LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF) Q3 2023 Earnings Conference Call October 10, 2023 9:30 PM ET

Company Participants

Rodolphe Ozun - Director, Financial Communications
Jean-Jacques Guiony - CFO

Conference Call Participants

Edouard Aubin - Morgan Stanley
Louise Singlehurst - Goldman Sachs Group
Thomas Chauvet - Citigroup
Luca Solca - Bernstein
Antoine Belge - BNP Paribas Exane
Rogerio Fujimori - Stifel, Nicolaus & Company
Charles-Louis Scotti - Kepler Cheuvreux
Piral Dadhania - RBC Capital Markets
Carole Madjo - Barclays Bank
Chiara Battistini - JPMorgan Chase & Co.

Rodolphe Ozun

Hello, and thank you for joining us for LVMH's Third Quarter 2023 revenue announcement. I'm Rodolphe Ozun, Director of Financial Communications at LVMH. And with me is Jean-Jacques Guiony, our Chief Financial Officer. I will start by taking you through the highlights of the company's performance for the third quarter and first 9 months of 2023. 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 the presentation. Turning now to our announcement. Our release was issued a short while ago in both French and English and is available on LVMH's website, lvmh.com, as are the slides for today's call. Let's begin on Slide 3. For the first 9 months of the year, the group delivered 14% organic revenue growth, supported by strong momentum across all divisions outside of Wines & Spirits. All geographies contributed to growth year-to-date, albeit with quarterly fluctuations as we'll discuss in a minute.

Fashion & Leather Goods has been one of the strongest growth drivers, up 16% on an organic basis year-to-date, with strong performance, in particular at Louis Vuitton, Christian Dior, Celine, Loewe and Loro Piana.

In Wines & Spirits, Champagne and Wines saw their revenue increase by 2% organic year-to-date, driven by their value strategy. While Cognac and Spirits declined 14% organic as weak demand in the U.S. offset the gradual recovery taking place in Asia.

Perfumes & Cosmetics grew 12% organic year-to-date, in line with last year's revenue growth of 12% over the same period with particularly strong momentum in perfumes and makeup. Watches & Jewelry increased by 9% organic with double-digit growth in jewelry while Sephora continued to deliver outstanding growth in all of its key markets and DFS continued to recover. As a result, selective retailing increased by 26% on an organic basis year-to-date.

Turning to Slide 4, you will see that revenue increased 14% on an organic basis for the first 9 months of 2023 and 10% on a reported basis after adjusting for a negative 4% currency impact, predominantly resulting from euro strength against the U.S. dollar, the Chinese renminbi and the Japanese yen.

Turning now to our geographical revenue mix for the first 9 months of 2023 on Slide 5. Our regional mix is unchanged. In Europe, excluding France, at 16%; Asia, up 32%; and Japan, up 7%. France and the rest of the world increased by 1 percentage point in the mix to 8% and 13% of sales, respectively while the U.S. accounted for 24% of revenue, 2 percentage points below last year but 1 percentage point above the first 9 months of 2019.

On Slide 6, we detailed quarterly organic growth by region. As you can see on the left of the slide, LVMH's revenue growth moderated from 17% in the first half of the year to 9% in Q3 due to 2 factors: first, growth in Asia moderated from 23% in the first half of the year to 11% in Q3 reflecting a more challenging comparison basis in China and the recovery of Chinese tourism outside of Asia. Second, growth moderated in Europe due to normalization of both local and tourists demand. As a reminder, revenue had risen 43% in the first 9 months of 2022 in Europe and we're facing particularly challenging comps as a result in this region. By contrast, Japan and the U.S. were broadly in line with first half trends.

Moving on to Slide 7, which provides quarterly organic revenue growth by business groups. I will make 2 comments. First of all, you can see that Wines & Spirits remain the weakest division as Cognac continued to go through a transition year in the U.S., while selective distribution continued to outperform markedly and being less exposed to China was relatively immune to the tougher comparison basis in this market in Q3.

Second, Fashion & Leather Goods and Perfumes & Cosmetics grew in line with group average at plus 9% in Q3. Watches & Jewelry was softer, up 3% in Q3, but the sequential deceleration was consistent with Fashion & Leather Goods, reflecting local and tourist demand normalization in Europe as well as tougher comps in China.

Now we'll turn to the review of business groups, and we will start as usual with Wines & Spirits. Slide 10 shows the Wines & Spirits business group delivered EUR 4.7 billion in revenue for the first 9 months of 2023. This represents a 7% decrease on an organic basis and a 10% decrease on a reported basis after taking into account a positive 1% perimeter impact related to the acquisition of Joseph Phelps and a negative 4% currency impact.

Broken down. Champagne & Wines generated EUR 2.4 billion in revenue over the 9 months period, up 2% on an organic basis. After taking into account a 1% perimeter impact from Joseph Phelps and a negative 5% currency impact, reported revenue growth declined by 2%. Cognac and Spirits delivered EUR 2.3 billion in revenue, representing a 14% organic revenue decline. After a negative 4% currency impact, Cognac and Spirits declined 18% on a reported basis compared to the year ago 9-month period.

On Slide 11. Year-to-date growth in Champagne & Wines was led by continued growth in Europe and Japan and positive price effects. In the highlights of the period, we saw the continued international development of Château d’'Esclans ’as well as the acquisition of Château Minuty, one of the world leaders in Provence based

Rosé. In Cognac and Spirits, Hennessy, while still impacted in the United States by post-COVID demand normalization and the continued high level of inventories at retailers, has been supported by a gradual recovery in Asia and global travel retail. Elsewhere, we saw a strong momentum in the innovation of our growing Spirits portfolio. For instance, Belvedere 10 Vodka, B10 and the accelerated decarbonization of distillation at Hennessy and Belvedere through renewable energy conversion.

