LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Thank you. I'm Chris Hollis.

I'm Director of Financial Communications at LVMH. And joining me is Jean-Jacques Guiony, our Chief Financial Officer.

I have a few remarks to make about LVMH's revenue for the third quarter and our first 9 months of 2012, which we reported in accordance with the International Financial Reporting Standards or IFRS. After these remarks, Jean-Jacques and I will be available to answer your questions.

Before, I must -- before I begin, I must remind you, as always, that certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the Safe Harbor statement included in our English and French press releases.

Turning now to the revenue announcement and hopefully, you've had -- all had the chance to read our release, which was issued yesterday after the Paris market close in both French and English. Release is available on LVMH's website, www.lvmh.com, as well as the slides that we are using to guide today's conversation.

I'll start with, as always, with an overview of the group's performance in the third quarter and the first 9 months of the year. As you saw in our press release, the group reported double-digit revenue growth across all business groups over the 9 months.

This included delivering good performance in the third quarter across the group despite a challenging economic environment in key markets around the world. In particular, the group delivered sustained momentum in the United States and continued progress in both Europe and Asia, even with mixed business trends in these regions.

The group's results for the 9 months and third quarter are also -- also included a positive currency impact, reflecting, in particular, the weaker euro that we've seen since earlier this year. In terms of business group performance, over the 9-month period, we saw good momentum at Louis Vuitton and strong progress at a number of the other fashion brands in spite of the difficult economic environment in several areas.

And in the Champagnes and Watches businesses, inventory levels are healthy. On Slide 3, you can see the evolution of the group's revenue performance for the year-to-date.

Through the end of the 9-month period, organic revenue was up 10%, which comes on top of the strong 15% increase 1 year ago through the 9 months. The 6% increase in organic growth we reported in the current year's third quarter primarily reflects a typical comparison base with the year ago's third quarter, 15%, as well as a more challenging environment.

This slide also shows the 9% currency impact that we've seen in the past 2 quarters. For the 9-month period, overall, currency had a 7% positive impact.

Finally, for the 9 months, there is a 5% perimeter impact, which essentially reflects the full consolidation of Bulgari since the second half of 2011. There was no perimeter effect in the third quarter of this year.

Turning to Slide 4, you see the breakdown of revenue by region for the group. This is roughly consistent with the breakdown for the same period last year and remains well-balanced between the principal regions.

The largest region is Asia which, including Japan, represents 37%; Europe, including France, represents 30%; and the United States and other markets represent 33%. Slide 5 looks at the organic revenue by region, it include delivered gains across the board, as you can see from this slide.

The United States, including Hawaii, was the strongest, up 12% on top of 18% in the year-ago period. This was followed by Asia, up 11% on top of 27% in the first 9 months of 2011.

Europe saw a 7% gain, similar to last year's growth rate. And Japan, which had been down 3% in the 2011 9-month period due to the impact of the tsunami and the other events in the region last year, grew 7% for the same period of this year.

Now for the business groups. I will start, as always, with Wines & Spirits, Slide 6.

In this business group, revenue reached nearly EUR 2.8 billion for the 9-month period, including a 12% increase in organic growth. The organic revenue had a 8% currency impact.

It's worth noting that the good organic growth in this year's 9 months comes on top of 11% increase in organic revenue over 2011 9-month period. For the third quarter, revenue surpassed the EUR 1 billion mark, reflecting a 6% increase in organic revenue and a 9% currency impact.

To break this down, revenue from Champagne & Wines rose to nearly EUR 1.2 billion for the 9 months. This reflects a 7% increase in organic revenue and a 5% currency impact over the period.

In the third quarter, revenue rose to EUR 451 million in the Champagne & Wines, with a slightly positive increase in organic revenue and a positive currency impact of almost 6%. For Cognac & Spirits, revenue was nearly EUR 1.6 billion for the first 9 months.

This reflects a 16% increase in organic revenue and 11% currency impact over 9 months. And for the third quarter, Cognac & Spirits achieved a 12% organic revenue growth over the year-ago period.

Turning to Slide 7. On a geographic basis, Asia delivered the strongest organic growth, up 24% for the 9-month period; Japan was up 11%; Europe was up 6%; and the U.S.

was up 4%. To give some more details by business, Champagne volumes were up 4% for the 9 months, reflecting a sustained level of consumer demand, and inventory levels at distributors were optimized and healthy.

The Estates & Wines. Sparkling wines continue to have good momentum, although this was slightly compensated by the quarterly premier deliveries of Bordeaux wines, which took place in Q2 of this year.

For Cognac & Spirits, Hennessy volumes are up 6% and revenue in this business has continued to benefit from the impact of last year's price increases. There continues to be particularly strong demand for the group's Cognac & Spirits brands in China.

Turning now to Fashion & Leather Goods, Slide 8 gives you the revenue -- gives the revenue in this business group growing by 8% on organic basis, and that's on top of a 15% growth in the year-ago period. Taking into account an 8% currency impact over the 9 months, revenue in this business group reached approximately EUR 7.2 billion.

