Welcome to the HCMH Services Revenue Conference Call. I will now hand over to Mr. Chris Parece. Sir, please go ahead.
Hello. Thank you, Julie. I am Chris Solis, Director of Financial Communications at LVMH. With me is Sholzak Yeni, our Chief Financial Officer. Thank you for joining us today.
We have some brief remarks to make about LVMH's revenue for the Q1 and the 1st 9 months of 2016. As in previous periods, these revenue figures have reported in accordance with the 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 from these are referred to the Safe Harbor statement included in our press release. Turning now to our Q3 9 months revenue announcement. Hopefully, you all have the chance to read our release, which was issued yesterday evening in both French and English. And as always, the release is available on website LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's conversation. So turning with that, let's move on to the review of the business.
We're pleased with the group's performance in the Q3, 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, while 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 Other Goods, Louis Vuitton turned in a very good performance, thanks to the appeal of both its iconic Heinz as well as new products.
This includes the Louis Vuitton fragrances, which were 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 Persiluted cosmetics front, Persilented Safran Cosenty Duo continued strong performance, driven by ongoing innovations, hugely appreciated by consumers and continued to gain market share. And some other highlights include market share gains at Wolverine and the successful refocusing of the core iconic cargo airlines. Once again, Sephora delivered an excellent performance, while the AFS continues to be impacted by tourism trends in Asia. Looking now at the evolution of our revenue in 20 16, this is Slide 3.
As I mentioned, we've seen an improvement versus earlier this year as our first half saw organic sales growth of 4%, while our 3rd 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 Q3, 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 Parisian integration. Published sales were equally up 6% compared to the same period last year. And for the 9 months, organic revenue was up 5% and reported revenue were up 4%.
Turning now to Slide 4, which shows the group's revenue in euros by region over the last time period. 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 5, Asia, outside of Japan, strongly in the Q3, driven by all business groups.
The U. S, excluding Hawaii, remained strong, up 6% in the quarter and 7% over the 9 months. Europe outside of France improved slightly over the period to 6% in the quarter versus 5% for the 9 months. However, Japan is 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 9 month period, you will see that the most improved business groups in the Q3 were fashion and leather goods, up 5%, selective retailing up 8% and perfumes cosmetics up an impressive 10%. Both Wines and Spirits and Watches and Jewelry remained positive at 4% and 2%, respectively. And now let's go and look at the business groups in more detail. So we'll start with Slide 7. Starting with Wines and Spirits, organic revenue was up 7% for the 9 month period.
Reported revenue in this group was €3,300,000,000 compared €3,100,000,000 in the same period last year or up 5% after taking into account a negative 2% currency impact. For the Q3, Wines and Spirits organic revenue grew by 4% compared to the year ago period. And after taking into account a negative 2% currency impact, reported revenue rose to €1,200,000,000 Breaking this down and out for the 1st 9 months of the year, champagne and wines delivered 6% organic revenue growth compared to the same period last year. After taking into account negative 3% currency impact, reported revenue reached €1,400,000,000 or up 3% compared to last year. In the Q3, champagne and wines organic revenue grew by 5% compared to the same period last year.
Now moving to cognac and spirits. Organic revenues for the 9 months grew by 8% compared to the 9 month period in 2015. And after taking into account a 2% negative currency impact, reported revenue reached JPY 1,900,000,000 in revenue. For the Q3, cognac and 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 1st 9 months and to solid growth in the U. S. And Japan and a good performance of the Prestige Tubas. In addition, we had a positive performance from Estates and Wine. With respect to cognac, we're pleased to see volumes rise by 9% in the 1st 9 months, driven by solid performance in the U.
S. And an ongoing rebound of consumer demand in China. Organic growth in the Q3 was, however, impacted by the termination of our contracts for the distribution of Grand Marnier in June, which had an impact of about 5 points on the cognac and spirits organic revenue growth in the 3rd quarter. Glen, Maranji and Davidea continued to perform well. Turning now to Fashion and Evergoods.
