Welcome to the LVMH first quarter 2017 revenue conference call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.
Hello, I'm Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our CFO. Thanks for joining us. We have some brief remarks to make about LVMH's revenue in the first quarter of 2017. As in previous periods, these revenue figures are reported in accordance with IFRS. After these remarks, Jean-Jacques and I will be happy to answer your questions. Before I begin, I must remind you that certain information to be discussed on today's call is forward-looking and subject to important risks and uncertainties that could cause material actual results to differ materially. Please refer to each safe harbor statement, including our press release. Turning now to yesterday evening's announcement. Hopefully, you will have all had a chance to read our release, which was issued in both French and English.
As always, it's available on LVMH's website, www.lvmh.com or .fr, as are the slides that we're using to guide today's discussion. Turning to the highlights. We're pleased to report that the year is off to a good start for the group, in spite of what remains a very uncertain environment. Across our business groups, our revenue reflects good growth in Asia and Europe, including France, which had seen reduced tourism in the first half of 2016. Taken together, this resulted in double-digit organic and reported revenue growth in each business group. In terms of the highlights by business group, wines and spirits had a particularly good quarter, as did fashion and leather, fueled by great creative momentum at Louis Vuitton and the strengthening of other brands, which we'll discuss in a few moments.
Parfums Christian Dior also saw continued revenue growth, with makeup as a key driver. Bulgari and TAG Heuer both saw gains in market share during the period, Sephora continues to grow double digits with robust revenue increases around the world, while DFS delivered improved revenue performance in Hong Kong and Macau. A good first quarter, but it is often the case with the first quarter, and in particular in this environment, to extrapolate the trends that we're currently seeing for the full year, at this point in time would not be sensible. Looking at Q1 revenue performance, this is slide three. For the group as a whole, organic revenue was up a strong 13%. On a reported basis, taking into account a 3% currency impact and a negative 1% structural impact following the sale of DKNY, revenue was up 15%, reaching EUR 9.9 billion.
As we mentioned in our press release, Rimowa's first half revenue will be consolidated in the second quarter. Turning to revenue by region, we continue to have a well-balanced revenue mix across geographies. As you can see on the map on slide four, in EUR terms, Asia, excluding Japan, represented 31% of revenue in the first quarter. Europe, including France, accounted for 26%, and the U.S., including Hawaii, was at 25%, while Japan was 7%, and other markets at 11%. Compared to last year, while the relative weights of Europe and the U.S. remained stable, the weight of Asia gained a point from the other markets. In terms of change relative to prior year period, the prior year quarter, this slide five, reflects the improvement we have seen in both Asia and Europe, which were up 20% and 14% respectively.
The U.S. was up a strong 9%, notwithstanding a negative one percentage point impact from the end of Dom Pérignon's distribution contract, and Japan was up 2%, improving from a negative 3% in 2016. Now, we'll look at each business group, as always, starting with wines and spirits on slide six. Organic revenue grew 13%, adding to that a positive 3% impact. On a reported basis, revenue rose 16%, bringing total revenue to nearly EUR 1.2 billion from just over EUR 1 billion in the first quarter of last year. Dom Pérignon had a negative three percentage point impact on the business group. Breaking this down, champagne and wines saw organic revenue growth of 8% and a positive 2% currency impact to reach EUR 439 million in the first quarter of this year, compared to EUR 401 million in the prior year period.
Revenue for cognac and spirits saw a 17% increase in organic growth, and together with a positive 3% currency impact, rose to EUR 757 million compared to EUR 632 million. In the year-ago first quarter. Grand Marnier had a negative five percentage point impact on cognac and spirits. Volumes were up 7% in Champagne business in the first quarter, driven by continued solid performance in both the U.S. and in Europe. Organic growth in the Estates and Wines business was mainly driven by a positive price effect. Looking at cognac and spirits, Hennessy volumes were up a strong 21% due to the strong momentum in the U.S. and the solid recovery in China. However, we could potentially have some issues with the availability of stocks in the latter part of this year given this consistently strong demand.
Glenmorangie and Belvedere continued their ongoing development, with Glenmorangie releasing Pride 1974, one of its most prestigious single malts. Moving on to Fashion and Leather Goods. This business group delivered organic revenue growth of 15% and the same on a reported basis as the 2% negative structural impact following the sale of DKNY was offset by the 2% positive currency impact. Reported revenue was EUR 3.4 billion versus almost EUR 3 billion in the year-ago period. As we mentioned in the press release, Rimowa first half revenue will be consolidated in the second quarter. The geographic trends, we're on slide nine now, I mentioned earlier, were particularly evident in Fashion and Leather Goods performance in the quarter, with good growth in Europe driven by France, Asia too accelerated, and the U.S. continued to deliver solid growth. At Louis Vuitton, the creative momentum is fueling a positive response across all product categories.
