LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF) Q2 2021 Earnings Conference Call July 26, 2021 12:00 PM ET

Company Participants

Jean-Jacques Guiony - CFO
Chris Hollis - Director, Financial Communications

Conference Call Participants

Luca Solca - Bernstein
Zuzanna Pusz - UBS
Edouard Aubin - Morgan Stanley
Antoine Belge - Exane BNP Paribas
Oliver Chen - Cowen and Company
Thomas Chauvet - Citi
Erwan Rambourg - HSBC
Rogerio Fujimori - Stifel
Thierry Cota - Societe Generale
Dana Telsey - Telsey Advisory Group
Piral Dadhania - RBC Capital Markets

Operator

Welcome to the LVMH 2021 Half Year Results Conference Call. I will now hand over to Mr. Jean-Jacques Guiony. Sir, please go ahead.

Jean-Jacques Guiony

Thank you. Ladies and gentlemen, good afternoon, and welcome to this conference call. I'm Jean-Jacques Guiony, I'm the CFO of the LVMH Group. Before I begin, I must remind you that certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause results to differ materially. For these, I refer you to the safe harbor statement included in our press release.

Let's now move to today's topic, first half figures. After a brief discussion on the first half highlights, Chris Hollis, group's Head of Investor Relations, will cover the main developments of our different business groups. I shall then comment on the main figures. And after this, obviously, both Chris and I will be available for your questions. The press release is available on our website as well as the slides for today's presentation and the interim financial report.

So moving to the first slide of the presentation, I would like to say that the first half of 2021 have seen record performance and clearly shows that LVMH's ability to bounce back after a very adverse environment. We shall go into some details, but the main points to bear in mind should be, in my view: One, for the negative side, the impact of the limited recovery of international travel, which continues to impact certain businesses, in particular, the travel, retail and hotel activities. But more importantly, on the positive side, I would mention the strong rebound of both our main brands and some smaller brands, the continued growth in Asia and the U.S. with signs of recovery in Europe, and all of which demonstrate the overall trends of the underlying demand by local trend. And finally, the integration of Tiffany is going well, and the first half performance was excellent.

I will now turn to Chris, who is going to review the main developments within our various business groups. Chris?

Chris Hollis

Thank you, Jean-Jacques. I will take a deeper dive into the business groups, starting as usual with the Wines & Spirits. Slide 6 shows a lot of figures. The light blue percentages show the variation with 2020 and the light brown one shows the variation with 2019, a more normal year of reference. In the first half of 2021, revenue in the Wines & Spirits business group reached €2.7 billion, which represents a 44% increase on an organic basis versus the same period in 2020, and a rise of 12% when compared to the same period in 2019. On a reported basis, revenue increased 36% versus the first half of 2020 and 9% versus the first half of 2019.

Looking at the 2 categories, Champagne and Wines revenue was €1.1 billion, an increase of 58% on an organic basis versus H1 2020 after an 8% negative currency impact. Cognac and Spirits revenue was €1.6 billion, an increase of 35% on an organic basis versus H1 2020, after a negative 7% currency impact.

Profit from recurring operations rose sharply. This is the 3 graphics at the bottom, profit from recurring operations rose sharply to €924 million, representing an increase of 68% versus H1 2020 and 20% versus H1 2019. Breaking that down, Champagne and Wines contributed €319 million in profit from recurring operations and Cognac and Spirits delivered €605 million. Performance in this business reflects sustained demand in the U.S. as well as a very strong rebound of business in China as the impact of the pandemic eased over H1.

Breaking it down, Champagne volumes increased 57% versus the first half of last year, reflecting strong recovery in demand in Europe and the U.S. The year-over-year increase was, of course, particularly evident in the second quarter as compared to the same period in 2020 when the pandemic began to take hold in these regions. Compared to the first half of 2019, volumes increased 10%.

From an operational perspective during the first half, there were several developments, including the successful integration of the acquisition of Chateau d'Esclans, magical estate in the heart of Provence region, noted for a high-quality roses. The group also announced the partnership with Shawn JAY-Z Carter in connection with the acquisition of 50% of this brand, Armand de Brignac. Finally, the group launched Chandon Garden Spritz, a blend of Argentinian sparkling wine with natural extracts of orange peel, which is off to an exciting start.

Turning to Cognac and Spirits. Hennessy volumes rose 24% versus the first half 2020 and 6% compared to H1 2019. This performance reflected the sustained growth in the American market, especially for Hennessy VS as well as a strong rebound in the Chinese market. The group also benefited from very strong momentum at both Glenmorangie and Ardbeg.

Looking ahead at the back of the -- back half of the year, Slide 8, the group -- this business group has several key initiatives underway, all designed to maintain the strong momentum we've seen year-to-date. As always, it centers on ensuring consistently excellent quality across our products, ongoing innovation as well as continuing to successfully manage supply constraints at Hennessy.

There is also returning work underway to accelerate online sales, including importantly through the joint venture announced earlier this month between Moaet Hennessy and Campari to join forces to invest in Wines & Spirits e-commerce companies to create a leading e-commerce player in the sector. The group will also continue to drive forward the environmental protection initiatives it has underway to promote reforestation and biodiversity. These initiatives as well as those being undertaken across the group around that in the social and environmental responsibility report by -- issued by LVMH Group in May.

Turning now to our Fashion & Leather Goods brands, starting on Slide 10. Again, revenue atop, profit underneath. Revenue was an extremely strong €13.9 billion in this group, an increase of 81% on an organic basis versus the same period in 2020 and 38% versus the same period in 2019. On a reported basis, the increases were 74% and 33%, respectively.

Profit from recurring operations has seen great gains, reaching €5.7 billion or 3.2x profit from recurring operations in the first half of 2020 and a 74% increase versus the same period in 2019. This business group is clearly delivering a very strong performance by both Louis Vuitton and Christian Dior with very good performances elsewhere, too. Performance at Louis Vuitton specifically is, as always, driven by the unique combination of exceptional creativity and a commitment to unparalleled craftsmanship that is endured into brand's founding.

During the first half, a new campaign was launched for the Alma, Capucine and Twist bags, recognizing the ongoing appeal of these iconic lines. The Maison also opened magnificent new stores in Paris and in Tokyo, which is excellent for its locals and when travel return to normalized levels, will be a further draw for visitors to these important cities. Louis Vuitton also built on its existing partnership with UNICEF after last year's success with the Silver Lockit bracelets to raise funds for the United Nations emergency programs. The new version was launched this year, the proceeds from which will support a range of UNICEF initiatives.

Moving on to Christian Dior Couture, they have had an outstanding growth across product categories. Some highlights of this includes the success of the beautiful new Caro bag with the iconic Dior caning pattern. There has also been a very positive reception to the miniature versions of emblematic Dior bags, including the Saddle, Lady Dior and others. The launch of the summer capsule collection, Dioriviera, has done very well, and Dior's inspiring live shows, both in Athens and Maria Grazia Chiuri's extraordinary designs and impact for Kim Jones collaboration with Travis Scott, generated significant attention.

The performance of Fendi continues to be strong, driven by its iconic products as well as a concentrate of newness introduces. This includes, of course, the design of Kim Jones, his inaugural shows were very well received as well as the success of the summer Vertigo capsule collection. At Celine, the ready-to-wear collection designed by Hedi Slimane, continues to perform well in the Triomphe line, remains highly sought after.

At Loewe, with Jonathan Anderson, continues to bring newness and excitement to the Maison with new digital concepts for its shows, such as Show-on-the-Wall and the recent success of its new Goya bag. At Givenchy, Matthew Williams' first collection arrived in stores, and it is off to a good start. Marc Jacobs also had a strong performance in the first half. As this look -- as this group looked to the second half of the year, execution of the strategy continues on all fronts. This, of course, includes continuing all the way to drive forward the creative momentum of Louis Vuitton, with new product categories and new experiences across the stores and in a digital offering, which continues to perform exceptionally well.

