LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Thank you. 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 2015. As in previous periods, these revenue figures are reported in accordance with International Financial Reporting Standards.

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 Statement included in our press release. Turning now to yesterday evening's announcements, hopefully, you've all had a chance to read our release, which was issued in both French and English.

As always, the release is available on LVMH's website, www.lvmh.com, as are the slides we are using to guide today's conversation. With that, let's begin with an overview of our first quarter performance.

We can see Q1 -- we see Q1 as a good start to the year. Even with a tough comparison basis in Japan and volatile currencies, we delivered positive organic revenue growth.

Our published figure was clearly helped by a strong positive currency effect. Overall, our positive performance reflects solid growth in the U.S.

and Europe and varying trends in Asia. In terms of our brands, we saw continued creative momentum at Louis Vuitton and the further progress of other fashion brands.

Our Wines & Spirits brands demonstrated strong progress in the U.S., offset by the continued destocking of cognac in China. DFS was impacted especially by a challenging environment in Hong Kong and Macau, while Sephora and Bulgari continued their strong performances.

Looking at the group's first quarter revenue in more detail, total revenue rose 16% on a reported basis to EUR 8.3 billion from EUR 7.2 billion in the year-ago period. This includes a positive 13% currency impact and a 3% rise in organic revenue.

As you recall, last year's first quarter was inflated by the increased spending ahead of the sales tax increase that took effect on April 1, 2014, and it is therefore interesting to note that excluding the impact of Japan, the organic revenue growth would have reached 4%, consistent to that of 2014. We continue to benefit from a mixed revenue mix, which is well-balanced across geographies.

As you can see from Slide 3, the chart breaks down revenue in the first quarter in euro terms. You will see that Asia, including Japan, represented 38% of revenue; Europe, including France, 25%; and the U.S.

and others, 37%. Compared to last year's first quarter, the weight of the U.S.

and others is up 4 points, while the weight of Asia and Europe are each down 2 points. This essentially reflects the impact of the dollar's strength compared to the euro.

Now let's move to Slide 4, which shows the organic revenue by region. As you can see, organic revenue rose 9% in the U.S., showing the robust trends that continue in this region.

For Japan, there was a 10% decline in revenue in yen. This was against a 32% increase in the year-ago quarter, caused primarily by the sales tax increase that I just mentioned.

Asia saw a decline of 6% in organic revenue growth, reflecting, in particular, the continued destocking of cognac in China but also, to a more limited extent, the more challenging situation in Hong Kong and Macau compared to the year-ago period. Finally, in Europe, revenue was up 10%, reflecting in part the strength of the dollar and consequent attractiveness of prices in Europe.

Moving on to our revenue by business group. Slide 6 shows total revenue in Wines & Spirits, increased to EUR 992 million from EUR 888 million in the first quarter of last year.

This marks a 12% gain on a reported basis and includes a 1% organic sale revenue decrease and a positive 13% currency effect. Breaking this down, Champagne & Wines reached EUR 397 million, or up 17% on a reported basis, compared to the fourth quarter of last year.

This represented an organic revenue growth of 7% and a positive currency effect of 10%. That's for the Champagne & Wines.

For Cognac & Spirits, organic revenue declined by 7%, but a 15% positive currency effect resulted in reported revenue of EUR 595 million or an 8% increase compared to the year-ago first quarter. Volumes in the champagne business grew 5% with prestigious cuvées outperforming even though Q1 is traditionally the smallest quarter of the year for this business.

To give you some other Champagne & Wine highlights. We saw continued strong growth in the U.S.

and Japanese markets, and good momentum at Estates & Wines. In cognac, the destocking of higher quality cognacs by Chinese distributors in the quarter continued.

However, Hennessy volumes were up 2% for the first quarter, thanks to continued strong growth in the U.S. The group also saw a sustained growth at Belvedere as well as Glenmorangie and Ardbeg.

Turning now to Fashion & Leather Goods. This business group was up 1% on an organic basis, which was impressive given the high comparison base of the year-over-year period, in particular, Japan, as I mentioned earlier.

On a reported basis, including a 12% positive currency impact, reported revenues were up 13%, reaching EUR 2.9 billion from EUR 2.6 billion in last year's first quarter. Once again, it is interesting to note that if we exclude Japan, organic revenue growth in Q1 for this business group would have been 4% or similar to Q4 of last year.

To give you some highlights of the quarter in this business group, on Slide 8, overall, we were pleased to see continued growth despite a tough comparison base. Louis Vuitton has started the year very well and continued to show strong creative momentum.

The success of the new Monogram and Epi models contributed positively to performance, as did the continued success of the [indiscernible] lines, such as the Capucine and the Lockme models. The launch of the soft leather V Line has equally been a success.

