Hello, and thank you for joining us for LVMH's third quarter 2022 revenue announcement. I'm Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our Chief Financial Officer. I'll start by taking you through the highlights of the company's performance for the third quarter and first nine months of 2022, and 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 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.
Turning now to our announcement, hopefully you've all had a chance to read our release, which was issued 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 us today. Let's begin on slide three. The third quarter marked a continuation of the strong trends we had seen over the first half of the year, with double-digit revenue growth in all business groups and resulting in a 20% increase in organic growth over the nine-month period, or a 28% increase including an 8% positive currency contribution. In the third quarter specifically, we have seen continued strong growth in Europe, Japan and the U.S., and a significant improvement in Asia.
Our Fashion & Leather Goods business group continues to perform extremely well, with very strong performance in particular at Louis Vuitton, Christian Dior, Fendi, Celine, Loro Piana and Loewe. Wines and Spirits also has shown good momentum, and the same is true both of the Tiffany and Bvlgari Maisons as well as Chaumet and Fred. Fragrances experienced another very good period, and Sephora has made a good recovery over the course of the nine months, while DFS continues to be impacted by reduced travel in its key destinations. I apologize, I forgot to push the first slide. I'll be better this time. Moving to the next slide, in the nine-month period, revenue grew to EUR 56.5 billion, or 28% on a reported basis. Excluding the 8% positive currency effect, organic revenue grew 20%.
The group continues to have a balanced mix of revenue around the world. In the current year nine-month period, Asia represented 32% of revenue, the U.S. 26%, Europe including France 23%, while Japan represented 7% and other markets 12% collectively. Compared to last year's same period, due to the impact of the health restrictions, the weight of Asia has diminished a little in favor of Europe and the U.S. As I mentioned earlier, growth in the third quarter continued to be strong across the board, generally in line with the trends we saw in the first half of the year. We also saw an improvement in Asia in the third quarter to an increase of 6% versus the same period last year. Now we'll turn to the business groups, and we'll start as usual with the Wines and Spirits.
Slide nine shows the Wines and Spirits business group delivered EUR 5.2 billion in revenue for the first nine months of 2022. This represents 14% organic growth versus the same period last year, and 23% growth on a reported basis after taking into account a positive 1% structure impact from the consolidation of Armand de Brignac and a positive 8% currency effect. Broken down, Champagne and Wines generated EUR 2.4 billion in revenue over the nine-month period, representing organic revenue growth of 24% after a 2% structure impact and a 5% positive currency impact compared to the year-ago nine-month period. Cognac and Spirits delivered EUR 2.8 billion in revenue, representing organic revenue growth of 7% after a 10% positive currency impact compared to the year-ago nine-month period.
The Champagne and Wines business saw continued growth in the third quarter, with ongoing momentum in the U.S., Japan and Europe, driven by the recovery in tourism and its firm price increase policy. Champagne volume was up 15% over the nine-month period. On a reported basis, Champagne and Wines revenue was up 32% compared to the year ago nine-month period. In highlights of the period, continues to see revenue growth worldwide, and the acquisition of Joseph Phelps Vineyards in Napa Valley, which you have heard about previously, was completed. I should also note that revenue in this group includes that of Armand de Brignac, which has been consolidated since May 2021 and is performing well.
In Cognac and Spirits, Hennessy, while still affected by restrictions in China and logistical disruptions in the U.S. Continued its upward trajectory with double-digit reported growth given it maintains a firm price policy. Also, during the period, Hennessy announced the expansion of its strong partnership with the NBA across global markets. Lastly, in this category, Glenmorangie and Ardbeg exhibited very strong momentum, and Belvedere Vodka continued to deliver excellent performance. Now turning to the Fashion & Leather Goods on slide 12. Revenue reached EUR 27.8 billion, up a very strong 24% on an organic basis from the same period in 2021. When including a positive 7% currency impact, revenue rose 31% on a reported basis. As I mentioned earlier, we saw extremely strong growth at several of our brands.
Louis Vuitton continues to deliver excellent performance, driven by its strong cultural dimension, as well as the creativity that fuels the Maison. This is due to the excellence of Nicolas Ghesquière, whose shows have been well-received, including, of course, last week here in Paris. The Men's Spring/Summer 2023 show was a success, including the second presentation in China. In other highlights, Louis Vuitton celebrated the 20th anniversary of its Tambour watch with a new design, the Tambour Twenty, modeled in a campaign by recently named brand ambassador Bradley Cooper. You will have difficulty finding them. Christian Dior grew markedly across all product categories with sustained strength in leather goods, which includes the ongoing success of the iconic Lady Dior handbag. The newly reopened boutique at 30 Avenue Montaigne has been a very popular destination.
In fact, the number of visitors has surpassed half a million in the last six months. It showcases the designs of Maria Grazia Chiuri and Kim Jones in a truly exquisite space. Speaking of these renowned designers, their shows this season were also very well-received. In other highlights in this group, during New York Fashion Week in September, Fendi simultaneously debuted its Resort 2023 collection and celebrated the 25th anniversary of the iconic Fendi Baguette with a star-studded event. This show was a tribute to the famed bag and to New York, the city that cemented its special place in the history of fashion. At Celine, Hedi Slimane's ready-to-wear collection has shown strong growth with good success of the new high-end leather line of the Triomphe and 16 models.