The new monogram models are highly sought after, as are the new leather lines. You also may have seen in the media that the brand is collaborating with Supreme, today's announcement of its collaboration with Jeff Koons is another example, continuing its tradition of coupling the great heritage of the brand with innovation and creativity. Louis Vuitton also just launched a new jewelry collection, Blossom BB, which is another exciting development. Turning to the other fashion brands, there is more good news to report. Fendi's solid growth continued due to the strong appeal of the brand's designs. Loro Piana saw good performance in its luxury goods division. Celine remains of great interest to luxury consumers worldwide and made particular progress in its ready-to-wear business and shoe lines. You may have seen that there is a new artistic director at Givenchy, Clare Waight Keller.
She comes with deep luxury design experience, and her first show will be in October. Rimowa opened its first flagship store in Paris last month and launched an e-commerce website. I suspect many of you on the phone are frequent travelers, and I can personally attest to the quality and functionality of their products. Finally, at Marc Jacobs, restructuring continues as the brand focuses on its one-brand approach and repositions the business for long-term success. For our Perfumes and Cosmetics business group, organic revenue was up 12% in the first quarter, including a 3% currency effect. Reported revenue rose 15% to nearly EUR 1.4 billion, compared to EUR 1.2 billion in the year-ago period. The performance of this business group reflects strong growth in all segments and regions, notably Asia.
Parfums Christian Dior's iconic J'adore showed its continued vitality in the period, as did the Sauvage fragrance, which is anniversarying its launch period. Makeup, as I mentioned earlier, was particularly strong in the quarter. During the quarter, Guerlain successfully rolled out its new perfume, Mon Guerlain, with the magnificent spokesman Angelina Jolie. Guerlain also relaunched its iconic Météorites makeup, which is off to an encouraging start. Parfums Givenchy saw continued progress in its makeup lines, lipstick in particular, and the same is true of Benefit's brow collection. Make Up For Ever opened its new flagship store in New York with great fanfare, and this was driven by elements including its GoPro edutainment personalized makeup experience. Finally, Kate Spade good progress continues.
Now looking at Watches and Jewelry business, organic revenue grew 11%, and including a 3% positive currency impact, this group saw reported revenue rise 14% to €879 million compared to €774 million in the first quarter last year. This business group too saw a good start to the year, especially in Europe and Asia. Bulgari worked to continue to strengthen its iconic lines with good effect, such as Serpenti, but also the B.zero1 line collection with its design reinterpreted by the sadly late Zaha Hadid. The brand also opened a new jewelry manufacturing facility in Valenza. Chaumet launched its new Insolence jewelry collection, which is off to an encouraging start. Is going to be doing its jewelry retrospective featuring works from the 18th century, opened today at the Forbidden City Palace Museum.
TAG Heuer successfully launched its new Connected Modular 45 watch with a Swiss-made label and infinite customization options, which once again created excitement around the brand. Finally, as always, we highlight some of the group's introductions at Baselworld, which I'm pleased to tell you were well-received. They include the new Hublot Tourbillon, created in partnership with Ferrari, and TAG Heuer's new version of its iconic Autavia chronograph. Zenith unveiled its Defy El Primero 21 with a new 1/100th of a second chronograph movement, and Bulgari introduced the new Octo Finissimo, the thinnest automatic watch in the market. All in all, it's been a good year of great innovation across our watch business, and this was evident in Baselworld.
The selective retailing group saw 11% organic growth and included a 4% positive currency impact, delivered a 15% rise in revenue to nearly EUR 3.2 billion from EUR 2.7 billion in the year ago first quarter. Sephora, slide 18, continued its track record of delivering robust organic revenue growth with particular strength in North America, Southeast Asia, and China. Its online sales also continued to grow worldwide, fueled by an ongoing increase in mobile access. Sephora continues to selectively expand its base around the world, including opening a few weeks ago, its largest North American store, a testament to digitally fueled experiential retailing in the heart of New York City's Herald Square. Reflecting back on what I said earlier about Kat Von D, that brand is capitalizing on its success with its exclusive launch in France at Sephora.
Now turning to DFS, we're pleased to provide some better news than in the recent past of this business due to the slight recovery of the Hong Kong and Macau markets. DFS also continues to build its Galeries business with new locations in Cambodia and Italy and the introduction of Click and Collect in Venice. In summary, LVMH delivered a good performance in the first quarter against a persistently uncertain backdrop around the world. We're proud of our teams and the work they did to drive this growth at each of our business groups. Looking ahead across the group, our goal is to continue to focus on offering innovative, high-quality products and selectively expand our store network while reinforcing our digital offer in key markets and also closely managing our costs.
