example, or Yim? And whether you had addressed in the meantime issues at Marc Jacobs and DKNY and other brands that were sort of lagging behind?
We are very pleased with
the momentum at Fendi, Celine, Givenchy, Kenzo. They are all doing extremely well. As far as Marc Jacobs is concerned, we are, as I said a few times already, in the transition phase from a management and artistic direction viewpoint. So obviously, this requires some adjustments, I would say, and we have not been able to benefit from new orientations in our business yet. So the business is under significant pressure, but we expect this pressure to be only temporary, obviously.
Thank you very much indeed.
Thank you. The next question is from Catherine Roland, Kepler Cheuvreux. Please go ahead.
Yes, good afternoon. I have three questions actually. First of all, regarding price increases, if I correctly understood, you said that prices were about around 3% in Europe in Q1. Could you tell us what was the price increase passed on in the U. S?
The second question is about cognac. Could you tell us what was the sales trend in the U. S. In Q1 for the cognac business? And third question is about CIFORA.
If I correctly understood, it was said that there was a double digit same store sales growth on a worldwide basis or was it only for the U. S? And more globally, what was the Sephora organic growth, please? Thank you.
Okay. So U. S. Price increases that we don't know. So we didn't increase prices in 2015 in the U.
S. As far as cognac in the U. S. Is concerned, on the top of my mind, I think the business was up 11% in volume terms. Depletions were actually higher than that.
So the level of inventory is extremely healthy in the U. S. And on Sephora, the double digit comparable is on worldwide basis.
Okay. And you said that the growth was around 11% in volume. What was the growth in value?
I don't know. I should know. I don't know. It's a few points more, a few points more, something like 2 points more.
Okay. And regarding Sephora, for the overall organic growth rate, what was the rate of growth for Q1?
It was the low digits.
Definitely. Okay. Thank you.
I will take another question if somebody has another one to ask.
Thank you. The next question is from Walrik Ochnis, Deutsche Bank. Please go ahead.
Hi, thanks very much. I've got a question about LV. At the full year results, you described LV LV sales in January as being sharply up. And you also said it was almost too much
that you wouldn't be able to deliver all of the goods. So I've got 2 parts
of the question. Can you comment about the production capacity at LV looking ahead for the year? And also whether the growth rate at LV faded in February March? Thank you.
Okay. Well, actually, the comment was mostly on some products, not it was not a normal comment. It was mostly on some lines that we find difficult to manufacture and therefore to make it available to our clients in the store. So it was not a global comment, and we have no particular issue whatsoever with regards to the global production capacities this year. As always, I mean, there will be some areas, particularly in Leila, where we'll be you should be a little bit constrained, but nothing really relevant if you take the company as a whole.
February, March compared to January, actually, January was I think the comment on the business was only on made by Nissan, it was on some lines of the business. Overall, actually, in January, the business due to the shift in Chinese New Year was a little bit lower than what it was in February. And March has been in the same vein. You should take out, obviously, the negative impact from Japan, which was particularly significant in the months of March as we had a comparison base, which was basically unmatchable in March.
Thank you very much.
Thank you. We have the next question, Stephanie Datt, Bank of America. Please go ahead.
Hi. I had a question on watches and jewelry. Could you maybe specify how watches were faring and in particular by region, how bad it was in Asia? Thank you very much.
Okay. Watch is have been under some pressure in Q1 as well as it was the case in 2014. I would say in most regions, with the exception of Japan, which is still doing okay, but the rest of regions were under some pressure. Nothing really tremendous, but nevertheless, a little bit down in the U. S, a little bit down despite drastic flows in Europe and also a little bit down in Asia.
So a business which is obviously connected with the Tag Heuer situation that I implemented before, I will not come back on that. But there is a little bit of pressure there.
Thank you very much.
Thank you very much. The next question, Eileen DeBenslan, Raymond James. Please go ahead.
Hi, good afternoon. Thank you for taking my question. First one, please, on the U. S. Can you maybe give a breakdown of the momentum of each division in this market?
You already gave cognac, but can you detail for other division? My second question is on Hong Kong and Macau. Clearly, the situation remains really difficult there. Do you expect an improvement through the year? Or can we expect a decline for the whole year?
And last question on ForEx. Do you have more visibility on the ForEx impact we could expect on the EBIT for H1?
Okay. Thank you, Armin. In the U. S. Per division, I would say, with the exception of watches I commented before, the rest of the business, by and large, is doing very well.
Exactly the same type of trends as the one we saw in the 2nd part of last year. We are around double digit for most businesses with the exception of watches. Hong Kong and Macao, obviously, it's difficult to make any forecast there. I don't think there will be meaningful changes in the near future. So we are preparing ourselves to a fairly complex business for the rest of the year.
It's more an assumption than a real focus, but I think it's we have no particular reason to be very optimistic in both locations. And as far as Forex is concerned, well, the impact if currencies stay where they are will be positive, but it's obviously way too early to comment on that.
Thank you.
Maybe one last question.
Thank you very much. The next question is from Rogerio Fujimori, RBC Capital Markets. Please go ahead.
Hi, everyone. Two quick questions. I was just wondering if you could give some color on what's happening in markets like Korea and Singapore, Sanjay. And my second question is looking at the new airport store at Heathrow, I was just curious to know if LVN will be open to explore other airport concession opportunities in major airports where you can have proper space control? I presume that productivity in the shops will be interesting and considering the Chinese overseas buying momentum.
Thanks.
Okay. Korea and Singapore, basically, both locations are slightly up in Q1, but a few percentage points, so nothing comparable to the big issues we have in Macau and Hong Kong. So numbers are okay, not fantastic, but okay for most divisions, I would say. Obviously, very linked with Travel Retail. As far as the average Virgin Airports is concerned, it's difficult to say.
We have nothing really in mind for the time being. I would say that the 2 criteria that we would use to expand further in airports with there'll be are the following. 1 is that we need the airport should have a very significant amount of transit business. Otherwise, it makes no sense to deliver our location because we would cannibalize at the airport the type of business we could do downtown, so it doesn't make any sense. So it's really capturing the transit business as opposed to cannibalizing the local business.
And the second criterion is to make sure that we end up with a favorable business proposition from the airport authorities in terms of rents, which is not always the case far from that. So if we sum up these two criteria, we may decide to invest in airport. Otherwise, it's a nonstarter.
Thank you.
Okay. Thank you very much, ladies and gentlemen, for attending this call. I look forward to discussing with you end of July our first half numbers, including revenues, but also EBIT and other P and L and cash flow numbers.
Thank you very much.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.