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2019-10-11 02:27:43

LVMH Moët Hennessy - Louis Vuitton, Société Européenne (OTCPK:LVMHF) Q3 2019 Revenue Conference Call October 10, 2019 9:00 AM ET

Company Participants

Chris Hollis - Director, Financial Communications

Jean-Jacques Guiony - CFO

Conference Call Participants

Luca Solca - Bernstein

Edouard Aubin - Morgan Stanley

Antoine Belge - HSBC

Jungwon Kim - Cowen and Company

Melanie Flouquet - JP Morgan

Thomas Chauvet - Citigroup

Thierry Cota - Societe Generale

Zuzanna Pusz - UBS

Charmaine Yap - Redburn

Stephane Destraz - Bank J. Safra Sarasin

Paola Carboni - Equita

Operator

Ladies and gentlemen, welcome to the LVMH 2019 Third Quarter Revenue Conference Call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.

Chris Hollis

Hello. I’m Chris Hollis, Director of Financial Communications at LVMH. And with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us. We have some remarks to make about LVMH’s revenue for the third quarter and first nine months of 2019. As in previous periods, these revenue figures are reported in accordance with International Financial Reporting Standards or IFRS, and these remarks -- and after these remarks, Jean-Jacques and I will be happy to take your questions.

Before I begin, as always, I must remind you that some information to be discussed on today’s call is forward-looking and subject to important risks and incentives 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 all had a chance to read our release which was issued yesterday in both French and English. As always the release is available on LVMH’s website, www.lvmh.com as are the slides that we are using to guide today’s call.

So starting on slide three, I will kick off as always with the highlights for this period. In the third quarter, we once again delivered solid performance with every business group and region contributing to our growth. On a regional basis, this included strong growth in the U.S. and Europe as well as Asia despite the situation in Hong Kong.

In terms of the business groups, Wines & Spirits had a good performs, as in Perfumes & Cosmetics, particularly in its iconic brands. Within Fashion & Leather Goods it’s worth highlighting the remarkable momentum we are seeing notably at Louis Vuitton and Christian Dior Couture. On the Watches & Jewelry front, we continue to see good progress in jewelry, with Bvlgari standing out in this quarter, as well as continued improvements at Hublot. Finally, Sephora performed well and DFS reported positive growth for the nine months despite the challenges in Hong Kong that I mentioned.

I also want to point out that the third quarter represents the first period in which Belmond Group, the hotel group was consolidated into revenue, following the completion of its acquisition in April of this year.

Finally, at the end of September, we held an important event at our head offices with the participation of our senior management team, highlighting the progress we have made on our sustainability roadmap towards our 2020 goals, and announced new commitments for environment and biodiversity. While not related to the Q3 figures, this is an increasingly important topic for our stakeholders. And more details of this event can be found on our website.

Looking now the evolution on the Group’s revenue performance on the next slide, slide four. We generated organic revenue growth of 11% for both the quarter and the nine-month period. The reported growth figure of 17% for the third quarter reflects a 3% structure impact,, which is resulting from the acquisition of Delmond as well as 3% positive currency effect. The nine-month revenue increased 16% on a reported basis.

Revenue mix continues to be well balanced across geographies. Slide five shows Asia excluding Japan which represents 31% of revenue as measured in euros, continued to represent the largest region. This is followed by Europe at 27%, in which France represents 8%. And the U.S. including Hawaii at 23% and Japan at 7%. Other markets accounted for 12% of revenue.

As you can see on Slide 6, organic revenue growth for the first nine months was up across all regions, compared to the prior year period. Revenue rose most significantly in Asia excluding Japan, growing 16% followed by Japan at 13%. Revenue from Europe and U.S. grew 10% and 8% respectively, demonstrating the Group’s continued execution globally despite macro uncertainty.

Looking quickly at the third quarter figures. We saw some acceleration in Japan in part linked to the anticipated rise in sales tax that took place on the 1st of October and a slight slowdown in Asia outside of Japan, reflecting the situation in Hong Kong. Performances in Europe 11% and U.S. 8% remained consistent with the first half.

At the business group level for the nine-month, Fashion & Leather Goods was up a strong 18% on an organic basis versus 2018 driven by exceptional performances at Louis Vuitton and Christian Dior Couture notably.

Wines & Spirits was up 7% for the period, Perfumes & Cosmetics up 8% and Watches & Jewelry 4%, and finally, Selective Retailing 6%. We’re pleased that for both the nine months and the quarter, every business group contributed to the 11% organic growth we delivered overall.

Now, let’s take a deeper dive into each business, starting with the Wines & Spirits on slide eight. As I noted, organic revenue was up 7% for the nine-month period. Total Revenue for this group was €3.9 billion, up from €3.6 billion in the same period last year, inclusive of a 3% positive currency effect. Putting the third quarter into the context of this year. Reported revenue rose 11% to €1.4 billion compared to the same period last year. And excluding the 3% positive currency impact, organic revenue grew 8% for the quarter compared to last year.

To further break down this activity. For the first nine months of the year, Champagne and Wines organic revenue grew 5% and including a 1% positive currency impact, reached €1.56 billion compared to €1.47 billion in 2018. In the third quarter, organic revenue for Champagne and Wines grew by 4% and including a 2% currency impact, reached €598 million.

