Ladies and gentlemen, welcome to the LVMH 2020 first quarter 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 on my laptop is Jean-Jacques Guiony, our CFO. Thanks for joining us. We have some remarks to make about LVMH's revenue for the first quarter of 2020. As in previous periods, these revenue figures are reported in accordance with the IFRS. After these remarks, Jean-Jacques and I will be happy to take your questions. As a reminder, certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release and on slide two of our presentation.
Before we begin, we'd like to acknowledge the extraordinary circumstances we have all been living in for the past several weeks, and express our deepest sympathy to anyone or their loved ones or colleagues who have been affected by COVID-19. It is our hope that you are all feeling healthy and staying safe during these unprecedented and uncertain times. Turning now to our announcement, hopefully you've all had a chance to read our release, which was issued just a short while ago in both French and English. As always, the release is available on LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's call. To start on slide three, the performance in the first quarter demonstrated the resilience of our brand in the context of an economic environment significantly disrupted by the global health crisis, including a major impact on travel.
While all regions were impacted by COVID-19, we've started to see in-store traffic and sales improving in China. Our iconic Maisons, Louis Vuitton and Christian Dior, as well as Moët Hennessy, showed good resilience. The acceleration we are seeing in e-commerce and online sales has served to partially offset the impact of store closures, initially in China and now in Europe and the U.S. At the same time, we are de-stocking at retailers during this quarter in wines and spirits, perfumes and cosmetics, and watches and jewelry segments. Our teams across the board are focused on taking steps to adapt the businesses to address the current challenges created by the crisis. As you've seen, LVMH has launched several initiatives to help in the fight against COVID-19, all while remaining focused on protecting employees and customers.
Certain of our perfumes and cosmetics and spirits production sites have retooled their lines to produce hand sanitizer gel for hospitals. We have secured orders for several million surgical masks, as well as respiratory equipment for French health authorities. A number of our Maisons also have stepped up to help, including producing gowns for healthcare workers and non-medical masks to help manage the spread of the virus, donating products, and supplying essential material to local hospitals in their communities. Looking at the overall numbers for the first quarter, total revenue is down 15% on a reported basis to EUR 10.6 billion from EUR 12.5 billion in the year-ago period. This reflects a 17% decrease in organic revenue, along with a 1% positive currency effect and a 1% positive structural impact related to the Belmond acquisition, which we completed last April.
In terms of how the revenue changed for each region relative to last year's first quarter, organic revenue is down 8% in the U.S., including Hawaii, 10% in both Europe and Japan, and the rest of Asia saw a decrease of 32%. This, in part, reflects the spread of COVID-19, which started with Asia, where stores closed first and where there was the most impact, but also reopened first, before moving to Europe and the U.S., where most stores closed in mid-March. For the quarter, we saw champagne volumes decrease 6%. As I say every year, this is slide eight. Let's see. I think I missed a slide here. I might have missed a slide here, which is not coming up on my computer. One minute, let me see if I can fix this. Working from home has its drawbacks. Let me just see if I can fix this.
Just one minute.
Chris, which slide are you missing? Number seven?
Yeah, I'm looking. Seven. I don't seem to have any slide seven.
I will comment on slide seven. Turning now to revenue by business group. We start with wine and spirit, and for this group, organic revenue was down 14% for the quarter and 13% on a reported basis, reflecting a 1% positive currency effect, bringing total revenue to EUR 1.17 billion. By category, champagne and wine's organic revenue was down 3% and including a + 1% currency impact, reached EUR 448 million in the first quarter of this year, down 2% compared to the year-ago period. Revenues for cognac and spirit was EUR 727 million, which represented a 20% organic decrease and a + 3% currency impact, or 18% below the EUR 891 million in Q1 2019.
Thank you, Jean.
Chris, you take over from there.
I've got number eight. For the analysis, wines and spirits, again, just going through. For the quarter, we saw champagne volumes decrease 6%. As I say, every year, this is the smallest quarter of the year for this business and cannot be extrapolated. We saw the positive effects of our pricing strategy and resilience in the important U.S. market, thanks to pre-lockdown orders. In Europe, we saw an impact in March resulting from the virus, and sparkling wines had a good momentum, driven by Maison Chandon in Argentina, as did our recently acquired Rosé wine. For cognac and spirits, Hennessy volumes were down 13%, essentially due to the decrease in VSOP and XO sales. That's essentially in Asia. This segment benefited from pre-lockdown orders in the U.S., where there was continued growth during the quarter.
Demand in China was impacted by both COVID-19 and the timing of the Chinese New Year. With respect to Glenmorangie and Belvedere, we saw volume growth during the quarter. Looking now at fashion and leather goods, this business group was down 10% on an organic basis. After a 1% positive currency effect, reported revenue was EUR 4.64 billion, down 9% compared to last year's first quarter. To give you some highlights on fashion and leather goods, this is slide 10 now. Overall, we were pleased with the performance of our major brands, especially in the light of the store and production site closures in key regions. Louis Vuitton and Christian Dior Couture continued their creative momentum despite stores being closed in Europe and the U.S. beginning in March, as well as limited international travel.
