LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Hello. Thank you, Julie.

I am Chris Hollis, Director of Financial Communications at LVMH. 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 our first 9 months of 2016.

As in previous periods, these revenue figures are reported in accordance with international financial reporting standards, IFRS. After these remarks, Jean-Jacques and I'll 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'll 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 all had the chance to read our release, which was issued yesterday evening in both French and English.

And as always, the release is available on website -- LVMH's website, www.lvmh.com, as are the slides that we're using to guide today's conversation. So turning -- with that, let's move on to the review of the business.

We're pleased with the group's performance in the third quarter, which was quite solid, with organic revenue growth exceeding the first half of the year. This can be attributed to a range of factors in terms of both geographies and brand strength.

Specifically, we saw accelerated growth in Asia with the exception of Japan and continued good momentum in the U.S. and Europe outside of France.

Both Japan and France were impacted by lower tourism, albeit, for different reasons -- or rather lower tourist spend. Regarding the business groups.

Wines and Spirits continued its good momentum with strong performance in the U.S. and improvement in China.

In Fashion and Leather Goods, Louis Vuitton turned in a very good performance thanks to the appeal of both its iconic lines as well as new products. This includes the Louis Vuitton fragrances, which are off to a promising start, while the repositioning of Marc Jacobs brand is moving along with the first collections being received now in the stores.

On the Perfumes and Cosmetics front, Parfums Christian Dior continued its strong performance, driven by its ongoing innovation. It's hugely appreciated by consumers and continues to gain market share.

And some other highlights include market share gains at Bvlgari and the successful refocusing of the core iconic TAG Heuer lines. Once again, Sephora delivered an excellent performance, while DFS continues to be impacted by tourism trends in Asia.

Looking now at the evolution of our revenue in 2016, which is Slide 3. As I mentioned, we've seen an improvement versus earlier this year as our first half saw organic sales growth of 4%, while our third quarter was up 6%.

This is an encouraging performance, which reflects the resilience of the group's brands and their ability to adapt to the headwinds impacting the overall industry. For the third quarter, after taking into account a negative but reduced impact from currency of around 1% as well as the positive 1% perimeter impact relating to the Parisian integration, published sales were equally up 6% compared to the same period last year.

And for the 9 months, organic revenue was up 5%, and reported revenue were up 4%. Turning now to Slide 4, which shows the group's revenue in euros by region over the last 9 months.

Asia, including Japan, represented 34% of our business. Europe, including France, represented 28%, the U.S.

26%, and the balance of 12% from other markets. A healthy geographic balance which allows us to adapt to the more volatile touristic flows we have experienced recently.

As you'll see on Slide 5, Asia outside of Japan strongly rebounded in the third quarter, driven by all business groups. The U.S., excluding Hawaii, remained strong, up 6% in the quarter and 7% over the 9 months.

Europe outside of France improved slightly over the period to 6% in the quarter versus 5% for the 9 months. However, Japan was very challenging industry-wide.

And whilst tourist numbers are growing, they're spending much less due to the strength of the yen and the stricter importation controls in China. Breaking down our organic revenue growth in the 9-month period, you will see that the most improved business groups in the third quarter were Fashion and Leather Goods, up 5%.

Selective Retailing up 8%, and Perfumes and Cosmetics, up an impressive 10%. Both Wines and Spirits and Watches and Jewelry remained both [indiscernible] at 4% and 2%, respectively.

And now let's go and look at the business groups in more detail. So let's turn to Slide 7.

With -- starting with Wines and Spirits, organic revenue was up 7% for the 9-month period. Reported revenue in this group was EUR 3.3 billion compared to EUR 3.1 billion in the same period last year or up 5% after taking into account a negative 2% currency impact.

For the third quarter, Wines and Spirits organic revenue grew by 4% compared to the year ago period. And after taking into account a negative 2% currency impact, reported revenue rose to EUR 1.2 billion.

Breaking this down now for the first 9 months of the year. Champagne and Wines delivered 6% organic revenue growth compared to the same period last year.

After taking into account a negative 3% currency impact, reported revenue reached EUR 1.4 billion or up 3% compared to last year. In the third quarter, Champagne and Wines' organic revenue grew by 5% compared to the same period last year.

Now moving to Cognac and Spirits. Organic revenue from the 9 months grew by 8% compared to the 9-month period in 2015.

And after taking into account a 2% negative currency impact, reported revenue reached EUR 1.9 billion in revenue. For the third quarter, Cognac and Spirits organic revenue grew by 2% compared to the same period last year.

Now let's expand on these numbers by turning to Slide 8. Champagne volumes increased 3% in the first 9 months, owing to solid growth in the U.S.

and Japan and the good performance of the prestige cuvées. In addition, we had a positive performance from Estates & Wines.

With respect to cognac, we're pleased to see volumes rise by 9% in the first 9 months, driven by solid performance in the U.S. and an ongoing rebound of consumer demand in China.

Organic growth in the third quarter was, however, impacted by the termination of our contracts in the distribution of Grand Marnier in June, which had an impact of about 5 points on the Cognac and Spirits organic revenue growth in the third quarter. Glenmorangie and Belvedere continued to perform well.

Turning now to Fashion and Leather Goods. Revenue was up 2% on an organic basis for the first 9 months of the year.