For the third quarter, organic revenue grew by 5% on top of an 18% increase in the same period last year. Slide 9, on a geographic basis.

For this business group, organic revenue in the U.S. was up 14%, while Europe was up 9%; Japan was up 6%; and Asia was up 5%, which came on top of a 24% growth in Asia in last year's 9-month period.

Louis Vuitton maintained its trend of double-digit reported revenue growth in the third quarter and in the 9-month period, reflecting good momentum in both the U.S. and Europe.

Growth in Asia continued, though as I mentioned, it was more moderate than we have seen in the past. In terms of products, all segments contributed to the brand's ongoing growth, reflecting commitment to creativity and innovation that is Louis Vuitton's hallmark.

Key lines performing strongly include Monogram, Empreinte and the Epi line. For Louis Vuitton, saw a good success in the period from its collaboration with Japanese artist, Yayoi Kusama, including strong performances from dedicated pop-up store locations.

The brand also continued its selective store openings, including the opening of the first Louis Vuitton Maison in Mainland China, in Shanghai, Plaza 66. Its opening included a dedicated fashion show that received extensive positive media coverage.

And finally, over the summer Louis Vuitton opened its first High-End Jewelry boutique and workshop in Place Vendome in Paris, which also received wonderful media coverage and has become an immediate attraction and the world's premiere destination for the finest jewelry. Turning to our other fashion and other brands.

Céline continued to perform particularly well across all regions and for all product lines. The success of its luggage bag was of particular note.

Fendi launched its 2jours bag and continued to upgrade its store network, while reducing its exposure to wholesale. And finally, Givenchy, Loewe and Marc Jacobs both had strong performances.

Moving on to Perfumes & Cosmetics. Organic revenue rose 8% on top of a 10% increase in the year ago 9-month period.

Including a 6% currency impact, 9 month revenue rose to EUR 2.6 billion in the current year. For the third quarter, organic revenue in this business group grew by 6% over the year-ago period.

On a geographic basis, Slide 11, organic growth rose 14% in Asia; the U.S. was up 12%; Japan was up 8%; and Europe, 5%.

Parfums Christian Dior continues to be a strong performer, driven by its iconic lines such as J'adore, and newer ones, including Prestige, its high-end skincare line. The brand is also continuing to roll out its successful Dior Addict fragrance, supported by a new campaign filmed in St.

Tropez. Guerlain also continues to perform well.

The international launch of La Petite Robe Noire was successful. And Orchidée Impériale once again delivered a solid performance.

For Parfums Givenchy, the brand is benefiting from the extension of its makeup distribution. Benefit continues to benefit from its product innovations.

Their Real! Mascara continues to perform well.

And their new foundation, Hello Flawless, is also contributing to strong growth of the brand. And finally, Fresh opened its first store in Mainland China, which is off to a good start.

This is a wonderful step for the brand in expanding into Asia. Now for the Watches & Jewelry business group.

Organic revenue for the 9 months rose 7%, which comes on top of a very strong 26% in the year-ago period, including a 7% currency impact and a 54% impact from the addition of Bulgari since June 30, 2011. On a reported basis, revenue rose to EUR 1.2 billion in this business group -- EUR 2.1 billion, sorry, in this business group.

And for the -- sorry, in the [indiscernible] -- in the first 9 months of 2011 to cross the EUR 2 billion mark in the 9-month period in the current year, sorry. For the third quarter alone, revenue reached EUR 690 million, representing organic revenue growth of 2% after a 7% positive currency impact.

Slide 13, on a geographic basis, organic revenue in Europe grew 18%, reflecting in part a notable level of tourism in the region. Japan was up 12% and the U.S.

was up 5%. The group saw a slowdown in demand in Asia, although it had delivered a 49% rise in organic growth in the region in last year's period, in part, due to some high -- in terms of exceptional high-end jewelry sales.

Inventories are at an optimized level in retailers across the regions. And to give some detail by brand, at Bulgari, the launch of the Octo watch will help to strengthen its male product offering, while the iconic Serpenti and B.Zero1 lines continued to show good momentum.

For the second time, some qualitative improvements to the distribution of its product, including its perfumes, were carried out during the period. For TAG Heuer, both the new Link Lady model and the Aquaracer Ceramic were rolled out in the third quarter, and they're off to a good start.

The King Power and Classic Fusion lines each delivered continued strong performance at Hublot. Our Zenith performance benefited from the launch of the new Pilot line during the period the brand also completed the renovation of its Manufacture.

And Chaumet, Fred and De Beers all showed sustained momentum in performance in their store networks. Finally, for the Selective Retailing business group, which is Slide 14.

Organic revenue rose 14% in this business group on top of the 19% rise in the year-ago 9-month period. On a reported basis, including a 3% structural impact, which relates essentially to the integration since June 1, 2011 of Ile de Beauté.