Christian Dior Couture is working to continue the strong momentum it has underway by driving growth across markets. It is also preparing for the reopening of its historic store at 30 Avenue Montaigne in an exceptional innovative format. As you may have seen that, the New York store on 57th Street will also undergo a major renovation and a magnificent temporary store has just opened on 5th Avenue. Also in New York, Fendi store on 57th Street has reopened with nearly 7,000 square feet in a classic art deco building. This happened in time for the debut of Kim Jones' new collection. The group continues to strengthen creativity of other brands in order to meet the rising demand as markets continue to reopen around the world.

I should also mention that last week's announcement that the group has become the majority owner of Off-White, a disruptive and wonderful brand founded by Virgil Abloh, and we look forward to the continued success of that brand as well as new projects Virgil will do with the group in addition to his role as the Artistic Director of menswear at Louis Vuitton.

Moving now to Perfumes & Cosmetics, which is Slide 14. For the first half of the year, revenue rose to €3 billion, an increase of 37% on an organic basis versus the first half of 2020, where a slight decline of 3% versus the same period in 2019. On a reported basis, revenue increased 31% for the first half of 2020 when compared to the first half of 2019, reported revenues climbed 6%. Profit from recurring operations was €393 million in the first half compared to a loss of €30 million in the first half of 2020 and roughly flat compared when compared to profits and recurring operations in the first half of 2019.

The performance in Perfumes & Cosmetics group in the first half of the year was driven by strong growth in e-commerce, and our focus on ensuring our products are available only in the right doors and channels. Even with the absence of travel, Parfums Christian Dior rebounded strongly due to purchasing by local customers from a product perspective. Sauvage, Miss Dior, J'adore and Dior Homme all continued to perform well. The rollout of the refillable Rouge Dior lipstick is going well. And based on the success of the Dior Prestige skincare line, it has been expanded to include new products.

At Guerlain, Abeille Royale continues to be a strong performer, notably in China. The brand also unveiled a new sales concept in Le Bon Marche, which is being well received since the store reopened in the spring. Parfums Givenchy market share gains driven by the success of L'Interdit perfume and the launch of the new Irresistible line, which is off to a strong start.

Momentum continues at Fresh, where they continue to introduce new skincare products, including the ultra-premium Creme Ancienne White Truffled. Fenty Beauty remains a very strong performer through the period, added new products to its highly sought-after complexion collection. They also opened the first dedicated Fenty Skin points of sale. Finally, Maison Francis Kurkdjian launched in May, a new collection of fragrances, Aqua Cologne Forte, which are seeing good early interest.

Looking ahead, this is Slide 16, in the business group across all brands, the focus remains on continuing to introduce new and creative product innovation into the market in order to ensure brands are best positioned when travel begins to accelerate. At Parfums Christian Dior, the -- in addition to continuing to support the iconic lines, Sauvage, Miss Dior and J'Adore, they will launch new products in the Capture skincare line in the second half as well as continue to introduce products that are evocative of their Couture collections as well as the brands both roots in Grasse.

At Guerlain, there's a major high-end perfume being launched in the second half. You should see -- start to see some signs shortly. Parfums Givenchy, they will roll out a new premium skincare line, Le soin Noir, and Fenty Beauty will launch new powders. Lastly, across the group, the focus remains on omnichannel expansion combining physical stores and online sales for a well-integrated customer experience.

Now turning to Watches & Jewelry. First half reported revenue in this business group increased to €4 billion or an increase of more than 3x versus the prior year period. This presented a 71% organic revenue increase versus the first half of 2020, after taking into account a negative 7% currency impact and a positive 141% perimeter impact from the integration of Tiffany. Compared to the first half of 2019, organic revenue increased 5%. Profit from recurring operations rose to €794 million in this business group compared to a loss of €17 million in the first half of 2020, with a sharp gain of 122% compared to the first half of 2019.

Digging into these numbers, Slide 19. I'll start with Tiffany, which had an excellent first half with particular strength in Asia and the U.S. In China, Tiffany unveiled its 2021 Blue Book collection, Colors of Nature, with over 500 high-end jewelry creations and the presentation in Shanghai, which is off to a good start. The brand also launched the first men's engagement ring called Charles Tiffany Setting. And Tiffany announced Rosé, a member of the black -- of the crew, Blackpink, and [indiscernible] watches as a global brand ambassador in connection with the new Hardwear line and digital campaign.

At Bvlgari, performance of the jewelry collections has been strong, notably in the brand's own stores, included in this is the success of the Bzero1 Rock line, which was released in 2020. There's also good momentum for the new Serpenti Viper line and the Serpenti Seduttori watches. And finally, there's been very strong demand to the high-end jewelry collection, Magnifica.

Turning to the watch businesses. TAG Heuer announced a major partnership with Porsche, in connection with that launch -- and in connection with that, launched the new chronograph Carrera Porsche, an exciting and seamless blend of the Porsche and TAG universes. Hublot introduced its new connected Big Bang UEFA Euro 2020 watch while Zenith had a successful launch of its new Chronomaster Sport watch. Chaumet inaugurated the new exhibit, Josephine et Napoleon, at its recently refurbished flagship in Paris on place Vendôme. And lastly at Fred, the Pretty Women collection got off to a successful start.

Looking to the back of the year to Slide 20, the Watches & Jewelry business will continue to focus on successful execution of its strategy, which sets us on ongoing innovation, maintaining focused distribution, a new digital initiative. Specifically coming at Tiffany will be both the new and exciting marketing campaign as well as the launch of a new gold jewelry collection.

Bvlgari will focus on bolstering the success of its Divas' Dream and Bzero1 lines and accelerate the opening of its renovated store on place Vendôme. And across the group, the focus will be both on maintaining vigilant cost control and making targeted investments to drive growth continues.

Moving now to the final business, Selective Retailing, revenues rose to €5 billion, an increase of 12% on an organic basis versus the same period last year, after a 7% negative currency impact compared to the first half of 2019, organic revenue was down 25%. On a reported basis, revenue increased 5% versus the same period in 2020 and declined 28% when compared to the first half of 2019. Profit from recurring operations was €131 million in this business group in the first half. In the year-ago period, there was €308 million loss when compared to the first half of 2019, profit from recurring operations in the first half of 2021 was down 82%.

Turning to the drivers behind this performance in Slide 23 now. Sephora saw good in-store performance. The lockdowns began to end and the brand reinforced its presence in key markets, especially in the U.S., China and the Middle East. At the same time, Sephora's digital business remains very strong with online revenue at a record level. It's also worth noting that Sephora remains highly focused on diversity and inclusion, both inside and outside of its organization and has put in place many focused initiatives in this area.

Moving on now to DFS, which, of course, continued to be impacted by the limited recovery of international travel in the first half. However, the business is starting to see positive performance in Macau, and is planning for the future with the opening of its first store in Hainan in partnership with the Shenzhen Duty Free as well as with establishing several digital initiatives designed to support more effective interaction and engagement with customers.

Finally, we're very pleased to mention that the opening of La Samaritaine Paris Pont-Neuf after a long but ultimately exceptional renovation. This is an exciting event for the city of Paris, and we expect will be a major draw when travel returns to normalized levels. We look forward to welcome you all.

As we look to the second half of the year, as always, Sephora will remain focused on ongoing innovation in both its product offering and the personalized services offers to its customers, which are the underpinning of its competitive edge in the market. In Europe, Sephora will accelerate its digital expansion. Its new partnership with Zalando and the recently announced agreement for the acquisition of Feelunique by Sephora a good illustrations of this. In the U.S., it will open locations inside of Kohl's stores in the fall with 200 expected before the end of the year to be ready as shopping returns to normalized levels. At DFS, the business is preparing for the resumption of travel to Macau as well as for major openings in 2020 in both Brisbane in Australia and Queenstown in New Zealand as it does is, of course, continue -- of course, continues to focus on rigorous cost management.