Loro Piana's resort collection was very successful, while at Loewe, Jonathan Anderson continues to demonstrate wonderful creativity, and the leather goods lines Puzzle and Hammock are performing very well. Marc Jacobs has seen sustained growth in its online sales and continues to roll out the new Monogram collection. RIMOWA saw strong demand, driven by the return of summer travel. Finally, Givenchy continued its store network expansion and renovation. On to the Perfumes and Cosmetics business group, slide 15 shows revenue reached nearly EUR 5.6 billion in the nine-month period, an increase of 12% on an organic basis and 19% on a reported basis after taking into account a +8% currency impact.
As the revenue gains reflect, this business group continues to have excellent momentum, which on an overarching basis can be attributed to the quality of its products as well as its very selective approach to distribution. Looking now at the brands specifically, Parfums Christian Dior remains a star, delivering outstanding performance in all key markets, with particularly strong momentum in Europe and the U.S. This performance is driven by the continued success of its iconic fragrances, including Sauvage, Miss Dior, and J'adore, recently enriched by the recently launched Parfum d'eau. The makeup business has also sustained its strong growth, driven by Dior Addict and Forever foundation. Premium skincare is an equally rapidly growing category with the prestige line and the launch of facial cleanser La Mousse OFF/ON. Guerlain made further progress, and the strategy of strict selectivity in distribution continued.
At Guerlain, revenue growth can be attributed to the continued good performance of the magnificent skincare line Abeille Royale, as well as the success of the Aqua Allegoria and the L'Art et la Matière collections. At Parfums Givenchy, L'Interdit has proven to be highly successful, and there is excitement about the new fragrance, Eau de Toilette Fraîche Irrésistible. At Benefit, demand for its in-store services has rebounded with the return of store traffic. Maison Francis Kurkdjian launched a new unisex fragrance called 724 , inspired by the rhythm of New York City, which is off to a good early start. The same is true for the new HD Skin Undetectable Foundation from Make Up For Ever .
Finally, Stella McCartney has launched a new skincare line called Stella, which is formulated with 99% natural origin ingredients. Turning to our watches and jewelry business on slide 18, revenue over the nine-month period reached nearly EUR 7.6 billion, reflecting 16% organic growth and 23% reported revenue growth when taking into account a positive 7% currency impact. The group saw strong performance across the board, driven by brand's own stores, as well as improving sales in Asia. At Tiffany, the brand is seeing ongoing revenue gains due to the introduction of exciting new products and marketing. The new Lock collection, with its innovative clasp, is off to a solid start in North America, while the international rollout of the highly appealing Knot collection continues. Tiffany also had a successful launch of high jewelry Blue Book collection in Asia.
The Maison also introduced a new advertising campaign featuring the incomparable Beyoncé and designed the League of Legends World Championship trophy, a symbol of crowning achievement in esports. Moving on to Bvlgari, this Maison also continues to deliver very good growth. The primary driver is its jewelry collections, which were celebrated in Shanghai and Beijing at the Eden, the Garden of Wonders exhibit, where watches were also on display, as well as the Maison's first-ever high jewelry behind-the-scenes documentary film called Inside the Dream with a star-studded cast. I encourage you to watch it. Bvlgari also recently introduced a new version of the beloved B.zero1 collection embellished with diamonds. To support the ongoing growth of its high jewelry business, Bvlgari is expanding its high jewelry lab in Rome, as well as its Valenza manufacturing facility. Its watch business has had excellent performance.
At TAG Heuer, innovation and collaboration continue with the new Connected Calibre E4 Porsche Edition. Maison also introduced skater and surfer Sky Brown as its new ambassador. Hublot was named the official timekeeper of the 2022 FIFA World Cup, its fourth time performing this important role. Zenith launched the Chronomaster Original Pink, available exclusively in October, Breast Cancer Awareness Month, while Chaumet launched Ondes et Merveilles, the first high jewelry collection dedicated entirely to the sea. It also celebrated the botanical world with its Vegetal exhibition over the summer at Beaux-Arts de Paris. Finally, Fred introduced a new campaign with the theme Embrace Your Force and had a very successful exhibit at the Palais de Tokyo in Paris to highlight the savoir-faire behind the Maison.
Now looking at our final business group, Selective Retailing, revenue in the nine-month period reached EUR 10.1 billion, marking a 20% increase in organic revenue growth, or 30% on a reported base after taking into account a positive 10% currency impact. To break the performance down, Sephora once again delivered excellent performance, driven by a strong increase in store traffic as well as market share gains across all key markets. The ongoing growth of Sephora's extremely popular loyalty program has contributed to this performance. In other news, in the period, Sephora launched its same-day delivery subscription and opened its first store of the future concept store in Singapore's Raffles City Mall, and it completed the disposal of its business in Russia.
Looking now at DFS, this business continues to be impacted by health restrictions in key destinations, notably the lockdowns in Hong Kong and Macau. However, there are bright spots, including the progressive reopening and return of travel in North America, Abu Dhabi and Japan, as well as the very good reception of La Samaritaine Paris Pont-Neuf with both Parisians and tourists. Lastly, Le Bon Marché in Paris continues to have good momentum, also with both Parisians and tourists alike. The magnificent store is celebrating its 170th anniversary and launched an immersive theater experience following the footsteps of Émile Zola within the store, which I encourage you to try before it concludes at the end of this year.
In summary, the performance of LVMH year to date, including double-digit organic growth across all business groups in the third quarter and nine months, is certainly encouraging. As we look to the end of the year, the group is focused on further strengthening its global leadership and market share, while at the same time remaining flexible and vigilant with respect to costs in light of ongoing macro and geopolitical uncertainties. This means that our Maisons will continue their focus on creating high-quality products that reflect both the heritage of their iconic brands, as well as an unyielding commitment to innovation and making selective investments, including in strategic store network expansion.
