Welcome to the LVMH 2017 Third Quarter Revenues Conference Call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.
Thank you, Laurent. Hello, I'm Chris Hollis, Director of Financial Communications at LVMH and with me is Jean Jacques Guillenie, Chief Financial Officer. Thanks for joining us today. We have some brief remarks to make about CellVMH's revenue for the Q3 9 1st time months of 2017. As in previous periods, these revenue figures are reported in accordance with IFRS International Financial Reporting Standards.
After these remarks, Jean Jacques and I will be happy to take your questions. Before I begin, I must remind you that certain information to be discussed on today's call is forward looking and subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the Safe Harbor statement included in our press release. Turning now to our Q3 9 months revenue announcement. Hopefully, you've all had the chance to read our release, which was issued yesterday evening in both French and English.
As always, the release is available on LVMH's website, www.lvmh.com, as are the slides which we're using to guide today's conversation. So getting down to business, we are pleased, this is Slide 2, that in a very uncertain environment, we were able to continue the good performance we delivered in the first half. We reported double digit organic revenue growth across all business groups in the period, with the exception of Wines and Spirits, which was limited by supply constraints notably for cognac.
On a
geographic basis, we saw good growth in Europe and Asia, in particular, for the 9 month period. With respect to business trends, the Fashion and Leather Goods Group, Louis Vuitton continued to benefit from its team's exceptional creativity and the other fashion brands continue to perform well with exciting products, product introductions and store openings. Christian Dior Couture was integrated within LVMH Group for the first time
as of the beginning of July
of this year. Other highlights include Parfancastienne Dior business, which continued to deliver a solid performance. In watches and jewelry, we saw market share gains at strawberry. Sephora and Sephora remains a great performer based on the ever increasing strengths of its omnichannel strategy and the ongoing rapid sales growth of online sales. And at DFS, we are seeing good revenue gains, driven by Hong Kong and Macau.
Looking at the numbers on Slide 3. On the right hand side, you can see that year to date revenue exceeded €30,000,000,000 Organic revenue grew by 12% and after taking into account a 3% structural impact offset by a negative 1% currency impact, reported revenue grew 14% compared to the same period last year. In the Q3, organic revenue grew by 12%, similar to the growth in Q1 and Q2. However, currency and structural impacts were much more consequence. There was a negative 5% currency impact due to the weakening of the euro against the dollar related currencies of the yen and a positive 7% structural impact, mostly due to the consolidation of Christian Dior Couture from the beginning of July, but also Remoa, the acquisition of RIMOA and the session of disposal of Donnergrand is included in that figure.
Reported revenue for the quarter was up 14% and exceeded €10,000,000,000 Turning to Slide 4, which shows the group's revenue in euros by region over the 1st 9 months. It reflects a healthy balance between regions with Asia, including Japan, representing 36% Europe, including France, 27% and the U. S. 25% with a balance of 12% in other countries. Compared to last year, Asia has slightly increased its weight from the U.
S. And Europe, in part reflecting currency changes and their impact on tourist flows. Slide 5 shows the strong organic revenue growth that Asia saw in the 3rd quarter. Asia grew 21% in the quarter and 19% for the year to date. Japan was also up 21% in the quarter, although the comparison base for Japan was easier.
Europe rose 11% in the quarter and 12% in the 9 months. And finally organic growth in the U. S. Was 7% for the 9 months, but 3% for the quarter, reflecting in part the supply constraints that I mentioned for Promiak. Breaking this down, our revenue growth, as you'll see on Slide 6, organic revenue is up in
the double digits across all of
our business groups in the 3rd quarter 9 month periods, with the exception of Wines and Spirits, as I mentioned earlier. Taking a closer look now at each business group, I'll start on Slide 7 with Wines and Spirits. Organic revenue was up 8% for the 9 month period. Reported revenue reached €3,500,000,000 up 7% after taking into account a negative 1% currency impact. For the Q3, revenue was up 4% on an organic basis.
After taking into account a negative 4% currency impact, reported revenue reached EUR 1,220,000,000 very similar to last year. Breaking this down for the 1st 9 months of the year, champagne and wines delivered 7% organic revenue growth compared to the same period last year. After taking into account a negative 1% currency impact, reported revenue increased 6% to reach €1,500,000,000 compared to 1 point €4,000,000,000 in the same period in 2016. In the 3rd quarter, champagne and wines organic revenue grew by 3%. For cognac and spirits, organic revenue for the 1st 9 months grew 8% with limited currency impact and therefore, delivered €2,000,000,000 in reported revenue compared to €1,900,000,000 in the year ago period.
For the 3rd quarter, cognac and spirits organic revenue grew by 5%. Champagne volumes increased 4% in the 1st 9 months, owing to good momentum in Europe and Japan. Other wines saw organic revenue growth largely from pricing in the States and Wines business. With respect to cognac, while we were pleased to see volumes rise 9% for the 1st 9 months, in Q3, it was only the older Konex, I. E, BS, OP and Ekso categories that were in positive territory.
As we've been discussing in recent quarters and particularly evident in the 3rd quarter, production constraints impacted the Versus business, whose biggest market is in the U. S, and this is unlikely to abate soon. China, on the other hand, has seen some rapid growth, in particular, in the VSOP, Alexa categories, and this growth has been encouraging, but we remain cautious as to the sustainability of this high rate of growth. Also in Asia, we have continued to see destocking of Glenmorangie by our distributors to get to more reasonable stock levels. Turning now to the Fashion and Leather Goods Business Group on Slide 9.