In this very uncertain environment, we remain prudent for the remainder of the year while we strive to continue to increase our leadership in the global high-quality products market. Thank you. With that, we'll now take any questions you might have. Pauline, can you open the line, please?
Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have the first question from Mr. John Guy from MainFirst. Sir, please go ahead.
Yes. Good afternoon. Thanks very much for taking my questions. First question, please, with regards to wines and spirits. Could you comment a little bit more about the quality of growth at Hennessy with regards to VS, VSOP and XO growth rates? Chris, with regards to the U.S. market, is that still 90% effectively VS, or have we seen Hennessy Craft start to take a more positive impact? What was the growth rate for XO during the quarter? On fashion and leather goods, can you comment around any sort of capacity constraint issues that you may be seeing at Louis Vuitton, which may effectively start to maybe hamper growth going in towards the latter part of this year? On watches, in particular, could you comment around volume and value breakdown on the organic growth that you've seen during the first quarter? Thanks very much.
Okay. Thank you, John. On your first question, which is pretty global on wine and spirits quality of growth around the various categories, I have to say that the three categories did extremely well, which reflect the strengths of various regions, as you know, and as you suggested in your second question. VS is still the dominant category in the U.S., not 90%, but not very far from that. It's a bit lower than that. VSOP and XO are more exposed to Asia and the travel retail market, but we benefited from strong growth in all the categories in the cognac business. As you have seen, the volumes were slightly above 20% in the quarter. As far as VS is concerned, I would like to make a comment.
It's a little technical, last year and the year before, actually, due to the strength in the demand in the U.S. Our sell-in numbers were much lower than our sell-out numbers. In other words, the inventories at our distributors were reduced in a significant way, but there was a big discrepancy between the two. We have reached, in the U.S., a point where our distributors' inventories cannot go further down. Basically, we have to sell in as much as they sell out. If you look at the numbers in Q1, the sell-out numbers were pretty good in the U.S. for VS. They were around 15%, but the sell-in numbers were much higher in percentage points, although in number of cases, we sold more or less in the same number of cases as our distributors sold out.
Part of the very strong growth we had in the U.S. was purely coming from the fact that we had a very, very low comparison base last year, and we set aside enough cases to be able to meet what we expected to be the demand for the first quarter of this year. Obviously, the growth rate in sell-in, in particular, which is above 30%, is not of any significance to analyze the strength in the final demand. As far as capacity at LV are concerned, this question you ask come from past quarters some time ago, when we had some issues with capacities. I have to say that Vuitton became much more flexible than they used to be from a manufacturing viewpoint, and much more flexible than they were some five or 10 years ago.
We don't expect major issues with capacities at LV, although when you look at the growth rates they are experiencing these days, you never know. For the time being, we plan to have sufficient products to meet demand in foreseeable future. As far as watches are concerned and the quantification of growth in between volume and value, most of it was volume. We did not increase prices in a meaningful way in watches in the first quarter of the year.
That's very clear. Thanks very much, Jean-Jacques. Have a good day.
Thank you.
The next question is from Miss Louise Singlehurst from Morgan Stanley. Madam, please go ahead.
Hi there. Good afternoon to you all. Thank you very much for taking my question. Firstly, congratulations on a great start to the year. In terms of just one question really from me, any comment on the e-com progress? Obviously, since we last spoke, we've seen various comments on the potential of a new platform. I wonder what you can tell us and if anything of that will take the Le Bon Marché branding. Elsewhere, just in e-com, can you just tell us a little bit about where you're seeing most activity across the brand? Obviously, we're seeing a lot in terms of the different platforms with Sephora, Vuitton, et cetera. Thank you.
Thank you, Louise. I'm sorry this is your only question, because I'm not going to answer much on this. Obviously, we are reflecting a lot on the various ways our clients get in touch and the various touch points for the brands. E-commerce, both on the vertical website but also on multiple product platforms, are gaining in importance in the luxury world. We are thinking about that, and among the reflections what we have, part of it is to deploy, in a larger way, the internet e-commerce arm of Le Bon Marché. We are working on this. It's way too early to make any announcement on this, I will not comment further, obviously this is something we are working on.
I really appreciate the comment. Thank you.
Thank you.
The next question is from Mrs. Hermine de Sazey from Raymond James. Madam, please go ahead.
