LVMH Moet Hennessy Louis Vuitton SE

PAR:MC

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the LVMH 2021 First Quarter Revenue Conference Call. I will now hand over to Mr. Chris Hollis. Sir, please go ahead.

[Chris Hollis, Director of Financial Communications]

Thank you, Toudou. Hello. I'm Chris Hollis, Director of Financial Communications at LVMH. And with me is Jean-Jacques Guiony, Chief Financial Officer. Thanks for joining us. We'll begin with remarks about LVMH's revenue for the first quarter of 2021. As in previous [ pre-variances ], revenue figures are reported in accordance with IFRS. After these remarks, Jean-Jacques and I will be able -- be happy to take your questions. As a reminder, certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release and on Slide 2 of our presentation. Turning now to our announcement. Hopefully, you've all had the chance to read our release, which was issued a short while ago in both French and English. And as always, the release is available on the LVMH website, www.lvmh.com, as are the slides that we're using to guide today's call. So let me begin by Slide #3, by going through the highlights of the quarter. We are glad to report that the year is off to a good start, while the impact of the pandemic continues in many areas. We are seeing a very encouraging recovery in Asia and the U.S., in particular, with double-digit growth in both regions. This is offset somewhat by the continued low level of international travel and a slower recovery in Europe where lockdowns have continued.Against this backdrop, we saw broad-based organic revenue growth with Fashion & Leather Goods delivering a particularly strong performance and continued growth of online sales across our businesses. I should also note that all businesses -- all business groups saw positive organic growth with the exception of Selective Retailing.Given the onset of the pandemic in the year ago first quarter, our basis of comparison year-over-year is not a straightforward indication of the growth we are seeing. In order to give you a more indicative measure, if you look at revenue in the first quarter of 2021 versus the first quarter of 2019, revenue increased 11% on a reported basis and 8% on an organic basis. Throughout this presentation today, we will provide you with business group by business group revenue comparisons both to 2020 and to 2019 first quarters. Finally, before we dive in, another significant factor in our Q1 2021 performance is the addition of Tiffany & Co.'s numbers for the first time, which more than offset the impact of currency. Looking at the overall figures, Slide 4, for the first quarter. Total revenue increased 32%. That's the green figure underneath the bracket on a reported basis to EUR 14 billion from EUR 10.6 billion in the year ago period. This reflects a 30% increase in organic revenue, along with a negative 6% currency effect and a positive 8% structural impact related to the consolidation of Tiffany. All those numbers are in green. Compared -- comparing Q1 revenue in 2021 versus the first quarter of 2019, as I just mentioned, organic revenue increased by 8%, and reported revenue rose by 11%, and those figures are in blue as will be for the rest of the slides. So we'll repeat that.Now our revenue mix in the first quarter of this year reflects the current path of the worldwide recovery from the pandemic with the continued repatriation of consumer spend, especially in Asia, as international travel remains subdued. As you see on the chart, Asia, excluding Japan, represented 41% of revenue as measured in euros. Europe, including France, on the other hand, was at 18%. The U.S., including Hawaii, was at 23%. The rest of the world contributed 11% of revenue, and Japan contributed 7% of revenue. In terms of how the revenue changed for each region relative to last year's first quarter, organic revenue was up a very strong 86% in Asia, excluding Japan, and a strong 23% in the U.S., excluding Hawaii. The continued impact of the pandemic in Europe is reflected in the 9% decline in organic revenue in that region. Compared to the first quarter in 2019, this is the column on the right, or before the pandemic, revenue in the first quarter of 2021 was up 26% in Asia and 15% in the U.S., down 3% in Japan and down 18% in Europe.Turning now to revenue by business group, and we'll start, as always, with Wines & Spirits on Slide 7. For this group, organic revenue increased 36% for the first quarter 2021 versus the year ago period and 29% on a reported basis, inclusive of a 7% negative currency effect. In total, revenue in this group was EUR 1.51 billion in the first quarter. By category, Champagne and Wines revenue was EUR 549 million in the first quarter of this year, up 30% on an organic basis compared to the year ago period. And revenue for Cognac and Spirits was EUR 961 million, up 39% on an organic basis compared to the Q1 of 2020. Looking at revenue in this group versus the first quarter of 2019 on an organic revenue basis was up 17%, 12% on a reported basis.Moving