Revenue was up 2% on an organic basis for the 1st 9 months of the year. Reported revenue was up 1% to almost €9,000,000,000 from 8,900,000,000 in the same period last year. This includes a 1% negative currency impact. For the Q3 specifically, reported revenue was €3,100,000,000 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, as you may know. In September, in a limited number of stores, the brand introduced its new collection of 7 perfumes, which are off to a promising start. Louis Vuitton also introduced in the Q3 a new Horizon rolling luggage designed by Mark Neeson. Looking at the other fashion and leather goods brands, Fendi delivered excellent performance driven by the creativity behind its new products and the fashion show we hosted at the historic Trevy 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 Montaner Polonie in July, showcasing a new store concept. La Raffiera also unveiled the new store, a Paris flagship last month on Avenue Montaigne. The brand also became the official supplier of the European team for the 2 upcoming Ryder Cup matches. Kenzo, La Uribe, Bellucci saw solid growth so far this year, while MAJ Jacobs continued its brand repositioning initiatives. Finally, as you know, LB Mage agreed in July to sell Donica Round International to U.
S.-based G3 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 majority stake in Germany as Roloa, a global leader in high quality luggage. The transaction is an exciting one and expected 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 9 months, taking into account the negative 2% currency impact, published revenue rose to €3,600,000,000 from €3,400,000,000 The 2015 figures have been adjusted to take into account the reclassification of Kendall Cosmetics Company from the selective retaining to the Pampers Cosmetics business group.
For the Q3, revenue in this business group was €1,200,000,000 with organic revenue up 10% over the year ago period and the negative 1% currency impact. The Perficient 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 Fontain Perfume in Grasse, the heart of world's perfume capital situated on the French Riviera. Looking at the specific brands, Parfums Christian Dior showed strong momentum and market share gains, driven by the continued progress of Jadore 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 Yore lipstick. The brand also launched its skincare cushion named DreamSkin. Guerlain launched a new fragrance, La Petit Robe Noir, L'Antourne, and continued to see strong momentum in its La Petit Trope Noir makeup line. Benefit showed strong growth in its new brow collection. Givenchy turned in solid performance in makeup, and Kenzo successfully launched a new women's fragrance, Kenzo World.
And lastly, Make Up Forever, Fresh and Kate Bondi are all achieving rapid growth. Moving on to Watches and Jewelry, Slide 13. Organic revenue in the 1st 9 months grew 4% for this business group after taking into account a negative 1% currency impact. Revenue increased to EUR 2,500,000,000 versus EUR 2,400,000,000 in last year's period. For the Q3, organic revenues in this business group grew 2% over the year ago period with a positive 1% currency impact and that reached €877,000,000 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, strawberry also outperformed its peers, driven by successful launch of the new Sephenty Suzutori line and the continued strong growth in jewelry, especially in China. At Hublot, the classic fusion collection performed well. And at Xomei, we saw continued momentum, particularly in Asia, with its new Josephine and Nya collections.
Zenith is undergoing some repositioning, and Fran introduced a new bracelet, in celebration of the brand's 80th anniversary. Turning to the last business group. Effective retailing organic revenue grew 6%, taking into account a negative 1%. Currency impact published revenue increased to EUR 8,300,000,000 in the 1st 9 months of the year. The comments I made earlier about the reclassification of KEMBA applies to the 2015 figures here as well.
For the Q3, organic revenue grew 8% compared to the year ago period. And taking into account a negligible currency impact, reported revenue also increased 8% compared to the same period last year and reached €2,800,000,000 Once again, it's a tale of 2 different stories in this business group. For the 1st 9 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 1st 9 months. Despite this, DFS opened its new key Galleria on the Grand Canal in Venice, which is a major tourist destination in Europe and completed the expansion of Tea Galleria City of Dreams in Macau. To summarize, organic revenue growth that the LVMH Group delivered in the Q3 and for the 1st 9 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 all our business groups in all regions, with the exception of Japan, contributed to growth in the Q3.
Looking forward, LVMH continue to focus on reinforcing its leadership position in the global luxury markets globally 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. And we'll now take your questions. Julie, do you want to open the line, please?
The first question is from Joseph Finty from Morgan Stanley. Please go ahead.
Hi, there. It's Luisa from Morgan Stanley. Can you hear me?
Yes, we can.
Perfect. Good afternoon to you all. And a couple of questions for me, please. Just in terms of the Asian performance ex Japan, can you 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. And I think you said that this improvement was broadly felt across all the divisions. And then my second question relates to U. S. Can you just update us on the U.
