LVMH Moet Hennessy Louis Vuitton SE

PAR:MC

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the LVMH 2020 first quarter revenue conference call.I'll now hand over to Mr. Chris Hollis. Sir, please go ahead.

[Chris Hollis, Director of Financial Communications]

Hello. I'm Chris Hollis, Director of Financial Communications at LVMH. And with me on my laptop is Jean-Jacques Guiony, our CFO. Thanks for joining us.We have some remarks to make about LVMH's revenue for the first quarter of 2020. As in previous periods, these revenue figures are reported in accordance with the IFRS. After these remarks, Jean-Jacques and I will be happy to take your questions.As a reminder, certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release and on Slide 2 of our presentation.Before we begin, we'd like to acknowledge the extraordinary circumstances we have all been living in for the past several weeks, and express our deepest sympathy to anyone or their loved ones or colleagues who have been affected by COVID-19. It is our hope that you are all feeling healthy and staying safe during these unprecedented and uncertain times.Turning now to our announcement. Hopefully, you've all had a chance to read our release, which was issued just a short while ago in both French and English. As always, the release is available on LVMH's website, www.lvmh.com, as are the slides that we are using to guide today's call.To start on Slide 3, the performance in the first quarter demonstrated the resilience of our brands in the context of an economic environment significantly disrupted by the global health crisis, including a major impact on travel. While all regions were impacted by COVID-19, we've started to see in-store traffic and sales improving in China. Our iconic Maisons, Louis Vuitton and Christian Dior as well as Moët Hennessy showed good resilience. The acceleration we are seeing in e-commerce and online sales has served to partially offset the impact of store closures, initially in China, and now in Europe and in the U.S. At the same time, we are destocking our retailers during this quarter in Wines & Spirits, Perfumes & Cosmetics, and Watches & Jewelry segments.Our teams across the board are focused on taking steps to adapt the businesses to address the current challenges created by the crisis. As you have seen, we mentioned we've launched several initiatives to help in the fight against COVID-19, all while remaining focused on protecting employees and customers.Certain of our Perfumes & Cosmetics and spirits production sites have been retooled -- retooled their lines to produce hand sanitizer gels for hospitals. We have secured orders for several million surgical marks as well as respiratory equipment for French health authorities. And a number of our maisons also have stepped up to help, including producing gowns for health care workers and non-medical masks to help manage the spread of the virus, donating products and supplying essential material to local hospitals in their communities.Looking at the overall numbers for the first quarter, total revenue was down 15% on a reported basis to EUR 10.6 billion from EUR 12.5 billion in the year ago period. This reflects a 17% decrease in organic revenue, along with a 1% positive currency effect and a 1% positive impact -- structural impact related to the Belmond acquisition, which we completed last April.In terms of how the revenue changed for each region relative to last year's first quarter, organic revenue was down 8% in the U.S., including Hawaii; 10% in both Europe and Japan; and the rest of Asia saw a decrease of 32%. This, in part, reflects the spread of COVID-19, which started with Asia where stores closed first and where there has been -- where there was the most impact but also reopened first, before moving to Europe and the U.S. where most stores closed in mid-March.For the quarter, we saw Champagne volumes decreased 6%. As I say every year -- this is Slide 8. See, I think I missed a slide here. I might have missed a slide here, which is not coming up on my computer. This is -- one minute, let me see if I can fix this. Working from home has its drawbacks. Let me just see if I can fix this. Just one minute.[Technical Difficulty]

[Jean-Jacques Guiony]

Chris, which slide are you missing -- which slide are you missing, #7?

[Chris Hollis, Director of Financial Communications]

Yes. I'm looking -- 7 -- I haven't -- doesn't seem to have any Slide 7.

[Jean-Jacques Guiony]

Okay. So I will comment on Slide 7. So turning now to revenue by business group. We start with Wine & Spirits. And for this group, organic revenue was down 14% for the quarter and 13% on a reported basis, reflecting a 1% positive currency effect, bringing total revenue to EUR 1.17 billion. By category, Champagne and Wines' organic revenue was down 3%. And including a positive 1% currency impact, reached EUR 448 million in the first quarter of this year, down 2% compared to the year ago period.Revenues for Cognac and Spirits was EUR 727 million, which represented a 20% organic decrease and a positive 3% currency impact or 18% below the EUR 891 million in Q1 2019.

[Chris Hollis, Director of Financial Communications]

Thank you, Jean-Jacques.

[Jean-Jacques Guiony]

Do you want to take over from there?

[Chris Hollis, Director of Financial Communications]

