LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Thank you, Lance. 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 today.

We have some brief remarks to make about LVMH's revenue for the third quarter and the first 9 months of 2015. As in previous periods, these revenue figures are reported in accordance with International Financial Reporting Standards or IFRS.

And 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, subject to important risks and uncertainties that can cause actual results to differ materially.

For these, I refer you to the Safe Harbor Statement included in our press release. Turning now to our third quarter and 9 months revenue announcement.

Hopefully, you've all had the chance to read a release, which was issued yesterday evening 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 discussion.

So with that, let's start with an overview of our performance. Looking at Q3 specifically, and this is Slide 2.

We saw continued progress in line with the first half of the year. This included a positive currency impact, although I would note that it was less significant in the third quarter than during the first half of the year.

Overall, we saw a solid momentum in the U.S., Europe and Japan, while continuing to navigate a challenging environment elsewhere in Asia. At the business group level, we saw good performance from Wines & Spirits, driven principally by the rebound of cognac shipments to China and strong momentum in the U.S.

market. In the Fashion & Leather Goods group, I would highlight the major success of Louis Vuitton's new products.

Fendi and Givenchy, both performing very well, and the repositioning initiatives at Marc Jacobs and DKNY, which I'll address a little later in the presentation. We also saw good progress in jewelry, fueled by Bulgari's strong performance, which was partly offset by the impact of continuing -- continued destocking at the multi-brand retailers of TAG Heuer.

In Selective Retailing, Sephora continued to deliver strong performance while DFS faced an ongoing challenging monetary and geopolitical environment in Asia. Looking now at the evolution of our revenue performance in 2015.

We generated organic revenue growth of 7% for the third quarter and 6% for the first half and the 9-month periods. The reported growth figure of 18% for the first 9 months reflects a 12% positive currency effect.

As I mentioned, the currency impact in the third quarter was smaller than in the first half, contributing 9% and resulting in a 16% reported increase in revenue. Turning to Slide 4.

Organic revenue growth for the first 9 months was up between 11% and 13% across the U.S., Europe and Japan, and down 6% for the rest of Asia. In the third quarter, revenue rose most significantly in Japan, growing 24%, led by the U.S.

and Europe at 12%. While Asia, ex Japan, was down 8%.

This reflected an increase in Chinese customers purchasing outside of their national territory. Slide 5 shows the breakdown of revenue in euros by region for the first 9 months of 2015.

We continue to see a well-balanced mix of revenue with a little over -- 1/3 of our revenue from Asia, including Japan, a little more than 1/4 in Europe than the U.S. and 12% in other markets.

Compared to last year's 9-month period, main changes can be attributed to the strengths of the dollar and the consequent growth in the weight of the U.S., in euro terms, compared to Asia and Europe. Taking a closer look now at each business group, I'll start with Slide 6 with the Wines & Spirits business group.

Organic revenue was up 7% for the 9-month period. Total revenue in this group was EUR 3.1 billion compared to EUR 2.6 billion in the same period last year.

Reported revenue in this business was up 19%, boosted by 12%, obviously, of currency impact. For the third quarter, revenue is up 16% on an organic basis and benefited from a positive 11% currency effect.

This resulted in a published increase of 27% in the quarter compared to last year to reach EUR 1.2 billion. Breaking this down further.

For the first 9 months of the year, Champagne & Wines recorded 7% organic revenue growth and benefited from an 8% positive currency impact. This resulted in published revenue of EUR 1.4 billion.

In the third quarter, for Champagne & Wines, organic growth reached 9%, while currency had a positive impact of 6% in the quarter compared to last year's period. For Cognac & Spirits.

In the first 9-month period, we saw 7% organic growth and a positive currency impact of 16%, resulting in reported revenue of EUR 1.8 billion. And for the third quarter, Cognac & Spirits recorded a 23% organic revenue growth and a positive 15% currency impact compared to last year's period.

Turning now to Slide 7. Champagne volumes increased 5% in the first 9 months, demonstrating sustained growth in Europe, the U.S.

and Japan, while Estates & Wines benefited from an improvement in mix driven by sparkling wines. With respect to cognac, we were pleased to see volumes rise 12%, driven by continued strong momentum in the U.S.

as well as a rebound in shipments to China during the third quarter, given the lower base. We continue to be impacted, however, by destocking of higher quality cognacs by Chinese distributors.

In terms of our other spirits, the Glenmorangie and Belvedere brands showed strong momentum in the 9 months. Now turning to Fashion & Leather, the revenue in this business group was up 5% on an organic basis for the first 9 months of the year.

Reported revenue was up 16% to EUR 8.9 billion from EUR 7.7 billion in the same period last year, and this included an 11% positive currency impact. For the third quarter specifically, revenue was EUR 2.9 billion, reflecting a 3% increase in organic revenue and an 8% positive currency effect over the last year's third quarter.

Slide 9. Louis Vuitton's new creations were strong contributors to the brand's performance.

