Executives: Chris Hollis - Director, Financial Communications Jean-Jacques Guiony -

Finance
Analysts: Thomas Chauvet - Citigroup Oliver Chen - Cowen and Company, LLC Antoine Belge - HSBC Luca Solca - Exane BNP Paribas Edouard Aubin - Morgan Stanley Rogerio Fujimori - RBC Capital Markets Omar Saad - Evercore ISI Melanie Flouquet -

JPMorgan
Operator: Welcome to the LVMH 2018 Third Quarter and Nine Months Revenue Conference Call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.

Chris Hollis: Hello.

I’m Chris Hollis, Director of Financial Communications at LVMH. And with me is Jean-Jacques Guiony, Chief Financial Officer. Thank you for joining us today. Minus 7%. We have some brief remarks to make about LVMH’s revenue for the third quarter and first nine months of 2018.

As in previous periods, these revenue figures are reported in accordance with International Financial Reporting Standard, or IFRS. After these remarks, Jean-Jacques and I will be happy to take your questions. Before we begin, I must remind you that certain information to be discussed on today’s call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the Safe Harbor statement included in our press release and on Slide 2 of the presentation. Turning now to our third quarter and nine months revenue announcement, hopefully, you’ve all had a chance to read our release, which was issued yesterday evening in both French and English.

And as always, the release is available on LVMH’s website at www.lvmh.com, as are the slides that we’re using to guide today’s conversation. Starting on Slide 3 with our highlights for the nine-month period, we’re very pleased to have built on our strong momentum from the first-half of the year and once again, delivered solid performance in the third quarter to which all businesses, all business groups and all regions contributed. In addition, reported revenue for the most recent quarter saw currency shifting to a neutral after the negative impact it has had in the first-half of the year. In terms of growth drivers at a regional level, we saw particularly strong performance in Asia and U.S. Looking at the brand, Hennessy continued its good performance in the context of the LDV [ph] supply constraints.

Louis Vuitton and Christian Dior, both the Couture and the Perfumes & Cosmetics activity is demonstrated outstanding momentum. In addition, the other fashion brands performed well. Within Watches & Jewelry, Bvlgari, Chaumet and Hublot, each delivered excellent performance. And in terms of Selective Retailing, Sephora further strengthened its omnichannel offering and continued its rapid revenue growth. And we saw good revenue improvement in DFS in Asia, excluding the termination of the Hong Kong International Airport concessions.

Now let’s go into the numbers and start with a snapshot of our revenue performance over the course of the year so far. As I mentioned, the third quarter built on the solid revenue growth we delivered in the first-half. For the quarter, organic revenue was up 10%, with no currency or structure impact, which brings our organic revenue growth for the first nine months to 11%. On a reported basis, revenue was up 10% for the quarter, as well as 10% for the first nine months, taking into account a 4% positive structural impact resulting from the integration of Christian Dior Couture in July 2017, offset by a 5% negative currency effect over the nine-month period. As we noted in the press release, excluding the impact of the termination of the Hong Kong International Airport concessions at the end of 2017, organic revenue growth for the nine-month period would have been 13%.

Turning to Slide 5 and the group’s revenue in euros by region. Asia, excluding Japan represented 30% of the business over the nine months, followed by the U.S. at 23% and Europe; excluding France at 19%. France and Japan came in at 9% and 7%, respectively, and the rest of the world accounted for 12% of revenue. Compared to this time last year, Europe and Asia have increased their weight from the U.S., in part reflecting currency changes.

As you can see, we continue to have a healthy revenue mix across regions. Looking at the geographical performance, all regions were close to 10% organic growth in the third quarter versus 2017. For the nine months, Asia and Japan have had the strongest performance, growing 16% and 14%, respectively, compared to the prior year periods. The U.S., excluding Hawaii was up 10% over the nine months and Europe was up 7%. Breaking down our organic revenue growth in the nine-month period, Fashion & Leather Goods, Perfumes & Cosmetics and Watches & Jewelry were each up 14%, including a very strong 14% for Fashion & Leather Goods in the third quarter alone.

Compared to the first nine months of 2017, Wines & Spirits was up 7%, Selective Retailing up 8% – or 14%, excluding the impact of the termination last year of the Hong Kong International Airport concession. Turning now to the performance of each business group, I’ll start on Slide 8 with Wines and Spirits. Organic revenue was up 7% for the nine-month period. Reported revenue reached €3.6 billion, up 1% compared to the same period last year due to a negative 6% currency impact. For the third quarter, revenue was up 7% on an organic basis, and after a negative 1% currency impact rose 6% to €1.3 billion compared to same quarter last year.

In Champagne and Wines, organic revenue growth for the third quarter was up 5%, with a negative 3% currency impact. And for the nine months, organic revenue growth reached 3%, or €1.5 billion compared to the same period in 2017, after a negative 5% currency effect. In Cognac and Spirits, organic revenue for the third quarter was up 10%, the same as reported revenue growth. And for the nine months, organic revenue growth was also 10% and reached €2.1 billion, after a 6% negative currency impact. Moving to this group’s highlights, Champagne volumes were stable in the first nine months after a return to growth in the third quarter.

