LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Hello, I'm Chris Hollis, Director of Financial Communications at LVMH, and with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us for the -- our first time doing this call via video.

We have some remarks to make about LVMH's revenue for the first quarter of 2022. As in previous periods, these revenue figures are reported in accordance with IFRS.

And after these remarks, Jean-Jacques and I will be happy to take your questions. As a reminder, certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially.

For these, I refer you to the safe harbor statement included in our press release and on Slide 2 of our presentation. Turning now to our announcement.

Hopefully, you've had -- all had the chance to read our release, which was issued a short while ago 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 us today.

If there is a problem with the presentation on the Zoom, please don't hesitate to print out the slides and use them as the base. Starting on Slide 3 then.

To begin, 2002 (sic) [ 2022 ] has gotten off to a good start in spite of the difficult geopolitical backdrop marked by the ongoing impact of the pandemic and the tragic events of the conflict in Ukraine. The group's first priority over the past month has been the safety of our employees in Ukraine, and we have provided them with financial and other assistance.

Like others, our greatest hope is for a peaceful resolution of the conflict as quickly as possible. Moving now to our first quarter.

The group delivered a 23% increase in organic revenue compared to the year-ago period. Breaking that down, even with a high base of comparison, all business groups delivered double-digit organic revenue growth with the exception of Wines & Spirits, which continues to be impacted by supply constraints.

On a regional basis, both the U.S. and Europe reported double-digit growth in the period, while business in China was impacted by the resurgence of the pandemic in the region, especially in March.

Other highlights in the period include a particularly outstanding performance from the Fashion & Leather Goods Group, very strong revenue at both Tiffany and Bvlgari, a running start to the year in the Perfumes & Cosmetics business with strength in both segments of the business and the ongoing success of Sephora offset somewhat in the Selective Retail Group by the impact of the continuing weakness in international travel on DFS. Turning to Slide 4, looking at the overall figures for the first quarter, including a positive 6% currency effect, revenue increased 29% on a reported basis versus the year ago period, reaching EUR 18 billion.

Looking at the regional breakdown of revenue in euros. As you can see on Slide 5, Asia, in this Chinese New Year period, delivered the highest percentage of revenue at 37%, while slightly down from 41% last year due to the pandemic lockdowns.

The U.S. accounted for 24% of the revenue; Europe, 14%; and France, 6%, showing slight gains in each region versus the year-ago period.

Japan held steady at 7% and other markets rose a bit to 12%. Looking now at how organic revenue changed for each region relative to last year's first quarter.

The U.S., Japan and Europe all grew double-digit. And Asia, excluding Japan this time, remained positive at 8%, which reflects the strength in that market ahead of the COVID-related restrictions in March.

Turning now to revenue by business group. We'll start, as always, with the Wines & Spirits.

So this group, organic revenue increased 2% in the first quarter of 2022 versus the year-ago period and 8% on a reported basis, inclusive of a positive 5% currency effect and 1% structure impact relating to the consolidation of Armand de Brignac. In total, revenue in this group was EUR 1.6 billion in the first quarter.

By category, Champagne & Wines' organic revenue grew 22% in the quarter compared to the previous year's same period. There was a 3% positive currency impact and a 3% positive structure impact from the consolidation of Armand de Brignac, thus reported revenue in this category was up 28% over the year ago period to reach EUR 706 million in the first quarter of this year, a very strong gain.

Reported revenue for Cognac & Spirits was EUR 932 million, down 3% compared to Q1 of 2021. Organic revenue was down 9%, mitigated in part by a positive 6% currency impact.

As every first quarter, I would reiterate that the first quarter is not a good proxy for the year given its relative size and volatility due to the changes in Chinese New Year and coming just after the largest fourth quarter. Therefore, any extrapolation of the trends either in champagne or in cognac, would be unwise.

Starting with the Champagnes & Wines business. There was a very strong 14% increase in champagne volumes in the first quarter, which was driven by robust demand in both Europe and Japan, in particular, as demand from on-trade, that's restaurants, clubs, hotels, et cetera, increased and there was a gradual return of tourism.

In other highlights, the revenue of Armand de Brignac, acquired in May of 2021, is now included in this business. Château d’Esclans continued to deliver a solid performance and is now available in the U.K.

and Chandon continued to deliver encouraging performance. Looking now at the Cognac & Spirits business, cognac volumes increased 18% due to the tight supply and logistical issues in the U.S.

So the group has been able to partially offset this through pricing that reflects the high demand. And in China, the resurgence of COVID and the timing of the all-important Chinese New Year holiday, as well as a prudent monitoring of trade stock negatively impacted revenue in the period.

On the positive side, Belvedere vodka continued to perform very well as did Glenmorangie and Ardbeg in the whiskey category. Looking now at Fashion & Leather Goods, this business, once again, delivered a superior performance, as I mentioned earlier, with a 30% increase in revenue on an organic basis compared to the year ago period and 35% reported, reflecting a positive 5% currency effect.

In euro terms, revenue was EUR 9.1 billion compared to EUR 6.7 billion in last year's first quarter. The very strong revenue growth in this group was broad-based.

I'll start with Louis Vuitton, which continues to deliver standout performance due to its unique mix of exciting innovation and unparalleled quality. Highlights in the quarter included the opening of 2 new precious leather workshops in Vendôme, France, where the craftsmanship for which the Maison is well-known lives on.

The launch of the Tambour Horizon Light Up Connected Watch, the women's collection by Nicolas Ghesquière was presented at the Musée d'Orsay for the first time. And lastly, the highly acclaimed and widely viewed men's full winter 2002 show dedicated to Virgil Abloh, the Maison's menswear designer who tragically passed away last November and is sorely missed.