And an 8% currency impact in the business group grew -- saw our revenue rise to nearly EUR 5.5 billion, up from approximately EUR 4.4 billion in the year-ago 9-month period. For the third quarter, organic growth reached 10%, and was -- there was a similar positive currency impact with no structural impact in the period.

On a geographic basis, there was growth in each of the main regions for Selective Retailing. Asia was up 17%, the U.S.

was up 14% and Europe was up 8%. For DFS, specifically the 9 months, still show a good performance in Hong Kong for -- which had the soft opening of its Third Galleria during the period, as well as in Singapore and Macau.

And the stage is being set for continued growth for DFS in Asia, including with the award of new concessions at the Hong Kong airport during the third quarter, which will start up at the end -- at the year-end and the near completion of the first phase of the expansion of the Macau Four Seasons. More recently, DFS in Hong Kong would seem to have done very well.

In Sephora. The business continues to gain market share throughout the regions where it is present.

Its comparable store revenue growth is a clear reflection of this with continued strong growth in North America, the Middle East and China. Sephora has also continued to deliver strong online performance in both the U.S.

and France, and looks to selectively expand in this area in the future. In 2010, Sephora took over the business of Sack's, the premier online beauty retailer in Brazil, giving it a foothold in the market.

This past [indiscernible], they opened the first Sephora store in São Paulo, which headlined around the celebrated new Iguatemi Mall and has had an extremely positive start. With the addition of this store, the Sack's line was finally [ph] fully converted to Sephora branding.

The 9-month period this year, the store network was at 1,367 locations, globally up 110 locations from the year-ago period. So in summary, the continued growth delivered across the group in the third quarter and the first 9 months of 2012 reflects the resilience of the group's brand due to the passion, creativity and craftsmanship behind them and the strength in geographic diversification.

Looking ahead to the balance of the year, the group's brands will continue to focus on the innovation and quality that we are known for as they collectively open stores in high potential markets and work to best manage costs. Taken together, this strategy is designed to allow LVMH to meet its [indiscernible] objective for continuing to increase its leadership in the worldwide luxury goods market.

With that, Jean-Jacques and I are available for your questions. Operator, can you please open the line?

Thanks.

I have 3 questions. First, in Watches & Jewelry, could you provide the growth rate for Asia ex Japan?

And how much of the slowdown would you say was driven by de-stocking in -- especially in China and you think we are in the de-stocking process, and what you're seeing in terms of the sell-through trends in China, Europe and the U.S.? And secondly, on Vuitton, can you talk about the performance in the quarter on a constant-currency basis?

And as we look out sort of longer term, could you talk about sort of where you see the most compelling growth opportunity for Vuitton across the product categories and regions, and what you think could be more of a sort of a normalized growth rate going forward? And just lastly, Selective Retailing obviously remained very solid.

I was wondering how much of the growth was driven by DFS versus Sephora? And could you provide the other Sephora comps in the U.S., Europe and China for the third quarter?

Okay, thanks, David. Fairly long list of questions, particularly the second one.

So I will start with Watches & Jewelry in Asia, which figures -- you should take out the high-end jewelry sales that Chris mentioned in his comments, which took place in Q3 last year in Asia, so you have to take them out to have a fair conversion base. We are virtually flat.

I mean, slightly down, but virtually flat in Asia for the whole division. De-stocking is still having some impact.

We started the year with a high level of stock. I mean, both ourselves and the retailers anticipated a strong level of sellout this year, sellout was different, but probably not as good as we had thought, so there was some destocking.

And consistently since the beginning of the year sell-out has been higher than sell-in, so this de-stocking is still taking its toll when it comes to analyzing the Asian figures of the Watches & Jewelry division. But to whatever extent, probably than in Q2 for instance.

As far as LV is concerned, the Q3 -- your first question is on Q3, constant currency analysis, what I would say there is that our figures for Vuitton are pretty comparable to Q2 figures. We have some slowdown here and there, but all in all -- I mean, Europe is a bit higher than what it was in Q2.

The U.S. is a bit lower.

We are talking in both case about high or very high single-digit figures. The Chinese figures are very close to what they've been since the beginning of the year, so low single digits figures.

Asia is a bit slowing down, where we'll probably come back on this particular point because the touristic flows in Q3 where much slower than in Q1 and Q2 when Asia was affected by that. And Japan was in line -- a bit lower than Q2.

So all in all, our figures do not differ materially from what they were in the preceding quarter. As far as long-term growth opportunities, I will not elaborate a lot on -- based on such a conference call.

The only thing I would say is that obviously the main revenue for growth in the future for Vuitton is soft leather products. We mentioned that many times.

We are developing very seriously the segment at Vuitton, which growth rate is extremely high and very promising in the term. Finally, your third question on Selective Distribution, DFS versus Sephora.

We saw in Q3 a fairly marked slowdown of DFS, again connected was a slowdown of tourism in Asia. DFS was mid single-digit growth as opposed to very strong double-digit in the preceding quarters.