There was an acceleration in online sales during the period. We are starting to see early signs of recovery in mainland China, in Taiwan, and Korea after the closures earlier in the quarter. Our other brands are working diligently on adapting to the current environment. Fashion shows have been canceled or postponed, of course, as our brands continue to monitor the evolving public health situation in the different markets. Turning to perfume cosmetics, slide 11. On our perfume cosmetics business group, revenue was down 19% on an organic basis and 18% on a reported basis. Revenue was EUR 1.38 billion in the quarter compared to EUR 1.69 billion in the year-ago period. Here, too, acceleration in e-commerce helped to mitigate the impact of store closures, especially for the major brands. Skincare continues to be more resilient, while de-stocking by retailers in Asia impacted sell-ins.
During the quarter, Parfums Christian Dior introduced new Eau de Toilette Dior Homme, skincare Capture Totale, and Miss Dior Rose N'Roses perfume. Guerlain performed well in Asia with strong online growth in China and continued success of its skincare line, Abeille Royale. At Parfums Givenchy, Le Rouge lipstick and Prisme Libre line continued to make progress, Acqua di Parma and Kevyn Aucoin both demonstrated good performance. Turning to our watches and jewelry business on slide 13, organic revenue decreased 26% in the period. Taking into account a + 2% currency effect, reported revenue for this group was EUR 792 million compared to the EUR 1 billion in the first quarter last year. I'm missing the next slides. In fact, if you could just do the next slide for me, Jean-Jacques, please.
Which one? Sorry.
Sorry, slide 14.
14. On watches and jewelry. The comments we wanted to make is Bulgari was strongly impacted by travel restrictions and its store closures in Asia. During the quarter, Chaumet was able to proceed with the completion of the renovation of the Place Vendôme store in Paris. On the watch front, TAG Heuer had a strong impact from the launch of the third-generation luxury connected watch, and both TAG Heuer and Hublot had a good start to the year, followed by the de-stocking we started to see in most markets in the quarter. In January, we successfully launched the inaugural edition of LVMH Watch Week at Bulgari Resort, Dubai, at which the group's watch brand showcased their creativity and ability to continually push the limits of innovation.
Okay, thanks. Looking at the selective retailing group, this is slide 15. Organic revenue was down 26%. We add the 1% positive currency impact, this brings us to reported revenue of EUR 2.6 billion for the quarter, compared to EUR 3.5 billion in the year-ago period. To give you some additional color on these numbers, Sephora was able to deliver market share gains thanks to its differentiated online capabilities. It saw rapid progress in its online sales during the quarter. Since mid-March, all of its stores have been closed in Europe and the U.S. until further notice. On the DFS front, there was a very strong decline in revenue due to the significant decrease in travel that I've mentioned. The brand is working to improve its cost structure and reduce its selling expenses.
Overall, this is now the slide 17, the group demonstrated good resilience to the current environment, thanks in particular to our major brands, and we feel well-positioned to gain market share. That said, during the quarter, as I mentioned, we started to see the impact of destocking by retailers in the wines and spirits, perfumes and cosmetics, and watches and jewelry businesses. While it is too early to give any estimates, we expect that the closure of production sites and stores in several important countries will affect the group's revenue and results as we move forward through this unprecedented crisis. Against this backdrop, we will remain focused on our long-term strategy by continuing to develop innovative and high-quality products, being more selective about investments, notably in our store network expansion, looking at cost management opportunities, and maintaining our agility.
In doing so, we will continue to pursue our mission to reinforce our world leadership position in luxury goods. As we mentioned in our press release earlier, after an LVMH board meeting yesterday, a proposal of a 30% reduction in the dividend announced on January 28th will be submitted for shareholders' approval at the June 30th AGM. The total dividend will therefore be EUR 4.80 per share, meaning that after the interim dividend, the balance of EUR 2.60 per share will be paid on July 9th. As regards to executive directors' remuneration and directors' attendance fees were equally announced. Thank you. Now we will take your questions. Any questions you may have, Tortilla, could you please open the line?
Yes, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad. We have one first question from Mrs. Aurélie Husson-Dumoutier from Kepler Cheuvreux. Madame.
Thank you very much. Good afternoon. I have three questions, please. The first one is, could you give us the exit rate of Q1 growth in China, and can you share some information about the trend you are currently seeing in reopened stores? You mentioned early signs of recovery. Did you experiment a revenge buying effect in some of your stores like some of your competitors? My second question is, considering that tourism flows shall be subdued in 2020, could you remind us how much local clientele represent in % of sales in Europe, U.S., Japan, and Korea? Finally, could you detail the measure that has been taken for DFS, and could they prevent DFS to be loss-making in 2020? Thank you very much.
Thank you, Aurélie. What is exit rate?
I mean the rate that you have seen, well, in the last week of March, for example.
Okay. Well, no matter what it means, I will not answer anyway. What I can tell you is that obviously, as far as March is concerned, with the progressive lockdown of most of our regions, and despite the progressive reopening in China, the business in March, on average, is worse than the rest of the quarter. I don't think I'm saying anything very surprising here.