Moving ahead in this group, Christian Dior Couture too saw outstanding growth across all product categories. The Maison's historic birthplace, which is also the beginning of this presentation, reopened a 30 Avenue Montaigne after 2 years of renovation.

It is extraordinary, encompassing a store, a restaurant, a pastry shop, an exclusive suite and a museum, offering a truly unique and holistic luxury experience. The quarter also included inspiring in-person fashion shows for Maria Grazia Chiuri's dazzling collections and in terms of product highlights, the Lady Dior bag remains a success.

Across the other Maisons in this group, at Fendi, the business is performing well, thanks to Kim Jones collections and notably the Fendi First bag, driven by Hedi Slimane. Céline's leather goods line, Triomphe, remains, in fact, a triumph and the ready-to-wear business is delivering strong growth.

Loro Piana is performing well with particular strengths in the shoe business. Loewe continues to introduce excitement thanks to J.W.

Anderson with the recent launch of its Loewe x ON sustainable capsule collection and the new bag line Luna. Marc Jacobs' e-commerce business is delivering solid revenue, especially in the U.S.

And at Kenzo, the new artistic director, Nigo, is settling in well with a positive reception to his first show. Onto our Perfumes & Cosmetics business group.

Revenue was up 17% on an organic basis and 23% on a reported basis, taking into account a positive 6% currency effect. In euro terms, Revenue is EUR 1.9 billion in the quarter compared to EUR 1.6 billion in the year ago period.

There was many factors driving the good performance in this business group, starting as always with Parfums Christian Dior. There was a strong growth in the U.S.

and market share gains in all key markets. This comes as a result of continued love for the iconic Dior perfumes, including Miss Dior, Sauvage and J'adore.

In addition, the La Collection Privée is performing well, and the relaunches of Forever foundation fluid and Dior Addict lipstick are off to a good start. And finally, the business saw good performance from both the Prestige and Capture Totale skincare lines.

At Guerlain, perfumes continued to drive strong growth with particular success from Aqua Allegoria. This is a special product is between 90% and 95% of its ingredients are of natural origin and it is sold in a refillable recyclable bottle.

The -- Maison also rolled out its new L’Art et la Matière collection of fragrances for both the body and the home. And finally, the skincare line, Abeille Royale continues to deliver growth.

Turning to some other Maisons. Parfums Givenchy fragrances are performing well, notably the Irresistible and Gentleman fragrances.

Benefit recently launched its Boi-ing Bright On concealer, a great product, reflecting the brand's fun spirit. Maison Francis Kurkdjian continues to make good progress with its Baccarat Rouge 540 Eau de Parfum as a particular standout.

Make Up For Ever has successfully launched its new HD SKIN line, an undetectable foundation. And Officine Universelle Buly opened its first store in Milan in Italy.

Turning to our Watches & Jewelry business on Slide 17, organic revenue increased 19% in the period, including a positive 5% currency impact revenue, reported revenue was up 24%, reaching EUR 2.3 billion versus EUR 1.9 billion in the year ago period. I should note that organic revenue growth in this quarter includes Tiffany, which was integrated for the first time in the first quarter of last year.

So I'll start with the highlights of Tiffany's performance in the period, which was excellent with the U.S. as the strongest contributor.

The Maison introduced its new Knot collection globally, and it is being well received. It also launched a new campaign for its iconic hardware line featuring K-pop star Rosè.

Tiffany's high jewelry and classic Schlumberger collections remain strong draws. And the Maison is also reimagining the past with the limited release of an 18-carat gold TiffCoin, a modern version of Tiffany Money, which was at one time a collection of coins that could be exchanged for Tiffany jewelry.

Moving along, Bvlgari, too, is performing well with particularly -- particular strength coming from jewelry sold in its own stores. This includes the continued success of its Serpenti line, the Bzero1 collection and the rollout of the Magnifica high jewelry collection.

The Maison also launched its Octo Finissimo Ultra watch, the world's slimmest mechanical watch and one which we expect to be in high demand. Speaking of watches TAG Heuer introduced its new Carrera Plasma watch, which is embedded with lab-grown diamonds during the Watches & Wonders Fair in Geneva.

Hublot launched The Big Bang Unico Ledger, which combines high-end crypto technology with traditional watch craftsmanship. As you can imagine, this timepiece has been in high demand.

Zenith introduced its new Chronomaster Open and Chronomaster Sports models. And finally, at Chaumet, its Joséphine and Liens lines are each delivering a good performance.

Now turning to our final group, Selective Retailing. Organic revenue rose a strong 24% in the first quarter of 2022 versus the year ago period.

When we take into account a positive 6% currency effect, reported revenue rose 30% to EUR 3 billion for the quarter compared to EUR 2.3 billion in the previous year period. The revenue performance in this business group is a clear reflection of the strength of Sephora, where the rebound from the pandemic continues apace.

Stores in North America, France and the Middle East are -- all continued to perform well. In terms of categories, fragrances, in particular, continue to show progress and the makeup business has shown good recovery.

Sephora has seen market share gains worldwide. On the other hand, China has been impacted by hygiene restrictions due to resurgence of the pandemic, which was reduced store traffic here.

At DFS, the pandemic continues to weigh on the international travel and thus, on this business. While revenue is positive in the quarter, it was at a lower level.

Against this backdrop, the team is focused on engaging and connecting with customers through new digital initiatives. In addition, La Samaritaine Paris Pont-Neuf is part of the DFS family, and it has been well received by clientele in Paris.

It is indeed a top local destination. Le Bon Marché continues to generate excitement through some eye-catching works, including the new exhibition, "Le Mignonisme", by the artist Philippe Katerine.

The store also launched a new digital platform for services and experiences, while the 24S business continues to show strong progress. So before we go to questions, let me say we are very pleased with the start of the year, which reflected a strong recovery of our businesses, despite ongoing challenges stemming from the pandemic and the conflict in Ukraine.