Cognac and Spirits reported €2.2 billion in revenue for the first nine months compared €2.1 billion in year ago period. This represented 8% organic revenue growth and a 5% positive currency impact. In the third quarter, organic revenue for Cognac and Spirits grew by 11% and including a 3% positive currency impacts, reached €835 million.

Champagne volumes were down slightly in the nine months. While all regions grew in the nine-month period, the main contributors were Japan and Europe across Champagne and Wines category. Prestige cuvées performed particularly well, including the successful launch of the Dom Pérignon in 2019, and pricing actions on Estates & Wines also contributed to performance for the period.

In Cognac and Spirits, Hennessy volumes were up 10% in the nine months, driven by VS qualities. For the third quarter, we saw accelerated growth in the U.S. due to strong demand and continued normalization of inventory levels at distributors. And in China, we delivered sustained growth. And at the same time, the Glenmorangie and Belvedere brands continued to make progress, particularly in the high end products.

Moving to Fashion & Leather Goods. Revenue in this business was up a robust 18% on an organic basis for the first nine months of 2019. Reported revenue was up 22% to €15.9 billion from the €13.1 billion in the same period last year. This includes a 4% positive currency impact.

In the third quarter on its own, organic revenue grew by 19% and including a 3% positive currency impact reached €5.5 billion. This business group saw a strong growth in all regions through the first nine months of the year. Louis Vuitton demonstrated excellent momentum across the board with the success of both its iconic lines and new creations. The Brand also continued its store network enhancements, while expanding its production capacity with recent opening of a new environmentally friendly workshop in Maine-et-Loire region in France. And then, the Louis Vuitton X exhibition, which opened in Los Angeles in June and is ongoing through mid November has been very successful.

Christian Dior Couture saw very good growth in all categories and an excellent reaction to the new store opened on Avenue des Champs-Elysees in July. Meanwhile, the renovation of the historic Avenue Montaigne store is ongoing. We could also mention the great success of its V&A exhibition and more recently its haute couture display. [Ph]

In terms of the other Fashion & Leather Goods brands, Fendi sending re-launched new partnerships with several artists and musicians. Celine introduced its first haute parfumerie collection and launched the new trails bag -- canvas handbag collection. Loro Piana, Loewe, Rimowa and Berluti all performed well.

Turning now to Perfumes & Cosmetics. Revenue increased to €4.9 billion from €4.4 billion in the nine-month period of last year. This represented an increase of 8% in organic revenue and 3% positive currency effect or 11% rise in reported revenue.

For the third quarter specifically and compared to same period last year, organic revenues grew by 7% and including a 2% positive currency impact reached to €1.7 billion. Overall, the Perfumes & Cosmetics business group generated excellent growth across the flagship brands and saw strong progress in Asia, specifically Parfums Christian Dior had good momentum with continued vitality from Miss Dior, J’adore and Sauvagem, the launch of new Eau de Parfum Joy fragrance; and on the makeup side, the brand saw continued growth of Rouge Dior lipstick as well as the Ultra-Rouge version.

Guerlain performance was very strong, driven by its lipstick line Rouge G and its skincare line Abeille Royale. The brand also launched a new Eau de Parfum Intense Mon Guerlain.

Parfums Givenchy’s makeup line saw rapid growth in Asia, especially in China, with its new -- with its Prisme Libre continued to be a real success. The brand also continued a new version of its fragrance L’Interdit.

Benefit continued the successful development with Eyebrows Collection with Precisely My Brow and Gimme Brow; and finally, saw good performance at Fresh, Fenty Beauty by Rihanna and Acqua di Parma.

In the Watches & Jewelry businesses, here on slide 14. Reported revenue was up 8% to €3.3 billion compared to €3 billion in the first nine months of last year. This included a 4% organic revenue growth and a 4% positive currency effect. For the third quarter on a standalone basis, organic revenue grew by 5%, and there was a 3% positive currency impact compared to a year ago period for a reported revenue of €1.13 billion.

To give you some highlights from this business group for the first nine months, Jewelry delivered strong performance, especially in directly operated stores. Bvlgari demonstrated good momentum and market share gains, driven by the continued success of its iconic Serpenti, Diva and B.Zero1 lines as well as its new Serpenti Seduttori watch collection, and during the period also rolled out a new high jewelry line called Cinemagia.

TAG Heuer continued to make progress on its repositioning and streamlining and announced a new partnership with Porsche to be the title and timing partner of the Formula E Team.

Hublot saw solid growth driven by Classic Fusion, Big Bang and Spirit of Big Bang lines. And finally, Chaumet saw continued success of its iconic lines including Liens and Joséphine as well as its Bee My Love collection. The brand hosted a successful new exhibition in Monaco in summer, called Chaumet in Majesty. Jewels of Sovereigns Since 1780.

Last but not least, our Selective Retailing business, slide 16. This group delivered 6% organic revenue growth or 11% on a reported basis, incorporating the impact of a 5% positive currency effect for the nine-month period. Revenue reached €10.5 billion, up from €9.5 billion in the same period last year. For the third quarter on its own, organic revenue grew by 4% and included a 3% positive currency impact to reach €3.5 billion.