Before we open up for your questions, I'd like to touch on a major global event for LVMH that is happening this weekend, the fifth edition of the extremely popular Les Journées Particulières, during which we showcase the extraordinary craftsmanship and savoir-faire behind our brands. Beginning this Friday, 57 Maisons will open their doors to the public across more than 90 locations around the world. Visitors have booked their tickets in advance, and we are hoping for more than 200,000 participants.
Thank you, and we will now take any questions you may have.
Thank you. We'll now start the question and answer session. If you wish to ask a question, please turn your video on and use the Raise Hand function of your application. The first question comes from Edouard Aubin from Morgan Stanley.
Yeah. Good afternoon, good evening, Jean-Jacques and Chris. First question on the U.S., you had a relatively significant deceleration sequentially on the three-year stack. Am I right in thinking that's mostly a function of Sephora and cognac rather Fashion & Leather Goods? if you could comment on the factors explaining this deceleration in three-year stack, Q2 to Q3. That would be one. My second question relates to Vuitton, the growth drivers. I think in recent quarters you've indicated that the main drivers of the growth were first of all, mix, followed by volume and then prices. Could you confirm that you had the same configuration again in the third quarter?
You know, the big question is next year, are you confident that you should be? I'm sure you're gonna be reluctant to comment on future pricing action, but are you in a position to pass on further price increase? Because as you know better than I do, we have a completely unknown configuration, assuming we go into a recession next year, which is the fact that, you know, in theory, Vuitton has increased prices more than 20% cumulative over the past three years, which never happened over the past thirty years heading into a recession. These would be my two questions. Thank you.
Thank you, Edouard. Well, first of all, as far as the U.S. is concerned, no, the answer is not Sephora and cognac. It actually is Fashion & Leather, but for a good reason. The reason being that part of the business shifted away from the U.S. and is now taking place in Europe as American citizens tend to benefit from the strengths in the U.S. dollar.
When we look, and you know that we follow that very carefully, when we look at the American customers or the clientele, the business we do with Americans overall, in Q3, we ended up with a very good level of business, which is comparable to what we did in Q2 and Q1, but the way it's spread out in between domestic market and touristic markets is entirely different. It explains also the strengths of the European business, which continues to show very good numbers, despite the fact that the comparison basis in Europe is turning more and more complicated as time goes by. That's the explanation on U.S.
Rest assured, I mean, the U.S. numbers Fashion & Leather are significantly positive, so we don't have to worry about that. Part of the business shift into Europe. As far as Sephora is concerned in particular, we've had numbers that are very comparable with the preceding quarters, so we are still very happy with the performance of Sephora in the U.S. On LV, yes, what you mentioned, price volume mix as being the drivers and in this order, it's exactly what happened in Q3 as it always does. Next year, you're absolutely right, I will not answer the question. Speculating on price increases a year ahead is complicated and I've no idea.
I mean, it depends on so many factors that I cannot even comment in a sensible way what could happen. The short answer is that we don't know.
Thank you. The next question comes from Antoine Belge from BNP Exane.
Yes. Hi. Good evening. It's Antoine at BNP Exane. Three questions, if I may. The first one, thanks for commenting on the US cluster. Is it possible to have a similar comment about the Chinese situation in China? Also, the numbers in Europe, as you mentioned, have been flattered by tourism, but what about the local consumer? Have you seen a bit of a moderation after a very strong second quarter? Second question is on the Dior brand. You know, what are the latest sort of trends? I mean, are we seeing some kind of a convergence to the divisional average, or is the brand still comfortably ahead?
Finally, looking at Wines and Spirits, maybe could we have the exact organic growth of champagne and cognac? Are there any important, you know, trends to mention in terms of sell in, sell out and how the Mid-Autumn Festival went? Thank you.
Thank you, Antoine, for your three questions. First of all, on LV, the question on the main-mainlanders client base numbers in China were more or less flat for LV in Q3. Obviously, we had a difficult start of the year for reasons I don't have to mention. Q3 ended up more or less on a flat note, both for the client base and for the country, as obviously this is exactly the same thing.
As far as Europe, customer bases are concerned, we still enjoy quite significant progress, with particularly the British client base, with the German client base, little bit less so in the southern part of Europe, but we are still very satisfied with the numbers with locals at LV in Europe, which comes on top of obviously the tourist flows. You said that the numbers are flattered. Yes, they may be flattered in Europe, but at the same time, it comes out from the U.S. You have to look at the glass half empty, not to look at it half empty, but half full.
As far as Dior is concerned, I confirm that Dior brand in terms of growth is still ahead of the division, the hierarchy is the one that we have had for some time. Vuitton is slightly below the average, and Dior is a bit above. Nothing new there. Wines and Spirits, well, your question is basically you want to know everything. I mean. I will try not to spend the next half hour trying to answer it. Basically, the trends that we have seen in Wines and Spirits is that champagne continued to be very strong. Demand is very strong.
We still had bottles available, which will not necessarily be the case in Q4, but we still had some bottles available to satisfy growing demand in champagne for Q3, so we benefited from that. The volume growth was more or less the same as the one that we have had in the first two quarters, so very satisfactory. Very strong business in Europe and overall in the U.S., where we had a very strong quarter. As far as cognac is concerned, the situation is more contrasted, particularly in China. You remember that we had a complicated Chinese New Year period. We ended up overloading a little bit the trade.
