LVMH Moët Hennessy - Louis Vuitton, Société Européenne

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 brief remarks to make about LVMH's revenue for the first quarter of 2013. And as the previous periods, these revenue figures are reported in accordance with IFRS.

After these remarks, Jean-Jacques and I will be happy to take your questions. Before I begin, I must remind you that certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially.

For these, I refer you to the Safe Harbor statements included in our press release. Turning now to -- well, yesterday -- last night's announcements, I hope you had the chance to read our release, which was issued late last night after market in both French and English.

As always, the release is available on LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's conversation. So turning to the second of those slides.

Performance in the first quarter continued the trend we saw in the second half of 2012. We delivered 7% organic revenue growth.

This came on top of a very strong 14% in the year-ago period, a tough comparison basis. The growth in this year's first quarter was slightly offset by a negative currency impact, as I'll discuss in a moment.

Overall, our positive performance reflects solid increases across all key regions with the exception of Europe and continued strength in emerging countries. In terms of business highlights, we saw continued progress at Louis Vuitton and the sustained development of other fashion brands, again, on top of the particularly strong increases in the first quarter of 2012.

The solid growth in Wines & Spirits and Selective Distribution businesses also contributed to the group's overall performance in this year's period. Now looking at the revenue for the group in more detail for the first quarter, Slide 3.

Total revenue rose 6% on a reported basis to nearly EUR 7 billion from EUR 6.58 billion in the year-ago period. This reflects, as I mentioned, a 7% rise in organic revenue, offset by a negative 1% impact due to currency, primarily due to the impact of the Japanese yen and to a lesser extent, to the U.S.

dollar. We continue to have a well-balanced geographical mix.

You will see that on Slide 4, a key component, of course, of our strategy to maintain a diversified regional distribution of our revenue. As you can see, Asia, excluding Japan, today represents 33% of revenue, as measured in euros.

That's up 2 percentage points compared to the last year's first quarter. While Europe, including France, was down the same amount and now represents 27%.

The U.S., including Hawaii, was at 22%; Japan was at 8%; and other markets at 10% of revenue, all remain stable compared to last year. Moving on to changes in revenue by region compared to last year's first quarter.

I refer you to Slide 5. Revenue rose 12%, both in Asia and in Japan.

We saw a 7% increase in revenue in the U.S., excluding Hawaii, as measured in U.S. dollars, while Europe was flat as the local situation continues to weigh on local demand and tourists, notably from Japan, reduced their spending there -- here.

Now I'll break down our revenue by business groups, starting with the Wines & Spirits on Slide 6, which delivered a very solid performance. Organic revenue is up 7% for the quarter, driven by growth in Asia, the U.S.

and Japan. This comes on top of last year's first quarter, when organic revenue had risen 16%.

Total revenue in this business group increased to EUR 979 million from EUR 926 million in the first quarter last year. This marks a 6% gain in reported -- on a reported basis, which includes the good 7% organic growth -- sales growth I mentioned, offset by a negative 1% currency effect.

Breaking this down, Champagnes & Wines was roughly flat, EUR 350 million in the first quarter to -- compared to EUR 349 million in the year-ago period, as a 3% organic revenue growth was offset by a 3% negative currency impact. Cognac & Spirits reported revenue rise 9% to EUR 629 million compared to EUR 577 million in the year-ago first quarter, and this represents a 10% increase in organic revenue and a negative 1% currency impact.

On a geographic basis, again, Asia saw the strongest rise in Wines & Spirits revenues, up 12%, followed by 9% in the U.S. and a 7% rise in Japan.

Volumes in the Champagne business were down 1% in the quarter, which is traditionally the smallest quarter of the year for this business and also the most volatile. To give you some Champagne business highlights, we saw a positive effect of the price increases we implemented last year and good performance in Asia, while Europe experienced slower demand.

And our sparkling wines had a good start to the year. Turning to Cognac & Spirits.

Hennessy volumes were up 5% in the first quarter, building on last year's 9% volume increase in the period. There was a particularly strong momentum in the U.S.

and continued progress in China. This business also benefited from last year's price increases and the solid volume growth of other spirits, and particularly -- in particular, Glenmorangie.

Now looking at Fashion & Leather Goods on Slide 8. This business was up 3% on an organic basis, a solid result coming on top of the 12% rise in the year-ago period.

On a reported basis, including a 3% negative currency impact, reported revenue was EUR 2.8 -- EUR 2.38 billion, up slightly from last year's first quarter. To give you some highlights of the quarter in this business.

The principal changes linked to the weakness of the yen compared to last year, which meant that the Japanese clients were buying more at home than abroad. Louis Vuitton, with a focus on innovation, it's incomparable know-how and the highest quality of products and service for its clients continued to demonstrate progress, particularly among its leather products.

The success of the new Metis Monogram line contributed positively to its performance, along with the many iconic models. Ready-to-wear and shoes also performed well during the period.