Yes. So I've got #8. So for the analysis, Wines & Spirits, again, just going through the -- for the quarter, we saw Champagne volumes decreased 6%. As I say every year, this is the smallest quarter of the year for this business and cannot be extrapolated. We saw the positive effects of our pricing strategy and resilience in the important U.S. market, thanks to pre-lockdown orders.In Europe, we saw an impact in March, resulting from the virus. Sparkling wines had a good momentum, driven by Maison and Chandon (sic) [ Moet & Chandon ] in Argentina, as did our recently acquired Rosé wines. So for Cognac and Spirits, Hennessy volumes were down 13%, essentially due to the decrease in V.S.O.P and X.O sales, that's for essentially in Asia. This segment benefited from pre-lockdown orders in the U.S. where there was continued growth during the quarter.Demand in China was impacted by both COVID-19 and the timing of the Chinese New Year. With respect to Glenmorangie and Belvedere, we saw volume growth during the quarter.Looking now at Fashion & Leather Goods. This business group was down 10% on an organic basis, but after a 1% positive currency effect, reported revenue was 4.4 -- 64 -- EUR 4.64 billion, down 9% compared to last year's first quarter.To give you some highlights on Fashion & Leather Goods, so this is Slide 10 now. Overall, we're pleased with the perfumes -- performance of our major brands, especially in light of the store and production site closures in key regions. Louis Vuitton and Christian Dior couture continued their creative momentum despite stores being closed in Europe and the U.S. beginning in March as well as limited international travel.There was an acceleration in online sales during the period, and we are starting to see early signs of recovery in Mainland China, in Taiwan and Korea after the closures early in the year -- earlier in the quarter, sorry.Our other brands are working diligently on adapting to the current environment. Fashion shows have been canceled or postponed, of course, as our brands continue to monitor the evolving public health situation in the different markets.Turning to Perfumes & Cosmetics, Slide 11. On our Perfumes & Cosmetics business group, revenue was down 19% on an organic basis and 18% on a reported basis. Revenue was EUR 1.38 billion in the quarter compared to EUR 1.69 billion in the year ago period. Here, too, acceleration in e-commerce helped to mitigate the impact of store closures, especially for the major brands. Skin care continues to be more resilient, while destocking by retailers in Asia impacted sell-in.During the quarter, perfume Christian Dior introduced new Eau de Toilette Dior Homme; skincare, Capture Totale; and Miss Dior Rose N'Roses perfume. Guerlain performed well in Asia, with strong online growth in China and continued success of its skincare line, Abeille Royale. And Parfums Givenchy's Le Rouge lipstick and Prisme Libre line continued to make progress. And Acqua di Parma and Kurkdjian both demonstrated good performance.Turning to our Watches & Jewelry business on Slide 13. Organic revenue decreased 26% in the period. Taking into account a positive 2% currency effect, reported revenue for this group was EUR 792 million compared to the EUR 1 billion in the first quarter last year.And I'm missing slide -- the next slide, in fact. If you could just do the next slide for me, Jean-Jacques, please?

[Jean-Jacques Guiony]

Which one? Sorry.

[Chris Hollis, Director of Financial Communications]

Sorry. Slide 14.

[Jean-Jacques Guiony]

14. On Watches & Jewelry.

[Chris Hollis, Director of Financial Communications]

Yes.

[Jean-Jacques Guiony]

So the comments we wanted to make is Bvlgari was strongly impacted by travel restrictions and its store closures in Asia. During the quarter, Chaumet was able to proceed with the completion of the renovation of the Place Vendôme store in Paris. On the watch front, TAG Heuer had a strong impact from the launch of the third-generation luxury connected watch, and both TAG Heuer and Hublot had a good start to the year, followed by the destocking we started to see in most markets in the quarter.In January, we successfully launched the inaugural edition of LVMH Watch Week at Bvlgari Resort Dubai, at which the group's watch brands showcased their creativity and ability to continually push the limits of innovation.

[Chris Hollis, Director of Financial Communications]

Okay. Thanks. Now looking at the Selective Retailing group, this is Slide 15. Organic revenue was down 26%. When we add the 1% positive currency impact, this brings us to reported revenue of EUR 2.6 billion for the quarter compared to EUR 3.5 billion in the year ago period.To give you some additional color on these numbers, Sephora was able to deliver market share gains. Thanks to differentiated online capabilities, it saw rapid progress in its online sales during the quarter. Since mid-March, all of its stores have been closed in Europe and the U.S. until further notice.On the DFS front, there was a very strong decline in revenue due to the significant decrease in travel that I've mentioned. The brand is working to improve its cost structure and reduce selling expenses.Overall, then, this is now the Slide 17. The group demonstrated good resilience to the current environment, thanks to -- thanks in particular to our major brands, and we feel well positioned to gain market share. That said, during the quarter, as I mentioned, we started to see the impact of destocking by retailers in the Wines & Spirits, Perfumes & Cosmetics and Watches & Jewelry businesses.While it is too early to give any estimate, we expect that the closure of production sites and stores in several important countries will affect the group's revenue and results as we move forward through this unprecedented crisis.Against this backdrop, we will remain focused on our long-term strategy by continuing to develop innovative and high-quality products; being more selective about investments, notably in our store network expansion; looking at cost management opportunities; and maintaining our agility. In doing so, we will continue to pursue our mission to reinforce our world leadership position in luxury goods.Finally, as we mentioned in our press release earlier, after an LVMH Board meeting yesterday, a proposal of a 30% reduction in the dividend announced on January 28 will be submitted for shareholders' approval at the June 30th AGM. The total dividend will, therefore, be EUR 4.80 per share, meaning that after the dividend -- interim dividend, the balance of EUR 2.60 per share will be paid on July 9. Accounts to executive directors' remuneration and directors' attendance fees were equally announced.Thank you. And now we will take your questions. Any questions you might have. Cecile, could you please open the line?

[Operator]

[Operator Instructions] We have one first question from Mrs. Aurélie Husson-Dumoutier from Kepler Cheuvreux.

[Aurélie Husson-Dumoutier]

I have 3 questions, please. The first one is, could you give us the exit rate of Q1 growth in China? And can you share some information about the trend you are currently seeing in reopened stores? You mentioned early signs of recovery. Did you experiment recent buying effect in some of your stores, like some of your competitors?My second question is considering that tourism flows shall be subdued in 2020, could you remind us how much local clienteles represent in percent of sales in Europe, U.S., Japan and Korea?And finally, could you detail the merger that has been taken to -- for DFS? And could they prevent DFS to be loss-making in 2020?