I mean, the level of sell-out was not exactly what we thought it would be. We've been pushing ahead a little bit of stock excess with our main clients, which we decided to absorb in Q3. The numbers in China are not, for cognac, the volumes are not particularly good with the view of removing the excess inventories in the system ahead of Chinese New Year, which will probably take place. I mean, the business will probably take place earlier than last year as Chinese New Year is earlier than it was last year. The bulk of it will be in December. In view of that, we wanted to clean up the inventory situation.
That's more or less where we are. We are, as always, I mean, the question of end demand is not that easy to analyze in cognac. We're still seeing that in China, the end demand is strong once the drawbacks or the difficulties connected with the pandemic situations are overcome. We expect the business to resume. Mid-Autumn Festival was comparable to last year, which is frankly a good achievement in the context, because particularly the on-trade business is deeply affected. Overall, I mean, the cognac business is not flying, but is doing well in a context that has been quite difficult since the beginning of the year.
Thank you. The next question comes from Erwan Rambourg from HSBC.
Yeah, I hope you can hear me, gentlemen. Thank you. I have three questions as well, as is tradition. Just wanted to come back to the price gaps. I think, Jean-Jacques, you say on a regular basis that what FX does, it can undo. FX is not undoing much right now with the EUR/USD at 0.97 or 0.98. I was just wondering how you balance the opportunities and the risks of having Europe being so significantly cheaper than the U.S., you know, should you think about increasing prices in Europe, which could alienate the locals, but at the same time rebalance the growth in the U.S., or should you stay put for a while? That's my first question.
Second question, are you seeing any gap of performance in terms of price points at Dior and Louis Vuitton? We are hearing a few snippets in the U.S. and in Europe about aspirational price points not doing as well as the very high end. I'm just wondering if you're seeing any of that. Then finally, in the U.S., it seems that your cognac VS is relatively in line with others' VSOP in terms of pricing. I'm just wondering what do you make of that? Obviously, it's quite telling in terms of your brand equity for Hennessy. But do you think it's sustainable to have a VS which is priced at other people's VSOP? Thank you.
Thank you, Erwan. Well, your first question, on FX, is quite complicated. Basically, your assessment is right. I mean, products in Europe, once converted into dollars are much cheaper than what they are in the U.S. Do we need to do something about it? Short term, I don't think so. I mean, as we always say, I mean, the currencies are going up and down. They can unravel what they have created, and we need a little bit of experience and hindsight as to what we should be doing. We are quite cautious on this approach.
For the short term, we don't intend to work on that or to take drastic actions that would cause the prices to narrow, exactly for the reasons you mentioned. The second question on the gap performance in terms of price point, well, this question is very often asked. We don't see that. I mean, we see there could be some discrepancies between categories, and it could happen that entry price could do better or worse than the rest. I give you an example. At Tiffany, the silver business is under some pressure. The reason in my view is mostly that in a sort of inflationary environment, gold is doing much better than silver. It's as simple as that.
People tend to favor the purchase of gold at this point in time rather than silver. There is not much we can do about that. Obviously we are not satisfying ourselves with the situation, and we are working on it very seriously. But it doesn't say more than what I said. I mean, it's not something like the enterprise customer or the aspirational customers are not willing to purchase anymore. No, I don't think so. We lack hindsight to really make analysis on that. For the time being, we see such a variety of situations with so many input and explanations to a given situation that we find it hard to isolate and draw harsh conclusion like the enterprise is working less well than the rest.
It's frankly not as simple as that, and I'm not in a position to confirm that. With regards to cognac VS price being close to VSOP, others VSOP, it's not entirely new. I mean, it's been the case for, well, probably as long as I've been with the group, which is a few years now. We've been living with that. I think we've, as far as the U.S. is concerned, we've been growing faster than the others, both in terms of volumes and value, so I don't think it is really a problem. As you said, Erwan, it tells something about the brand equity and the desirability of the brand, particularly in the U.S., and we are particularly happy with that.
The next question comes from Luca Solca from Bernstein. Luca.
Thank you very much indeed, and good evening. The first question I would like to ask is on the apparent divorce that we see between fundamentals and the strengths of high-end and luxury demand. I don't need to mention the many things that seem to be going the wrong way in the world, inflation, the stock market, geopolitical tensions, and so on. Yet, my impression is that the relief of being out of the pandemic is trumping all of the bad news. I wonder what you think, and how you explain this apparent divorce and whether you see any weak signals of demand normalization, either by consumer group or by product category. You just said that, as far as price points are concerned, there's no clear evidence appearing at this point.
My second question is on the impact of inflation. I recently saw that you have decided to pay an extraordinary bonus to your employees making less than EUR 60,000 per year, if I'm correct. I wonder how you see the cost inflation pressure across the business and how you're dealing with it going forward. The third question is on Forex. This time we know that, you know, hedging Forex exposure is a very complex and very sort of black box kind of activity. Assuming we are in the same or in broadly the same currency situation in a couple of quarters, my understanding would be that Forex would become a strong tailwind for operating profit as well, and not just for top line as we see today.
You know, I would like to get your thoughts on that and anything that you could potentially share with us on how these mechanisms are going to work. Thank you.
Thank you, Luca. Well, your first question on the divorce between fundamentals and luxury economics, I would say the only thing I would say that luxury is not a proxy for the general economy. I mean, we've discussed that probably 10x or 15x together. We don't necessarily sell to rich people, but we don't necessarily sell to the average households. I mean, we end up selling to affluent people, and they have a behavior on their own, which is not necessarily totally aligned with economics or GDP's ups and downs. It doesn't mean that these people are insensitive to the general economic situation. It means that they usually, our client base react to different stimulus.