As far as Sephora is concerned, we saw a very consistent performance from the first half of the year into Q3 of this year. It's exactly the same growth level, so very consistent.

Antoine Belge, HSBC. I have 3 questions.

First of all, I'd like to come back on your comment about the fact that Louis Vuitton was not that different, Q3 versus Q2. The division was 5% versus 8%.

So does it mean that the other brands slowed more than Louis Vuitton in the quarter? And also, could you comment if -- which brands still -- was still growing double-digit organically in Q1?

And second question, I mean, still on Vuitton, in the first half, you said that selling surfaces increased by roughly 6% or 7%, is it still the same run rate of selling surfaces increases? And finally, when you look at the performance of Vuitton, do you think that the slowdown is entirely macro-related?

Or is there anything that you think could be done in terms of merchandising or maybe marketing or any other initiatives to sustain the growth especially ahead of the first quarter? And also, I mean, have you adjusted your cost on CapEx given the slowdown we've seen since July?

Okay. Thanks, Antoine.

So on this -- the non-LV brand, on your first question, yes, we feel a slowdown. But mostly -- while it's entirely on the wholesale side of the business, which is roughly 1/2 of the non-Vuitton sales of the division.

The retail portion of the non-Vuitton sales in the division, we are growing exactly -- almost exactly in the same way as they were in H1. And as far as wholesale is concerned, it's partly probably due to some slowdown in department stores, but also due to the fact that we are much more selective in terms of choosing our business partners in this segment as we don't want to nourish [indiscernible] entries.

And some of our brands, including Celine, Fendi, have been extremely selective in pushing their products into wholesale. So this has dented the growth rate in wholesale and therefore, in the rest of the non-Vuitton division.

The selling surface of Vuitton, 6%, 7%, yes, that's exactly the same figure for Q3. The slowdown at LV was, as I said, I mean, there is no major showdown in Q3 compared to Q2.

Macro-related, I would say that it's mostly tourist related. I mean, if you look at the slowdown that we have in the growth rate of Vuitton, it's mostly with the 2 main tourist groups, the Japanese and mostly -- and to a lesser extent, the Chinese tourists.

The reason is probably not the real weakness this year but the very, very high comparison base. I mean, last year, we had the Chinese tourists growing 30% and Japanese tourists probably as much as 20% or a bit less than that.

The anniversary of such very high figures is not that easy and therefore, it has some impact on growth in the tourism business in Q3. That's really my view, the main reason for the different figures.

And they mostly affect the Asian part of the business. Europe is hardly affected by that.

Okay. Just in terms of cost and maybe a needing to address some costs?

You know that we are not very keen on commenting that type of things. We adapt ourselves to the environment and we take the necessary measures.

And we do what we think we have to do, but I will not elaborate further on that.

My first question will be on Europe. Could you give us a flavor of the overall trend within the local customer?

Then on Louis Vuitton, are there any news regarding the pricing issue? Have you recently increased your retail pricing in Europe?

And then the third question, just a follow-up on the Sephora. I saw the [indiscernible] of probably the 10% same-store sales in the U.S.

and the 3% same-store sales in Europe recorded in H1 could be extrapolated in the 9 months basis?

Thank you, Marc. So local customers in Europe make more or less the same figures as the one we had in H1, a bit better.

The French, the Brits and Germany were a bit -- German were a bit better. Italy is not getting any better.

We still have a drop in the Italian customer base. But all in all, I mean, we have figures that are slightly better than what they were in H1.

Increase in prices, we increased prices by 8% from the 1st of October onwards in Europe only, so no other price changing elsewhere in the world. And Sephora like-for-like, I think 9 months figures are exactly the same as they were in H1.

I think the U.S. is a bit higher, 1 point higher, and Europe is 1 point lower, but nothing really different.

Okay. Just if I may, maybe on Louis Vuitton.

You highlight during the first half comment that the main clientele, Chinese, Japanese and American were both growing on a double-digit trend, is it the same as the one recorded in Q3?

I think it was Q1 comment, if I'm not mistaken. But anyway, in Q3, it's the same as Q2.

Now both the Chinese and Japanese are high single-digit, but not double-digit.

Just 2 or 3 questions for me too, please. Firstly, just on the Louis Vuitton on margin.

Obviously, we saw a weakness in the first half given the store opening you highlighted. Can you talk to us about trends for the second half and directionally just impacts on the margin?

Secondly, have you got any comments for us on Golden Week? You obviously recently finished in China, and any impacts there on tourist but also local demand?

And then also if you could just clarify the price increase that you just spoke about on Louis Vuitton?

Well, I will not comment on the other margins. I mean, I would have to go in such a level of details, particularly on the currency impact.

It will take too much time there, and I'd rather leave it for the full year comments on the P&L. On the Golden Week, we had -- [indiscernible] was very pleased with the Golden Week.

The logistic growth, which was higher than what they had in Q3, so it went very well. And Vuitton, it went okay.

