Welcome to the LVMH third quarter revenue conference call. I will now hand over to Mr. Chris Hollis. Sir, you go ahead.
Hello. Thank you, Jenny. I am Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us today. We have some brief remarks to make about LVMH's revenue for the third quarter and our first nine months of 2016. As in previous periods, these revenue figures are reported in accordance with our International Financial Reporting Standards, 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. For these, I refer you to the safe harbor statement included in our press release. Turning now to our third quarter and nine months revenue announcement.
Hopefully, you've all had the chance to read our release, which was issued yesterday evening in both French and English. As always, the release is available on LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's conversation. Turning with that, let's move on to the review of the business. We're pleased with the group's performance in the third quarter, which was quite solid, with organic revenue growth exceeding the first half of the year. This can be attributed to a range of factors in terms of both geographies and brand strength. Specifically, we saw accelerated growth in Asia, with the exception of Japan, and continued good momentum in the U.S. and Europe outside of France. Both Japan and France were impacted by lower tourism, albeit for different reasons. Well, the lower tourist spend.
Regarding the business groups, wines and spirits continued its good momentum with strong performance in the U.S. and improvements in China. In fashion and leather goods, Louis Vuitton turned in a very good performance, thanks to the appeal of both its iconic lines as well as new products. This includes the Louis Vuitton fragrances, which are off to a promising start, while the repositioning of Marc Jacobs brand is moving along with the first collections being received now in the stores. On the perfumes and cosmetics front, Parfums Christian Dior continued its strong performance, driven by its ongoing innovations, hugely appreciated by consumers, and continued to gain market share. Some other highlights include market share gains at Bulgari and the successful refocusing of the core iconic TAG Heuer lines. Once again, Sephora delivered an excellent performance, while DFS continues to be impacted by tourism trends in Asia.
Looking now at the evolution of our revenue in 2016, this is slide three. As I mentioned, we've seen an improvement versus earlier this year, as our first half saw organic sales growth of 4%, while our third quarter was up 6%. This is an encouraging performance, which reflects the resilience of the group's brands and their ability to adapt to the headwinds impacting the overall industry. For the third quarter, after taking into account a negative but reduced impact from currency of around 1%, as well as the positive 1% perimeter impact relating to the Parfums integration, published sales were equally up 6% compared to the same period last year. For the nine months, organic revenue was up 5% and reported revenue were up 4%. Turning now to slide four, which shows the group's revenue in euros by region over the last nine months.
Asia, including Japan, represented 34% of our business. Europe, including France, represented 28%, the U.S. 26%, and the balance of 12% from other markets. A healthy geographic balance, which allows us to adapt to the more volatile touristic flows we have experienced recently. As you'll see on slide five, Asia, outside of Japan, strongly rebounded in the third quarter, driven by all business groups. The U.S., excluding Hawaii, remained strong, up 6% in the quarter and 7% over the nine months. Europe, outside of France, improved slightly over the period to 6% in the quarter versus 5% for the nine months. However, Japan was very challenging industry-wide, and whilst tourist numbers are growing, they're spending much less due to the strength of the yen and the stricter importation controls in China.
Breaking down our organic revenue growth in the nine-month period, you will see that the most improved business groups in the third quarter were Fashion & Leather Goods up 5%, Selective Retailing up 8%, and Perfumes, Cosmetics up an impressive 10%. Both Wines & Spirits and Watches & Jewelry remained positive, up 4% and 2% respectively. Now let's go and look at the business groups in more detail. This is slide seven. Starting with Wines & Spirits, organic revenue was up 7% for the nine-month period. Reported revenue in this group was EUR 3.3 billion compared to EUR 3.1 billion in the same period last year, or up 5% after taking into account a negative 2% currency impact. For the third quarter, Wines & Spirits organic revenue grew by 4% compared to the year-ago period.
After taking into account a negative 2% currency impact, reported revenue rose to EUR 1.2 billion. Breaking this down now for the first nine months of the year, Champagne & Wines delivered 6% organic revenue growth compared to the same period last year. After taking into account a negative 3% currency impact, reported revenue reached EUR 1.4 billion or up 3% compared to last year. In the third quarter, Champagne & Wines organic revenue grew by 5% compared to the same period last year. Now moving to Cognac & Spirits. Organic revenue for the nine months grew by 8% compared to the nine-month period in 2015. After taking into account a 2% negative currency impact, reported revenue reached EUR 1.9 billion in revenue. For the third quarter, Cognac & Spirits organic revenue grew by 2% compared to the same period last year.
Now let's expand on these numbers by turning to Slide 8. Champagne volumes increased 3% in the first nine months, owing to solid growth in the U.S. and Japan and a good performance of the prestige cuvees. In addition, we had a positive performance from estates and wines. With respect to cognac, we're pleased to see volumes rise by 9% in the first nine months, driven by solid performance in the U.S. and an ongoing rebound of consumer demand in China. Organic growth in the third quarter was, however, impacted by the termination of our contract for the distribution of Grand Marnier in June, which had an impact of about five points on the cognac and spirits organic revenue growth in the third quarter. Glenmorangie and Ardbeg continued to perform well. Turning now to fashion and leather goods.