Good afternoon. I have also a few question, please. The first one is on wine and spirits. Can you provide us some data about sell-out figures in China during Chinese New Year for LVMH, for all categories? My second question is on fashion and leather goods. Can you also give us a split between price and volume this quarter for the division and maybe talk about the disparities between brands in terms of performance, which one are above the 15% and which ones are below the 15%? Just a question on DFS. Can you remind us the sales of DFS in Hong Kong Airport in 2016 and the loss that you had also in 2016 for DFS Airport concession? Thank you very much.
Okay. Thank you, Hermine. On wine and spirits in China, we don't have the depletions at the end of March, but I think the end of February would cover sufficiently the period for Chinese New Year. We had a pretty good Chinese New Year with depletions being in excess of 25%. It's a pretty strong period coming after last part of last year, which was already pretty good. On fashion and leather- There were hardly any price increase as far as prices are concerned. I may have further questions on this, but it was not a quarter when we took a lot of action on prices. A little bit in one instance, but nothing very significant. Hardly anything as far as fashion leather is concerned, obviously, in watches, I already answered. It was mostly volumes.
If you look at the various businesses, most of them did well. There are pluses and minuses around the 15% organic growth that we reported for Q1. I will not comment further, but most of them, it is quite homogeneous, I would say, and most of them were around the average, starting obviously with Vuitton, which as I always say, is never very far from the divisions numbers. As far as DFS is concerned, it is difficult to remind you what sales and profits or losses were for HTA, as I never gave them to you. I can comment a little bit on sales, which were way in excess of $700 million, and losses we never mentioned.
Okay. Just to come back on Louis Vuitton, maybe the performance you had by clientele in Q1.
All the clientele, given the performance of the brand, all the clientele were well-oriented, with a particularly strong performance from the Chinese client base.
Okay. Thank you very much. The next question is from Mr. Erwan Rambourg from HSBC. Sir, please go ahead.
Hi, good afternoon and congratulations. Three questions if I can. I don't want to spend too much time on semantics, you used to define yourselves as the world's leading luxury group, and I picked up in the release that you're talking about now being the world's leading high-quality products group. I don't know if there's a message in there, if it's linked to maybe the fact that you're happy with the track record of Rimowa, or if you're thinking about redefining the scope of your business or going premium versus luxury, or if there's an underlying message, basically. I was wondering if you could comment on the surge in Asia, maybe giving some snippets around mainland China versus Hong Kong versus Korea.
I'd be interested to have your thoughts on the pickup in Hong Kong and maybe what you're thinking about Korea, given the more recent events there. There's very little not doing too well in your group to be clear. Marc Jacobs seems to maybe still be the exception. I'm just wondering how you're thinking about this asset in terms of the timeline and if you have a plan B, if the repositioning doesn't bear fruit. Thank you.
Okay, thank you, Erwan. I think the luxury and high-quality product word has been there for about three, four years. I don't think there is something new there in semantics, I will not really comment. As far as the surge in Asia is concerned, we've seen an improvement, I would say, across the board. Obviously, China did very well with local client base as there are no touristic business there. China was definitely a driving force behind the improvement in Asian numbers. Beyond China, we saw a big improvement in Macau, which started with global numbers being double digits in the last half of last year, and that were again double digits in the first quarter of this year. As far as Hong Kong is concerned, we see a significant improvement, obviously, with a very low comparison base.
The business in Hong Kong has been down more or less in between 10% or 15% per annum for the past three years. Since September 2014. Obviously at some point, the business bottoms out and starts recovering. I don't know whether we are in that recovery phase yet, we enjoyed a fairly strong quarter with about 10% growth rate in Hong Kong for the main businesses, including DFS and excluding the Hong Kong airport and Vuitton. The situation there seems to be improving, although, as I said, comparison base is not particularly demanding in Hong Kong. As far as Korea is concerned, we heard the news as well as you did. Chances are that the business with the Chinese tourists in Korea will be affected one way or the other.
We are getting used to these type of movements in Asia. Remember that in 2015, the business was on fire in Japan with all the Chinese tourists going to Japan. For some reasons, they moved away from Japan and went to Korea. If they don't go to Korea anymore, which is too early to say, for whatever reason, they will go elsewhere and probably in Hong Kong or in Macau. We are not particularly worried, although in the short term, it could affect a little bit the local business in Korea. Finally, your question on Marc Jacobs. Well, I'm glad that you point out on probably one of the few negative performance we have in the group. Nothing new to say on Marc Jacobs. The company, in my view, is making a big improvement in its products.