We were also encouraged to see that the new products unveiled at the recent shows were well-received. A few words on some of the other Fashion & Leather Goods brands.

Fendi's iconic leather lines performed strongly, and Céline continued to demonstrate strong momentum across its product collections. Loro Piana, our most recently integrated brand, continued to drive solid progress in its luxury goods division.

And several other brands, including Givenchy, Kenzo and Berluti also had an excellent quarter. Looking now at our Perfumes & Cosmetics business, revenue surpassed the EUR 1 billion mark, delivering 6% organic growth and a total increase of 16% on a reported basis when accounting for the 10% foreign -- positive currency impact.

Performance for this business group was driven by the strong momentum of makeup and skincare in Asia and the U.S. Christian Dior introduced a new advertising campaign for its iconic Miss Dior perfume, while the Dior Skin and Addict makeup lines made solid progress, and the Capture skin line -- skincare line contributed positively to performance.

Guerlain also contributed to this group's performance in the first quarter through the ongoing rollout of L'Homme Idéal and launch of the La Petite Robe Noire Eau Fraîche. In addition, the brand delivered good momentum in its Abeille Royale skincare line.

Parfums Givenchy successfully rolled out the Dahlia Divin fragrance and is showing great progress in its makeup lines. Benefit is showing good strong momentum, with revenue in the U.S.

and the launch of its innovative Puff Off undereye gel driving performance during the quarter. To finish up the highlights for this business group, both Fresh and Make Up For Ever are enjoying rapid progress.

Now turning to our Watches & Jewelry business, revenue in this group was -- reached 3 -- EUR 723 million compared to EUR 607 million in the first quarter last year, including a positive 12% currency effect. Organic revenue was up 7% in the period.

The strongest contributor to growth was jewelry, where Bulgari delivered a strong performance. The initiatives put in place last year are bearing fruit with its iconic collections, notably Serpenti and Diva, as well as the new Lvcea watch, all of which are doing very well.

The watches compiled into this group continue to be impacted by -- this business group continue to be impacted by the destocking taking place at multibrand retailers. Looking at a couple of the brands, TAG Heuer continued implementing its strategy to refocus on its core offerings and took advantage of currency fluctuations to adjust some prices in line with its value strategy.

Hublot saw a strong start to the year, including the celebration of Big Bang's 10th anniversary, and its new models presented at the Basel watch fair in March were well-received. Finally, TAG Heuer announced a partnership with Google and Intel to launch a Swiss smartwatch.

The Selective Retailing group, Slide 13, performed well in the quarter, up 20% on a reported basis, to EUR 2.6 billion from EUR 2.2 billion in the year-ago period. This reflects a 5% rise in organic revenue on top of a 10% gain in last year's quarter and a 15% positive currency impact.

Within this group, Sephora continued its very strong performance, generating market share gains across all regions. The brand delivered double-digit comparable store revenue growth on a worldwide basis, with particularly strong performances in the Americas and the Middle East.

The expansion of the network continued in the Australian market, opened at the end of last year, is off to good start. Finally, online sales were also an important contributor to Sephora this quarter.

DFS demonstrated continued good performance in North American airport concessions, offset by a challenging environment in Hong Kong and Macau where the conditions of the fourth quarter continued into the fourth -- first quarter. At the same time, a weaker yen continued to impact travel destinations for Japanese travelers during the period.

Overall, with the exception of cognac in China, our brands delivered good performance in the first quarter in the context of a volatile economic monetary and geopolitical environment. Going forward, the group will continue to pursue its objective of increasing our leadership position in the global luxury goods market by focusing on our commitment to innovation and quality products and selective store network expansion in markets where we see the most compelling opportunities for our brands while maintaining a strict control over costs.

Thank you, and with that we will now take any questions you might have. Arletto [ph], can you please open the line?

I have 3 questions, please. The first one on the pricing strategy and, in particular, at Louis Vuitton, I wanted to know if, as of today, you have passed on or intending to pass price decrease in Greater China or price increase in Europe in order to bring back the price gap to more normal levels?

And if so, what initiatives can you take to protect China margin? Or should we assume, as you said in the past, that the margin gap between China and Europe is not as high as we think?

That's my first question. Secondly, on Japan, I would -- I believe the growth rate is probably back to normal now in the first week of April or even perhaps higher, considering the easy comp.

I have a more general question on Japan. We're seeing strong Chinese tourist data into Japan for the last year, 1.5 years.

Do you think this is really a new type of luxury travelers, or simply temporary arbitrage on the Japanese yen weakness? And how much do Chinese tourists now contribute to Japan domestic luxury demand, for instance, in a city like Tokyo?

And finally, on FX. I was surprised to see the translation impact on sales to be 13%.