Looking at this businesses group in more detail, I’ll start with Sephora which continued its strong growth trajectory, especially in Asia and Middle East as well as online. During the quarter, the brand opened its first stores in Honk Kong and in Auckland, and it expects to open its South Korean location soon. In terms of category Sephora saw solid growth in skincare across all regions. Lastly, I’ll highlight that the brand rolled out new campaigns in U.S and China, which are being very well received in these markets.

DFS continued to demonstrate growth over the first nine months, despite decline in Honk Kong during the summer due to the situation in the region. The brand saw excellent performance at its Galleria in Venice, Italy and inaugurated a new beauty store in Macau. In addition it’s preparing for the opening of Galleria at La Samaritaine in Paris, which is scheduled for 2020.

And finally, Le Bon Marché continued its animations and the transformation of the main store’s ground floor.

So, in summary, our continued solid performance, delivering 11% organic revenue growth in both the third quarter and the first nine months of the year in the context of some ongoing economic uncertainty in key regions demonstrates the strength and resilience of our portfolio. In fact, all business groups and regions contributed to growth in Q3.

As we look ahead, we’re cautiously confident for the rest of the year. As a group we will continue to focus on offering innovative, high quality products and selectively expanding store network while thoughtfully managing costs with the goal of reinforcing LVMH’s leadership position in the global luxury goods market.

Thank you. And with that we will now take any questions you might have. Gregoire, could you please open the line?

Question-and-Answer Session

Operator

Yes. [Operator instructions] The first question comes from Luca Solca from Bernstein. Please go ahead.

Luca Solca

Could you give us some perspective on how demand has been evolving by nationality? Especially, if we track Chinese consumer demand and how this has shifted across geographies. As I imagine you have recaptured a lot of that demand that didn’t surface in Hong Kong elsewhere. You are also in some points of the presentation mentioning market share gains. And I wonder how important that portion is in the growth you are producing today, if you could give us any understanding, especially in the categories where you seem to be aiming the most. You mentioned jewelry for example, but across the board. I think it could be quite interesting for us to appreciate. And thirdly, when it comes to of course that’s positive performance across all product categories, but just spoiling us with these high-quality results So, I was wondering if in Perfumes & Cosmetics, there is any specific reason related to product launches or anything else that has been leading to growth being just a touch below what we had in the first half in the third quarter? Thank you very much.

Jean-Jacques Guiony

Thank you, Luca. Yes. I know that 7% growth in Perfumes & Cosmetics is very bad. I’m sorry about that. Your question is on nationality. So, the different by nationality, where we can measure it. And as you know it’s not a compressive view that we have particularly in the wholesale business but we have no information. But in the retail business where we have information, we have two types of trends, I mean, either stable or growing. Stable growth was for the Chinese and the American. Definitely the growth we had globally with the Chinese customers in Q3 was in line with what we’ve had so far this year. Same thing was the American clients. And as far as Japanese, we had higher growth. Chris mentioned probably some impacts from consumption tax changes. As always, there is anticipation in the business shortly before and usually the offsetting movement there -- shortly thereafter, but anyway.

So we had growing trends with Japanese probably to a large extent attributable to these. Although I remind you that the context with Japanese was pretty good and had been pretty since the beginning of the year.

You mentioned Honk Kong and compensation. It’s a very tough question. We can give you facts and figures on Honk Kong. The drop in the business in Q3 was roughly 25%. But the 25% drop in Honk Kong in Q3 was a combination of the flattish month in July and around 40% drop in August and September. So, definitely, the trend had been worsening throughout the quarter. The situation is a little bit better for the wholesale business and little bit worse for the retail business, namely Fashion & Leather, Jewelry and DFS. And we don’t have the numbers for last week’s yet. But given the fact that there were closures of stores and the situation was not getting any better, I would be surprised if we were turning out better numbers for the fashion week. So, the global situation there is what it is.

We haven’t seen many, many countries booming as a consequence for the situation. I mean it’s very difficult to draw any correlation between the various geographies, particularly in Asia. The business for DFS in Macau is much higher than it used to be but is it a compensation for that? I really don’t know. So, it’s very difficult to figure out whether there are really offsetting factors in between Asian geographies due to the situation in Hong Kong.

Your second question was on market share gains. It’s a simple observation that in some of our businesses, we grow faster than the numbers that are reported by the competition. So that’s all. So, you know the competition numbers as well as we do because we pick them from the same sources. And so you understand what I say. I have no global observation to make on this. But it’s not the first time that we comment on market shares.

And lastly, in Perfumes & Cosmetics, although very bad, the numbers are not that bad in my view, 7% growth in Q3. If you compare with the nine months numbers with last years and if you look at them on a geographic basis, you have no change in Asia, the growth is exactly the same. Hardly any change in Europe or in Japan. The big drop is definitely the U.S. where the whole industry in my view has been caught surprised with the drop in the makeup business, which used to be flying for the last 10 years and suddenly became negative in 2019. So, that’s a big difference. And given our exposure to the makeup business, this has some replications on our global numbers.

Luca Solca

Understood. Did you mention trends for Europe -- for the European nationality that I didn’t catch your answer?

Jean-Jacques Guiony

No, I didn’t. But they are good. They are good and no particular change there. So, where we can measure them, they’re as good as they’ve been since the beginning of the year.