This included the solid growth demonstrated by the creativity embodied in the new Monogram models, as well as the craftsmanship shown in its leather products. In addition, during the quarter -- third quarter, there was some evolution of our store base and the family house in Asnières, where Louis Vuitton's historic workshop is located, was reopened.

In terms of the other Fashion & Leather Goods brand, Fendi showed strong momentum, particularly in its leather goods and accessories. And Céline continued the strong performance we have been seeing from its iconic products, as well as with its ready-to-wear collections.

Loro Piana, now fully integrated into the group, focused on the qualitative development of its store network, while Kenzo rolled out a new store concept, beginning with its Milan and London boutiques. Also focusing on its store network was Givenchy, which opened flagship locations in both New York and Milan.

As you likely saw, the brands' September ready-to-wear spring/summer 2016 fashion show, which took place in New York this year, received an enthusiastic response and generated considerable media attention. In August Berluti inaugurated its workshop for shoes and leather goods in Ferrare, in Northern Italy, to accommodate its international expansion.

Finally, Marc Jacobs and Donna Karan are continuing to reposition their collections, merging lines and refocusing their offer in order to resume growth from a stronger base. With new teams in place at both brands, their first shows under their respective new strategies was successfully presented at the recent New York Fashion Week.

Now Slide 10 for our Perfumes & Cosmetics business, revenue rose to EUR 3.3 billion from EUR 2.8 billion in the 9-month period of last year. Excluding a 9% positive currency effect, this represented a 7% increase in organic revenue.

Looking at the third quarter, revenue in this business group was EUR 1.1 billion, with organic revenue up 7% over the year-ago period and a 7% positive currency impact. Looking at the Perfumes & Cosmetics brands, Parfums Christian Dior delivered strong performance and market share gains, driven by the continued progress of its iconic J'adore, Miss Dior and Dior Homme fragrances.

An excellent start for its new male fragrance, Sauvage, which was introduced in the third quarter and features Johnny Depp as its ambassador, and strong development of its makeup lines. This includes a positive momentum for Rouge Dior and the Diorskin Nude foundation, as well as the successful launch of Dior Addict Lipstick.

Guerlain showed progress in its male perfume, L’Homme Idéal, and continued the rapid development of its skincare lines, notably, Abeille Royale, while Givenchy successfully launched its new fragrance, Live Irresistible. Benefit continued to enjoy a strong momentum, led by innovative mascaras, They're Real!

and Roller Lash. Make Up For Ever launched a foundation developed for film and TV industry called Ultra HD, which has been very well received.

And lastly, Fresh continued the worldwide expansion of its distribution network. Now moving on to Watches & Jewelry business group on Slide 12, revenue increased to EUR 2.4 billion versus EUR 1.97 billion in the 9 -- first 9 months of last year, including a solid 10% growth in organic revenue and a 12% positive currency effect.

For the third quarter on its own, revenue was EUR 852 million, representing 11% growth in organic revenue and a 10% positive currency impact over the year-ago period. Overall, this business group saw excellent performance in jewelry, while watches continued to be impacted by a cautious purchasing environment among multi-brand watch retailers.

By brand, Bulgari showed strong progress, led by its iconic jewelry and ladies watch lines, as well as the successful launch of its new High Jewelry collection, Italian Gardens. At Hublot, we were pleased with the excellent perform -- momentum the brand has demonstrated this year.

Hublot also opened its second manufacturing facility in Nyon, Switzerland at the end of September, which will support its expansion and create a new space for its after-sales service. Chaumet introduced its new Josephine collection and opened the ephemeral museum in its platform, Vendome Boutique, in Paris.

And at TAG Heuer, the brand has been focusing on its core range and began the selective rollout of new models as retailers continue to de-stock. In addition, the highly anticipated smart watch the brand is developing, is set to be revealed in the U.S.

in November. And now turning to the last business group, Selective Retailing, which did a 5% organic revenue growth, further increased by 14% positive currency impact for the 9-month period.

The third quarter, on a stand-alone basis, generated revenue of EUR 2.6 billion, reflecting organic growth of 5% and a 12% positive currency impact. To give you some highlights, on Slide 15 in this business group for the first 9 months, Sephora, once again, had strong comparable store revenue growth, driven in particular by performance in North America and the Middle East.

The brand also attained market share gains across all countries and had a very strong start during its first full year of operation in Australia. Online sales momentum continued to be excellent for Sephora and they've recently announced the acquisition of Luxola, a beauty e-commerce site based in Singapore with a presence in 11 Southeast Asian countries.

This acquisition will complement the existing store network in the region. Turning to DFS, the businesses has had to navigate a challenging environment in Asia in the first 9 months, linked to monetary and geopolitical conditions in the region.

Looking at Japan specifically, a weak yen impacted Japanese travelers while the country benefited from the rapid development of Chinese tourism. In terms of new developments, preparations are underway for new locations in Macau, Cambodia and Italy.