As we look ahead, we are working to build on the strong revenue momentum our Maisons are driving online. This is a direct reflection of the focus they each have on delivering an exciting and seamless omni-channel experience, channel experience, as well as continuing, as always, to introduce innovation into their products and maintaining the high quality for which they are known.

The group continues to make targeted investments to support strong growth, including through selective store network expansion, while at the same time, closely managing costs. While we are extremely mindful of the uncertain environment in which we are operating, we are confident that the combination of the talent of our teams and the diversity of our businesses and geographic presence will enable LVMH to continue to strengthen our global leadership position in luxury goods in 2022.

And with that, we'll now take any questions you may have. [Operator Instructions]

Yes. Three questions, Antoine Belge from BNP Exane.

The first question relates to the regional trends within Fashion & Leather. Is it fair to say that U.S.

was probably about 30%, maybe Europe about 50% and Asia, maybe around 10%, but with China not growing much? Second question is relating -- related to the diamond supply for your jewelry brands and the current situation in Ukraine and Russia.

So how dependent are your brands from sourcing in that part of the world? I mean, are you anticipating a supply constraints amongst the huge inflation on the price of diamonds?

And third question, looking at the price increase that have -- some of your brands have undertaken, can we assume that they were in excess of the ongoing cost inflation? And would you also agree that FX are quite supportive this year for margins for your group?

Thank you, Antoine, for your 3 questions. The first one on the fashion leather trends, you're not far.

Asia is a little bit better than what you said, and China is also a little bit better. But as we don't communicate detailed numbers by region, I will not go further, but you're not very far.

Second question on diamond supply. The share of the supply coming from Russia cannot be disclosed, but what I can tell you is that we will comply with all the regulations that have been issued, including the most recent one.

And we are currently working on replacing sourcing from Russia, from other locations, and it's perfectly doable in a reasonably short time frame. And thirdly, your question on price increase and FX.

Obviously, FX was supportive of the growth, as you've seen from Chris' speech previously, we have a 6% positive currency impact just on the dollar, we were $1.18 last year and we are $1.12 or $1.13 this year, so obviously, it helps. With regards to price increases, the situation is quite diverse.

We have -- not all the brands have increased prices yet. It is a case for some of them, but not all of them have increased prices.

And obviously, when they did it, they did it with a view that they cannot do that every other month. So they try to cover inflation for a certain period of time.

The measurement of inflation is a very complicated topic as it varies a lot from one country to another and from one industry to another. So it's not science to be frank.

So we try to increase our prices in a way that is commensurate with our anticipations with regards to cost increases, but frankly, it's not particularly easy.

Yes. Good afternoon.

I'm -- I would like to ask a question about the trends and the Chinese demand momentum that you're seeing in China. Your reference to new lockdowns and the impact on Chinese demand from the COVID-19 resurgence.

I wonder, if you could give us a bit more granularity on how broad this is? We know that some of the cities are in lockdown, some of the cities are not in lockdown, but are seeing very significantly adverse traffic impact like Chengdu, which we measured directly.

I wonder, if you have a broader perspective to give us on the whole country? And how are Chinese consumers are taking the measures?

And if you are seeing any return to normal in areas that could have potentially exited the lockdown measures? More broadly, as far as distribution in China, you told us at one point that you were counting on operating under retail distribution in Hainan.

I wonder how you're thinking about duty-free distribution and retail network development is proceeding when it comes to China? And maybe exiting China and going to the U.S., I noticed that Louis Vuitton is continuing to double up its efforts to build flagship stores throughout the country.

And according to some of the department store players there, there seems to be an effort to exit department stores even under concession. I wonder, again, more broadly, what is your thinking about the de-evolution of distribution for Vuitton with a specific view to the U.S.?

But also more in general, if there's anything that you think needs to be discussed?

Luca, just to be clear, your second question is about Hainan or a more global question on China? We can't hear you you're on mute.

Luca's microphone please?

You're still on mute, I'm sorry.

No, my question was on China more broadly. And then specifically with Hainan when it comes to duty-free, but more broadly, China.

Okay. Thank you.

So let's start with the global question on Chinese demand and what's been going on over the past few weeks. I will not go into many details as the situation is changing pretty fast and what is true today may be wrong tomorrow, so I will sort of give you some main headlines so that you understand where we are.

So we are obviously subject to some lockdowns in some cities, including Shanghai, to a lesser extent, Shenzhen. And as you said, I mean, despite some cities not being locked down, the traffic is on the way down as the populations are traveling or even moving less than they used to.

So obviously, this is having some impact. It's a fairly recent impact, so you don't see it in the numbers.

But this is having some impact on the business. I mean, you wouldn't believe me if I was telling you the opposite.

So that's quite obvious. This being said, it's not entirely new.

I mean, we've been through that already 2 years ago. And there are a few takeaways, I would say, from this period 2 years ago.

First of all, is that the Chinese authorities have demonstrated an ability to take very energetic and broad-reaching measures to contain the pandemic in a fairly short period of time. So one could be hopeful that they will do the same again.

And with regards to Shanghai, I mean, we read the news as well as you do. But it seems that they will start alleviating the lockdown reasonably soon.

I don't know exactly what it means, but that's what we hear. And the second takeaway from 2020 experience is that although this could have an impact short term, it has no impact whatsoever on the strength of the demand.

And once the whole thing is under control and is over, we see demand coming back to our stores exactly the same way as it was prior to the lockdowns. So we see no particular reason why this shouldn't be the case this time.

And therefore, we might be affected short term, but we have no particular worries as to the medium- to long-term consequences of that. So we are reasonably hopeful that this should be a moment in the history of luxury in China and not more than that.