And finally, Bon MarchÃ© is preparing for a magnificent new exhibit called Porte-Bonheurs, which will open in the fall and to which the South African designer, Thebe Magugu, who won the LVMH prize in 2019 contributed. This is being done in support of an organization called Designing Hope, and notably, its work in South Africa. The Bon MarchÃ© will also launch a new digital platform of services and experiences.

And with that overview of the business group performance complete, I will turn the call back to Jean-Jacques for further details on the group's financial performance.

Jean-Jacques Guiony

Thank you, Chris. So let's now discuss H1 2021 in more details. I shall start the review with revenues for the first half of the year, as shown on Slide 26. As you may see, we ended the semester with a 53% rise in our organic revenue compared to H1 2020 and an 11% rise compared to H1 2019. This was driven primarily by the Fashion & Leather and Wines & Spirits businesses, while the Perfumes & Cosmetics and Selective Retailing, notably DFS, were particularly impacted by the limited return of travel retail. Tiffany's integration has a 10% positive impact while currencies had a negative impact of 7%.

Let's now move to Slide 27, where you can see a comparison between first and the second quarter in terms of organic growth for both 2020 in white and 2019 in blue. The improvement you see in the second quarter versus 2020 reflects the easier comparison due to store closures outside China that year compared to 2019, the strength of the Fashion & Leather, Wines & Spirits and Watches & Jewelry business groups represent the rebound in local demand.

Let's now move to Slide 28, which shows the geographic breakdown of revenues in euros. Compared to 2020, Asia has picked up 4 points and the U.S. 1 point taken from Europe, the principal destination for travel retail.

Moving to Slide 21 -- 29, sorry, you will note that the group's geographic performance has been positive across all regions versus 2020 while compared to 2019, the principal improvements have been driven by the U.S. and Asia, with a slight improvement in Europe in Q2.

Let's now move to the next slide, Slide 30, where you will see our simplified P&L account for the H1 period for 2019, 2020 and '21. Sorry, it's a lot of numbers on this. The main comments will be compared to H1 2019 and are following: We already discussed revenues with a 14% reported growth or 11% organic. Gross margin increased by 18%. This essentially reflects the impact of fixed cost leverage in manufacturing activities in the main brands, which were better absorbed. Operating expenses as a whole are up 5%, but more or less flat compared to 2019 on an organic basis, i.e., excluding Tiffany and Belmond from scoped impact and favorable ForEx impacts on costs.

Profit from recurring operations is up 44% at €7.6 billion. Other operating income and charges are negative by €34 million, reflecting mostly amortization and depreciation of intangible. Financial charges are much lower due to the impact of the mark-to-market on our financial investment portfolio. I will comment this in a separate slide in a minute. And the group's income tax rate is around 27%, returning to a more normal rate after last year. With an increase in minority interest, mainly attributable to Moet Hennessy, the group's share of net profit is €5.3 million -- billion, needless to say that this is a record for first half.

Let's now look at the profit from recurring operations, which is broken down by business groups on Slide 31 compared to both '20 and '19. As Chris has commented on this already, I will only add a quick comment. Firstly, all business groups made a positive contribution. Secondly, compared to '19 on the Selective Retailing notably due to DFS was down. Thirdly, the integration of Tiffany had a positive impact on Watches & Jewelry. Excluding Tiffany, Watches & Jewelry profit from recurring operations is up around 30% compared to 2019. And overall, operating margins reached 26.6%, up 5.5 points compared to 2019 H1.

Next slide, Slide 32, another look at the current operating profit at this time compared to H1 2020. As you can see, both currencies and structure had an equivalent impact on the overall profit and are not worthy of further comments. The impact of currency on margins was on a global basis, neutral.

Let's now turn to Slide 33 and the analysis of the net financial expense. A few points to mention. The debt for the first half 2021 unusually contributed to profits due to negative interest rates. The cost of hedging strategies and the financial cost of lease under IFRS 16 are quite stable compared to last year. And the market value of financial portfolio increased by €371 million, after decreasing €1 million, after decreasing by about €140 million in 2020. As you will probably remember, we have opted for mark-to-market accounting for our financial asset portfolio. So this item shows market fluctuations of LatAm [ph] capital gains and not actual profits and losses.

Moving on to Slide 34, where you may see the balance sheet structure. The main comments is related to the Tiffany acquisition in January, which increased the current and noncurrent assets while diminishing the cash held at the end of last year. Otherwise, the balance sheet structure is very close to what it was last year.

Turning to Slide 35. A few words on the cash flow statement. Firstly, this is an exceptionally strong cash flow we have generated in 6 months, almost as much as on the full year 2020 and 2029 -- 2019, which were already record years. There are, however, some exceptional elements in this cash flow. The increase in the cash flow from operations reflects primarily the increase in operating profit, adjusted for noncash items, mostly inventory and intangible depreciation. Taxes were a little bit up as cash taxes, unlike P&L ones, were largely based on 2020 profit. In other words, we paid this year taxes on last year's profits. H2 should be significantly higher. Working capital benefited from some inertia on trade accounts payable that we covered in H1, not to be extrapolated to H2.

And finally, capital expenditures were lower than last year at €1.20 billion, but will presents less than 50% of the annual CapEx spend. And remembering that the bulk of the CapEx was spent in H1 2020, we expect our CapEx for the year to be about 30% higher than last year. With this strong cash flow, we have decided to pay an interim dividend of €3 per share to be paid on December 2 of this year.

I will finish on the numbers with a comment on the group's net debt, which reached €15.3 billion at the end of June, about €11 billion higher than at the end of last year. This change comes mostly, as you know, from the €13.2 billion acquisition of Tiffany in January.

I would like to conclude this brief overview of the activity to make a few comments, highlighting the most important points of the semester. I have 4 points: One is demand, as Chris explained, remains very strong, which is probably the most important point in the complex environment we are operating in; two, our brands are doing well, not only the Dior and Vuitton, which exceptional performance should not be rated as business as usual, but as outstanding, but also a number of other brands, Fendi, Celine, the MH champagne brands, Marc Jacobs, Veuve, just to name a few; three, management is in control of the main operating levers. The operating cost base is flat compared to 2019, while sales are significantly up, and capital investments are tightly monitored. Four and finally, we are ready to invest into the business when the visibility allows, not at the expense of profitability, but with a view of enhancing brand attractiveness and long-term value of them.

This is all we wanted to say. Operator, could you please open the line for questions?

Question-and-Answer Session

Operator

[Operator Instructions]. We have a first question from Luca Solca from Bernstein.

Luca Solca

I wonder if you could tell us about the product availability. You're experiencing quite a strong rebound in demand. Of course, this is up versus [indiscernible] '19. I wonder if you're experiencing any constraints or bottlenecks in any part of the business. I was looking at the Spirits and -- Wines & Spirits division, in particular, if you could give us some details on that.

On demand, you said and it's quite clear from the report that demand is very strong globally. Could you give us more detail by nationality, as you normally do, looking at Vuitton? And could you see any differences in areas, for example, that have led to recover from the pandemic or importantly, in China, where many things have been happening in recent months?

My third question is indeed on China, like you said in the previous conference call, you see China as an opportunity. There's been quite a significant number of moves by the government. There's also an attempt to curb real estate price inflation. What is your perspective on Chinese demand? Is it continuing to be very strong? Or do you see any areas that are changing versus your previous assessment?