As we said many times, I mean, they are much more sensitive to the shocks, be they real estate value, be they stock market, etc., rather than to fluctuations in in GDP changes. At this point in time, the divorce you're talking about is a divorce between the fundamentals of the luxury business, which we try to exemplify with our publication, and I wouldn't say a recession, a pre-announced recession, which is a different concept and a concept that puzzles me a little bit. I mean, I've learned that in economy, when things are announced in advance, they usually don't happen because economic agents take measures to avoid them. I'm not saying there won't be a recession. I have no idea, whatsoever.
I'm just saying that we are in a situation where the recession has not materialized in a full swing yet. If ever it should materializes, but for the time being, it does not. We are comparing that to a business which is not a good proxy for the economy, which is holding up its growth in a convincing way. This is my analysis or my understanding of what you call a divorce. In my view, it's not entirely illogical that we have such discrepancies at this point in time. We'll see what happen. The luxury industry is not immune to a recession or to shocks. We've seen that in the past.
We've also seen in the past that when it happens, it usually doesn't last very long, and the strongest brands gets even stronger out of the crisis. That's all I can recall for everybody's benefit. The impact of inflation, how do we get prepared or what do we do? Well, inflation is multiple. I mean, you have different types of inflation. You have energy, you have raw materials, you have labor pressure.
We work on all the fronts, having in mind, and that's probably the most important point, that unlike some industries, we have the ability to pass on to customers the cost impact if inflation materializes in a significant way in our business, which is not the case for the time being. We'll see what happens, but we are not particularly worried. The bulk of inflation pressures still comes from the supply chain and some bottlenecks in the supply chain, which is not a big issue for us. We are not in complex manufacturing operations.
We do local business when it comes to elaborating our products, and therefore, we are not subject to meaningful bottlenecks that would cause either product availability to be delayed or the cost of them to be increased in a significant way. So far, I mean, we are, as everybody else, facing a certain level of price pressure of cost pressure, but nothing unpalatable. Finally, on Forex, buy and large, you're right. I mean, it helps, no doubt. The only thing I would mention is that hedging, which I notice you call a blue box or a black box, sorry, which is actually pretty simple.
I mean, we buy collars, I mean, tunnels to hedge the currencies that we are supposed to get in our business, which means that we are protected of any downside risk if the currencies were to drop. At the same time, there is a ceiling above which we don't benefit from a further appreciation of the currency. This is a little bit where we are today. We have put together some hedges last year at different levels of the various currencies where we are now, the spot rate is above the ceilings, so we are not benefiting fully from the appreciation of some currencies.
It will probably be the case again in some part of next year, and then we'll see what happens with the overall level of currencies. All in all, if things were to remain what they are and all of the things being equal, obviously, currencies would be a tailwind this year and next year.
The next question comes from Zuzanna Pusz from UBS.
Thank you for taking my questions. I have three. The first question is maybe to follow up on growth by nationality. I think you've mentioned that the American cluster was fairly comparable to Q2. You've also mentioned that, if I understood correctly, that the Chinese cluster was flattish, and that probably was, I think, roughly down 30% in Q2. It does look like there was clearly an improvement. But overall, if we look at, let's say on a three-year Fashion & Leather Goods did slow a little bit versus sort of didn't improve to the same extent as I would say Chinese cluster would imply. Have you seen any slowdown maybe among Europeans or any other nationalities? That's my first question.
Maybe secondly, on watches and jewelry, very strong performance, but it does look like versus Q2, it maybe slowed a little bit despite the fact that we saw the easing of the restrictions in China. Would you be able to maybe give us a bit more color if this was driven specifically by watches, by jewelry or maybe regional mix of some of the brands? Finally, you probably won't like that question, but no one has asked about margins so far. How should we think of margins in H2, given that you're still delivering really impressive growth, FX is still a bit of a benefit? Do you plan to perhaps reinvest that or are you trying to stay vigilant because of the uncertain environment?
Any color, I guess, on the group or, if that's easier, on the Fashion & Leather Goods. That would be very helpful. Thank you.
I'll disappoint you on the third question, as always. I mean, I don't intend to comment on margins in a revenue call. I mean, you'll get the answer in January when we release our full year's results. Number. On the various clusters, I mean, I must admit that the three-year stack, I mean, why not four years and five years? I mean, at some point I get lost into that. I said what I said. I mean, in Q3, we are flattish with the mainlanders, which is an improvement compared to H1 for obvious reasons, but which is not the full potential obviously of the mainlanders as there are still severe disruptions in mainland China taking place.
It's better than what we've seen before. As far as the U.S. customers are concerned, we are more or less in line with Q2 and probably a little bit off the average Q1 and Q2, but nothing really worth reporting. Your question is, as we are more or less in line with H1 numbers, if Chinese are better and American in line, who is down? Short answer is I don't really know. I mean, as far as I know, most significant customer bases are in line. You're talking about small margins when comparing Q2, Q3 and the rest of the year. Nothing really worth reporting.
Again, I mean, the business in Q3 is very much consistent with what we've done in H1 across the board. With regards to watches and jewelry, and the improvement, it comes from watches first. It also comes from Bvlgari, that is doing much better in Q3. Tiffany is doing less well. I mentioned silver. There is a little bit of a slowdown in the U.S., which obviously has a pretty significant impact on Tiffany due to the share of the business that the U.S. is. Overall, I mean, we are still growing double-digit at Tiffany, so we cannot really complain.