to the highlights in this group. I will start with Champagne, which saw a strong 22% increase in volumes in the first quarter of this year versus last year and 15% versus 2019. This reflects improved trends in the U.S. and Europe, partly due to restocking by retailers. However, the continued closure and capacity restrictions at restaurants and nightclubs around the world did impact consumption in the period.On the news front in the Champagne business, we announced during the quarter that we acquired 50% of Champagne Armand de Brignac, making us partners with JAY-Z and his successful Champagne business, and we look forward to its ongoing growth.Turning to Cognac and Spirits. Hennessy also saw a strong increase in volumes, up 28% versus the first quarter of 2020 and 11% compared to the same period in 2019. This reflects continued growth in the U.S. off-trade despite the high comparison basis, which is putting some pressure on supply in this market. There was also a strong rebound in demand in China following an easier comparison basis and the later timing of Chinese New Year this year compared to last. Finally, I should note that Glenmorangie enjoyed robust local demand, and notably, in Europe. Looking now at Fashion & Leather Goods, Slide 9. The first quarter was an exceptional period by any measure, with 52% increase on an organic basis compared to the year ago period and a 45% reported after a negative 6% currency effect. In euro terms, revenue was EUR 6.7 billion compared to EUR 4.6 billion in last year's first quarter. And compared to 2019, revenue was up 37% on an organic basis, 32% as reported.While we saw strength across this group, the major brand delivered remarkable record performance stemming from local clientele. And Louis Vuitton growth continued to come from the same 2 sources as always, innovation and creativity. During the first quarter, the Maison introduced a number of new leather goods, and its magnificent ready-to-wear collections from Nicolas Ghesquière or Virgil Abloh were extremely well received by customers. It's also important to note that Louis Vuitton's success in the period was fueled in good measure by its very high-quality digital services, which have been critical as lockdowns have continued in some markets. That said, many markets are open once again, including Japan, where the Maison opened its newly renovated historic flagship store in Ginza designed stunningly by Jun Aoiki. Christian Dior continues to perform beautifully, including with the ongoing success of its classic leather good line such as the iconic Lady Dior, as well as its new men's and women's ready-to-wear collection. You may have seen or read about the Maisons Fall/Winter 2021, '22, women's ready-to-wear show inspired by fairy tales held in the spectacular Hall of Mirrors at Château de Versailles. It was very well received. I'd also like to note an important online event that Dior recently held with UNESCO called Dream for Change, which is focused on gender equality and inclusion at a time when the pandemic has had a particularly hard impact on women. To give some highlights of happenings of other brands in the first quarter. At Fendi, Kim Jones' first women's shows were very well received. Loro Piana expanded its offerings with a launch of new collections, which reflects the timeless elegance of the brand and complements its focus on the finest quality materials and commitments to sustainability. Hedi Slimane creations were very successful at Celine as were J.W. Anderson's casual collection. Loewe's My Neighbor Totoro as well as the recently launched Surplus Project responsibly crafted handbags. Marc Jacobs also had a good performance, thanks notably to its e-commerce in the U.S. On to our Perfumes & Cosmetics business group. Revenue is up 18% on an organic basis and 12% on a reported basis, taking into account a negative 6% currency effect. In euro terms, revenue was EUR 1.55 billion in the first quarter compared to EUR 1.38 billion in the year ago period. And compared to the first quarter of 2019, revenue is down 8% on a reported basis and down 4% on organic basis. To give you a sense of the trends driving the increasing strength in this business. It is important to note that the major brands saw strong growth through e-commerce, which partially offset the impact of reduced international travel. I should also point out that our brands maintain a highly selective approach to distribution. Our brands do not engage in parallel sales to discounters, which are bad for the long-term image of the brand. Many of our competitors have not avoided the parallel approach. Moving on to the categories. The strong momentum of skincare continued across the board due to local clientele, especially in Asia. At the same time, the iconic lines and some exciting launches also fueled growth. Christian Dior saw continued success from its iconic fragrances, including Sauvage, Miss Dior and J'adore. Additionally, the new Rouge Dior Forever transfer-proof liquid lipstick is off to a strong start. At Guerlain