Reported revenue was up 1%, almost EUR 9 billion from EUR 8.9 billion in the same period last year. This includes a 1% negative currency impact.

For the third quarter specifically, reported revenue was EUR 3.1 billion, reflecting a 5% increase in organic revenue and a 1% positive currency impact. Slide 10.

As always, Louis Vuitton contributed to this strong momentum and acceleration in Q3. The success of both its iconic lines and new models continues.

And as you may know, in September in a limited number of stores, the brand introduced its new collection of 7 perfumes, which are off to a promising start. Louis Vuitton also introduced in the third quarter New Horizon rolling luggage designed by Marc Newson.

Looking at the other Fashion and Leather Goods brands. Fendi delivered excellent performance, driven by the creativity behind its new products, and the fashion show it hosted at the historic Trevi Fountain was exceptionally well received.

Céline continued to make good progress in its shoes and accessories lines, and the brand reopened its renovated Milan flagship location on Via Montenapoleone in July, showcasing a new store concept. Loro Piana also unveiled a new store, opening a Paris flagship last month on Avenue Montaigne, and the brand also became the official supplier of the European team for the 2 upcoming Ryder Cup matches.

Kenzo, Loewe and Berluti saw solid growth so far this year, while Marc Jacobs continued its brand repositioning initiative. Finally, as you know, LVMH agreed in July to sell Donna Karan International to U.S.-based G-III Apparel Group, and that transaction is expected to be completed by the year-end.

On the acquisitions front, as you know, last week, the group agreed to acquire a majority stake in Germany's Rimowa, a global leader in high-quality luggage. The transaction is an exciting one and expected to close in January of next year once it's been reviewed by competition authorities.

Moving on to Perfumes and Cosmetics, Slide 11. Organic revenue grew 8% in the 9 months.

Taking into account the negative 2% currency impact, published revenue rose to EUR 3.6 billion from EUR 3.4 billion. The 2015 figures have been adjusted to take into account the reclassification of Kendo cosmetic company from the Selective Retailing to the Perfumes and Cosmetics business group.

For the third quarter, revenue in this business group was EUR 1.2 billion with organic revenue up 10% over the year ago period and the negative 1% currency impact. The Perfumes and Cosmetics business group clearly gained market share, delivering the highest organic growth of all business groups with strong growth in perfume and makeup driven by Asia and the U.S.

Last month, the group inaugurated a new site dedicated to the creation and production of perfume at Les Fontaines Parfumées in Grasse, the heart of the world's perfume capital situated on the French Riviera. Looking at the specific brands.

Parfums Christian Dior showed strong and market share gains, driven by the continued progress of J’Adore and Sauvage as well as the successful launch of Miss Dior Absolutely Blooming. Its makeup lines also continued to make progress with introduction of a new version of the iconic Rouge Dior lipstick.

The brand also launched its first skincare cushion named Dreamskin. Guerlain launched a new fragrance, La Petite Robe Noire - Intense and continued to see strong momentum in its La Petite Robe Noire makeup line.

Benefit showed strong growth in new its new Brow Collection. Givenchy turned in solid performance in makeup.

And Kenzo successfully launched a new women's fragrance, Kenzo World. And lastly, Make Up For Ever, Fresh and Kat Von D are all achieving rapid growth.

Moving on to Watches and Jewelry, Slide 13. Organic revenue in the first 9 months grew 4% for this business group.

After taking into account a negative 1% currency impact, revenue increased to EUR 2.5 billion versus EUR 2.4 billion in last year's period. For the third quarter, organic revenue for this business group grew 2% over the year ago period with a positive 1% currency impact, and it's reached EUR 877 million.

This business group delivered market share gains across its Watches and Jewelry brands. In watches, the refocus on TAG's core product range has been a success.

The brand saw continued success of its new products in both its iconic lines and of the Connected smart watch. Looking at the other brands, Bvlgari also outperformed its peers, driven by successful launch of the new Serpenti Seduttori line and the continued strong growth in jewelry, especially in China.

At Hublot, the Classic Fusion collection performed well. And at Chaumet, we saw continued momentum, particularly in Asia, with its new Joséphine and Lien collections.

Zenith is undergoing some repositioning, and Fred introduced a new bracelet, 8°0, in celebration of the brand's 80th anniversary. Turning to the last business group.

Selective Retailing organic revenue grew 6%. Taking into account a negative 1% currency impact, published revenue increased to EUR 8.3 billion in the first 9 months of the year.

In the comments I made earlier about reclassification of Kendo applies to the 2015 figures here as well. In the third quarter, organic revenue grew 8% compared to the year ago period.

And taking into account a negligible currency impact, reported revenue also increased 8% compared to the same period last year and reached EUR 2.8 billion. Once again, it's a tale of 2 different stories in this business group.

For the first 9 months, Sephora delivered double-digit revenue growth as well as market share gains across all regions. In terms of online sales, the brand continued to see strong momentum in existing countries and expanded into new countries.

At the same time, the brand continued to expand its store network with, notably, the opening of the World Trade Center flagship location in New York in August. Turning to DFS.

The business continued to face challenging tourism environments in Asia in the first 9 months. Despite this, DFS opened its new T Galleria on the Grand Canal in Venice, which is a major tourist destination in Europe, and completed the expansion of T Galleria - City of Dreams in Macau.