The Fashion & Leather Goods performance also reflected strong growth as a number of other brands, notably in retail, while wholesale was a little softer. Céline performed stronger -- performed strongly, sorry, and continued its store network expansion, while Fendi recorded strong growth in its own stores, particularly for its bag and fur segments.

And several other brands, including Kenzo and Berluti, continued their development. Looking now at our Perfumes & Cosmetics business, Slide 10.

Revenue reached EUR 932 million, up 4% on a reported basis from EUR 899 million in the year-ago first quarter. Excluding a 1% negative currency impact, this was a 5% rise in organic revenue on top of the 9% rise in the same period last year.

Looking at the revenue by region in this business, this is Slide 11. Performance was bolstered by a 7% rise in Asia and a 6% increase in Europe and demonstrated market share gains in all key markets.

Parfums Christian Dior continued its positive momentum with a strong performance from its Miss Dior and Dior Homme fragrances, the successful launch of Addict gloss and the continued progress of Prestige in skincare. Guerlain also contributed to this group's performance in the first quarter through the ongoing growth of La Petite Robe Noire perfume with the introduction of an eau de toilette in France and the good performances of the beloved Terracotta makeup line and the Orchidée Impériale skincare line.

Parfums Givenchy successfully rolled out its fragrance Gentlemen Only, who's muse is Simon Baker, and Kenzo launched the new Flower by Kenzo TV advertising campaign. Benefit has shown continued strong momentum, including from the introduction of online sales in France and Germany.

And to finish up the highlights of this group, both Fresh and Make Up For Ever are enjoying rapid growth in Asia based on their innovative products. Now turning to Watches & Jewelry business, Slide 12.

Revenue in this group was EUR 624 million compared to EUR 630 million in the first quarter last year, including a negative 3% currency impact. Organic revenue was up 2% in the period, which comes on top of a 17% rise in organic revenue in the year-ago first quarter.

The 2% organic revenue growth in this business group was on top of a particularly high comparison base in Q1 of last year, up 17%, and reflects a solid performance, especially within our own retail stores, while multi-brand retailers were more cautious in their buying. There was a good level of orders taken during the Geneva watch fair in January.

TAG Heuer celebrated the 50th anniversary of its iconic Carrera 1887 line and the new bigger and stronger partnership with McLaren. Hublot, with its Classic Fusion line, and Zenith, with its El Primero and Pilot lines, achieved a good start to the year.

And Bulgari showed strong progress within its jewelry segment, notably with the success of its Serpenti line and particularly in its retail stores, while continuing to be more selective in its distribution via third parties. Finally, the Selective Retailing group performed particularly well in the quarter, this is on Slide 14, up 16% on a reported basis to EUR 2.2 -- EUR 2.12 billion from EUR 1.82 billion in the year-ago period.

This reflects a 17% rise in organic revenue on top of an 18% gain last year, slightly offset by a negative 1% currency impact. By region, Asia grow performance in this business group with a 42% rise in revenue.

The largest -- next largest contributor was the U.S. at 9%, followed by Europe, up 3%.

DFS demonstrated continued strong momentum in Asia, particularly in Hong Kong and Macau. This is in part driven by 3 new Hong Kong airport concessions, international airport concessions, that were taken over at the end of 2012.

On the other hand, a weaker yen impacted travel destinations for Japanese travelers during the period. Sephora continued to generate strong performance due to their market share gains in all regions.

The business sustained its momentum in the U.S. and achieved positive comparable store sales growth in Europe, despite a challenging environment in Southern Europe.

Online sales were a strong contributor to Sephora's performance and the business continued the expansion and renovation of its store network, opening a flagship store in Shanghai during the period of -- with a great deal of fanfare. Last slide.

Overall, our brands delivered solid performance in the first quarter in the face of ongoing economic uncertainty in Europe and a difficult economic environment. The group will continue to pursue its objective of increasing our leadership position in the global high-quality products market by focusing on our commitment to innovation and quality products and selective store network expansion in markets where we see good opportunities for our brands.

Thank you. And with that, we will now take any questions you might have.

Stephanie, please, could you open the line?

I've got 2 questions. The first one is on Selective Retailing.

Can we ask you to let us know which part of the growth is driven by the 3 concession that you won in Hong Kong? The second question is on the Fashion & Leather division.

Can we ask you to give out some more color about the new strategy of Louis Vuitton focused on the premium-ization of the product? And if you can give also some idea how business strategy is perceived by the customers in the different regions?

Okay. So Mario, so on Selective Retail, the growth is, I just suggested, increased by the new contribution of the Hong Kong International Airport's 3 new concessions by about 10%.

Roughly speaking, DFS also boosted by 20%, Selective Distribution by 10% and the group's sale by 2%, more or less up to the end of the year. I mean, we have a little bit of an impact in November and December, but the bulk of it will take place throughout the year.

On your second question about, which you called the new strategy for Vuitton, I think we made that clear that it was not a new strategy. I mean, the emphasis on retail experience and on the quality of product is not something new at Vuitton.