Jean-Jacques Guiony

Thank you, Luca. First question on the bottlenecks in any part of the business, I would say, business as usual. I mean I'm not sure you mentioned Wines & Spirits rightly so. I'm not sure I would call this bottlenecks. I mean the constraints on capacity -- on production capacities and the availability of product due to mother nature, I would say, i.e., the amount of harvest we've been able to do in cognac and in the champagne area is a fact of life. We've been living with that for hundreds of years. And obviously, when demand is strong, and you've seen the demand for both cognac and champagne remains outstanding. We experienced some limitation in the number of bottles we can deliver to the market. This is true in the U.S., although the growth in the U.S. in the first half has been double digit. We shall probably not be able to replicate that growth in the second half of the year. I'm not saying that it will be down, but we will be unlikely to be as high as we were -- as growing as we were in the first half.

On Champagne, we have less constraints. So should demand remains where it is, we are not particularly worried. With regards to other areas, bottlenecks could come from the level of production, but I have to say that the highest growth, particularly in Fashion & Leather, were very well managed by the various brands that have experienced it. And they've been able to deliver high numbers without major bottlenecks. Compared to some other industries, I mean, we have a fairly simple production process. I mean we sort of source locally, we produce locally, mostly in France and Italy and to a lesser extent, in Spain. Basically, whatever we do is reasonably simple. I mean we are not dependent upon components being bought in Indonesia, assembled in the eastern part of Europe, and for a final distribution in France or elsewhere. I mean we have a fairly simple process and therefore, in terms of availability of various components. Everything comes out from France or Italy and is being manufactured in France or Italy to make a long story short. So basically, it's not that complicated, and we end up with no particular bottlenecks.

So that's the first question. Second question on nationality. Well, the growth with Chinese clients was very close to the overall for the divisions where we can -- or the brands where we can measure it accurately, the growth was very close to the overall growth of the corresponding businesses, which is to say that basically, despite the fact that we are doing a very, very good business with the Chinese clients, the share of the Chinese clientele is not increasing. Particularly at Vuitton and Dior, the growth with the Chinese is very strong, but is commensurate with the global growth of the brand.

We experienced also very strong growth with the American client base. It's true more or less across the board. But as in the preceding quarters, at least the preceding two quarters, we've also seen good advances with local clients in Europe, not sufficient to offset obviously, the drop in the touristic business we experienced in Europe. But nevertheless, significant advances with those client base, which are very encouraging because we know that at least in the short term, the business in Europe will come from the locals and not from the tourists.

Lastly, your question on China, demand continues to -- whether demand continues to be as strong as our assessment of demand is as strong as it was. The answer is, yes. We've seen no signs of a change of pattern in the behavior of Chinese consumers, and the business is really moving from strength to strength in all categories with, I would say, not only Fashion & Leather, but all the businesses are doing well. So we have no particular elements to report on Chinese demand, which remains as good as it's been for quite some time.

Operator

Next question from Zuzanna Pusz from UBS.

Zuzanna Pusz

I have three, two on profitability. So maybe coming back to some of the comments you made about controlling the business and costs. Would you say that you are ready to start to reinvest in H2, given the level of visibility, and I think especially maybe how should we think of cost for Fashion & Leather Goods? I guess we see 41% EBIT margin you had last year. I'm guessing we shouldn't extrapolate it, but it's quite difficult to kind of find -- understand really what is the kind of level of profitability you should expect in H2? So any color on that would be very helpful.

And secondly, again, on profitability, I guess, more structurally, do you think -- obviously, most recently, you haven't been able to really invest as much as normally. But my sense is also that there must have been some not too structure improvement in profitability, especially in Fashion & Leather Goods, given how much share you've been gaining. So maybe also any comments on profitability in that division more in the kind of mid to long term would be very helpful.

And then just a follow-up on grow by nationality. Is it correct to understand that the growth was led by the Americans than the Chinese consumer than the Europeans? Just to know what was the fastest-growing nationality in some sort of order.

Jean-Jacques Guiony

Thank you, Zuzanna. So are we ready to invest in H2? Certainly. I mean it's certainly not the mood of the various brands, particularly in Fashion & Leather, but across the board, to stay quiet particularly from a marketing viewpoint. So in other words, finding out the good marketing strategies and developing through distribution strategies is of the essence and we will in 2020, and the pandemic hopefully was just a pause in that, and we will reinvest. The question is impact on margins. It's a question you're asking and quite understandably, I would say that we have room for maneuver. I mean when you look at the growth in the top line and the growth in the cost base, it's not obvious that growing the cost base will necessarily cross the increase in the top line. In other words, we can certainly keep the margins where they are and at the same time, increase significantly our cost base to fuel the marketing and distribution strategies we intend to develop.

So all these will obviously depend on top line growth. And my -- as always, I mean, my crystal ball doesn't tell me much about that, but the current level of growth that we are experiencing allows us for a significant increase in cost without incurring a major impact on margins. Maybe here and there, we shall have to invest a little bit more, some brands, and I will not mention names, have had particularly marketing budgets that were very much biased towards the second half of the year. They were overly cautious for the maybe rightly so at some point, but overly cautious with the benefit of hindsight in the first half, and they will be reinvesting a lot into marketing in the second half. So here and there, I'm not saying that we will not experience a little bit of an impact -- negative impact on margins, but nothing too serious.

I will also mention that with regards to Wines & Spirits, it's not necessarily a question of reinvestment, but structurally, the second half of the year experience is much more A&P than the first half of the year. And normally, in the second half of the year, we have less bottles available. So basically, the second half of the year is not usually as brilliant as the first part of the year, and probably this year will be no exception. But otherwise, I mean, we are pretty confident that with some very minor exceptions, we should be able to maintain the margins, despite some significant cost for investment.

Long-term comment on -- medium- to long-term comments on Fashion & Leather margins. Well, they are -- we find it hard, as always, to comment on global margins. I mean we monitor the margins of the various businesses. We have had some significant improvements, particularly at Dior, but not only at Dior. I mean some other brands, particularly brands like Fendi, Marc Jacobs, Veuve, Celine, just to name a few, improved their margins significantly and are now around 20%, 20% plus or 20% less, which is quite some achievement. So we've seen some improvement, and obviously, we intend to be out from there and not to reinvest all this margin improvement into cost. I mean, preserving the level of margins is a sort of long-term insurance policy, and therefore, we want to be out from that trend. So I hope that the gains we've achieved will enable us to consolidate margins at a pretty high level as we have experienced in the first part of the year.

And finally, your question on clienteles and the ranking of orders. You're right on the American, but European, which obviously are a much smaller share of the total business, but Europeans are still doing very well. And particularly as Vuitton, we see very, very good advances with European clients, in excess of 50%. So we cannot really complain about them. As I said, it's not sufficient to offset the negative impact of the lack of tourist business. But nevertheless, I mean, it's quite some achievement. And it enables us to keep our stores busy in Europe, despite the lack of tourists, and it's extremely important. And after that, you have the Chinese. As I said, I mean, the Chinese growth is in line with the main brands growth. And therefore, the share of the Chinese clientele is reasonably constant compared to last year and to more importantly to 2019.

Zuzanna Pusz

Perfect. Sorry, just to clarify on the comments on margins. It was very helpful. But just to get a better understanding, I mean, it sounds like you will be reinvesting, but the growth is so far that actually it may not necessarily create too much margin pressure. But I guess a little bit of margin pressure could be still expected in H2, but nothing major for Fashion & Leather Goods.

Jean-Jacques Guiony

Here and there, yes, but I don't think this should have a global negative impact on Fashion & Leather.

Operator

Next question from Edouard Aubin from Morgan Stanley.

Edouard Aubin

So three for me as well. The first one is on the second half profit trajectory. So on our calculation, we had about 1/3 of LVMH sales in last year in 2020 generated by brands, which were either breakeven or loss-making. You alluded to DFS and Belmond and so on earlier. So obviously, a function of the greater impact of COVID [indiscernible] performance. So what you -- should be the shape of the profit trajectory in the second half? So that's the first question.