So to summarize, organic revenue growth that the LVMH Group delivered in the third quarter for the first 9 months of the year, up 6% and 5%, respectively, demonstrated good overall performance in an unfavorable environment. In this context, we're very pleased that our business groups in all regions -- all our business groups in all regions, with the exception of Japan, contributed to growth in the third quarter.

Looking forward, LVMH will continue to focus on reinforcing its leadership position in the global luxury goods markets. In doing so, we will continue to provide innovative high-quality products to our global customers across stores around the world while selectively expanding our store network and maintaining our focus on cost management.

Thanks, and we'll now take your questions. Julie, do you want to open the line, please?

Louise here for Morgan Stanley. A couple questions from me, please.

Just in terms of the Asian performance ex Japan, can you give us a bit of color in terms of Hong Kong? I know you talked about that being down double digits.

And Mainland China we know is beginning to improve with growth in the second quarter. And I think you said that this improvement was broadly felt across all divisions.

And then my second question relates to the U.S. Can you just update us on U.S.

performance with cognac? I think in July you indicated that inventory was at a fairly low level and what that means going to second half.

And Louis Vuitton, I think you said that U.S. we saw outstanding performance in Q2, where domestic consumption was up high single digits.

Can you just comment on the performance in Q3?

Thank you, Louise. So with regards to Hong Kong and Mainland China, there was some improvement there, particularly in Mainland China.

The global business for the group improved markedly from mid-single digit in H1 to mid-teen in Q3. So a marked -- as I as said, a marked improvement.

More or less all businesses contributed to this improvement. More specifically on Hong Kong, there was also some improvement, [indiscernible] Hong Kong here is still staying in the negative territory.

We were mid-teen negative, and we are mid-single digit negative now. Also, improvement across the board, particularly at Vuitton and DFS, but both businesses in Hong Kong are still negative.

U.S. cognac is a quite complex story.

The business in cognac went down from being up about 20%, so a very strong growth in first half of the year to being flat in the second part of the year -- I mean, in the third quarter of the year. A big part of the explanation is that we had the termination, as Chris mentioned, we had the termination of the Grand Marnier contract -- distribution contract in the U.S., which had a very big impact on the business.

Chris mentioned a 5% impact altogether on the Cognac and Spirit business. But for the cognac business in the U.S.

alone, where all the impact was felt, it was about 12% to 13%. So it was a pretty significant number.

So if you take this out, obviously, the business in cognac in the U.S. slows down, which is quite normal.

Bear in mind that last year, our comparison base was extremely strong in Q3 in the U.S. I think the business was up something like 30% [ph].

We built inventories for the year-end, which is not really the case this year. We have pretty low levels of inventories within the distribution system, more or less half of what we had at the same period last year.

The comparison base was tough. And if you take out the Grand Marnier impact, you end up with a business growing about low double digit, which is quite nice.

We carry on with a strong momentum in the U.S. Depletions run in July and August at a fairly high level, so nothing really to worry as far as the cognac business in the U.S.

is concerned. Finally, you had a question on LV.

In the U.S., LV grows -- was a bit higher in Q3 than it was in H1, single digit. That's a very solid business while the -- in the U.S.

I was wondering whether you could give us some information about the Chinese nationals' spending trends and if we have to interpret this acceleration that we're seeing in the third quarter as a sign that the spend from this very important consumer group is improving. I remember that you said that as far as Vuitton is concerned in the first 6 months of the year, Chinese national spend was flat.

Second question on Sephora, which is continuing to be a strong value-creation driver in your business. I'm wondering if on the back of consolidation in France and in the U.S.

as compared to [indiscernible] are growing stronger, if you're perceiving any sign of inflection in your space productivity trends and if you are perceiving that these 2 key markets are getting any more difficult for you. And conversely, if you are anticipating to address some of the blind spots that you had identified in the past, namely the U.K., Germany and Japan.

And last but not least, a question on your very recent acquisition, Rimowa. I wonder if you're anticipating moving away from a wholesale business model and developing more of a directly operated retail business model in order to create better value perception in the minds of consumers.

Thank you, Luca. So first question on Chinese nationals.

You remember well it was flattish in the first part of the year -- in the first half of the year. Q3 was much better.

It was low double digit. So we had a good run with the Chinese, both at home and outside China.

So the question you're asking is actually the right one, but I may return it to you. I mean, I don't know the answer to whether this is the start of a new trend, I absolutely don't know.

We've seen in the past already some quarters in which the Chinese nationals were doing much better than in preceding quarters and it was short lived. I'm not saying it will be the case, but I'm not saying it won't be the case either.

I mean, we read on those. So we are just experiencing much better numbers with Chinese nationals in Q3.

That's what I can say at this point in time. Sephora, your question on space productivity in the U.S.

and France. Frankly, no, we don't see any declining productivity in both the U.S.

and France despite the fact that we have a large number of stores in both geographies. With regards to the untapped geographies, as you mentioned, U.K., Germany and Japan, we will think about it.

Obviously, we'll not comment into details what we may have in mind, I mean, because the competition would certainly want to know about this. So we are not going to comment on this particular point.

But it's something we're always looking at. Finally, your question on Rimowa and retail versus wholesale.

The Rimowa business is already having some -- a little bit of retail business. It's predominantly, as you said, a wholesale business, but there is a little bit of retail operations in the main capitals of the world.