[indiscernible], it went okay as well. And price increase was, as I said, 8% in Europe.

And that's 8% from the 1st of October in Europe for stock[ph].

And just one quick pricing question on Champagne & Cognac as well, expectations for the next kind of 12 months?

You mean in terms of pricing?

Yes, please.

We will not have any price changes in the rest of the year. I mean, it's pretty unusual, as you know, to pass on price increases in the last 3 months of the year.

But as always, in the first 3 months of next year, so in the course of Q1, we will increase prices for both Cognac & Champagne, probably somewhere between 2% and 3%, but obviously we are a bit far away from that and we have not finalized any plans.

Three questions, please. The first one, if we look at Fashion & Leather and Watches & Jewelry in Q3, we see mostly a very contrasted trend in Asia and in Europe, both divisions have different trends in Asia and Europe.

When do you -- would you expect the price increase you've passed on in Europe to impact that shift in demand from one region to another? And just to clarify, the plus 8% was only Vuitton, were there other categories and brands involved?

And secondly, on Watches & Jewelry, based on the discussion you've had with your retail partners, how long do you expect the de-stocking effects carry on for your brands but also for your competitors like Richemont, Swatch or Rolex. They continue to report much, much more solid number i.e.

perhaps, more inventory buildup on their side in Asia. And do you see any significant swings in market share taking place in Asia beyond de-stocking?

And finally, on Vuitton, could you say what was the impact of the Plaza 66 reopening on that Q3 growth you mentioned?

So the impact on how long is the -- how long is it going to take to get, I mean, impact of the price increase in between Europe and Asia rebalancing, well it's a very hard question. As you know, I mean, impact of prices are always very difficult to measure and to quantify.

I mean, the price elasticity is not something very precise in the luxury industry, so we'll not take the risk to go into some forecast as to how long it's going to take. We think we are taking the right decision in order to reduce price gaps between Asia and particularly, China and Europe.

In the long run, it would certainly have some impact in terms of rebalancing the business in between the 2 zones. But how long it's going to take, I have absolutely have no idea.

The Watches & Jewelry situation in Asia and the de-stocking, we think that de-stocking is coming to an end. The question is whether we'll be able to replenish stocks for the year-end season.

We hope we'll be able to do it. I wouldn't mention any shift in market share.

I mean, as you know, our market shares in Watches is quite small and I don't think this will have any impact on our market shares in Asia. Finally, the Plaza 66 impact, it's significant as far as Shanghai is concerned.

We see Shanghai is growing faster than what it was before the opening. At the level of China, Shanghai being only 1 city within China, it doesn't have a major impact, maybe a few -- a couple of percentage points but nothing very significant, immediately in figure terms.

In terms of image obviously, this has a much larger impact. We benefited from the opening to get extensive press coverage, extensive TV coverage.

And obviously, we saw some impact that's hard to measure.

Just a follow-up on Watches, when you commented, you said the de-stocking has come to an end, and you're talking about your brand? I mean obviously, some of you be competitors don't seem to have seen any sign of de-stocking yet.

So I'm just trying to understand where do you see the whole marketplace evolving here with perhaps, some of your competitors in a different situation?

I will not comment on the competitor's situation. The only point I'm making is that we started the year with a fairly high level of inventory in anticipation of higher sell out than actually materialized.

And this excess inventory is progressively being wiped out by sell out and we are getting close to a normal position and we should -- it remains to be seen whether we'll get -- further selling for the year-end season that will enable us to end up the year on a high note. That's what I'm saying.

I've just got one question coming back to Watches & Jewelry. In terms of the impact on these high-end jewelry sales, you said that x X.O sales, that your Watches business would have been flat in Asia.

Can you give that -- the impact on a global basis? Can you also help us understand -- because I understand that you still got price increases that are going through your Watches division.

How much price versus volume impact you would have seen in the Watches business in Q3? That would be very helpful.

On the high jewelry for the whole division in Q3, we're talking about 4% to 5% difference in the growth space. As far as your second question on volume price is concerned, it's quite difficult because there is no such thing as a global price increase, so I cannot answer.

I mean, we had price increases here and there in the U.S. and Europe.

Volumes are up pretty good both in U.S. and Europe, so I would say that volume growths are higher than price impact, but that's all I can say.

Okay. So it's just in the case of the 4% to 5% difference, you mean between Jewelry & Watches is the difference, does it mean it would [indiscernible]

No. It's the impact on the whole division, on Watches & Jewelry, of this [Technical Difficulty]

We have finished answering the question so is there a next question, please?

I've got 2 quick questions. First one on FLG in Q3 in Asia, which is at plus 1%, if my calculation is correct.

Could you give us an idea about the split between Mainland and Greater China? And if the problem's coming from traffic or ASP or something else?

The second one, on Louis Vuitton and the price increases you mentioned. I just did some price checks on the website.

And, for example, the other [ph] full or medium-size on the French website seems to be the same price as last month, so have you increased prices in all the operating countries and for all product branches?