Revenue was up 2% on an organic basis for the first nine months of the year. Reported revenue was up 1% to almost EUR nine billion from EUR 8.9 billion in the same period last year. This includes a 1% negative currency impact. For the third quarter, specifically, reported revenue was €3.1 billion, reflecting a 5% increase in organic revenue and a 1% positive currency impact. Slide 10. As always, Louis Vuitton contributed to this strong momentum and acceleration in Q3. The success of both its iconic lines and new models continued, and as you may know, in September, in a limited number of stores, the brand introduced its new collection of seven perfumes, which are off to a promising start. Louis Vuitton also introduced in the third quarter a new Horizon rolling luggage designed by Marc Newson.
Looking at the other fashion and leather goods brands, Fendi delivered excellent performance, driven by the creativity behind its new products. The fashion show it hosted at the historic Trevi Fountain was exceptionally well-received. Celine continued to make good progress in its shoes and accessories lines, and the brand reopened its renovated Milan flagship location on Via Montenapoleone in July, showcasing a new store concept. Loro Piana also unveiled a new store, a Paris flagship last month on Avenue Montaigne. The brand also became the official supplier of the European team for the two upcoming Ryder Cup matches. Kenzo, Loewe, Berluti saw solid growth so far this year, while Marc Jacobs continued its brand repositioning initiatives. Finally, as you know, LVMH agreed in July to sell Donna Karan International to U.S.-based G-III Apparel Group, and that transaction is expected to be completed by year-end.
On the acquisitions front, I should note that last week, the group agreed to acquire a majority stake in Germany's RIMOWA, a global leader in high-quality luggage. The transaction is an exciting one and expects to close in January of next year once it's been reviewed by competition authorities. Moving on to perfumes and cosmetics, Slide 11. Organic revenue grew 8% in the nine months. Taking into account the negative 2% currency impact, published revenue rose to €3.6 billion from €3.4 billion. The 2015 figures have been adjusted to take into account the reclassification of Kendo Brands from the selective retailing to the perfumes and cosmetics business group. For the third quarter, revenue in this business group was €1.2 billion, with organic revenue up 10% over the year-ago period and a negative 1% currency impact.
The Perfumes & Cosmetics business group clearly gained market share, delivering the highest organic growth of all business groups, with strong growth in perfume and makeup, driven by Asia and the U.S. Last month, the group inaugurated a new site dedicated to the creation and production of perfume at Les Fontaines Parfumées in Grasse, the heart of the world's perfume capital, situated on the French Riviera. Looking at the specific brands, Christian Dior showed strong momentum and market share gains, driven by the continued progress of J'adore and Sauvage, as well as the successful launch of Miss Dior Absolutely Blooming. Its makeup lines also continued to make progress, with the introduction of a new version of the iconic Rouge Dior lipstick. The brand also launched its skincare cushion, named Dream Skin.
Guerlain launched a new fragrance, La Petite Robe Noire Intense, and continued to see strong momentum in its La Petite Robe Noire makeup line. Benefit showed strong growth in its new brow collection. Givenchy turned in solid performance in makeup. Kenzo successfully launched a new women's fragrance, Kenzo World. Lastly, Make Up For Ever, Fresh, and Kat Von D are all achieving rapid growth. Moving on to watches and jewelry, slide 13. Organic revenue in the first nine months grew 4% for this business group. After taking into account a negative 1% currency impact, revenue increased to €2.5 billion versus €2.4 billion in last year's period. For the third quarter, organic revenue for this business group grew 2% over the year ago period, with a positive 1% currency impact, and it reached €870 million. This business group delivered market share gains across its watches and jewelry brands.
In watches, the refocus on TAG's core product range has been a success. The brand saw continued success of its new products in both its iconic lines and of the connected smartwatch. Looking at the other brands, Bulgari also outperformed its peers, driven by a successful launch of the new Serpenti Seduttori line and the continued strong growth in jewelry, especially in China. At Hublot, the Classic Fusion collection performed well. At Chaumet we saw continued momentum, particularly in Asia, with its new Joséphine and Liens collections. Zenith is undergoing some repositioning. Fred introduced a new bracelet, 8°0, in celebration of the brand's 80th anniversary. Turning to the last business group, Selective Retailing. Organic revenue grew 6%, taking into account a negative 1% currency impact. Published revenue increased to €8.3 billion in the first nine months of the year.
The comments I made earlier about the reclassification of Kendo applies to the 2015 figures here as well. For the third quarter, organic revenue grew 8% compared to the year ago period. Taking into account a negligible currency impact, reported revenue also increased 8% compared to the same period last year and reached €2.8 billion. Once again, it's a tale of two different stories in this business group. For the first nine months, Sephora delivered double-digit revenue growth as well as market share gains across all regions. In terms of online sales, the brand continued to see strong momentum in existing countries and expanded into new countries. At the same time, the brand continued to expand its store network, with notably the opening of the World Trade Center flagship location in New York in August.
Turning to DFS, the business continued to face challenging tourism environments in Asia in the first nine months. Despite this, DFS opened its new T Galleria on the Grand Canal in Venice, which is a major tourist destination in Europe, and completed the expansion of T Galleria City of Dreams in Macau. To summarize, organic revenue growth that the LVMH group delivered in the third quarter and for the first nine months of the year, up 6% and 5% respectively, demonstrate good overall performance in an unstable environment. In this context, we are very pleased that our business groups in all regions, with the exception of Japan, contributed to growth in the third quarter. Looking forward, LVMH continue to focus on reinforcing its leadership position in the global luxury goods markets.