What they do, what they have been doing over the last season or two seasons is much better than before, particularly on the handbag business. Obviously, this takes a little bit of time to pay off, but we are extremely confident, and in the meantime, we have to reduce the cost base. There is no plan B, there is no plan C. It will take the time it takes to fix this business, which we think is a very promising business, which has proven quite complicated to develop. We are great believers of the future of Marc Jacobs.
Thank you very much. Best of luck.
The next question is from Mr. Thomas Chauvet from Citi. Sir, please go ahead.
Good afternoon. I have three questions, please. The first one on pricing. I understand, Jean-Jacques, there wasn't any pricing at retail in the period. I remember at the end of last year, you said you should probably have increased prices in Europe. Would it make sense to go ahead now? Are you happy about the regional price gap, in particular Hong Kong and U.S. prices are quite high relative to Europe. I calculated a 30% gap on a Speedy bag, for instance, at current effects. The second question, you said in the release not to extrapolate, obviously, this very strong start to the year. You're referring to still, I would say maybe as usual, an uncertain environment. What are really your biggest concern, at this point for the rest of the year?
Particularly when we see a sudden surge in demand in both Asia and Europe driven by the Chinese tourists, it seems that something has maybe fundamentally changed versus maybe the last two, three years. What are the risks you're seeing that explain a slowdown maybe later this year? Thirdly, on DFS. Last week, the Hong Kong Airport Authority allocated the concessions to two of your competitors, I guess not a surprise to see DFS not renewing it. As the Chinese travelers are back to Europe, can you perhaps take that opportunity to comment on how the Galleria in Venice performed since opening, whether you're satisfied with this concept in Europe? Where do you see growth opportunities in Europe in both downtown duty-free and maybe airport duty-free, if there's a plan there to take part in that consolidation of duty-free in airport channels in Europe? Thank you.
Thank you, Thomas. On pricing at LV and other fashion brands, I would say situation has been improving markedly over the past few months. The relative pricing came back to what the ideal pricing structure we are looking for. We are not there yet, but it's improving. As you know, we have taken the decision not to make a big bang on prices as other brands have done, but to make it progressively back to normal. It's in good way and it's in good shape, and it will take a little bit of time. There will be slight price increases in Europe. Nothing decided yet, obviously, otherwise, I wouldn't comment on it. The move is obviously not to increase prices outside Europe and to increase prices progressively in Europe. We'll carry on moving slowly but regularly toward a more usual relative price structure.
As far as the no extrapolation comments that we made in the press release, are there any particular concerns? This is to be viewed in line with the level of growth. Concerns are not any different from what they were before. You read the newspapers the way we do, and you read the same things. The world is not a particularly simple and safe place. I'm not there to comment on this type of thing. The question is, in such an environment, is 13%, which is actually a bit more when you take out some one-offs like Loro Piana, et cetera. It's 13% organic growth, sustainable for the rest of the year and over the long run. You know, obviously, the answer as well as we do. That's what we mean by that.
On top of that, we also want to point out that the comparison base is entirely different from one semester to another. Last year, we had roughly half of the growth in the first semester than we had in second semester. Obviously, this will have some mechanical impact, I would say, in the second half of the year. Third question on DFS and how is the Galleria in Venice doing. I would say two things. One, it's a bit early to say because the high season obviously starts with spring in Venice. What we did during the winter season, which is really the low season in Venice, is obviously less significant than what will happen in the next few months. Second comment is that it's encouraging.
We have been working hard to fix the products and merchandising mix to improve our techniques to get tourists into the store, which is a new destination for most people in Venice, and it's quite encouraging. We really look forward to the development of the season with a very good level of confidence. Thank you.
The next question is from Mr. Fred Speirs from UBS. Sir, please go ahead.
Hi, good afternoon, Jean-Jacques, Chris. Three questions for me, please. First was about fashion and leather growth composition. You mentioned it was mainly volume driven. I wonder if the majority of this volume being driven more from new customers choosing your brands, or is it from existing customers spending more? The second, I know this is a sales update call, but I just wonder, given the strength of organic growth we're seeing in fashion and leather in Q1, are you starting to revise up your OpEx spending plans for the year at this stage? Last question was on cognac capacity constraints that you mentioned ahead. Could you just talk about which price points we're likely to see that at? Is that volume constraint more coming at the VS level? Thank you.
Okay. Thank you, Fred. On fashion and leather, well, the third question, I should probably know the answer, but I don't really know it, and it's always quite difficult to generalize on six or seven different brands, whether it's new customers or existing customers. At Vuitton, we always have a share. Roughly half of the business comes from existing customers and half of the business from new customers. This varies from one semester or one quarter to another, but not in a big way. Over time, it tends to be fairly stable. I don't know whether there were particular developments there in Q1 that would make this proportion shifts in one way or another. In other brands, typically, they are more dependent on new customers and recruiting than Vuitton, which is a more established brand, but that's the limit of the comment I can make on this.