We continue to see strong demand for prestige vintages and this resulted in a solid revenue momentum in all key regions. The Estates & Wines also contributed to performance driven by effective pricing strategies. With respect to Cognac, we were pleased to see Hennessy volumes rise 4% over the nine-month period. Progress in the U.S. continued in the context of tight supply, and we saw a strong momentum in China due to nine-month period.

We continue to see a rebound in consumer demand in Asia overall for Glenmorangie following the destocking experienced in 2017. Looking now at the Fashion & Leather Goods business group. Revenue was up 14% on an organic basis for the first nine months of the year and 20% on a reported basis. This reflects the – an 11% positive structural impact from the integration of Christian Dior Couture in July 2017, as I mentioned earlier on, and a 5% negative currency effect. For the third quarter specifically, revenue was up 14% on both an organic basis and reported basis compared a year ago period and reached €4.5 billion.

That’s – there is no further structural impact from the acquisition of Christian Dior Couture. This business group, this is Slide 11, delivered strong growth across all regions for the nine-month period. Louis Vuitton continued its exceptional creativity, driven by both the success of its iconic lines and new product launches. These included the New Wave handbag collection and the Attrape-Rêves women’s fragrance featured Emma Stone in its film campaign. The brand continued its qualitative work on stores and opened its remodeled South Coast Plaza store in Costa Mesa and its first airport store in France, at Paris Charles de Gaulle Airport.

Finally, the runway shows of Virgil Abloh and Nicolas Ghesquière were both highly successful. Looking at the other Fashion & Leather Goods brands, Christian Dior Couture delivered its excellent performance and had a highly successful Spring/Summer 2019 runway show last month. Fendi celebrated the 10-year anniversary of its Peekaboo bag and launched the Peekaboo X-Lite, which is being very well received. Celine continued to make good progress and Hedi Slimane’s first runway show had a significant impact and was very well received by retailers. Loewe, Kenzo, Loro Piana and Berluti, all had strong performances.

Rimowa has been selectively developing its distribution capabilities and launched a successful advertising campaign featuring Roger Federer. And finally, Marc Jacobs continued evolving its product lines and introduced the popular – very popular Snapshot bag this year. In Perfumes & Cosmetics, revenue rose to €4.4 billion from €4.1 billion in the nine-month period of last year. Excluding a 6% negative currency effect, this represents a 14% increase in organic revenue. For the third quarter, organic revenue in this business group was up 11%, and after a 1% negative currency impact, impact, which €1.5 billion, or up 10% on a reported basis compared to the same period last year.

Looking at Perfumes & Cosmetics. Overall, this business group delivered growth across all regions, particularly Asia. In terms of brands, Parfums Christian Dior saw continued strong demand for Miss Dior and Sauvage, as well as excellent results in makeup, driven by its its Rouge Dior line. It also successfully launched a new perfume called Joy, with actress Jennifer Lawrence as the face of that campaign. Guerlain skincare line, Abeille Royale; and its lipstick, Rouche G performed very well.

And Parfums Givenchy launched a new fragrance – women’s fragrance L’Interdit, with actress Rooney Mara. The mascara BAD Gal Bang was a successful benefit, which also launched its Brow Contour Pro, a 4-in-1 contour pencil. And finally, Fresh and Fenty by Rihanna, which was launched in Q3 last year, both performed well in the nine-month period. Moving to Watches & Jewelry, Slide 14, revenue for this group – business group increased to €3 billion versus €2.8 billion in the first nine months of last year, including a very strong 14% organic revenue growth, offset by a 6% currency impact. For the third quarter on its own, revenue was up 10% on both an organic and reported basis compared a year ago period to reach €1.043 billion.

This business group delivered solid growth on the strength of the iconic lines across brands, and Bvlgari gained market share of the period due to the success of its iconic Serpenti, Diva and B.Zero1, as well as Lvcea and Octo lines and the introduction of its high – new high jewelry collection Wild Pop. The brand also inaugurated last month in exhibition at the Moscow Kremlin Museum, it showcases its rich heritage. Looking at the other jewelry brands, Chaumet continued – saw continued success of its Liens and Joséphine lines and extended its popular Bee My Love collection in – to include bangles. And Fred opened its first store in Macau. And on the watches front, TAG Heuer continued to focus on developing its iconic lines.

Hublot opened a new flagship store in London, and so strong contribution to its growth from its Spirit of Big Bang collection, and Zenith did very well with its Defy line. Finally, looking now at Selective Retailing, Slide 16. Revenue increased to €9.5 billion in the first nine months of the year from €9.3 billion in the year – prior year period. While reported revenue was up 2%, this included a negative 6% currency impact, organic revenue growth was 8%. In fact, excluding the termination of Hong Kong International Airport concessions, organic growth would have been 14%.

Third quarter revenue for this business group was €3.2 billion, a 5% increase in both organic and reported terms compared to the same period last year. Sephora continued on its growth trajectory, driven by strong revenue growth, especially in Asia and North America. It had solid growth in online revenue across all regions. The brand has started the Sephora-zation of some of its Ile de Beauté stores in Russia and also opened a new store concept in Shanghai in the third quarter. The DFS showed good performance in Asia and it’s recently opened T Gallerias in Cambodia and Italy, in Venice have been very successful and had the newly renovated T Gallerias in Auckland, New Zealand.