So in summary, the 7% and 6% organic revenue growth that we delivered in the third quarter of the first 9 months of the year, respectively, demonstrate a very good performance overall in the context of an ongoing challenging economic environment. In fact, all our business groups contributed to growth in the third quarter, as well as all regions, with the exception of non-Japanese Asia.

As we move ahead, LVMH continue to focus on offering innovative, high-quality products in stores around the world, while selectively expanding our store network and maintaining a focus on cost management, with the objective of reinforcing the group's leadership in the global luxury goods market. Thank you, and we will now take your questions.

Lance, can you open the line, please?

Jean-Jacques, Chris, a couple of questions, please. Firstly on cognac, the shipments rebounded strongly into China.

It's probably a bit artificial given a lot of destocking was taking place in Q3 last year. Can you perhaps comment on, one, the depletion in China in the third quarter and during the Mid-Autumn Festival last week; and two, on the residual level of inventories within your 2 tiers of distributors?

So that's for cognac. And secondly, a question on Louis Vuitton.

Remember, Jean-Jacques, in Q2, you were quite enthusiastic about the sales acceleration from the Chinese clientele on a global basis. Fashion & Leather was up 3% in Q3.

So there's been a -- potentially a slowdown from that group of customers. Can you give us a bit more color there and perhaps indicate how the business has performed during the Mid-Autumn Festival last week?

These are my 2 questions.

Thank you, Tom. I'll start with cognac, and I will try to give you sort of global overview of what happened over the last few months in China, starting with sell-out.

Unfortunately, I won't be able to give you the latest numbers as I don't have them. I mean, it takes a little bit more time in China to get the numbers than it takes in the U.S., for instance.

So the September numbers, particularly the Mid-Autumn Festival, I don't have that. But let's discuss, nevertheless, July and August from a sell-out viewpoint.

What we saw in July and August, as expected, is a stabilization and actually an increase in the depletions, of better numbers in July and August, which, in my view, are a clear sign of this market bottoming out. It's true for V.S.O.P.

and it's also true for X.O., so in this respect we are reasonably optimistic that the rest of the year will prove better and probably positive, but better than what we've seen in the first half of the year. With regards to sell-in, the situation is a little bit more complex to explain.

We had, as you've seen or as you've gathered from the numbers that we have reported, very strong numbers in China in Q3 from a sell-in viewpoint, which is not necessarily what you would have expected given the fact that we have -- we also have inventories to wipe out. Actually, what happened is that given the complexity of the wholesale system in China, in order to be sure that all of our products would be at the right place at the right moment for the Mid-Autumn Festival and the Golden Week, we had to sell in higher quantities than we thought -- we really thought that the existing inventories would allow us to meet the demand from Chinese Mid-Autumn Festival.

But actually, we didn't want to take any risk and we made sure that all the quantities were available, so we had to increase a bit our sell-in numbers, and therefore, in the course of Q3, we had sell-in numbers that were a bit higher than our anticipations, and hence, our destocking was a bit lower than what we saw. So overall, if you take H2, I think our sell-in numbers will be up and our destocking will be up to our expectations.

But the difference between Q3 and Q4 will be that we have already anticipated a little bit the same numbers in Q3 for the reasons I mentioned, and therefore, Q4 will be a little bit under pressure. To be more precise, as far as Q4 is concerned, I think we shall be, from a sell-in number, flat or positive.

So not negative on the basis, obviously, of sell-out being positive, as I explained before. But what we said before, that by the end of the year we should see positive numbers in sell-in, sell-out and stocks being where we think they should be will be accomplished.

So we are pretty optimistic. As far as Vuitton is concerned, the second question, I think you were probably more enthusiastic than I was about the Chinese customer base, because you have a tendency to take 3 months for a trend, which I usually don't do.

So what happened in Q3 is that the Chinese customer base altogether, so in all the countries, went down to something like flat numbers compared to almost double digit or close to double digit for the first 6 months of the year. This is obviously connected with what happened in China in July and August in the stock market.

We know perfectly well that when -- after depreciations of such magnitude take place, this has an impact on our business, and China was no exception to that. We also know that this doesn't last for very long.

It's a matter of months. And with regards to Golden Week, where we have the numbers for Vuitton, unlike the Wines & Spirits business, which is a wholesale business, we saw a pretty strong Golden Week.

I mean, our numbers with Chinese people in the Golden Week were low-double digit. So we think -- I'm not sure everything is over, but we think the impact of -- I mean, the drop in the stock market has taken its toll.

But nevertheless, as we expected, this is not going to last for very long and we expect the market to -- and the business with Chinese people, to normalize pretty soon.

Okay. Maybe just a follow-up on Vuitton.

You mentioned the evolution of the store network. I know you don't disclose much data on Vuitton store network anymore, but more generally, can you perhaps elaborate on how you see the retail store network evolving going forward, considering the obvious shift in demand we're seeing away from Asia into Europe and Japan?