Organic revenue grew by 14% for the 1st 9 months of the year. The 8% structural impact relates to the consolidation of Christian Dior Couture, which is the largest portion, as well as the acquisition of Remaurs, offset by the disposal of Stolacarem. After taking into account this 8% structural impact and a negative 1% currency impact, reported revenue was up 21 percent to reach €10,840,000,000 compared to €8,990,000,000 in the same period last year. For the Q3, specifically in Fashion and Other Goods, revenue was €3,900,000,000 up 13% on an organic basis versus the year ago Q3 with a negative 5% currency impact and a 19% positive structural impact. The drivers behind this performance include strong growth in both Asia and Europe and continued solid growth in the U.
S. Louis Vuitton, as I mentioned earlier, continues to benefit from its outstanding creative momentum. The iconic lines continue to perform well, and that performance is augmented by the exceptional reception to new products. In the quarter, Louis Vuitton also ventured into new territory with its connected watch, the Tambo Horizon, which is in wide demand. And the brand just recently opened or inaugurated its new Maison in the Place Vendome here in Paris.
I encourage you to visit this incredible location. For the first time, we can talk about Christian Yore Couture on this call as it was integrated as of July. The brand celebrated its 70th anniversary with an exhibition at the Musee des Arts Decoratif in Paris, which has had a tremendous success. If you're not being able to sit in person, I suspect you might have seen some of the widespread media attention it received. Highlights from the other brands include Senvie's continued solid growth trend.
The brand expanded in the U. S. With new stores in notably New York, San Francisco and Dallas. Laura Pianna and Celine Francisco and Dallas. Loro Piana and Celine continued to show solid progress as did Loivi, Kenzo and Baluti were also performing strongly.
Givenchy held its 1st fashion show under its new creative director, Claire Weitz Keller, which was well received. And Le Moura, a global lever in high quality luggage, which we began integrating in January, is putting in place a strong foundation for more sustainable and longer term growth. And Mike Jacobs' work continues on the positioning of its product lines and its restructuring. In the Puckins Cosmetics, this is now Slide 11, organic and reported revenue grew 14% to reach €4,100,000,000 from €3,600,000,000 in the 9 month period of last year. For the Q3, organic revenue grew 17% and after taking into account a negative 5% currency impact, reported revenue was up 12% over the year ago period and reached €1,400,000,000 Looking at Perfect Cosmetics, overall, this business saw growth across all regions, notably in Asia.
Again, Plathcon Christian Dior is performing well, owing to strong demand for the iconic J'adore and Sauvage Fragrances as well as the successful launch of MISTIUR Eau de Parfums. There was also an excellent performance in its makeup lines with Rouge Jour being a particular star. Guerlain undertook the international rollout of Mont Guerin perfume in the Q3, and it has been well received. Parfums Givenchy saw strong performance in its makeup lines, especially in lipstick. Benefit saw a nice performance from its newly launched concealer, Moi Ying.
And finally, the Fenty Beauty by Rihanna makeup line created by Rihanna in partnership with Kendall is off to an outstanding start. Please go and see it in Sephora where it's sold exclusively. Moving on to Watches and Jewelry. Organic revenue in the 1st 9 months grew by 13 percent and after taking into account a negative 1% currency impact reached €2,800,000,000 for a 12% increase over the year ago period. For the Q3, organic revenue for the Watch the Jewelry Business Group grew 14%.
And after taking into account a negative 5% currency impact, reached €951,000,000 or 9% more than the year ago period. Europe and Asia were strongly performing regions for this business group in the Q3, and there was an exciting period of activity across the brands. At Burberry, its emblematic lines, Serpenti, Diva and B01, continue their solid performance, while the launch of its new high jewelry line, Sesta, brings great excitement. Chaumet relaunched its emblematic jewelry line, Yance, with success, or even with a success. Fred added to its successful 8 Degrees 0 Bracelet Collection.
TAG Heuer celebrated more than 150 years of its history with an exhibition Heuer Globetrotter in 10 markets around the world. And to celebrate Ferrari's 70th anniversary, Hublot launched the Hublot Techframe Ferrari 78 Tourbillon Chronograph. Lastly in this business, Zenith launched its new DefyLab model, the world's most accurate mechanical watch, thanks to a groundbreaking oscillator. Watch lovers around the world are quite excited by this. Turning to the last business group.
Selective Retailing delivered organic revenue growth of 12% in the 9 month period After taking into account a positive 1% currency impact, reported revenue rose to €9,340,000,000 or a 13% rise compared to the prior year period. For the Q3, organic revenue grew 14% compared to the year ago period. And taking into account a negative 5% currency impact, reported revenue increased 9% to reach €3,060,000,000 To take a more in-depth look, starting with Sephora, as I mentioned earlier, its impressive performance continues with rapid growth in Asia and the Middle East in particular. Online sales remained strong and its pioneering digital technologies are increasingly integrated into its stores, making them true destinations. In Spain, Sephora rolled out 2 digitally enriched stores following the success of this concept in France.