If I do a simple math of your invoicing currency exposure, I don't get 13%. I get more like 9% or 10%.

So I think the difference might be related to other smaller currencies we don't look at. If you're not hedged on those currencies, how do these smaller currency fit through the bottom line?

I mean, is it pure profit? Or is it not as easy to repatriate that profit into Europe?

Thank you, Tom. I'll start with the last one.

I mean, believe me, the 13% is the right number. We got it right.

And hedging has nothing to do with the level of revenues. I mean, hedging, when it takes place, and, obviously, there is not much of hedging gains in the beginning of the year, plays against the cost of goods and not in favor or at the detriment of sales or revenues.

So it has no impact at all. But 13% is the right -- with rounding, but it's the right number.

I'm more thinking -- Jean-Jacques, sorry, I'm more thinking about some smaller currencies you're not hedging that might explain the 13% rather than 10%. And if so, does that feed through the bottom line easily?

That's my point. Whether we hedge or not doesn't make any difference with the revenues.

It could make a difference in terms of gross margin, but as far as sales are concerned, we get the level of sales, which is a conversion of the amount of currencies we get on a given trade converted at the end of the month rate. Whether hedging will help or create some difficulties is a different question, but it has no impact whatsoever.

So the 13% is, obviously, a combination of a much stronger dollar, renminbi and Hong Kong dollar, a flattish yen, and some -- a stronger Swiss franc and some decreasing currencies such as the ruble. So that's on the first point.

On the pricing strategy, let me make on this -- a general comment on this. One is that as we discussed many times with you all, what currencies have done and what -- the current situation is a pure outcome of currencies' fluctuation, so what currencies have done, currencies can undo it.

So it's not a stable situation in this respect. Two, we have seen currency fluctuating a lot in the past in both ways.

Maybe it's really [ph] extreme these days, but we've seen that in the past. And basically, as far as we are concerned, the only relevant lesson from the past is do not act in emergency.

It's quite important not to act too quickly and think about it. Thirdly, the comment I would make is that we do not think a unified pricing structure makes any sense for luxury brands.

The main reason being that a unified pricing structure does not allow for sufficient flexibility to address precisely currency fluctuations, so that's why we don't think it makes any sense. So that's what I wanted to say on price pressures.

Thirdly, on your question on Japan, you're right to say that the comp is quite easy in the beginning of April as we had the morning after the big party in Q1 2014, so it's an easy comp. On your question on tourism, we think it's quite -- obviously, this comes from currencies again.

I mean, the situation, the relative pricing of Japan compared to China, particularly, is reasonably attractive for the time being. But also, if you think about it, I mean there are some similarities from a cultural viewpoint between Japan and China.

There are some differences as well. But we think that the attraction of Japan for Chinese customers is quite important.

Therefore, we tend to think that this is -- this business is there to stay. The magnitude of the business we do with Chinese customers varies a lot from one city to another.

Just to give you a number for Vuitton, Vuitton is a little bit less than 10% in Japan with non-Japanese. It includes all different tourism -- tourists, but the bulk of them being, obviously, Chinese tourists.

It's Antoine Belge at HSBC. I have 3 questions.

First of all, could you comment a little bit about the Louis Vuitton trends by geographic region and segmenting between local clientele versus tourist? Second question, actually, a follow-up on pricing harmonization.

There is another way of actually trying to mitigate the issue is through new products. So when you are going to introduce new products, are you going to produce them with a sort of lower price differential of, let's say, not higher than 1 30?

Or are you going to reflect the existing difference of 1 50 or 1 60? And final question is on cognac.

You seem to have called, at least in the press release, for the end of the destocking in China. So could you maybe comment about the trends in China, maybe differentiating between V.S.O.P.

and X.O?

Okay. So on the trends on -- for LV, basically, we have 4 relevant areas in the world.

2 are doing very well. One, being Europe, benefiting from big flows of tourists into Europe; the second one being the U.S.

which success was there already last year, but -- which is still quite significant in first quarter of the year. Japan is the third big bill [ph].

I don't think I have to comment on that. Obviously, it is down as the comparison base last year was inflated by the change in the sales tax and the fourth zone is Asia, which is suffering for different reasons, one, being the specific situation in Hong Kong and Macau, and also more generally, from the shift from domestic consumption into tourism or travel retail consumption, which is affecting most Asian markets.

So basically, to summarize, I mean the Eastern part of the world is under pressure, whilst the Western part of the world is doing very well. As far as pricing harmonization is concerned, your question about introducing new products at lower price differences, it's not something that we intend to do.

We mentioned [indiscernible] in the future, but for the time being, it's not something that we intend to do. Thirdly, on cognac.

Well, the very day I get precise information from the competition on V.S.O.P. and X.O, I gave -- I'll give the numbers to you; but as it is not the case, I won't.