Now turning to Fashion & Leather Goods on Slide 13. Revenue reached EUR 30.9 billion for the first 9 months of 2023. It represents a 16% increase on an organic basis versus the same period last year, an 11% increase on a reported basis after taking into account a negative 5% currency impact.

Regarding the highlights of the period on Slide 14. Louis Vuitton continued to deliver excellent performance driven by strong creativity. Vuitton's Women's ready-to-wear performed strongly year-to-date, thanks to Nicolas Ghesquière's highly desirable collection and customers also eagerly await Pharrell Williams spring 2024 men's collections. The brand's effort to continue to support desirability is exemplified by the new G0-14 Malletage bag and the iconic Tambour watch, now enhanced with a new movement conceived by la Fabrique du Temps. Other highlights include the great success of the Malle Courrier exhibition and the LV Dream exhibition, which closes in Paris next month for those yet to visit.

At Christian Dior, all products and categories contributed to the brand's remarkable growth. We witnessed inspiring fashion shows by Maria Grazia Chiuri and Kim Jones, a new Plan de Paris Motif revealed on several products. The Dioriviera collection unveiled during the summer to much success and the release of 170 exceptional jewelry pieces designed by Victoire de Castellane, inspired by 2 worlds very close to Christian Dior's heart, couture and gardens.

Celine continue to capitalize on the success of its Triomphe bag and ready-to-wear collections designed by Hedi Slimane. Louis Vuitton saw good response to newly designed bags, such as the Squeeze bag and the Puzzle Fold Tote. At Fendi, the launch of Origami bag enabled the brand to showcase its savoir-faire and it exhibited also savoir-faire with its "Hand in Hand" exhibition in China and Japan.

Loro Piana benefited from strong momentum across product categories and unveiled a first capsule collection with recycled fiber called Loro. Marc Jacobs saw continued growth of its flagship lines, Tote Bag and Snapshot, while Rimowa celebrated its 125th anniversary with exhibitions in New York and Tokyo and launched a new collaboration with Tiffany. Berluti released a travel line with its new Toile Marbeuf Canvas. And finally, Thelios acquired the iconic French Eyewear brand, Vuarnet.

Moving to Perfume & Cosmetics on Slide 16. Revenue reached EUR 6 billion for the first 9 months of 2023. This represents a strong 12% increase on an organic basis and an 8% increase on a reported basis after taking into account a negative 4% currency impact.

On Slide 17. Perfumes & Cosmetics continued to enjoy excellent momentum, particularly in Perfumes & Makeup and a solid performance in all geographies while maintaining its highly selective strategy. Looking at brands specifically, Christian Dior delivered an outstanding performance on a tough comparison basis and saw a solid performance in all regions, while extending its lead in its key markets. Perfumes continued to see strong growth, thanks to Miss Dior driven by the relaunch of Booming Bouquet, J'adore, which was enriched with Francis Kurkdjian latest creation, L'Or de J'adore and Sauvage, which confirmed its worldwide success.

Makeup continued its strong progress, mainly thanks to the excellent performance of Dior Addict makeup and Forever. Skin care maintains good momentum as well, particularly with premium skin care Prestige and especially in Asia.

Among other brands in this group, we saw again, excellent momentum in Perfumes & Makeup. Guerlain continued to grow, driven by its particular highly popular Aqua Allegoria fragrance and premium fragrance collection, L’'Art et la Matière as well as the successful launch of smudge-proof foundation, Terracotta Le Teint. Parfums Givenchy was buoyed by the continued success of its iconic fragrance L'Interdit as well as a release of new variations of Sense, Gentlemen Society and Irresistible Rose Velvet. Benefits growth was in part driven by the continued popularity of its Pore Care skin care and the successful launch of its new Fan Fest mascara. Maison Francis Kurkdjian had the successful launch of its Aqua Media fragrance. Makeup Forever continued the expansion of its HD Skin line with a concealer launch and Fenty Beauty launched a new volume mascara, Hella Thicc, to great success.

Acqua di Parma boosted by the Signatures of the Sun collection benefited from the newly launched Zafferano scents with Saffron notes and Officine Universelle Buly released a new collection of 6 scents, Les Jardins FrançAis, inspired by Garden fragrances.

Moving on to Slide 10 -- Slide 19, sorry, on Watches & Jewelry. Revenue in Watches & Jewelry rose to EUR 8 billion in the first 9 months of 2023 from EUR 7.6 billion in the year ago period. This reflects a 9% increase on an organic basis and a 5% increase on a reported basis after taking into account a negative 4% currency impact. The key highlights of this division on Slide 20, starting with Tiffany. Three months after the reopening of its spectacular landmark store in New York, Tiffany opened its renovated flagship store in Tokyo's Ginza district as well as its newest store in Omotesando. On products, Tiffany continued momentum in its hardware jewelry line and rolled out the Lock collection globally after launching the line in the U.S. in September last year.

The brand also held a new Blue Book high Jewelry event called Out of the Blue in New York and renewed its 37-year long trophy partnership with the U.S. Open. Bulgari also unveiled a new high jewelry collection called Mediterranea and celebrated the 75th anniversary of its emblematic Serpenti line with an exhibition as well as artistic collaborations in Dubai. In watches, Bulgari presented novelties at the Geneva Watch Days in its distinctive Octo Finissimo and Serpenti Misteriosi lines.