In Boston, it opened its first Sephora studio, a smaller store concept for an urban location with a more curated selection of products and services. And again, Fenty, By Rihanna is, as I say, on fire in Sephora. Now looking at DFS, we are glad to see a confirmed recovery in Macau and Hong Kong, where we will soon, at the end of November, terminate our unprofitable airport concessions there. Finally, its key Galleries in Cambodia and Italy are developing nicely. We now reached the end of our prepared remarks.
So to summarize, the Q3 continued the solid performance we had seen since the end of last year with all business groups contributing to the growth trend. While we are starting to see some impacts from currency, from supply constraints and the comparison base. We remain cautious and careful in the uncertain global economic and political environment and note that we are up against much tougher comparisons in the 4th quarter. However, we remain clearly focused on increasing our leadership position in the global luxury goods market. We'll work to achieve this other ways through strategy of driving creativity and innovation to deliver high quality products and selectively expand our store base while closely managing costs.
Thank you. Jean Jacques and I will now take your questions. Laurent, could you open the line, please?
Yes, And we have the first question from Susanna Puig from Berenberg. Please go ahead.
Good afternoon, gentlemen. Many thanks for taking my questions. So first of all, a broader question on the trends among various nationalities. Despite the somewhat tougher comparables in Q3, you've seen an underlying acceleration in most of your businesses, particularly fashion leather goods. So could you please provide a bit more color on the trends behind it, especially maybe if possible some quantitative comments on the growth of various consumer clusters, especially the Chinese, please?
Secondly, more specifically on the wines and spirits, which was a bit weaker due to the supply constraints, which you mentioned before. I mean, is there any visibility, is there any kind of time line when we could expect that growth to normalize and perhaps if you're planning to implement any additional pricing actions? And just finally on the trends you're seeing in Europe, especially in the Watches and Jewelry division. There's been some, I would say, deceleration reported by some of your peers in hard luxury. So I was just wondering, are your brands are just gaining so much share?
Or have you seen any sequential deceleration of growth in Europe because of stronger euro? And any color would be very helpful. Thank you.
Okay. Thank you for your questions. So I'll start with the trends in various customer groups throughout the quarters for Fashion and Leather. What I can say is that we've seen a few changes, but not that many. By and large, the Chinese customer base has proven extremely robust throughout the quarter.
The growth was slightly lower for the global Chinese customer base when we can measure it. And it's mostly the case in Zhytom and to a lesser extent that we'll agree with. The growth was slightly lower, but still very strong double digits, so not really worth commenting on the differences. So as far as China is concerned, it was really a very strong quarter. Same thing with Americas.
We didn't see for our main brands, there are some exceptions, but by and large, while we're main brands, we didn't see any change in the growth with American customers in the 3rd quarters. As far as Europeans are concerned, it's mostly Vuitton that we can measure it. We still enjoy double digit growth in Q3 in our local customer base. So by and large, I would say the business we did in fashion leather with our main customers groups was as good as it's been since the beginning of the year. We haven't seen a lot of changes.
Your second question on visibility in cognac, particularly, I mean, in wine and spirit volumes and slowdown due to availability of products. We announced it quite a few times already, as we said, that we couldn't load particularly the U. S. Market the way we've been doing it in the beginning of the year. So the materialization of this was in Q3, and we've seen global cognac volumes being slightly down in Q3 compared to a very buoyant start of the year.
It's obviously connected with the availability of volumes. The question going forward is two things. One is that the type of growth we have had over the last 2 years, I would say, is not something that we can replicate forever. The more normalized growth in volumes for cognac is more something like 3% to 4%, exceptionally 5%, but nothing really more than that. And the second comment I would make is that we have had 2 tough years in terms of supply.
We had hail in 2016, and we had frost in 2017. So altogether, the what we put in our sellers at cognac was lower than what we anticipated. So all in all, this creates a little bit of constraints for the business for the quarters to come. I would say it's hard to quantify and to know exactly what will happen. But it's pretty sure that the type of growth we have had for a number of quarters will not be replicated in the future.
And finally, your question on Europe and watches and jewelry, I cannot really comment for other players. But as far as we are concerned, the growth in this business in Q4 in Q3, sorry, remained pretty solid in Europe with sort of double digit numbers. So we are pretty happy with the business, and we saw no signs of first line down.
Thank you very much.
So we have another question from Mr. Oliver Chen from Cowen. Please go ahead.
Hi, this is Courtney Wilson on for Oliver Chen. Thanks for taking our question. Just going back to the local U. S. Consumer, can you speak in a little more detail to which categories in the U.
S. Have been performing best or better than expected? And then also on Sephora, did you see strong trends both at your U. S. Stores and also on the digital platforms?
And any comments you can make on store traffic in Sephora's in the U. S? Thanks.
The comment I made on U. S. Customers was mainly related to Fashion and Leather and to a certain extent to the Wolverine business where we can really comment, where we can really analyze precisely our numbers. Roughly speaking, in the U. S, we had a little bit of a slowdown in growth in Q3.
Growth in Q3 was 3% compared to 9% growth in H1. The bulk of the drop comes from the Wine and Spirits division, I would say 70%, 75% of the drop in the growth rate comes from the Wine and Spirits division for reasons we alluded to before and notably on the cognac business. As far as the Fashion Leather business was concerned, growth was more or less in line, particularly in Juveton, with what it was quarters. The watches and jewelry business was better, particularly at Bvlgari. Perfume and cosmetic business was much better, much stronger in Q3.