What we have in mind is that in some markets, aiming for higher, always higher number of stores and expanding the footprint of the brand could lead to a more exposure of the brand at some point, and this is basically what was explained during the last conference in January. So I don't have much to add on this.

In terms of response by the client, nothing new. We said that the tough market, the market products, which has soft leather, have very good response from the client and their growth is extremely significant.

And as far as the other components of the strategy is concerned, it's probably a bit early to say. It's a big work in progress as it is always is.

I mean, the strategy is not something that you implement from a certain date. I mean, it's an ongoing process.

So I cannot really comment on this.

I have 3 questions. First, can you comment on the growth rate for Vuitton, both total sales and like-for-like, and perhaps talk about your expectations for the brand performance this year?

Should expect about mid-single digits, especially given that you're slowing the rate of store openings? Also, if you're seeing any customer resistance to the price increases that you've recently implemented on the Monogram bags?

And just secondly, Watches & Jewelry also slowed a bit. Could you just update us on how inventory levels are faring at the retailers, especially in China, if the sell-ins are more or less in equilibrium with the sellouts and perhaps just update us on your investments or watch production?

And just lastly, Selective Retailing. Obviously, very, very solid this quarter.

How much of the growth was driven by DFS or just Sephora? And could you provide us with the total Sephora comp, along with the breakdown between Europe, U.S.

and China?

Thank you, David. You said basically you have 3 questions.

In my view, you have a bit more than that. Anyway, so as far as growth for Vuitton is concerned, as always, we don't disclose it, but it's not materially different from the division's average for the quarter.

In terms of price increase and the response of the client base on the price increases, as you know, it's always difficult to measure, particularly when you implement significant price increases as we did in Japan. We increased prices by depending on products by in between, let's say, 10% and 15%, on average about 12%, 13%.

We announced it in advance so we have a boost in sales prior to the price increase and a bit of depression thereafter. So it's always difficult to figure out what is the real impact as you need a little bit of time to really see the impact for that.

The only thing we can say is that as far as Japan is concerned for Vuitton, the quarter went quite well. We are growing double digit and it's quite a long time since we haven't seen that.

Obviously, there is an impact from the fact that all -- I mean, the big chunk of the business we were doing in travel retail with Japanese clients now takes place in Japan with Japanese prices being much more competitive, if I may call them that way, than they were in the past. So Japan benefited largely from this.

We had a big drop in Japanese travel retail business outside Japan, mostly in Asia and in Europe, and particularly in Europe. But conversely, we also had to boost in LV in Japan.

As far as other geographies are concerned, I cannot say. We implemented price increases, ranging from 3% to 4.5%, which had no particular impact on the business, neither positive nor negative.

I mean, the client base is used to that type of price increase and they never distorts the business in a major way. So that's for Vuitton.

Then you had a question on Watches & Jewelry and the inventory situation. I would say that, as far as watches are concerned, we have -- and TAG Heuer, particularly, is concerned, our sell-in is a bit lower than the sellout.

We'll -- we -- particularly in the U.S. We ended the year with inventories being a bit high, not very high, but a bit high.

And therefore, our sell-in in the first quarter of the year, which is normally a period when retailers replenish their inventory, the sell-in was a bit lower than we expected and a bit lower than the sellout. Nothing really worrying, but the situation is -- will normalize pretty, pretty soon.

As far as Asia is concerned and particularly China, as you know, it's -- we do only the fraction of our -- a small fraction of our business there. We -- the sellout seems to be quite soft in Mainland China for the time being.

And conversely, the sell-in has also proven a bit soft. As far as watches -- as far as jewelry is concerned, obviously, it's a different story because we are talking about retail, mostly retail business with Bulgari, and retail operations at Bulgari went extremely well in the quarter.

We registered this from double-digit figure for growth at Bulgari, a bit boosted by high jewelry sales. But nevertheless, even taking this out, the business proved in retail to be very strong.

We carried on cleaning the wholesale network, particularly in perfume and accessories. But overall, we are very pleased with the performance of Bulgari in the quarter.

Finally, your question on Selective Distribution and DFS versus Sephora. If you take out Hong Kong International Airport from the DFS numbers, they end up to be pretty close to Sephora around double digit -- I mean, low-double-digit increase for the quarter for both businesses.

As far as Sephora is concerned, the U.S. business did better than the European business.

No surprise. The U.S.

business comparables were mid-single digit, whereas the European numbers for comparables were low-single digit. China did very well.

We had double-digit comparables in China. So all in all, I mean, it was a good quarter.

Even if you take out the impact of Hong Kong International Airport, it was a very good quarter for Selective Distribution.

Three questions, if I may. The first one will be on the Fashion & Leather Goods.

Could you give us an idea of the trend for the non-Louis Vuitton brands in between the retail and wholesale, please?

You -- that's the only question you have, Marc, or...

No. Okay, I'll go ahead.