Overall, I mean, better numbers in watches, better numbers at Bvlgari, and Tiffany doing still very well, albeit at a slightly lower rate.
The next question comes from Dana Telsey from Telsey Advisory Group.
Good evening, everyone. As you think about the trends in digital and physical, was there any difference between any of the brands or the segments of digital and physical trends? When you think about the physical footprint, here in New York on Friday or Saturday, I believe, you're opening the LV exhibition in the former Barneys location on Madison & 61st. Is that an opportunity to take the rest of that store permanently for your brands? Speaking of Tiffany, when does the flagship reopen, and what are you looking for there? Thank you.
Thank you, Dana. Digital, physical, the global pattern is the same across the board. I would say we've seen over the last three, four quarters, digital slowing down, the growth rate in digital slowing down as a function of physical retail reopening, traffic getting less bad than it used to be, and progressively the business shifting back onto brick-and-mortar as opposed to digital. That's been the case for a while. Frankly, in Q3, nothing new. Brick-and-mortar is growing faster than digital across the board. I'm mostly talking outside China, where it's very difficult to make any analysis. Outside mainland China, brick-and-mortar is growing faster than digital across the board.
It's true for all the segments, but don't get me wrong, I mean, digital is still growing quite fast, double-digit. So we still are benefiting from our presence on digital. Overall, digital is about 13% of total sales. It was 14% last year, so nothing really worrisome. Your second question on Barneys, the short answer is no. We are very happy to be able to exhibit Vuitton and to showcase Vuitton there, but that's a temporary exhibition. The flagship, I think it's in the first part of next year, but I don't have more details on that.
As you may know, such projects tend to be quite complicated to predict when it comes to opening date. You're talking to the Chief Executive Officer of La Samaritaine, and I've been dealing with that type of project in quite a while. Frankly, it's difficult to make any forecast. We expect to open it in the first part, let's say the first quarter, or at least the first half of next year.
The next question comes from Charmaine Yap from Redburn.
Hi there. Thank you. I have two follow-up questions, please. First, regarding digital. Can you comment in terms of what are the complications in mainland China? I mean, given the disruptions, have you seen online penetration go up in that area or how the platforms are developing there? The second question also follow-up in terms of watches and jewelry. Why is watches doing better? Is this a base effect of a late recovery? In other words, have watches recovered to 2019 levels already, or is there a fundamental difference in terms of retail versus wholesale? I'm just curious why watches have outperformed this quarter. Thank you.
Thank you, Charmaine. On digital in China, no, it's simply the fact that the Chinese market is not functioning or working the normal way. We still have disruptions, both in terms of people being in lockdowns. Some stores are being closed. The supply chain in China doesn't work particularly well. My point is just that we shouldn't be drawing conclusions as to what's going on in China currently in terms of what digital is doing versus brick-and-mortar and so on. I mean, if you look at brick-and-mortar, the traffic in stores is still very low compared to even 2019. It could recover fast once the pandemic situation is over.
For the time being, we are not operating in the Chinese market in a normal way. I just don't want to draw conclusions out of that. As far as watches and jewelry are concerned, it's a good question. I've been spending quite a fair deal of time over the last couple of days trying to answer that. I don't have anything particularly compelling to be honest. When I look at retail versus wholesale, it's comparable. I mean, some brands is doing better, some brands it is not. Definitely doesn't seem to be a restocking impact or a destocking impact. I mean, nothing really worth reporting on that front. I still.
The only explanation I could give you is that probably watches are a category that is well suited to inflation environment. I mean, the most watches keep their value for a long time and also people fear that prices of watches could go up and they have the willingness to buy now in fear of buying later at a higher price. I think there is a little bit of that. Frankly, when we look at the numbers, there is no particular evidence why this business or particular salient features that would explain why this business is doing better. As I always say, I mean, I'd rather have good numbers that I cannot fully explain rather than the other way around.
We'll live with that.
Geoffroy de Mendez at Bank of America, you have the line.
Yeah. Thank you very much for taking my questions. I have three of them. The first one is on the capital allocation and the cash levels that you may have at this moment. You know, it's. You're pretty close to being net cash, which I think historically is something that you've not really done before. There's been some press reports that you could be potentially interested in watch brands. I think there was a mention of Audemars Piguet or, you know, if we look at what happened pre-pandemic, the other company you bought was Belmond in the experience luxury experience world.
I'm sure you're not gonna give any names here, but are there any missing pieces in your portfolio that you might be interested in or is it just gonna be a share buyback or dividend? Yeah, first question on capital allocation. Second question, I was wondering if you could give a little bit more details on the launch of the Tiffany Lock. I think you said it was doing well. Just a bit more details on this and the rollout for the rest of the world. Then more broadly and more generally for the jewelry category, we are hearing a lot of concerns from investors that this might be a you know category that's more at risk of consumer spending cuts because it's a higher price point.
It's a bit more discretionary than self-luxury. The last question is on Sephora. I think you launched, or you're returning to the U.K. online. That was announced, I think, this week or in the past few days. Just so can you explain what drove this decision and, is it the first step to go back to having physical stores there? Thank you very much.
Thank you, Geoffroy. So on the capital allocation question, well, we are not net cash, we are not there yet. I mean, look, if you look at the numbers, the cash flow, the dividend, the share buyback, et cetera, I mean, we are not there yet. So I don't think it is a question we have to deal with immediately. This being said, I will repeat what I said many times. I mean, the first capital allocation goes to the dividend to ensure regular growth in the dividend that is alongside the growth in the net cash flow and the net income. So that's the first cash allocation. The second cash allocation is purely discretionary and opportunistic is acquisitions. There is no particular gap in the portfolio.