In doing so, we will continue to provide innovative, high-quality products to our global customers across stores around the world, while selectively expanding our store network and maintaining a focus on cost management. Thanks, we'll now take your questions. Julie, do you want to open the line, please?
Yes. Ladies and gentlemen, if you wish to ask a question, please press zero and one on your telephone keypad. The first question is from Louise Singlehurst from Morgan Stanley. Please go ahead.
Hi there. It's Louise here from Morgan Stanley. Can you hear me?
Yes, we can, Louise.
Perfect. Good afternoon to you all. A couple questions from me, please. Just in terms of the Asian performance, ex-Japan, can you just give us a bit of color in terms of Hong Kong? I know you talked about that being down double digits, and mainland China we know was beginning to improve with growth in the second quarter. I think you said that the improvement was broadly felt across all the divisions. Then my second question relates to U.S. Can you just update us on the U.S. performance of cognac? I think in July you indicated that inventory was at a fairly low level and what that means going to the second half. Louis Vuitton, I think you said that U.S., we saw outstanding performance in Q2 where domestic consumption was up high single digits. Can you just comment on the performance in Q3? Thank you.
Thank you, Louise. With regards to Hong Kong and Mainland China, there was some improvement there, particularly in Mainland China. The global business for the group improved notably from mid-single digits in H1 to mid-teen in Q3. As I said, a marked improvement, more or less all businesses contributed to this improvement. More specifically on Hong Kong, there was also some improvement, albeit Hong Kong is still staying in the negative territory. We were mid-teen negative, and we are mid-single digit negative now. Also improvement across the board, particularly at Vuitton and DFS, but both businesses in Hong Kong are still negative. U.S. cognac is a quite complex story. The business in cognac went down from being at about 20%, so a very strong growth in the first half of the year to being flat in the second part of the year, so quarter of the year.
A big part of the explanation is that we had the termination, as Chris mentioned, we had the termination of the Grand Marnier distribution contract in the U.S., which had a very big impact on the business. Chris mentioned a 5% impact altogether on the cognac and spirit business for the cognac business in the U.S. alone where all the impact was felt. It was about 12%-13%, so it was a pretty significant number. If you take this out, obviously, the business in cognac in the U.S. slows down, which is quite normal, bearing in mind that last year, our comparison base was extremely strong in Q3 in the U.S. I think the business was up something like 30%. We built inventories for the year-end, which is not really the case this year.
We have pretty low levels of inventories within the distribution system, more or less half of what we had at the same period last year. Comparison base was tough. If you take out the Grand Marnier impact, you end up with a business growing about low double digits, which is quite nice. We carry on with a strong momentum in the U.S. Depletions ran in July and August at a fairly high level, so nothing really to worry as far as the cognac business in the U.S. is concerned. Finally, you had a question on LV in the U.S. LV growth was a bit higher in Q3 than it was in H1, single digit. It's a very solid business for LV in the U.S.
That's super clear. Thank you.
The next question is from Luca Solca from Exane BNP Paribas. Luca, go ahead.
Okay. Good afternoon. I was wondering whether you could give us some information about the Chinese nationals' spending trends, and if we have to interpret this acceleration that we're seeing in the third quarter as a sign that the spend from this very important consumer group is improving. I remember that you said that as far as Vuitton is concerned, in the first six months of the year, Chinese national spend was flat. A second question on Sephora, which is continuing to be a strong value creation driver in your business. I'm wondering if on the back of consolidation in France and in the U.S., as competitors are growing stronger, if you're perceiving any sign of inflection in your space productivity trends, and if you are perceiving that these two key markets are getting any more difficult for you.
Conversely, if you are anticipating to address some of the blind spots that you had identified in the past, namely the U.K., Germany and Japan. Last but not least, a question on your very recent acquisition, RIMOWA. I wonder if you're anticipating moving away from a wholesale business model and developing more of a directly operated retail business model in order to create better value perception in the minds of consumers. Thank you very much.
Thank you, Luca. First question on Chinese nationals. You remember well, it was flattish in the first half of the year. Q3 was much better. It was low double digits. We had a good run with the Chinese, both at home and outside China. The question you're asking is actually the right one, but I may return it to you. The answer to whether this is a sort of a new trend, I absolutely don't know. We've seen in the past already some quarters in which the Chinese nationals were doing much better than in preceding quarters. It was short-lived. I'm not saying it will be the case, but I'm not saying it won't be the case either. We really don't know. We are just experiencing much better numbers with Chinese nationals in Q3. That's all I can say at this point in time.
Sephora, your question on space productivity in the U.S. and France. Frankly, no, we don't see any declining productivity in both the U.S. and France, despite the fact that we have a large number of stores in both geographies. With regards to the untapped geographies, as you mentioned, U.K., Germany, and Japan, we will think about it. Obviously, I will not comment into details what we have in mind. I mean, the competition would certainly want to know about this. We are not going to comment on this particular point, but it's something we are always looking at. Finally, a question on RIMOWA and retail versus wholesale. The RIMOWA business is already having a little bit of retail business. It's predominantly, as you said, a wholesale business, but there is a little bit of retail operations in the main capitals of the world.