Have you been closing stores? Are you thinking differently about the location of your store regionally?

Tom, we close and open stores all the time. Globally, the store count at Vuitton is stable and we have enlarged stores even in China, in Beijing, China World.

We may be closing down a couple of stores elsewhere in China where we have 2 stores in second-tier cities. It may happen, but nothing really dramatic and overall, you should see the store count being reasonably flat for the years to come.

I wanted to ask -- in the past, I've asked about Wines & Spirits and what the color was for who is driving a little bit and I know you've given some comments already. Are you seeing demand from catering pick up as well?

I know some of the National Bureau of Statistics numbers showed catering starting to pick up. And then in a similar manner, could you say, in the U.S., you said that Wines & Spirits, cognac is strong.

Can you give a little bit more color on what segments and what different channels are driving the business?

Well catering is not really a segment we get reported numbers, so it's quite difficult for me to answer. But I can say, if your question is about China, is that the offtake numbers were very strong.

If there is anything from catering, they belong to that group. So that's probably the only answer I can give you.

As far as the U.S. is concerned...

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I'm sorry?

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I cannot hear you. Can you hear?

Hello? Anyway, let's move on.

So as far as the U.S. is concerned, we had a fairly good Q3.

Our numbers are pretty strong double digit for both V.S. and V.S.O.P., so this a prolongation of what we've seen over the last few quarters.

But the business, both from a sell-in and a sell-out viewpoint shows no signs of slowing down and our inventory situation is extremely healthy.

Just a quick follow-up on LV. In the press release this morning, you mentioned that growth was pretty strong at Fendi, Céline, Givenchy, Kenzo, et cetera.

So is it fair to assume that LV actually slightly underperformed the Fashion & Leather Goods division in Q3? And on Selective Retail, can you give us more color on the like-for-like performance in Q3 and maybe the split by region?

No, LV was not really different. I mean, it was a bit lower, but not really different from the average for the division.

As you know, it is never very far away from the average. As far as Selective Retailing is concerned and, possibly, Sephora, the like-for-like numbers were pretty -- were a little bit in excess of 10% for Q3, which is not so far from where it was in the preceding quarters.

And it was a bit higher in the U.S. and a bit lower in Europe and Asia.

Two questions about Louis Vuitton. Can you give us an idea of how the performance been -- brand among local European customers and American customer?

And the second question is about the relative performance of Monogram in comparison to the other product lines, if outperform or was in line with the rest.

Okay, Mario, on the local customers, the American customers was -- growth was quite flat throughout the year, with a big double-digit growth, significant double-digit growth. It's been the same for H1 and Q2, more or less the same figures, so significantly in excess to 10%.

With regards to European customers, there are some differences, but I would say that South Europe is about between 2% and 4%. South European customers, i.e.

include French, Italian and Spanish customers, is in between 2% and 4%. While the northern part of Europe, with Germany and British customers being a bit higher.

With regards to Monogram, Monogram outperformed a bit the rest of Vuitton in Q3, as it's been doing for the last few quarters. This comes from the handbag segments, but also from the small leather goods segment, which unlike the preceding quarters, has proven pretty solid.

And obviously, when the small leather goods segment is solid, this comes mostly from Monogram.

Jean-Jacques and Chris. Thanks for the details in China in terms of the flat run rate.

When you do talk about normalization soon, what is the magnitude of which you could experience some acceleration? What kind of range?

And just, you gave the insight that you thought this was just a matter of -- I just wanted to know if you could elaborate on how we should think about that happening. And then I had a question on Sephora.

You've had a really impressive momentum in the United States. Who do you think you're taking share from there?

And if you could give us an approximation of how the comp store sales trends were, that would be great.

Which I already given. I mean, it's a bit of an excess of 10% in the U.S.

I mean, the average for Sephora is about a little bit more than 10%, and it's a bit higher in the U.S. On your first question, you're talking about, what, Vuitton, China?

I mean, I don't know. Could you be more precise, please?

Yes, I am -- yes, Fashion & Leather Goods in Vuitton.

Leather goods at Vuitton.

It's a difficult question. I mean, obviously, improvement in run rate would come from various sources, one is mix, another is volume and third is pricing.

Particularly, if you look at pricing this year, pricing was not a big impact due to the fact that we benefited from an improvement in the overall currency situation. We found it extremely hard to pass on price increases, so contribution to growth coming from prices has been the lowest I've seen for many, many years.

So this is a way to say that when you look at constant currency growth in period of hardening currencies, you - there is part of the growth that could have been otherwise within the constant currency growth that you don't see because it's in the currency impact. Apart from that, I mean, we've been working at improving the mix for many, many years, and we do get some improvement there.

Volumes are slightly positive, as they should be, so this is an ongoing process, I would say.

Okay. And on the TAG smart watch, we just wanted to know, what's your route to market?