As far as fashion and leather and OpEx are concerned, certainly not. We have no plan, and we are not in the mood for releasing OpEx and CapEx programs, which has to be related with my previous comment on the lack of visibility and on the fact that growth rate should not be extrapolated for the rest of the year. Our visibility is not particularly good. We don't want, remember what Mr. Bernard Arnault said during the conference for the year-end result. It is when the business seems to be in euphoria that one has to be particularly cautious when it comes to development plans. As you said, the current environment, which is quite exuberant, calls for caution. Certainly not. We are not going to release our spendings or to increase our spendings in the second part of the year.
Third question on cognac capacity and capacity constraints, where we could have impact. We could have a little bit of impact in VS more than in other qualities. For VSOP, seven years, XO is 15 years, obviously. This is less sensitive to the volatility in demand. There could be a little bit of constraints there. At the same time, we know that the current growth cannot be met forever, but the current growth will not last forever as well. We are in a situation where the business, particularly in the U.S., which is the main market for VS, has been growing in between 15%-20% for the last three, four years. This will not continue forever. We have hardly ever seen that type of growth. Basically, what we have in our plans is a growth which is lower than that.
I'm not saying that the market will fall apart and will start decreasing. I'm just saying that the growth rate is likely to evade somewhat in the months or quarters to come. Our capacity, our inventories enables us to meet reasonable growth, not the same type of growth that we have had over the last few quarters. That's all. We can call this or you can call this capacity constraints. We just feel that the amount of eau-de-vie and bottles that we have in our chai in Charentes is sufficient to meet a reasonable demand in the future, and we are not too worried about these issues.
At the same time, we cannot go on like we are today forever. If you look at it in more reasonable and you take a little bit more altitude to look at it, I don't think it is a big issue.
Okay, thank you. Just maybe one follow-up to my first question then from a slightly different angle. Would you be able to share with us what the growth of the Chinese consumer worldwide was at Louis Vuitton in Q1, please? Thank you.
It was extremely strong, a good, very strong double-digit growth.
Okay, thank you.
The next question is from Mr. Luca Solca from Exane BNP Paribas. Sir, please go ahead.
Thank you very much. One of the questions was about Chinese consumers and Chinese demand for Vuitton. You just answered this one. I was wondering whether you could help us understand trends in terms of the American nationality. I completely understand that in the wines and spirits business, this is very strong. If you could help us understand trends in fashion and leather goods and selective retailing, especially when it comes to Sephora, and whether you see any acceleration in the shift from physical retail to digital in these businesses as far as the American consumers are concerned.
Thank you, Luca. On the American customer, we discussed already wine and spirits. As far as fashion is concerned, we had a pretty good quarter, something like high single-digit growth, which comes after a fairly good second half of last year. Vuitton is doing a bit better than the rest of the business, which tends to show the strengths of the brand in the U.S., but Fendi is also showing strong numbers. We think this is quite favorable for fashion leather. As far as selective distribution, Sephora, is concerned the type of like-for-like growth we've seen since the beginning of the year is comparable with what it was last year, a little bit lower but not in a significant way, a bit lower in brick and mortar, same type of growth at a high level, obviously, in the dot-com business.
We see no particular change in trends in digital at Sephora.
Thank you very much, Jean-Jacques. If I may add maybe a question on Marc Jacobs. You seem to be something more positive about the outlook in this business. Can you share with us any of the progress that you see the brand is achieving?
I'm not positive about the outlook. I'm positive about the brand and the teams. That's all. We are very confident that we will make it. We have always been confident. How long it takes and what it costs is another question which, unfortunately, I don't want to share in a public way. We are working very hard to make this brand up to its potential, and we are really working on it, but I cannot really say more at this point in time.
Understood. Thank you very much indeed.
The next question is from Mr. Roger Fujimori from RBC Capital Markets. Sir, please go ahead.
Hi. Good afternoon. Thanks for taking my question. First one is, if you could comment, Jean-Jacques, on the state of the European local consumer. The second question is on watches and jewelry, if you could comment on category trends, watches versus jewelry, and your thoughts on trade stock levels for watches in the U.S. and Hong Kong. Thank you.