Le Bon Marché’s exhibit dedicated to Los Angeles has been extremely well received and it launched a new capsule collection from designer and model, Ines de la Fressange, which is exclusively available on its 24 Sèvres e-commerce site. So in summary, we saw a solid performance over the first nine months of 2018, with all regions and business groups contributing to growth in this last quarter – latest quarter. Our strategy to focus on delivering innovative high product – high-quality products to consumers, while selectively expanding our store network and managing costs continues. And while we are pleased with our performance to date, we remain cautiously confident as we look ahead to the rest of the year in the context of monetary and geopolitical uncertainties. As in the past, our objective in 2018 is to continue to build on the rich heritage of each of our brands and to reinforce the group’s worldwide leadership position in the global luxury goods market.

And on that note, I want to just acknowledge a very exciting event that will occur this coming weekend across the world, our fourth edition of Les Journees Particulieres. As you know – as you may know, this is a weekend where LVMH offers the public a behind-the-scenes look at our maisons and the artisans, the craftsmen who create our uniquely desirable products. From workshops to ateliers, wineries, private mansions and historic stores, this year, the event will showcase the work of thousands of artisans across 77 locations on five continents, including 40 sites that have not previously been opened for this event. You can find more information on our website. With that, we will now take your questions.

Melanie, please, could you open the lines.

Operator: [Operator Instructions]. We have – the first question comes from Tom Chauvet from Citi. Sir, please go ahead.

Thomas Chauvet: Good afternoon, Jean-Jacques and Chris.

Thanks for taking my questions. I have three, please. The first one Fashion & Leather, excellent growth in the quarter, possibly slightly boosted by Dior. Can you talk about Vuitton sales by nationality. Jean-Jacques, as you usually do in Q2, I think, there was an acceleration to over 20% growth with the Chinese clientele and slowdown to low single-digit with European? So if you could comment on Q3 for the usual four clusters of clientele? Secondly, on parallel markets.

With the price cuts you did in July in China due to import duties and the weaker RMB, the gap between China and key geographies has been significantly reduced, particularly within Asia. That should limit, I think, the appeal of buying from parallel markets. Do you think the concerns around Chinese authorities cracking down on Daigou, evidenced at airports during Golden Week already done? And if we take Vuitton’s offshore sales to Chinese, do you have an estimate of how much it generated from real tourists versus Daigou? And finally, on the outlook, most of us noticed in your English and French press release, you no longer describe the environment as buoyant or [Foreign Language] in French. As you are finalizing the budget, can you highlight your main concerns for next year, potential initiatives you have in place to offset a potential normalization in demand? Thank you. Jean-

Jacques Guiony: Thank you, Thomas.

Are you really sure I have to answer the third question on highlighting the concerns surrounding environment and the trade war and whatever is our day-to-day life when we do business? I’m not sure. So you know as much as I do on these things and the – my only message is that there is nothing particularly specific to luxury and LVMH in all that. The world is a complicated place. Currencies are playing in all directions and governments are making their life and our life more difficult sometimes. So that’s what I would mention.

On your first question on LV by nationality, obviously, there were ups and downs. What – the most noticeable point is in Japan, where we saw a significant slowdown in the growth we have had with Japanese customers that were mid-teens in the first-half of the year, which is quite an extraordinary and – level, and we went down to mid single digits – mid to high single-digit. So a slowdown there that we expected. Obviously, the result of normalized growth rate of the Japanese customer base is not as high as what it was over the last two or three quarters. So that’s the most noticeable point.

As far as the U.S. client base is concerned, nothing to report, same type of double-digit growth with U.S. customers. And as far as Chinese customers are concerned, a little slowdown that we are really talking about moving from high-teens to mid-teens. So it’s really nothing really noticeable.

To follow your points, the offshore business was a bit weaker than it was before, and the Mainland business, domestic business was a big stronger. But all in all, I mean, with the exception of Japan, we didn’t see major shifts in the main client base of Vuitton in the third quarter of the year. There was – the second question on price gaps and Daigou versus tourist. Obviously, we can’t measure whether clients are part of this tour or buying to resell or buying for themselves. So it’s very difficult.

The one thing I would say is that, it’s not the first time that we see that. When the Chinese authorities have some laws with regards to importation of goods and luxury goods, these laws are being enforced with more strength at some point in time, which is exactly what we understand is happening. There is nothing wrong with that. It doesn’t prevent people – real tourists from purchasing goods outside China. And the Chinese purchases obviously benefit from a price gap, which is quite narrow these days.

So it will shift a little bit of business as we’ve seen in Q3 from the traditional tourist destination like Hong Kong and Macao to China. But again, I see nothing wrong with that.

Thomas Chauvet: Thank you.

Operator: The next question comes from Oliver Chen from Cowen. Sir, please go ahead.