Moving on to watch makers. TAG Heuer opened a new flagship on 5th Avenue and launched the Monaco Chronograph Night Driver and the Carrera Chronosprint in collaboration with Porsche. Hublot announced that it is the official timekeeper of the 2023 Women's Football World Cup as well as the Hublot Polo Gold Cup in Gstaad. Zenith launched a limited edition of its Defy Chroma watches and Chaumet have the prestigious honor of designing the winners medals for the upcoming Paris Olympics and Paralympic games and also presented a new high jewelry collection, Jardin de Chaumet.

Finally, Fred launched a high jewelry set featuring blue lab-grown diamonds alongside natural white diamonds in Force 10 Duality collection. Now looking at our final business group, Selective Retailing, on Slide 22. Revenue in the 9 months period reached EUR 12.4 billion, marking a very strong 26% increase in organic revenue growth and a 23% revenue growth on a reported basis after taking into account a negative 3% currency impact.

On the next slide, 23. Sephora once again delivered an excellent performance driven by record growth in North America, Europe and the Middle East, further strengthening market share gains. The group will soon see a second store opened in the U.K. at Westfield Stratford following the great success of the inaugural opening at Westfield London. Sephora also recently hosted hugely popular immersive beauty events, Sephoria in New York, Paris and Shanghai, welcoming thousands of clients, both in person and virtually.

DFS has continued to recover, thanks to the reopening of borders and to the return of international travel and in particular, a very strong increase in store traffic and sales in Macau and Hong Kong as well as North America and Hawaii. DFS also announced plans to open 7-star luxury retail and entertainment destination in Hainan, which is due to open by 2026, and we carry more than 1,000 luxury brands.

And lastly, Le bon Marche in Paris continues to have a good performance, alongside redesign of the stores jewelry space and a number of spectacular immersive experience while La Grande Epicerie in Paris celebrated its 100th anniversary and both continue to be a popular shopping destination for Parisians and tourists alike.

Slide 25 concludes our presentation. In summary, LVMH has seen significant revenue growth across all business groups over the 9 months, other than Wines & Spirits, which faced a high comparison basis. As we look to the end of the year, the group is focused on and well positioned to further strengthen its global leadership and market share, while at the same time, remaining flexible and vigilant in the context of macro and geopolitical uncertainties. This means that our Maison will continue their focus on creating innovative and high-quality products that reflect both the heritage of their iconic brands as well as making selective investments, including in strategic store network expansion while staying agile and focused on cost management.

Thank you for your attention. We are now ready to answer your questions. For those of you who are connected on Zoom, if you wish to ask a question, please use the raise hand function on your application.

Question-and-Answer Session

A - Rodolphe Ozun

And the first question comes from Edouard Aubin from Morgan Stanley.

Edouard Aubin

So two, three questions for me. The first one is on nationalities, please, if you could comment on how the main buckets, so to speak, in terms of Europeans, U.S. and Chinese have performed. Chinese on the 2-year stack and the other ones year-over-year, that would be helpful. And more specifically, regarding the Europeans on the Fashion & Leather Goods, are they still positive as a nationality in Q3? That's number one.

Number two, on Fashion & Leather Goods, if you could please comment on the performance by brand as usual. It seems we've heard that some of your medium-sized brands such as Celine and Fendi seem to have lost quite a bit of momentum. If you could just elaborate on that? Is it due to kind of fly to the biggest brand in a more adverse market, that would be interesting to share your views on that.

And then, sorry, the last one is on Jean-Jacques, the sales gap between high net worth individual and aspirational customers. Has it kind of narrowed or widened in the third quarter versus the first half, to the extent you can assess, I'd be curious to have your views if that trend has been relatively similar or if that has changed sequentially in the third quarter?

Jean-Jacques Guiony

Thank you, Edouard. I'm sorry for my voice, which is not ideal. I'll start with nationalities. So starting with the Chinese cluster. As far as the Chinese are concerned, I mentioned in July that if you look at the right way, i.e., globally, organically and over 2 years in order to overcome the fluctuations in a comparison base in 2022, we were about growing in the Fashion & Leather division about 40% with most of our brands there. We have slight discrepancies, but most of our brands were growing about 40% over 2 years. It's exactly the same in Q3.

We haven't seen anything really different on that front. So I really don't have to report any marked change in the business we do with the Chinese clientele. The only thing I would mention is that the movement of Mainlanders going out from China -- Mainland China when they shop has been increasing. As far as European is concerned, I would say that most -- we've seen notable change in Q3. Most nationalities in Europe used to be high single digit to low double digit. They are now mid-single digit down in Q3. So that's the main change. Yet bear in mind that as far as Europe is concerned, the weight of locals is much lower than it is in other countries and particularly the weight of touristic flows remains extremely high and is pretty close to what it was prior to the pandemic.

Also second question is the momentum of the various brands. I mean -- so I don't like to comment too much on that. Basically, what I can tell you is that if you look at Q3 Fashion & Leather, the average for the division, Vuitton and Dior pretty close, and we have a few brands that are above that. I would mention Celine and Louis Vuitton but also Loro Piana and Marc Jacobs. I mean there are a few brands that are definitely outperforming the average, but I will not go into further details.

As far as your last question is concerned, so any difference between high net worth individuals and aspirational customers or anything evolving in Q3, I would say that we've seen more or less the same thing. I mean I'm not commenting about high net worth individuals because they are difficult to identify as such in shopping.

As far as the aspirational customers and particularly in the U.S. is concerned, we have reported already some pressure on that front in the first half of the year. And unfortunately, there was nothing new there. You can notice that the numbers in the U.S. are reasonably consistent with H1 and they are consistent and I would say, for most of the divisions. So nothing really to report neither bad nor good.

Rodolphe Ozun

The next question comes from Louise Singlehurst from Goldman Sachs.