S. Performance cognac? I think in July, you indicated that inventory was at a fairly low level and what that means going to the second half? And 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, Louis.
So with regards to Hong Kong and Mainland China, there was some improvement there, particularly in Mainland China. The global business for the group improved mostly from mid single digit in H1 to mid teen in Q3. So a lot, as I said, a lot 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, both businesses in Hong Kong are still negative. U. S. Cognac is a quite complex sorry.
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 I mean, in the Q3 of the year. A big part of the explanation is that we had determination, as Chris mentioned, we had determination of the Grand Marnier contract, 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 slurry business or the cognac business in the U.
S. Alone, where all the impact was felt, it was about 12% to 13%. So it was a pretty significant number. So if you take this out, obviously, the business in cognac in the U. S.
Slows down, which is quite normal. Bear 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. So comparison base was soft. And if you take out the Grand Marnier impact, you end up with the business growing about low double digit, which is quite nice. We carry on with a strong momentum in the U. S.
Depitions ran in July August at a fairly high level. So nothing really to worry as far as the Connect business in the U. S. Is concerned. Finally, you've had a question on LV in the U.
S. And the growth was a bit higher in Q3 than it was in H1, single digit. It's a very solid business for RV in the U. S.
The next question is from Nikka Frelka from Exane BNP Paribas.
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 3rd 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 6 months of the year, Chinese national spend was flat.
The 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 2 key markets are getting any more difficult for you. And conversely, if you are anticipating to address some of the blind spots that you had identified in the past, namely the UK, Germany and Japan.
And last but not least, a question on your very recent acquisition, Remova. I wonder if you're anticipating moving away from 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, Luca. So first question
on Chinese nationals, you remember well, it's a flattish in the first half of the year. Q3 was much better. It was low double digit. So we had a good run with the Chinese, both at home and outside China. So the question you're asking is actually the right one, but I may return it to you.
I mean, I don't give 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 preceding quarters. And it was short lived. I'm not saying it would be the case, but I'm not saying it won't be the case either.
And we really don't know. So we are just experiencing much better numbers with Chinese nationals in Q3. That's what 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 always think about it.
Obviously, I will not comment into details what we may have in mind because the competition would certainly want to know about this. So we are not going to comment on this particular point, but it's something we are always looking at. Finally, your question on Remover and Retail versus Wholesale. The Remover business is already having some a little bit of retail business. It's predominantly, as you said, a wholesale business that 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 wholesale business with a few retail stores in order to enhance the nature of the brand. So nothing really different from what has been done so far by the current management team.
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 Bvlgari jewelry business still okay?
And if you strip out, if I were to, what are you seeing in the traditional Bvlgari 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? Are you planning to do you see this brand as potentially having the room to expand into new categories well beyond luggage? And more generally on your M and A strategy, obviously, your last sizable acquisition was PNI 2013. That was a very high end brand.
Should we see the remote 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? And finally, on the balance sheet, after the Wilmore acquisition, would share buyback of €500,000,000 to €1,000,000,000 be a fair assumption that investors should keep in mind for the rest of the year?
Thank you, Thomas. So on the watches and jewelry, a little bit of softness, you're 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 bit better. This is mainly due to the fact that TAGORI is doing quite well, has been doing quite well since the beginning of the year.
With regards to Dury, definitely, Bvlgari is slowing down from its preceding extremely strong growth, particularly in the 1st 3 quarters of 2015. This being said, if you look specifically at Q3, you have different trends at play at Bvlgari. Mortgages are not doing well. This is not unique to Bvlgari, obviously, in this industry, but watches are under some form of pressure. With regards to the jewelry business, we have really 2 different situation.
The high jewelry business had to reverse some pretty high some big sales of last year. So we have a business of high jewelry, which is down in a big way in something like 40% to 45% in Q3. Obviously, this is not a smooth business, and you have some the road is always bumpy when you have to anniversaryize some significant business of the preceding year. But the traditional jewelry business is after the legit. So we've seen the traditional jewelry business at Bouygues being 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 grow your own conclusions. As far as the operating margins of WIMOVA 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. But from what we've seen and what we have 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 fairly recently on retail operations, which is obviously taking some toll on margins in the short term and also that the company will move our expanded production set 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 M and A strategy, well, as you know, we are opportunistic people. So when we see an exciting brand and we definitely feel that we move is an exciting brand, we can buy it.