Oliver Chen: Hi. Thank you. Good morning. Regarding what’s happening in luxury with platforms such as Farfetch, what makes sense for you in terms of thinking about that relationship and platforms on your own? Also Sephora, you continue to show great momentum there. If you could help us understand if there’s categories that outperform versus where you see other opportunities for other categories, that would be helpful? And lastly, just on the Vuitton digital strategy, what are your thoughts for digital conveniences such as buy online, pick up in store and integrating with store and digital inventory in geo locations, because we’re seeing a lot of U.S.

luxury players really amplify innovation with respect to the multichannel experience? Thank you. Jean-

Jacques Guiony: Thank you. So on the platform, I could spend half an hour of this, so I’ll try to make it short. Globally, there’s nothing wrong with e-retail platforms as long as we can do the same type of business as we do with department stores. Basically, when we do business with department stores, we pay a rental fee, so a percentage of our sales.

And we don’t sell the merchandise wholesale to the department stores and they do what they want with it, including discounting it at the end of the decision. So our basic model is what we call lead department. And there’s nothing wrong in doing the same thing with e-retailers. So the type of model that would enable us to do our own business on somebody else’s e-platform is philosophically, I would say, okay with that. The only thing is that, there’s no such thing as a platform today that would suit our needs.

But most of the platforms are wholesale platforms and not concession-based platforms. And if they are, they don’t provide access to the various data regarding the clients. Obviously, when we do business in the department store, it’s our – it’s not our premises, but it is our client and we get all the data we want from the client and we expect to get the same thing online as we get offline. So that’s the limitation, and that’s actually the reason why we have decided to launch the 24 Sèvres initiative, which is in-house and basically enable us to control the data that we wouldn’t get otherwise. On the second question on Sephora categories, what we see that – what we’ve seen since the beginning of the year is that makeup is still doing, okay, but skincare is doing – is much stronger than what we used to see.

Perfume is all right, but not the most buoyant of the three categories. So the arc has not changed, but we definitely see an improvement from skincare. And on the omni-channel, obviously, this is something that we tried to promote integrating the online experience within the regular stores and vice versa is of key importance. As you suggested, the ability to integrate real-time access to the inventories, whether warehouse stores, et cetera, is of key importance in this. In companies, like ours, where particularly the inventory systems are pretty – have been developed over many, many years and sometimes many decades.

It only takes a little bit of time to streamline all that and to make – to allow real access to – real-time access to the inventories, but it’s something we’re working on. And some of our brands, including Vuitton and Sephora pretty well advanced on that.

Oliver Chen: Okay, that’s very helpful. Just a quick follow-up. Sephora has had pretty amazing versatility in the United States with respect to format and innovation in your physical and digital.

What are your thoughts on the U.S. footprint of Sephora and the relationship with JCPenney? Do you have any thoughts just generally what you’re seeing with real estate and rents and rent negotiations in U.S.? That would be helpful as well given the changing dynamics of what’s happening in U.S. retail?
Jean-

Jacques Guiony: Well, I think the big learning from the Sephora experience in the U.S. is at both online and offline or brick-and-mortar and online reinforce each other. I mean, there wouldn’t be a Sephora online without the brick-and-mortar and I think vice versa, which means that despite the fact that the growth is and has been much higher in online than it is in the brick-and-mortar segment within Sephora in the U.S.

and it’s been the case for quite a long period of time, despite that we still feel that opening – keeping and opening a large base of regular stores is extremely important. We understand better the behavior of customers and they browse on the web in the same way as they browse into our stores. So the two experiences – the customers’ experiences really complement each other. So it’s why we think that going forward, we shall be – we shall keep on opening stores. On your question on JCPenney, obviously, there’s a lot of questions being asked to us with regards to the closures of some of their stores.

The only comment I would make is that, we are not in old JCPenney stores far from that. And we are usually in the most – in the best performing stores of JCPenney and obviously, not the ones that they would think about closing. So the relationship remains very good. It’s a big source of business for us and big source of client acquisition on their side, and what has been the logic of this deal 10 or 15 years ago remains the same. As far as rents are concerned, it’s impossible to give you simple answer, I mean, whether you’re talking about Manhattan, Fifth Avenue or you’re talking about Wichita Falls, obviously, the situation is a bit different and diverse in commercial real estate in the U.S.

The only thing I would say is that as far as the prominent retail locations are concerned, it’s as costly as it’s been, if not more. So in this respect, the rental cost doesn’t go…

Oliver Chen: Yes. Jean-

Jacques Guiony: …or doesn’t come back.

Oliver Chen: That’s very helpful. Nice job on the Rimowa rebranding and the Peekaboo X-Lite, great.

Great to see that. Best regards. Jean-

Jacques Guiony: Okay. Thank you.

Operator: The next question comes from Antoine Belge from HSBC.

Go ahead.

Antoine Belge: Yes. Hi, it’s Antoine Belge from HSBC with three questions. And first of all, the 14% in Fashion & Leather. Obviously, Dior entered the base of like-for-likes and Rimowa, there is a cleaning going on.

So any reason to expect a material difference from the Louis Vuitton performance? And do you believe that 14% was actually quite close to the maximum that Louis Vuitton can produce. I think, in China, recently you said that – or Michael Burke said that demand was exceeding supply and like 50% of SKUs we’re out of stock. So was it true in indeed the quarter as a whole? Second question, I know you don’t want to – a bit on current trading, but there has been a lot of talks about September slowing versus the rest of the quarter and maybe a more slowdown in the beginning of October. So could you confirm that there’s been any big changes compared to the overall quarter numbers you just reported? And finally, on Watches & Jewelry, there was a bit of a slowdown there. I think you comment – there is a comment in the press release about strong performance at Bvlgari.