Is there any distinction in terms of the distribution model there? And the multi-brand cautious purchasing habits on the watch side, is that a temporary issue in terms of the inventories you're seeing there?

Just your thoughts on some catalysts for that side of the business.

On the first question, wait November. I mean, we'll be making some announcement in November, so I cannot really elaborate before that.

With regards to what we call soft purchases from third-party retailers, there are a few things in that. First of all, this segment is suffering a bit in some areas like Asia, particularly.

So the purchases from these people are not particularly strong. And as we said, go first -- on top of that, in other areas, particularly the inventory situation and particularly from a qualitative viewpoint -- not necessarily from a quantitative viewpoint is not particularly strong for some of our brands, and particularly for TAG Heuer.

We still have some third-party retailers who are left with a significant amount of slow movers, so it takes time. We have bought back some of them, but we cannot buy them all.

And it takes time for them to get rid of the slow movers. And obviously, as long as they don't get rid of them, their level of purchase is lower than what it was before.

So this is what we call caution on the side of third-party retailers.

Okay. And Jean-Jacques, on the commodity side as it applies to diamonds and gold and other commodities, we're seeing some benefits in relation to the cost of goods sold declining.

I know it depends on the rate of your inventory turnover and your accounting method on the inventory, but is that something we should look forward to? And is it -- would it hit the gross margin, or would you reinvest that?

I'm just curious about the dynamics as we do see double-digit decreases in certain commodities.

Well, on gold, there is nothing really new. I mean, it's been going on for some time, and we have already benefited from that in a large extent.

And the question is not necessarily whether we shall reduce prices to offset -- to reflect the lower price of gold because the question is, prior to that, were we able to reflect into our watches the increase in the price of gold, which was not always the case. So you should take that with a sort of average view on the number of years, and nothing really dramatic is supposed to take place there.

Okay. Just lastly, I mean, on Sephora, your mobile app is pretty amazing and exceptional.

Of your comp store sales, is there -- is a material percentage driven by the online portion? In the U.S., a lot of the U.S.

retailers are seeing some nice drivers in terms of the momentum and traffics they're getting from offline material that contributed to comp store sales.

No. The mobile is a strong contributor.

We don't want to disclose any number with regards to the share of digital and particularly within digital mobile. But it's a strong contributor, and we have invested heavily into making mobile purchases available to our customer base, I would say, rather early, so we are benefiting from that these days.

One question about Louis Vuitton. There was quite a significant amount of newness coming to the stores in the fourth quarter of last year, especially with the 150th anniversary collections.

How confident are you when you look at the newness coming to the stores for Vuitton in the next few quarters and if you think that those comparables will be in a way addressable by the new products that you have underway? A second question about pockets of improvement.

There seem to be a few areas where LVMH could be benefiting significantly from improving its business position. You mentioned a few of them already, like TAG Heuer, for example.

We could add Marc Jacobs and DKNY and possibly the payout of the significant investments in Berluti. I realize that it takes time for them to be addressed.

I wonder if you have an idea of what this timeline could be or at least, which ones could potentially bear fruit sooner rather than later.

Okay. So on the first question on the newness and anniversarying the group response from the client base last year to our novelties, I would say this is the sort of ongoing challenge.

I mean, we have to deal with that at all times. So the answer to your question is that I'm very confident that we shall be able this year and in the next quarters to anniversarize the success of the preceding quarters.

We are investing heavily into new products. The new products that we have launched have been quite successful, so we don't feel particularly worried that the comparison base, particularly from a qualitative viewpoint, will be difficult to match.

There are easier quarters from a quantitative viewpoint. But from a qualitative viewpoint, there were a fair amount of novelties that worked pretty well last year.

I'm pretty confident that Q4 will see exactly the same thing this year, so we are not particularly worried. Well, with regards to what you call the improvements, well, thank you for calling them improvements, to start with.

You know my feelings on this, I mean, we don't want to exert undo pressure on our managers by setting time targets that would make their life even more complicated. I mean, these businesses are working on fairly important challenges, and they have to, for some of them, particularly to reinvent themselves or to find a different way to operate.

This is particularly true for Marc Jacobs and Donna Karan. We have explained that we want to simplify the brands, having 1 label instead of 2.

But clearly, the surviving label will not be -- I mean, if you take DKNY, DKNY -- the new DKNY will not be the preceding DKNY neither will it be the preceding DKNY collection. It will be something different.

Same thing for Marc Jacobs. So it takes time.

It's complicated. We've seen some quite amazing runway shows lately.

I'm very confident that from a product viewpoint, we are in the right direction. Doing nice runway shows and convincing department stores, buyers to take risks on the new products are 2 different things.

So it's going to take a few seasons, I would say, how much is a few seasons, I really don't know. If we try to segregate a bit, I would say that TAG Heuer, in my view, is the brand among the ones you mentioned, where the improvement is the closest, I would say.