So your second question about distribution in China. There are many things going on.

You mentioned Hainan. But as you said, I mean, Hainan is mostly duty-free licenses operating under wholesale models.

So that limits obviously the number of brands and the type of brands that would go there. We discussed that already, so I will not elaborate much further.

With regards to the Rest of China, we see the traditional dual trends in -- with on the one side, the flagship stores being opened with obviously a view that this should be limited to Tier 1 and Tier 2 cities in China. I mean China is a heavily populated country, but it would be quite unconceivable (sic) [inconceivable] that we would go into all the main cities because there are so many in China.

And secondly, online distribution is extremely important in China. You might have seen that we have announced, it's not in operations yet, but we have announced an agreement with Tmall for Bvlgari, which will be the first real shop-in-shop if you make the parallel with shop-in-shops in department stores, it will be the first shop-in-shop at Tmall, operated under a full Bvlgari control in terms of assortment, in terms of payment.

So the cards will be limited to Bvlgari's product and also in terms of data. So we think it's a great achievement by the Bvlgari team in China, and we are very hopeful that it will enable us to be -- to have a meaningful presence on Tmall and at the same time, be in line with our distribution principles.

So that's the second question on China. Lastly, in the U.S., I mean, there are no particular principles.

I mean, we would say that when it makes sense, we can go to department stores, but when it makes sense, we could also go to flagships. And in some areas, you would see both because it makes sense to have both.

So we are pretty pragmatic as to the distribution approach. There is a tendency, I have to say, that the number of stores from LV into U.S.

department stores has been reduced over the last 10 years. I would say, not in a dramatic way, but it's been reduced, and obviously replaced by freestanding stores and flagships.

But that's probably -- that's purely a function of the traffic and where the traffic goes. And we try to open stores where the traffic is.

If it is in department stores, that's fine. If it is not, we'll open elsewhere.

It's Oliver Chen from Cowen. Congrats on great results.

On the Fashion & Leathers division, what are you seeing for the market appetite for price increases? And also, how is your supply looking relative to really strong demand trends?

Second, would love your evolving views on curated platform models, e-concession. And specifically, as you think about consolidation that's happening and relationships with Farfetch and Mytheresa and others?

And third and finally, we're seeing a lot of younger customers really take advantage of the metaverse and also thinking about the gamification of retail and how that evolves with NFTs. You have a lot of really wonderful assets with which this could be leveraged.

Just wanted your thoughts on strategy in general and how you're approaching testing that?

Thank you, Oliver. So on your various questions, first of all, on Fashion & Leather and price increase, the first comment I would make is that we have not noticed any meaningful price elasticity when increasing prices.

So for what it's worth because it's not something that you can observe in a very scientific way, but for what we think there is no particular price elasticity. We have increased prices, as I said, in a fairly meaningful way in most brands.

We will probably do for others in the coming months. As I said, I mean, the idea is not to increase prices every other day.

So we shall be reasonable. But at the same time, we think we have to reflect into prices the cost of doing business, whatever the trend is taking place.

With regards to supply, obviously, a good problem to have in light of the nice growth momentum that we are experiencing. It's not entirely new.

I mean, we've been going through a period of pretty high growth over the years. And we've been able to manage.

You've noticed that we have recently opened a new Atelier at Vuitton in Vendôme. We have other projects that I cannot elaborate on as we -- as of today, but we have a lot of initiatives, and we do not intend be overwhelmed with demand, and we intend to keep up with demand.

And at the same time, control what we sell, so that we -- the merchandising orientations of the company are well under control on our side. So the second question on the e-models, let's put it that way.

You know our global approach to that. There is nothing wrong with e-distribution as long as it offers exactly the same merits and without getting into drawbacks than the -- as the regular offline distribution.

So if we could find, and I mentioned Bvlgari on Tmall on purpose, if we could find agreements with platforms, whereby we can do real retail distribution, pay a rental fee on the data and make sure that we don't have to participate into promotions and all these things that are usually imposed on suppliers there, why not? I mean, I'm not saying we would go, obviously, it depends very much on curation.

It depends very much on many factors. But in principle, there is no position that it -- then we have to see whether it makes sense or not in a given place or in a given country.

But there is no particular position, but we won't do online what we don't do offline anymore. So that's pretty clear, and I've said many times.

Finally, on metaverse, it's hard to comment today. I mean, we -- the whole thing is interesting, promising, but starting.

And it's, I think, I would make a fool of myself if I was telling you exactly what we have in mind and that this is very clear, and we know exactly what we'll be doing in the future. The short answer is that we don't know.

But the short answer is that we are looking at it very carefully, and we are making sure that we know what's going on and we can participate if it makes sense to do so. There are many initiatives that could possibly lead to business developments.

And you can rest assured that whatever happens, I mean, we'll be part of it. But for the time being, we -- whatever happens is unknown to us, and I think to most of us.

I have 3. First of all, maybe on APAC.

So following up from Antoine's comment, would you confirm that growth in -- for Fashion & Leather goods in APAC was around maybe 10%? Would you be able to comment, and I know it's a tricky one, but what was roughly the growth prior to the disruptions happening?

Because we are just trying all to get an idea of really what is the impact of what's happening in China. So any comment you could make that would maybe make our life a little bit easier?

And then my second question is on the exact pricing benefit for Fashion & Leather goods in Q1. Is my understanding correct that you've had roughly mid-single-digit pricing benefit in Q1?

And given that you raised prices towards the end of the quarter, you're not going to get another step up, so a help from pricing sequentially in Q2 also of around mid-single digit? If you could comment on that, that will be also very helpful.

And thirdly, maybe can you provide a bit more color on Watches & Jewelry? So very nice growth of the division, but I presume there could have been substantial differences between how Watches & Jewelry are doing.