The second one, which is related to the first one, is on Sephora. Jean-Jacques, you told us a few months ago that Sephora was managed to be very slightly profitable last year. So I guess in the short to medium term, to what extent a quick recovery of the makeup and the perfume category and as well as favorable rent renegotiation could help Sephora profitability to rebound rapidly? And in the longer term, a bit of a difficult question, but could the Prestige cosmetic brands, Dior's competitors migrate to concession online model versus to the wholesale online model as the luxury brands have done? And if so, could that lot buyers to entry in the industry?

And so just a small one to finish on Tiffany. You -- Jean-Jacques, you indicated on the call that the sales continue to be very strong. Difficult one to answer, but to what extent is that a function of the very favorable dynamics of the jewelry industry and obviously, the very good geographic mix with the U.S. exposure? And to what extent is it a function of the changes already implemented at Tiffany by the new management team? So in other words, is the best just really about to come at Tiffany?

Jean-Jacques Guiony

That would be a pleasure. I do have to answer your last question. Let's start with the first one. So second half of Belmond, DFS. Our aim for DFS is to break even but frankly, it will not be easy. I mean Macao is improving. Definitely, we've seen return of tourists and gamblers there. So the numbers are pretty good, but it's probably not sufficient to offset the fact that other geographies and particularly, Hong Kong, are seeing no light at the end of the tunnel. So for the time being, we are hoping that we could break even, but it's -- I mean I will comment when it happens because it's a stretch objective for the DFS people. I know they will do whatever they can to achieve it, and they are heavily involved into developing strategies that offset the complicated situation they are facing. But this being said, I mean it's not easy. So I'm not putting pressure on them. In other words, their life is complicated enough on the travel retail front.

As far as Belmond is concerned, the situation is a bit more mixed. We have some areas which we'll be doing, if not good, better, at least compared to last year, particularly the Mediterranean. It won't be a fantastic season. First of all, we opened quite late compared to normal, and occupancy and ADR are likely to be a bit lower than they should normally be in the context of abundant touristic flows into Europe. This being said, it will not be as bad as it was last year. Too early to say whether we will break even or not. I don't think so because the season is likely to be too short. We see a concentration of good business only on a few days in a week and a few weeks in a month or a few months in a year, basically. So it's not sufficient probably to absorb all the cost base. But anyway, likewise, with DFS, I mean, the team is doing a great job to limit cost and to generate revenues wherever they can in an environment which will improve certainly, which is really the adverse as we speak.

So your second question on Sephora. You quote me as saying that Sephora showed a very small profitability. I mentioned Sephora was profitable last year, full stop. I mean it was not the greatest year of Sephora, bit it was not so bad given the context of heavy closures of stores. As far as the concession model is concerned, for Sephora, it's is very simple. I mean most of Sephora are 400 to 600, let's say, square meters. There is no way we can accommodate concession model with private boutiques inside Sephora on such a format. I mean in department stores where you have 1,000 or 2,000 square meters, it's doable. It's not doable in Sephora format, which has to be based on gondolas and free access to products and free trial by the -- by the client base. So the concession model is not something that is just palatable. I'm not looking at financial consequences of that. It's just not the format of Sephora.

And finally, your superb question on Tiffany, whether it comes from us or from the business. I would say a little bit of both, sir.

Edouard Aubin

Okay. Sorry, Jean-Jacques, but maybe my question was not clear on Sephora. I was asking about concession in the online world exclusively. So my point is that maybe some of your competitors, for example, might have been reluctant in the past to sell to wholesale online operators. And as these online operators now will offer these brands from a concession model, maybe they're going to be more willing to be sold online.

Jean-Jacques Guiony

Well, it's mostly a Chinese model. I mean I've not heard of many concessions, maybe in a limited way in perpetual, although I'm not very aware of it. So it's quite limited for the time being. Frankly, we have not thought about it so I cannot really answer. We would have to discuss that and think about it. For the time being, it's not a big trend on the market and a big ask from the various brands. But if it happens, we'll look at it. And we'll see what it means from a brand and profitability viewpoint.

Operator

We have the next question from Antoine Belge from Exane BNP Paribas.

Antoine Belge

It's Antoine at Exane BNP Paribas. Three questions. First of all, is it possible maybe to share your views about what will happen when the world will improve a little bit, especially, I mean you mentioned the strength in the U.S. and Europe in local consumption. Have you done some internal surveys trying to analyze who these consumers were? And basically, what's your sort of view about a possible shift back into experiences when they become available on that? Do you think that could be detrimental to demand for all physical luxury products?

Second question relates to the Wines & Spirits division. I think there was quite a contrasting performance in Q2 between Champagne and Cognac. So is it possible to disclose the Q2 organic growth for Champagne and Cognac? Maybe last year but also on a 2-year stack basis. And it seems that Champagne has had a remarkable margin improvement versus 2019. So maybe a comment on that.

And finally, regarding Tiffany, as I think in the financial statement, if my calculations are correct, I think you generated an 18.2% margin, which was already above, I think, with the last reported. Here, I think you always commented that we shouldn't be expecting a significant dilution, but maybe -- of the margin initially. But I mean are there any costs may be more skewed towards the second half that could lead to lower margins? And also maybe an update on the acquisition so far.

Jean-Jacques Guiony

Thank you for your three questions, Antoine. Well, the first one, so I will answer last one, for you, the first one. I mean, no, there is no such thing as having done studies of what happens next. I would say, this is fully complicated, and I would say that nobody, even the best experts, would be probably short of views on what happens. The only thing I would say on your point about shifting back to experiences is that the live laboratory of that is probably China because China situation, from a pandemic viewpoint, has normalized about 14 to 15 months ago, which is significantly a fairly long period of time.

And over that period, with most of the countries normalizing, including internal travel, I think that Chinese New Year experienced as many travelers that they would normally do in 2021, only a few restrictions there. Despite -- with all that, we have not seen demand slowing down and the shift from luxury renminbis into other categories, including experiences. So for what it's worth, this gives us some hope that when the availability of other experiences, such as, I don't know, weekend vacations, blah, blah, blah, becomes available, this will not come at the expense of luxury spending as attested by the behavior of customers in China. There are limitations, obviously, in the meaning of comparisons, but then the only tangible analysis that I can provide to you on this particular subject.

As far as Wines & Spirits is concerned. So the organic growth for Cognac and Champagne, if I'm not mistaken, Cognac and Spirits went down from 12% or something like that, a little bit in excess of 10% in the first half -- in the first quarter of the year to flat or very slightly negative in H2. And I will come back on that in a minute, whereas Champagne went down as well, but from a much higher number, Champagne and Wines went down from 25% to 15% or something like that. And it's rounded numbers, but that's about the numbers. So the H1 -- the Q1 numbers in Champagne were a bit flatter particularly in the U.S. by price increases that created some buildup of stocks. This being said, if you look overall with 20% growth in -- sorry, 15% growth over the quarter for -- over the first half, sorry, for Champagne is pretty favorable.

As far as Cognac is concerned, Q2 was affected by the fact that we had following Chinese Year a little bit of excess inventories in the trade after Chinese New Year, and we decided to absorb them fairly sharply in May and June to start H2 with a more favorable inventory situation. So that explains why numbers were flat in Q2 compared to Q1. When you look at depletions in China, in particular, they were mid- to high-single digits. We saw no particular change from the Q1 numbers. So basically, demand remains what it was, what it's been for quite some time, but we have inventory management that distorted a little bit the numbers.