No, I'm sorry. I was mentioning China. I was asking for the exit rate in China. Sorry if I wasn't clear.
Okay. As far as China is concerned, well, it's a complicated question because we are mixing wholesale and retail business, and only on the retail businesses we have some reasonably precise figure on a week-by-week basis. As far as what we've seen in March, we've seen from more or less the mid of the month onwards, a significant improvement in the situation there with the progressive reopening of the stores and the numbers turned for most of the brands, not necessarily all of them, but for most of the brands, and particularly the largest brand, Louis Vuitton and Sephora, the numbers became positive in the second half of March and have been gathering speed in April. In April, in the large brands, we've seen very high growth rates in mainland China, obviously, but we've seen very substantial growth rates, sometimes in excess of 50%.
It really shows the appetite of Chinese people after two months of lockdown to come back to stores and come back to their previous pattern of consumption. Obviously, this is only mainland China. As far as tourist flows are concerned, and the share of tourists in the various geographies, I don't think it is a number that I have ever given. What I can tell you is that it's quite substantial in Europe, for the main brands. I'm obviously talking about the main retail brands in fashion. It's above 50%. It's negligible in Japan and in the U.S. It's 0% in China and in the traditional near-shore destination of mainland China, such as Macau and Hong Kong, and to a lesser extent, Korea, it's a very high percentage. Finally, a question on DFS. Obviously, we are taking very tough measures to reduce the cost base.
What I mean by cost is all costs. I mean, overheads, rental, shop, payroll, everything to face the situation. Too early to say whether for the full year DFS will be loss-making. What I can tell you is that we are taking very serious measures to reduce the cost base. We expect to make a cost reduction overall in excess of 20%-25%. It's quite significant.
Thank you very much.
Thank you, madam. We have another question from Madame Marion Boucheron from MainFirst. Marion, go ahead.
Hi. Good evening, everyone. Thanks for the question. Just following up on cost and what you were saying on DFS, do you have some colors to share with us on what you've been doing also for the other division of the groups and maybe some A&P move, and how it has evolved for rentals? The second question about online, you were saying you've seen acceleration. Is it true mainly for Asia, or is that something you've been seeing across the board? My third question is, how would you see the wine and spirits moving through, well, in China, where life is getting back to normal, but it seems that on trade is quite slow to recover, and also on the U.S.A.
Thank you, Marion. On the cost-cutting, I have to say that we are in a pretty complicated situation to face the current crisis. What I mean by that is two or three things. One is that demand is not the question there. Nobody's questioning the strength of demand as exemplified by the gradual recovery in China. The second thing is that the most likely scenario is that the crisis will be over from an epidemic viewpoint in some months, if not weeks. We are not talking about something that is supposed to have a lasting impact on the business. Three, the crisis is extremely violent. It has a deep impact on our business. Needless to say that when stores are closed, it's more complicated to do business, and it has some implications for the revenues and the P&L.
We have to cut OpEx and CapEx, and we do it. Fourthly, I would say that the paradox is that for all the implementation of these measures, it will take a few weeks or a few months to really bear fruits. Chances are that the impact of cost-cutting will be visible when things get back to normal. It's not a reason not to do it. We will do it anyway, and I will come back on that. That's the situation we are in. It's a little bit of a paradox from a management viewpoint that we have to deal with. In terms of measures, obviously, we are doing all the necessary cuts where we can and where it makes sense. We started obviously with CapEx. We expect to reduce the CapEx budget by probably around 40% this year.
Most of it means postponement into 2021. Anyway, the cash cost, the cash impact will be significant in 2020. From an OpEx viewpoint, we'll be acting very swiftly, and we have already registered some gains in terms of rental cost. We try to do it in a partnership spirit with the landlords. This has proven quite efficient, notably in mainland China, where the landlords were, I have to say, very proactive and could be convinced that they should bear a portion of the cost of compulsory closures. In Europe and in the U.S., reactions are more mitigated. We have gained some rental reduction, but a minority of landlords are being quite inflexible, I have to say.
This is a bit disappointing. Obviously, we have long-lasting consequences in the way we deploy our capital in the future when things return to normal. Overheads are being reviewed, selling costs are being reviewed, marketing costs obviously are being reviewed. We are taking measures, I would say, more or less everywhere. It's difficult to quantify due to the fact that it takes a little bit of time to negotiate or to implement. Believe me, we are doing whatever we can do and we have to do in order to offset the current situation. Your second question is about online acceleration. A few things I would like to say about online is one, that online works where it was already strong. It's very difficult to build an online presence in the current environment.
When we were strong already, as it is the case with Vuitton or with Sephora, the strengths in online plays, and we are getting very substantial increase in the online business across the board, not only in China, it's true in Europe, it's true in the U.S., it's true in Japan. We are really benefiting from that. I would say that it offsets a sizable, I will not quantify, but a sizable portion of the drop that we are witnessing recently in the brick-and-mortar business due to the closures. It's quite a significant asset, but obviously difficult to build in the current environment. When it was strong, it's even stronger in the current circumstances. Your question on wine and spirit in China. It's a difficult question. The inventory situation is quite difficult to monitor.