We think we can intensify this a little bit, but it will remain predominantly a wholesale business with a few retail stores in order to enhance the image of the brand. Nothing will be different from what has been done so far by the current management team.
Thank you very much, Jean-Jacques.
The next question is from Thomas Chauvet from Citi. Sir, please go ahead.
Good afternoon, Jean-Jacques. I have three questions, please. The first one on watches and jewelry. Could you provide a bit more color on this relatively soft performance by splitting watches versus jewelry? Is the Bulgari jewelry business still okay? If you strip out TAG Heuer, what are you seeing in your traditional Bulgari and Hublot and other brands for the watch business? Secondly, a follow-up on the RIMOWA acquisition. What is the current operating margin? What are you targeting for that business in the medium to long term? Do you see this brand as potentially having room to expand into new categories well beyond luggage? More generally on your M&A strategy, obviously your last sizable acquisition was Loro Piana in 2013. That was a very high-end brand.
Should we see the RIMOWA acquisition as the opposite, effectively, as a way to gain more exposure to affordable price points as we're seeing trading down shopping behavior across many luxury categories? Finally, on the balance sheet, after the RIMOWA acquisition, would a share buyback of half a billion EUR to 1 billion EUR be a fair assumption that investors should keep in mind for the rest of the year? Thank you.
Thank you, Thomas. On the watches and jewelry, a little bit of softness, you are right. If you look at it, watches versus jewelry it's a bit of a paradox. Our watch business does better than the jewelry business. Not in a big way, but does a bit better. This is mainly due to the fact that TAG Heuer is doing quite well, I think, doing quite well since the beginning of the year. With regards to jewelry, definitely Bulgari is slowing down from its preceding extremely strong growth, particularly in the first three quarters of 2015. This being said, if you look specifically at Q3, you have different trends that are at play at Bulgari. Watches are not doing well. This is not unique to Bulgari, obviously, in this industry, but watches are under some form of pressure.
With regards to the jewelry business, you have really two different situations. The high jewelry business had to anniversarize some pretty high, some big sales of last year. We have a business of high jewelry, which is down in a big way in something like 40%-45% in Q3. Obviously, this is not a smooth business, and the road is always bumpy when you have to anniversarize some significant business of the preceding year. The traditional jewelry business is half double digits. We've seen the traditional jewelry business of Bulgari doing better than in the first half of the year. Again, I'm not sure it's a trend, but I'm just giving you the rough facts so that you can analyze them and draw your own conclusions.
As far as the operating margins of RIMOWA is concerned, we think we have an objective of moving them up to something like 20%. It's not something that we will achieve in a couple of years. I mean, it's more a long-term objective. From what we've seen and what we analyzed prior to the acquisition, we think this is achievable. Obviously, we are not there yet. We are quite far from that, particularly having in mind that the company has embarked only recently on retail operations, which is obviously taking some toll on margins in the short term, and also that the company RIMOWA expanded its production sector in Germany in the course of this year, which is not fully absorbed yet in terms of volumes. The margins are quite far away from the 20% objective I mentioned.
In terms of MA strategy, well, as you know, we are opportunistic people, when we see an exciting brand, and we definitely feel that RIMOWA is an exciting brand, we can buy it. Usually, we try to do it on reasonably large acquisitions. This one, it's not a big acquisition these days, but it could become one in some years. We think the brand is extremely promising. That's the reason why we decided to take it. This is not significant of any future trend of more or less MA. It's purely an opportunity that we decide to take. Final question on share buyback. Obviously, the RIMOWA acquisition makes things a little bit different from what we had anticipated. We are currently reviewing our options on this, and nothing has been decided yet.
Thank you.
The next question is from John Guy from Berenberg. Sir, please go ahead.
Yes, good afternoon, Jean-Jacques, and Chris. Three questions, please. Maybe if we just start with Bulgari, Jean-Jacques, you mentioned that you had a very tough comp base for high-end jewelry for Bulgari, down 40, 45% for the third quarter. Could you just talk about the Bulgari comps in general during the third quarter and what type of comp base Bulgari was up against? My second question with regards to Louis Vuitton seeing acceleration in the third quarter. I remember recently you talked around price mix or pricing power of anywhere between 1%, maybe 2% across a range of different categories. So, less than, say, the 3%-5% traditional pricing power. Could you break out maybe the volume and value splits within the growth that we've seen within Louis Vuitton in the third quarter?
With regards to the fragrance business, can you maybe give us some idea as to what the contribution was? I'm assuming it was very small in the third quarter, but what the opportunity is given that you're going to roll fragrance out in selective stores across the direct-to-end store network only. Is this going to be a potential 2% or 5% of sales type of business? Thank you very much.
Thank you, John. For your question on Bulgari, if I remember correctly, in the first three quarters of last year, the growth at Bulgari was in excess of 20%, so the comparison base was extremely demanding. It was not the case in Q4, where we had a much lower number, but the first three quarters of last year were extremely strong. We are universalizing this pretty tough comp base, and it's obviously particularly tough in jewelry. Hence, we are pretty happy with the basic jewelry numbers, but we think we have to work a lot on the high jewelry business, which is really suffering probably for reasons connected with the Middle East situation where the bulk of the business takes place. LV price impact and more generally, the breakdown of LV growth, as we don't communicate LV growth, it's always difficult to communicate on the components of the growth.