skincare line, Abeille Royale continued to perform very well. And the new fragrance, Mon Guerlain Sparkling Bouquet, got off to a good start. Benefit, a long-term leader in mascara, has had good success with the launch of They're Real! Magnet Extreme Lengthening product. Parfums Givenchy saw good performance from its Prisme Libre line, notably the new -- sorry, foundation Prisme Libre Skin-Caring Glow. And finally, Maison's Francis Kurkdjian delivered good revenue growth in the period.Turning to our Watches & Jewelry business on Slide 13. Organic revenue increased 35% in the period. Of course, on a reported basis, the addition of Tiffany increased the size of this group by more than 2x and taking into account as well a negative 6% currency impact revenue for this group was at EUR 1.88 billion compared to EUR 792 million in the first quarter of last year. Excluding Tiffany's revenue, first quarter 2021 revenues in this business was up 1% compared to the first quarter of 2019. So the highlights of this business, maybe I'll start with the new addition -- our new addition, Tiffany, which I'm pleased to report has seen a strong start to the year. We announced the new leadership team in the business several months ago, and work is now underway to build on the heritage and success of this iconic brand. Many of you remember that building on an extraordinary heritage was indeed central to the group's approach following the acquisition of Bvlgari, and we're pleased to report that it continues to perform very well based on its highly sought-after classic lines as well as new ones, including the recent launch of the Serpenti Viper line. Turning now to the other brands with some key highlights. New TAG Heuer entered into an exceptional partnership with Porsche, which accelerated with the successful launch of a special edition of Carrera Chronograph and it has performed very well. The same is true of the new limited edition Classic Fusion Takashi Murakami All Black watch by Hublot, which sold out extremely quickly. Chaumet launched a magnificent new collection called Joséphine Aigrette, while Zenith launched its new Chronomaster Sport, with its exceptional El Primero movement. Fred launched -- relaunched its Pretty Woman collection attributed to the beloved now 30-year-old film and the iconic Fred necklace worn by Julia Roberts in it. Lastly, I should mention that LVMH held its second Virtual Watch Week in January, which reached 15 countries and was again a good success. Now looking at the Selective Retailing group, Slide 15. Organic revenue was down 5% in the first quarter of 2021 versus the year ago period. When we take into account a negative 6% currency effect, this brings us to a reported revenue of EUR 2.3 billion for the quarter compared to EUR 2.6 billion in the prior year period. Looking at this business in the first quarter of this year versus that of 2019, organic revenue declined 30%. Breaking this performance down, Sephora continues to perform well, fueled in good measure by online sales and its excellent omnichannel capabilities. This is particularly evident in China in the period where Sephora continues to expand its business. Its selective expansion focused on China and the U.S. markets will be important, including its new partnership with Kohl's, which begins this year and will continue to roll out through 2023 when there's expected to be a Sephora presence in at least 850 Kohl's stores. Of course, like so many other retailers, Sephora continues to be impacted by store closures, primarily in Europe. At DFS, the decline in international travel continues to have a significant impact on this business. To offset this, the team is rigorously focused on reducing its selling expenses and cost structure. At the same time, it is making highly selective growth investments, including its recent opening in Haikou Mission Hills in Hainan, in partnership with the Shenzhen Duty Free group. So now before we open the line to your questions, I would like to summarize what we've shared by noting that the first quarter marked a good year -- good start to 2021 for LVMH, with all groups, except Selective Retailing, contributing to the strong organic revenue growth we discussed. Among the factors contributing to this growth is our team's focus on significantly scaling up our digital and e-commerce capabilities over the past year, which has helped offset the impact of store closures, particularly in Europe. Beyond that, the work done by the teams across the board to continue to drive forward innovation, creativity and unyielding commitment to quality positions our Maisons well to continue to gain market share even as we closely manage costs and maintain a flexible approach as the recovery from the pandemic continues. Consistent with this and as we look to the balance of 2021, LVMH's objective is, as always, to reinforce our leadership in the global luxury goods market.With that, I thank you for joining us today, and we will now take any questions you might have. Toudou, please, could you open the line?