Operator

Thank you. Next question from Edouard Aubin from Morgan Stanley. Please go ahead.

Edouard Aubin

So, three questions for me. First of all on Vuitton. So, I guess, the biggest luxury brand in the world is growing at least twice faster than the industry average. And you’ve talked, Jean-Jacques, in the past few calls about some of the drivers of this strong performance. But, could you just please comment again on, if you’re seeing the share of new launches increasing in the mix? And comment as well in terms of the ASP evolution over the past two years for Vuitton. That’s number one.

Number two on Sephora. Could you please provide some color on how the retail banner performed in the main geographies? And including the U.S. you just mentioned that the Perfumes & Cosmetics division was impacted there. So, just curious to see how Sephora performed in its main markets.

And lastly, I know it’s a call about sales, but just on profitability big picture. I guess, the biggest beat in terms of the sales in Q3 came from your two highest margin divisions. So, why would it be a positive I guess in terms of the mix for the second half profits? And what are the offsets we need to keep in mind for this good mix performance?

Jean-Jacques Guiony

So they’ll be on the drivers of -- nothing new to report. The recipe works and we do not change the recipe. The recipe is combination of image investments, distribution investments, product investments, all this at the same time and is fueled by a very good momentum for the brand. No particular impact from your products. I’m not saying that the new products are not successful, they are, but the share of new products doesn’t change a lot. It’s quite a constant share for the last many, many years, I would say. So, you cannot say that this is a particular product that is responsible for the growth of such a large brand. It is not the case. It’s really all the products, all the divisions, all the categories contributing to the growth. So, it’s a winning formula. And I don’t have much to add and in the same strategies that we’ve been implementing for the last five, six years are still being implemented.

As far as Sephora is concerned, the main geographic trends, nothing really new there as well. Clearly, Asia and Middle East are leading the -- are the fastest growing areas. It’s been the case since the beginning of the year and it was also the case last year, but we are growing very, very fast in these two areas. Europe and the U.S. are pretty close with low to mid single digit same-store growth, which compared to double-digit growth for Middle East and Asia, so clear growth pattern, difference between these two areas. As far as Europe is concerned, it’s not a new thing. And Europe has been -- the cosmetic has been under some pressure for a while. And the type of growth rate that we have is not very different from what we had in the past. As far as the U.S., I already mentioned that 2019 witnessed a fairly brutal drop in the makeup business, which to some extent has been offset by the hair care and the skin care business. But our market share in hair care and skincare is lower for Sephora than what it is for makeup. So all in all, this has an impact on the overall like for like growth of Sephora. We remain positive both in like for like and in global growth and organic growth. So, the situation is far from being catastrophe. And roughly speaking, in Q3, the same store growth was not far from the first half of the year. Overall, we grow for the first nine months of the year on the same store basis 6%, which is not very different from, if I remember well, the 7% we had at the end of June.

And finally, a question on profitability. So, you mentioned that the two most profitable divisions are growing faster than the rest, so this would have a positive impact on profit. You are probably right. This being said, I mean, there are many other factors that we don’t know or that we don’t take into account, just to mention few currencies, the fact that Hong Kong will probably pay the price for the current situation not only in terms of volume of business but also in terms of profitability. This is a profitable area and we will suffer badly due to the fact that most of the businesses are having fixed cost there and will experience much lower revenues. So, there are number of factors that will have an impact. And obviously I will not guide you into yearend margins as we never do.

Operator

Thank you. Next question from Antoine Belge from HSBC.

Antoine Belge

Hi. It’s Antoine Belge at HSBC, three questions. First of all, I would like to come back to the Hong Kong situation, especially, what you mentioned about your fixed cost structure there. I remember that in 2014, when we already had a situation in Hong Kong, [indiscernible] I think stated that Hong Kong was cyclical. Is the analysis of the management of the group the same this time and how do you think you could adapt and when we could see maybe a bit of front release in Hong Kong? My second question relates to the Vuitton performance, I think you highlighted the driver. You didn’t mention additional capacity. And I know we’ve noted that there have been several new atelier being opened. And so, I think your atelier are more fixable and are now sometimes working in two shifts. So, is there also an impact of bit more supply or is that not the case? And certainly regarding margins, I took notes also of what you mentioned about the division mix and the impact from Hong Kong. But, one, you mentioned FX, in my opinion -- I mean, shouldn’t FX -- should be -- clearly be a tailwind, and now that going to chasing the same gain of hedging to compared to what you had in the first half. So, could you comment a bit also on the willingness of the group to continue to invest significantly in H1. Consensus margin were a bit high. And so, in other words, are you continuing to invest as much as you invested in H1? Thank you.

Jean-Jacques Guiony

Thank you, Antoine, for your three questions. I will not comment on Hong Kong and whether this is cyclical or not. I cannot qualify the current situation. I’m not an expert. The fact that Hong Kong is cyclical is the fact of life. I mean, we have seen many periods in the last 20 or 25 years in which Hong Kong was under some pressure. So, this is not the first one. But, I cannot qualify this in anyway. Obviously, we will try to react to the situation by lowering our cost base and chiefly the rental cost, which are amongst the highest. So, there will be -- there are currently discussions with landlords. But, obviously, it’s way too early to say whether these conversations will bear fruits or not.