Finally, on Tiffany and the level of margins, your question is about whether H2 could suffer from late cost or some shifts from cost or investments from H1 to H2. You will admit that my understanding and control over what happens at Tiffany from a pure financial viewpoint is limited as we speak. I mean I have 6 months of experience, that's probably a bit short. The short answer to your question is, no. We anticipate nothing of a significant magnitude that would affect H2 margins, but don't take this as a forecast that H2 margins will be exactly the same as H1 because we are, as we speak, managing -- getting into understanding the business in some detail, and such forecasts are obviously extremely difficult to do for any business and particularly, a business that we have owned only for 6 months.

Antoine Belge

Maybe just a follow-up on my first question because I understand that predicting the future is difficult, but analyzing what has happened since the beginning of COVID. Because I mean when you look at these numbers, 50% increase more -- actually more than 50% over 2 years, I mean that's difficult to explain just from a demographic standpoint or any sort of analytics like that. So is it that you've gained new consumer who were not spending on luxury before? Or is it that your existing base, who has been spending much more?

Jean-Jacques Guiony

No, I think it's two things: One is existing base. I'm not saying that we are not gaining new customers. I mean every brand is relying on existing customers and new customers. I'm just saying that the proportion of the 2, I don't have very precise numbers on my desk as we speak. But as we speak, the proportion of the 2 has not shifted materially. So we are not solely dependent on customers that we had never seen before, and that will never show up after the pandemic ends. So that's not what I mean. Basically, it's from a question of existing or new customers, it's a little bit business as usual. The second element, which is worth having in mind is that there are 2 strong pillars at Tiffany: One is the U.S.; the other one is China. Both of them, the 2 cylinders are firing, I would say, 150%. So basically, what we have there is a very strong contribution to growth from the 2 main businesses in the U.S. and China.

If you compare with Bvlgari, for instance. Bvlgari is growing faster than Tiffany in the U.S., but unfortunately, its business is 1/7 of the size of the business of Tiffany. So despite a very nice growth in the U.S., they are much smaller. So the contribution to global growth is much smaller. They are doing very well in China, too. But one can say that Bvlgari is on 1 cylinder, whereas, Tiffany is rolling on 2 cylinders. So there are really different growth patterns in between the 2 brands.

Antoine Belge

Okay. Very interesting answer. But actually, my question was more on the broader question about the experiences. I mean that all these clients that -- all these fantastic turnover that you've done, I was talking more like actually Fashion & Leather with Americans and Europeans, I was wondering if there was -- I mean if you could attribute more these two, you gaining new consumers...

Jean-Jacques Guiony

The same answer. Sorry, I said it was on Tiffany. But it was...

Antoine Belge

It was very interesting...

Jean-Jacques Guiony

But it's the same. There are -- I have more precise figures. I mean the breakdown of the business in between new and existing customers has not been entirely different from what it was in the past.

Operator

Next question from Oliver Chen from Cowen.

Oliver Chen

Regarding digitization of Maisons, as you mentioned in the prepared remarks, what do you see happening in the Fashion & Leather Goods division there? And how would you contrast that against your presence in e-commerce platforms such as Farfetch and Mytheresa and others.

I would also love your take on the increasing stake in Off-White, that was very encouraging. Why was now the right time for that?

Jean-Jacques Guiony

Well, it is the right time because we had a call option and the call option was expiring by the 30th of June. So that's the reason why the transaction took place at the date it took place. Sorry for the very basic answer, but that's basically what happened.

On digital in Fashion & Leather, I mean, I will repeat what I've said before. I mean we believe that particularly in Fashion & Leather, to a large extent, digital is a zero-sum game. Basically, if you sell online, you won't sell in brick-and-mortar and vice versa. So as long as you're talking about our brick-and-mortar and our online business, i.e., e-commerce, that's fine. I mean we have no problem whether we do it on the e-commerce website or in brick-and-mortar, our stores. That's absolutely fine.

Whether we are doing at a third-party platform, you mentioned a name, but there could be other names, particularly in China. The question that has to be asked is, what's the cost of doing business? And those platforms end up being particularly expensive from an intermediation cost viewpoint. So our analysis is that as we don't expand the global size of the business -- our analysis is that as we don't expand the global size of the business by going on the platforms, why do it because the cost of selling would be higher than what we do on our own business. So we just don't -- I'm not convinced that this model makes sense for us in Fashion & Leather.

In other categories, it could be a different answer. We accept e-wholesale platforms in cosmetics, for instance, because we think not a zero-sum game and conveniency is part of what clients are asking for. But in Fashion & Leather, where conveniency is probably of less important for clients than the store experience, we don't see the necessity of going into third-party platforms that will take a higher share of the business as intermediation cost as the cost would be on regular forms of business.

Oliver Chen

And on ESG and sustainability, what are some key priorities with respect to what consumers want and what you're thinking with innovation there, particularly as we think about e-commerce and other aspects? I know it's a broad question and on...

Jean-Jacques Guiony

How much time you have? I mean we are on for 3, 4 hours. They should -- sustainability, the main question, I would say, is eco-conception of products, making sure that the components of the product, including the packaging, are sourced from the best locations. And that's where I think we can improve some of the offer. When I say we can improve, it's the luxury industry, it's not specifically LVMH. So I would say that this is the main area for concentration in the next few months and years. That's a very short answer on a very, very broad question.

Oliver Chen

You made some great strides with diversity as well and inclusion. What's ahead? Or what are the bigger priorities in that topic as you think about talent and engagement?

Jean-Jacques Guiony

I don't want the joke too much, but it's diversity, one; and inclusion, two. Or one, inclusion; and two, diversity. I mean that's -- the main priorities are, you should read our annual report because you have all the answers. I will not elaborate here. I mean that would take us too long, and I don't think it is entirely connected with H1 numbers. Sorry about that.

Operator

Next question from Thomas Chauvet from Citi.

Thomas Chauvet

Three questions, please. The first one on -- coming back to the 41% EBIT margin in H1 in Fashion & Leather driven by significant OpEx leverage. You're talking about reinvestment, but has the pandemic also maybe reduced permanently your cost base in that division and that you should continue to benefit in the next couple of years, whether that's your rental cost structure, your headcount requirements, certain marketing costs such as events that you may still not need to incur in the future, not just H2?

And secondly, on -- a question on the expansion plans of Sephora in new markets. I mean it's been obviously a very successful format in France, in the U.S. and China, other countries, but still absent from beauty markets, like Japan, like Germany, like the U.K. Is the acquisition of U.K. online retailer, Feelunique, that was announced last week a way to enter or to reenter in the U.K. with a maybe low-risk, low-CapEx strategy before rolling out brick-and-mortar store in maybe a more meaningful way? Personally, I think it will be great for us living in London if Sephora was coming back, I'm sure Chris de Lapuente will be pleased as well.

And just a follow-up on Virgil Abloh of Off-White, but rather on Vuitton. What do you think has been his tangible commercial impact on Vuitton's menswear, but also in terms of the overall brand building exercise? And does he have some form of impact, influence, cross-pollination with the rest of the group, maybe some other Fashion & Leather brands given how influential he seems to be.

Jean-Jacques Guiony

Vuitton is quite a big brand. So he has a few things on his plate already at Vuitton before we envisage further collaboration. This being said, we've been able to experience, particularly at Vuitton, the immense talent of Virgil. And if there are collaborations that could generate brand enhancement or nice products or anything with him, we would obviously consider it as we speak. I mean the main, obviously, idea is that we continue and we strengthen and we deepen the collaboration between Vuitton and Virgil because it has been extremely successful over the years. He helped us define a very precise and compelling style at Vuitton. And I think the Vuitton men business, before and after him are before him and with him, not after him, but with him, are very different and much better today. So that's where we are.

So the other question on Sephora. Well, your assessment on Feelunique is right. I mean it's a way to enter the U.K. market not from scratch, which is always difficult as we -- the initial losses are sometimes difficult to absorb, but from an existing and profitable base. And from that basis, once we understand the market a bit better, the market dynamic, we'll see what we do. It's too early to say, obviously, whether we will open some brick-and-mortar stores. But anyway, that's a strong platform to observe and to analyze the best way to develop into the U.K. market.