And as far as Sephora is concerned, we've seen numbers being slightly lower, not a big deal, but the traffic is slowing it down a bit, conversion as well and like for like is slowing down a bit. Nothing dramatic, but we saw slightly lower numbers in Q3 than in the rest of the year, which was already quite high. So by category, these are the main comments to be made. Just saying one second on C4R. If you take North America, the comparable growth was a bit lower than what it was in the preceding quarters, but was still mid- to high single digit numbers.
So we are still pleased with the business we do in North America with Sephora.
Thank you. Best regards.
So we have another question from John Guy from MainFirst. Please go ahead.
Yes, good afternoon. Thanks, Jean Jacques and Chris for taking my questions. The first question with regards to Louis Vuitton organic growth of around 13% in the quarter. Could you give us an indication around the volume and value contributions? I'm assuming that the sales contribution from Space was probably low single digit at best given what we're seeing at the store count level.
That's my first question. My second question is with regards to Bvlgari jewelry. You've clearly singled out the jewelry side. Could you maybe give us an indication as to how Bvlgari's watches are performing and what the splits are now in terms of sales by category within Bvlgari? And on Christian Dior Couture and the perimeter impact that we've seen in the Q3 with Remova.
Is it fair to say that Christian Dior was growing organically well above 20% in the 3rd quarter and removar maybe around the mid teens level. Is that a fair assumption to make during the year quarter?
Hello, John. Thank you for asking the questions. I'll start with the last one. I don't know how you get to 20%. Actually, it's double digit, but it's not as high as 20%.
I want to be more precise than that because I don't want to give you the number, but it's lower than 20%. And as far as Removise is concerned, the sellout numbers that we try to monitor and we do it better and better are pretty good. But the sell in numbers are not that great because we have to manage a little bit of excess of inventories as we announced before. So there will be a few quarters in which sell in numbers, I. E.
The numbers we account in our books will be lower than the sellout numbers, nothing dramatic given the relative size of Remova, but don't expect fantastic positive numbers for Remova before a few quarters. On LV, your question about volume and price on the organic growth, As in the preceding quarters, the if not all, but a big, big chunk of the growth was made of mix and volume numbers. The price increases were negligible. So the bulk of it was mix and volumes. And on Bvlgari, so a few indications as to the relative performance of the various categories.
Obviously, the main category, jewelry, was a very strong double digit number with both high jewelry and normal jewelry being more or less the same type of growth. So there is no particular contribution from high jewelry, which could prove to be volatile in the quarters to come. Roaches was single digit. Perfume is quite flat and accessories are also very strong double digit. So we really have a business that polarizes on jewelry and accessories, and watches are being are under pressure, but nevertheless, positive.
That's great. Thanks, Jean Jacques. Maybe just one final housekeeping question just on Hong Kong Airport Concessions. The contract terminations, are they at the beginning of November or at the end of November of this year?
End of November. End of November. We should have missed. I mean, there are 3 concessions. Technically, it's a little bit more complex because there are 3 concessions, not all of them are ending exactly at the same time, but it will start a little bit before end of November and end a little bit in December.
On average, it's end of November.
Two questions. First of all, regarding Asia. I think you mentioned it was up 21% for the group. I assume that it was probably the same for Fashion and Leather. And I think that probably Mainland China was up between 30% 40%.
So maybe could you comment about Mainland China and why the growth is so strong in the Mainland country? 2nd question regarding cognac and champagne. I think the volumes in Q3 were negative in both cognac and champagne, yet you recorded plus 3% and plus 5% organic growth. So maybe could you explain the gap between volumes and the organic growth? And finally, could you update us on your hedging rate for the euro on the yen?
And also any decision that you and the guys could take on pricing for Louis Vuitton either before the end of the year or in 2018? Thank you.
Thank you, Antoine, for your three questions. So your first question on Asia versus China and you're not so far, I mean, your estimates are not so far from reality. So as you suggested, China is growing faster than Asia. It's nothing new. I mean, it's
been going on for
quite a while. I think there are several reasons for that. But the main one being that with the strength in the dollar and therefore in the renminbi and the Hong Kong dollar, part of the business is an increasing part of the business is done at home or is done domestically with the interest of shopping abroad diminishing compared to what it was 18 months ago. So it's something that we've seen for some time. If you look at Vuitton customer base, for instance, which is growing fast, it's growing faster in Mainland China than it is outside China, which suggests that an increasing part of the business is done there.
I don't know whether the Daigou business is drying up. It's impossible to measure. But anyway, the non the mainland business, domestic business is growing faster than the rest of the business and therefore is growing faster than the rest of Asia. It's a little bit the same in Wine and Spirits. The business is growing faster.
You've seen that some markets like Taiwan or Vietnam have been under some pressure for quite some time now, whereas China is booming. So that explains why altogether the Chinese business and the mainland Chinese business is more robust than the rest of Asia, which is doing well anyway. I mean even if you take out China, I mean the rest of the Asian business is very positive. On your comment on cognac and champagne volumes being negative and overall growth in Q3 being positive. 1st of all, on cognac, we had a huge mix impact.