So would you be able to tell us which one has been outperforming? And to what degree?

Thank you, Zuzanna. Well, you probably know that I'm not going to answer the first question.

I mean, reporting on a quarterly basis is already complicated, so I will not go into the monthly or even within months details. I said what I had to say.

I mean, we are impacted by the lockdowns on a Chinese basis, even on an Asian basis as it is the Mainland China is the biggest contributor to global Asian sales. Getting into precise numbers could prove very wrong, only a few hours after we mention them.

I mean, all these things are moving very, very fast. So for the time being, I think it's wiser to have a wait-and-see attitude.

But the only thing I can confirm is that we'll be impacted by that, as we said in the press release. The second question, you're, by and large, right.

I mean most of the price -- we had a mid-single-digit price impact at Louis Vuitton for instance, where we can measure it. It was a mid-single-digit price impact in Q1.

But the price increase was implemented toward not at the end, but toward the end of the quarter, and we'll get further benefits as the year goes on from this price increase. So that will be the impact.

And finally, on Watch & Jewelry, your question about the 2 categories, jewelry did a bit better than watches, but watches did well. I mean, all our brands in watches, TAG Heuer, Hublot and Zenith, particularly Zenith had a very -- they had a very strong quarter and watches was a bit better, both Bvlgari and Tiffany did very well.

But all in all, I mean, all brands in the division did extremely well, obviously, pushed by strong demand in the U.S., in Europe and also in some Asian countries, including Singapore and Korea, where we've seen very good level of business.

Three questions, please. The first one -- the first 2 on Wines & Spirits.

On Cognac, you've highlighted again the supply constraint for VS in the U.S. Could you briefly comment on that?

And also how you're going to manage the potential excess inventories of superior quality VSOP XO in China given the on-trade is unlikely to recover for a while? Secondly, in Champagne, there was quite a big delta between volume and value.

I guess, price and mix, could you comment on pure pricing, but also the broader premiumization trend that we are seeing in the market that I think are the image benefits with Dom Pérignon, Krug. Do you have enough inventories of these vintage today?

And maybe a quick word regarding the frost that you've had in April in Champagne, in Cognac or even in the [ Saussignac ] any impact on your -- on the upcoming harvest? And I know it's early, but -- and just finally, on your comments, Jean-Jacques, about the takeaways of prior lockdowns and reopenings in China.

What gives you confidence that this is going to be the same time in terms of not just the duration of those lockdowns, but it feels that talking to people on the ground, that it's maybe a little bit more real this time that the virus is really spreading that Chinese are feeling, this is real. And we know there's also a bit of pushback and resentment on social media about the whole vaccination and lockdown strategies of China.

Do you feel the revenge spending in Q3 could be similar to what you've seen last year, for instance, and therefore, no need to worry beyond Q2?

Well, thank you, Thomas. First of all, on Cognac, you have 2.

You alluded to 2 different areas, the U.S. and China.

With regards to the U.S., as you said, I mean we are lacking VS at least for the first quarter. We are releasing some volumes by April 1.

So before it goes, it lands on markets, it's a little bit of -- it takes a little bit of time, but we should alleviate the constraints in the VS market in coming months. This being said, this is also compounded by the fact that shipping is fairly disorganized in between France and the U.S.

And within U.S., delivery, transportation and delivery are also complicated. So that doesn't -- it doesn't help.

So all in all, I mean, we have a situation that is a bit complex, that is temporary. But for the time being, it's -- the numbers are a bit lackluster.

With regards to China, I will not add a lot of comment. I mean, we had a pretty poor first quarter due to mainly the change in the date for Chinese New Year.

You know this phenomenon that creates 2 Chinese New Years in one year and zero Chinese New Year, the following year. We've been living with that almost forever, and we are in the bad year when the Chinese New Year shipping and delivery sell-in took place mostly in December 2021.

So explain the good numbers we had in Q4 in China. But obviously, we cannot have the cake and eat it.

So in January and February, it was a lower level of business. This being said, I mean, as you pointed out, the level of inventories is a little bit high in China and in view of demand being under stress with the lockdowns, that will be a little bit complicated to absorb in the coming weeks.

So we'll see. Second question on harvest.

As you said, I mean, it's a bit early to say. I mean, it takes a little bit of time.

One has sometimes good or bad surprises. For the time being, it doesn't seem to be too bad.

But I cannot be more precise than that. We need a more thorough assessment of the situation to really understand what happened.

It would be mostly in the Champagne area. Otherwise, I mean, we think we are safe in the other areas, including Cognac, Provence, Burgundy [ Saint-Vincent-de-Tyrosse ].

Finally, your comment -- your general comment about the pandemic in China this time is real. Well, remember what we had in mind 2 years ago about China, I mean, the situation was pretty bad.

And I don't think it is worse this time. I'm not on the ground, and I really don't know.

But what we all know is that the authorities, Chinese authorities have gained some considerable experience in the way they deal with such situations. And we can only rely on them to make the best of a reasonably complex situation.

But for the time being, which is only located into Shanghai, it's a big city, obviously, but it's limited to that. With regards to pent-up demand.

I mean, first of all, I don't know whether there will be such a thing. And secondly, when it takes place, I have absolutely no idea.

I mean, being a -- having a view on how long this will take to be under control and what the reaction of the customers could be is frankly not a question of quarters. I mean, we have -- we can assess the trends, but not at all be certain as to when they will materialize.

Three things. As you think about tourism, any update on tourism?

And what you're seeing in Europe or North America? Second thing, North America and China in terms of the opportunity for luxury, the strength in North America seems to be accelerating.

What do you see as the long-term potential of North America versus Asia? And then lastly, if there is a change in ownership of Kohl's, how does that change your agreement with the Sephora in-store shops and Kohl's?