Thank you, Roger. On local European consumer, I don't know whether your question was limited to fashion and to Vuitton or a more global one. As far as where we can measure it, mostly at Vuitton, the local client base, be it Germany, France, the U.K., Italy, and Spain, are doing very well. Some countries like France, they are totally dominated by the touristic flows, obviously, but they are doing very well. Way in excess of 10% for the German, the French, the Brits, the Spaniards, and Italians. It's nothing new. It's been going on for quite some time. For watches and jewelry, the trend is, as always, a bit different between the two. Jewelry is above the division's average, and particularly Bulgari, which had a very strong first quarter for the year. As far as watches, we're a bit below.
We are high single digits in watches. Hublot is doing a bit better than TAG Heuer, all in all, it's all right. What we see is a strong business with tourists. Europe is very strong with tourists. The U.S., particularly for watches, has been under pressure and is still a bit under pressure. I don't think it is an inventory issue in the U.S. It's been quite some time since we heard retailers complaining about the level of inventories. It's just the lack of positive demand in the U.S., unlike the rest of the world, which is obviously a concern for TAG Heuer, being very exposed to the U.S. We are pleased to get significant businesses elsewhere, particularly in Europe with Asian tourists.
Thanks, Jean-Jacques. Just a quick follow-up on Louis Vuitton mix trends. I think in the press release, you referred to strong performance for both monogram and also the leather line. Is the mix canvas versus leather relatively stable versus a year ago?
Yes, it's quite stable. One quarter doesn't move such a mix in a big way. This is a fairly large company with fairly large lines of products, so it doesn't move so much.
Great. Thank you very much.
The next question is from Mr. Mario Ortelli from Bernstein. Sir, please go ahead.
Good afternoon. The first question is about online sales. Can you give us which percentage of sales are made online by Louis Vuitton and by Sephora? In some markets, online has reached already the critical mass to be more profitable than the sales in brick and mortar. The second question is about jewelry, which are the price point more performing in jewelry, high-end jewelry, mid-price, or entry-level price? The last one, if we think at space increase for the Fashion and Leather division and for Vuitton, what do you expect for 2017 in percentage points? Thank you.
Thank you, Mario. On online, I will give you the answer when the competition gives the answer. I understand that everybody's talking about online, but I don't see many numbers. I have them, but for the time being, we shall keep them for ourselves. Online, is it more profitable than brick and mortar? That's your second question. It depends a lot. Obviously, when you have reached a critical mass in online, at some point, it becomes more profitable than brick and mortar, but it takes a while to get there. It depends very much on the degree of maturity of the online business of a given brand. It's not possible to do a global answer to this. Jewelry, the various categories. High jewelry was not particularly strong in Q1. It's usually a low quarter for high jewelry, but it was not particularly good.
The strength of the performance, particularly at Boucheron and Chaumet of the jewelry business really comes from the regular business, which is obviously centered around entry priced jewelry and mid-priced jewelry, both of them doing quite well. If your question is whether the strong performance of jewelry is explained by the high jewelry component, which as we all know, is extremely volatile, the answer is no, it's really the regular business that explains the strength of the business. Finally, your question on space increase at Vuitton. Roughly speaking, the number of square meters at Vuitton should remain more or less flat for the year. It doesn't mean that we will have exactly the same square meters as the ones we have in the year before. We are closing some stores, opening new ones. The number of store count will probably remain quite flat.
I mean, will not move a lot. Square meters will not move as well, but we will open and close stores, in a move to renovate and to embellish at all times our distribution network.
If I may, a clarification, Jean-Jacques. Can you give us already example of a brand in specific market in which online has reached the critical mass to be more profitable than brick and mortar?
Sephora in the U.S.
Yeah.
The business, if you look at sharp profit at Sephora in the U.S., it's a bit higher in digital than it is in brick and mortar, but it's not one to two. It's a bit higher as I said.
Thank you very much. The last thing, you can be the front runner disclosing what is the % of, say, online of Louis Vuitton. Probably other brands will follow you.
Yeah, we'll see. Thank you, Mario.
Bye. Have a good afternoon.
Bye.
The next question is from Mrs. Mélanie Flouquet from J.P. Morgan. Madam, please go ahead.
Yes, good afternoon. I have three questions as well. The first one is on the Asia acceleration, which was really pretty spectacular even after a strong Q4 and Q1 at +20%. Could you help us understand whether this was broad-based across all divisions or whether wine and spirits notably helped this big acceleration in Q1 compared to the previous quarter? As a follow-up to the same question on the mainland Chinese consumer, the cluster, for Louis Vuitton that you mentioned as strong double digit. Did you see another sharp acceleration in Q1 versus Q4? Could you disclose a bit or maybe refine the growth rates that you saw in Q4 and Q1 for Louis Vuitton with the Chinese cluster? My second question is, I promise I won't be sub-questions within it, is on the leverage cost.