On LV, your question on the business being driven by supply front here, I don’t think so. I mean, what we’ve been doing and you’ve been to the atelier and you know in details what we’ve done is actually released the business from production constraints. Although these constraints have not been so evident in the past. In other words, Vuitton was doing miracles in the last three years, now they are more in sort of industry organization that enabled them to manage in a fairly efficient way the peaks in demand. So, I wouldn’t say that the good numbers are driven by supply, they are driven definitely by demand. Although what we’ve done in supply is proving extremely useful to smooth the production and to adapt production to the growing demand.

Finally, your question, your fairly complex question on margins, which is basically the second attempt in this call to ask me for guidance for the second half of the year. So, you know the answer, I won’t give it to you. You mentioned, which is supposed to be a tailwind as opposed to a headwind. It’s true only if you can sign with your blood that the FX will be what it is today till the end of the year, which I doubt very much you will do. So, obviously, as far as FX is concerned, you never know until the end of the year what the global impact is going to be.

Antoine Belge

Maybe just a clarification. So, in terms of Louis Vuitton, and maybe Dior liability to mitigate impact in Hong Kong in Q3, was it that those tourists who wanted to go to Hong Kong bought elsewhere or is it more that you when you saw the situation, maybe deteriorating in August, you shifted more merchandise in other market, and then, that was met by demand. So, basically it’s other people who benefited from that LV and Dior merchandise?

Jean-Jacques Guiony

When you look at the various geographies or the various countries at Vuitton and the way they’ve been evolving in the last months, the answer to your question is not evident. In Asia as I said, I made a global answer for the Group that is true for Vuitton and Dior as well. There were not many-many changes in between H1 and Q3 for the non-Hong Kong geographies in terms of growth, everything is going fine, but is not going to be any better due to the difficulties in Hong Kong. So the correlation, I cannot really describe it.

What we’ve seen is that Europe, it’s particularly true for Vuitton in Europe, was better and particularly with Chinese tourists, it’s a farfetched correlation. I mean the business with tourists in France, particularly that it’s true in the UK and Italy as well, it’s been better for France, maybe an explanation is [June], maybe I’m saying. I can tell you that the business is better. But is there a correlation with Hong Kong or any other specific situation within the Group? It’s very hard to say.

Operator

Thank you. Next question from Oliver Chen from Cowen & Co. please go ahead.

Jungwon Kim

Hi, this is Jung on for Oliver. Thank you for taking our questions. Just in the context of the slowdown in the cosmetics category in the U.S., could you just talk about the timing of the slowdown when it started? And do you see the trend getting better as we look towards the holiday season? Thanks so much.

Jean-Jacques Guiony

On which -- sorry, on which category?

Jungwon Kim

On the cosmetics category, impacts.

Jean-Jacques Guiony

On the cosmetics?

Jungwon Kim

Yes.

Jean-Jacques Guiony

If you look at NPD, I mean it’s been going down since the beginning of the year, roughly. Last year -- end of last year wasn’t too good but it’s really a negative territory since the beginning of the year.

Jungwon Kim

And what is driving down the slowdown in your view and do you see that recovering near term, have you seen better trends?

Jean-Jacques Guiony

No, we haven’t seen better trends. I mean the whole industry is undergoing a phase of slowing down. Reasons are difficult to analyze. We lack a little bit of hindsight to really analyze that. We know that offer has been driving demand in this particular segment unlike previous answer I made on Vuitton but in this particular segment offer was the main driver for demand.

The new offer -- I'm not particularly talking about LVMH, I am talking globally for the market maybe the new offer is not as compelling as what was brought on the market some years ago. So that’s probably definitely maybe one explanation. But frankly, at this point in time, it’s very difficult to go into details about why the market is down.

On top of that, we don’t know whether it’s only cyclical downturn, some inventories have to be absorbed and so on, where it is something more structural that may last for some years, we don’t know.

Operator

Thank you. Next question from Melanie Flouquet from JP Morgan. Please go ahead.

Melanie Flouquet

Yes, good afternoon. Thank you. I’ll try my luck on the first question. Could we have the Watches & Jewelry and the Fashion & Leather Goods growth without Japan, given the acceleration that is front-loading the articles? So I was just wondering whether you could help us on some of the best answers? And then just confirmation, you provided the trend by nationalities for the total Group. Usually you give it to us for LV’s. I understood the Chinese stayed roughly the same, with better sales into Europe to the Chinese tourists. So, could we have a comment please on the other nationalities? And my last question is on La Samaritaine and when is that opening? And could you help us at all to maybe a better understand the impact it may have on your financials and into 2020 that I'm already preparing? Thank you.

Jean-Jacques Guiony

Thank you, Melanie. On Watches & Jewelry and Fashion ex Japan, well I won't give you the number obviously but you can do some calculations on your own. Roughly speaking, it’s 10%, 12%, close to 12% of the business. And if you look at the global numbers for Japan, we moved from 10% growth in H1 to 20% growth in Q3. Probably this additional 10% was to some extent related to the VAT impact. So I would say that the boost from Japan in both divisions was probably around 12% of this 10%. So you do the calculation as well as I do. So it's not insignificant but it's not major as well.