Thank you, Dana. Tourism, I mean, the business we do in 2022 with stores is significantly on the way up compared to 2021, but obviously, only a fraction of what it was in 2019, so it's difficult to comment.

On the one hand, we can be pleased with the level of tourism with European and American wherever they go. But on the other hand, we lack entirely any form of Asian tourists either within Asia or on other continents.

So the result of that, that in some brands, tourists could have been as high as 30%. They are accounting now for around 10%.

So it has sometimes been divided by a factor of 3. So we are really talking about a very different paradigm than the one we had in the past.

So on the way up, but far below what it was before. The luxury trend in North America is a very interesting question.

We have seen, over the past couple of years, a little bit more than that, some very good progressions in North America. But when you look back, let's go 2010, for instance, so just after the recession, our business compound annual growth rate since 2010 in the U.S.

and excluding obviously the impact of acquisitions, has been growing about 10% per annum, a little bit less for Wine & Spirit and a little bit more for Fashion & Leather and for Jewelry, but jewelry was obviously a small business because we are just talking about Bvlgari as Tiffany was acquired towards the end of the period. So what I mean with this number is that this is a serious area.

I mean, we've been growing the business very regularly over the last 10, 12 years. And we have no reason to believe that this will not continue.

So for us, it's one of the largest country. We do 24%, as Chris showed you, 24% of our sales in the United States, and it's a very important market, which is probably less dependent today from cosmetics than it was some 5 or 6 years ago because one of the driving force behind the U.S.

business was makeup and Sephora, it's less the case today. Fashion & Leather is a prominent business in the U.S.

All in all, I mean, we are very pleased, and we think this could be a strong contributor to the group's future growth as it's been over the last 10, 12 years. And the question on Kohl's, I have no idea.

I mean I should look, there might be something in the agreements that we have signed with them, but I have no idea.

I have 3 questions, please. I'm going to continue with the U.S.

You mentioned that in the past 10 years, you had a very sustainable growth in the region. But have you seen any recent -- well, any changes in the consumer pattern vis-a-vis luxury goods in the past 2 years?

Second question, I'm going to test a number also on China. Some industry players have mentioned that the business in China -- in Mainland China was down a scary 50% in March.

So what is your opinion on this number? And finally, have you observed any changes in the trends in April that you believe are worth mentioning?

Just see it as another way of asking about current trading.

Thank you, [ Olive ]. Recent change in the U.S., not really.

I mean the business is doing fine. It was up 25% over the last 2 years.

So if you would sort of jump over the 2020 question. That means that the business was growing 11%, 11.5% per annum on an annualized rate, which is in line with the number I mentioned before.

And as far as the type of customers, behavior of customers, type of product. I mean I mentioned the main trend, which is that we used to be pretty dependent on makeup, which was a fast-growing category in the U.S.

It's less the case as makeup has known a little bit of slowdown over the past few years and was replaced by other categories within cosmetics, but also in other business, including Fashion & Leather, so I don't think we have a lot of things to report. Second question is my opinion on the number.

I mean the number is either right or wrong, it is wrong. And thirdly, as far as April is concerned, we are, if I'm not mistaken, the 12th of April, so it's a little bit complicated.

I mean, we don't do accounting every other day. So I don't have major numbers to report.

The only thing that I can say is that the impact that we have had in the second half of March in China due to the closures is still there. Obviously, with a magnitude that is quite comparable to what we've seen in the second half of March.

So 3 questions, hopefully, relatively quick for me. The first one is on Tiffany.

So you mentioned earlier that you had an excellent start to the year. But my understanding is that the brand is somewhat implementing a shrink-to-grow strategy product-wise in order to elevate the brand.

So should we expect some moderation of the growth rate, all else being equal, of Tiffany because again of this strategy? Or that's going to be offset by increase in distribution like the reopening of your flagship in New York?

And maybe, who knows, Tiffany going on Tmall in China, so that would be one. Number two, on Fashion & Leather Goods, the 2 biggest brands Vuitton and Dior outperformed the division during the pandemic based on your previous comments.

Are we seeing a reversal of trends at the beginning of the year? Or is it simply that you have a slightly more homogenous growth rate now between the different brands within the portfolio?

And then lastly, on Selective Retailing, which was, I guess, the only division to miss market expectations. And as you said, it looks like it was driven by the underperformance of DFS.

What is kind of cyclical and what is kind of structural at DFS? Meaning that given the exposure to Hong Kong and Macau, the lack of exposure to Hainan, do you think the retail business can find back the 2019 level by next year or 2024, you think structurally, that's going to be hard to achieve?

Thank you, Edouard. To your first question on Tiffany shrink-to-grow, I wouldn't qualify it that way.

I mean, we are working on elevating the brand. Elevating the brand means a lot of things, including branding, including product range, doesn't mean selling more expensive stuff.

It means that the attraction of the brand should be, I mean, what the image that is conveyed by all the products should be improved. It's a long-term effort.

It's not something that we have started yesterday, and it will take time to implement. And I would say that it's a never-ending process.

I mean the desirability of the brand is something that all the brands should be pursuing at all times wherever they are. It doesn't mean that in order to achieve that, we'll be shrinking the business.

I mean, the objective is to grow the business because we'll be increasing demand because the brand will be more desirable. And it's exactly what we are aiming at.

So I will not go into the details of our forecast for the next years, and they are highly dependent, obviously, on a lot of factors that could prove right or wrong. But anyway, the idea is not to shrink the brand to make it more desirable, it's actually to make it desirable, full stop, and hopefully, to develop it from that basis.

Fashion & Leather, it's -- you're quite right in saying that the growth is reasonably homogeneous between the various brands. Obviously, there are differences.