You've already relatively tapped this issue, but could you be more precise on the watch businesses in between the retail and the wholesale trends, maybe on a global view? And the third one will be on Louis Vuitton.

Could you give us flavor on trends in China with the Chinese clientele worldwide?

Okay. So let's start with the non-Louis Vuitton brand.

The figure for the non-Louis Vuitton brand altogether are a bit higher -- slightly higher than the average for the division. But you have 2 very different trends on the retail side.

For most of the brand, if not all of them, we have double-digit growth in the quarter. But the wholesale business is affected by some cleanups that we carry on doing, like at Sandy as we announced last year.

But also due to the fact that there is a little bit of caution from some retailers to buy good at this point in time. So the wholesale business altogether is quite low, and we are quite -- we are in slight negative territory on the wholesale business as opposed to the retail business, which is showing good, strong growth.

So maybe if I may ask another question. On the retail, as there were, I would say, many stores opening, how would you quantify the same-store sales?

I wouldn't. I wouldn't.

We never do that. I mean, we are talking about -- well, we have as much as 6 or 7 or even more than that different brands.

I mean, I don't know the answer. There were some store openings, but we are talking about double-digit growth in retail.

And I would say that a big chunk of it, I don't know, [indiscernible] maybe a bit more than that comes from what you would call same-store growth. On Watches & Jewelry, so we touched upon the retail and wholesale analysis.

It's really watch and jewelry. I mean, the 2 trends are a bit different.

And as I said, I mean, Bulgari, we have strong growth in retail, or as far as watches and particularly TAG Heuer is concerned, the wholesale business was a bit under pressure. We have slightly positive figures for the wholesale business of TAG Heuer.

We are not particularly surprised. I mean, the end of the year last year was very, very strong for TAG.

Maybe the sell-in was a bit stronger than the sellout, as I said. So this quarter, and maybe the first part of the current quarter, will be affected a bit by the level of inventory.

But again, I mean, nothing really worrying and this would normalize pretty, pretty soon. And finally, your question on LV and the trend on the Chinese client base.

Basically, the Chinese client base is up mid-single digit. So a bit higher than what we had in H2, actually, with domestic sales being flattish and tourist peak sales being high-single-digit growth.

A couple of questions for me, please. Just going -- following on from those travel trends you were talking about and clearly, you're impacted by the Japanese coming to Europe.

Can you just tell us about how things have been in the last few weeks? Because obviously, January and February were quite distorted by the timing and the change in the Chinese New Year.

And is it traffic or is it more about the average ticket price that those consumers are spending? And then back into China.

Obviously, Mainland China remains pretty tough from what we can hear. But is there any change in the consumer environment that you'd highlights to more towards the end of the period and the beginning of January, for example?

Okay. So the travel trend, you mentioned the Japanese.

Obviously, it's been a big factor, as I commented before, in the quarter. For Vuitton, which is the only brand at which we measure with some accuracy the trend in Japanese travelers, overall, the business with Japanese clients was slightly up, but the business with -- in travel retail with Japanese was down more than 40%.

So it was a huge, huge impact in the business throughout the quarter. And we've seen that pretty consistently since the beginning of the quarter.

The change in prices didn't have any big impact on this. So roughly speaking, with the Japanese or with the Chinese, we haven't seen much volatility in the trends in the quarter.

The Japanese have been under pressure, mostly due to currency fluctuations. And as far as the Chinese are concerned, the business is good, in line with what we had, even maybe a bit better than what we had in H2 last year.

And we've seen, obviously, with the ups and downs of Chinese New Year and the Louis Vuitton lag, that 2-week lag that we had, despite -- I mean, this being taken aside, the trends in Chinese client base outside China was pretty consistent throughout the quarter. As far as domestic China is concerned, the trend, I would say, remains a bit the same.

We have been experiencing flattish sales for the past 9 to 10 months in China. The first quarter is no exception to that.

I would say it's mostly a traffic issue as far as we can analyze it. Traffic is down in most shopping malls.

It's not really a ticket issue. And again, I mean, no major fluctuations beyond the Chinese New Year period.

No major fluctuations for the quarter in the trends in the business.

I just have -- would like to hear your comments with regards to the -- what seems to be a deceleration in comps in Sephora in the U.S. to mid-single digit.

Do you think that this is an issue? To what extent is this an issue of comps?

Is this an issue of something in the consumer in the U.S.? And does it have any read in terms of what your store expansion plans should be in the U.S?

That will be helpful.

Well, it's slightly decelerating in the U.S. I mean, that's true.

But on the other hand, I mean, we are getting about 6% like-for-like growth for Sephora in the U.S. Believe me, if I could find tomorrow for that type of growth for the next 10 years, I would do it.

I mean, we have a market share in the cosmetic market in the U.S., which is higher than 20%, and that's a fantastic performance to be able like-for-like without the impact of store openings to get the 6% growth. So it's really not a source of concern for us, although it's probably a bit lower than what we had last year, which was viewed as an exceptional year in many ways.