[Jean-Jacques Guiony]

Thank you, Aurélie. What is exit rates?

[Aurélie Husson-Dumoutier]

I mean the rate that you have seen, well, in the last week of March, for example.

[Jean-Jacques Guiony]

Okay. Well, no matter what it means. I will not answer anyway. So what I can tell you is that, obviously, as far as March is concerned, with the progressive lockdown of most of our regions, and despite the progressive reopening in China, the business in March, on average, is worse than the rest of the quarter. I don't think I'm saying anything very surprising here.

[Aurélie Husson-Dumoutier]

I'm sorry. I'm sorry. I was mentioning China. I was asking for the exit rate in China. Sorry if I wasn't clear.

[Jean-Jacques Guiony]

Okay. As far as China is concerned, well, it's a complicated question because we are mixing wholesale and retail business. And only on the retail businesses, we have some reasonably precise figure on a week-by-week basis. So as far as what we've seen in March, we've seen from, more or less, the mid of the month onwards, a significant improvement in the situation there with the progressive reopening of the stores, and the numbers turns for most of the brands, not necessary all of them, but for most of the brands, and particularly in the largest brands, Dior, Vuitton and Sephora, the numbers became positive in the second half of March and have been gathering speed in April. So in April, in the large brands, we've seen very high growth rates in Mainland China, obviously. But we've seen very substantial growth rates, sometimes in excess of 50%. So it really shows the appetite of Chinese people after 2 months of lockdown to come back to stores and come back to their previous pattern of consumption. Obviously, this is only Mainland China.As far as tourist flows are concerned, I mean, it's -- and the share of tourists in the various geographies, I don't think it is a number that I have ever given. What I can tell you is that it's quite substantial in Europe for the main brands. I'm obviously talking about the main retail brands in fashion. It's about 50%. It's negligible in Japan and in the U.S. It 0% in China. And in the traditional nearshore destination of Mainland China, such as Macau and Hong Kong, and to a lesser extent, Korea, it's a very high percentage.Finally, your question on DFS. Obviously, we are taking very tough measures to reduce the cost base. What I mean by cost is all costs. I mean overheads, rental, shop, payroll, everything, to face the situation. Too early to say whether for the full year, DFS will be loss-making. But what I can tell you is that we are taking very serious measures to reduce the cost base. We expect to make a cost reduction overall in excess of 20%, 25%. So it's quite significant.

[Operator]

We have another question from Ms. -- Madam Marion Boucheron from MainFirst.

[Marion Cohet Boucheron, Research Analyst]

Well, just following up on cost and what you were saying on DFS, do you have some colors to share with us on what you've been doing also for the other division of the groups? And maybe some ANP move or -- and how it has evolved for rentals.And then the second question on -- about online, you were saying you've seen acceleration. Is it true mainly for Asia? Or is that something you've been seeing across the board?And my third question is, how would you see the Wines & Spirits moving through in China, where life is getting back to normal, but it seems that on trade is quite slow to recover. And also on the U.S.A.

[Jean-Jacques Guiony]

Thank you, Marion. So on the cost cutting, I have to say that we are in a pretty complicated situation to face the current crisis. What I mean by that is 2 or 3 things. One is that demand is not the question there. I mean nobody is questioning the strength of demand as exemplified by the gradual recovery in China. The second thing is that the most likely scenario is that the crisis will be over, from an epidemic viewpoint, in some months, if not weeks. So we are not talking about something that is supposed to have a lasting impact on the business. Three, the crisis is extremely virulent. It has a deep impact on our business. I mean, needless to say that when stores are closed, it's more complicated to do business, and it has some implications for the revenues and the P&L. So we have to cut OpEx and CapEx, and we do it. Fourth, I would say that -- firstly, I would say that the products is that for all the implementation of these measures, it will take a few weeks or a few months to really bear fruits. And chances are that the impact of cost-cutting will be visible when things get back to normal. It's not the reason not to do it. We will do it anyway. And I will come back on that. But that's the situation we are in. So it's a little bit of a paradox from a management viewpoint that we have to deal with.In terms of measures, obviously, we are doing all the necessary cuts where we can and where it makes sense. We started obviously with CapEx. We expect to reduce the CapEx budget by probably around 40% this year. Most of it means postponement into 2021. But anyway, the cash cost -- the cash impact will be significant in 2020. From an OpEx viewpoint, we'll be acting very swiftly, and we have already registered some gains in terms of rental costs. We try to do it in a partnership spirit with landlords. This has proven quite efficient, notably in Mainland China, where the landlords were, I have to say, very proactive and could be convinced that they should bear a portion of the cost of compulsory closures. In Europe and in the U.S., reactions are more mitigated. We have gained some rental reduction, but the minority of landlords are being quite inflexible, I have to say. This is a bit disappointing. And obviously, we have long-lasting consequences in the way we deploy our capital in the future when things return to normal. Overheads are being reviewed. Selling costs are being reviewed. Marketing costs, obviously, are being reviewed. So we are taking measures, I would say, more or less everywhere. It's difficult to quantify due to the fact that it takes a little bit of time to negotiate or to implement. But believe me, I mean, we are doing whatever we can do and we have to do in order to offset the current situation.Your second question is about online acceleration. A few things I would like to say about online is, one, that online works where it was already strong. It's very difficult to build an online presence in the current environment. But when we were strong already, as it is a case with Vuitton or with Sephora, I mean, the strength in online plays, and we are getting very substantial increase in the online business across the board, not only in China, it's true in Europe, it's true in the U.S., it's true in Japan. So we are really benefiting from that. And I would say that it offsets a sizable, I will not quantify, but a sizable portion of the drop that we are witnessing recently in the brick-and-mortar business due to the closures. So it's quite a significant asset, but obviously, difficult to build in the current environment. But when it was strong, it's even stronger in the current circumstances.Finally, your question on Wines & Spirits in China. It's a difficult question. The inventory situation is quite difficult to monitor. We think we have a decent level of inventory in the trade, so nothing to worry about. The question is when you try to measure it, whether you compare inventories with past consumption or future consumption, which is a little bit of a guess, not even a guesstimate. I mean a guess at this point in time, it's difficult to assess. So as you pointed out, I mean, the bulk of the business and the consumption in coming weeks and months will rely on off-trade. Off-trade is a sizable portion of the business in China. It's a bit smaller than what it is in the U.S., but it's a sizable portion of the business in China. So we can expect that off-trade will pull the business once restrictions for -- that have been applied in China are lifted. But it's -- the visibility is reasonably low. So I think I could be more precise when we discuss Q2 numbers because at this point in time, it's difficult to comment.