We think we have a decent level of inventory in the trade, so nothing to worry about. The question is when you try to measure it, whether you compare inventories with past consumption or future consumption, which is a little bit of a guess, not even a guesstimate, a guess at this point in time, it's difficult to assess. As you pointed out, the bulk of the business and the consumption in coming weeks and months will rely on off-trade. Off-trade is a sizable portion of the business in China. It's a bit smaller than what it is in the U.S., but it's a sizable portion of the business in China. We can expect that off-trade will pull the business once restrictions that have been applied in China are lifted. The visibility is reasonably low.
I think I could be more precise when we discuss Q2 numbers because at this point in time, it is difficult to comment.
Okay, perfect. Thank you.
Thank you, madam. Next question is from Mrs. Louise Singlehurst from Goldman Sachs. Go ahead.
Hi. Good evening, Jean-Jacques and Chris. Thank you very much for taking my questions. Jean-Jacques, just following up on that last question. You kindly talked about CapEx, and that's likely to be phased down around 40% this year. Can you help us just think about the dynamics and the mechanism of obviously the working capital, for the first half, second half, given there's obviously a fairly brutal impact for everybody in the current environment, obviously highlights the need for strong balance sheets. Just thinking about, particularly, the working capital. Secondly, related to that, can you talk about the flexibility with regards to supply and the product as per the ordering process to make sure that there's enough flexibility for the autumn-winter budgeting when that goes into store, presumably from July onwards. Thank you.
Thank you, Louise. Well, these are two important questions, I would say. The working capital question is, I think what we shall experience is a higher rise than normal in the first half of the year because we have been piling up a little bit of inventories in the first half. All the merchandise that we put in the stores, particularly, the spring collection in ready-to-wear, but also to a smaller extent in leather goods, they haven't sold as expected. Obviously we've been increasing inventory due to this phenomenon. It will have a negative impact as, even if the business improves in May or June, as one could maybe expect, this will be too short to absorb all the inventories that have been put in the stores earlier on in the year. We therefore expect a little bit of an increase there.
In the second half, we expect more a normal behavior in terms of working cap and the stock level should progressively come down. All in all, what will be the impact for the full year? I would be cautious, obviously, at this point in time with the low visibility that we have to deal with, and expect a little bit of an increase in inventories, which is obviously not something that we would welcome in the current environment, but one has to face it. It's quite likely that it will happen, but we'll do our best, and we'll take whatever it takes to mitigate it as much as we can. The second question on supply. There, we were having a little bit of a complicated, and unusual situation.
If you look at what happened, spring products didn't sell. Obviously, the stores were closed for most of the season, or are likely to be closed for most of the season. They didn't sell. Summer products shall be made available to the client, more or less in the normal course of business. In other words, just at the end of the spring, when hopefully most of the stores will open. As far as summer products are concerned, and probably a bit of spring, which hasn't sold before, we can expect that we shall be able to sell later, but to sell a large portion of the inventories. That's why I was saying before that we expect to mitigate the impact of piling up inventories. A way to look at it is that spring/summer is likely to last longer than it usually does.
Normally what you have is markdown early July, or even earlier than that in some countries. From the 15th of July onwards, you have fall or pre-fall products. Chances are that due to the fact that we have not been able to produce in a normal way the fall and pre-fall collections, we will have the spring and summer collection being extended into the year, which is not a big issue as far as we are concerned, because the client hasn't been able to buy anything so far. It's clearly a good opportunity for us to sell anyway or to improve the sell-through of the spring and summer collection, and we'll make available the fall collection a little bit later.
Progressively, we will get back to the normal rhythm of collection, which is a little bit of a paradox because we sell spring products in the winter and fall products in the summer. We'll come back progressively to that. I think we have a good alignment of planets where the constraints we have on production will cause our fall products to be made available later, which is not such a big issue as we can extend. Unfortunately, we have all the inventories to extend our spring/summer collection longer into the season in our store when they get reopened. All in all, we are not too pessimistic about how we will face this situation from an inventory and availability of product viewpoint.
Very helpful color. Thank you.
Thank you, madam. Next question is from Madame Zuzanna Pusz from UBS. Madame Pusz, go ahead.
Hello. Hi. I have three questions, please. First of all, on Q2, I know that the visibility is quite low, and you probably wouldn't be too keen to comment on expectations. I guess, when I do simple math, and we assume that stores are likely to be closed in Europe and in the U.S. for two months or so, is it reasonable to think that sales in Q2 are likely to be down around 40% or so? Any color around that would be helpful because I think currently, consensus is at -27% or so. That looks quite optimistic.
On profitability, again, I know it's very difficult to comment given the situation, and there's lots of moving parts, but is there any rule of thumb or at least a split of your costs in terms of fixed and variable OpEx that you could share with us just to make it a bit easier to understand the phasing between H1 and H2? Finally, on watches and jewelry. The division was one of the most severely impacted in Q1. Was there any big difference between watches and jewelry, the categories, each of them, or was it fairly similar, for both of them? Thank you very much.