Same thing for 2011. But 6% is a very good figure and doesn't change at all our views as to store openings for the future.

A couple of questions for me, please. First of all, could you just talk about the -- where the European pricing delta is now relative to Japan -- sorry, relative to Beijing for Louis Vuitton?

And maybe just talk a little bit around the price mix increases for Louis Vuitton during the quarter and where you see that going out into 2013? And also, with regards to the Wines & Spirits division, could you maybe talk a little bit about how you see the pricing strategy going forward for cognac, some U.S.

retail off-trade? Spirits data that came out in March looked like a very strong volume number, but value looked down and promotions seem to go up quite considerably.

So I was just wondering if you could talk through the strategy for certainly with regards to Hennessy?

Okay. So to break out, your question, John, is on question China versus France, right?

Yes, so I think previously, we were talking about a 45% to 47% pricing delta from Paris to Beijing. I was just wondering where that gap had effectively closed to today.

Okay. So following last year's price increase in Europe and the decrease in the dollar and hence in the renminbi that took place at the end of last year against the euro, now the price index is about 130, something like that, which is a type of price index which we think is appropriate, given the fact that this market -- I mean, the Chinese market, obviously suffers much higher taxes than many, many markets, be import duties or self-tax or consumption tax, et cetera.

And double-earning costs, obviously, are much higher than any other markets. So as far as pricing is concerned, we are pretty satisfied with the level of the price difference for the time being between Beijing and Paris to take this example.

As far as price mix in 2013 is concerned. I mean, we should get a few digits from prices, probably less so than last year but a few digits from prices in the course of this year as we did in H1.

Mix volume, we had only a marginal change in the first quarter of the year on this. I cannot really predict what's going to happen for the rest of the year.

And finally, your question on Wine and Spirits with pricing strategy in the U.S. The only thing I can say is that we implemented in March a 3% price increase for V.S.

in the U.S., which is not something that we have done lately. So it's really the first price increase implemented in many years.

It went well. Obviously, we have a little bit of boost in sell-in before and a bit of lower depletions afterwards.

But nevertheless, it went quite well. And overall, we are extremely pleased, volume-wise and value-wise, with the performance of Hennessy in the first quarter of the year in the U.S.

and it bodes very well for the rest of the year.

Can I just have a couple of follow-ups? I just wanted to confirm that you said that Japanese tourism was down 40, 4-0, percent?

Yes, 4-0, yes.

Yes, okay. And just one other one on costs.

I know in the statement, you said that obviously you're going to have a pretty tight control on costs. And with regards to Louis Vuitton A&P in particular, is it fair to say that the billing campaign costs will annualize in your fourth quarter, but will they necessarily be fully offset as you ramp up potentially in LV Perfume & Cosmetics launch?

Why don't we discuss that when we discuss profit in July? I mean, that could be better.

I have 2 questions, actually. The first question is about the one in Spirits price increases.

You mentioned that you increased prices by 3% in the U.S. Could you tell us what was the price increase passed on in Asia for the cognac business, please?

And the second question is about the Fashion & Leather Goods business. You said that business trends were flattish, mainly in China, for Vuitton.

Could you give us some more color about the trends for the other regions, please?

Okay. So on first question, price increases in Asia, we increased prices for V.S.O.P.

by about 4.5% in March and a bit more for April, I'm talking about China. I mean, Asia was more of the same thing.

I'm sorry, your second question was about?

The Fashion & Leather Goods business, the trends by region.

Okay. So the -- we had a flattish sales in Europe and in Asia, mid-single digits in the U.S.

and double digit in Japan.

Two questions for me, please, on the Fashion & Leather Goods. First one is regards to the top line or organic growth.

Consensus seems to be expecting like-for-like growth of somewhere between 7% and 8%, and as the year develops, the comp basis will be less demanding. I was wondering if you could give us your feeling about that 7% to 8% top line for Fashion & Leather Goods organic growth for the full year.

And secondly, just back on the margins within the Fashion & Leather Goods. I know it's early in the year, but can you give us some color as to the way we should expect maybe margin to be expected this year after last year's degradation of the margin that was, to a great extent, related to one of the -- maybe over investment in Louis Vuitton and maybe Berluti as well?

Are there any special messages we -- you want to put through at this stage?

Thank you, Olivier. I will try to answer the questions, but on the last 2, I will try a little bit harder.

I mean, we never comment on consensus figures, as you know, and there will be no exception on this. As far as margins in Fashion & Leather, I will just repeat what I said at the end of last year, is that we had some strategic factors that explain for the drop in margins last year because Vuitton, Fendi, Donna Karan or Berluti, we do not expect further decrease.

But on the other hand, I mean, the factors that have been in force last year was to be in force this year, so don't expect a major improvement on that front.

And shouldn't pricing help on this?

Obviously, pricing helps, but there are other factors that play as well.

I've got 2 quick questions. First one on Europe.

So we understand that tourist flows are under pressure to the Japanese. Could we have some comments regarding the local demand in Europe?