So is it fair to say that you’ve seen quite a big difference between jewelry, on the one side on watches. Are there any sort of technical impact destocking, or is a particular brand in watches, which depressed a bit the number? Thank you. Jean-

Jacques Guiony: Thank you for three questions, Antoine Starting with the first one on Louis Vuitton, I will make the usual answer. I mean, the Vuitton performance is not far – is never far and is not far from the divisions’ average, despite the intrusion of Dior and Rimowa that makes Vuitton slightly lower share of the total or the total that it used to be. It remains the – very close to the average a 14%, assuming this is Vuitton’s growth, which I’m not confirming obviously is 14% the maximum growth that we could get at Vuitton, I don’t think so.

I mean, there were quarters in the past, where we managed to do – when we managed to do better than that. Michael mentioned some out of stocks in stores. The question was out of stock is not a daily question. I mean, you can be out of stock for a couple of days, it’s not the issue. The question is, how quickly you replenish inventories in stores, and in this respect, Vuitton is doing extremely well.

So we’re not – neither worried nor constrained in terms of growth by availability of product. So in this respect, I mean, the supply chain of Vuitton is working well. And we generate the type of growth we should generate. Doesn’t mean that we want to make all products available to anyone asking for the product. You know our philosophy, some of our products, we don’t want to see them over span – oversold and too visible, so we limit their availability.

But this being said, I mean, it’s not the supply chain question. It’s a commercial strategy question. Second question on September, you obviously don’t expect me to answer. I usually tell you that a quarter is not a trend, so what about a month? And if we had to do monthly reporting, yes, I should know about it and we don’t do that. The question comes from the fact that it was widely understood in the industry that July and August were around the same trend as the first-half of the year.

And when you see the Q3 being slightly lower, you figure out that the reason for this is that September was actually lower. You also probably remember that the last time we saw each other, I made my introduction to the meeting by saying that the only thing – the only question I will not answer is confirming, whether the trend for July and August was in line with each one. So I never said that. Therefore, any surprise on the trend doesn’t come from this comment. Of course, September is an – is the most important month in Q3.

But I think, you should look at Q3 for what it is. Even a quarter, as I said before, it makes – it’s even difficult for us to understand the trends from one single quarter, so one single month doesn’t mean anything. Finally, on Watches & Jewelry, nothing new there in jewelry that’s better than watches. We face a very difficult situation for watches in the U.S. with a tough comparison base for TAG Heuer with the launch of the connected watch last year.

So the performance of TAG Heuer in Q3, particularly in the U.S. was a bit tough on top of the comparison base. I mean, the market in the U.S., particularly if you look at the price range below $3,000 which is the vast majority of what we sell in the U.S., the market is extremely tough. It’s much better above $3,000, but it’s really bad below $3,000, so there’s big discrepancy between the two above and below $3,000. So we had the tough period, we’re having a tough period with TAG Heuer in the U.S.

And finally, on the division as a whole, still in the U.S., Bvlgari made a pretty severe cleanup of their watches, jewelry, accessories and perfume business on the wholesale side in the U.S. So despite the fact that the retail business in the U.S. of Bvlgari still doing very well. The rest of the business was cleaned up and therefore was fairly negative. So for these various reasons which explains this kind of slowdown from 16% to, I don’t know 11% or 10%, which is not bad anyway.

But the 10% we had in Q3 in Watches & Jewelry, that’s explained mostly by these two reasons.

Antoine Belge: Okay, many thanks. To be honest, I don’t know what I have to conclude for what you said about September, but I’m sure other people will follow-up. Maybe just could you repeat the growth rate organic for Champagne in Q3 on the nine-month? I couldn’t really write them down?

Chris Hollis: The growth rate for Champagne and Wines was – 5% was the organic growth rate for Champagne and Wines in Q3 of 2018.

Antoine Belge: All right.

Thank you very much. Jean-

Jacques Guiony: And for September, if you understand me that I didn’t make myself clear enough. So that was the objective.

Antoine Belge: Okay.

Operator: The next question comes from [indiscernible].

Madam, please go ahead.

Unidentified Analyst: Good afternoon to all of you. My first question is on DFS in Q3. Have you felt any impact from the climate events that happened in Hong Kong or Japan that may explain the slowdown of this division? My second question is about Europe, where you said an acceleration in Q3. Can you probably split a bit by division there? And my last question is on energy depletions in Q3 as well, particularly in China.

Have you felt also the need in [indiscernible]? And I was curious about V.S. and the XO depletion during this time? Thank you very much. Jean-

Jacques Guiony: Thank you. I mean, so on the first, I wish I could blame weather. Obviously, it was not a plus as we had to close the stores for three days.

But three days in the quarter is not an enormous amount of shift in business. If you look at DFS during the quarter and in comparison to each one. And if you exclude the impact of Hong Kong airport, obviously, which was in the base last year and not this year. Roughly speaking, we moved down from 30-ish type of growth rate in H1 to something around mid-teen. So there’s a slowdown definitely.