We have 72 brands. I mean, we have the largest portfolio in the luxury industry. We have no particular need for acquisitions, but sometimes we find out a brand that we think we could do something with. We buy it, but it's purely opportunistic, so I will not make any comment. I could not even mention names obviously. But that's the way it is. I mean, in terms of our acquisitions, we are opportunistic. As far as share buyback is concerned, you have noticed that we have implemented a fairly substantial program this year, which comes on top of the one that we have done last year.
I think if the level of cash flow stays around where it was last year or where it could be this year, a share buyback will be implemented on a regular basis in the magnitude of EUR 1 billion- EUR 1.5 billion so that we avoid any gap with too little debt. That's on the capital allocation question. On Tiffany Lock, I mean, apart from saying that it works well, it's hard to go into further details. I mean, I've never seen any of our competitors making revealing secrets of launches of products at any point in time. I'll be short on my explanation, but it's a great design. It works very well.
We are extremely hopeful that this could be a sizable collection in the future. Jewelry is at risk in terms of customers' attitude. Why not? We don't invest in a business for the next year or the next couple of years. I mean, we invest in businesses for the long term, and we do think that jewelry is one of the most interesting category overall, because it enjoys extremely high barriers to entry. That's why we've been making significant acquisitions with both Bvlgari and then Tiffany over the last 10 years. We don't regret a minute these acquisitions, which are proving extremely successful in terms of business, but also in terms of shareholders' return.
We intend to stick to that. There could be short-term fluctuations, and there will always be, but that's a fact of life. I mean, our job is to develop them long term through desirability, through adapted distribution and marketing strategies. That is what we will do. Sephora in the U.K., well, we started online. Maybe there will be store openings. It's too early to, you know, say. We are testing the market to... Sephora already has some recognition in the U.K., which is quite unique due to the fact that the brand has not been there in the last 20 years. But it has some brand recognition in the U.K.
We are testing the water a little bit with online, and we'll see what we do next. For the time being, no decision has been taken.
Thank you. The next question comes from Thomas Chauvet from Citi.
You're on mute. Thomas Chauvet.
Can you hear me now?
Yeah. Yes, we can.
Okay. Thank you very much. I have three questions, Jean-Jacques, please. The first one on China. Back in July, you expressed confidence about the recovery in the coming months as China was reopening, and in the run-up to Chinese New Year, you gave a few useful numbers today. Would you say the shape of demand recovery is in line with your expectation? What were you the most, you know, worried about and positively surprised about on China's? Obviously, we are now all gonna listen to the party Congress and see whether there's any major policy changes. Secondly, on pricing, I understand you won't comment on Dior, LV pricing for next year.
Maybe a broader question on your ability to pass on further pricing at some of your key brands. Do you think the consumer is responding maybe differently to price increases than in the past? Has it changed? Is this because of the euphoria post the COVID restriction? Is it still the shift in spending from you know experiences to goods or a speculative behavior with the idea that some brands or some product categories are now appreciating in value over time? Finally, a follow-up on the prior question on capital allocation. Just after the sizable Tiffany acquisition, you got very active in the wine segment, wines and sparkling wines with Provence, with Château d'Esclans, Armand de Brignac in Champagne, and recently Joseph Phelps Vineyards in Napa Valley. I was...
I mean, these were relatively sizable acquisitions in their respective segments. I was just wondering what was the rationale for paying relatively hefty prices for those vineyards, and whether this, you know, signals a change in approach at Moët Hennessy. Thank you.
Thank you, Thomas. Well, the demand recovery in China, frankly, when you look at the numbers, we cannot really talk about recovery. Things are better than they were in Q2, for sure, but they are not back to normal. We still have, as I said, lockdowns here and there. The supply chain is heavily disrupted. The level of traffic in stores or across the country is nowhere near what it was in 2019. We are not operating in normal conditions. Are we satisfied or not? Obviously, we're not. I mean, we would want this market to be as strong as it could be, and we expect it to recover soon.
I will obviously not comment on political decision for obvious reasons, the main one being that I don't know them. We are not operating. My message is that despite the fact that the business is flattish in mainland China in Q3, we are not operating in a normal way, and therefore we cannot be satisfied with that. There is not much we can do about it. Second question on pricing power. I mean, every time, this question is always structured the same way. I mean, it seems like pricing power is a sort of windfall, comes from the sky, and some brands have it and some brands have not.
The reality is that pricing power is actually a function of the desirability of the brand. Desirable brands can increase prices, and non-desirable brands cannot. It's as simple as that. What it is about is really developing strategies, marketing products, distribution strategies that will increase desirability of the brand so that in tough times or in other times, we can reflect into prices the cost of doing business. It's as simple as that. When you look at Vuitton and Dior, that's what they've done. That's what they've done by and large, and therefore, they enjoy a significant pricing power. It did not happen overnight.
I mean, it's something that has been created patiently over years and years and years so that the desirability of the brand is such that clients accept it. Obviously, depending on the global environment, this acceptance could be more or less easy. We are not in a position to comment that. As I said, I mean, everybody's talking about the recession, but nobody has seen it yet. We'll see when we get into it, if ever we get into it. The capital allocation and the acquisition in Wines and Spirits, well, we never said we wouldn't do acquisitions in Wines and Spirits. They are sizable, but it depends what you call sizable.