The question is asked probably each time, and each time I say the same thing. What I can say about price is price was a very low contributor to the growth of Vuitton, has been a low contributor to the growth of Vuitton since the beginning of the year, and particularly in Q3. It was almost negligible. We did not pass, in the recent months or quarters, any price increase anywhere, or hardly anywhere, a little bit in the U.K. to offset the drop in the sterling pound, but that's about it. Price impact on Vuitton's growth was quite negligible. Finally, on the fragrance business for LV, you got it right. It's a strong contributor to the global business. It's a small business and Vuitton is a pretty big business. Obviously, it doesn't contribute much, particularly having launched the business fairly recently.
As far as image and traffic generation is concerned, we think the fragrance business is exactly what we had in mind. We are very pleased with the first numbers and impact of the fragrance business at Vuitton.
That's great. Many thanks.
The next question is from Hermine de Bentzmann from Raymond James. Ma'am, please go ahead.
Good afternoon. I have a few questions, please. The first one on the fashion and leather goods business, could you maybe quantify the impact from the discontinuation of lines at the Donna Karan and Marc Jacobs in Q3, if there is any? My second question is on the sales growth from the American consumer. You've commented about Chinese, but a comment about American would be nice. Lastly, could you give us a bit of color as well on the depletions you have in cognac in China in Q3? Thank you.
Okay. Thank you, Hermine. The impact of Donna Karan, I will not communicate on Marc Jacobs as you should remember well, only Donna Karan is being sold. Marc Jacobs, we intend to keep it, as I said a few times. The impact from Donna Karan, which is suffering the impact of the discontinuation of some lines of business, as you remember, was pretty significant. It's about a little bit in excess of 2% of the growth in fashion and leather division altogether, not in the U.S., altogether for the third quarter of the year. It should have been 7%, a little bit in excess of 7%, if Donna Karan had not been consolidated. The second question you had on American customer, the American customer is in line for Vuitton, obviously, as we don't measure it for other brands.
For Vuitton, it's in line with the business of Vuitton in the U.S. It moved there from mid-single digit to high single digits in between H1 and Q3. A pretty strong performance there. Finally, the depletions for cognac in China. As far as VSOP is concerned, we were slightly positive, same trend as we had since the beginning of the year. For VSOP, it was less, how can I say, stellar than in the first half of the year, but still positive in a very significant way. Overall, we still have a pretty good performance of both VSOP and XO, in the first nine months of the year.
Okay, thank you. The next question is from Thierry Cota from Societe Generale. Sir, please go ahead.
Yes, good afternoon, Jean-Jacques and Chris. My questions have mostly been asked, but I have two remaining. To follow up on Louis Vuitton, if we could have an idea of the European cluster, how it's behaved in Q3, the European population. Secondly, on beauty, I was wondering if you could elaborate on the factors of the revenue growth acceleration and what implications that could have on margin potential for the segment. Thank you.
Thank you, Thierry. On LV and the European customers, I would say that across the board, we've seen pretty strong numbers. In some markets like France, for instance, as you know, the French customer is small compared to the impact of tourists, but anyway, the French customer was pretty strong in Q3. It had been strong since the beginning of the year. It was particularly strong in Q3, high single digit. It's more or the same everywhere in Europe. Italians is the same, in the U.K. it's exactly the same, in Germany as well. The volatility we may have or the change we may have from one quarter to another usually comes from a change in the tourists impact, as opposed to the local customers, who are growing steadily at a pretty high level and have been growing steadily at a pretty high level for quite some time.
As far as beauty is concerned, well, we moved the business from, it was I think 7% in H1 to 10% in H2. Yes, this is better. It's quite difficult to comment on 3% acceleration. There were ups and downs. The Russian market is doing well. The French market is doing okay. It's quite complicated. Launches could have some impact as well, and anniversary of some launches could also prove disturbing factor. All in all, the business, particularly Parfums Christian Dior is doing very well across the board, I would say. It's really difficult to comment on any acceleration in Q3. The business has been reasonably healthy since the beginning of the year.
On the margin, maybe some implications high growth could have.
Obviously, it will help, I will not comment further on this. You will see the outcome at the end of the year, I would say.
Thank you.
The next question is from Mario Ortelli from Bernstein. Sir, please go ahead.
Hello. Three questions from me, and thank you for taking them. The first one is about the Chinese consumer. You said that the Chinese consumer sentiment is improving. Which of your businesses are growing the most among Chinese in Q3? The second question is about the watch market. Do you see an improvement in the sellout of watches and the softening in the destocking policy also the wholesaler? Last thing is about budgeting. You guys are starting the budgeting process. Which are the guidance that you are giving to your business, especially concerning cost controls? Thank you.
Could you possibly repeat the first question? The line was pretty bad, I didn't catch it. On Chinese customer, I caught it.
Sorry, don't worry. It's about Chinese consumer. You said that the consumer sentiment of Chinese is improving. Which of your businesses benefited the most? Which of your businesses grew the most their sales of the Chinese consumer? Thank you.