Yes. No, but it should be a price increase across the board, thanks for the information, I will take on the Internet but as far as Europe is concerned, prices should have been increased more or less across the board.

As far as Asia is concerned, the slowdown is mostly due to a non-China portion of Asia connected with the high compression base for opportunities at the close of [ph] last year, as I mentioned before.

Maybe just a quick follow-up on Watches & Jewelry. Last time, you mentioned that some distributors are favoring star brands and squeezing some older, smaller brands.

Is it still the case according to you?

[indiscernible] I mentioned that last time. But that was probably included [ph] in some of my comments but I don't really remember it so I will just repeat what I said before.

We had too many inventories starting the year and the level of inventories within the trade had to go down, therefore sell out was higher than sell in for most of the year and sell in was pretty poor but we expect this to normalize pretty soon.

I have 4 questions if I may. The first one is on the Fashion & Leather Goods division.

I was wondering whether you can share with us -- overall I think in quarter 3 and quarter 2, were basically running at mid single digits for Louis Vuitton. Can you share with us what was that play in Q3 because in Q2, you had flagged submissions with product launches and the marketing that was supposed to be fixed quarter 3, so can you share with us what is that play in quarter 3 in comparison whether the launches were not quite as favorable as you thought or the marketing and what to expect for the rest of the year?

The second question is on tourism. You highlight a weakness within Asia.

I was wondering whether you can help us understand a little bit more of what you attribute this weakness to other than the comparables and notably whether you think the trough factor in Europe was really the main cause? The second question is actually regarding the U.S.

Overall, the U.S. has been strong but if I'm not mistaken, it's actually softening in a number of divisions, notably Wines & Spirits and Fashion & Leather Goods, I was wondering whether you can give us an update on what's happening in the U.S.

for all these divisions. And lastly, very short one, Cognac, just [indiscernible] in sales growth organic, I missed that.

Okay. I'll take a note of all this because I will forget, otherwise.

So what it is today in Fashion & Leather, I would say nothing really new apart from the fact that we benefited highly in Q3 last year from the developed tourist flows. These show no sign of reduction that the growth rate is actually slowing down, that's all.

And we have to anniversarize very high volumes of last year. So I think the big issue for Q3 was to anniversarize these big volumes we had with the Japanese and the Chinese in the last year.

So that's at the same period, so that's the big point. As far as product launches are concerned, the big initiative was, of course, [indiscernible] line that you've certainly seen in our stores, which is doing as expected so there was no particular disappointment or overachievement would have been difficult as we have sold basically what we have to sell.

So that's in line with our expectations. Tourism in Asia, no, I have no other things to say than what I said before on the comparison base.

I mean, it's really -- the absolute level is extremely high in terms of growth. It's slower -- is lower -- growth is lower than last year.

But the absolute level is extremely high and very satisfactory. We just have to follow the growth of last year which was with both Japanese and Chinese, was extremely high.

The U.S. in Wines & Spirits, I think, yes, the figure is a bit lower than what it was in H1.

Two main reasons. First of all is that the month of June in Champagne was up normally high, so we have June and -- conversely, July, sorry, and August where we are poor.

As you know, 3 months is difficult to analyze in this business. We have shipments to the main clients, which are not linear in the year.

So Q2 was probably a bit higher than it should have been and Q3 is a bit lower than it should be. And Cognac Q3, I mean, Cognac & Spirits, Q3 figure, if I'm not mistaken is 12%.

Can I just confirm, sorry, on -- what are you expecting then -- or is it a question of growth rates normalization compared to last year? What should we expect notably in Q4 when your comparables are even tougher at least, at Fashion & Leather Goods division?

Well let's see, I cannot -- I mean, you know that we never do any forecasted such course [ph], yet, the comparison base will be quite tough in Q4 as well. We'll also have the marketing initiative of Q4, I mean, it's a quarter in which we are normally pretty active because different quarter from the other one, less wholesale, more retail, so we'll see.

But we'll not make any forecast at this stage [indiscernible]

Are there also less stores in Q4 [indiscernible]

Less storage when -- where?

In Q4, traditionally, in this more a local consumer base quarter?

Yes, it's more local customer quarter but it doesn't make massive difference. I just come back on one of your questions.

The figure I gave you on Cognac is the full division. It's a worldwide organic growth figure.

It was not a question on the U.S. side.

No. And the U.S.

for Fashion & Leather Goods, can you tell us what you're seeing there because that seems to be decelerating?

It should be but not in a major way. It's a bit lower than what it was.

We have some phasing issues with the bulk of the lower figures comes from Marc Jacobs, where the saving of the wholesale business was quite different from what it was last year. We had much more business in June and less in July, so it's not at all a problem of business as such but it's more a phasing question of wholesale for the full winter collection.

This is Matthias Eifert from MainFirst. Just a quick question on China, it's just a -- slowdown mostly due to non-China.