By the way, it's not -- as far as Germany is concerned, we have some presence in Germany. And the agreement with Zalando, which is particularly strong in the, let's say, the north of Europe, including obviously Germany, is a view -- it is enabling us to acquire clients at a reasonable cost in an area where our brick-and-mortar presence is not sufficient to promote the brand the way it should be. So that's a little bit the same logic, getting into a market without having to go through the traditional brick-and-mortar development, which can be pretty painful to start with.

Finally, your question on Fashion & Leather margins and where the pandemic has reduced cost on a permanent basis. Well, I wish it would be the case. But unfortunately, particularly with regards to rent, these costs have a propensity to be there again once the situation that has created the reduction is over. So, no, there is no such thing as a permanent reduction in the cost of doing business coming from the pandemic. We might have learned a few things, but not necessarily a reduction in cost that will reduce the cost of doing business going forward.

Operator

The next question from Erwan Rambourg from HSBC.

Erwan Rambourg

Congratulations on the growth and the margins. Two questions, please. First of all, on pricing power, we talked about bottlenecks. I'm just wondering how you think about pricing power for some of your businesses? I'm thinking, of course, about Dior and Vuitton, but I'm also thinking about Cognac, where interestingly, you're going more direct. And I'm wondering if that changes the equation and the possibility to increase prices in the future as you're more direct to consumer.

The second question is on M&A to figure what's next. I think you presented Tiffany as being one of the last big deals. Obviously, nothing will be as big, but you've announced quite a few smaller deals since. And I think you made a comment that Rose is potentially the next campaign. I'm wondering what's the next Rose? Maybe if you can comment on any appetite you would have for Fashion & Leather or Fragrance & Cosmetics or Wines & Spirits in terms of adding to the portfolio?

Jean-Jacques Guiony

Thank you, Erwan. Pricing power, well, I think it's not a big issue. We have shown in the past that we are able to increase prices of goods, particularly to reflect currencies, but there were other things to be reflected into prices, I think we could do it likewise. So the pricing power, given the strength in the demand and the fact that for most of our products, customers are not necessarily coming into our stores every other week. So their idea about how much we sell a specific good can -- is not necessarily entirely accurate when they come back into the stores. So the impact of price increase as long, as it is reasonable, is not necessarily a big deal for clients. So pricing power is not something that worries us too much given the strength of the brand.

As far as Cognac is concerned, we have tried to be pretty disciplined. And I must say that over the last years, the Cognac teams, they've been able to increase prices more or less across the board by 2%, 3% per annum in China, in the U.S., in all the big markets. So it's not spectacular, but nevertheless, it enables to absorb the rising cost of supply -- the rising cost of supply, particularly in Cognac, enabling a better partnership with the growers, which is something which is entirely desirable. So all this has been able -- we've been able to do that by virtue of increasing prices regularly, but modestly, and we intend to keep on with this strategy.

On your question on M&A, well, I don't know whether there is an expose or not. I mean maybe a good idea. I'll think about it, and I'll let you know. When you look at our global strategy, I mean, there are 3 priorities: One is developing our existing brands; two, making large acquisitions like Dior, Bvlgari, Loro Piana or Tiffany. This, we don't do every other year. I mean it takes time to absorb the big acquisitions that we have done. It takes time to pay down the debt. And we tend to do acquisitions from a position of strength, i.e., low debt and management availabilities.

At this point in time, obviously, we -- although the group's financial position is perfectly palatable with less than 1 year of EBITDA probably in debt by the end of the year, we have to absorb -- I mean we are just starting the integration process of Tiffany. It's been only 6 months, and we have to absorb Tiffany. So there is no large thing on the table.

And the third pillar of the strategy is to making small add-on acquisitions to acquire either access to markets, technologies, product, you name it. And if you look at the few things that we have done over the past months, most of them are under this category, but they don't stretch the resources from the group the same way as a large acquisition.

So in this part of the portfolio, we are much more -- we are very opportunistic, I would say. And therefore, it is quite difficult to sort of categorize and tell you and give you any guidance or framework as to what could be the reasoning for further moves, although as you well know, it's a fairly sensitive and confidential topic, which usually doesn't leave the grounds of general ideas. So I will not go much further than that.

Erwan Rambourg

No, that's very clear. Maybe just a follow-on on pricing power, on your willingness to increase prices. Have you done anything at Dior and Vuitton so far this year? Or can we expect something for H2 maybe?

Jean-Jacques Guiony

Nothing really important this year. And as far as H2 is concerned, I mean even if we do something, we will not announce it in that. So you'll know in due course.

Operator

Next question from Rogerio Fujimori from Stifel.

Rogerio Fujimori

Rogerio from Stifel. I have two. I think on Perfumes & Cosmetics, could you just talk about some of the key trends by category, makeup, skincare, fragrances and talk about the competitive and promotional environment in Asia for Dior? I think in previous calls, you mentioned relative promotion environment, I think, was around 11/11, and Dior and Chanel being the only 2 brands avoiding parallel trading. Has the situation improved since then?

And then my second question is just a follow-up on LV, Dior. Could you talk just about the recent mix trend components for these 2 brands?

Jean-Jacques Guiony

Thank you, Rogerio. So on Perfumes & Cosmetics, on the categories, the situation has not changed very much. Skincare is doing well. Perfume is doing well, and makeup is not out of the crisis that we've seen with the pandemic, but which basically started a better year than that. So given our high exposure to makeup, this explains this is one of the main explanation to the numbers we are showing, the other one being obviously the exposure to travel retail, which we have not replaced with supply of products to buyer list. So therefore, these are the 2 reasons why we are only more or less in line with 2019 and not growing as other categories within our portfolio.

As far as the promotional environment in China is concerned, I would say exactly the same thing. I mean -- and I just alluded to it. There are some promotions in China. Dior and the LVMH brands together, we don't intend to participate to that. There will always be promotions. We are not naive. We know that our product might be sold at a discount here and there, but we want to control that. We don't want to indulge with our best sellers, in particular, being sold at a discount because we think it's very bad for the image of the brand. And for some of our brands, it goes beyond the cosmetic brand. Dior is a perfect example. So we are pretty cautious and vigilant on that, but I confirm that the environment in China remains quite promotional.

The mix trend at Dior and Vuitton, I will not elaborate because it's not something that I've heard many times from the competitors. So I consider that as sensitive information. I would say that we benefit from -- particularly at Vuitton, from a high contribution from mix. If you look at the breakdown of the business between leather and canvas in the first part of the year, leather is growing faster than canvas. So obviously, this creates -- as average price for leather being higher than canvas, it creates a positive mix. And that's a component of the global growth that we are benefiting from at LV.

Operator

The next question from Thierry Cota from Societe Generale.

Thierry Cota

Three questions for me. First, on taxes. In the context of the new world tax uniformization process, what implications do you expect for LVMH in terms of tax rate? And it will be potentially with more taxes to be paid in China.

Secondly, you've made several comments on pricing, and you sounded quite relaxed on what you could do in Wines & Spirits. So I suppose, despite of the cold spring that we've had with potentially negative impact on harvest, that means that you feel able to raise prices as much as input costs could be growing in the future. But I was wondering also whether you had seen some pricing or some cost inflation with wages. There are discussions of salary increases across the U.S. economy, which is at least a 1/4 of yourselves. And I was wondering, overall, if you are seeing some visible beginning of wage inflation?

And the last point would be on the margin of Perfumes & Cosmetics. You highlighted just now on Rogerio's question that the makeup division was not doing too well, which we understand. The margin has gone up a lot. The market share that's potentially overall strong in recent years because of their exposure to makeup. How do we explain this lower -- this higher margin suddenly? Is it because of the cap in spend? And does that have a direct relationship with what is happening in makeup and in your volume front overall?