The most exposed business to the Chinese customer is the jewelry business. Definitely, Bulgari is the business. I'm not obviously mentioning DFS, which does the bulk of business with Chinese consumer, but it's a distribution business, so it's of a different nature, and I assume that your question is mostly on brands as opposed to distribution activity. It's Bulgari, and in this respect, the Chinese customers is doing very well with Bulgari. We have strong numbers in mainland China. Let's say obviously in Europe, as the Chinese customers are down in Europe, across the board, but particularly in France. Even Hong Kong for Bulgari is showing some signs of improvement. All in all, we are quite exposed to that. Obviously the other big business is Vuitton.
We do about a small share of our business with Chinese customers. As I said before, the Chinese customers were oriented for the beginning of the year and particularly in Q3. On the watch business and the sell-out improvement, it's difficult to answer in a simple way. As far as TAG Heuer is concerned, we have no particular concerns with sell-in and sell-out. I would say sell-out is commensurate to sell-in, and we don't have any issue with inventory build-up. It's more difficult to analyze in Europe, but we think we are okay. All in all, we don't expect any issue coming from any discrepancy between sell-in and sell-out. The business is reasonably healthy from this viewpoint.
For other brands, it's more difficult to measure. As far as Bulgari is concerned, obviously a big chunk of the watch business is done inside Bulgari, the difference between sell-in and sell-out is not meaningful. As far as marketing is concerned, ahead of the budget season, obviously, we are always cautious when it comes to budgeting and possibility of marketing. Bear in mind that marketing is something that we can adjust in an easier way than we could adjust selling expenses if we have decided to embark on a big store opening program. Marketing is something with a three-month notice you can cut or diminish in a fairly significant way. We are not particularly worried with marketing plans going ahead of us.
If the business ends up not being as good as we expected at the budget time, it won't be so complicated to adjust marketing budget to the level of the business. This is what we have been doing over the last two, three years, and it's reasonably flexible.
Thank you.
The next question is from Astrid from Reuters. Madame, please go ahead.
Hello, thank you very much for taking my question. I was wondering if you could give us a bit of clarity on the growth of Louis Vuitton in the third quarter in Europe. Generally, can we associate the level of growth of the fashion and leather to be roughly equal to that of Louis Vuitton? What was the growth of Louis Vuitton in Europe? Thanks so much.
Well, as you said, the growth of LV is usually close to the growth in the fashion leather division. This is true for Q3 if you obviously take out the negative impact of Donna Karan. Vuitton is close to the ex Donna Karan number I mentioned before.
Seven%, right?
I'm sorry?
You said 7% ex Donna Karan, right?
Yes, 7% I mentioned, yes.
As far as Europe is concerned, Vuitton did a bit better in Europe than it did on average. We had a strong recovery of Vuitton Europe, particularly in Italy and in the U.K. and in Germany as well. Q3 was very strong for Vuitton in Europe with around double-digit growth, around 10-ish growth, I would say, in Europe in Q3.
France was negative, right?
France was still negative. Not as negative as it was in H1, but was still negative, yes.
In what, single digits?
Yes, it was single digit negative, and we had our first positive month probably in the year in September. It remains to be confirmed because obviously there are seasonal impacts with the Chinese travelers and Golden Week, et cetera, that are always complicated to measure. We need a little bit of analysis to really understand what's going on. Definitely, it's getting a bit better in Europe, in France, although the numbers are still complicated.
Thanks so much.
The next question is from Warwick from Deutsche Bank. Sir, please go ahead.
Yes. Hi, it's Warwick. I've got three quick questions, please. Fashion leather in Japan. I think in Q2 you said that it was mid-single digit negative. I wasn't quite clear whether that trend had persisted or maybe just got a bit worse in Q3. Maybe you could clarify, please. Secondly, at Vuitton, when you look across the year to date, is there anything notable in the mix between soft leather and canvas, moving one way or another, or are the two sides of the business growing at a similar rate? Thirdly, you mentioned the first new collections are coming in at Marc Jacobs. Could you just maybe update us where you are on the progress of the change in that brand? I'm assuming that there's a continuation of a drag in Q4 and into next year, but just maybe some more clarification, please. Thank you.
Thank you, Warwick. On Fashion and Leather in Japan, obviously, the situation did not improve from Q2. We are negative, mid to high single digit. Nothing really surprising there following the rise in the yen and the difficulty for Chinese clients in particular to bring back home some of the goods they have bought in Japan. Technically, we have an impact on the Japanese market, and it's not unique to Fashion and Leather. I would say that the whole business, you've seen the numbers for Japan, they are getting Q1 was okay. Q2 was starting to be pretty difficult, and Q3 is obviously the confirmation of the difficulty of the situation there. On Vuitton soft leather versus canvas, nothing new there.
As I told you, the canvas business is doing better than the soft leather, but it reflects also where we put the emphasis in terms of novelties and creation and creativity. There is some big portion of the soft leather business have not benefited from the impact of novelties. It is possibly the case for Vernis. We have some negative numbers there. I do not think one should compare really soft leather and canvas. It is really a global business, and the business of accessories, small leather goods and leather goods at Vuitton is really doing very well. Where we put the emphasis on the product and creativity, immediately we see a strong response from the client base, and that is by far the most important point. As far as [inaudible] is concerned, nothing really new to report.