Usually, we try to do it on reasonably large acquisitions, but this one could become a it's not a big acquisition these days, but it could become 1 in some years. We think the brand is extremely promising. So that's the reason why we decided to trade it. But this is not significant of any future trend of more OLED M and A. I mean, it's purely an opportunity that we decide to take.
Final question on share buyback. Obviously, Renewal acquisition makes things a little bit different from what we had anticipated. So we are currently reviewing our options on this, and nothing has been decided yet.
The next question is from John Guy from MainFirst.
Three questions, please. Maybe if we just start with Bvlgari, Q3. Could you just talk about the Bvlgari comps, for the Q3. So could you just talk about the Bvlgari comps in general during the Q3 and what type of comp base Bvlgari was up against? My second question with regards to Louis Vuitton seeing acceleration in the Q3.
I remember recently you talked around pricemix or pricing power of anywhere between 1%, maybe 2% across a range of different categories. So less than, say, the 3% to 5% traditional pricing power. Could you break out maybe the volume and value splits within the growth that we've seen with the Louis Vuitton in the 3rd quarter? And with regards to the fragrance business, can you maybe give us some idea as to what the contribution was? And I'm assuming it was very small in the Q3, but what the opportunity is given that you're going to roll fragrance out in selected stores across the directly owned store network only.
Is this going to be a potential 2% or 5% of sales type of business?
Thank you, John. So your question on Bvlgari, if I remember correctly, in the 1st 3 quarters of last year, the growth at Bvlgari 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. So 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. That we think we have to work a lot on the high jewelry business, which is really suffering probably for, I mean, reasons connected with the Middle East situation where the bulk of the business, the business fixes. LV price impact and more generally the breakdown of LV growth. As we don't communicate healthy growth, it's always difficult to communicate in the components of the growth. I mean, 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, very low contributor to the growth of retail, has been a low contributor to the growth of return 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.
It was the drop in the sterling pound, but that's about it. So price impact on returns growth was quite negligible. Finally, on the fragrance business for RV, you got it right. I mean, it's not it's from contributed to the global business. It's a small business and it's also pretty big business.
So obviously, it doesn't contribute much, particularly having launched the business fairly recently. But as far as image and traffic generation is concerned, we think the fragrance business is exactly what we had in mind. So we are very pleased with the first numbers and impact of the fragrance business that we talked about.
That's great. Many thanks.
Your next question is from Ermin de Benzmann from Raymond James. Sir, please go ahead. Madam, please go ahead.
Good afternoon. I have a few questions, please. The first one on the Fashion and Lesavaux business. Could you maybe quantify the impact from the discontinuation of lines at the Nakaran and Mar Jacobe in Q3, if there is any? My second question is on the sales growth from the American consumer.
You've commented about Chinese, but your comment about American would be nice. And 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, Armin. So the impact of Domhnakarang, I will not communicate on Marc Jacobs. Remember, well, only Donna Karan is being sold. Mount Jacobs, we intend to keep it, as I said, a few times.
So the impact from Donner Caron, which had 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 the Fashion and Leather division altogether, not in the U. S, altogether for the Q3 of the year. It should have been 7%, a little bit in excess of 7% if Donker 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, but for Vuitton, it's in line with the business of Vuitton in the U. S. We've moved that from mid single digit to high single digit in between H1 and C3. So a pretty strong performance there.
And finally, the depletions for cognac in China. As far as VSLP is concerned, we were slightly positive in trend as we had since the beginning of the year. And for the SOP, it was less, how can I say, stellar than in the first half of the year, but still positive in a very significant way? So overall, we still have a pretty good performance of both VSOP and XO in the 1st 9 months of the year.
Your next question is from Thierry Popard from Societe Generale. Sir, please go ahead.
Yes. Good afternoon, Gerard and Chris. My I have 2 remaining. Further up on Bouygues II, if we could have an idea of the European cluster, how it's behaved in Q3, European population? And 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, Jay. So on LV and the European customers, I would say that across the board, we've seen pretty strong numbers. They in some markets, like France, for instance, as you know, the French customer is small compared to the impact of soybean. Anyway, the French customer was pretty strong in Q3. It had been strong since the beginning of the year, which was particularly strong in Q3, high single digit.