And as it is probably related to consumption tax, it will reverse in Q4 to be clear about that. But it's neither a major positive, nor it will be a major negative in Q4.

Melanie Flouquet

Yes, I was precisely trying to understand. Like because you mentioned also I think in your release that Champagne had a pretty good in Japan. So I was just trying to understand whether that stock was in your best delta, but it didn’t, so it’s 10 points that we should apply to both divisions roughly?

Jean-Jacques Guiony

I mean it’s not -- we don't ask people when they come to stores, whether they shop or they …

Melanie Flouquet

No but the degree of acceleration right, which we don't ask by size, by division.

Jean-Jacques Guiony

There is certainly correlation in retail businesses, well it’s so in wholesale businesses because in wholesale businesses the distributors could absorb it or it smoothes in due time. So the correlation doesn't exist. This is why I just answered on Watches & Jewelry and Fashion & Leather.

Melanie Flouquet

And just something -- sorry, Watches & Jewelry usually has some very bigger impact this year’s increase. That wasn't the case this time around. You’re citing 10% acceleration in both. So it’s high-ticket items that are the most impacted?

Jean-Jacques Guiony

It was I mean, it was more of the same for all the -- for the three divisions.

Melanie Flouquet

Thank you.

Jean-Jacques Guiony

Your questions on the Chinese business, well it was in line. I answered for the Group, actually not, it was not for the Group. It was for the brands within the Group where we can measure it and including obviously Vuitton. So the trend was stable as I said for the Americans, for the Chinese and for the Europeans as usual at Vuitton and at Dior as well in Q2 -- in Q3 compared to H1.

And the opening of Samaritaine, the impact of the opening of Samaritaine will not be tremendous. I mean obviously the typical costs are -- most of them will be already booked by the end of 2019, let’s say 95% of them, some of them they come in 2020 but not much. And the opening expenses will be limited. Obviously the first month of business will be loss making as it is obviously the case for each large openings. That's something that we shall be budgeting within the DFS numbers, and we don't expect something particularly meaningful there.

Operator

We'll go to the next question. Next question from Thomas Chauvet from Citi. Please go ahead.

Thomas Chauvet

Good afternoon, Jean-Jacques and Chris. Two question please. The first one, Chinese New Year will be 10 days earlier versus last year, I think it starts from the 25th of January 2020. I guess that should benefit shipments of cognac, watches, perfumes, we know that. But as far as Vuitton and Dior are concerned, are you capable but also keen to meet that strong demand you are having at the moment and deliver enough products to the store? Will you be tempted to hold back maybe in Q4 inventories to hold back till January, Feb? You did I think in Q4 '17 if I remember.

Secondly on pricing, a general question. My understanding is your position is you don't want to play with a price gap anymore. Nevertheless, the situation we are having now, I mean is that sustainable whereby China price is only marginally higher than in Hong Kong or Korea? Would you be able willing to increase prices in China? Obviously they have come down after cuts and import duties and VAT, so it might be not acceptable for the local consumer base.

And just finally on your comments about Hong Kong, you said Jean-Jacques you are not a specialist but I think you've seen that business evolving a lot over the last decades with a diminishing share of sales and profits and second round of protests now after 2014. If we become a little bit more negative, as Antoine was saying about the structural pressure in this market, are you able to plan something to offset the tourism led business of Hong Kong in other parts of the world? Perhaps Macau obviously a direct neighbor may be Singapore has done a great job at Marina Bay and Sentosa with some of your brands. So do you have a strategy within Asia to offset perhaps what could be more structure weakness of the Chinese consumer in Hong Kong?

Jean-Jacques Guiony

Thank you Thomas. So on Chinese New Year, you mentioned the cognac impact which is usually the case. This year we might have a little bit of impact if I'm not mistaken, Chinese New Year is a bit earlier. Yet we are also a bit overstocked. So I'm not too sure this will have a major impact in 2019 numbers. Your main question was on LV and whether we would spare some volumes from the end of the year and devote it to next year. That's -- the answer I made to Antoine's question on offer and demand. I mean with the flexibility -- the improved flexibility and higher capacity that we have today, I don't think we need to do that, so we can really have a strong year end season and hopefully a strong Chinese New Year.

Pricing, your question on the Hong Kong and China, if you allow me I would answer with a question. Do you really think that if we are lowering prices in Hong Kong today, this would help the business? I don't think so.

Thomas Chauvet

I was thinking increasing prices in China?

Jean-Jacques Guiony

Well, that's exactly the same thing. I mean, so widening the gap I don't think would help in any way because the origin of the situation is obviously very different from a pure price gap situation. So no, we don't intend to play with prices in any way. And also question on sort of offsetting, wiping out or writing off Hong-Kong and doing the business elsewhere, I mean I think each time we have such a situation in Hong-Kong, I get the same question that two years after really people have forgotten that they ask the question when the business recovers, I mean it’s out of the question that we consider Hong-Kong as something that may not be a strong business center in the years to come. So, they are undergoing some difficulties for the time being but we are pretty confident that at some point they will recover.

Operator

Thank you. Next question from Thierry Cota from Societe Generale. Please go ahead.