You also have to consider that last year’s comparison base in Q3 was very tough. There’s a slowdown, but the absolute level of growth that we get in Q3 is very good anyway. I mean if – this is a slowdown for DFS. I buy it 100%, it’s not bad at all. Obviously, the bulk of it happens in Hong Kong, but in Hong Kong, we were growing in H1 more than 50% or 60%.

I: As far as Europe is concerned, the main change that explains the growth – the higher growth in Q3 is Fashion & Leather. Most of the businesses in Fashion & Leather, including Vuitton, obviously and Dior, have been better in Q3 than they were in H1. And finally, on Hennessy depletions in China, I don’t have the full quarter numbers yet. I mean, they take time to report, particularly with the Mid-Autumn Festival. I mean, it’s a bit longer than usual.

But as far as July and August were concerned, we were very pleased with the depletions that were more or less in line for both V.S.O.P and XO with what we had in the first part of the year. So pretty strong figure, I mean, more than 20% in those cases.

Unidentified Analyst: Okay. Thank you very much.

Operator: The next question comes from Luca Solca from Exane BNP Paribas.

Please go ahead.

Luca Solca: Yes, good afternoon. I wonder if you could give us more color on the border controls that are happening in China and what you make of them? In the past, we’ve seen that they last for a relatively short amount of time. Is this a show-off procedure that, that is being carried out by Chinese authorities in your view, or is it going to sustain and force more purchases by Chinese consumers in China? And are you preparing for this possible scenario by planning to further align prices around the world, or do you think that the current price gaps are the appropriate ones?
Jean-

Jacques Guiony: Luca, you don’t really expect me to answer or to comment a decision being enforced by – or law being enforced by sovereign state on its own territory. I mean, it’s obviously impossible to comment that.

They do it in their own right. They are just implementing their own laws, and I have no comment to make whether it would last or not. I have no opinion, to be be frank, and nobody was in the group knows anything about that. As I said before, we’ve seen in the past. The customers adapt to this situation.

And as far as we’re concerned, we have no problem in selling domestically to local customers and to real tourists outside Mainland China. I mean, the Daigou business or the parallel business is not, let’s be clear, is not something that we will come and that we try to promote. We limit the number of products that people can buy in stores, particularly in Paris. So that we don’t fuel parallel with our own actions in European markets and we try to avoid this as much as we can. Obviously, there are limits to the control we can exert over that.

But the fact that Chinese authorities are moving into the same direction is obviously good news for us and I will comment further. Your question on prices, whether this pushes us to align more prices. The answer is no. We have a sort of objective price architecture that we have built over the last 30 or 40 years, which we know promotes the business, doesn’t dissuade people from buying at all, but also sort of push them to take the opportunity when they travel. And that’s something that we have built over the years.

The rest of the industry with only a few exceptions do the same and we have no problem whatsoever with price gaps. And we think our customers understand the logic of it, which is obviously the difference in lending costs. A lot of comments are being made on the luxury industry, but it’s not unique in the luxury industry. I mean, the – you don’t pay cell phone the same price here in New York. It’s exactly the same and the same logic and we don’t intend to change that.

It doesn’t mean that we will not adjust prices to get closer to our desired price gaps. But that comment I never make on such calls. I mean, we view our price structure at all times. And when we have to take actions, we do.

Luca Solca: Thank you.

Jean-Jacques, another question, if I may. On…
Jean-

Jacques Guiony: Sure.

Luca Solca: …the watches market in the U.S., you are referring to two segments having very different trends. And I was wondering whether you have what it takes to sort of make the most of the higher segment being more buoyant. And if you anticipate that organization changes in the watches division could be conducive to changing part of the strategy in that part of your business?
Jean-

Jacques Guiony: I’m not sure I get your question, Luca.

I mean, what you mean, change in management?

Luca Solca: You were saying the segment below $3,000 is very competitive and that is hurting or in a way creating a less favorable environment for TAG Heuer. And I presume you have Bvlgari and other brands to make the most of the segment above that. And we recently saw in the newspapers of the change in responsibility for Jean-Claude Biver. I wonder if that is potentially a preamble for a strategy review or for any changes in your watches division?
Jean-

Jacques Guiony: Well, yes and no. Obviously, a new management will do a strategy review of the positioning of the various brands.

That’s for the yes. For the no, I mean, TAG Heuer is legitimate at a certain price point. I view this price point is mostly below $3,000 or $3,500, and it will be very difficult and not to say, dangerous to move those if we hear that there will only be growth above that level. I’m just commenting on the current situation. It doesn’t mean that for the next 10 years, what is below $3,000 will plummet and what is above $3,000 will flourish, we don’t know.

I’m just commenting that the last three – two, three quarters have been pretty tough in this segment. We’ll be reviewing the strategy of the brand with the new management team. But don’t expect the major price difference and the price positioning of TAG Heuer in the years to come.

Luca Solca: Understood. Thank you very much.

Jean-

Jacques Guiony: Thank you, Luca.

Operator: The next question comes from Edouard Aubin from Morgan Stanley. Sir, please go ahead.

Edouard Aubin: Yes, good afternoon. Just two quick ones for me.