As you know, the volume negative volume impact was mostly MBS. And at the same time, we enjoyed a very good business in the SOP and XL, particularly in China and in Travel Retail. So we ended up with a very positive mix impact, a little bit of price impact as well, although way at a much lower amount due to the fact that some categories or some products are being limited, availability is limited. So obviously, the promotion level under such circumstances becomes much lower than it would normally be. And we assimilate we analyze reduction in promotion as the equivalent of a price increase.
As far as champagne is concerned, it's way less dramatic. There was a little bit of price and a little bit of meat as well. The drop in volumes we had was not registered at Krug and Don Berrien. So we had a factor growth in the most valuable categories. So that explains why we had a quite sizable mix impact in champagne as well.
And finally, your question on hedging. So the hedging policy, obviously, has been put in place basically last year. So we have hedging rates around 111,000,000 and 117, 118 for the yen, 111 for the dollar and 118 for the yen, about 60% of next year's budget. Obviously, current year is fully hedged. So that will help us go through difficult times coming with currencies.
As far as pricing, as you know, are concerned, I won't make any comment on this apart from saying that end of the year is usually not the right time to take any decisions on pricing.
Okay. So maybe just a follow-up. So regarding Louis Vuitton, the Chinese cluster, how much is it of your total sales? And how is it now split between local versus tourist?
Well, the split between local and tourist didn't change much. We're still a little bit above 60 in tourists and a little bit less 40 in locals. I mean, it changes very, very slowly. And it's about on total, the Chinese client base is around 30% of total business.
Thank you very much. So we have another question from Mario Oteri from Bernstein. Please go ahead, sir. Good afternoon, Jean Jacques and good afternoon, Chris.
The first question is about cognac. It seems that these constraints in supply will continue for a couple of quarters. Can you give us an idea for Q4 and next year what we should expect on the impact on these constraint on supply? And the second thing is linked to this one, considering this constraint on supply, are you thinking that price increases for the SOP, but also the other quality of cognac? Another question on price about Louis Vuitton is on the 1st 3 quarters of this year, what was the average price increase that we had at Louis Vuitton?
Thank you, Mario. On cognac, I would say that for the foreseeable future, I. E, probably the next 3 to 4 quarters, in my view, volumes will not increase very, very significantly. We'll have a slight improvement in volumes for slight increase in volumes for the SOP and XO, but a small decrease as well for BS. So in all, we should have quite flat or slightly growing volumes for the end of the year and the 1st quarters of next year.
Your question about price increases in cognac, well, as I mentioned briefly, the bottle incentives that we normally give to clients disappears when a business is under such constraints. So it generates average price being higher. So that's a net price increase. On top of that, we will probably be able to pass limited price increases to our customers. But as you know, we do it end of Q1, early Q2.
So it's way too early to discuss. But obviously, we'll think about it, and that will be an element of our policy for next year. As far as price impact of LV in the 1st 9 months of the year, I mentioned the rough amounts before. I mean, as I said, the bulk of the growth, if not all, was mix and volume based, not price based. So the price increase average price increase impact on the business of Itau in the 1st 9 months of the year was negligible.
So we have another question from Luca Solca from Exane PNP Paribas. Please go ahead, sir.
Thank you very much. Good afternoon. It does seem indeed that Vuitton has been upgrading its offer over the years. Is it fair to say that the price mix improvement has produced the lion's share of the double digits growth that we're seeing here, while volume has contributed to a lower extent? Can you give us a sense of how the two drivers have been contributing to the overall growth that Vuitton has been producing?
Another question on Vuitton, but this time on go to market. You said in the past that at one point you'd be able to integrate digital in the Vuitton stores and the ability for consumers to purchase products that are not physically in the store. I wonder how you're proceeding on that in the broader context of the significant developments you have in digital. And last but not least, you mentioned slightly lower performance of safari in the U. S.
Even if it continues to be strong with like for like and traffic and conversion slightly fading. Do you see that coming from slower demand overall from competitive pressures so that other players are gaining market share on Sephora? Thank you very much.
Thank you, Luca. Maybe I'll start with the last one because you know how much I love the questions of making a quarter trend, and that's always extremely difficult. So I will I can't answer. Honestly, I don't know. When I look at our market share, our market share is increasing and has been increasing steadily over the past 15 years and now it's still increasing.
Although it's very difficult to measure market shares anywhere. Particularly in the U. S, you don't count exclusive brands, you don't count Sephora brands. So it's quite complicated.
But as
far as we understand, our market share is increasing. So the market becomes much more diverse and complex to analyze as it used to be. There are a lot of indie brands, which have their own distribution channel on the web. So it's quite complicated. Our feeling is that, well, this business has been growing at very high speed over the last, I would say, 6 or 7 years, particularly triggered by innovation in makeup, which has been very dynamic in the U.
S. Indeed. Maybe there is a little bit of this was a quarter with a little bit less of innovation. I don't really know. It's way too early to say.
But it's certainly an innovation driven market. We are not driving innovation. We are distributing innovation. And therefore, we are subject we're only as good as the brands we distribute. So we try to keep and pick the best brands.
And I think we've been pretty successful in that. But you're also talking about pretty small changes from one quarter to another. And as I said, making a trend with a quarter, which is hopefully difficult. So I would really advocate for getting the benefit of a few quarters, if not years, in retrospect in order to be able to really analyze what's going on in the U. S.