Thierry Cota

Good afternoon, Jean-Jacques and Chris. Thank you for taking my questions. Three questions please. First one, cognac. Can you tell us where stand the inventory days of your distributors at this point, and whether you find the level to be satisfactory? And I was wondering if you could help us think on Q4 volume in France, and potentially next year? Secondly, on champagne, we've had a pattern of low volumes and high mixed price effect for a while now. I think it reflects your structural distribution policy and focus on higher priced brands. Is that going to end at the end of the year or will it continue into next year? And what kind of impact do you think that structurally that could have on the profitability of champagne? And lastly on Celine, if you could update us on what's the situation in terms of revenue profile over the first nine months of the year? What is the scenario currently unfolding for the brand, is there sales acceleration or not and is it in line with your plans?

Jean-Jacques Guiony

Thank you, Thierry. So cognac in the U.S., not very easy question, actually not a very simple answer. The situation in -- from an inventory viewpoint in cognac is actually, we moved consciously inventories in the first nine months of the year from a very low point in early 2019, something like 60 days, which is quite okay. In doing so, we had sell-in that was higher, not in a big way, but in Q3 that was a bit higher than sell-out. In the fourth quarter of the year, we will monitor the number of days of inventory so that it keeps flat. But the problem is in the calculation of such an indicator. Bear in mind that days of sale is forward-looking. And since you have 60 days at the end -- ahead of the festive season as we have today, and 60 days in January are the low season, it’s not the same number of cases. In other words, the number of days will not go down but the number of cases we have in inventories within the trade will go down. Therefore, it is quite likely that in Q4 sell-in will be lower than sell-out. Sorry to be technical but I wanted to make this clear. And magnitude of it in overall for Hennessy should be around 3%. So, we should have the growth in sell-in that will be 3% lower than the growth in sell-out. What is the growth in sell-out, I don’t know. So you cannot -- you are right on that, our anticipation for Q4. But anyway, we are reasonably confident about demand in Q4 but we should have a little bit not of destocking in days of sales but a little bit of destocking in number of cases.

As far as champagne is concerned, you’re right, I mean the pattern of the growth is mostly based on price mix and not on volumes. It’s very difficult to know how long it will last. We truly expect that next year we’ll see volume rise, not by 10%, I mean you look type of growth we can achieve in champagne. I mean it’s not a few percentage points. But compared to the low level, the stable level that we this year so far, I think we can do a bit better next year without changing anything. That’s most important to our value creation strategy as we said based on price and mix.

Finally, on Celine, I suspect you and your colleagues will be asking the same question each and every quarter for a while. So, you know that we do not comment -- we don’t like to comment in detail on brands undergoing some form of repositioning, particularly after artistic direction changes. So the only thing I can tell you at this point in time is that the initial signs of clients’ response for the new offer are positive, particularly in terms of traffic. But yes it will take some quarters and I don’t know how many before the branding and the new products plan bear full fruits.

So I will probably make the same answer for a number of quarters. Anyway I'm sure you will keep on asking same question.

Operator

Thank you. Next question from Zuzanna Pusz from UBS. Please go ahead.

Zuzanna Pusz

Hello, I have three questions please. I’ll give you a break on Hong Kong but ask on Japan if that’s okay. So, first of all, I guess we don’t understand that there could have been a little bit of pull-forward in consumption ahead of tax increase. But have you also seen any increase in stores in Japan specifically that would also maybe extend part of increase in the rate of growth?

Second question also on Japan. Would you be able to provide growth -- provide us with the growth -- rate of growth for Japan by division? So specifically if -- I don’t know, let’s say, Watches & Jewelry given the exposure to high-ticket items, could it be that Japan in that case was even more than 20% that would be quite helpful to know that? And finally on Selective Retailing, I think I missed this, but can you provide us some color on the rate of growth of Sephora versus DFS? Because I think in your remarks you mentioned that DFS was positive for nine months and that makes me think that maybe it wasn’t the case in Q3. So any of the color on -- mid-single-digit, high-single-digit, anything like that would be very helpful? Thank you.

Jean-Jacques Guiony

Thank you for very precise questions. So on Japan, tourism was not -- if you look I mean was not a driving force behind the increase in the growth rate, if you look at Vuitton and Dior, where we monitor that pretty closely, the Chinese clients for instance or the Korean where we’re not particularly up in Q3. So that’s not a valid explanation for the change in the growth rate.

We don’t provide the growth by division on a geographic basis. The only thing I can say is that, the main -- and it won’t be a surprise to you, the main changes compared to H1 where in Fashion & Leather and Watches & Jewelry where we had the highest peak in the growth rate, particularly in Watches & Jewelry, where we’re not at 20% but not very far.

Third question on Sephora versus DFS, your guesstimate on DFS in Q3 is correct. I mean it's slightly negative after being positive in the first two quarters and it's still positive on a nine months basis, whereas Sephora is almost double-digit for the first nine months of the year.

Operator

Thank you. Next question from [Rudy Louise] from [Aspect Group]. Please go ahead.

Unidentified Analyst

I have a question for you regarding the Wine & Spirits segment please. The U.S. are to impose tariffs on French wine. I would like to know how you plan on overcoming this tariff and how is that going to impact your sales?