It's more or less the same everywhere in Europe. Italian is the same, in the U. K, it's exactly the same, in Germany as well. So the volatility we may have or the change we may have from 1 quarter to another usually from comes from changing the tourist 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, I mean, 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. I mean, the Russian market is doing well. The French market is doing okay.
It's quite complicated to launch it could have some impact as well. And those three of
some launches
could also improve the service matter. But all in all, in all. And the business, partially at Parfums Castanvior, is doing very well across the board, I would would say, and it's really difficult to comment on any acceleration in Q3. The business has been reasonably healthy since the beginning of the year.
And on the margin maybe some implications that high growth could have?
Well, obviously, it will help, but I will not comment further on this. You'll see the outcome at the end of the year, I would say.
Okay. Thank you.
Next question is from Mario Arteil from Bernstein. Sir, please go ahead.
Hello. Three questions for 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 owned 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? The last thing is about budgeting and how you guys are starting the budgeting process. And 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 touch it because on Chinese customer, I recorded cash.
Yes. Don't worry. It's about the 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 for the Chinese consumer?
Okay. Well,
the most exposed business in the Chinese customer is the jewelry business. So definitely, jewelry is the business. I'm not obviously mentioning the FX, which does the business with Chinese consumer, but it's a distribution business. So it's a different nature. And I assume that your question is mostly on brands as opposed to distribution activities.
So it's robbery. And in this respect, the Chinese customer is doing very well with Bulgari. So we have strong numbers in Mainland China. And it's so obviously in Europe, but still Chinese customers are down in Europe across the board, but particularly in France, even Hong Kong for Bvlgari showing some signs of improvement. So in all, I mean, we are quite exposed to that.
And then obviously, the other big businesses, Vuitton, it's we do allow a small share of our business with Chinese customers. And as I said before, the Chinese customers were well oriented for the beginning of the year and particularly in Q3. On the watch business and the sellout improvement, it's difficult to answer in a simple way as far as higher is concerned. We have no particular concerns with sell out, sell in and sell out. I would say sell out is commensurate to sell in and we didn't have any issue with inventory buildup.
It's more difficult to analyze in Europe, but we think we are okay. So all in all, we don't expect any issue coming from any discrepancy between selling and sellout. So the business is reasonably healthy from this viewpoint. For other brands, it's more difficult to measure. And as far as Bvlgari is concerned, obviously, a big chunk of the work business is done inside Bvlgari.
So the different sequencing and sellout is not meaningful. As far as marketing is concerned ahead of the budget season, obviously, we are always cautious when it comes to budgeting about the year of marketing. But bear in mind that marketing is something that is that we can adjust in an easier way than we could adjust any expenses if we have decided to embark on a big store opening program. So marketing is something with a 3 month northeast you can carry or diminish in a fairly significant way. So we are not particularly worried with marketing plans going ahead of us.
I mean, 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 2 to 3 years, and it's really flexible.
The next question is from Asyl Van Banc from Autonomous. 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 Q3 in Europe. And 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?
Well, as you said, the growth of Audi is usually close to the growth in the Fashion Leather division. This is true for Q3. If you obviously take out the impact the negative impact of Donakaran, so it's almost close to the ex Donnercran number I mentioned before. I'm sorry?
You said 7% ex Macron, 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 Victor in Europe, particularly in Italy and in the UK and in Germany as well. So Q3 was very strong for Vuitton in Europe with around double digit growth in with around Spanish growth, I would say, in Europe in Q3.
But France was negative, right?
France was still negative. Not as negative as it was in H1, but it was still negative, yes.
In what single digits?
Yes. It was single digit negative, and we had our first positive months in probably in the year in September. But it remains to be confirmed because obviously, there are seasonal impacts with Chinese travelers and Golden Week, etcetera, that are always complicated to measure. We need a little bit of analysis to really understand what's going on. But definitely, it's getting a bit better better in Europe in France, although the numbers are still complicated.
The next question is from Eric Hawkins from Deutsche Bank. Sir, please go ahead.
Yes. Hi, Jean Jacques and Chris. I've got three quick questions, please. Frustion Leather in Japan, I think in Q2, you said that it was mid single digit negative. I wasn't quite clear whether that trend persisted or maybe just got a bit in Q3.