Then on your question of impact of mix volume on Vuitton. Mix, I will not quantify, obviously, unless you tell me that our competition does numbers. And as you are unlikely to see this is unlikely to be the case, I will not quantify, but mix can move the needle up obviously, but not in a big way. I mean, you don't generate 5% or 6% growth on a yearly basis with mix. I mean, it's impossible in a particularly in the large business like Vuitton.
So a big chunk of the growth comes from volumes. And mix takes a little bit of time to have an impact. And bear in mind that the product which is introduced in a given year is mix impact, if it is more expensive, is mix impact in year 1 and it's volume impact, the change is volume impact in year 2. So it's not necessarily counted as mix in year 2, although the bulk of the development took place in year 2. So it's quite complicated to measure, but the bulk of the impact is definitely volume.
And finally, go to market and digital integration at Hutto, while it's progressing well, we are not allowing full omnichannel features in all our stores at Vuitton, but in a big chunk of them. So it's progressing as expected. And within a few months, if not a year, but probably a few months or a few quarters, Vuitton should be in a position to really define a full omnichannel proposition to its client in all its stores, which is not totally the case today.
Thank you very much, Jean Jacques. If I may just slightly rephrase my question as far as the mix effect on Vuitton. When you look at price brackets, do you see that over time, the amount of sales that you get, let's say, from €500,000 to €1000,000 or from €1000,000,000 to €2000,000,000 and so on, has been shifting upwards in a meaningful way?
Yes and no. Yes, I mean, what we do above $1,000 is increasing. If you look just at handbags, for instance, that's what that's for sure. On average, the price of handbags is average price of handbags is going up. But if you look at the global mix and particularly if you include accessories and small leather goods, it's not so much the case because the business of accessories and the small leather goods has grown quite fast over the past few years as well.
And as you know, it's very important for us because not only it's good margins, but it's also a very important way to define enterprise products to our customers. So all in all, I mean, average prices are going up slightly, but not as much as they do in handbags, for instance.
Understood. Thank you very much indeed.
So we have another question from Thomas Chauvet from Citi. Please go ahead, sir.
Good afternoon, Chris and Jean Jacques. I have three questions, please. The first one on Fashion and Leather. At the end of H1, your inventories were pretty light. They were up 8% on year on year on 17% reported sales growth.
Now with the continued momentum at Vuitton and Fendi in the Q3, do you feel you have enough inventories to meet potentially very strong Christmas demand? Have you taken any measures in the last few weeks to step up production for the festive period? Secondly, coming back to Sephora, could you give us, as you, I think, did in the past, some granularity on the LFL for France, U. S. And China?
If I understand correctly, in the U. S, online growth is accelerating, while FICC stores growth is slowing down sharply. Do you think it's mainly cannibalization of sales? And are you seeing the same phenomenon in France and China? And finally, we heard yesterday that the U.
S. Private equity firm may have taken a 50% stake in Supreme, the exciting streetwear brand with whom Vuitton collaborated at the beginning of the summer. I believe it's a brand that ticks many boxes in what you like in a brand. So given what we're seeing in terms of consolidation in the industry, the acquisitions of Remov and Yore Couture, could you remind us where the scope of the Fashion Leather division ends and what you're looking for when you complement this division with additional brand, be it geographic categories? Thank you.
Okay. Your first question on fashion leather inventory. So are we taking measures to ensure availability of products for the end of the year? Particularly at Vuitton, the answer is yes. We have voluntarily limited the production and therefore the business in some bestsellers.
The objective being 2 fold: 1, to say to allow production time for to build their inventories to meet year end peak season. And secondly, to avoid overexposition of some products that would become too widely distributed and that which could be long term an issue for the brand. So we try to keep 2 birds with one stone, not only with the visibility of some products, but at the same time, we give us some a little bit of room to maneuver for building of inventories for the end of the year on any type of product. Sephora, you totally remember some like for like numbers by geographies, but not from me because I never give them. So I get global numbers.
I can give them to you. It was 9% like for like in constant currency basis on a worldwide basis for H1, it's 7% for Q3. As I said, I mean, a little bit of a little bit lower in the U. S, a slight improvement in Europe and Asia remaining very, very, very strong at a very strong double digit level. I wouldn't talk about cannibalization between online and offline.
I don't think there is such a thing. The market is well enough so that we don't have to worry too much about cannibalizing ourselves in between online and offline. Finally, Supreme and your question, which is exemplified by the Supreme acquisition of 50% of it being acquired. I mean, when it comes to like for like to acquisition strategy in fractional level, the only thing I can say is that it's purely opportunistic. I mean, we have no particularly predefined criteria.
We discussed that many times. But when the brand fits our we understand it well, we have some ideas about what we could do with it in order to improve it. And if you don't know what to do to improve the brand, there is no way to be making an acquisition because if you do not a better job than the previous owners or if your own setup doesn't allow a better management of the brand, it's not worth doing the acquisition. So it's purely opportunistic based on a very thorough analysis of what we think we can bring to the brand in order to get a higher value from it. So I cannot answer and neither the theory nor the example of Supreme could really help in defining what we are opportunistic.
And when we see a brand that makes sense for us, we contemplate it. But otherwise, we don't.
Thank you. So no regret on Supreme this time?
It's not a question of regret. I mean, we it's a question of strategy. It's a great brand. Otherwise, we wouldn't have collaborated with it. I don't think it is something that we would have done as well as well enough to justify the price that it fetched.