Jean-Jacques Guiony

The question on tariffs is always a difficult one. I mean there is no one single answer. It depends on the category of products and how the competition reacts. So it's very difficult to say what we would do. One thing could be to increase prices and to offset tariffs increasing to local prices. But obviously as I said, it depends on competition reactions. So, we don't want to be pushed out from being competitive from a pricing viewpoint by such action. So, obviously we will think twice before doing it. So for the time being we have no precise answer to -- or a global answer to this situation.

Operator

Thank you. Next question from Charmaine Yap from Redburn. Please go ahead.

Charmaine Yap

I have two questions please. The first one in terms of online. Is there any color you can give in terms of maybe in Hong Kong and China physical store closures that we have seen maybe a pickup in traffic in online? And the second question relates to Watches & Jewelry. Can you please give a bit more color between jewelry or Bvlgari versus watches? I think last quarter you mentioned Bvlgari was growing high single-digit and there's a 200 bps impact from wholesale rationalization. Any comments underlying you've had if you can excluding Japan would be helpful please?

Jean-Jacques Guiony

So online, basically your question is related to the impact of the situation in Hong Kong in online. I mean as far as Hong Kong per se is concerned, I mean online business is not particularly significant. It's obviously much more significant in China. But the trend in online in China across the board I would say are not materially different from what they were before. So we haven't seen any-- again any correlation between Hong Kong situation and any other factor within the business and not particularly in the online business in China.

As far as Bvlgari is concerned, the trend in this quarter has been I would say exactly the same as it was in the first two quarters of the year. So the business is still doing good. Obviously the situation in Hong Kong is where we have a fairly large share of the business and where the drop is as high as in other businesses. It’s closely monitored. But we also have a very strong Chinese business. So for the time being the situation doesn't show any change in terms of growth rates?

Charmaine Yap

Okay, thank you. And just a quick follow up. In terms of TAG Heuer within Watches & Jewelry, can you remind us on where you are on the restructuring, what you are doing and if there’s anything, the timeline to note please?

Jean-Jacques Guiony

No, there is nothing new there. I mean it’s -- we're working on distribution and product. We're not seeing particularly new to report there. But when we do, believe me you will hear about it.

Operator

Thank you. Next question from Stephane Destraz from Bank J. Safra Sarasin. Please go ahead.

Stephane Destraz

Actually I have two questions, Perfume & Cosmetics and Selective Retailing. You spoke about the U.S. and the weakness in makeup. I wonder whether you’re seeing the same thing in skincare or skincare is still doing well in Perfume & Cosmetics? And the second question is relating to Sephora, where there some other have commented that they are seeing some weakness in prestige beauty, consumer down trading and traffic still being impacted. Basically consumer down trading into masstige. Whether you’re also seeing this at the level of Sephora? Thank you.

Jean-Jacques Guiony

Thank you. Now skincare in the U.S. is doing very well. I mean the skin care business is growing double-digit and Sephora is growing very strong double-digit as well. So it’s a very positive segment in the same way as hair care. But it’s really the makeup segment that is undergoing some difficulty. As far as down trading is concerned in the U.S., it’s difficult to say the global prestige market is what I described i.e. negative for makeup and positive for the other categories. When you look at the other categories, particularly it’s on -- you see no signs of down trading. And on makeup, it is a whole category. I would say both prestige and other categories that is suffering. So down trading is not something that we have really seen.

Operator

Thank you. We don’t have any more questions for the moment. [Operator instructions]. We have one new question from Paola Carboni from Equita. Please go ahead.

Paola Carboni

I have a few questions. First of all, maybe just a qualitative comment on your wording. In the press release you referred to good growth at Dior versus remarkable or excellent for LV. I was just wondering whether we should think still about Dior as the most -- the fastest growing brand within the division or there has been a bit more similar performance in the latest quarter for the two flagship brands? And other question please, is on the situation of Hong Kong as far as the chances of recovering as well are concerned, I appreciate that you say for time being we're not seeing any change in the growth trends as well in the Asian region. But I was simply wondering I mean without any crystal ball clearly. But do you -- would simply consider this as a reasonable behavior by Chinese. So do you think we might expect some recovery as well in the next few months, or maybe this is not happening -- has not been happening until now, it means that won't be the case. So just to understand your view on that? And a very final question, please, still on Hong Kong but in terms of the cost. Am I right in saying that at least for your retail business, there the biggest part of your rents are variable in any case? Thank you very much.

Jean-Jacques Guiony

Well, let's not try to get into the details of the wording on Dior and LV, I mean both are growing fast and we're very happy about that. And I will not comment on whether Dior is growing faster than LV or the other way around. So we are very happy with both businesses.

On the Hong Kong business being -- drop being offset as well in the future, frankly I don't know. I mean, if I could, as I said, I mean we find it hard to analyze, or to really get a good understanding of whether the business in Hong Kong takes place elsewhere, it's not obvious as I said before. So even current numbers are difficult to analyze, so really forecasting what will happen in the future is even more complicated. So the truth, I am sorry there, I really don't know. And as far as rents are concerned, most of the rents in Hong Kong are fixed and short-term. I mean it's three years, three to four years leased. They are fixed with obviously indexation clauses.

Operator

Thank you. We don't have any more questions. Back to you for the conclusion.

Jean-Jacques Guiony

Thank you, ladies and gentlemen, for attending this conference call. We look forward to discussing our full year numbers in late January. Thank you and good afternoon.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.


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