We have cleaned up, to a large extent, the distribution network. Maybe there is a little bit to come, but nothing really significant.

The new products and the price at which we introduce those new products seem to be quite well understood and accepted by the retailers, so we are quite optimistic. This being said, if Q3 -- Q4 or Q1 are not exactly up to your expectations, don't blame me for this comment.

I mean, it's always -- it's very difficult to figure out with precision how long it is going to take.

I will not.

It's Antoine at HSBC. Three questions.

First of all, to come back on your comment that the Chinese consumption was flat versus up 10% in the first half. Most of the decline, is it coming from local consumption?

Or is it Chinese people are spending less when they travel? And actually on that particular space, is it more like less traffic or more spending in the store?

Second question on champagne. You saw a nice acceleration in volumes from 3% to 5%, which mean that Q3 was probably high single digit.

Any one-off -- or do you think that it's a genuine acceleration? And finally, what's your view in terms of your hedging strategy, with the dollar seeming to stabilize?

How are you hedging yourself for 2016? Is it more using options?

And more like what's the combination of vanilla versus option tunnels?

Thank you, Antoine, for your 3 questions. On Chinese consumption, the drop that we've seen comes from both the locals and the tourists.

I would say maybe a bit more from the tourists, although it's not really easy to read because we've seen some huge discrepancies from one month to another. So again, you're asking me to comment on only 3 months, which, as I said earlier in this presentation, is not a trend in my view.

So we've seen some volatility in these numbers. The only thing we know is that, as I said -- I mean, the stock market collapse take -- took its toll.

And as we said, we expect this to be only impactful for a small number of months. With regards to champagne, although the numbers have been a bit volatile, I mean, Q1 was better than Q2 and then Q3 is better, I think the business, fundamentally, is quite healthy from a volume viewpoint.

Growth is coming from many directions. It's true in Europe and also in the U.S.

And with Europe and U.S., you have almost 80% of the business, so it's really, I would say, a healthy business. Growing the business more than 5% or more than 4% is difficult from an inventory viewpoint, so we know that the optimum from a growth viewpoint is more -- something like 4%.

We're a bit higher than that on average since the beginning of the year. It's not a forecast, but we cannot grow 6% or 7% per annum, that we know.

It will be more something like 4%. But again, I mean, it's very balanced and very healthy.

And we are particularly pleased with the advances of the business in the U.S., which is the result of the strong marketing strategies that have been implemented there. With regards to hedging, I mean, we do what we always do.

We hedge about a year in advance. When the currencies are high, we tend to hedge with tunnels.

We -- there is something like a 10 points difference in between the put option and the call option, but it's impossible with the level of volatility today to buy plain vanilla option. Our average rate for next year is about $1.11, $1.12, so it's well positioned compared to current market spot rates, and that's about it.

And we have covered about -- we covered about 75% to 76% of our total budget. And it's more or less the same thing with the yen, although we have a little bit more plain-vanilla strategies in the yen due to the fact that the yen is not that strong as the dollar is at this point in time.

Okay. Maybe just one -- actually 2 follow-ups, one on champagne.

So if 4% is the sustainable volume growth, would you say that the 3% mix on price that you've seen in the first 9 months either saw what be -- -- what could be sustained? And on -- back on the Chinese.

It's -- I'm finding it a bit difficult to see that the Chinese are adjusting their purchases so quickly. So can you maybe put a bit of anecdotal evidence?

Or have you seen -- again, is it more that people are canceling their trips or more that they are spending less when they are entering your stores?

Well, it's not spending less or canceling trips. It's that the growth rate slows down.

It's not -- I mean, we see as many Chinese people as we used to. Even in some location, we see more.

Maybe they spend a little bit less. But on average, they spend as much as they used to.

It's just that the growth rate is not as high as it was in H1. So don't -- I mean, there is difference between the business falling and the growth rates falling, and we are talking about growth rates being lower than what it was and not the business being lower than what it was.

On champagne, on your first comment about price/mix, I would tend to be a little bit more optimistic because this year, if you look at price, it's quite difficult to pass on price increases due to the fact that currencies are pretty high. So I think our potential for raising prices further in a normal -- I would say, in a more stable currency environment is probably a bit higher than what we have shown this year.

But otherwise, I mean, we're talking about, yes, something in between 3% and 4% in between prices and mix.

I have several questions actually. First of all, about Asia Pacific.

We had some worsening in trend in Q3 despite a very positive impact from cognac, where it was not the case in H1. So first of all, could you give us some color about the evolution of Asia Pac sales, stripping out cognac?

And second point, could you tell us what happened in the region in Q3? And my second question was about the Vuitton sales growth.

If we assume that it was more or less around 2% in Q3, could you give us the overall trends by main regions between Europe, the U.S., Asia Pac, Japan and so on?

Okay. So on Asia in Q3, if I'm not mistaken, we were down something like 8% in Q3.