Just to come back, sorry, on Selective Retailing, which came in a bit below expectations. So you explained on the situation at DFS. On Sephora, where – did you manage to remain double-digit up in terms of sales growth in the quarter? And my second question relates to the Fashion & Leather Goods division, which obviously posted stronger than expected sales growth versus market expectation, it’s your highest margin division. Obviously, you don’t provide earnings guidance, and I’m not asking you to start providing earnings guidance. But I guess, philosophically, why should consensus move up on the back of this, or to ask the question another way, what are the offset that maybe we are forgetting in terms of cost – natural cost inflation, which would offset the benefit from the Fashion & Leather Goods growing faster than expected?
Jean-

Jacques Guiony: Well, it’s a good question.

It’s quite far reaching with, I would say. When it comes to mix and what drives the global profitability of a group as complex as LVMH with five different divisions, et cetera, I mean, a lot of things collide into each other. So it’s quite difficult to give you a simple and comprehensive answer on those things. You have to bear in mind, that the first part of the year we benefited strongly from hating games, which are usually pretty favorable as we’ve seen, for instance, in Wines & Spirits in the – in terms of margins – of gross margins, but also operating margin. We had a margin improvement in the first-half of the year at Wine & Spirits, if I’m not mistaken, the profits went up 7% when top line in Europe was only 0% or 1% up.

This is unlikely to replicate in the second part of the year due to the fact that actually there won’t be any currency impact. So these – there are few phenomenons that may – phenomena that may collide into each other. So all in all, it’s quite complicated to answer your questions. The second question or first question you had on Selective Retailing in Sephora, yes, Sephora was double-digit in Q3.

Edouard Aubin: Okay, perfect.

Thank you.

Operator: The next question comes from Rogerio Fujimori from RBC. Please go ahead.

Rogerio Fujimori: Oh, hi, Jean-Jacque and Chris. Rogerio Fujimori from RBC.

Obviously, two quick questions. On Fashion & Leather, just give a bit of color by region or how is the Fashion & Leather performance by region, how does it compare to total group average? And could you please talk about your 11% growth in Asia in Q3 in addition to the DFS normalization to meeting growth? Could you give a bit color on trends in the main Asian markets, like Hong Kong, Macau, Korean Southeast Asia for the rest of the business? Thank you. Jean-

Jacques Guiony: Okay. So on the Fashion & Leather, numbers were reasonably homogenous. I mean, we were around the divisions’ average in most areas, I would say, so I have nothing really particular to report there.

There were no major changes, I mean, no major discrepancies around the average that you know. Sorry, second question was about Asia 11% in Asia?

Rogerio Fujimori: Yes. Jean-

Jacques Guiony: The – so the first point to bear in mind with regards to Asia is that the numbers we report are impacted by Hong Kong Airport’s discontinuation. So if you look at them, excluding airports, H1 was 25% in Q3, it’s 18%. So there’s the same magnitude in terms of change, but with a different perspective, which is that we are growing very fast.

We are still growing very fast in Asia, so I think this was having in mind. Secondly, by – if you look at it by country, growth in China was more or less was above 20% and was very frankly higher than what it was in for six months of the year. So nothing comes from China when it comes to explaining the difference between H1 and Q3 growth in Asia. And the biggest share comes actually from Hong Kong, which is not entirely a surprise, given the narrowing of the price gap. But also given the fact that in H1 in Hong Kong, for instance, both Vuitton and DFS were growing above 50%, which is obviously not sustainable.

They are now – they come back to something around 20%, 20% plus, 20% less, which is very – still very, very good. We are still doing very well in Q3 in Hong Kong with our main businesses. So yes, there is a, what you call, a slowdown, which in my view, is more normalization than a slowdown. But we remain at pretty high growth rate in these areas for our main businesses. In Macau, to a larger extent, is the same.

The numbers are not exactly the same. The magnitude of the difference is not as big. We started from a less high point, but it’s exactly the same phenomena normalization as opposed to slowdown.

Rogerio Fujimori: Korea and Southeast Asia, any change in trends?
Jean-

Jacques Guiony: It’s less significant – the business was a bit lower in Q3 than it was in H1 in Korea. I don’t think it is in anyway linked with what you – the few questions were asked on before.

But the business was a bit weaker, yes.

Rogerio Fujimori: Thank you.

Operator: The next question comes from Omar Saad from Evercore ISI. Sir, please go ahead.

Omar Saad: Thank you.

Thanks for taking my question. Just one quick follow-up on China and the Chinese consumer. I mean, it sounds like it’s – they’re holding in quite well. Obviously, there’s a lot of fear in the market around what’s going to happen with their consumer, given the trade war and financial market volatility. But maybe you could talk a little bit about how your business and the nature of your business in China and with the Chinese consumer has changed since the last slowdown there four or five years ago as it moved from more business and gifting nature to more self-consumption is the nature of the income demographic of that consumer involves significantly from them that might help us understand how to think about how that business will perform if there’s another Chinese slowdown? Thanks.

Jean-

Jacques Guiony: Thank you. Obviously, there has been some changes, part of the business some five or six years ago was connected with gifting. It was more or less obvious from our brands’ viewpoint. Some people were getting gifts in vouchers that they could redeem cash and they were buying into some of our products with the cash that were provided by vouchers. So obviously, we had no concerns whatsoever that our business to some extent was connected to gifting by and large we think this business has gone.