Thank you. Thank you, Zuzanna. I would say that your question on Q2, you expect it actually, is a very difficult one and one that I cannot really answer with precision. Definitely, if you tell me when the U.S. reopens, when Europe reopens, in the course of the quarter, I would be able to answer. We have no idea whatsoever. The visibility is extremely low. I will not comment on numbers, commenting on consensus, commenting on your estimate of -40%. The short answer is I don't know. Frankly, your guess is probably as good as mine with regards to when the various markets will reopen and will progressively come back to normal. As far as profitability is concerned, I will also disappoint you. The group is quite complex. Obviously, rule of thumb that would apply to all the divisions. We are mixing wholesale and retail divisions.
We are in different geographies. We have distribution businesses such as Sephora and DFS, which are very different from one another. It's very difficult to make any comments on that. Obviously, you know that the higher the margin, the higher the fall-through of missed revenues is. We have less impact when we can reduce costs, when costs are a larger portion of revenues than when they are a lower portion. It's pretty complex, and it is very diverse from one business to another. The only thing I would say is that we'll do whatever it takes to lower the cost base and to try to offset this unprecedented drop in revenues. Q2 will be particularly tricky in that respect, as I said before.
Watches and jewelry?
Sorry. The second question on watches and jewelry, are there differences between the two? Yes, there are. Jewelry is a retail business with a particular exposure to China and Asia. It was affected earlier, obviously, than any other business within the group, with the exception of DFS. The impact of Asia was very significant. This is the reason why you have a higher drop in the business in Q1, in watches and jewelry. This comes mostly from the jewelry division. As far as watches is concerned, we had a very good start to the year. Obviously, with the destocking of most retailers now, we are impacted as well. There is no miracle there. Progressively, the shutdown is taking its toll on most businesses, including the watch one. On average, watch is doing better than jewelry.
Perfect. Thank you very much.
Thank you, madam. Next question is from Mr. Oliver Chen from Cowen. Go ahead.
Hi, Jean-Jacques. Hi, Chris. Thanks. As we do look at our models across the U.S., the margin compression is in the three to 500 basis points, and that's also pushing some of our department stores into really distressed liquidity scenarios. Will most of the deleverage likely occur on the SG&A line? Your gross margins have been pretty resilient. Would also love your views on the strategic value of Tiffany as you see it. You have a really long-term thesis there, and it's a great asset across multiple price points. With this unprecedented event and everything you've been seeing at Bulgari, would love your thoughts there. Finally, we were just on the phone with JCPenney.
As we think about different scenarios that are possible there as they evaluate the store base and the future of the mall, what are your thoughts for that as it applies to Sephora and as you watch the U.S. department store landscape? Thanks.
Thank you, Oliver. Your first question on SG&A and gross margin. Gross margin by definition, are more resilient as we diminish cost of goods more or less alongside the decrease in sales. Bear in mind that in some divisions, we shall expect a higher product depreciation line in connection with piling inventories, as I commented before, although we try to mitigate it as much as we can. Chances are that we'll have a little bit of negative impact coming from higher depreciation in the gross margin line. Otherwise, the bulk of the cost cut, but also the negative leverage will come from SG&A, obviously. Any thoughts on Tiffany? No, I don't have any thoughts on Tiffany. Up until the closing, the two businesses are managed in a very separate way. I have no particular comments to make on the Tiffany situation.
As far as JCPenney is concerned, you probably know better than I do the situation there. I cannot comment on other businesses on their behalf. We have a nice business with JCPenney. Not all the JCPenney stores carry a Sephora business inside. A big portion of them. We are watching the situation carefully. I cannot really comment on their own situation. They are more qualified than I am on this particular point.
Okay. Finally, you've been a leader in the luxury industry, clearly, and exhibit a lot of leadership qualities. What are your thoughts around social distancing and the future of the store? Here in the U.S., we're seeing a lot of different innovations like curbside pickup, different store configurations, and the rise of the connected store with robotics. How are you rethinking how luxury may change more structurally in terms of the shopping experience and making customers feel safe?
Well, that's a good point. We're obviously working pretty hard on that because we know that at least for a certain period of time, it's impossible to quantify, but we'll have to take measures to ensure an optimum safety of our people and our customers in our stores. In terms of flow, we shall have to adapt the way our staff interacts with the clients. This is food for thought. We are working on that. We have some consultants working with us on that, and we have no preconceived ideas as to how it should work. The only comment I would make on this is that this is an evolving process. The way we shall be dealing on these social distancing questions in three months' time is likely to be different from the way we shall be dealing with it in six months or in nine months' time.
The main question there is to be able to adapt and to be flexible to the needs, to what this current situation requires from us. We are working very hard on that.
Thank you. Best regards.
Thank you.
Thank you, sir. Next question is from Mr. Edouard Aubin from Morgan Stanley. Go ahead.