Louise Singlehurst

I just wonder actually just following up from Edouard's question back to the big important question of the Chinese consumer. I just wondered, given we've obviously had a very tough comparable, and I know we're looking at the 2-year stack. But all else equal, easier performance in the second half given the base comparison. But is there anything underlying how you're talking to the teams about how you're thinking about the Chinese cluster?

Or is there anything in the performance that you've seen in the first 9 months of the year that makes you feel differently, your expectations for China back at the reopening back in January, really trying to think about that 2024 kind of outlook for the Chinese consumer, which I know is a very difficult question to answer.

And then my second question, as we're approaching the year-end, it's obviously the budget season, although I suspect the budget season is always open at LVMH. But when you're thinking about how you're talking about the cost base with all the divisional heads, Jean-Jacques, is there anything that you're asking differently from them? Are you thinking about things more conservatively? Just give us an indication post deceleration that we have seen in Q3, how you're managing that conversation across the group? That would be really helpful.

Jean-Jacques Guiony

Thank you, Louise. Your first question is the easy one. I mean, forecasting what will go on with Chinese customers in 2024 is really easy. Obviously, you have no idea. I mean, you referred to what happened early in 2023 after the change in the pandemic approach from the Chinese authorities. I mean all this was totally unexpected, and we were very much at the time in a wait-and-see attitude. It happened to be pretty positive, and we saw a pretty fast recovery in the Chinese market, more or less everywhere, but it's not something that we would have easily forecast. So basically, looking forward as far as any market is concerned, and particularly the Chinese market is almost an impossible task.

So I will not dare going into that. The only thing I can say as I mentioned to Edouard previously, is that if I look at the numbers, Q1, Q2, Q3, they are quite consistent in terms of Fashion & Leather and they are showing a good progression compared to the only meaningful reference, which is 2021. Your second question about the cost base. I will not elaborate. I mean this is a revenue call. So we usually don't comment anything else. The only thing I would say is that you've noticed that the impact from currencies on sales is quite significant.

This is obviously something that we have to factor into our projections, and into our budgeting for the end of the year. It won't last. I mean, most of it is connected with the exceptional level of the U.S. dollar in the third and fourth quarter of last year and it normalized thereafter. So it won't last. This being said, I mean, it's a fact of life, and we have to deal with that. So obviously, we ask our operating managers to take that into consideration.

Rodolphe Ozun

The next question comes from Thomas Chauvet from Citi.

Thomas Chauvet

Three questions, please. The first one, coming back to the Chinese demand recovery, which has been a bit underwhelming for the industry so far this year. Would you say, Jean-Jacques, this has more to do with the classic economy headwinds impacting the employment level, stock market and property negative wealth effect or just feel-good factor or perhaps more a change in the onshore versus offshore split, which is definitely not back to pre-COVID levels, and we know that tourism for this industry, not just the Chinese create a structural boost to the overall growth.

Could you also say what was the onshore versus offshore split in Q2, Q3 for the Chinese, if you have information for Vuitton or...

Jean-Jacques Guiony

If you allow me to interrupt, should I take from your question that you're disappointed by the number in China and you try to figure out whether they could have been better. And why -- how they could have been better. I mean, as I said, I mean, we are extremely pleased with the level of the business we do with Chinese clients. Obviously, there are changes you mentioned, the fact that there is a split that evolves in between onshore and offshore. It used to be about 15% outside China last year. It's about twice as much this year on average for most of the brands in the Fashion & Leather division. So there's been some changes. But all in all, and that's why I suggest we look at it on a global basis, the Chinese cluster in over 3 years, I think we can be only very satisfied with the way the business unfolds following the changes that took place last year.

Thomas Chauvet

No. My question was more if you look at the Americans and Europeans, they returned very quickly to pre-COVID level as early as '21. So the Chinese will take a little bit more time. And do you think this is more due to the economic cycle or perhaps the fact that tourism, not just for you, but for the brands, it's just not picking up as fast perhaps as it -- as expected. And as long as you don't have enough offshore spend, perhaps you will not return as quickly to 2019 level. We know the appeal of Chinese shopping abroad, there is a...

Jean-Jacques Guiony

So it was even faster in China than it was elsewhere. I mean, we recovered the level of the -- pre-pandemic level in China faster than anywhere else. So that's why I'm a bit confused with your question. As early, if I remember correctly, as early as 2020, we were more or less in line with 2019 for most of the Fashion & Leather brand. I mean, obviously, the first half had been horrendous, but the second half was very good.

So we were pretty close, maybe not for all the brands. But for most of them, and obviously, 2021 was showing growth. And I'm talking about the Chinese cluster. I'm not talking just about the business we were doing within China, which obviously benefited from the fact that the reputation helped and boosted to a large extent, the numbers.

We can't hear you, Thomas. Sorry.

Thomas Chauvet

Can you hear me now? .

Jean-Jacques Guiony

Yes.

Thomas Chauvet

I think I was muted. My second question on Fashion & Leather and the long-term profitability of that division. If I recall well, in '21, you said 40% is extraordinary, but this is maybe more of a structural rather than temporary cyclical new peak for that division. Can you just try to explain why you think it's more structural? And of course, shorter term, are you adjusting to kind of slightly lower growth environment than previous quarter to protect that profitability. And just maybe finally on the inventories. If I recall, in the first half, there was a bit of a spike in inventories due to a buildup of stocks in precious stones and Champagne. Could you comment on how this has evolved at the end of the quarter and how you see generally inventory level maybe worth mentioning any division like F&L into your end.

Jean-Jacques Guiony

On the last question, I will disappoint you. I mean, I'll get the balance sheet only tomorrow. So I don't have the numbers. So, I cannot really answer, although the excess inventories that we have seen in H1 have probably normalized a little bit, but not to a great extent. So it's likely that we'll end up the year with higher inventories than we would have planned originally. Your second question about structural changes in margins. I mean, this moves us away from Q3 revenues. But what I said at the time is that we have increased.