Hedged.
So we have another question from Elena Mariani from Morgan Stanley. Please go ahead.
Hi, good afternoon and thanks for taking my questions. The first one is a broad one. Overall, over the past year, you sounded generally prudent and cautious on the second half of the year. So is it fair to say that the numbers you've just reported have exceeded your earlier expectations? And if so, was it just the Chinese cluster that proved to be more resilient than expected?
I was just trying to think about the Q4 and see whether there could be deceleration coming from some of the divisions and perhaps knowing where you were positively surprised could help me. The second question on Hong Kong and Macau. You've talked about Mainland China, you've talked about Asia. Could you comment a little bit about what you're seeing in Hong Kong and Macau? And whether what is happening there in your view is just a bit of a normalization after a few years of decline?
Or perhaps there is a proper pickup in traffic and spending in your view that will continue over the medium term? And finally, I appreciate it might be very early, but could you give us a first feedback on the launch of Voncaprocera? How should we think about the evolution of this platform going forward? And what's your ultimate ambition there? Thank you.
Thank you,
So on Zendesk, I mean, we don't intend to comment quarter after quarter. I mean, it's a long term development. We are lagging behind the main players in this particular business. It will take us a while to bridge the gap, and I don't want to put undue pressure on the management of this business. And those people are doing a very good job by setting publicly objectives that they would have to fulfill.
So it's developing well. We have a platform that works well. We have an unparalleled lineup of brands. We think we have strong competitive advantage, but it's not a business that you develop in 10 minutes. So it will take a few years.
It will be loss making during a few years. It will take a few years, but we are very confident that the strength of the management team that we have there will enable us to make a success. And each time you'll ask me the question, I will basically say the same thing. So on your first question, which I wish I had the answer actually, but let me put it into perspective a little bit. It's a very important one, obviously.
And your question is basically whether we were overcautious for H2 and particularly Q3 given what happened. Let me remind you what we said. We said 3 things basically. We said 1, currency will reverse 2, the comparison base will be more challenging and 3, some capacity constraints will arise in the course of the second half of the year. Let's look at them 1 by 1 and try to put them into perspective for Q4.
On currencies, I don't think I have to elaborate too much. I mean, unfortunately, we were right actually, and the currencies didn't stay as strong as they were. Just to remind you that Q4 last year was the best level on average for the dollar. It was $108,000,000 And if I'm not mistaken, it was $117,000,000 for the yen. So we have a huge gap to bring this year if the currencies stay where they are.
So that's a fairly significant challenge for us, both from the top line and bottom line despite the hiking strategy. On a comparison base, if you look at the difference between Q3 and Q4, last year, Q3 was 6 percent, Q4 organically and Q4 was late. So on the face of it, the difference is not tremendous. But when you look at it on the country by country or business by business, I mean, for some businesses or some countries, it will be a very significant challenge. It is the case for Fashion and Leather.
There was a 4 points improvement in between Q3 and Q4 last year. It's also a challenge for areas like Hong Kong and Macau that you mentioned. It's your second question. It's the Chinese customer base improved very significantly in Q4, not so much in Q3. Q3 numbers were already better, but we're comparing with a very soft Q3 in 2015.
You probably remember the drop in the stock market and the drop in the yuan and all the things that happened in 2015. So we had a very weak 2015 business in Asia, and therefore, the improvement in Q3 last year was largely based on that. So I would say it's I would answer on your question about where we're pleased with positively surprised with our Q3 numbers. A little bit, but not so much because when you analyze carefully the Q3 2016 number, they were better. The part of it was really negative one offs that affected 2015 Q3.
So the real tough comparison base starts in September in Q4, where we have a much tougher comparison base. And my third point is on capacity constraints. Some of it already materialized, particularly in the U. S. I discussed a bit the production and availability of product strategy at Vuitton.
So I will not repeat what I said to answering Thomas' question before, but we may expect some a few constraints there. So Q3 was probably maybe a bit better, but only a fraction better than what we anticipated, but we still feel that the challenges that we identified at the beginning of the year and that both Mr. Arnaud and myself mentioned at the full year conference last year, I mean, earlier this year are still there and will be playing against us in Q4. So we reiterate our caution for Q4. On Hong Kong and Macau, obviously, the business is stronger this year, mostly based particularly for Hong Kong on a very, very weak comparison base.
The market had been going down in 2014, 2015 2016, is flattening out and rebounding double digits, but what does it mean? So for us, Hong Kong is normalizing, but not far from having recovered the good levels of 2013 2014. So it's really the beginning. And Macau is a bit better, but I would make the same answer.
Thank you. This was really helpful.
Thank you.
So we have another question from Fred Spiers from UBS. Please go ahead.
Thanks. Good afternoon, Jean Jacques and Chris. One question for me, please, slightly longer term. Just interested to get your thoughts on the LV margin. We've seen nice development over the last couple of years, obviously.
How do you feel about the level that you've reached now? Do you see scope for the margin to progress much further from here? Thank you. Well, they will not double one day. I mean, that's the issue with the margins.
They are much higher than any other company in this business. And it's already quite complex to analyze how they could grow much further. On top of that, fueling the growth of such a large and premium business requires a lot of investments. Another way to say it is that we are extremely pleased with LV margins. They are unparalleled in the industry.