We think we can intensify this a little bit, but it will remain predominantly a wholesale business with a few retail stores in order to enhance the nature of the brand. So nothing really different from what has been done so far by the current management team.

I have 3 question, please. The first one, on Watches and Jewelry, could you provide a bit more color on this relatively soft performance by splitting watches versus jewelry?

Is the Bvlgari jewelry business still okay? And if you strip out TAG Heuer, what are you seeing in the -- in your traditional Bvlgari and Hublot and other brands for the watch business?

Secondly, a follow-up on the Rimowa acquisition. What is the current operating margin?

What are you targeting for that business in the medium to long term? Are you planning to -- do you see this brand as potentially having room to expand into new categories well beyond luggage?

And more generally on your M&A strategy, obviously, your last sizable acquisition was Loro Piana in 2013. That was a very high-end brand.

Should we see the Rimowa acquisition as the opposite, effectively, as a way to gain more exposure to affordable price points as we're seeing trading down shopping behavior across many luxury categories? And finally, on the balance sheet.

After the Rimowa acquisition, would a share buyback of EUR 0.5 billion to EUR 1 billion be a fair assumption that investors should keep in mind for the rest of the year?

Thank you, Thomas. So on the Watches and Jewelry, a little bit of softness.

You're right. We look at it watches versus jewelry.

It's a bit of a paradox. Our watch business does better than the jewelry business.

Not in a big way but does a bit better. This is mainly due to the fact that TAG Heuer is doing quite well -- has been doing quite well since the beginning of the year.

With regards to jewelry, definitely, Bvlgari is slowing down from its preceding extremely strong growth, particularly in the first 3 quarters of 2015. This being said, if you look specifically at Q3, you have different trends at play at Bvlgari.

Watches are not doing well. This is not unique to Bvlgari, obviously, in this industry, but watches are in some form of pressure.

With regards to the jewelry business, we have really 2 different situation: the high jewelry business had to anniversarize some pretty high -- some big sales of last year. So we have a business of high jewelry which is down in a big way in something like 40% to 45% in Q3.

Obviously, this is not a smooth business, and you have some -- the road is always bumpy when you have to anniversarize some significant business of the preceding year. But the traditional jewelry business is up double digit, so we've seen the traditional jewelry business of Bvlgari being better than in the first half of the year.

Again, I'm not sure it's a trend, but I'm just giving you the rough facts so that you can analyze them and may draw your own conclusions. As far as the operating margins of Rimowa is concerned, we think we have an objective of moving them up to something like 20%.

It's not something that we will achieve in a couple of years. I mean, it's more a long-term objective.

But from what we've seen and what we analyzed prior to the acquisition, we think this is achievable. Obviously, we are not there yet.

We are quite far from that, particularly having in mind that the company has embarked fairly recently on retail operations, which is obviously taking some toll on margins in the full term and also that the company, Rimowa, expanded its production setup in Germany in the course of this year, which is not fully absorbed yet in terms of volume. So the margins are quite far away from the 20% objective I mentioned.

In terms of M&A strategy, well, as you know, we are opportunistic people. So when we see an exciting brand, and we definitely see that Rimowa is an exciting brand, we can buy it.

Usually, we try to do it on reasonably large acquisitions, but this one could become a -- it's not a big acquisition these days, but it could become one in some years. We think the brand is extremely promising.

So that's the reason why we decided to make it. But this is not significant of any future trend of more or less M&A.

I mean, it's purely an opportunity that we decided to take. Final question on share buyback.

Obviously, the Rimowa acquisition makes things a little bit different from what we had anticipated, so we are currently reviewing our options on this. Nothing has been decided yet.

Three questions, please. Maybe if we just start with Bvlgari.

Jean-Jacques, you mentioned that you had a very tough comp base for high-end jewelry for Bvlgari, 40%, 45% for the third quarter. Could you just talk about the Bvlgari comps in general during this quarter, what type of comp base Bvlgari was up against?

My second question was regards to Louis Vuitton. I'm seeing acceleration in the third quarter.

I remember recently you talked around price mix or pricing power of anywhere between 1% maybe 2% across a range of different categories, so less than, say, the 3% to 5% traditional pricing power. Could you break out maybe the volume and value splits within the growth that we've seen within Louis Vuitton in the third quarter?

And with regards to the fragrance business, can you maybe give us some idea as to what the contribution was? And I'm assuming it was very small in the [ph] third quarter, but what the opportunity is given that you're going to roll fragrance out in selective stores across the directly and store network only.

Is this going to be a potential 2% or 5% of sales type of business?

Thank you, John. So your question on Bvlgari.

If I remember correctly, in the first 3 quarters of last year, the growth at Bvlgari was in excess of 20%, so the comparison base was extremely demanding. It was not the case in Q4, but we had a much lower number.

But the first 3 quarters of last year were extremely, extremely strong, so we are anniversarizing this pretty tough comp base. And it's obviously particularly tough in jewelry.

Hence, we are pretty happy with the basic jewelry numbers, but we think we have to work a lot on the High Jewelry business, which is really suffering probably for, I mean, reasons connected with the Middle East situation, where the bulk of the business takes place. LV price impact, and more generally, the breakdown of LV growth, as we don't communicate LV growth, it's always difficult to communicate on the components of the growth.