I mean the size of the division and Fashion & Leather division is much larger than what it used to be. So there is a size impact that is felt more or less across the board. I mean, Vuitton, Dior and the other brands, all of them enjoyed higher margins due to the fact that they were just bigger and absorbing better their operating charges. So that's why I mentioned that, there is nothing new on that front. There could be ups and downs as you've seen in the second half of last year and the first half of this year due to inertia and some cost increases, but nothing really that changes the sort of new level of margins that we have reached throughout the last few years that, as I said, we intend to keep and to defend going forward.

Rodolphe Ozun

The next question comes from Chiara Battistini from JPMorgan.

Chiara Battistini

The first question on Fashion & Leather Goods. I was wondering if you could comment on mix. I understand that pricing comments have been a bit more muted into next year. I was just wondering how you're thinking about mix in H2 and also into next year. My second question is on Jewelry -- on Watches & Jewelry. If you could provide us with some more color maybe by either nationalities or jewelry versus brands and also within jewelry, sort of silver Tiffany versus higher price points. And last question on Wines & Spirits. If you could update us on the level of inventories in Cognac and also possibly commenting on the slowdown in Champagne in Q3 versus the previous quarters, please?

Jean-Jacques Guiony

Thank you, Chiara. So the mix impact in Fashion & Leather is still there. I told you many times and you referred to that, that this is the main source of growth. It has been the main source of growth ahead of volumes and prices over the years. I mean it's the main way to translate the increased desirability of the brand into the business, and we do that a lot, and Q3 was no exception. We benefited even in Q3 from a sizable mix impact and the price impact was pretty close, was limited and pretty close to what it was in the first half of the of the year.

The nationalities in Watches & Jewelry. There are not any different from Fashion & Leather. We've seen some strength on the mainlanders side, and they've been doing quite well, albeit at a lower level in terms of 2 years growth than what we've seen in Fashion & Leather, but it was healthy anyway. All the nationalities have been muted in, I would say, in Q3, particularly in Europe. It was better in Japan and in other Asian countries. And as far as the U.S. is concerned, I mean there is nothing to be reported. Trends were exactly the same in Q3 as they were in Q1 and Q2.

Your last question on Wines & Spirits and inventories in Cognac. Inventories are slowly moving down both in China and in the U.S. As you'll remember, we reported a high level of inventories at the end of June. They are slowly going down, which means that sellout is bigger than sell-in. So we have a discipline on the selling side and the regular business is doing it's work. This being said, I mean demand is pretty soft in the U.S., always difficult to measure due to the great number of point of sales.

So it's not always easy to figure out exactly what the end demand is, but it's probably still slightly negative. And as far as China is concerned, demand is recovering but probably, it's recovering not as fast as we had expected. As far as V.S.O.P. is concerned, we are more or less in line year-to-date with the level of business we were doing in 2021, again, bridging the 2022 reference, which is complicated to analyze. As far as X.O. is concerned, we are a bit below. I will not give further details as I understand that our competitors are pretty short on explanations. But bear in mind that inventories are going down progressively in the wake of pretty mild demand recovery.

Rodolphe Ozun

The next question comes from [indiscernible] from HSBC.

Unidentified Analyst

Yes. I have 3 questions, please. The first 1 is on the pricing. So considering the price increases that you have been passed on in 2021 and '22 and even in '23. It seems that it seems that the [indiscernible] level, consumer are now really weak. Is it fair to assume that the price component into next year's growth algorithm of growth will be limited. That's my first question. The second question is about looking into Q4. And at the base of comparison, it's that are getting [indiscernible] in both the U.S. and also particularly in Asia as Q4 last year was down 8% organically. Is there any reason why, in your view, you could not renew with a double-digit or even mid-teens growth in Q4 '23? And my final question is about margin.

During Q2 conference call, you mentioned that the barring significant FX movement, the group was committed to deliver a stable margin for the full year. Do you see it confirmed its commitment? Or do you believe that the cost of doing business has grown so much that it could jeopardize margin stability in 2023?

Jean-Jacques Guiony

I know I will disappoint you as you were probably expecting -- expected to be. So first of all, I'll answer your first question about pricing, you're right. I mean, there will be a limited impact from pricing despite the fact that we have passed on price increases in most markets, if not -- but not all of them, and particularly in the U.S., we have not really increased prices, but we have done it a little bit in China, a little bit in Europe and in a more significant way in Japan.

So there will be some element of pricing next year, but in a limited way. I mean, we don't expect that to be the basis for the growth next year. So you're basically asking me whether I expect double-digit growth in Q4, needless to say that I will not answer that question. The comparison base in Asia is a bit easier than it was in Q3. It's also the case to a lesser extent in the U.S. So it will help, but there are so many dynamics at play when it comes to putting together the numbers for the most important period in the year, which is Q4 that I wouldn't dare anticipating anything about that.

So I really cannot comment on that. And the margins, I will not comment. I mean it's all so forward looking, and you'll have the answer by the end of January when we report full year numbers. We have a number of headwinds. I mean, particularly currencies. I mean we do some hedging and hedging will be profitable, but you know that even the best hedging strategies do not fully offset the impact of plummeting currencies. So that's something we'll have to offset. I mean, there will be some negative impact left that will have to be offset through other measures. So we are working on it. But I cannot make any forecast as to the outcome of this exercise.

Rodolphe Ozun

The next question comes from Rogerio Fujimori from Stifel.