Do we see some improvement or deterioration? And a similar one on Louis Vuitton.

Jean-Jacques, you explained during full years that in the midterm, LV should be close to double-digit growth, split it with between positive product mix, prices and volume. And we understand that Q1 is definitely close to somewhere, close to 3%.

So which drivers are missing today? And when do you expect these drivers to materialize?

Thank you, Thomas. So on Europe, local demand is a bit better, but nothing to write home about, to be frank.

But it's a bit better. It's -- I'm obviously answering on Vuitton.

This is the only brand where we can monitor that. But it's a bit better than it used to be.

Yes, we still have the big difference between Northern Europe and Southern Europe. As far as Italy and Spain are concerned, we still register negative figures for local demand.

But it's a bit better. As far as LV is concerned, the drivers are missing, to take your words.

Obviously, what is missing is from demand from the Eastern part of the world. I mean, half of the business is down there, more or less in that -- directly or indirectly.

And we, for the last 9 to 10 months, we have had flattish growth from this part of the world. But that's the big driver that is missing.

We feel that our business model is suited for much stronger growth than that. But nevertheless, at this point in time, we miss demand from the Asian part of the word, which is obviously the driver.

I wanted to dig down on your comments that you wanted to focus on innovation. Would you say that there is more innovation than last year at this time?

And then is the focus more on the flagship brands such as Vuitton? And then finally, I guess, it's 3 parts to 1 category.

When you're focusing on innovation, are you driving the higher-end business or is it at the mid- or lower-end categories? Or is it more even across all business price points?

Well, innovation is a state of mind. I would say we try to innovate everywhere.

I mean, we have to innovate as far as products are concerned, advertising, stores, store management, client experience and supply chain, et cetera, et cetera. So as far as products are concerned, which is more your question, I would say that we try to add to innovation every year, everywhere in products that are best sellers, obviously, but also in products that are carrying a lot of image.

We are investing, for instance, heavily at Vuitton in our luggage line. Luggage is a small fraction of our business, but I don't have to describe how important and emblematic it is of -- for a company like Vuitton, which DNA is based on traveling.

So it's something quite important in which we invest and innovate quite a lot, although we know that it's not going to change the growth rate of the company -- a company of that size altogether. So it's really something that goes across the board.

And I wouldn't say that's there is a particular emphasis on one or another aspect of innovation within the company.

So roughly, you would say it was equal to last year, but maybe you're just investing in various innovative products on the marketing side? Is that what it's supposed to mean?

Not really because you're asking me to quantify something which is purely qualitative. So it's extremely difficult to say more or less on a highly qualitative thing.

So I cannot really answer, sorry.

Yes, I'm Matthias Eifert from MainFirst. First question I have is, if you could say anything about the rate of store openings in Fashion & Leather, if -- I was trying to compare to how you grew last year in the store base.

Second question would be, is there any kind of meaningful difference in terms of performance between Mainland China and Hong Kong? And also related to that, in terms of what is making the Chinese consumer more cautious?

Or Asia, in the last 9 to 10 months for the reasons, have you done any analysis on that?

Okay. Store openings, we had a very small number of store openings in the quarter in the Fashion & Leather Goods division, particularly at Vuitton where the number were basically flat compared to December.

We had some openings at Marc Jacobs, which is the biggest number of openings that we had. Otherwise, I mean, we have a few increase here and there, but not a big count.

But in brands other than Vuitton where there is a specific strategy as to store openings for other brands, gets us to retail under better control of retail. It's obviously one of the access.

So we opened a fairly low number of stores with the exception of Marc Jacobs, but it's not significant of our strategy, which is, on the contrary, aimed at developing our retail experience. As far as Mainland China versus Hong Kong is concerned, numbers were a bit better in Hong Kong.

They've been very depressed in the last 6 months of -- in H2 last year. We saw them a bit better.

I commented already on China, which is more or less on the same trend that it was in H2 last year, but Hong Kong was a bit better. We don't really give precise figures on this, but it was a bit better.

And as far as China is concerned and the reason why China and Asia are concerned and the reason why we've seen, over the past 10 months, a drop in demand there, I think explanations are -- a number of explanations of end growth is not -- economic growth is not what you choose to be, although viewed from the Western world. I mean, the type of GDP growth they enjoy is something that most European countries would like.

But nevertheless, viewed from China, it's clear that 100 basis point drop in GDP growth had some consequences on the propensity to consummate, buy, particularly access customers. So that's my explanation.

The change in political leadership and the consequences in terms of gifting was also another explanation. And thirdly, the fact that last year, due to a big rise in the renminbi versus the euro, the price gap, it was mentioned in a question before, went to unprecedented levels such as 1.50 compared to European prices caused a lot of mainlanders to defer their purchases until they had the opportunity to go to Europe.

So there was a deflationary impact in Mainland China from this price gap. The price gap, as I explained, is now back to normal.

But it takes a while for people to realize that things are not what they used to be, pricewise, and it's less interesting to go outside China than it used to be.