Yeah, good afternoon, Jean-Jacques and Chris. One clarification for me and two questions. The clarification, Jean-Jacques, just to make sure I understood what you said on the sales in mainland in April. Did you say that in some cases, some brands were experiencing sales at 50% year-over-year, and are we talking about some of your main brands? That's the first clarification.
Yes.
I'm sorry, what?
Yeah. To make it simple, yes. That's a good understanding.
Okay. That's clear. My two questions is on fashion and leather goods, which I guess is the main positive surprise from the release. If you could please give a little bit more color in terms of if it was broad-based by brand and more importantly, by product, so in terms of the different categories. Lastly on fashion and leather goods, I know you don't disclose the figure for e-commerce, but if I assume it's about 5%-6% of the division, am I not too far in terms of the estimate? The second question is on the trajectory of the recovery in China, which you talked about. What's your estimate, I think you've talked about it in the past, is what's your estimate of the percentage of spend of Chinese national outside of China last year?
I think in the past you talked about roughly 50%. Do you have any sense, I know it's very difficult to assess, but do you have any sense of the good trajectory in April? To what extent is it driven by an acceleration of the reshoring of the Chinese spending national in April? That would be helpful. Thank you.
Thank you, Edouard. On fashion leather, I'll start by brands. As always, Vuitton is never very far from the division's average. Dior is better. They've done quite well, although they are affected like any other by the shutdown. Dior did better, and the other brands on average went below the average. That's a little bit the situation there. From a product viewpoint, I checked that point. No particular differences. Nothing really to report. The impact was reasonably homogeneous amongst the various categories. Frankly, there is no particular category that was deeply affected and another one that was doing much better. Frankly, it's a traffic issue anyway. It's not a demand issue, it's a traffic issue anyway. Traffic is a little bit indistinctive in the way it impacts the businesses. From a product viewpoint, I don't have anything to report.
As far as e-commerce is concerned, the estimate you mentioned was probably true in normal times, I would say. A year ago, the share of e-commerce, particularly for the brands that have a, as I said before, a strong and established business like Vuitton, the share is significantly higher. I will not comment because it will come down when things come back to normal, but for the time being, it's significantly higher. The recovery in China, I will not elaborate on the way the business splits out between onshore and offshore. You mentioned a number which was true some years ago. What I would say is that what we've seen over the past few years is repatriation of part of the business into mainland China.
What we've seen is a growth rate in mainland China that was higher than the growth rate in the business we were doing with mainlanders outside China. The current situation is putting this a little bit to an extreme. We are experiencing, particularly over the past few weeks, very sharp drop in the business we do outside China. Conversely, as I mentioned before, and that was my clarification point on April in mainland China, we see a big upsurge in the business in mainland China as the network progressively reopens. This repatriation or reshoring, whichever way you call it, factor is there and will amplify, in my view, in the months to come. That's where we are. Whether this will be sufficient to offset the pressure that the current epidemic situation is exerting on the offshore business is obviously difficult to know.
It's not the case for the time being. The time being is not particularly normal and steady state. We'll see what happens in some months.
Okay. Thank you so much.
Thank you, sir. Next question is from Mr. Luca Solca from Bernstein. Sir, please go ahead.
Yes, good evening. Thank you very much. I'm just wondering how you're thinking about the going back to normal. If we move beyond the exceptional situation that we're seeing now and in the first half, most likely, are you managing the business and preparing to manage the business with the assumption that in due course we would go back to business as usual with the same amount of people moving around and the same amount of tourist flows benefiting European sales, for example? Or are you already working on a scenario where you're prepared to structurally recapture some of those volumes in China itself and in other countries of origin of these tourist flows in Japan, in the U.S., and so on? Is that happening across the various businesses? You have clearly, fashion and leather goods would be impacted by that.
You have other businesses that are even more directly impacted by how the tourist flows will shape up. I'm thinking about the newly created hotel division. I'm thinking about travel retail. Very keen to get your logic on how you plan your business going forward versus this normalization scenario that can be very broad and very uncertain at this stage.
Thank you, Luca. Obviously a very difficult question. We are, as I think anybody else in the business, quite humble as to the current situation. We don't know where it comes from, we don't know where it goes to, and it's very difficult to plan ahead of any evolution of the situation. In a few words, we don't know, and nobody knows, actually. It's difficult. Obviously, there are a lot of people saying that things will never be the same again. I heard that a few times already. I don't believe, frankly, in that. Things will take time to normalize. That I agree, but I don't think people will stop traveling tomorrow. If they do stop traveling tomorrow because of the current situation, they will resume traveling the day after tomorrow.
At some point, things might change, but they've been changing ever since we have all been into this business. This business has not been the same. Remember the times when the Vuitton business, 25 years ago, was 90% Japanese business. These days are over, for good, actually. We have to adapt at all times to a changing environment. The evolution could come from various factors. The one we are experiencing right now is more than extreme, I would say, are accelerating some evolution. As I answered to Edouard's question previously, the repatriation of a big chunk of the business with mainlanders into mainland China has not started on the 23rd of January. It's something that we have witnessed for the past three, four years already. It's nothing new to us.