Rogerio Fujimori

I have two. I think on Watches & Jewelry, I was just wondering if you could elaborate a little bit on the performance for Jewelry versus Watches. Tiffany versus Bulgari. And curious to hear if you have seen a more pronounced slowdown versus Fashion & Leather with the European clients in Q3. And then for Fashion & Leather in Jewelry, I think you talked about the Chinese stable 2-year trend. But could you comment on also on recent trends for other key Asian nationalities, Korean, Japan, I think, is fine, but other local consumption in other Asia ex China? Just to understand a little bit more about the performance in Asia.

Jean-Jacques Guiony

Thank you, Rogerio, For your question. Your dream would be that we report for each and every brand. I remind you that we have 72 of them. So it will be probably a bit cumbersome on our side and on your side as well. Nevertheless, I will try to answer Rogerio's question on Watches & Jewelry. We had a slightly better performance for Jewelry than for Watches in Q3, which was the same actually as in H1, where we had a little bit of outperformance of Jewelry versus Watches. And as far as Tiffany is concerned versus Bulgari, you probably figured out already the answer. Bulgari is doing a bit better than Tiffany.

It was the other way around last year for exactly the opposite reasons. And this year, Tiffany, which does a little bit less than half of its sales in the U.S. doesn't get any growth contribution from the U.S. market, which is flattish to slightly negative, Bulgari's way less exposed and Bulgari is more exposed to the Chinese market, which has proven quite resilient even in Q3 where Tiffany has less penetration. So all in all, I mean, the geographic mix is playing in Bulgari's advantage.

It was the other way around, as I said last year. Your second question about Fashion & Leather and the key Asian nationalities. In Q3, basically, we've seen lower numbers with most key non mainlanders nationalities compared to H1 with some exceptions like Hong Kongese and people from Macau. Otherwise, I mean, its numbers have been a bit softer than what they were in H1.

Rodolphe Ozun

Thank you, Rogerio. The next question comes from Antoine Belge from BNPP Exane.

Antoine Belge

Three questions. First of all, the performance for the entire group in the U.S. came back to positive territory, was, I guess, Cognacs was not really helping. So if you could elaborate a little bit on this. And I think specifically, if my memory doesn't fail me, the U.S. cluster was down 1% for Fashion & Leather in Q3. What was the number in that quarter? My second question is on Dior. I think in the last conference call, specifically with the Chinese, you commented that Dior was underperforming. As you already said that the overall performance was not different from LV. But where are we in the cycle of that brand, which had done fantastically well, a bit more fashion content. Yes, I mean, if you could maybe give a bit of comment about where you think this brand is in its cycle now? And the third question is about just the FX impact that you've mentioned on the margin, are you talking about something that should happen already in H2? Or is it more something that you wanted to flag for next year? .

Jean-Jacques Guiony

Okay. Yes, the U.S. improved marginally, I would say, in Q3 this is a little bit across the board. I mean, we've seen a bit better numbers in Fashion & Leather and Watches & Jewelry, not unfortunately in Cognac, as you pointed out, Antoine. But I mean, we are talking about low numbers and high sensitivity to some components of it. So it's frankly not really worth commenting and the U.S. cluster has been exactly on the same trend as what we've seen for the main brands since the beginning of the year. So really, nothing really changes in the U.S. for the time being. Your question -- second question about the Dior cycle. Well, it's an easy and tough question at the same time. I mean it's an easy question because this brand has tripled in size in less than 7 years. So this cannot go on -- I wish it would be the case, but it cannot go on like that forever.

So at some point, and we'll probably need -- growth rates have to normalize. I mean you cannot grow a business and I don't think it would be wise. But you can't grow a business 30% per annum forever. So the business has to consolidate. We cannot open that many stores. Otherwise, we will end up over distributing the brand. So we also have to figure out what is the exact size of the distribution system and how do we want to express the brands in terms of category. This should generate healthy growth going forward. We are not worried at all about the quality of the business at Dior. On the contrary, you all know that I'm a great fan of the brand. This being said, don't expect, and I don't think this is what you do, but don't expect the brand to continue to grow 30% per annum forever. It will not happen. So this is where we are. I think the slowing down in the growth is absolutely normal after these fabulous and outstanding years that we have been through, and we'll continue to deliver value out of it going forward, believe me. The FX impact was mostly connected to H2.

I mean the situation on the currency front is a bit worse than we had anticipated. As I said, we'll have some offsets from hedging strategies. But they've taken in isolation, the currency situation will have some negative impact on margins in H2, no doubt.

Rodolphe Ozun

The next question comes from Luca Solca from Bernstein.

Luca Solca

I'm very interested about what has been going on with domestic consumers in Europe as what you described, Jean-Jacques, seems to be a relatively abrupt change of behavior in a sort of Mary Poppins situation where the wind has changed. I wonder if there's anything that we can possibly learn by looking into what has prompted this nationality to reduce the spend relative to last year. And whether this is potentially a blueprint that we could find with other nationalities. I believe that the stock market has significantly reduced the share prices in the sector on the back of the debate of '24, not so much on the end of the year and whether in '24, we'll see positive or negative growth. That's my impression anyway. And so I was wondering whether we could learn from your analysis and dissecting what has been happening in -- with European consumers, what has been going on.

We're picking up, for example, that there's some pushback on price increases, not specifically on what done. But in general, there seems to be quite a significant price exuberance and one of my concerns is that at one point, consumers could be putting foot on the break just because they believe that they're spending too much money. Everything has gone up, restaurant prices, hotel prices, you name it, including luxury goods products. On other topics, I was wondering, if I understand correctly, Wines & Spirits was still paying the sort of long-term effect of the backfiring of price increases in the U.S. for Cognac. What is causing underperformance in China or in other areas? And is there anything else that is not working within Wines & Spirits that you would want to point out. And last but not least, I saw that Fred in the presentation is introducing synthetic diamonds. I wonder if this could potentially be an important piece of new jewelry that you bring into other brands as well, specifically Tiffany, which is so strong in bridal. Thank you very much.