I mean, they are of a certain size, which means that they require attention, and probably capital as well. That's what we intend to do. Does it change the strategy at Wines and Spirits? Yes and no. I mean, we never ruled out that we would do acquisitions. It's just that for years, we didn't find anything that was interesting. With d'Esclans, Ace of Spades, and Joseph Phelps, we found businesses that we thought could be of interest for us, either because they were scalable or because they were filling a gap in the portfolio, like Armand de Brignac.
Armand de Brignac, for instance, is an ideal complement to our portfolio in the nightlife. I mean, when we come to clubs, we have exciting brands, but Armand de Brignac complements this portfolio in an ideal fashion, and that's why we took a stake into that business. When you look at the rosé business, the structure of the industry is pretty close to the structure of the Champagne industry. My wildest wish would be that we develop the rosé business the same way as we have developed the Champagne business over the years. Joseph Phelps enables us also to complement the portfolio of products that we have and that we shall be promoting or putting in front of our clients through the distributors in the U.S.
We don't have a red wine, and Joseph Phelps is a very renowned, good, and important wine in the U.S., and that will complement the rest of the portfolio. We have a white wine from New Zealand. We have rosé, and that would be an ideal complement. That's what we do. I mean, we look at the portfolio of each division, and we look at what could fit into it and would help grow the business looking forward.
We'll take two additional questions. The first one is from Li Wei Hu from CICC.
Thank you, Jean-Jacques and Chris, for taking my question. I have two. The first one, as we're approaching the end of 2022, compared to the start of the year, are we being more conservative about reaching the full-year target? Or is it the case that the positive surprise enough to offset the headwinds, so we are more than, you know, still staying on track for the full year? The second question is regarding China. We're seeing early signs of possibility of resumption of international travels. When that day comes, if it comes, what will be our overall strategy about duty-free channel in China, particularly in Hainan?
Is it a predetermined plan where we move step by step, or is it more of a fluid situation where we might scale down our supply to Hainan wholesale channels? These are my two questions.
Okay.
Thank you.
Well, thank you. Are we being more conservative in achieving the full-year target? It's an interesting question. Thank you. As always, I mean, the year never unfolds the way it was supposed to. I mean, either the business or the currency or both end up being different from what we had in mind early in the year. Frankly, 2022 was no shortage of surprises, good and bad. We discussed FX. I mean, the level of the dollar is a good surprise. It's definitely creating some tailwind. Other situations like war, Russia or other things, or the pandemic handling in China are obviously creating some headwind, and we have to deal with that, as always.
I mean, we always end up with pluses and minuses compared to what we had in mind early in the year. It's not entirely new, and we'll see what happens. We are doing our best to develop our brands and to make the best of the year in conditions that are obviously different from the ones we had in mind a year ago when we put together the budgets for 2022. Second question about duty-free and Hainan. The important point to understand with Hainan is that when you talk about duty-free in Hainan, you're talking about concessions that are given to local operators that normally would only do business with suppliers that do wholesale.
They do a lot of cosmetic business, and that's about it, frankly. They only know the wholesale model. They buy and sell, and they discount when the off-season comes. As you perfectly know, I mean, this doesn't fit with the bulk of our business. We'd love to do business in Hainan because there's significant business to be done there, but not at the expense of our business philosophy, which is to control the business we do in our own retail stores. You will not see Vuitton or Dior wholesale stores just because we want to be in Hainan. No way. It will never happen.
As we talk, I mean, there is no possibility whatsoever to be in Hainan in a duty-free way. Maybe in a duty-paid way. For the time being, we are not entirely convinced that there are locations that would suit our quality criteria, but things change very fast in China, and particularly in Hainan. We'll see. But as far as the duty-free business is concerned, it's a non-starter.
The last question is from Kathryn Hallberg from Cowen.
Hi there. Thank you so much for taking our questions. The first question is more on the Sephora business. We recently saw the announcement with the expansion to the rest of the Kohl's stores. We were just kind of more curious on how is that Kohl's partnership working with the Sephora line, and are you seeing any cannibalization or risk of cannibalization with the full-line Sephora stores? Our second question is on Tiffany. Obviously it sounds like there was a bit of a slowdown in Q3, specifically in the U.S. Overall, how is that progress of the acquisition relative to your expectations? What are the key catalysts going to be through the end of the year and into next year? Thank you.
Thank you. Sephora and Kohl's and the risk of cannibalization, I mean, obviously, it was a question that we asked ourselves right from the beginning. The analysis is that, one, Kohl's locations are different from Sephora existing locations, so it's not so much of a problem. Two, the client base at Kohl's is different than the one that would normally go to Sephora. It was really the two businesses adding on to each other rather than risk of cannibalization. We've been extremely pleased with the business we do with Kohl's, that it is purely, or if not purely, massively incremental to the existing business of Sephora. Tiffany, you mentioned slowdown.
I mean, as I said, I mean, growth is a little bit lower than what it was in H1. It's still double-digit. We are very pleased with the business we do with Tiffany. It is just that the business in the U.S. is doing a bit less, is a bit less strong than it used to be. Therefore, overall, we end up with slightly lower growth numbers. It's frankly a very satisfactory double-digit growth performance in organic terms in the third quarter of the year. Compared to our projections when we bought the business, we are still way above what we had in mind when we made the acquisitions.
The business has proven much more reactive to the measures similarly that we have put into it. We are doing much better than what we thought we would do, and we are extremely happy with that. Okay. No further questions. Thank you, thank you all. I obviously look forward to discussing with you full year's numbers at the end of January 2023, and I wish you a great day. Thank you. Bye.
Bye-bye.