Dior is doing somewhat better than the -- than most of the others. Céline as well, Vuitton is never very far from the average for the division, but I don't have much to report on that.

Most of the brands, if not all of them, did quite well in the first quarter of the year. And finally, your question on DFS.

I mean part of it is obviously depending -- part of what's happening is depending heavily on what's going on in Hong Kong. I mean the 2 pillars of DFS are Hong Kong and Macau.

The Macau business is now the biggest by far pillar of the company and is subject to stop and go from the Chinese authorities, whether they reopen the border with Macau or not. I mean it has a lot of impact on the kind of business we do there.

With regards to Hong Kong, the situation is more complicated as the borders have never reopened seriously in between the 2 areas. And the controls, I mean, the quarantine and all these constraints for people crossing the line in between Mainland China and Hong Kong are quite complicated to manage and obviously causing the touristic business to be close to zero in Hong Kong, which is a big question mark for DFS that cannot, obviously, rely solely on the locals in Hong Kong.

So that's a situation that may last some time. We've seen DFS being dead a few times already and they renew from their ashes pretty quickly.

This is a business that has been heavily restructured, and the breakeven point has been lowered tremendously, which means that the operating leverage if we get additional business would be tremendous as well. So we are -- and thanks to the efforts of the management team, we are close to breakeven, very close to breakeven and hopefully breaking even this year.

But if, for some reason, I mean, the business was to recover either in Macau or in Hong Kong or in both, obviously, we would benefit very strongly from that.

I'll be brief, and I have 3. The first is on spending patterns across your consumer groups.

So I was just wondering in Q1, given the inflation pressures we're seeing and hearing about, whether you're seeing any changes in demand trends across your high income versus aspirational consumers, perhaps in Fashion & Leather division for your key brands? My second question is on online versus offline mix.

I appreciate the basic comparison in EMEA is not representative, but maybe for the U.S., could you maybe comment on whether the online ratio has maintained above pre-COVID levels? Or just give us some direction as to what the e-com mix might be, again, for Fashion & Leather?

And finally, just on M&A. I believe that the full year results presentation, Jean-Jacques, you said that the free cash flow generation has more than paid for Tiffany in 2021.

Just curious on where your areas of focus in terms of M&A might be in 2022? And whether we're looking in particular at subsegments or size of transaction small versus big?

Thank you. So the spending patterns -- are the spending patterns being changed by inflationary pressure, not really.

I mean it's probably a question which will be worth revisiting in some time. But as we speak, I mean, we lack terribly any -- the benefit of hindsight to answer that question, so sorry about that, but I'm totally incapable of getting into details today.

Online, offline, well, as we said many times, I mean, the online ratio in total sales, be it in the U.S. or elsewhere went up sharply over the past couple of years for fairly obvious reasons, and it's much higher than what it was in 2019 because the customers want to shop more online, but also because some brands that were lagging behind have developed their online presence in a tremendous way.

We now have -- all our brands are seriously selling online, most of them through their own website. But we have developed, I mean, the few holes that we had prior to the pandemic, I mean they are all covered now.

What we've seen in 2021 and 2022, I mean the first quarter of 2022 is that the share of online is going down but very slowly. I mean, it went up in a major way, and it's very slightly going down.

In other words, the brick-and-mortar growth -- retail brick-and-mortar is growing faster than online. Is it meaningful?

I mean, particularly with regards to the first quarter of 2022, I don't know because remember that in the first quarter of 2021, which is our comparison base, there were a lot of store closures, particularly in Europe, but also in the U.S. and Asia, to a lesser extent.

So we have to be cautious as to the conclusions we draw from this. For the time being, I would just say that the level of -- the share of online remains pretty high.

And even if it is slightly on the way down, I mean it is at a high level that justifies all the investments that we have made in all our brands to improve our presence online. Finally, on M&A, never a very easy question, you will admit.

No, I didn't -- I never said that we would have paid Tiffany in 1 year. I said that barring any other uses of funds, and there were many of them, including the dividend, that most investors are concerned with, we would have paid in 1 year, but it's -- it was not the case.

But anyway, you know the cash flow, you know the price we paid for Tiffany, so you can make your own calculations. With regards to this year, it's obviously a bit early to say.

We never commented the M&A strategy. We can't -- I mean, it's impossible to comment.

More or less, on a yearly basis, half of the excess cash flow goes to dividend. The rest could be allocated either to share buyback, to debt reduction or to acquisitions.

It's way too early to say what will be the allocation going forward.

I have 2. Just on -- for LV and Dior, I was just wondering if you could give us an idea of the contribution from volume versus price/mix in Q1?

I think you talked a little bit about pricing, but I was curious to hear about volume versus mix given that I think mix has been an important driver for LV in recent years. And then the second question is just a follow-up actually on Middle East.

Can you just remind your exposure to Middle East? And what you're seeing in terms of recent trade in the region?

Just asking to check if higher oil prices are boosting your sales in the region in a meaningful way.

Thank you, Rogerio. I promise that if our competitors provide this breakdown in volume price/mix, I will give it to you.

But so far, I mean, I've not heard much from them. So the only thing I would say about that is that it's reasonably balanced.

I mean it's not 1/3, 1/3, 1/3, but it's reasonably balanced. We have some impact from price.

We discussed that on Zuzanna's question previously. And as always, I mean we do volumes, but we do also mix, which is very strong, which has been helping us tremendously in the past years in growing the business, but I will not elaborate further.

With regards to the Middle East, the contribution of Middle East to the global business in the group is slightly less than 5%. It's been reasonably stable for a number of years.

The growth that we had in the first quarter of the year, but also in the latter part of 2021 is pretty good. It's a bit higher than the overall group's number.

So we are pretty pleased with the business. The bulk of the growth comes from locals.