We are working on the plan we discussed and the strategy we discussed before. Nothing really different from what has been said. It is a slow process. We have to convince our customers that they should trust us again and that we have a strong value proposition. It won't take six months. It is a long-term effort. The business was down again in Q3, and it will be down again probably in Q4.
Thank you very much. Donna Karan, the drag in Q4, would that also be around 200 basis points, would you expect?
I don't know.
Okay. Thanks very much.
The next question is from Antoine Belge from HSBC. Sir, please go ahead.
Yes, hi. It's Antoine Belge at HSBC. Three questions. First of all, on RIMOWA, I'd like to follow up on what you said. You try to say that the EBIT margin is actually in the sort of low double digits. Also, what do you think that LVMH can bring to that company? Is it just about acquiring a very fast-growing company, or is it a business that you think you can add something that the company couldn't do on its own? Second question is on fashion and leather. I'm not so sure I understand the 2% impact on Donna Karan, because I think in the previous quarter, it was 2% including also Marc Jacobs, something I understood as being like Donna Karan down 30% and Marc Jacobs down 10%. Now it seems that it's only Donna Karan accounting for the 2%, could you clarify that?
Finally, on Cognac and that impact from the Grand Marnier contract, is it a one-off for one quarter, or is it something that will actually impact the next three or four quarters until you analyze that next year? Thank you.
Thank you, Antoine, for your three questions. On RIMOWA, the question of what we will bring to the business. I think it's a fantastic business and the heritage of this brand is extremely strong. When you look at the business the way it is done in terms of product, in terms of distribution, I think a global group like ours could certainly bring a lot to the business. We have analyzed this. Obviously, this is a competitive business, and I don't intend to disclose in detail what we intend to do. We have identified with the existing owner and the existing management a few things that which are quite important that we will do together.
It's obviously continuation of the existing strategy, but it is also a few things that the strengths of LVMH, not only from a financial viewpoint, but also from a marketing and distribution viewpoint, will help. That's what we have in mind, but you understand that I cannot be too specific on this. On fashion and leather, the answer is that the 2% impact, it's a bit more than 2%, actually, is Donna Karan alone. Just to be clear on this. As far as Grand Marnier is concerned, it's not a one-off. It will unfold over the next three quarters, probably at a lower level. The Q3 numbers that we discontinued, the comparison base last year was quite high.
If I look at the sequence of the various numbers, it was the highest of them, but nevertheless, you can expect some further impact, maybe at a lower level, but some further impact in Q4, Q1, and Q2 of next year.
Okay, maybe just one thought on RIMOWA. Can you indicate what is the amount of debt within the company, if any?
It's about EUR 20 million.
Okay. Thank you.
The next question is from Rogerio Fujimori from RBC Capital. Sir, please go ahead.
Hello. Hi, good afternoon. This is Rogerio Fujimori . Just one question about fashion leather and the shape of the quarter. Was September materially different to the organic growth of 7% or so external trend? Within the other non-Louis Vuitton brands within fashion leather, could you talk a little bit about the retail performance in the quarter? My third question is about e-commerce. Should we expect e-commerce to be a material driver of wholesale for some of your non-Louis Vuitton brands within the division? Thank you.
Well, you're not too lucky with your questions, I must say, Roger, because it's really a few things that we don't really comment and answer. I will not answer on September. Giving 3 months numbers is already sufficient in our view, so that you can get a sense of what's going on. It's not that I don't want to say, but there are always some specific events such as Mid-Autumn Festival being at a different date or Golden Week, et cetera, taking place at a different date as well. It's always very difficult to compare one month to another. I will not comment on September. On the retail performance, non-LV, I would say the same thing. We don't comment on LV, so we don't comment really on non-LV, particularly having in mind that there are some discrepancies between some brands.
We mentioned some brands doing very well, like Celine, like Fendi, like Kenzo or Loewe. Some others are doing less well, and some are being restructured as you know. The average of all these doesn't make a lot of sense. What I can say is that the trends that we've seen over the past quarters are still the same, with the winners being the same and the ones under more pressure being also the same. Finally, on e-commerce, you know our feeling on e-commerce, which we don't view in itself as a big opportunity. We believe very much in the digital content of the selling experience, having in mind that more or less all our clients, before shopping within our stores, go on the website of the brand before. Basically, we have to make a bridge between the website and the store in a stronger way.
That's what we have in mind, and we also believe a lot in e-marketing, particularly in social network. 2 years ago, it was not clear what we could do there, but now it becomes much clearer. E-commerce is obviously something we need to have. We need to offer this feature to our clients, but in itself, we don't expect this to become a big channel. Otherwise, it would have been the case already, I would say.
Understood. Thank you.
We have a question from Melanie Flouquet from JP Morgan. Madam, please go ahead.
We have one minute.
Yes, good afternoon. I have three questions. The first one is, sorry, again, on Louis Vuitton, whether you could actually shine us around there has been an acceleration across nationalities pretty much in quarter three. What did you think you may have done that triggered this, or do you think it's just the market conditions were better than expected? Can you highlight a few initiatives that may have played in your favor in this quarter, and how sustainable are they? The other question is regarding the U.K. If I am correct, you've increased prices twice in the U.K. this year, once pre-Brexit, once after Brexit. What was the impact of these price increases on your underlying business? The last question is on cost control.