I mean, the question is asked probably each time, and each time, I say the same thing. What I can say about price is price was a very, very low contributor to the growth of Vuitton, has been a low contributor to the growth of Vuitton since the beginning of the year and particularly in Q3.

I mean, it was almost negligible. We did not pass, in the recent months or quarters, any price increase anywhere or hardly anywhere; a little bit in the U.K.

to offset the drop in the sterling pound, but that's about it. So price impact on Vuitton's growth was quite negligible.

Finally, on the fragrance business for LV, you got it right. I mean, it's not -- it's from contributors to the global business.

It's a small business, and Vuitton is a pretty big business. So obviously, it doesn't contribute much, particularly having launched the business fairly recently.

But as far as image and traffic generation is concerned, we think the fragrance business is exactly what we had in mind. So we are very pleased with the first numbers and impact of the fragrance business at Vuitton.

I have a few questions, please, the first one on the Fashion and Leather Goods business. Could you maybe quantify the impact from the discontinuation of lines at the Donna Karan and Marc Jacobs in Q3, if there is any?

My second question is on the sales growth from the American consumer. You've commented about Chinese, but a comment about American would be nice.

And lastly, could you give us a bit of color as well on the depletions you have in cognac in China in Q3?

Okay. Thank you, Hermine.

So the impact of Donna Karan. I will not communicate on Marc Jacobs.

As you remember well, only Donna Karan is being sold. Marc Jacobs, we intend to keep it, as I said a few times.

So the impact from Donna Karan, which had a -- which is suffering the impact of the discontinuation of some lines of business, as you remember, was pretty significant. It's about a little bit in excess of 2% of the growth in the Fashion and Leather division altogether, not in the U.S., altogether for the third quarter of the year.

So it would have been 7%, a little bit in excess of 7% if Donna Koran had not been consolidated. The second question you had on American customer.

The American customer is in line for Vuitton, obviously, as we don't measure it for other brands. But for Vuitton, it's in line with the business of Vuitton.

And in the U.S., we've moved up from mid-single digit to high single digit in between H1 and Q3, so a pretty strong performance there. And finally, the depletions for cognac in China.

As far as V.S.O.P is concerned, we were slightly positive, same trend as we had since the beginning of the year. And for V.S.O.P, it was less, how can I say, stellar than in the first half of the year but still positive in a very significant way.

So overall, we still have a pretty [ph] performance of both V.S.O.P and X.O in the first 9 months of the year.

Yes, Jean-Jacques and Chris. My questions have mostly been asked, but I have 2 remaining.

To follow up on Louis Vuitton, if we could have an idea of the European cluster, how it's behaved in Q3, the European population. And secondly, on beauty, I was wondering if you could elaborate on the factors of the revenue growth acceleration, and what implications that could have on margin potential for the segment.

Thank you, Thierry. So on LV and the European customers, I would say that, across the board, we've seen pretty strong numbers.

They -- in some markets, like France, for instance, as you know, the French customer is small compared to the impact of tourists. But anyway, the French customer was pretty strong in Q3.

It had been strong since the beginning of the year. It was particularly strong in Q3, high single digit.

It's more or less the same everywhere in Europe. Italian is the same.

In the U.K., it's exactly the same, in Germany as well. So the volatility we may have or the change we may have from 1 quarter to another usually come from -- comes from change in the tourists' impact as opposed to the local customers who are growing steadily at a pretty high level and have been growing steadily at a pretty high level for quite some time.

As far as beauty is concerned, well, I mean, we moved the business from, it was, I think, 7% in H1 to 10% in H2. Yes, this is better.

It's quite difficult to comment on 3% acceleration. There were ups and downs.

I mean, the Russian market is doing well. The French market is doing okay.

It's quite complicated to -- launches could have some impact as well and anniversary of some of them could also prove a deciding factor. But all in all, I mean, the business, particularly at Parfums Christian Dior, is doing very well.

Across the board, I would say, and it's pretty difficult to comment on -- in the acceleration in Q3, the business has been reasonably healthy since the beginning of the year.

And on the margin maybe, some implications the high growth could have?

Obviously, it would help, but I will not comment further on this. You'll see the outcome at the end of the year, I would say.

Three questions from me [indiscernible]. The first one is about the Chinese consumer.

You said that the Chinese consumer sentiment is improving. Which of your businesses are growing the most among Chinese in Q3?

The second question is about the watch market. Do you see an improvement in the sellout of watches and the softening in the destocking policy of the wholesaler?

And the last thing is about budgeting. I know you guys are starting the budgeting process.

Which are the guidance that you are giving to your business, especially concerning cost controls?

Could you possibly repeat the first question? The line was pretty bad.

I didn't catch it. It was on Chinese consumer.

That's all I catched.

Yes, yes, don't worry. It's about Chinese consumer.

You said that the consumer sentiment of Chinese is improving. Which of your businesses benefited the most?

Which of your businesses grew the most benefiting from the Chinese consumer?

Okay. Well, the most exposed business to the Chinese customer is the jewelry business.

So definitely Bvlgari as the business. I'm not obviously mentioning DFS, which does the bulk of the business with Chinese consumer, but it's a distribution business, so it's of a different nature, and I assume that your question is mostly on brands as opposed to distribution activities.