I mean, locals in a Gulf way. I mean the people from the regions, not necessarily the Saudis in Saudi, et cetera, et cetera.

I mean the region is absorbing -- is doing the bulk of the business and therefore, also doing the bulk of the growth.

Yes. I'm Liwei from CICC, currently in Shanghai, experiencing lockdown.

I would say this is as strict as the one I experienced in Wuhan 2 years ago. So I've got 3 questions.

The first 2 are on China. Could you tell us how important is Shanghai as a percentage of sales in China?

And in first quarter of 2022, is Chinese Mainland the largest single market? Or is U.S.

the largest market? This is my first question.

And my second question is, given the -- our peers have made plans to penetrate in the lower-tier cities in the U.S. As for the China front, are we having such visions to penetrate deeper into lower tier cities in China also to balance out the reliance on first-tier cities?

And my third question is, I like your comments you gave about U.S. growth in the past 10 years.

In China, we see a very significant slowdown 2013 and '14 when the anti-corruption campaign was launched. Could you give us some idea on what happened back then?

And will it be relevant again today, given that this changing social dynamics in terms of common prosperity?

Okay. Thank you.

So the first question on Shanghai, I mean, it varies a lot from 1 business to another so it's difficult to say. Take Wine & Spirit, I mean, take Cognac, the bulk of the business takes place in the Shanghai, [ Fuju ] area.

So in the South, in Guangdong, in the south of China. In other businesses, it's more balanced.

In reasonably small Fashion & Leather brands, you have the bulk of the stores in between Shanghai and Beijing. So a high concentration on the 2 cities.

So it's hard to give you to give you a precise number. On U.S.

and China, Chris, you have the -- China is a bit bigger, right?

Yes. I didn't hear the question to be completely honest with you.

Which is larger, is it the U.S. or China, the largest country?

U.S.

U.S. is a bit bigger.

Sorry about that. So U.S.

is a bit bigger, it was 24% of sales. Your question about lower-tier cities in China is interesting -- it's an interesting one.

First of all, it has to be analyzed in view of time. I mean we are not in this country for -- in Mainland China for the next 10 years.

I mean we are -- we have been there for 30 years already, and we intend to stay there for a while. Not all the -- even the big cities, some big Tier 3 or Tier 4 cities in China, not all of them are ready to have luxury shopping malls and to welcome luxury brands.

So in these cities, it doesn't make sense to be a pioneer. It makes sense to make our products available through website and also to benefit from the fact -- you know that better than I do -- that there are within China, a lot of movements.

I mean a lot of people are traveling in between the cities and the countries. And it's a good opportunity when they go to larger cities to buy from luxury stores.

So these things will change progressively over time and probably the number of cities we cover today, which is around 2025 for the biggest brands will increase progressively, but it will take time because it's more than luxury strategy is what these cities are becoming and whether we can really think about opening in them. And I'm sure that in 30 years, the landscape will be entirely different from what it is today.

And finally, your question on common prosperity. I will answer what I said before.

And we are -- the bulk of our business is not with rich people, it's with affluent people. And I don't think there is anything against affluent people in common prosperity.

So I hardly see why this should be averse to our business. Main principles have been issued a while ago by the Mainland -- by the Chinese authorities.

We haven't seen a major impact on the business. Most of the impacts we've seen on the business in China were pandemic related.

So it's difficult to isolate, but I don't think there is a significant impact to be reported.

I have a question in terms of regional performance. I would appreciate if you can comment a little bit, in particular, about Europe and Japan, namely for the Fashion & Leather business, in particular.

As far as Europe is concerned with a focus on the exit speed, if you are experiencing or noticing any change in consumers' attitude since the start of the war, any country or any area of Europe? And as far as Japan is concerned, I cannot see at group level any material slowdown from Q4 to Q1 '22.

So I was wondering, if this is linked just to comparison effect and I mean what are you experiencing in Japan as underlying trends?

Thank you. So Europe and Japan altogether because it's in most segments of the business, it's exactly the same.

We are, at the same time, doing well but also benefiting from a fairly easy comparison base. I mean the business last year in Q1 was affected by the closures of stores, or the -- or some lockdowns.

I mean I think as far as Europe, many European countries and Japan are concerned, we were talking about lockdowns at this point in time. So obviously, we are comparing ourselves to a fairly low point in the business last year.

If I remind you the numbers, Europe was -- compared to 2019 was 18% down in Q1 2021, 18% down compared to '19. And Japan was -- it was less than that, it was 3% down.

So obviously, we are comparing ourselves to fairly, fairly easy numbers. This being said, with regards to Europe, in particular, the solution was far from being obvious because the business we lost in Europe was mostly coming from Asian tourists, and we have not seen them back as we all know.

And therefore, in order to make the business grow in 2021 and in early 2022, we have to develop the business with local clienteles and with local tourists, I would say, I mean, tourists coming either from the U.S. and mostly from Europe.

We can report, particularly in fashion, some pretty good results there. I've said that many times.

I mean the growth in the clienteles from Germany, France, U.K., et cetera, have been pretty good and encouraging that our CRM and clienteling efforts are paying back. And more or less, not everywhere, but we've been able to replace the missing Asian tourists with European locals be they tourist or be they real locals doesn't make a big difference.

So all in all, I think we are pretty pleased. It took 2 to 3 years, I mean, 2 years to achieve that, but I think it's a very short period of time given the magnitude of the shock of the disappearance of the Asian customers or tourists in Europe.

Japan, obviously, is less subject to some -- to such moves as the share of tourists in Chinese, particularly in Japan was much, much lower than what it was in Europe.

So thank you all. Thank you for attending this call.

As we discussed, interesting times, and I really look forward to discussing the following 3 months at the end of July when we report our full earnings. Thank you so much, and have a good day.

Thank you.