Jean-Jacques Guiony

Thank you, Luca. European consumers Basically, your question is about cycles. I mean, I think there is such a thing as cycles in consumptions. And it's hard for me to analyze. I mean, we find it complicated to explain one quarter from another differences with several client behavior analysis, there is no such thing. I mean the cycles have to be analyzed over a number of quarters, if not a number of years to be really understood. So we've seen -- the only thing I can report, as I said, is that most European clientele are showing slight negative -- a slight drop in Q3 compared to mid-single-digit growth, mid- to high single-digit growth in the first half of the year.

Why is that so? Is it stock market properties global sentiments, politics, you name it, I have absolutely no idea. I mean it's very difficult to say in 3 months. I mean time will tell depending on the depth and the length of the cycle, whether it was a real cycle in consumption or merely sort of blip after 3 extraordinary years, obviously, consumers as well have to take a pause. But it's hard for me to be more precise on that. Again, as I said, I mean, I cannot -- I can only report numbers as they are. You mentioned Cognac and what's going on with China. Again, it's the same type of answer. I mean definitely, we would have thought that recovery in consumption of Cognac in China would be faster than what it has been.

We never got any form of revenge buying or of that sort in the early part of 2023. Unlike in most of our businesses, it was not really the case. So Chinese New Year was obviously a dead period, which only led it to higher inventories. Thereafter, we haven't seen a lot of increase in consumption as well. And as far as Mid-Autumn Festival is concerned, it's too early to report the numbers because we don't have them. It ended yesterday. This said, I mean, we have been reasonably cautious into our loading of the trade ahead of Mid-Autumn Festival. So we don't expect consumption, high level of consumption to resume anytime soon. We take a fairly cautious approach to the market. I mean, accelerating is always easy to do in these markets if demand proves to be better than expected. Finally, your question on Fred.

First of all, I would like to say that over 20 years of such discussions with the financial community, the first time ever that I get a question on Fred, which I take as a testimony of the excellent job that has been done by Charles and his team to make Fred what it is today. So thank you and Bravo to Charles. Then I will answer your question about the . Well, I think, first of all, Blue diamond are pretty complicated to get on a natural basis. So it was an attempt to get something that is hardly available, if not, if at all, on anyway. So I think it's -- in this respect, I mean, they did quite well. And frankly, the amount of PR surrounding the Blue Diamond has been much bigger than the Diamond itself. So we are pretty satisfied with this. Is it a long-term trend that we could develop elsewhere too early to say. I mean the artificial diamonds come with some form -- some issues that are different from the natural ones. They have to be weighted and assessed carefully, and we are not in a position to comment any further.

Rodolphe Ozun

Thank you, Luca. The next question comes from Carole Madjo from Barclays.

Carole Madjo

I have three questions, please. The first one, just to come back to what you have just said. You mentioned the Mid-Autumn Festival. Any comments you can give here on the FLG division for the Chinese consumer spending around that activity. That's the first question. The second one, so thinking about the long-term growth rate in luxury goods. I think that is that you can initially deliver growth of high single digit to low double digit in normal times. Do you feel that this level of growth could also be achieved next year? Or are there any kind of factors? like you talked about pricing, for instance, which could make this kind of range difficult to achieve in the short term. And last point on marketing. So marketing has been a big focus, of course, for you over the past year. Should we still expect some big initiatives there in Q3, Q4? Or have you already, I guess, reduced the pace of initiative for the second half of the year.

Jean-Jacques Guiony

Okay. So on Mid-Autumn Festival, I mean in Golden Week, I mean I cannot really report. I mean it's really too recent to get any view on how it happens. So we'll have to leave that question for now. and revisit it later on. Your second question about long-term growth, can we do it next year. I mean, long-term growth, which I commented a few times, with some subtle differences between divisions is an average and an average is basically something that never happens. I mean either the real numbers, the actual numbers are better or worse, but the average is the average. I mean, the guy who has his head in the fridge and their feet in the oven on average feels fine. I mean the reality is it is a bit different as you know. Shall we be there next year? Maybe, maybe not.

I mean, it's hard to -- it's hard to say. I mean, definitely growth is converging after 3 roaring years and outstanding years, growth is converging towards numbers that are more in line with historical average. Will we stay there? I don't really know. There is no reason to believe that we will crush neither that we will crush nor that we will come back to the type of 20% growth that we enjoyed for a certain period of time.

So we'll see. But as I said, sometimes, I mean, our visibility in the business is as good as yesterday's sales. And even yesterday, sometimes I don't have it. So very difficult to answer your question. And as far as marketing initiatives, I mean, obviously, this is something important that we continue to fuel. We have a lot of them surrounding launch of products, surrounding new advertising campaigns or events that we know how to publicize I would say. And you'll see some initiatives that will be as spectacular as what we've done over the last quarters. And we expect the second half or the last part of the year to be extremely full with a large number of initiatives.

Rodolphe Ozun

Thank you, Carole. We'll now take the last 3 questions, starting with Piral Dadhania from RBC.

Piral Dadhania

Jean-Jacques. So 2 for me, if I could maybe just ask on the strategy at Louis Vuitton and Dior since Pietro Beccari and Delphine Arnault have taken over at the beginning of the year. Could you just maybe give us a brief insight into whether any changes have been made from a product or a marketing perspective? And any other kind of adjustments to the strategy that may be in play as we approach a slightly more normalized growth environment? And then the second 1 is just if you could perhaps for the Wines & Spirits division provide us with the price versus volume breakdown for cognac and spirits and also for Champagnes and Wines.