Excluding Wines & Spirits, I think it was a little bit more than minus 9% or something like that. What is behind that is a slowing down in most businesses, including, obviously, fashion for reasons that we have already discussed, but also a little bit Perfumes & Cosmetic.

Selective Distribution is also suffering a bit, particularly for DFS in Hong Kong and Macau. So I will say that all the divisions are participating to this slowdown in the Asian business.

For Vuitton, I will not confirm your assumption that -- on the growth rate of Vuitton. But to give you some color around the various geographies, we've seen Europe being double-digit growth, albeit at a slightly slower pace than what it was in H1.

Asia was negative, a little bit worse than what it was. U.S.

was mid-single-digit growth. It was a bit better in the first half.

The main difference between H1 and Q3 for the U.S. at Vuitton is not the American customers.

As I said before, they've been growing particularly at the same pace in H1 and in Q3, but it was mostly due to South American clients that benefited from the drop in their currencies and from attractive local prices, which doesn't happen very often in South America. So they -- there was a lot -- for a fairly long period of time, in Q3, prices in Brazil, for instance, were lower than what they were in -- at the U.S.

We have raised prices -- or we are about to raise prices in Brazil, obviously, to correct that, but we suffered a little bit from that. And the big difference was also in Japan, where we moved from a few percentage points positive in H1 to a very strong double-digit number in Q3.

So the Japanese business has really benefited from very favorable touristic trends, but also local trends. We've seen the Japanese customers being positive locally for the first time in many quarters.

Just a couple of follow-ups for me, please. Can you just remind us of the price increases that have gone through for Louis Vuitton so far this year?

I think there was one April and one in June. And whether you think that's had any impact on the volumes in Q3?

Well, it's quite simple, we had a price increase at Vuitton across-the-board of 3%. I think it was in February or early March.

And we had for leather goods another price increase late June or early July of another 3%. And that's about it.

I mean, apart from that, there've been some minor price adjustments here and there, but nothing really significant, apart from significant rises of prices in emerging markets, such as Russia or Brazil, where we have to correct the drop in the local currencies. Was there any impact on volumes?

Frankly, I don't think so. I mean, when you do price increases of that magnitude, usually the impact on the customer is fairly limited.

And just on -- following-up on the comments earlier regarding Golden Week and the Middleton Festival. I think you talked about low double-digit growth in the Chinese consumers globally.

Was that a like-for-like period, so Golden Week on Golden Week? Just trying to understand the underlying -- it is the underlying.

Yes, it was 1st of October to the 7th of October, so it's exactly like-for-like.

And then my last question. Just I assume Marc Jacobs is closing a store in Harbour City.

Obviously, small in the context of the group. But are there any other potential -- we've been talking about rentals for a long time, but any other areas of cost savings you look to the budget into 2016, specifically for Asia?

Not really, not really.

It's Ashley Wallace. I have a question on your Fashion & Leather margins for the second half and into 2016.

Given your European base production, when should we start to expect the gross margin benefit from a weak euro come through? And can you please give us an indication of how supportive that will be for Fashion & Leather margins?

And then just one -- second question as a follow-up to Louise just on Golden Week and the Chinese consumer growing low double-digit growth. Can you please break that down, traveling consumption versus local consumption during that period?

No, I can't. I mean, it ended up last week, so I don't really have the numbers.

I think it's already -- I'm quite pleased to have the numbers for the Chinese customer base already on a global basis, but I don't have the breakdown. But it was probably more positive for tourists than it was locally, but I cannot be more precise than that.

The question on margins, I will not answer in a precise way. I mean, this is a revenue conference call, not a results -- I mean, net income and operating income comments.

We -- as we said before, I mean, H1 was a little bit under -- despite the improvement in the global environment from currencies, H1 was a bit under pressure due to the fact that we had to anniversarize significant hedging gains last year, which didn't occur obviously this year. Theoretically, this should not take place in H2, so we should benefit from that.

But don't take this from a -- as a forecast of rising margins. I mean, there are plenty of factors that could affect margins one way or the other.

Isolated -- in an isolated way, currencies should have a better impact in H2 than they had in H1, assuming, obviously, that the dollar more or less stays where it is. But there could be plenty of factors that could affect margins one way or the other.

Three questions on my side. The first one on Louis Vuitton.

In Asia, could you elaborate a bit in terms of differences between country strengths? I'm trying to understand the dynamics between Hong Kong, Macau, China, Korea and maybe Japan?

Japan has had basically 2 astonishing quarters. Trying to understand what we should expect going forward.

Second question on watch and jewelry. It seems that jewelry has been outperforming watches for a few quarters now, so have you seen the gap increasing basically?

And what could you expect going forward in the longer run? And third question, in terms of cognac, are you seeing a change in mix in terms of V.S.

versus V.S.O.P., X.O. notably towards the Chinese clientele?

And same thing, what do you expect going forward?