But nevertheless, I will comment on the situation for cognac in China. The first point I wanted to say is that the peak, you know that we had a big pickup in -- a big increase in inventories in the last few years, but the peak in inventories was end of March 2014.

So basically, we have a pretty tough comparison base. Although volumes were slightly down last year, we were stocking probably less than in the year before, but we are still stocking.

So we are comparing ourselves this year to a period last year in which the restocking was still there. Probably, it was not a willingness on our side, but probably the lack of reliability of sell-out data caused us to restock a little bit more than what we should have done in 2014.

So we are comparing ourselves to this pretty difficult period, which explains why our sell-in numbers are under pressure. As far as the destocking is concerned, we think it's, by and large, behind us.

There is probably still a little bit to come on V.S.O.P. and maybe a little bit on X.O as well, but nothing really significant and nothing that should prevent our selling numbers from growing.

It's -- we are very comfortable as far as H2 is concerned. As Christoph Navarre told you when we commented our full-year numbers back in February, so we are very comfortable for H2 and also quite comfortable for Q2; maybe a little bit less, but what comfortable as well, to see an improvement in sell-in numbers starting Q2.

So hopefully, Q1 is the last quarter of decreasing sell-in numbers.

Okay. Maybe just a follow up on Louis Vuitton.

In terms of quantification, compared to the group regional trends that you've mentioned, I mean, are there any regions where the figures are materially different for LV versus the group? And you didn't really mention Mainland China.

What was the -- would you get a sort of stable to slightly up trends in the Mainland, or negative?

Well, if we wanted to give you LV numbers, we would do it. So we don't, so I will not comment precisely.

The only thing I wanted to say about the Mainlanders, which is, by far, the most relevant information for them, if you take the Mainlanders globally, including what they do in China and what they do outside China in terms of business with Louis Vuitton, the category -- I mean, this clientele is growing in excess of 5% in Q1 of this year, which is, more or less, in line with what they did last year, actually. So it's quite favorable.

Although there are some shifts from one area to another, I mentioned the fact that Macau and Hong Kong are under some pressure, altogether, we benefit from a Chinese client base which is growing in excess of 5%. So I think it's the most relevant way to look at it.

We had a question on the U.S. profile in terms of domestic consumption versus tourism.

Also, the U.S. market has been a tougher environment with traffic, so if you could comment on your thoughts on traffic versus ticket and the opportunity there, that would be great.

And then also on Bulgari, congrats on all the momentum there. I'm just curious about the like-for-like pricing opportunity versus volume as you evolve and really reinvigorating that portfolio.

Okay. Well, thank you for your questions.

The first one is particularly difficult. I mean, we have a mixture of different businesses.

Some of them are wholesale, some of them are retail, so it's quite difficult to figure out what's the impact of traffic and what's the impact of average ticket in the middle of all that. The only thing I would say, as far as the U.S.

is concerned, is that both our wholesale businesses and our retail businesses are doing very well in the U.S. today.

Traffic is improving. We are not very dependent from the touristic business in the U.S.

Most of our products come from Europe, and they are cheaper in Europe than they are in the U.S, so the U.S. is not necessarily the right place for tourists to buy our brands, and therefore, the share of tourists in our businesses is extremely low.

But basically, we benefit from a very strong business there. The like-for-like pricing opportunity at Bulgari, difficult question, again.

I mean, it's -- usually in this business, one does not increase prices on a given item. I mean, there could be novelties introduced at higher prices and a higher margin than existing products, but on a given product, you don't really do such a thing as a like-for-like price increase.

Obviously, some prices are being changed due to currency fluctuations, but apart from that, it's -- given the fact that we are introducing new families of products, et cetera, we put them at the price -- at the pricing which we feel, barring any significant currency fluctuations, are relevant and make sense for us in the long run, so we don't really adjust them.

Okay. And we just had a final bigger picture question.

The Sephora technology in terms of the mobile experience and your app has been really cutting-edge. What are the major catalysts ahead for us to think about your online businesses as a whole and where you see the most opportunity and how we should focus on that?

In the U.S., we've seen mobile gain to about 50% of traffic, so I'm just curious about your thoughts there as we look ahead.

Well, we tend to view mobile as an opportunity to do additional business, but also an opportunity to enhance our customers' experience. As shown at Sephora, I mean, most of our customers would shop in the stores, but also on the web.

And it's this dual experience that makes sense for us, and we have to make sure that the 2 experiences reinforce each other. So it's quite important to view the digital experience as a way to reinforce the global client experience by allowing in the future things like the click and collect or home delivery or that type of thing in most of our brands.