Is there any reason why the fashion and leather goods division couldn't repeat a +400 basis point margin expansion in H1 this year like it did in H2 last year? My last question, sorry, is just a clarification on your outlook. You are cautious on your outlook. We understand the comparables and the supply constraint in cognac. Is there anything else that you would call out that makes you cautious, something that is unusual in this recovery versus past recoveries? Thank you.
Okay. Thank you, Mélanie. Asia acceleration, yes, it's broad-based. If you look at all the divisions, they did better than in Q4 and the average of last year. It's true across the board in Asia, and it's true in China. Bear in mind as well that the comparison base was minus one or minus two, if I remember correctly, last year, for Q1 in Asia. It was not particularly demanding. As far as the mainland China customers numbers are concerned, I told you they are pretty strong. That's all. Strong double digit. That's all I will mention. The reason being that it's Q1, I'd rather discuss numbers when it's Q2 or Q3 or Q4, because we have a trend behind us. This is too early to make it a trend for this year.
You will have to live with this broad estimation, the numbers are good. Your third question on the 400 basis points improvements in margins. We are planning to release our numbers on the 26th or 27th of July. I'm sure we will discuss that at length at this point in time. Before that, this is science fiction as far as I'm concerned, I will not comment. As far as the outlook is concerned, your question about are there any specific factors that we have in mind, I would say, I don't know, Daesh or IS, Mr. Kim Jong Un. There are plenty of things around that could impact this business one way or the other. There is nothing specific to the business apart from some capacity constraints that we discussed before.
We are just at numbers that we don't think are sustainable if they compare to more normal numbers as we had in the second half of the year. We are just sending a word of caution on this, so that the market doesn't end up being carried away with the current strong numbers. As you know, we hate to miss at the end of the year or at any point in time, actually.
Thank you. The next question is from Mr. Warwick Okines from Deutsche Bank. Sir, please go ahead.
Hi, Jean-Jacques and Chris. I've got two questions, please. The first is on your comments about square meter growth or flat square meters in Vuitton. I'm not sure whether that was the same in 2016 or whether this is the first time that you're not seeing net square meter growth. Does that just reflect that the right sizing of the store estate is now complete? Secondly, you've given a fair amount of color on the Chinese cluster. I was just wondering if you could give a bit of color around the relative performance of the Chinese cluster locally versus overseas. I remember at the full year results, you talked about a clear repatriation of spending in Q3 and Q4. Has that remained at the same level, or maybe even that trend has shifted again further towards the mainland? Thank you.
Thank you, Warwick. On the square meters for Vuitton 2016, it was up, but in a very limited way. If I remember correctly, I think it was up something like 2%, so it was not a big increase. This year, when I say it's flat means plus or minus 2%. It's not something very precise, and we'll know exactly at the end of the year, depending on the timing of renovation and so on, what it will be. What I just mean is that we don't aim at expanding in a major way the selling surface of Vuitton. If you take this into account one way or the other in your calculations, basically you should not. That's the message. As far as Chinese customers are concerned, we had a discrepancy, a pretty significant one last year, less so this year.
Both numbers for travelers and mainlanders in mainland China are quite close, and both are very strong.
That's great. Thank you very much.
The next question is from Mr. Julian Easthope from Barclays. Sir, please go ahead.
Yeah, thank you very much. Just a point of clarification, if I may, just coming back to the cognac division. Was the destocking that took place all throughout the entire year of 2016? Therefore, when it comes to looking at the sell in and sell out discrepancy, are we likely to see a continuation of the Q1 trends just in terms of unit numbers? Thanks.
Thank you, Julian. It was particularly strong in Q1 last year. We had a big discrepancy between the two. Our supply chain planning did not provide enough cases in Q1 of last year. We had an issue, as you know. You move from two years old to three years old at the end of March. Obviously Q1 is a bit critical, and we also had significant inventories within the distribution system, we could afford to have less cases available through sell-in to our customers. Basically, last year was a bit of an exception. Normally, particularly when you've reached the level of stock that we have these days, sell-in and sell out should be more or less the same. It doesn't mean, depending on comparison base, that the growth rate or percentage numbers will be equivalent.
As you've seen in Q1, where sell-in percentage are much higher than sell out percentage, both being quite positive. The impact was mostly in Q1, way less in the rest of the year, although in a number of cases, sell-in was slightly lower in Q2, Q3, and Q4 than sell out. There will be a little bit of this, but way less than in Q1.
Thank you very much. Great set of results. Thank you.
Thank you.
We have no further questions.
Okay. Thank you so much. I already announced more or less the date of H1 numbers, so I look forward to discussing them with you at the end of July. Thank you so much.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.