So it's Bvlgari. And in this respect, the Chinese consumer is doing very well with Bvlgari.

So we have strong numbers in Mainland China, less so, obviously, in Europe as Chinese customers are down in Europe across the board, particularly in France. Even Hong Kong, for Bvlgari, is showing some signs of improvement.

So all in all, I mean, we are quite exposed to that. And then, obviously, the other big business is Vuitton.

It's -- we do about -- almost a third [ph] of our business with Chinese customers. And as I said before, the Chinese customers were oriented for -- since the beginning of the year and particularly in Q3.

On the watch business and the sellout improvement, it's difficult to answer in a simple way. As far as TAG Heuer is concerned, we have no particular concerns with sellout -- sell-in and sellout.

I would say sellout is commensurate to sell-in, and we don't have an issue with inventory build-up. It's more difficult to analyze in Europe, but we think we are okay.

So all in all, we don't expect any -- an issue coming from any discrepancy between sell-in and sellout, so the business is reasonably healthy from this viewpoint. For other brands, it's more difficult to measure, and as far as Bvlgari is concerned, obviously, a big chunk of the watch business is done inside Bvlgari, so the difference between sell-in and sellout is not meaningful.

As far as marketing is concerned ahead of the budget season, obviously, we are always cautious when it comes to budgeting particularly of marketing, but bear in mind that marketing is something that is -- that we can adjust in an easier way than we could adjust any expenses if we have decided to embark on a big store opening program. So marketing is something with 3 months' notice, you can cut or diminish in a fairly significant way.

So we are not particularly worried with marketing plans going ahead of us. I mean, if the business ends up not being as good as we expected at budget time, it won't be so complicated to adjust marketing budget to the level of the business.

This is what we have been doing over the last 2 to 3 years, and it's reasonably flexible.

I was wondering if you could give us a bit of clarity on the growth of Louis Vuitton in the third quarter in Europe. And generally, can we associate the level of growth of the Fashion and Leather to be roughly equal to that of Louis Vuitton?

What was the growth of Louis Vuitton in Europe?

Well, as I said, the growth of LV is usually close to the growth in the Fashion and Leather division. This is true for Q3 if you, obviously, take out the impact -- the negative impact of Donna Karan.

So Vuitton is close to the ex Donna Karan number I mentioned before.

7%, is that right?

As far as -- I'm sorry?

You said 7% ex Donna Karan, right.

Yes, 7%, I mentioned, yes. As far as Europe is concerned, Vuitton did a bit better in Europe than it did on average.

We had a strong recovery of Vuitton in Europe, particularly in Italy and in the U.K. and in Germany as well.

So Q3 was very, very strong for Vuitton in Europe with around double-digit growth in -- I mean, around 10-ish% growth, I would say, in Europe in Q3.

But France was negative, right.

France was still negative. Not as negative as it was in H1 but was still negative, yes.

In what? Single digits?

Yes, it was single-digit negative, and we had our first positive months in, probably in the year, in September. But it remains to be confirmed because, obviously, there are seasonal impact with some Chinese travelers and Golden Week, et cetera, that are always complicated to measure.

We need a little bit of analysis to really understand what's going on, but definitely, it's getting a bit better in Europe -- in France, although the numbers are still complicated.

Yes, Jean-Jacques and Chris, I've got 3 quick questions, please. Fashion and Leather in Japan, I think, in Q2, you said that it was mid-single-digit negative.

I wasn't quite clear whether that trend had persisted or maybe just got a bit worse in Q3. Maybe you could clarify, please.

Secondly, at Vuitton, when you look across the year-to-date, is there anything notable in the mix between soft leather and canvas moving one way or another, or are they -- the 2 sort of sides of the business growing at a similar rate? And thirdly, you mentioned the first new collections are coming in at Marc Jacobs.

Could you just maybe update us where you are in the progress of the change in that brand? I mean, I'm assuming that there's a continuation of a drag in Q4 and into next year but just maybe some more clarification, please.

Thank you, Warwick. So on fashion leather in Japan, obviously, the situation did not improve from Q2, so we are negative, I mean, to -- mid- to high single digits.

Nothing really surprising there following the rise in the yen and the difficulty for Chinese clients in particular to bring back home some of the goods they have bought in Japan. So definitely, we have an impact on the Japanese market, and it's not unique to fashion and leather.

I would say that the whole business -- you've seen the numbers for Japan. They are getting -- Q1 was okay.

Q2 was starting to be pretty difficult, and Q3 is obviously, confirmation -- is a confirmation of the difficulty of the situation there. On Vuitton, soft leather versus canvas, nothing new there.

As I told you, I mean, the canvas business is doing better than the soft leather, but it reflects also where we have put the emphasis in terms of novelties and creation and creativity. There's some big portion of the soft leather business have not been in the -- have not benefited from a big impact of novelties.

It's particularly the case for Vernis, so we have some negative numbers there. But I don't think one should view -- one should compare, really, a soft leather and canvas.

I mean, it's really a global business, and the business of accessories, I mean, small leather goods and leather goods at Vuitton is really doing very, very well. And where we put the emphasis on new product and creativity, immediately, we see a strong response from the client base, and that's, by far, the most important point.

As far as Marc Jacobs is concerned, I mean, I've nothing really new to report. We are working on -- in the plan we discussed in -- the strategy we discussed before, so nothing really different from what has been said.