It's not the case today, and I don't think it's the case for anyone in the industry, but that's something we should -- we are looking at and that will be implemented in the future. So e-commerce, yes, but beyond e-commerce, reinforcing the customers' experience.

I will limit my answer to that. We could spend the rest of this conversation on [indiscernible] and complex subject, but in a nutshell, that's how we feel about it.

Two questions, if I may. The one first is about Europe.

How do you see the local demand in Europe and if there is a difference among the different countries? And always linked to this part of the European question, if you have increased the prices of Louis Vuitton in the first quarter '15 in Europe, and what is the pricing -- your pricing strategy for Louis Vuitton in Europe for the rest of the year?

The second question is about the margin differential. Have you got a significant margin differential, and if you can quantify it for the sales of Louis Vuitton in Europe in comparison to Asia?

Okay, let's start with the first one. So Europe local demand is definitely improving, although it's overshadowed by the strength in the touristic and the travel retail business.

We see a gradual improvement in most domestic client bases, including the French, the Germans and in South Europe, in Italy and Spain, we see some improvement. So we are not talking about massively positive figures, but nevertheless, it's getting better than it was in the past.

The margin difference between Europe and Asia, well, I'm not so sure I have commented on this particular point. So there are some differences in gross margin, but all in all, at the end of the day, the operating margins between Europe and Asia are not that different.

So it doesn't make a very tremendous difference for us to sell product in Europe or in Asia. Obviously, there are some areas in which the business is particularly profitable, particularly in Asia.

But overall, it doesn't make a lot of difference. I think I skipped your question on price increases in Europe in Q1.

We increased prices by a little bit less than 3% in Q1 in Europe. And as of today, we have no intention to increase them further in the short to medium-term.

A couple of questions. The first one, just on cognac, you gave us some pretty detailed information around sell-in.

But with regards to sell-out at X.O level, can I assume that you're still assuming the X.O sell-out numbers to be relatively tough in 2015, volumes potentially down around 20%? And if you're looking at indexation, say, between X.O and V.S.O.P., X.O being 4 to 5x higher in terms of price, can you talk about how effectively you'll be able to offset the mix dilution?

That's my first question. My second question is with regards to DFS, I mean, clearly the Selective Retail business generating a 5% organic appears to be driven a lot more by Sephora.

Could you comment a little bit more as to how Hong Kong and Macau actually fared for DFS during the year quarter? And finally, just on TAG, the repositioning and the refocus of pricing around the EUR 1,500 to EUR 2,000 level.

This is a, I suppose, a step-down from some of the pricing up that we've seen over the course of the last few years. What sort of volume gains are you hoping to see on the refocus of this particular pricing bracket?

Thank you, John. So on cognac, yes, I confirm that we expect X.O volumes, be it sell-in or sell-out, actually, to be still under pressure in the course of this year.

The anti-extravagance measures are still taking their toll, and we expect the global business, once they are gone, to be lower than what it is today. Minus 20%, is not a forecast, it's a number I mentioned as an assumption that we are using for our budgeting exercise, but not a forecast.

In terms of mix dilution, we expect to see better numbers in V.S.O.P., particularly due to the end of the destocking and the comparison base, which in the last 3 quarters of the year, particularly, will be easier than it's been in the past. So we'll see a pickup in the V.S.O.P.

business. It's unclear as of today whether this will be sufficient to offset the negative impact on V.S.O.P.

The main reason being that we don't know the magnitude of the negative impact on the X.O -- sorry, the negative impact on X.O, so it's hard to say whether the pickup in the V.S.O.P. business, which we don't do either, will be sufficient to offset the first one.

So it's quite a complex question, to be frank. DFS in Hong Kong and Macau, well, obviously, the situation is quite difficult there.

I don't think I have to elaborate the situation in both Hong Kong and Macau where both locations are under severe pressure. As far as DFS is concerned, in Hong Kong, we see a flattish business at the airport, but it's down significantly in downtown location.

And as far as Macau is concerned, it's the same trend. So we have double-digit down both in Hong Kong downtown and Macau for DFS.

Thirdly, the TAG price repositioning, basically, what you're asking is what type of volume pickup do we expect. The answer is, really, I don't know.

I mean, we think that the pricing and product strategy of TAG is the right one. How long will it take and what is the magnitude of the repositioning at the end of the day is extremely difficult to say.

So for the time being, we are in a transition phase and we see some -- the business is under pressure. So it's down in Q1 in most geographies.

We probably have a few quarters ahead of us with difficult comparison base and numbers. It's only in a few months I will be able to answer this type of question.

Maybe just one follow-up, Jean-Jacques, on DFS. I think you paid the Hong Kong -- or the Hong Kong Airport concession fees for about EUR 340 million in 2014.

You've got, I think, is it 5 years now running on those concessions? I mean, how profitable do you think those concessions can be?