[Operator]

Next question is from Mrs. Louise Singlehurst from Goldman Sachs.

[Louise Susan Singlehurst, Managing Director]

Jean-Jacques, just following up on that last question, you kind of talked about CapEx, and that's likely to be phased down around 40% this year. Can you help us just think about the dynamics and the mechanism of, obviously, the working capital for the first half, second half, given there's obviously a fairly brutal impact for everybody in the current environment. You highlight the need for a strong balance sheet. But just thinking about particularly the working capital.And then secondly, related to that, can you talk about the flexibility with regards to supply and the product, I suppose, the ordering process to make sure that there's enough flexibility for the autumn/winter budgeting when that goes into store presumably from July onwards.

[Jean-Jacques Guiony]

Thank you, Louise. Well, these are 2 important questions, I would say. The working capital question is, I think, what we shall experience is a higher rise than normal in the first half of the year because we have been piling up a little bit of inventories in the first half. All the merchandise that we put in the stores, particularly the spring collection in ready-to-wear, but also to a smaller extent in leather goods, they have unsold as expected. So obviously, we've been increasing inventory due to this phenomenon. So it will have a negative impact as -- even if the business improves in May or June, as one could maybe expect, this will be too short to absorb all the inventories that have been put in the stores earlier on in the year. We, therefore, expect a little bit of an increase there.In the second half, we expect more a normal behavior in terms of working cap and the stock level should progressively come down. All in all, what will be the impact for the full year, I would be cautious, obviously, at this point in time with a low visibility that we have to deal with and expect a little bit of an increase in inventories, which is obviously not something that we would welcome in the current environment, but one has to face it. I mean it's quite likely that it will -- that it will happen, but we'll do our best, and we'll take whatever it takes to mitigate it as much as we can.The second question on supply. It's -- there, we're having a little bit of a complicated and unusual situation. If you look at what happened, I mean, spring products didn't sell, obviously. I mean the stores were closed for most of the season or are likely to be closed for most of the season. They didn't sell. Summer products shall be made available to the client, more or less in the normal course of business. In other words, just at the end of the spring, when, hopefully, most of the stores will open. So as far as summer products are concerned, and probably a bit of spring, which hasn't sold before, we can expect that we shall be able to sell later, but to sell a large portion of the inventories. That's why I was saying before that we expect to mitigate the impact of piling up inventories. A way to look at it is that spring/summer is likely to last longer than it usually does. I mean, normally, what you have is mark down early July or even earlier than that in some countries. And from the 15th of July onwards, you have full or preferred products. Chances are that due to the fact that we have not been able to produce in a normal way, the full and preferred collections, we will have the spring and summer collection being extended into the year, which is not a big issue as far as we are concerned because the client hasn't been able to buy anything so far. So it's clearly a good opportunity for us to sell anyway or to improve the sell-through of the spring and summer collection, and we'll make available the full collection a little bit later. And progressively, we will get back to the normal rhythm of collection, which is a little bit of our products because we sell spring products in the winter and full products in the summer. But we'll come back progressively to that. So I think we have a good alignment of planets where the constraints we have on production will cruise our spring -- our full products will be made available later, which is not such a big issue as we can extend, we have -- unfortunately, we have all the inventories to extend our spring/summer collection longer into the season in our store when they get reopened.So all in all, we are not too pessimistic about how we will face the situation from an inventory and availability of product viewpoint.

[Operator]

Next question is from Madam Zuzanna Pusz from UBS.

[Zuzanna Pusz, Head of European Luxury Equity Research]

I have 3 questions, please. So first of all, on Q2, I know that the visibility is quite low, and you probably wouldn't be too keen to comment on expectations. But I guess, when I do simple math, and we assume that stores are likely to be closed in Europe and in the U.S. for 2 months or so. I mean is it reasonable to think that sales in Q2 are likely to be down around 40% or so. I mean any color on that would be helpful, which I think, currently, consensus is at minus 27% or so. So that looks quite optimistic.Secondly, on profitability. Again, I know it's very difficult to comment given the situation, and there's lots of moving parts. But is there any rule of thumb or at least a split of your costs in terms of fixed and variable and OpEx that you could share with us, just to make it a bit easier to understand the phasing between H1 and H2?And finally, on Watches & Jewelry. So the division was one of the most severely impacted in Q1. Was there any big difference between Watches & Jewelry, the categories, each of them? Or was it fairly similar for both of them?