Okay. Well, I'm not surprised, on your first question, Léopold, on LV in Asia, and it's true for most businesses.

China is -- Hong Kong and Macau are suffering for various reasons, but they are suffering, the rest of Asia, particularly Korea. Singapore is doing much better.

So that's -- we've seen really North Asia being under pressure whilst South of Asia is doing much better. It's been going on for a while, so there is nothing new in this.

With regards to Japan, well, the quarter has been extremely solid. Obviously, the price situation benefits to the Japanese business.

They are at a significant price advantage to the local countries with a fairly limited distance to fly to get there. It's not unique to luxury goods and not unique to our group.

What should we expect going forward? I don't know, but I think there is a good understanding among the Chinese customer base that Japan, for the time being, is a nice place to do shopping, so we don't expect this to come to an end soon.

With regards to Jewelry & Watches, jewelry, as you've said, has been outperforming watches for quite some while. It was still the case in Q3.

Yes, the gap is widening a bit. Although in -- when you look at this gap, it's artificial as you compare watches for Bulgari, which are benefiting from the strength of the brand.

But also, watches from TAG Heuer, which, as I explained before, are in a sort of repositioning phase. So these are 2 very difficult -- very different situations, which are difficult to compare.

But watches is doing -- I mean, jewelry is doing better than watches, no doubt. Cognac, on the mix, no -- particularly in Q3, we -- in the first half of the year, there was a negative impact stemming from mix, but not really in Q3 because we've been -- we've seen X.O.

in China, but not only in China, in the duty free and a little bit everywhere, doing okay. So the mix impact, if I'm not mistaken, was quite neutral or even slightly positive in Q3.

So overall, I mean, the mix situation is -- which has been against us in H1 is quite neutral in Q3.

Just really coming back to the Watches & Jewelry question. Is it possible to sort of give an indication as to what percentage of the business is actually jewelry coming out of that business?

And also to flesh out a little bit why -- just why jewelry is doing quite so well and in which possible regions.

Jewelry is really across-the-board. I mean, we see strong numbers in Asia, including China.

We see strong numbers in the U.S. and strong numbers in Europe as well.

So it's quite -- it's really throughout the board and true with local customers and tourists. Then when we talk jewelry, we are mostly talking about Bulgari.

So is it a category comment or brand-specific comment? I need you to draw your own conclusion.

The first question, sorry, Chris, what was the...

The weight.

The weight of -- it's roughly -- in the division...

If you take Bulgari watches into watches, then the jewelry -- and jewelry just set for Bulgari and Chaumet and Fred, it's about -- it's a little under 1/3 of the division of jewelry.

I was wondering whether you could maybe comment about the price differential across market that created some grey market issues in the past in the sector and notably within your business. And ForEx have moved.

You've adjusted prices in Europe. Is your feeling that the grey market is starting to be addressed and may actually, as explained, some of the deceleration in quarter 3, in other words, the demand was partially [indiscernible] by grey market in previous quarters?

That's my first question. My second is on the mix in cognac, I concur, on my calculation that there was very limited negative mix effect in cognac in Q3.

Is this going to be -- continue to be true in H2? In other words, have we finished the rest of the negative mix impact?

And I know this is not an earnings call, but could you help us understand what this means in terms of the dynamics on the profitability of the cognac division? Lastly, I'm wondering whether -- actually, sorry, is there a point whether you would consider -- when you will consider increasing prices in Japan?

And my last question is, how do you approach -- whether you can share with us how do you approach budget in the period?

Approaching budget. Okay, gray market, your first question, Melanie, the answer is I don't know.

I mean, it's very difficult to monitor. We have no particular evidence that it is neither on the rise nor on the way down, so it's really difficult to know.

I don't think we've seen many, many changes. I mean, the grey market is mostly a function of price difference, as we discussed before, and I don't think it's -- we've seen a lot of changes there in Q3.

The mix impact in cognac is a more difficult question. I would say, with regards to the near future, it will depend very much on X.O.

in China in Q4, which we expect -- I mean, I think sell-in numbers would be a bit under pressure as we intend to do a significant destocking in Q4. So I would expect the mix impact to be a little bit negative in Q4 as opposed to Q3, which, as you said, was quite neutral.

Price increases in Japan, not that I know, I mean, we have not decided anything yet and it's not on the agenda. With regards to budget.

I think if you look at the year, it's a little bit like it's been over the past 2 years. Our growth is not negligible, but we are not in the sort of double-digit growth across-the-board as we've seen for -- in some years in the past.

We'll be asking our people to be realistic. I would say this is probably the most important thing, be realistic about what kind of growth you can get and we also put in force commensurate means.

And particularly, investment should be commensurate to the type of growth we can reasonably expect. So these are the 2 things we have in mind with regards to budgeting.

So thank you for attending this call. We expect to release our full year numbers in late January, early February, so I look forward to discussing them with you at this point in time.

Thank you, and have a nice day.