Well, I don't know. For the time being, we are -- I mean, we've been in this -- the total duration is 5 years, and we've been in this concession for a little bit less than 2.5 years, so we have 2.5 years ahead of us.

So the clock is ticking, I would say, to get the profitable business that we usually get at the end of the concession period. So that's the first comment.

The second one is that the amount of fees we paid is related to the traffic in the airport. And for the time being, the traffic in the airport is growing slightly above our own business, which is obviously a negative, which has a negative impact on our business.

In other words, the rental fees are growing faster than our revenues. So it exerts a significant pressure on our profits.

So we thought last year we were in good shape to be profitable this year. I think breaking even or being slightly negative is probably more realistic as of today given this mismatch between revenues and traffic.

Just 2 questions for me, please. Just going back to the pricing question.

I wondered if you could tell us if you've seen any particular change in the gray market with the FX exacerbating the price differential since the beginning of the year? If you've noticed anything not specific just to yourselves but industry-wide?

And then secondly, if you've seen anything in terms of market share differentials what with Chanel lowering prices, I realize it's only on 3 of their bags?

Sorry, Louise, I missed your question, sorry.

It was just about any differences in market share or competitive environment that you've seen with Chanel having lowered prices, I realize, only on 3 of the bags?

Well, the price movements of Chanel, I'll start with that one. The price changes of Chanel are pretty recent, so it's very difficult.

And as you obviously know, they don't report figures on a very regular basis, so it's quite hard to know how much they do. So frankly, I have no idea.

Obviously, we've seen queues in front of some stores in Hong Kong and China, but probably most of the queuers were people willing to recover the discount they were being offered due to the fact that prices were lowered, so it's probably not that significant. As far as gray markets is concerned, industry-wide, I would say when you have soaring currencies and increasing price gaps, obviously, this has some impact on the gray market.

So we see some form of gray market, being the Daigou -- be it the Daigou in China or some shipping of product in secondary networks or channels. We see that a lot in, particularly in Asia, as Asia is usually the destination end for most of the gray market products.

So yes, definitely, this is an increasing trend.

And have you taken any specific action internally to try and control the gray market? Or is it too early to really tell us?

Well, as far as we're concerned, it's a little bit, in this respect, business as usual. I mean, we are trying to avoid gray market as much as we can.

We have, as far as Louis Vuitton is concerned, some very strict restrictions as to the amount of product that somebody can buy in Europe with the view of avoiding these products to be reshipped into China. Yet, when you see somebody in a store at Vuitton in Paris, you never know whether this person is buying the handbags for themselves or to be re-sold on the internet in China, so it's quite difficult to control.

As far as wholesale is concerned, we are improving the trust-ability of our product to make sure that the people we sell to are not reselling themselves into Asia at a lower price that would compete with our own products. So I'm not saying that this is entirely bulletproof.

I'm just saying that we didn't wait the current situation to take measures to remit as much as we can in a gray market. We know that there are not 100% efficient, but they are efficient to avoid a big chunk of it.

Yes. Jean-Jacques and Chris, I have several questions.

The first one' is on Japan, sorry, we don't have the luxury of making these calculations right; you do, But Fashion & Leather was on plus 1%. You are saying it was on plus 4%, including Japan.

Did Japan...

I cannot really, Melanie, sorry to cut you...

Can you hear me better? Sorry.

Much better, much better.

Okay. So my question was on Japan, sorry, for Fashion & Leather Goods.

You said it was basically plus 1% if you have Japan in it and plus 4% if you exclude the Japan. If Japan is 12% of sales for the Fashion & Leather Goods division, it must have been down 25% even if we allow for rounding.

Is this correct?

You're not far. You're not far...

But in which case -- sorry, last year was it up more than 35%?

No, it's below 20%. I mean, we are minus, but below 20% in Fashion & Leather in Japan.

Okay. In which case, what's happening to your other regions?

Can you give us a bit more granularity on what's happened to the Asia Pacific, Europe and the U.S. please, sorry?

So for Fashion & Leather, we are up in Europe, up in the U.S., down in Asia Pacific and down in Japan, as I said.

And Asia Pacific was down, what, mid-single digit?

It was down. That's what I said.

Sorry?

I said it was down, so I will not go into further details. It's quite significantly down.

I mean, as you might -- may guess, I mean, we have Hong Kong, we have Macau, we have a shift of business from Mainlanders into touristic locations, including Japan and Europe. So obviously, it has some impact on the business.

Okay, perfect. And then on price decreases potential in Asia Pacific, I appreciate that you don't want to take a hasty decision, but the price differential is really very big and it's been going on for a while now.

What is the point of tension? You've decreased prices in the past in Japan because of these arbitrages across markets.