Can we assume that you kept growing there at around 15% as you head to Q1 to Q2 on a group basis? And my second part of my question, kind of related in the last conference call, you said there were some temporary factors that are slowing things down in China related to the leadership change.

Can we expect this to improve in the fourth quarter or do we have to wait for next year for this kind of temporary effect to go away?

The growth in Q3 for China was 11% as opposed to 14%. I'm talking about bringing this [ph] as opposed to 14% in H1.

So a bit lower but not significantly lower and a chunk of it comes from the high jewelry that I mentioned before. As far as leadership changes is concerned, it is obvious that -- some form of obvious explanation for authenticism on the side of customers.

I doubt this will [indiscernible] entirely in the course of Q2 -- of Q4, so it will take probably a bit longer than that.

Chris, sorry to come back on the Wines & Spirits, I must have missed some numbers, so I was just wondering if you could clarify the -- first of all, the -- for the total Wines & Spirits, Q3 organic growth, is it 6%?

Yes.

And then can you break that down between -- you mentioned 12% for Cognac & Spirits?

Yes. Slightly positive for Champagne & Wines.

Okay. And so are there -- you mentioned that there would be no price increases, further price increases, let's say, before Q1 next year?

Yes.

Can you remind us of the price increases that were done over the last year, firstly. And secondly, can you -- regarding inventories in the trade, can you -- I mean, overall inventories, is there also some kind of sell in, sell out effect that we should be aware of for the Champagne & Spirits?

The price increases, we had price increases, normal price increases, I would say, in March or early March in the U.S., in Europe and in Asia in between 3% -- I mean 2.5% and 6%. It was a bit lower.

It was more 2.5%, 3% in Europe and in the U.S. and higher in China with some differences between categories of Spirits.

So this obviously, will have some impact in the rest of the year as we have not yet anniversarized these price increases. As far as inventories are concerned, very low in China -- I mean, very low in Asia and as far as the U.S.

is concerned, they are normal in Cognac and quite low in Champagne. But I doubt, if I understand your question about will this have an impact in the future, I doubt this will have a significant impact, neither positive nor negative on sell in figures as opposed to sell out.

Quick question on the Wine & Spirits business, just a little more long term. I know there's been some discussion about poor harvest in many regions of France but with your -- between blending and aging of Cognacs, and obviously not all champagnes are vintage, could you explain how long that cycle would take and what any one year would have as an impact and when would that show up?

And I guess the follow-up would be is would that impact prices upward as there's lack of supply or does it end up just sort of being neutral throughout the years?

Well, in Cognac, it depends on the categories. I mean, V.S is 3 years, so basically price increases would be carried into inventories for 3 years and then the bottles that are going to be sold in 3 years will be impacted by raw material price increases.

7 years for V.S.O.P. and as far as champagne is concerned, on average, we are talking about 4 years, so we have a little bit of a time lag in between the two.

Is your business mix roughly 60-40 high-end versus the low-end or...

Well, it depends whether you're talking volumes or value and we, as far as our Wine & Spirits business is concerned, we sell mostly, I mean 90% or 95% of what we sell is above $25 a bottle, so it's considered a premium or high premium spirits. So we consider that everything we sell is premium.

And then a quick question on selective retailing. In the prepared remarks, you said in the third quarter, Sephora 8% currency and 2% organic.

And then in the presentation, it says network of 1,367 stores plus 110 stores, so that's the 9 months. Were there any -- was the store opening effect about equal through the 9 months or was it all front-loaded?

Well, the answer is I don't know. I should know but I -- I doubt it.

I mean normally, as we opened quite many stores in the year, the number of openings on a quarterly basis is steadily stable. I mean, we would open 30 to 40 stores per quarter, maybe a bit more, at 5 or 6 more and 5 or 6 less, nothing really different.

So from my memory, we don't have big swings and big differences between like-for-like and full growth.

Okay. Would DFS and Sephora space growth be above 2% and the total selective retailing space growth would be above 2% in the third, though, correct?

For Sephora, yes. I mean we opened about -- I mean, we don't really count in square meters but in number of stores.

We have an increasing number of stores or about 7% per annum, which is [indiscernible] a number of square meters growth in the same ballpark as far as DFS [indiscernible] less linear as we open stores from time-to-time. We just opened a Chinese substantial [ph] store in Hysan in Hong Kong.

But before that, there were 2, 3 years in which we didn't do anything, so it's not linear.

I have a question on Vuitton. In previous periods of slowdown, Jean-Jacques, you flagged the traditional, I think, monogram and Damier lines outperforming but not in the past couple of quarters.

So I was just wondering if the high-end leather lines are generally outperforming within Vuitton stores today? And are there any meaningful mix changes and adjustments in the supply chains that we should be aware of?

Well, I will not mention if it's high-end or enterprise but the leather line are growing faster, it's not new. I mean, it's been going on for years and years but the leather line are growing faster than the canvas line that's been up to a point where the leather line represents a sizable portion of total sales now.