Two questions for me. First, could you talk a little bit more about Bulgari?

Your flag strong growth in owned stores and I was wondering if the performance, excluding high-end jewelry, is due to the actions taken to refocus the brand? Or is the external environment for jewelry improving a bit versus the second half?

How far are you from your target to rationalize in the wholesale distribution for perfumes and accessories? And last, have you taken prices up in jewelry in recent months?

I hope I will answer your question, but I couldn't hear very well all you said. So you will ask -- if you can ask for the questions if I don't answer entirely.

So on retail, as I said, I mean, we have strong double-digits figures for Bulgari in the first half of the -- in first quarter of the year, boosted a bit by Asian high jewelry sales. But high jewelry is also part of the business, so I'm not so sure we should be taking this out.

But even if we do that, we end up with a figure which is about -- which is double-digit growth for retail sales at Bulgari, which is a bit contrasted from one country to another. We have very strong -- we do very strong business in the Middle East, in the U.K., in Hong Kong and Macau, particularly in Singapore, less so in Korea and Mainland China, although Mainland China for -- particularly when it comes to jewelry of a certain price is not necessarily that significant for one quarter to another.

So we are pretty pleased with the retail performance, and it's obviously in line, if not better than they were -- than our expectations. This is offset in a significant way by cleanup in the wholesale business, particularly perfume and accessories where we want to be much more selective in a number of doors.

We have a number and quality of doors we have. And we also felt a bit of pressure on the franchisee business, which orders were much lower than they were last year.

So we had a big drop in franchisee, which is not a big chunk of the business. But nevertheless, a big drop in -- even in a fairly limited fraction of the business have some impact.

So all in all, the business was -- did well. There were price increases implemented here and there.

But given the fact that there are lots of novelties, it's quite complicated to analyze price increase for a business of that kind.

Okay, Jean-Jacques. And how far are you from your target in terms of rationalization of the wholesale distribution?

Is it still a long way to go?

In perfumes, yes. I think there is still some way to go.

We may expect some pressure there. We want to lower a number of doors to implement this marketing strategy.

We want to implement in accessories where the business is much smaller. We are not that far.

Antoine Belge, HSBC. Three questions.

First of all, regarding Louis Vuitton, obviously, you mentioned that the growth is coming mostly from price. So basically, there is a bit of change in terms of volume.

How is it affecting your manufacturing capacities? And how are you planning for actually lower complements of volume?

Does it mean that you're maybe changing your plan in terms of future effect for your openings? Second question, I mean, you were asked about the situation in China.

I think your answer was that actually it's more into GDP and also some currency fluctuation. Yet, it seems that other brands are growing at a faster rate, so is it just because they are smaller and then basically benefiting from the fact that they have more potential because of the size effect?

Or do you think that something could be done, more specifically in terms of merchandising, in terms of the product offering in China to maybe solve the issue? And finally, on Cognac, we are hearing a bit of conflicting trends about the Chinese consumer.

Last year, the trends were still very strong and it seemed that they are getting a bit softer. So what type of consumer insight do you have about the Chinese consumer for Cognac in China?

Thank you, Antoine. So the impact on manufacturing at Vuitton, obviously, we have to adapt ourselves, but it's not that complicated.

I mean, we are used to fluctuations in products one way or the other. We have over time.

We have a way to deal with that. So it's not a major issue.

Production is fairly very flexible within the company, and we shouldn't find it too difficult to adapt to any type of conditions that one may foresee. So we are not worried on that.

Well, as far as China is concerned, I'm not so sure of your question on the others are doing better. So is there a magical recipe that we can implement to do as well as the others?

I'm not so sure I'm the best one to answer this type of question. We think that the reason why, in some instances, our growth in Mainland China could be lower than that of competitors, is mostly due to the fact that our -- that we slowed down fairly significantly in opening stores way before the others.

So we don't benefit on the like-for-like impact. That has been a great boost to the business for many, many years, but we don't benefit from that as much as some other brands may, be it inside the group or outside the group.

A lot of brands within LVMH still benefit from that, particularly Céline or Marc Jacobs, and we don't have that at Vuitton. So that's probably the explanation, particularly if there was something obvious to be done.

One, I wouldn't share it with you; and two, it would have already been implemented. So I don't have more comment on this particular point.

Finally, your question on Cognac in China, as far as Q1 is concerned, we had a very good quarter selling wise. We -- our volumes were high-single digit and value was double digit.

So it went very well. Nevertheless, our depletions were lower than our sell-in figures, and there's been a bit of buildup in the inventories of wholesalers.

So we expect Q2 to be in the lower tone than Q1. Not saying really worrying, but nevertheless, Q2 will be -- would certainly, volume-wise and value-wise, lower than Q1.

Yes. Maybe just a follow-up on China.

Generally speaking, Bernard Arnault said that Louis Vuitton could easily sell much more local products if it wanted and basically -- would that mean that maybe the growth at Louis Vuitton is lower in your view because you're less aggressive than other brands? Or is there, for you, an issue in terms of how different brands are approaching the market?