Jean-Jacques Guiony

Thank you, Piral. No, the changes in strategy, I mean, strategy of Dior and Vuitton as I say, 3 priorities, desirability, desirability and desirability. And this is not something that we change every other day. So we are focusing on increasing the desirability of our brands and all the strategies, the product, communication, distribution strategy we designed are aimed at increasing desirability. So whether it's [indiscernible] Vuitton or Defina Dior, I mean, or anybody else, I mean, that is not -- that will not change. So execution of this strategy is about different initiatives. And obviously, we cannot repeat what we have done forever. I mean it wouldn't make sense. So we have to reinvent ourselves from time to time. But we -- the framework of what we do is at all times, increasing desirability and this is not changing.

On Wines & Spirits, what I can say is that there is no -- as far as Cognac is concerned, there is hardly any price impact. So the volumes are more or less in line. There is also a slight negative impact due to a negative mix impact in Q3, but nothing really significant. As far as champagne is concerned, there is still a significant positive price impact in Q3 in the magnitude of 5%, 6% as we passed on significant price increases in the second part of last year and early this year. So the volumes are lower than the reported sales numbers.

Rodolphe Ozun

Thank you, Piral. The next question comes from Chris [indiscernible].

Unidentified Analyst

So the first question is regarding Chinese consumer's outsourced spending behavior. So if you free to take me through Fashion & Leather Goods division as an example. So we're wondering if you see any difference year-to-date versus the year of 2019 regarding the average spending amount of Chinese nationality offshore spending. And do you see any meaningful consumer profile change of Chinese classes offshore spending compared with prepandemic? So this is the first question. The second question is regarding the -- also about the offshore and onshore breakdown on Chinese. You mentioned that for Chinese offshore spending has accounted for 30% plus of Chinese spending to date. So just wondering, does your Watches & Jewelry Chinese cohort breakdown is also in line with this number? Or is it higher or lower than this average? So these are my 2 questions. Thank you.

Jean-Jacques Guiony

Thank you. Obviously, there are some changes compared to 2019, I would say that the most significant change is that the proportion of the business we do inside and outside Mainland China is entirely different from what it was and it entails some difference in behavior. If you are buying in your home country, tickets will tend to be lower, average ticket will tend to be lower than if you go once in your lifetime in a foreign country where you want to buy something. So in this respect, I mean, the business being way less offshore than what it used to be, we have on average lower tickets. In terms of price point, or average price point. I mean the average price point has been going up since 2019 due to the mix impact and the -- what we've done in terms of product offer. It's not particularly specific to Mainland China and the comparison with 2019 is not particularly relevant or actually would apply to any other market.

Your second question about Onshore and Offshore in Watches & Jewelry, the proportion of the business offshore in Watches & Jewelry is much smaller than it is for Fashion & Leather. Today, Fashion & Leather averages something like 30% on average year-to-date. The Watches & Jewelry business is less than 20%. So it's really lagging behind.

Rodolphe Ozun

Thank you, Chris. And the last question comes from Charles-Louis Scotti from Kepler Cheuvreux.

Charles-Louis Scotti

Yes. I have two. Could you share more details on the luxury retail and entertainment complex you are planning to build in Hainan at DFS? And also if you could update us on your strategy for Fashion & Leather Goods in Hainan. As it seems that you are opening a Louis Vuitton and Dior store soon? And my second question on Perfumes & Cosmetics. I know you have been more selective and qualitative in terms of business you did in APAC during the pandemic. Still to what extent have you been impacted by the destocking of duty-free players and also the current track down on the Daigou in China.

Jean-Jacques Guiony

I'll start with the second question, which is a very good one. We've been impacted to some extent. Obviously, this Daigou situation ended up building inventories way above particularly as far as best sellers are concerned, way above the potential for absorption by the client base. I'm not talking about LVMH. I'm talking generally about the market. And that at some point, these products have to come on the market. and this created an influx of discounted products all over the world and all over the place. So this has been a fairly disturbing factor in the Chinese market basically since the beginning of the year. And as we have less left inventories than the others having cut Daigou earlier than anybody else. Obviously, we are on the wrong side of it. I mean we didn't benefit from this at all. So it's been a fairly disrupting factor.

Your first question about Hainan and DFS and Fashion & Leather, the point to bear in mind is that the status of Hainan, which is currently operated under the duty-free license model is due to change by the end of 2025, if I'm not mistaken, to come to a tax-free or if not tax-free, I mean, low tax model comparable to Hong Kong. So the way we -- the brands could operate in this environment will be entirely different from what it is given the number of people visiting Hainan on a yearly basis, it's worth considering as important market, and therefore, all our brands are contemplating opening stores in a selected way in Hainan. No decisions have been taken yet with 1 exception that you mentioned which is DFS, i mean DFS is launching a very important development in Hainan, which we ambition to be, if not the biggest, but probably amongst the 2 or 3 biggest developments, commercial developments in Hainan, and that will be home for a very large number of luxury brands.

In that way, basically DFS reproduces what they have done in Macau, some 15 or 17 years ago. which is basically to enable luxury brands to enter the market in a totally controlled and safe way. And so we'll be doing exactly the same thing as we've been doing in Macau. And hopefully, we'll be as successful in Hainan as we have been in Macau. So it's a very important venture for DFS in Hainan and we are very hopeful about this new development.

Jean-Jacques Guiony

Okay. So thank you for attending this call. I have no particular closing remarks to make. I look forward to discussing with you full year numbers in late January, as always. Thank you, and have a good evening.