It's a slow process. We have to convince our customers that they should trust us again and that we have a strong value proposition.

It won't take 6 months. I mean, it's a long-term effort.

And the business was down again in Q3, and it will be down again probably in Q4.

And Donna Karan, the drag in Q4, would that also be around 200 basis points, would you expect?

I don't know.

Yes, it's Antoine Belge at HSBC. Three questions.

First of all, on Rimowa, I'd like to follow up on what you said. So you tried to say that the EBIT margin is actually in the sort of low double digit?

Also, what do you think that LVMH can bring to that company? Is it just about acquiring a very first-class growing company or is it a business which you think you can add something that the company couldn't do on its own?

Second question is on Fashion and Leather, and I'm not so sure I understand the 2% impact on Donna Karan because I think, in the previous quarter, it was 2% including also Marc Jacobs, something I understood as being like Donna Karan down 30% and Marc Jacobs maybe down 10%. So now it seems that it's only Donna Karan accounting for the 2%.

So could you clarify that? And finally, on cognac.

I mean, that impact from the Grand Marnier contract, is it one-off for 1 quarter? Or is it something that will actually impact the next 3, 4 quarters until you analyze that next year?

Thank you, Antoine, for your 3 questions. On Rimowa, the question of what we will bring to the business.

I think it's a fantastic business, and the heritage for -- of this brand is extremely strong. When you look at the business, the way it is done in terms of product, in terms of distribution, I think a global group like ours could certainly bring a lot to the business.

We have analyzed this. Obviously, this is a competitive business, and I don't intend to disclose in details what we intend to do.

But we have identified with the existing owner and the existing management a few things that -- which are quite important that we will do together. So it's obviously a continuation of the existing strategy, but is -- it is also a few things that the strengths of LVMH, not only from a financial viewpoint but also from a marketing and distribution viewpoint, will help.

So that's what we have in mind, but you will understand that I cannot be too specific on this. On fashion and leather, the answer is that the 2% impact -- it's a bit more than 2% actually, is Donna Karan alone.

So just to be clear on this. And as far as Grand Marnier is concerned, it's not a one-off.

It will unfold over the next 3 quarters, probably at a lower level. I mean, the Q3 numbers that we discontinued, I mean, the comparison base last year was quite high.

If I look at the sequence of the various numbers, it was the highest of them. But nevertheless, you can expect some further impact, maybe at a lower level, but some further impact in Q4, Q1 and Q2 of next year.

Okay. Maybe just one follow-up on Rimowa.

It was -- can you indicate what is the amount of that within the company, if any?

It's about EUR 20 million.

Jean-Jacques and Chris, just one question about Fashion and Leather and the shape of the quarter. Was September materially different to the organic growth of 7% or so, ex Donna Karan?

And within the other non-Louis Vuitton brands within fashion and leather, could you talk a little bit about the retail performance in the quarter? And my third question is about e-commerce.

Should we expect e-commerce to be a mature driver of core sales for some of your non-Louis Vuitton brands within the division?

Well, not to [indiscernible] with your questions, I must say, Rogerio, because it's really a few things that we don't really comment and answer. So I will not answer on September.

I mean, giving 3 months' numbers is already sufficient, in our view, so that you can get a sense of what's going on. It's not that I don't want to say, but there are always some specific events, such as Mid-Autumn Festival being at a different date or Golden Week, et cetera, et cetera, taking place at a different date as well.

So it's always very difficult to compare one month to another. So I will not comment on September.

On the retail performance, non-LV, I would say the same thing. I mean, we don't comment on LV, and so we don't comment really on non-LV, particularly having in mind that some brands -- there are some discrepancies between the -- some brands.

We mentioned some brands doing very well, like Céline, like Fendi, like Kenzo or Loewe. Some of those are doing less well and some are being restructured, as you know, so the average of all these doesn't make a lot of sense.

But I can say that the trends that we've seen over the past quarters are still the same with the winners being the same and the ones under more pressure being also the same. Finally, on e-commerce, you know our feeling on e-commerce, which we don't view in itself as a big opportunity.

We believe very much in the digital content of the selling experience, having in mind that more or less all our clients, before shopping within our stores, go on the website of the brand before. So basically, we have to make a bridge between the website and the store in a stronger way.

So that's what we have in mind. And we also believe a lot in e-marketing, particularly on social network.

It was -- 2 years ago, it was not clear what we could do there, but now it becomes much clearer. E-commerce is obviously something we need to have.

We need to offer this feature to our clients, but in itself, we don't expect this to become a big, big channel. Otherwise, it would have -- be the case already, I would say.

I have 3 questions, if I -- the first one is, sorry, again on really poor weather. You could actually -- China has sent the world now in an acceleration across nationalities pretty much across the street [ph].

So what do you think you may have done that triggered this? So you think it's just market conditions were better than expected?

Can you highlight a few initiatives that you -- that may have played in your favor in this quarter, and how sustainable are they? The other question is regarding the U.K.

side. If I am correct, you increased prices twice in the U.K.

this year, and once pre-Brexit, once after Brexit. What was the impact of these price increases on your underlying business?

And the last question is on cost control. The cost control at Louis Vuitton, in general, in Fashion and Leather was actually pretty good in the first half, certainly, lower OpEx growth in the top line at Louis Vuitton, you're suggesting.