The cost control at Louis Vuitton and in general in fashion and leather was actually pretty good in the first half, certainly lower OpEx growth than the top line. At Louis Vuitton, you're suggesting should we expect cost to go back up in the second half and to compensate, we basically not see it leverage up, or can we be hopeful on margin? Thank you.
Thank you, Melanie. Well, the first question is not something I would like to answer in a direct way. The answer is basically, I don't know. We always take initiatives. We always do things, be it on the marketing side, on the product side, or on the distribution side at Louis Vuitton. Some quarters are doing better than others. It's very difficult to make a trend from one quarter, and it's very difficult to analyze. Definitely it's better. That's pretty obvious, but the reasons for this cannot be attributed to one or two single initiatives that we have taken. It's a full large number of initiatives that we have taken that explain this. The last, I don't know. The market is not all of a sudden being very brilliant.
It's still a very contrasted market from one country to another and from one week to another or from one month to another. It's very difficult to say at this point in time. As far as the U.K. is concerned, the impact of price increases was not felt, I would say. Before and after, we get the same type of growth. The impact was negligible. I think it's quite encouraging, although we did not increase prices in a big way. The price increases were 5%, if I'm not mistaken, 5% each. It doesn't affect too much the behavior of customers. Cost control, you would be surprised if I was telling you that cost control is over and that we will increase costs like mad in the second part of the year. We keep on controlling costs.
We'll see at the end of the year where we stand in terms of margins. It's always very difficult in our business to make any forecasts of this kind. The only thing I can tell you is that we don't intend to give up on controlling the cost of the business. Maybe there will come a time when it will be important to invest some of the excess in the business, be it in marketing or in the distribution network, but not for the time being. We don't intend to change the way we manage the business in the short term.
Just to follow up on the situation of your raw market, are you saying that if you look at the total of your portfolio, because you have a breadth of portfolio brands. Have you seen an acceleration in quarter three in the brands that are already doing well or pretty much for everyone?
It's mostly for the brands that are already doing well. There are not that many that are not doing well. Nevertheless, for the brands that are already doing well, we saw definitely an improvement, which is not really surprising. Usually, when a brand struggles, it does not benefit immediately from an improvement in the global condition. It takes a little bit of time.
Thank you very much.
Maybe one last question.
The last question is from Oliver Chen from Cowen. Sir, please go ahead.
Hi, thank you. We had a question related to the U.S. domestic customer. There's been a lot of anxiety around election fears as well as the market volatility. It sounds like you've been pretty happy with the U.S. customer, but if you could elaborate there. Congrats on the RIMOWA deal and the success you've had with the four-wheel luggage. Do you see a lot of the RIMOWA technology, they're pioneers in the four-wheel innovation. Do you see that being implemented in some of your existing brands? I also wanted to ask you just generally about Amazon and your future. Would you ever see a reason or a rationale for working with Amazon? Just because as we view it in the U.S., as an emerging department store channel in its own right, given their broad reach at a relatively high household income of the Amazon Prime product.
Our final question is just about the U.S. department store channel. As we look at it here, there's been a fair bit of cautiousness as department stores have been over-inventoried, but they look forward to the weather comparisons more favorable. How do you see Marc Jacobs manifesting in the U.S. department store channel? Thank you.
Okay. On the U.S. customer, I will repeat what I've said a number of times, that the U.S. customer is fairly favorable for us. Many reasons for this. First of all, that we are not subject to any tourist impact in the U.S., unlike some other brands. We had a little bit of negative impact in 2015 with Latin America customers disappearing, but it was not a big deal. The bulk of the business we do in the U.S. is with U.S. local customers. The second thing is also that we benefit in a major way from the strength of Sephora, which is a big chunk of our total business in the U.S., about, let's say, around 40%, roughly speaking. Sephora is really moving from strength to strength, particularly in the U.S. That helps the picture in a big way.
As I commented before, you've seen that the numbers for Vuitton also are pretty strong. For wine spirits, and particularly cognac, they are very strong as well. That's the situation, and it's nothing new. It's been the case for quite some years now, more than quarters, really years, and we expect this to continue. Your question on RIMOWA. Yes, we're the pioneer for four wheels, et cetera. If there are intelligent product synergies to be made with other brands, why not? You've noticed that the new Horizon suitcase for Vuitton is, like the Pégase in the past, also benefiting from the four-wheel technology. It was obviously designed before RIMOWA joined the LVMH group. If there are intelligent synergies to be made, why not? Third question on Amazon. I would say that not with the existing business model of Amazon.
We believe that the existing business of Amazon doesn't fit with luxury, full stop, but also doesn't fit with our brands. If they change the business model, I don't know. With the existing business model, there is no way we can do business with them for the time being. As far as Marc Jacobs in department stores, I will not elaborate. I mentioned the fact that Marc Jacobs is still under a reinvention phase and still suffering a bit. Obviously, this is the case with department stores in the same way as in its own retail network.
Thank you. Great job at Sephora. It looks outstanding, congrats.
Thank you. Thank you. I have nothing more to add. I just look forward to discussing with you full year performance in the, not the conference call, but the meeting that we will organize at the group's headquarter in late January. Thank you so much. Bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.