[Jean-Jacques Guiony]

Thank you, Zuzanna. I would say that your question on Q2 is you expect it, actually, is a very difficult one, and one that I cannot really answer with precision. Definitely, if you tell me when the U.S. reopens, when Europe reopens in the course of the quarter, and I would be able to answer, we have no idea whatsoever. The visibility is extremely low. So I will not comment on numbers, commenting on consensus, commenting on your estimate of minus 40%. The short answer is I don't know. So frankly, your guess is probably as good as mine with regards to when the various markets will reopen and will progressively come back to normal.As far as profitability is concerned, I will also disappoint you, the group is quite complex. Obviously, rule of thumb, that would apply to all the divisions. We are mixing wholesale and retail divisions. We are in different geographies. We have distribution businesses such as Sephora and DFS, which are very different from one another. So it's very difficult to make any comments on that.Obviously, you know that the higher the margin, the higher the fall-through of missed revenues is. So we have less impact when we can reduce costs, when costs are a larger portion of revenues and when they are a lower portion. It's pretty complex and it is very diverse from one business to another. So the only thing I would say is that we'll do whatever it takes to lower the cost base and to try to offset this unprecedented drop in revenues, and Q2 will be particularly tricky in that respect, as I said before.

[Chris Hollis, Director of Financial Communications]

Watches & Jewelry.

[Jean-Jacques Guiony]

Sorry, the third question on Watches & Jewelry, are there differences between the 2? Yes, there are. I mean Jewelry is retail business with a particular exposure to China and Asia. So it was affected earlier, obviously, than any other business within the group, with the exception of DFS. So the impact of Asia was very significant. This is the reason why you have a higher drop in the business in Q1 in Watches & Jewelry, and this comes mostly from -- it comes mostly from the Jewelry division. As far as Watches is concerned, we had a very good start to the year. Obviously, with the destocking of most retailers now, we are impacted as well. So there is no miracle there. I mean, progressively, the shutdown is taking its toll on most businesses, including the Watch one. But on average, Watch is doing better than Jewelry.

[Operator]

Next question is from Mr. Oliver Chen from Cowen.

[Oliver Chen, MD & Senior Equity Research Analyst]

As we do look at our models across the U.S., the margin compression is in the 300 to 500 basis points, and that's also pushing some of our department stores in the really distressed liquidity scenarios. But will that -- will most of the deleverage likely occur on the SG&A line? And your gross margins have been pretty resilient. I would also love your views on the value of -- on the strategic value of Tiffany, as you see it. You have a really long-term thesis there, and it's a great asset across multiple price points. But with this unprecedented event and everything you've been seeing at Bvlgari, would love your thoughts there.And finally, we're just on the phone with JCPenney. As we think about different scenarios that are possible there as they evaluate the store base and the future of the mall, what are your thoughts for that as it applies to Sephora, and as you watch the U.S. department store landscape?

[Chris Hollis, Director of Financial Communications]

Thank you, Oliver. So your first question on SG&A and gross margin, yes, gross margin, by definition are more resilient, as we diminish cost of goods more or less alongside the decrease in sales. Bear in mind that in some divisions, we shall expect a higher product depreciation line in connection with piling inventories, as I commented before, although we try to mitigate it as much as we can. And chances are that we'll have a little bit of negative impact coming from higher depreciation in the gross margin line. Otherwise, the bulk of the cost cut, but also the negative leverage will come from SG&A, obviously.Any thoughts on Tiffany? No, I don't have any thoughts on Tiffany. I mean up and until the closing, the 2 businesses are managed in a very separate way so I have no particular comments to make on the Tiffany situation.As far as JCPenney is concerned, I mean, you probably know better than I do the situation there, so I cannot comment on other businesses on their behalf. So we are -- we have a nice business with JCPenney. Not all the JCPenney stores carry a Sephora business inside, but a bigger portion of them. So we are watching the situation carefully, but I cannot really comment on their own situation. They are more qualified than I am on this particular point.

[Oliver Chen, MD & Senior Equity Research Analyst]

Okay. And finally, you've been a leader in the luxury industry clearly and exhibit a lot of leadership qualities. What are your thoughts around social distancing in the future of the store. Here in the U.S., we're seeing a lot of different innovations like curbside pickup, different store configurations and the rise of the connected store with robotics. So how are you rethinking how luxury may change more structurally in terms of the shopping experience and making customers feel safe?

[Jean-Jacques Guiony]

Well, that's a good point. We're obviously working pretty hard on that because we know that at least for a number -- a certain period of time, it's impossible to quantify, that we'll have to take measures to ensure an optimum safety of our people and our customers in our stores. So in terms of flow, we shall have to adapt the way we interact -- our staff interacts with the clients. This is true to us all. I mean we are working on that. We have some consultants working with us on that, and we have no preconceived ideas as to how it should work.The only comment I would make on this is that this is an evolving process. I mean the way we shall be dealing on this social distancing questions in 3 months' time is likely to be different from the way we shall be dealing with it in 6 months' or in 9 months' time. So the main question there is to be able to adapt and to be flexible to the needs that -- to the -- what the current situation requires from us. So we are working very hard on that.

[Operator]

Next question is from Mr. Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

So 1 clarification for me and 2 questions. So the clarification, Jean-Jacques, just to make sure I understood what you said on sales in Mainland in April, did you say that, in some cases, some brands were experiencing sales up 50% year-over-year? And are we talking about some of your main brands? So that's the first clarification. And then on the...