Why is it different this time? What makes you nervous about doing this?

Can you explain this to us a little bit better maybe?

I think -- we are not nervous. As I said, I mean, what currencies have done, currencies can undo it.

I mean, look at Russia. We increased prices in Russia in a very significant way following the ruble collapse only, what, 2 or 3 months -- 3 months ago.

Now the ruble came back from 70 something to 55, and we are ending up being extremely expensive in Russia again. So that's the only point.

I mean, if you act too quickly, you end up in a situation that you don't control. So you have to see, and if you have to take decisions, you need a little bit of understanding of what's going on.

And this is too early. I mean, it's been only going on -- you said it's going on for a while, yes, but a while is, what, 3 -- 4 or 5 months maximum.

So it's not in our view to really assess a new pricing situation that would cause for action. So we are not there yet.

One question about handbags. We see a number of your peers going back to the drawing board and planning to come back to the market with new entry price point handbags, at lower entry point price point handbags.

Prada is seemingly working on this line, and Gucci was mentioning this earlier in the year. I wonder where you stand on this and whether you're anticipating a new wave of pricing competition within the handbags business?

Vuitton has been coming to the market with a number of very effective campaigns, and I think that you possibly were continuing to benefit from the anniversary collection that you launched in the fourth quarter -- this quarter. But I'm asking you whether this is the case and whether you're buckled up to counteract this move by close peers and what you're planning to do on this side?

Connected to that, I was wondering how you're faring with your smaller, so to speak, Fashion & Leather Goods business, where you see accelerating momentum, and whether you could tackle a couple of problem situations? I think you mentioned earlier in the year one in particular connected to your designer brand.

I will try to answer your questions, although I didn't hear much about it, so the line was extremely bad. So I understand that your first question is about handbags and whether we intend to introduce, as some competitors are doing, some mid-priced novelties, basically, in between small leather goods and the sort of core price range.

I think the examples you're referring to are a little bit different from what we have, particularly at Louis Vuitton. I mean, if you look at the spectrum of -- the price spectrum of product at Louis Vuitton, we've been working a lot on that over the past few years that we cover, basically, all the different ranges in the spectrum, from the entry price to the top-top end.

And we try to be present in all the various price ranges with relevant product. I mean, it's not an anecdotical presence.

It's really having strong product in the entry price, having beefed up the offer, particularly from Monogram, above EUR 1,000 reference, for instance, introducing soft leather at higher price points, et cetera, et cetera. As far as Vuitton is concerned, we think we were the first to recognize the need for a comprehensive coverage of the full price spectrum.

And I think with the product introduction that we have done over the past few years, we are there. So we see no necessity -- no particular necessity to reinforce or to cover a price range that we wouldn't cover apart from what we said about the strategy of the brand, which is to have [indiscernible] through the introduction of highly-priced product and strong image carrier.

So there is nothing new in this respect. I also understand, but I'm not so sure that your second question was on small leather goods and the trends there.

It's a category that is suffering a bit from the Japan decline, I mean, or the comparison base in Japan and the drop in the Japanese business. At Louis Vuitton, Japan has always been a market -- a very strong market for small leather goods.

We benefited highly from that last year in Q1 with the boom in Japan. This year, with the drop in the Japanese activity, we are having a little bit of pressure.

Obviously, this should normalize in the months to come.

There was a question also on the smaller Fashion & Leather Goods brands. So I was wondering whether you're seeing continuing momentum at Fendi, for example, or [indiscernible].

And whether you had addressed, in the meantime, issues at Marc Jacobs and the DKNY and other brands that was sort of lagging behind?

Well, we are very pleased with the momentum at Fendi, Céline, Givenchy, Kenzo. They are all doing extremely well.

As far as Marc Jacobs is concerned, we are, as I said, a few times already, in the transition phase from a management and artistic direction viewpoint. So obviously, this requires some adjustments, I would say, and we have not been able to benefit from new orientations in our business yet.

So the business is under significant pressure, but we expect this pressure to be only temporary, obviously.

I have 3 questions, actually. First of all, regarding price increases, if I correctly understood, you said that prices were around 3% in Europe in Q1.

Could you tell us what was the price increase passed on in the U.S.? The second question is about cognac.

Could you tell us what was the sales trend in the U.S. in Q1 for the cognac business?

And third question is about Sephora. If I correctly understood, it was said that there was a double-digit same-store sales growth on a worldwide basis, or was it only for the U.S.?

And more globally, what was the Sephora organic growth, please?

Okay. So U.S.

price increases at Louis Vuitton, none. So we didn't increase prices in 2015 in the U.S.

As far as cognac in the U.S. is concerned, on the top of my mind, I think the business was up 11% in volume terms.