The main objective is certainly not to increase them, but more to keep them where they are, which is sufficient to create a lot of value for the shareholders.
So we have another question from Mr. Rogerio Fujimori from RBC. Please go ahead.
Hi, good afternoon, everyone. Jean Jacques, is there anything you can share with us on your initial take on Golden Week Trading? And I know you don't like to talk about monthly trends, but was performance in September similar to Q3? I just wanted to follow-up on your answer to Elena, the September comparative is much tougher than July August. So it would be useful to help us think about Q4 and also because September is a very directional month for Luxury, I presume.
Thank you.
Thank you, Roger. Now on the Golden Week, I don't know. I mean, it was last week. I mean, we're still going on. I don't remember exactly.
So it's way too early to say. I know that the wholesale businesses, particularly when in Spirit, anticipated a good Golden Week and a good minute on festival and they loaded the trade accordingly, but that's not sell out. That's selling in anticipation of. So it's different. So I can't answer.
Your question on September, September was in line with the rest of the quarter.
So we have another question from Melanie Fluke from JPMorgan. Please go ahead, madame.
Yes, good afternoon. I have four questions, if I may. The first one is regarding ForEx, sorry. Could you share with us what your ForEx gains were in H2 'sixteen and H1 'seventeen? In other words, what we will have to comp this semester and next semester?
The second question is on whether you could help me understand a bit better what happened in Perfume and Cosmetics, spectacular performance at plus 17% this quarter. The one prior was already well ahead of our expectations, so I dare asking the question on 1 quarter acceleration. The third question is on Wine and Spirits and on cognac in particular, the landing we've seen in Q3 actually is not as bad on organic as we could have said given the volume contraction as mentioned by Antoine earlier. And you seem to be guiding for rather soft landing still in Q4 and into beginning of next year. I was wondering when do the harvest start having an impact to be your when will you be careful on your use of reserves and whether we could have another downfall in volumes in other words?
And my last question, sorry, is whether given the very strong performance you're referring to in local demand in a number of markets that are actually the European local, the American local, the Chinese local, I was wondering whether you could share with us what the percentage of tourists is at Louis Vuitton and how this has changed versus last year or 2 years ago? Thank you.
Thank you, Melanie. Well, the first question, I never answered it. So you you don't really expect me to give you the ForEx gains. I assume you're talking about hedging gains. If it is ForEx impact, you have them in the documents.
But hedging gains, we never disclose them, the reason being that they in isolation, they are meaningless. I mean, they're always a compensating factor for either a good or a bad situation from prime currency. So that's why we don't disclose that. The second question on perfume cosmetic, 17%. It comes from 2 things.
One is a very strong business from, I would say, the main brands, not only the main brand because it's usually Dior leading the pack. It's actually Dior, obviously, but also Givenchy, Guerlain and Benefit. So we had a very good quarter with the forming brands in this business. And the second impact was also the sell in factor on Fenty Beauty. The sell in differently from the sell out that takes place on a much shorter period of time and most of it was in Q3.
We had some costs associated to that in Q2, as you will probably remember in my comments on cutting cosmetic margins in H1. But the benefit of it and so the revenue side of it was in Q3, and it was quite concentrated. So it helped a bit the numbers for the division. You will certainly note as well that the elimination number within the total sales is unusually high. This is the reason for this high number.
We also say that as far as we know and it's only beginning, but the sellout numbers for Fenty Beauty are extremely strong and very encouraging. So this strong sell in will convert into strong sell out, but at a different period in time, obviously. On your question on cognac and the landing being not as bad, it's not as bad mainly due to the fact that we had a very positive mix impact, which we cannot replicate each and every quarter. And the business in China is extremely strong. There are a few positive one offs in the business in China that will not repeat that will not be repeated in the coming quarters.
So you cannot expect, 1, the business in China being as strong and therefore, 2, the mix impact being as strong as it was in Q3. So I'm not advocating for crash landing scenario, but the Q3 numbers are probably for cognac are probably a bit high compared to what we'll do in the next quarter. As far as the harvest impact is concerned, I would say it starts now. Although the Eau de Vie that we are lacking will only be in cognac in 2 or 3 years' time, we have to smooth EBITDA impact over a number of years and will not we shall not deplete our inventories as much as we can knowing that within 2 to 3 years, we'll have a gap coming from the poor harvest of 2016 2017. So we try to smooth this impact over a number of years.
This is why this poor harvest will have an impact starting today and hence my question on the and speaking pretty cautious on the various comments for this business this year and next year. And the local market, sorry, and the share of for Vuitton in between tourists, and it's still about sixty-forty, so it doesn't change much.
I meant that at total Vuitton level, not just China, has this changed? And are you talking about double digit growth or
It's double digit growth for both, and it's 60% locals and 40% tourists.
The 60% is for the Chinese or for total? No, no,
no, no. 60 percent is for the total business. I understood your question as being a question on total business. Yes, absolutely.
Thank you.
So the total business is 60, 40.
Thank you very much.
So we have another question from Hariu Bensala from Alfa Value. Please go ahead. Mr. Arieu Ben Salai, your microphone is open. You can ask your question.
Okay. Maybe next question.
So we have no other questions, sir.
Okay. So thank you very much for attending the call. And we shall talk to each other again in end of January to discuss full year performance, not only on revenues, but also on bottom line and other aspects of the business. Thank you so much.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.