[Jean-Jacques Guiony]

Yes.

[Edouard Aubin, Head of Luxury Goods]

I'm sorry, what?

[Jean-Jacques Guiony]

Yes. To make it simple, yes. That's a good understanding.

[Edouard Aubin, Head of Luxury Goods]

Okay. So that's clear. And then my 2 questions is on Fashion & Leather Goods, which I guess is the main positive surprise from the release. If you could please give a little bit more color in terms of if it was broad-based by brand and more importantly, by product. So in terms of the different categories. And lastly on Fashion & Leather Goods, I know you don't disclose the figure for e-commerce, but if I assume it's about 5%, 6% of the division, am I not too far in terms of the estimate? And then the second question is on the trajectory of the recovery in China, which you talked about. What's your estimates? And I think you've talked about it in the past. What's your estimates of the percentage of spend of Chinese national outside of China last year? I think, in the past, you talked about roughly 50%. And do you have any sense, I know it's very difficult to assess, but do you have any sense of the good trajectory in April, to what extent is it driven by an acceleration of the reshoring of the Chinese spending national in April, that would be helpful.

[Jean-Jacques Guiony]

Thank you, Edouard. So on Fashion & Leather, I'd start by brands. I mean, as always, Vuitton is never very, very far on the division's average. Dior is better. They've done quite well, although they are affected, like any other, by the shutdown, but Dior did better. And the other brands, on average, did -- went below the average. So that's a little bit the situation there. From a product viewpoint, I check that point, no particular differences. I mean nothing really to report. I mean the impact was reasonably homogenous amongst the various categories. And frankly, I -- there is no particular category that was deeply affected and another one that was doing much better. Frankly, it's more or less it starts from a -- it's a traffic issue anyway. It's not a demand issue, it's a traffic issue anyway. So traffic is a little bit indistinctive in the way it impacts the businesses. So from a product viewpoint, I don't have anything to report. As far as e-commerce is concerned, the number you mentioned, the estimates you mentioned was probably true some -- in normal times, I would say. So a year ago, the share of e-commerce, particularly for the brands that have -- as I said before, is strong and established business like Vuitton, the share is significantly higher. I will not comment because it will come down once things come back to normal. But for the time being, it's significantly higher.The recovery in China, I will not elaborate on the way the business splits out between onshore and offshore. You mentioned a number which was true some years ago. What I would say is that what we've seen over the past few years is repatriations of part of the business into Mainland China. What we've seen is a growth rate in Mainland China that was higher than the growth rate in the business we were doing with mainlanders outside China. Obviously, the current situation is putting this a little bit to an extreme. We are experiencing, particularly over the past few weeks, very sharp drop in the business we do outside China. And conversely, as I mentioned before, and that was my clarification point on April, in Mainland China, we see a big upsurge in the business in Mainland China as the network progressively reopens. So this repatriation or reshoring, whichever way you call it, factor is there, and will amplify, in my view, in the months to come. So that's where we are.Whether this will be sufficient to offset the pressure that the current epidemic situation is exerting on the offshore business is obviously difficult to know. It's not the case for the time being. But the time being is not particularly normal and steady state. So we'll see what happens in some months.

[Operator]

Next question is from Mr. Luca Solca from Bernstein.

[Luca Giuseppe Solca, Research Analyst]

I'm just wondering how are you thinking about the going back to normal, if we move beyond the exceptional situation that we're seeing now and in the first half, most likely. Are you managing the business and preparing to manage the business with the assumption that in due course, we would go back to business as usual with the same amount of people moving around and the same amount of tourist flows benefiting European sales, for example? Or are you already working on a scenario where you're prepared to structurally recapture some of those volumes in China itself and in other countries of origin of these tourist flows, in Japan, in the U.S. and so on? And is that happening across the various businesses? You have -- clearly, Fashion & Leather Goods would be impacted by that. You have other businesses that are more -- even more directly impacted by how the tourist flows will shape up. I'm thinking about the newly created hotel division. I'm thinking about travel retail. So very keen to get your logic on how you plan your business going forward versus this normalization scenario that can be very broad and very uncertain at this stage.

[Jean-Jacques Guiony]

Thank you, Luca. Obviously, a very difficult question. We are, as I think anybody else in the business, quite humble as to the current situation. We don't know where it comes from, we don't know where it goes to, and it's very difficult to plan ahead of any evolution of the situation. In a few words, I mean, we don't know, and nobody knows, actually. So it's difficult. Obviously, there are a lot of people saying that this -- things will never be the same again. I heard that a few times already. I don't believe, frankly, in that. I mean things will take time to normalize, that I agree, but I don't think people will stop traveling tomorrow. If they do stop traveling tomorrow because of the current situation, they will resume traveling the day after tomorrow. So at some point, things might change, but they've been changing ever since we have all been into this business. I mean this business has not been the same. Remember the times when the Vuitton business 25 years ago was 90% Japanese business. I mean these days are over, and for good, actually. So we have to adapt at all times to a changing environment. This environment could -- the evolution could come from various factors. The one we are experiencing right now is more than extreme, I would say, and are accelerating some evolution. As I said to -- as I answered to Edouard's question previously, I mean, the repatriation of a big chunk of the business with the mainlanders into Mainland China has not started on the 23rd of January. It's something that we have witnessed for the past 3, 4 years already. So it's nothing new to us. It's just gathering a little bit of speed and maybe too much speed to be durable as we speak.This move of a big chunk of the business being made into the domestic country is something that we've seen in other countries. Remember, the Japanese business some 20 years ago, it was 80% outside Japan. Today, it's 95% within Japan. In the U.S., it's exactly the same thing. We've seen the same evolution. So the only new thing with the coronavirus situation is that what we have experienced over 5, 10 years, sometimes, seems to be taking place within 3 months, which is obviously too bad to be true, I would say. So things will normalize, but the underlying trends, such as repatriation of the mainlanders' business into mainland will continue. And we have to adapt to that, and we do adapt to that. So that's the situation. It's all about flexibility and being sufficiently aware of what's going on to take the good decisions and a good timing. I mean being -- anticipating to evolutions we know nothing about would certainly be a bad idea. So we are working hard. We are looking very closely at what's going on. We have antennas all over the world. We have shrewd and clever people in the U.S., in Asia, in Japan, in Europe, wherever we do business we have strong management teams, and we ask them to tell us how they feel about their business, and we'll draw conclusions and strategic actions on that basis, not on pure plans that we could build up at the moment when the business is under extreme stress and that would prove to be totally ill-founded 3 months later.