Maybe you're suffering a little short term but confident that over the longer term, that's the right strategy?

Obviously, I think Bernard Arnault was pretty clear on -- at the conference that he is aiming at long-term growth of the company, and that's the objective. And the beauty of this type of objective is that -- is you're doing the right thing long term.

Normally, short term, it would -- -- it should be up as well. So that's what he said.

And I also think what he said, as far as China is concerned, is that there could be quick wins in China if we were to open, for instance, many more stores in China, and in cities, that would certainly pay off rapidly. We are not too sure that this is the right thing to do long term for the brand exclusivity, and hence, we are not doing it.

And that's what he said. Maybe one last question, if you don't mind.

Just one quick question on this point on the Louis Vuitton brand. I mean, I got the impression that there were a number of initiatives as well going on, on the production side and supply side.

And then, Mr. Arnault sort of inferred in a way that it was a supply issue of not having enough of the right product in the stores that has potentially seen -- seeing you have softer sales.

When should we, if that is the right way to think about the business, when should we see those -- the supply of the full leather handbags, the soft leather handbags come into the stores so you have the assortment that you would like to have in the stores already there?

Thank you, Will. That's a good question.

I mean, obviously, we have to adapt. And when it comes to adapting ourselves in production at Vuitton, we are talking -- we are not talking about tens of thousands of products or hundreds of thousands of products.

We take -- it takes a bit of time, not necessarily from the pure manufacturing viewpoint, but from a supply viewpoint. And having the skins of the right quality for such large number of bags is a bit of a challenge.

So we're working on that. It's very hard to give you a precise answer as to when we think we will have enough.

I mean, our upstream supply system will be in -- as good as we want it to be. It's more a question of year, in my view, than month.

And in the meantime, we'll nevertheless benefit from a supply that will be strong enough to enable us to grow the business of soft leather bag in a very, very significant way. So I would say that longer term, it's a little bit of a challenge because we intend to sell much more soft leather bags than we do today.

But short term, I mean, there is only -- you have to walk before you run, and the number of bags we are selling is compatible with our supply constraints. So we shouldn't suffer too much from the lack of availability of raw materials in the short to medium term.

And just one follow-up from that, just on the costs related to this. No, I'm not asking a question on margin.

I'm just trying to understand the different process that goes into the production of, say, your Monogram bags or your soft leather bags. Is there a significant difference in just the actual production process?

Because I've heard for you that some people talk about being a significantly harder process to create -- to produce the bags. Is that the right thing?

Or is it just a physical capacity the issue that we're talking about here?

No, manufacturing the same bags in leather and in canvas doesn't take the same number of hours. And obviously, the cost of supply is not the same.

But fortunately, the sales price is not the same as well. So yes, it takes longer to do a Speedy bag, a Speedy imprint and a Speedy Monogram.

It doesn't take the same time. It's much longer for the Speedy imprint.

But we sell it at a much higher price as well. Okay.

So maybe just a few closing remarks. To conclude, otherwise, I would like to stress 2 or 3 points.

One is that I'd like to mention the fact that our numbers do not always give credit to our businesses for the preferment. We mentioned a few things.

Bulgari, where retail is showing a very satisfactory preferment whereas the global figures are a bit lower than that. The brand other than Vuitton in the Fashion & Leather division enjoy a strong retail, really moving from strength to strength.

But there are -- which is a bit overshadowed by the drop -- or the lower growth in wholesale. We didn't touch upon preferment cosmetic, but it's clear that our selling figures in many markets in Perfume & Cosmetics are lower due to de-stocking than our sellout figures, and we are gaining market share everywhere.

So that's the first point. The second point, the wholesale business, and we touched upon that a few times but the wholesale businesses, with a notable exception of Wine & Spirit are under some pressure.

As I said, part of it is self-inflicted as we intend to increase the control over our own distribution. We mentioned fashion brands like Fendi or Céline, but also Bulgari, where a big push is made on our own network.

And sometimes, this happens at the expense of our wholesale activity. But part of this pressure also reflects some caution from retailers in their purchases.

We have seen that in cosmetics, watches in the U.S., in particular, and yet, we are very far from the type of growth that we go through a few years ago in the middle of the recession time. Three, I would like to make a word about LV.

There were many questions from of LV, obviously, today. And some of you will be tempted to see the bottle half empty with the decelerating growth in Asia from now about 9 or 10 months taking its toll.

I would say that absent significant door expansion, we can only rely in this part of the world on demand growth, which, for various reasons I touched upon briefly, is under pressure. Yes, I would like to stress our confidence in the long-term development of the brand.

We believe that our product and retail strategy is the best for the brand and we'll enable it to grow much faster when the eastern part of the world recovers. So basically, that's what I wanted to say.

Thank you for attending this conference call, and I really look forward to discussing first half numbers with you at the end of July. Thank you very much.

Bye-bye.