So in between 2012 – mid-2012 and mid-2016, this business went away. So we are left with, I would say, real business with the genuine business of people buying for themselves – with themselves and which is a natural function of luxury gifts. So in this respect, the Chinese markets normalized in a pretty quick way from a gifting base economy to a more normal economy. And obviously, we welcome that as good news. With regards to behavior of these normal customers, I would say, nothing really new.

I mean, the propensity to buy luxury goods from the Chinese customer is higher than it is anywhere else in the world, which means that the starting point in terms of average – individual average income in which – at which they sort of get an interest into luxury is probably lower in China than it is outside in the Western world in Europe and in the U.S., hence, the higher volatility. I mean for this client, the level of investment in to luxury goods is probably higher in proportion of their income than it is in the western world. So therefore, when they feel good or bad on the economy and on the – on their own situation, it has disproportionate consequences on their propensity either to purchase or not to purchase. So it’s a more volatile market, but the more dynamic market at the same time. I mean, we have the two sides of the coin, but it’s a much sounder market with almost disappearance of, I would say, the bad gifting, because gifting there is also a good gifting.

I mean, gifting is a part of cultural habits in China and obviously this is not – this does not disappear and will remain.

Omar Saad: Thank you.

Operator: The next question comes from Melanie Flouquet from JPMorgan. Madam, go ahead.

Melanie Flouquet: Yes, good afternoon.

Thank you. Yes, I’m trying to square a bit what you provided by geography and your comments on the Chinese customer base. I was wondering whether you could clarify what actually did accelerate in Fashion & Leather Goods in Europe? Is this a traveler, or is this a local demand? Is it both? When I look at the three years back in Europe and Asia Pacific and I don’t know whether it is a right way to approach it. But I assume that the traveler did come back and forth when it comes to the Chinese in H2 2016. The Chinese customer base, Asia Pacific and Europe actually holding up better than I think some people would have said, and mid-teens growth for the Chinese customer base in total is actually arguably a pretty good growth given the base of comparison on a one and two-year basis.

So I was wondering whether you could comment whether that’s correct? And why do you think the Chinese customer base is proving resilient so far, so sorry, these are my question Europe first and then the Chinese customer base. And then my third question, sorry, is on your comments that you will manage the group with some vigilance. Could you share with us what are the initiatives you would take to run your business with vigilance? Thank you. Jean-

Jacques Guiony: On the last point, we will – let us discuss with our business during budget sessions first and we’ll report to the market afterwards. So it’s not something that I intend to discuss today.

On the business in Europe and whether further growth or higher growth is coming from traveler or locals not a big shift. The travelers are doing a bit better as far as we can see obviously, we don’t have a view on all the brands. Travelers are doing a bit better and local are still weighing more or less the same way with the same French with French and British citizens and not so good with German. But no major change and a little bit of improvement in travelers. Once again, I mean, you are asking me to comment on few percentage points change in business trends and it’s not always easy to understand why something moved from 14% to 16% or from 16% to 14%.

The Chinese customer base and the mid-teen is more resilient than you would have thought. Okay, it’s better than what you think. As far as we are concerned, we take the numbers when they come. We spend a lot of money in marketing to attract all customers, including the Chinese one. It’s difficult to give you reasons why we were not expecting the Chinese customer.

I mean, we were together in China not so long ago, we were pretty optimistic as to the future of the Chinese customers. So basically, our forecast was not particularly pessimistic or negative on China. The real numbers are not particularly bad. As far as we are concerned, I mean, we see nothing illogical or new in these numbers. So I don’t have a big comment to make obviously when the price gaps change as it’s been the case in Q3.

It has some impacts on touristic markets and some impact, usually negative and positive on the domestic market. We saw both of that in Q3. The question is whether they offset each other, not perfectly, but not so badly either. So all in all, I mean, the system works well and the Chinese customer understands where they should be doing business, and it has no meaningful impact on the global demand. So in other words, offer doesn’t really impair or favor demand.

It’s really demand being expressed in a fairly way in our various markets.

Melanie Flouquet: Can I ask you what dropped the deceleration in the U.S.? Because you commented such that, that was more or less in the same trend. And that if I look at the compares was actually pretty easy in the U.S. So it seems to have decelerated on year-over-year base?
Jean-

Jacques Guiony: What are you talking about? Deceleration of what? Of the – in the U.S.?

Melanie Flouquet: The comp basis was a lot easier in quarters through 2017, right?
Jean-

Jacques Guiony: Well, you never know. With the comp, you have to be cautious, because you have to look at the numbers in 2016.

And if I remember correctly, in 2016, there was something with Wines & Spirits, it was pretty bad numbers, also pretty tough numbers to anniversarize in 2017. So it’s always pretty – I mean, if you look at the U.S. for the last, I don’t know, 27 quarters, it’s been around 10% more or less. So I think, we can be pretty pleased with these numbers, and we don’t see any real change in the conditions – in the business conditions there.

Melanie Flouquet: Thank you.

Operator: We don’t have any further question. [Operator Instructions]. Jean-

Jacques Guiony: Okay. So if there are no further questions, thank you for attending the call. And the next meeting or appointment will be in late January when we release both the top line and profit numbers for the year.

Thank you.

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