But in respect, I mean, 2012 is not particularly different from any other year. This is something we have seen for quite a long period of time.

And a small follow-up. In the press release, you referred to market share gains for Vuitton throughout the world.

Do you believe it's also the case in England, [ph] China or Vuitton. I don't think that Vuitton has been disproportionately impacted by the pullback in gift-giving this year?

Yes, it's a global comment. You've seen the Altagamma, it's being estimated for the luxury industry in the year of about 10%.

Vuitton is growing faster than that, so we feel we are gaining market share, that's what I have to say.

I have 3 questions, if I may. First of all, you quoted at the Apple concession in Hong Kong that you're going to start operating at DFS by the year end.

I just wanted to know if you could give us some color about the impact on DFS business growth. Second question about Cognac in the U.S.

Could you tell us what was the trend in Q3 for the Cognac sales in the U.S. and was there any change in trend versus H1?

And third question about Vuitton, you quoted some marketing initiatives in Q4, so could you tell us a bit more about these marketing initiatives, please?

On the first point, the answer is no. I would not make comment for fairly very obvious reasons.

So I'll try to answer your first 2 questions. So Hong Kong airport is -- we are talking about $800 million business, USD not HKD business, that will develop progressively in between December of this year and March of next year.

So we shouldn't have the full impact of the business in 2013. Obviously, this will be a third world [ph] margin than the rest of the business as you know.

As far as Cognac in Q3 in the U.S. is concerned, figures are a bit lower.

I mean, not very different from Q2 but a bit lower. The main reason being that V.S.O.P.

is -- we are decreasing voluntarily the business of V.S.O.P. in the U.S.

to ship both the volumes for -- into China. We feel that we could get better value in China than in the U.S.

and we concentrate the U.S. business progressively on V.S.

But the V.S business in the U.S. is doing really, really fine.

Our depletion rate for the year are pretty good, so we're very satisfied with the Cognac business in the U.S. I will take one last question if there is one.

I just would like to have a sense of the growth trajectory during the quarter. It seems to me that a lot has to do with travel retail and DFS and tourism as it percolates to the leather goods and to the Watch business.

So I would like to know whether you can comment on July and August versus September, how did it grow the growth rate where -- have you seen an improvement in September or not? And secondly, also trying to understand what is the baseline for the growth of DFS?

You mentioned that the concessions in Hong Kong would add $800 million. So the opening of the store, Galleria, what would have been on the 6% growth in DFS?

It would be lower than that, just if you can let us understand what is the baseline of the travel retail growth?

Okay. Well, we'll not elaborate on July versus August, September.

The only thing I can say but I think all of -- or most of you already know, is that August and September sales were higher than the growth -- in terms growth rate obviously, was -- growth rate was higher in August and September than what it was in July. July, for some reasons I mentioned, like business taking place earlier in June, as opposed to July, et cetera was effect of soft month and August and September were better.

As far as your second question is concerned, I'm not so sure I understand what you mean by baseline or travel retail. I mentioned the fact that in Q3, DFS had a slower growth rate than in the first half of the year, connected with the fact that the touristic business altogether, including Chinese and Japanese, was suffering from a very, very high compression base last year.

That's the only comment I will make on this.

I meant on Galleria, the opening of Galleria?

Yes. But what's your question on the opening?

Well, basically, just to see what was the impact on DFS because of the opening of Galleria.

It's toward the end of July and it's one Galleria among many other. And it's a small Galleria on top of that.

It's 5,000 square meters as opposed to most of Gallerias being twice as big, so the impact was not particularly meaningful. So just a few closing remarks.

I would like to make 2 or 3 points. Obviously, I would say that our Q3 figures reflect a tougher environment and I will not deny it.

Yet, I would like to stress a few factors that are worth having in mind in order to have a good assessment of the situation. First of all, we are growing at 15% in Q3 with all our divisions being positive after a fantastic year in 2011.

So one shouldn't see the bottle half empty in my view. Two, despite a tougher environment, we didn't change our discipline, particularly in terms of distribution, I mentioned that a few times.

But some forms of wholesale distribution are not positive for our brand, we kept them even though in the current environment, it is proving a bit painful. I mentioned Fendi and Bulgari.

I could also mention Céline, Tag, Chaumet, a lot of brands are doing that. Three, and this is probably the most important point, which I mentioned a few times.

Tourist sales in Q3 last year reached record levels with both the Japanese and the Chinese. I mentioned DFS being up 30% in Q3 last year and LV being also up 30% with Chinese last year.

Anniversarizing these volumes was a hell of a challenge, we did it with most, if not, all of our tourist-exposed activities being positive in this quarter. So all in all, we are operating in a tougher environment but we are reasonably confident for the near future.

The assessment of the Chinese situation is not simple but the strength of our Wines & Spirits business and our Perfume & Cosmetics business there showed that the appetite for luxury goods is there. That is all I wanted to say.

Thank you for your attention and I look forward to meeting you in February to discuss our 2012 figures. Thank you and goodbye.