It's just gathering a little bit of speed and maybe too much speed to be durable as we speak. This move of a big chunk of the business being made into the domestic country is something that we've seen in other countries. Remember the Japanese business some 20 years ago, it was 80% outside Japan. Today, it's 95% within Japan. In the U.S., it's exactly the same thing. We've seen the same evolution. The only new thing with the COVID-19 situation is that what we have experienced over five, 10 years sometimes seems to be taking place within three months, which is obviously too bad to be true, I would say. Things will normalize, but the underlying trends, such as repatriation of the mainlanders business into mainland, will continue, and we have to adapt to that, and we do adapt to that. That's the situation.
It's all about flexibility and being sufficiently aware of what's going on to take the good decision at the good timing. Anticipating to evolutions we know nothing about would certainly be a bad idea. We are working hard. We are looking very closely at what's going on. We have antennas all over the world. We have shrewd and clever people in the U.S., in Asia, in Japan, in Europe. Wherever we do business, we have strong management teams, and we ask them to tell us how they feel about their business, and we'll draw conclusions and strategic actions on that basis, not on pure plans that we could build up at the moment when the business is under extreme stress, and that would prove to be totally ill-founded three months later.
Understood. Thank you very much indeed. A second question, if I may. On the Tiffany deal that you have agreed from a purely technical viewpoint, and from a legal viewpoint, would you be able to walk back from that deal, or is it a done deal, a nailed deal, and one that you cannot break?
Luca, I have no comments to make on this. We signed a merger agreement. This document is public, so you know what is inside. We will stick to the contract, full stop. That's the only thing I have to say.
Perfect. Thank you very much, indeed.
Thank you, sir. Next question is from Madame Mélanie Flouquet from JP Morgan. Mélanie, go ahead.
Yes. Good evening. Thank you for taking my questions. My first question is regarding China and the Chinese cluster. I wondered whether you would be so kind as to tell us what the Chinese cluster did in this April + 50% that you provided, if we looked at the Chinese cluster in total. My second question is, there have been a number of articles around the state aid in France. I was wondering whether you would have an update on that for us, as to whether LVMH is taking it or not, as some of your competitors have made official statements that they would not take the French state aid. My third question is actually a bit more of a semantic question, and I am not sure you can answer it yet, but I have to ask you.
Mr. Arnault has told us for some time that he was worried about a major crisis. He first said that the current sanitary crisis was unlikely to be the event that would derail everything. Has his opinion changed, to your knowledge, from his standpoint? For instance, when we look at CapEx down 40%, is this in 2020, is this going to double up in 2021? Is this actually, there will be more caution even in 2021, and you think this event has been more derailing than that and we need to be more cautious or rather Mr. Arnault thinks. Thank you.
What do you call, Mélanie, the Chinese cluster? I'm sorry, your semantics sometimes goes a little bit over me.
Well, the Chinese cluster is not semantic, you've mentioned that word yourself in the past. It's the Chinese local plus the traveler. If you look at the total consumer base, what did it do in April compared to this just 50%? You usually have this information for Louis Vuitton, notably. You usually provide it on a quarterly basis, but I wondered whether you could share it here.
It's negative. It's still negative, improving, but still negative. It has been affected by the brutal closure of the offshore market, and it's still negative. As far as state aid in France is concerned, and partial activity indemnification is concerned, we have decided not to use any possibility of partial activity indemnification for the time being. There are some exceptions within the group, but they are very minor one. I would say that 99% of the businesses and the people we employ in France are not subject to partial activity indemnification from the state, from the government. About the crisis, it's obviously a difficult question. We don't even know what 2020 will be made of, it's a little bit complicated to assess how 2021 could be qualified. Frankly, nobody has any idea.
The first thing to do is to deal with the current situation, and once we have better visibility, better understanding of what we are aiming for or what we are heading for, sorry, I think 2021 will be easier to qualify.
You're not willing to tell us a bit more of this negative for the cluster? Is that, for the first 50, since you are so generous for China, how negative is it as a cluster?
That's all I have to say on this.
Thank you.
Thank you, Mélanie. Next question is from Madam Alicia [inaudible] from ING. Please go ahead.
Thank you very much. You mentioned in the presentation that the volumes in Champagne is -6%. Is it for spirits, if I have missed it, please? The second question is with regards to the supply chain and the suppliers. Is there any weak link there that might jeopardize getting the new collections in stores for the autumn-winter collection in time, by the time that you want to have them there?
Thank you. The spirits is minus 13, if I'm not mistaken.
That's correct.
Sorry, Chris?
That's correct, yeah.
Yeah. Okay.
Thank you, sir.
I'm not mistaken. It's - 13% in volumes. As far as suppliers is concerned, we have two types of suppliers, I would say. As far as France is concerned, and mostly Vuitton is concerned, it is to a large extent our own atelier. We control more or less what's going on there, and we are working hard to put in place conditions that will enable our people to come back to work as soon as practicable. We are working hard on that, and we have no particular worries as to the end of the year. The second big group of suppliers is mostly Italian manufacturer, who are also obviously experiencing a shutdown in a major way due to the conditions in Italy, which are quite similar to the ones in France.