Should we expect costs to go back up in the second half and to commence [ph] again with basically not see a big leverage up? Or can we be hopeful for margin?

Thank you, Melanie. Well, the first question is not something I would like to answer in a direct way.

I mean, the answer is, basically, I don't know. I mean, we always take initiatives.

We'll always do things, be it on the marketing side, on the product side or on the distribution side at Vuitton. Some quarters are doing better than others.

It's very difficult to make a trend from 1 quarter, and it's very difficult to analyze. So definitely, it's better.

I can't -- I -- that's pretty obvious, but the reasons for these cannot be attributed to 1 or 2 single initiatives that we have taken. It's a full, large number of initiatives that we have taken that explain this.

And with [indiscernible], I don't know. The market is not all of a sudden getting very buoyant [ph].

It's still a very contracted market from one country to another and from one week to another or from one month to another, so it's very difficult to say at this point in time. As far as the U.K.

is concerned, the impact of price increases was not felt, I would say, at this point. Before and after, we kept the same type of growth, so the impact was negligible.

So I think it's quite encouraging, although we did not increase prices in a big, big way. I mean, the price increases were 5%, if I'm not mistaken.

5% each. So it doesn't affect too much the behavior of customers.

And cost control. I mean, you would be surprised if I was telling you that cost control is over and that we will increase cost like mad in the second part of the year.

So we keep on controlling costs. We'll see at the end of the year where we stand in terms of margins.

It's always very difficult in our business making forecasts of this kind. The only thing I can tell you is that we don't intend to give up on controlling the cost of the business.

And it -- maybe there will come a time when it will be important to reinvest some of the excess in the business, be it in marketing or in the distribution network but not for the time being. So we don't intend to change our -- the way we manage the business in the short term.

And sir, just a follow-up on the situation of the overall market. Are you saying that when -- if you look at the total of your portfolio, because you have a breadth of portfolio of brands, so have you seen an acceleration in quarter 3 in the brands that are already doing well or pretty much for everyone?

It's mostly for the brands that are already doing well. There are not that many that are not doing well.

But nevertheless, for the brands that are already doing well, we saw definitely an improvement, which is not really surprising. I mean, usually, when a brand struggles, they -- it does not benefit immediately from an improvement in the global conditions.

It takes a little bit of time.

We had a question related to the United States domestic customer. There's been a lot of anxiety around election fears as well as the market volatility.

It sounds like you've been pretty happy with the U.S. customer, but if you could elaborate there.

And then, congrats on the Rimowa deal and the success you've had with the 4-wheel luggage. Do you see a lot of the Rimowa technology.

They're pioneers in the 4-wheel innovation. Do you see that being implemented in some of your existing brands?

And I also wanted to ask you, just generally, about Amazon and your future. Would you ever see a reason or a rationale for working with Amazon just because as we view it in the United States as an emerging department store channel in its own right, given their broad reach at a relatively high household income of the Amazon Prime product?

And our final question is just about the U.S. department store channel.

As we look at it here, there's been a fair bit of cautiousness as department stores have been overinventoried, but the look forward to the weather comparison is more favorable. Like how do you see Marc Jacobs manifesting in the U.S.

department store channel?

Okay. On the U.S.

consumer, I will repeat what I've said a number of times, that the U.S. customer is fairly favorable for us.

Many reasons for these. First of all, that we are not subject to any tourist impact in the U.S., unlike some other brands.

We had a little bit of negative impact in 2015 with Latin America customers disappearing, but it was not a big deal. And the bulk of the business we do in the U.S.

is with U.S. local customers.

And the second thing is also that we benefit in a major way from the strengths of Sephora, which is a big chunk of our total business in the U.S., about, let's say, around 40%, roughly speaking. And Sephora is really moving from strength to strength, particularly in the U.S.

So that helps the picture in a big way. But as I commented before, you've seen that the numbers for Vuitton so are pretty strong.

And for Wines & Spirits, and particularly cognac, they are very strong as well. So that's the situation, and it's nothing new.

It's been the case for quite some years now; more than quarters, really years. And we expect this to continue.

Your question on Rimowa. Yes, it was a pioneer for 4 wheels, et cetera.

If they're intelligent, product synergies should be -- to be made with other brands. Why not?

If not, is that the new Horizon suitcase for Vuitton is -- like the big guys in the past, also benefiting from the 4-wheel technology not -- and it was obviously designed before Rimowa joined the LVMH Group. But if there are intelligent synergies to be made, why not?

Third question, on Amazon. I would say that no -- not with the existing business model of Amazon.

We believe that the existing business of Amazon doesn't fit with our -- doesn't fit with luxury, full stop, but also doesn't fit with our brands. If they change the business model, I don't know.

But with the existing business model, there is no way we can do business with them for the time being. And as far as Marc Jacobs in department stores, I will not elaborate.

I mentioned the fact that Marc Jacobs is still under a reinvention phase and so suffering a bit, obviously. This is a case with department stores in the same way as in its own retail network.

Great job at Sephora. It looks outstanding, so congrats.

Thank you. So thank you.

I have nothing more to add. I just look forward to discussing with you full year performance in the -- not the conference call, but the meeting that we will organize at the group's headquarter in late January.

Thank you so much. Bye.