[Luca Giuseppe Solca, Research Analyst]

Understood. A second question, if I may. On the Tiffany deal that you have agreed from a purely technical viewpoint, and from a legal viewpoint, would you be able to walk back from that deal? Or is it a done deal, a nailed deal and one that you cannot break?

[Jean-Jacques Guiony]

Look, I have no comments to make on this. I mean we signed a merger agreement. This document is public, so you know what is inside. We will stick to the contract, full stop. I mean that's the only thing I have to say.

[Operator]

Next question is from Madam Melanie Flouquet from JPMorgan.

[Melanie Anne Flouquet, Head of European Luxury Goods and General Retail]

My first question is regarding China and the Chinese cluster. I wondered whether you would be so kind as to tell us what the Chinese cluster did in this April, plus 50% that you provided, if we look at the Chinese cluster in total.My second question is there has been a number of articles around the state aid in France. I was wondering whether you would have an update on that for us as to whether LVMH is taking it or not as some of your competitors have made official statements that they would not take the French state aid.My third question is actually a bit more of a semantic question, and I'm not sure you can answer it yet, but I have to ask you. Mr. Arnault has told us for some time that he was worried about a major crisis. He first said that this -- the current sanitary crisis was unlikely to be the event that would derail everything. Has his opinion changed, to your knowledge, from his standpoint? So for instance, when we look at CapEx down 40%, is this -- in 2020, is this going to double up in 2021? Or is this actually there will be more caution even in 2021 and you think this event has been more derailing than that, and we need to be more cautious. So why don't we start on those things.

[Jean-Jacques Guiony]

What do you call, Melanie, the Chinese cluster, I'm sorry. But your semantic sometimes goes a little bit all weak.

[Melanie Anne Flouquet, Head of European Luxury Goods and General Retail]

Well, the Chinese cluster is not semantics. You've mentioned that word in your talk in the past, it's the Chinese local plus the traveler. If you look at the total consumer base, what did you do in April compared to this plus 50%. We usually have this information already, you usually provide it on your cost base, but I wondered whether it's different here.

[Jean-Jacques Guiony]

It's negative. It's still negative. Improving, but still negative. So it has been affected by the brutal closure of the offshore market. And it's still negative.As far as state aid in France is concerned, and offshore activity indemnification is concerned, we have decided not to use any possibility of offshore activity indemnification for the time being. There are some exceptions within the group, but they are very minor one. I would say that 99% of the businesses and the people we employ in France are not subject to partial activity indemnification from the state -- from the government.About the crisis, it's obviously a difficult question. I mean we don't even know what 2020 will be made of. So it's a little bit complicated to assess what 2021 could be -- how 2021 could be qualified. I mean, frankly, nobody has any idea. I mean the first thing to do is to deal with the current situation. And once we have better visibility, better understanding of what we are aiming for -- or what we are heading for -- sorry, heading for, I think 2021 will be easier to qualify.

[Melanie Anne Flouquet, Head of European Luxury Goods and General Retail]

You're not willing to tell us a bit more of this negative for the cluster? Is that -- for that to discuss this case, if you are so generous, for China, how negative is it, the cluster?

[Jean-Jacques Guiony]

That's all I have to say on this.

[Operator]

Next question is from Madam [ Alisha Gamudi ] from ING.

[Unknown Analyst]

You mentioned in the presentation that the volumes in Champagne is minus 6%, but is it for Spirits, if I have missed it, please?And then the second question is with regards to the supply chain and the suppliers. Is there any weak link there that might jeopardize getting the new collections in stores for the automated collection in time by the time that you want to have them there?

[Jean-Jacques Guiony]

Thank you. The Spirits is minus 13%, if I'm not mistaken. Sorry, Chris?

[Chris Hollis, Director of Financial Communications]

That's correct, yes.

[Jean-Jacques Guiony]

Yes. Okay. So I'm not mistaken. So it's minus 13% in volumes. As far as suppliers is concerned, we have 2 types of suppliers, I would say. As far as France is concerned and mostly Vuitton is concerned, it is, to a large extent, our own atelier. So we control more or less what's going on there, and we are working hard to put in place conditions that will enable our people to come back to work as soon as practicable. So we are working hard on that, and we have no particular worries as to the end of the year.The second big group of suppliers is mostly Italian manufacturer who are also obviously experiencing shutdown in a major way due to the conditions in Italy, which are quite similar to the ones in France. So as far as Italian manufacturers are concerned, I mean, they have proven in the past a very high degree of flexibility, so we have no particular worry there as well. When the conditions are favorable, they will resume production and they should be able to produce whatever we need for the second part of the year. And as I said before, I mean, part of H2 -- I mean, part of the business we shall do in the early part of H2 will be made of products that we would, under normal circumstances, have sold in H1. So that's -- the connection between the 2 is a little bit unusual but will play in our favor if everything goes as expected.