Jean-Jacques Guiony

Thank you, Thierry. So on taxes, I will not elaborate too much because it's not today that we should give, as a corporation, an official statement on this. I would say that there are 2 things: Pillar 1 and Pillar 2. Pillar 1 is the way we spread out the profitable -- the taxable profit in between geographies. And Pillar 2 is a minimum tax rate. As far as Pillar 1 is concerned, any rule that would be clear and that would diminish the risk of double taxation between states that are fighting for our image profit to tax them both, any role that would make that clearer and that would diminish this risk is welcome. So in this respect, I think Pillar 1 could help. It's a little bit foggy at this stage because the rule is complicated. Nobody really knows exactly how it will apply, but the principles are good.

With regards to the minimum tax rate, we do very little business -- and I'm talking about business, and I'm not talking about locating profits in low tax jurisdictions. So basically, we do very little business in low or no tax jurisdictions and therefore, if we have to pay 15%, that will not change much. So don't expect major consequences from this reform on the P&L of LVMH.

With regards to pricing on Wines & Spirits, I got the idea that you feel that a bad harvest could create higher cost. Actually, it doesn't. I mean it creates less volumes to be sold, full stop. I mean it doesn't increase. Maybe I understood wrongly your question.

Thierry Cota

That's what they -- it doesn't, okay.

Jean-Jacques Guiony

It has a very, very limited impact to poor harvest for whatever reason, being frost or whatever, is not increasing the unit cost. It diminishes the amount of bottles that is available in the next 2 to 3 years after the aging process. So as such, it doesn't create the need for price increase.

And with regards to Perfumes & Cosmetics margins, they have improved a bit, although when you look at growth in profits and in revenues, it's quite in line compared to 2019. So there has not been a big increase compared to 2019, but basically, it comes from the fact that we are managing margins on a brand-by-brand basis. We are trying to optimize the brands -- all the brands' margins, and therefore, after a while, I mean, once we have done that, this exercise through various brands, a few loss-making brands 2 or 3 years ago are now becoming positive, and that helps the overall margins. In other words, we have very highly profitable brands such as Dior, Guerlain and Rose, and the drag on such margins by smaller brands, which I will not mention or elaborate on, such drag is being reduced progressively. That explains why margins are improving a bit.

Thierry Cota

So there is no step back in marketing spend in any material way.

Jean-Jacques Guiony

No.

Thierry Cota

Okay. And just to -- on Wines & Spirits, do you think that -- you mentioned availability. Do you think this is going to be an issue going forward for the coming years in Cognac or not, given the harvest we may have this year?

Jean-Jacques Guiony

Well, first of all, we don't know about harvest until the end. Believe me, I mean, it's not something that you shouldn't be commenting before the end of September. So we've seen good news and bad news, likewise, so we don't know. If there is a very bad harvest, which is not something that we are expecting, obviously, this will have some impact, particularly on V.S field because V.S is a flexible product and therefore, whether we know that we have replenished the sellers with new or the V, that enables us to release more bottles once they are aging 2 or 3 years. If it is not the case, we are obviously more reluctant to do so. So there are some consequences, but it's not something that we can assess at the end of July. I mean we are not in a position to confirm that.

Operator

Next question from Dana Telsey from Telsey Advisory Group.

Dana Telsey

Congratulations on the big improvements. As you think about digital, can you expand on that? How is it progressing in both sales and margins? And is there any outsized performance in digital from any category?

And then lastly, you talked about the gradual recovery in Europe. How does it differ by country, and what are you seeing?

Jean-Jacques Guiony

Thank you, Dana. So digital, I mean I will disappoint on this question. So I will not give you numbers. I mean I will just highlight what I've said before, which is that as we speak, I mean in brick-and-mortar, we have not recovered the full extent of traffic as we had before. Conversion rates might be higher, but the traffic is not there yet. And conversely, when it comes to digital and particularly e-commerce, we experienced very strong growth, really very strong growth and the share of the business, the global business, which in our view is about what it should be longer term. So as long as we don't feel that this year will stabilize and will be something that we can talk about, we don't disclose the numbers, and we are not there yet. So sorry about that, but it's difficult to be more specific on digital.

Sorry, the next question was?

Chris Hollis

Gradual recovery in Europe.

Jean-Jacques Guiony

Yes. So the Europe recovery. Obviously, France is lagging a bit behind due to 2 factors: one, the lockdown over the past few months was probably a bit more severe in France than it was in some other countries. At least over the year in countries like the U.K. started before, it was as bad, but it started before. So for France, in 2021, it was particularly tough. And the second one is obviously the higher exposure to touristic flows in France than anywhere else. So that's the reason why France and to a lesser extent, Spain and Italy are lagging a bit behind the more northern countries, which are more less dependent on tourists and more on locals, which, as I said before, are doing pretty well.

We'll take the last question.

Operator

Last question from Mr. Dadhania with RBC Capital Markets.

Piral Dadhania

Just two follow-ups, please. I'm sorry, two questions from me. The first is on inflationary cost pressure. Obviously, there's a lot of talk of inflation at the market level. I was just wondering whether across your different business units, you're seeing any cost pressure from an inflationary perspective? Appreciate your starting margins are quite high, but maybe in the supply chain, access to certain raw materials or perhaps, in your retail sales staff, particularly in North America, where we've heard from others.

And secondly, just in terms of the Sustainability Research Center, which was announced earlier this month, it sounds very promising. I appreciate it's not due to open for the next 4 or 5 years, but could you perhaps give us a few words on what the ambitions there are? And whether you expect this to be a commercially driven venture? And how ambitious your expectations and targets are for that?

Jean-Jacques Guiony

Thank you. Well, I'll start on the sustainability center. In a few words, I mean what we anticipate is that all the products from our portfolio will be one way or the other affected by transformation in the next few years, be it packaging, be it component, whatever. I mean the products we have today will be -- will not necessarily be exactly the same in 5 years' time. So what we want is a research center where all the efforts from the group could be coordinated, centralized and made more efficient so that we have a better response to any product transformation issues that we might face in the future wherever these transformation issues come from. So the idea is very much a sort of central and global response to all that. So that's the -- in a nutshell, in a few words, what we aim at doing.

As far as inflation is concerned and the cost pressure, well, you mentioned it, I mean, most of our businesses are fairly high-margin business. So obviously, inflation for us may not be exactly what it is for other categories of business. And on top of that, as I said before, which is probably more important than the first comment, our manufacturing process are simple. I mean we buy in France or in Italy raw materials, fabric or whatever or leather, we buy it, and we made them handbags or garments or whatever in our in our own factories in France or in Italy. So we control this manufacturing chain, and we are not subject to very complex flows of products coming from different regions in the world and being assembled. I mean everything comes out from next door.

I would say, I'm making things a little bit simpler than they are. But that's very much how we deal with that. So therefore, the complexity, the bottlenecks that would create lack of product, necessity to find out elsewhere, how we could source them at a higher cost, et cetera, we -- it happens from time to time, but not so much. Even on transportation costs, obviously, we are suffering from transportation costs being higher than when they were prior to the pandemic, but we are in a good direction. I mean what is costing much more is moving products from Asia into Europe, we are doing the other way around. I mean we are shipping products from Europe into Asia. So obviously, we benefit a little bit from that.

So all in all, I mean for the time being, I cannot really mention any form of inflation costs that we couldn't deal with regular and normal price increase of the magnitude that we have done in the past. So in a nutshell, it's not a big issue for us.

So thank you all for attending this call. This is basically all we wanted to say, and I look forward to meeting you in October to discuss the Q3 revenue numbers. Thank you, and have a nice day.

Operator

Thank you. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.