Depletions were actually higher than that, so the level of inventory is extremely healthy in the U.S. And on Sephora, the double-digit comparable is on a worldwide basis.

Okay. And you said that the growth was around 11% in volume.

What was the growth in value?

I don't know. I should know, but I don't know.

It's a few points more. Something like 2 or 3 points more.

Okay. And regarding Sephora for the overall organic growth rate, what was the rate of growth for Q1?

It was double digit...

Definitely, okay.

I will take another question if somebody has another one to ask.

I've got a question about LV. At the full-year results, you described LV sales in January as being sharply up, and you also said it was almost too much that you wouldn't be able to deliver all of the goods.

So I've got 2 parts of the question. Can you comment about the production capacity at LV looking ahead for the year?

And also, whether the growth rates at LV faded in February and March?

Okay. Well, actually the comment was mostly on some products, not -- it was not a number of comments.

It was mostly on some lines that we find difficult to manufacture and, therefore, to make available to our clients in the store. So it was not a global comment, and we have no particular issue whatsoever with regards to the global production capacities -- capacity this year.

As always, I mean, there will be some areas, particularly in leather, where we'll be -- we shall be a little bit constrained, but nothing really relevant if you take the company as a whole. February, March compared to January, actually, January was -- I think the comment on the business was only on some -- made by Mr.

Arnault was on some lines of the business. Overall, actually in January, the business, due to the shift in Chinese New Year, was a little bit lower than what it was in February.

And March has been in the same vein. You should take out, obviously, the negative impact from Japan, which was particularly significant in the month of March, as we had a comparison base which was basically unmatchable in March.

I had a question on Watches & Jewelry. Could you maybe specify how watches were faring, and in particular, by region?

How bad it was in Asia?

Okay. Watches have been under some pressure in Q1 as well as it was the case in 2014.

I would say in most regions, with the exception of Japan, which is still doing okay, but the rest of the regions were under some pressure. Nothing really tremendous, but nevertheless, a little bit down in the U.S., a little bit down despite touristic flows in Europe and also a little bit down in Asia.

So a business which is obviously connected with the TAG Heuer situation that I commented before. I will not come back on that.

But there is a little bit of pressure there.

First one, please, on the U.S., can you maybe give a breakdown of the momentum of each division in this market? You already gave cognac, but can you detail for all the division?

My second question is on Hong Kong and Macau. Clearly, the situation remains really difficult there, do you expect any improvements through the year, or can we expect a decline for the whole year?

And last question on ForEx, do you have more visibility on the ForEx impact we could expect on the EBIT for H1?

Okay, thank you, Hermine. In the U.S., by division, I would say with the exception of watches, I commented before, the rest of the business, by and large, is doing very well.

Exactly the same type of trends as the one we saw in the second part of last year. We are around double digit for most businesses, with the exception of watches.

Hong Kong and Macau, obviously, it's difficult to make any forecast there. I don't think there will be meaningful changes in the near future, so we are preparing ourselves to a fairly complex business for the rest of the year.

It's more an assumption than a real forecast, but I think it's -- we have no particular reason to be very optimistic in those locations. And as far as ForEx is concerned, while the impact, if currencies stay where they are, will be positive, but it's obviously way too early to comment on that.

Maybe one last question.

Two quick questions. I was just wondering if you could give some color on what's happening in markets like Korea and Singapore, Jean-Jacques.

And my second question is looking at the LV new airport store at Heathrow, I was just curious to know if LV will be open to explore other airport concession opportunities in major airports where you can have proper space control? I presume that productivity in the shops will be interesting and considering the Chinese overseas buying momentum?

Okay. Korea and Singapore, basically, both locations are slightly up in Q1, but a few percentage points, so nothing comparable to the big issues we have in Macau and Hong Kong.

So numbers are okay. Not fantastic, but okay for most divisions, I would say, obviously, varying with travel retail.

As far as the obvious [indiscernible] airports is concerned, it's difficult to say. We have nothing really in mind for the time being.

I would say that the 2 criteria that we would use to expand further in airports with LV are the following: One is that we need -- the airport should have a very significant amount of transit business. Otherwise, it makes no sense to develop a location because we would cannibalize, at the airport, the type of business we could do downtown, so it doesn't make any sense.

So it's really capturing the transit business as opposed to cannibalizing the local business. And the second criterion is to make sure that we end up with a favorable business proposition from the airport authorities in terms of rents, which is not always the case, far from that.

So if we sum up these 2 criteria, we may decide to invest in an airport, otherwise, it's a non-starter. Okay, thank you very much, ladies and gentlemen, for attending this call.

I look forward to discussing with you end of July our first half numbers, including revenues, but also EBIT and other P&L and cash flow numbers. Thank you very much.