Maybe you could clarify, please. Secondly, 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 they the 2 sort of sides of the business growing at a similar rate? And 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 mean, 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, Omid. So on the fashion level in Japan, obviously, the situation did not improve from Q2. So we are negative, mid to high single digit. Not 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. So definitely, we had an impact on the Japanese market.
And it's not too late to fashion that 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 confirmation. It's a confirmation of the difficulty of the situation there.
On Vuitton and Softs 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 been under have not benefited from the impact of novelty, particularly in the case for Verney. So we have some negative numbers there. But I don't think one should view what you compare with the soft leather and canvas.
I mean, it's really a global business and the business of accessories, I mean, small leather goods and leather goods at Vuitton is really doing very well. And where we put the emphasis on the product and creativity, immediately, we see a strong response from the client base. And that's by far the most important point. As far as market is concerned, I mean, nothing really new to report. We are working on in the plan we discussed and the strategy we discussed before.
So nothing really different from what has been said. It's a slow process. We have convinced our customers that they should trust us again and that we have a strong value proposition. It won't take 6 months. I mean, it's a long term effort.
And the business was down again in Q3, and we will be down again probably in Q4.
And thank you very much. And Don and Karen, 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 Belch from HSBC. Sir, please go ahead.
Yes. Hi, it's Laurent Belch from HSBC. Three questions. First of all, on Remova, I'd like to follow-up on what you said. So you thought to say that the EBIT margin is actually in the sort of low double digit.
So 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? Do you think you can add something that the company couldn't do on its own? And second question is on Fashion
and Leather. I'm not so
sure I understand the 2% impact on Donekhan because I think in the previous quarter it was 2%, including March checkup, something I understood as being like Dona Caron down 30% and Dona Caron down 10%. So now it seems that it's only an accounting for the 2%. So could you clarify that? And finally, on cognac and that impact from the Grand Marnier contract, is it a one off for 1 quarter? Or is it something that will actually impact the next 3, 4 quarters until you analyze that next year?
Well, thank you, Antoine, for your 3 questions. On Removar, the question of what we will bring to the business. I think it's a fantastic business, and the heritage for 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 would certainly bring a lot to the business. So we have analyzed this.
Obviously, this is a competitive business, and I don't intend to disclose in detail what we intend to do, but we have identified with the existing owner and the existing management a few things that which are quite important that we will do together. So it's obviously a continuation of the existing strategy, but it is also a few things that the strength of MVH, not only from a financial viewpoint, but also from a marketing and distribution viewpoint, will help. So that's what we have in mind, but you will understand that I cannot be too specific on this. On Fashion and Letter, the answer is that the 2% impact, it's a bit more than 2% actually, is Donker and allowed. So just to be clear on this.
And 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. I mean, the Q3 numbers that we discontinued, I mean, 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 follow-up on the Removant. It was can you indicate what is the amount of that within the company, if any?
It's about EUR 20,000,000.
Okay. Thank you.
The next question is from Rogerio Fujimori from RBC Capital. Sir, please go ahead.
Just one question about Fashion Leather and the shape of the quarter. Was September materially different to the organic growth of 7% or so ex Avakran? And within the other non Louis Vuitton brands within Fashion and Other, could you talk a little bit about the retail performance in the quarter? And 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?
Well, yes, I'm not too lucky with your questions, I must say, Rogerio, because it's really a few things that we don't really comment and answer. So I will not answer on September. I mean, 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 the Binaton Festival being at a different date or Golden Week, etcetera, etcetera, taking place at a different date as well. So it's always very difficult to compare 1 month to another.
So I would not comment on September. On the retail performance, non LV, I would say the same thing. I mean, we don't comment on RV, so we don't comment really on an RV, particularly having in mind that some brands, there are some discrepancies between some brands. We mentioned some brands doing very well like Celine, Fendi, like Kenzo or Ove. Some of those are doing less well and some are being restructured as you know.
So the average of all this 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 of our clients before shopping within our stores go on the website of the brand before. So basically, we have to make a bridge between the web site and the store in a stronger way.
So that's what we have in mind. And we also believe a lot in e marketing, particularly in social network. It was 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, big channel.
Otherwise, it could have been the case already, I would say.
We have a question from Melanie Fouquet from JPMorgan. Madam, please go ahead.