[Unknown Analyst]

And if I may, a follow-up on the Italian suppliers. Is it -- in the worst-case scenario, where one of those suppliers could fall over, is it easy to replace them?

[Jean-Jacques Guiony]

No, it's not. But -- I mean the good suppliers are always difficult to replace, and we only deal with good suppliers. But I think the Italian government has taken enough protection measures so that we don't face that situation. But obviously, it's hard to talk in theory, and we'll see on a case-by-case basis.

[Operator]

We have another question from Mr. [ Sam Fevez ] from [indiscernible].

[Unknown Analyst]

I'm just curious, you have cut your dividend going forward. And I'm wondering how you feel about Tiffany continuing to pay their entire dividend? I know you're a separate company still until the transaction is completed, but -- but it makes sense to deal with their dividend as well.And second, I believe you have a restriction from buying Tiffany stock, that expires on May 19th. So I'm wondering, after May 19th, if I'm correct about that, if you're going to -- do you think it might be advantageous to try to lower the cost of the transaction by purchasing stock at a 5% or 10% discount?

[Jean-Jacques Guiony]

Well, on the -- thank you for your question on that last point. I mean I'm sure that if I announce today that we shall be buying whatever we can Tiffany shares, and I'm not doing that, I'm pretty sure that the difference between the bid price and the current price would disappear in a minute. So it's -- as far as I'm concerned, it's totally theoretical, but we don't intend to do that anyway. So I cannot comment further on that. As far as Tiffany is concerned, I mean, as I said before, I have no particular comment to make on Tiffany as we speak. Tiffany is an independent company from LVMH, up and until the closing of the transaction takes place. So really, no comment to make.Maybe I'll take another question.

[Operator]

We have another question from Mr. Antoine Belge from HSBC.[Audio Gap]

[Jean-Jacques Guiony]

[indiscernible] from Antoine, which is really too bad. It's the first time in 17 years that we will not have them, but I'm really sorry about that. So I give it a second chance to Antoine if he's around.

[Antoine Belge, Global of Consumer and Retail Research]

Can you hear me?

[Jean-Jacques Guiony]

Yes.

[Antoine Belge, Global of Consumer and Retail Research]

Yes, sorry. So -- yes. So my -- in -- I was asking a question on Perfumes & Cosmetics, especially with one of your competitor, L'Oréal, reporting a decline, which is -- seems to be much lower, I think 8% in the luxury division. So are there any typical impact that could explain that?And my second question is around Cognac. I think you mentioned a recovery in Chinese consumption for handbags, but is it as good for Cognac?And thirdly, how is your Belmond business been featuring? And here, are you also taking some cost-cutting measures to mitigate the negative impact of the virus?

[Jean-Jacques Guiony]

Thank you, Antoine, for your 3 questions. On the comparison with L'Oréal, I mean, I'm usually not very keen on making comparisons with our competitors, but these numbers, I don't know them. So I haven't seen them, so I can't really comment in any way. I assume they've been releasing these numbers while I was talking to you, so I cannot do 2 things at the same time. I'm sorry.As far as Cognac is concerned -- Cognac in China is concerned, the situation is very difficult to monitor. I mean we can monitor depletions. But as you know, depletions is really the amount of stocks that are being sold to retailers, be they on or off-trade. The real consumption there is very -- is almost impossible to monitor. We have no panels, and depletions are only a proxy to real consumption. We may assume that most point-of-sale, so most retailers, have piled up a little bit of stock due to the disruption in the system in China at the very complicated time of Chinese New Year. So our assumption is that there is a little bit of excess inventories within the retailers. This is why they are not depleting much of wholesalers' inventories, which, as I said before, are quite difficult to assess. So a long story to basically say that visibility is low. And we need a little bit of time to assess the situation in Cognac. But frankly, I see no reason why the Spirits business would not follow the rest of the activity. If it is confirmed that what we see at Dior, Vuitton, Sephora or Bvlgari continues, I mean if this trend is a real one, I mean, there is no particular reason why Hennessy wouldn't follow suit. Belmond, obviously, situation is complicated. The good news is that Q1 is usually a very weak, a very small quarter for Belmond given the nature of its properties. But Q2 is a more important one, and we are unlikely to reopen the properties as we would normally do early April. And most of the properties will remain closed for some weeks or months, we don't really know. So in the meantime, obviously, as far as costs are concerned, we are taking measures, as we do elsewhere. So we are reducing overheads. We are postponing some renovation plans that were impacting the cash flow and the CapEx in 2020. So we are taking the necessary measures to mitigate the impact of the crisis with a very low visibility there, obviously.All right. Thank you for attending this complicated -- or this call in a complicated time, I would say. I'm not sure it was a complicated call, but at least it's a complicated time. So I look forward to talking to you about H1 numbers in late July, and hopefully, comment a better and more visible situation at this point in time. Thank you, all, and stay safe. Bye-bye.

[Chris Hollis, Director of Financial Communications]

Bye-bye.

[Operator]

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