As far as Italian manufacturers are concerned, they have proven in the past a very high degree of flexibility. We have no particular worry there as well. When the conditions are favorable, they will resume production, and they should be able to produce whatever we need for the second part of the year. As I said before, part of the business we shall do in the early part of H2 will be made of products that we would, under normal circumstances, have sold in H1. The connection between the two is a little bit unusual, but will play in our favor if everything goes as expected.
If I may, a follow-up on the Italian suppliers. In the worst case scenario where one of those suppliers could fall over, is it easy to replace them?
No, it's not. The good suppliers are always difficult to replace, and we only deal with good suppliers. I think the Italian government has taken enough protection measures so that we don't face that situation. Obviously, it's hard to talk in theory, and we'll see on a case-by-case basis.
Okay. Clear. Thank you very much.
Thank you, madam. We have another question from Mr. Sam Sabath from [inaudible]. Please go ahead.
Hi, guys. I'm just curious, you have cut your dividend going forward, and I'm wondering how you feel about Tiffany continuing to pay their entire dividend. I know you're a separate company still until the transaction's completed, but it would make sense to do it because their dividend as well. Second, I believe you have a new restriction from buying Tiffany stock that expires on May 19th. I'm wondering, after May 19th, if I'm correct about that, if you think it might be advantageous to try to lower the cost of the transaction by purchasing stock at what's a 5% or 10% discount. Thank you.
Well, thank you for your question. On that last point, I'm sure that if I announce today that we shall be buying whatever we can, Tiffany shares, I'm not doing that, I'm pretty sure that the difference between the bid price and the current price would disappear any minute. As far as I'm concerned, it's totally theoretical, we don't intend to do that anyway. I cannot comment further on that. As far as Tiffany is concerned, as I said before, I have no particular comments to make on Tiffany as we speak. Tiffany is an independent company from LVMH, and until the closing of the transaction takes place. I've really no comment to make.
Great. Thanks for taking my questions. I appreciate it.
Thank you. Maybe I'll take another question.
We have another question from Mr. Antoine Belge from HSBC.
From Antoine, which is really too bad. It's the first time in 17 years that we will not have him. I'm really sorry about that. I give it a second chance to Antoine if he's around.
Can you hear me?
Yeah.
Can you hear me? Yeah. Sorry.
Yes.
I was asking a question on perfume and cosmetics, especially with one of your competitor, L'Oréal, reporting a decline, which seems to be much lower, I think 8% in the luxury division. Are there any technical impact that could explain that? My second question is around cognac. I think you mentioned a recovery in Chinese consumption for handbags, but is it as good for cognac? Thirdly, how is your Belmond business featuring on here? Are you also taking some cost-cutting measures to mitigate the negative impact of the virus? Thank you.
Thank you, Antoine, for your three questions. On the comparison with L'Oréal, I'm usually not very keen on making comparisons with our competitors, but these numbers, I don't know them, so I haven't seen them, so I can't really comment in any way. I assume they've been releasing these numbers while I was talking to you, so I cannot do two things at the same time. I'm sorry. As far as cognac in China is concerned, the situation is very difficult to monitor. We can monitor depletions, but as you know, depletions is really the amount of stocks that are being sold to retailers, be they on or off-trade. The real consumption there is almost impossible to monitor. We have no panels, and depletions are only a proxy to real consumption.
We may assume that most point of sales or most retailers have piled up a little bit of stock due to the disruption in the system in China at the very complicated time of Chinese New Year. Our assumption is there is a little bit of excess inventory within the retailers. This is why they are not depleting much of wholesalers' inventories, which, as I said before, are quite difficult to assess. A long story to basically say that visibility is low, and we need a little bit of time to assess the situation in cognac. Frankly, I see no reason why the spirit business would not follow the rest of the activity. If it is confirmed that what we see at Dior, Vuitton, Sephora, or Bulgari continues, if this trend is a real one, there is no particular reason why Hennessy wouldn't follow suit.
Belmond, obviously, the situation is complicated. The good news is that Q1 is usually a very weak, very small quarter for Belmond, given the nature of its properties. Q2 is a more important one, and we are unlikely to reopen the properties as we would normally do early April, and most of the properties will remain closed for some weeks or months. We don't really know. In the meantime, obviously, as far as costs are concerned, we are taking measures as we do elsewhere. We are reducing overheads. We are postponing some renovation plans that were impacting the cash flow and the CapEx in 2020. We are taking the necessary measures to mitigate the impact of the crisis with a very low visibility there, obviously.
Thank you very much.
All right. Thank you for attending this call in a complicated time, I would say. I'm not sure it was a complicated call, but at least it's a complicated time. I look forward to talking to you about H1 numbers in late July and hopefully commence a better and more visible situation at this point in time. Thank you all, and stay safe. Bye-bye.
Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.