Good afternoon. I have 3 questions, if I may. The first one is, sorry, again, on maybe pro whether you could actually China stand well, there has been an acceleration across nationalities pretty much in quarter 3. So what did you think you may have done that triggered this? So this gives just the market conditions are 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 UK this year, once pre Brexit, once after Brexit. What was the impact of these price increases on your underlying business?
And the last question is on cost control. The cost control that we put in general in Fashion and Other was actually pretty good in the first half, certainly lower OpEx growth in the top line activity you're suggesting. Should we expect cost to go back up in the second half and to convert the unit basically not see a big leverage up? Or can we be hopeful for margin?
Thank you, Melanie.
Well, the first question is not something I would like to answer in the direct way. I mean, the answer is basically, I don't know. I mean, we always take initiatives. We'll always do things, be it on the marketing side, on the product side or on the distribution side at Vuitton. Some quarters are doing better than others.
It's very difficult to make a trend from 1 quarter, and it's very difficult to analyze. So definitely, it's better. I can't I have that's pretty obvious. But the reason for this cannot be attributed to 1 or 2 single initiatives that we have taken. It's your full large number of initiatives that we have taken that explain this.
And the class, I don't know. The market is not all of a sudden being very market from one country to another and from 1 week to another or from 1 month to another. So 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, at this point before and after we get the same type of growth. So the impact was negligible. So I think it's quite encouraging, although we did not increase prices in a big, big way. And the
price increases were 5%, if
I'm not mistaken, 5% each. So
it doesn't affect too much to the behavior
of customers. And cost control, I mean, you would be surprised if I was telling you that cost control is over and that we will increase costs like Mads in the 2nd part of the year. So 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 forecast 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.
And it's 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. So we don't intend to change our the way we manage the business in the short term.
And just to follow-up on the situation of the overall market, are you saying that if you look at the total of your portfolio, you have the breadth of portfolio of brands. So have you seen an acceleration in the country in the brands that are already doing well or pretty much for everyone?
It's mostly for the brands that are already doing well. They are not that many that are not doing well. But nevertheless, for the brands that are already doing well, we saw definitely an improvement, which is not really surprising. Usually, when a brand struggles, they it does not benefit benefit from an improvement in the global condition. It takes a little bit of time.
Maybe one last question.
So the last question is from Olivier Chen from Cowen. Sir, please go ahead.
Hi, thank you. We had a question related to the United States 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. And then congrats on the Rimmoa deal and the success you've had with the 4 wheel luggage. Do you see a lot of the Rimmoa technology, they're pioneers in the 4 wheel innovation. Do you see that being implemented in some of your existing brands? And I also wanted to ask you just generally about Amazon and your future.
Would you ever see a reason or rationale for working with Amazon just because as we view it in the United States 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. And 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 the look forward to the weather comparison is more favorable.
How do you see Marc Jacobs manifesting in the U. S. Department store channel?
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.
And the bulk of the business we do in the U. S. Is with U. S. Local customers.
And the second thing is also that we penetrate 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. And Sephora is really moving from francs to francs, particularly in the U. S.
So that helps the picture in a big way. But as I commented before, you've seen that the numbers for Vuitton also are pretty strong. And for Wine and Spirits and particularly Cognac, they are very strong as well. So 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 Remover, yes, for the Pioneer, for 4 wheelers, etcetera. If there are intelligent product synergies to be made with other brands, why not? You've noticed that the new Horizon suitcase for Vitor is, like the big guys in the past, also benefiting from the 4 wheel technology, not and it was obviously designed before Removar joined the RDMA tool. But if there are intelligent synergies to be made, why not? 3rd question on Amazon.
I would say that no not with the existing business model of Amazon. We believe that the existing business of Amazon doesn't fit with our doesn't fit with luxury, full salt, but also doesn't fit with our brands. It can change the business model, I don't know. But with the existing business model, there is no way we can do business with them for the time being. And as far as Mount Jacobs in department stores, I will not elaborate.
I mentioned the fact that Mount Jacobs is still under a reinvention phase and still suffering a bit. Obviously, this is a case with department stores in the same way as in its own retail network.
Thank you. And great job at Sephora. It looks outstanding. So congrats. Thank you.
So 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 our conference call. Thank you all for your participation. You may now disconnect.