[Operator]

[Operator Instructions] We have one first question from Madame Zuzanna Pusz from UBS.

[Zuzanna Pusz, Head of European Luxury Equity Research]

I have 3. So the first question is on pricing. Would you be able to tell us roughly what level of pricing was implemented for Fashion & Leather Goods in Q1? I'm obviously not after the exact number, but maybe something like low single-digit, mid-single-digit, that would be very helpful. And secondly, I mean, again, that Fashion & Leather Goods division. The performance has improved sequentially when we look at it 2 years back versus Q4. I was just curious to know what was the kind of driver behind the sequential acceleration when it comes to the nationality and also maybe [ brown ]. So was it the Chinese consumer, the American consumer that accelerated versus Q4 and also maybe specifically the brand? And then finally, a question on trends. I know it's a tricky one, month-on-month. But obviously, January and February are always quite difficult to comment on because of the timing of the Chinese New Year. But it was very helpful, you mentioned in the press release that basically for Fashion & Leather Goods, again, Q1 was at plus 37% versus Q1 2019. So I'm just curious if looking at trends month by month, the exit rate, so the month of March was actually above that 37% or was it below? That will be very helpful to know maybe some color around that.

[Jean-Jacques Guiony]

Thank you, Zuzanna. You know how much I love the questions on a month-by-month basis. Frankly, it's already difficult enough to report on a quarterly basis. I feel lucky not to have to report on a monthly basis. Let's start with your first question on pricing. For Fashion & Leather, I mean, I will not go into details for the whole division because there is no such thing as a unique price increase for the whole division. But for the main brands, the price impact, it's not necessarily price increase in the course of Q1. The price impact that affected the revenues for Q1 was in between 4% and 7% depending on the brands. Most of them were implemented last year, basically, and still have effect into the first quarter of 2021. The second question you have on acceleration in the sequential growth -- 2 years growth of the Fashion & Leather division and which are the customers that explain it is not easy because when we look at the various customer bases, we can do that for Vuitton and to Dior, obviously. We -- most of the client bases are reasonably -- are showing more or less the same growth rate in Q3, Q4 and Q1 on a 2 years basis. So we find it hard to find an explanation there. Maybe it's in the small plant basis that we are looking with less accuracy, but I find it hard to have an explanation. On top of that, the numbers you mentioned are accelerating a bit, but it's nothing to write home about in my view. So take the numbers as they are. They are pretty good, and it's quite complicated to find explanations for small percentage changes as we see that. And obviously, on your third question, I will not answer because I don't intend to go into the details on a monthly basis. Sorry about that.

[Zuzanna Pusz, Head of European Luxury Equity Research]

No problem. Just to clarify -- that was very helpful on pricing, the 4% to 7%, but that's the pricing running basically from last year. But if I remember correctly, most of the brands tend to also have some small price hikes still, I would say, in Q1 from your markers. So...

[Jean-Jacques Guiony]

Well not so much in -- not so much in Fashion. It's very much the case in Wine & Spirits, but not so much in Fashion. I mean it happens when it happens, basically. It's not necessarily in fair each and every year. It happens sometimes, but not always. And this year, there were no particular price increase to be noticed.

[Operator]

Next question is from Mr. Antoine Belge from Exane BNP Paribas.

[Antoine Belge, Research Analyst]

It's Antoine Belge at Exane BNP Paribas. I've got 3 questions. First of all, back to the Fashion & Leather division. Can you maybe comment a bit on the brand? I think you mentioned Dior still very strong, but maybe explaining Dior, Vuitton and maybe the rest of the portfolio, which brand did maybe a bit less well, and if there were some capacity constraints for any of the brands?Second question with regards to Watches & Jewelry. Could you comment on the performance of jewelry versus watches? And so if you're seeing some kind of restocking in watches happening or not yet? And finally, I think you mentioned qualitatively a strong start to the year at Tiffany. Is it possible to have the organic growth of Tiffany in Q1, even though it's not contributing to your own organic growth? And also if we should expect some kind of margin dilution in what is likely to be a transition year for Tiffany.

[Jean-Jacques Guiony]

Welcome back Antoine, and thank you for your 3 questions. The first question on Fashion & Leather, as always, I mean, it's been more like the same structure for quite some quarters now. We have Dior being in excess of the average -- doing better than the average. Vuitton, as always, is close to the average as always. And the average of the other brands is, by definition, a bit below the average for the division. We had pretty strong numbers coming from Celine, from Louis Vuitton, from Fendi, from Marc Jacobs. These are the most noticeable ones. Not that the others are not doing well, but the best performances were with those brands. As far as jewelry versus watches are concerned, jewelry did significantly better than watches. And conversely, we see no signs of restocking as we speak. It may come later in the year. But for the time being, activity is pretty quiet. So nothing worth reporting there. On Tiffany, I don't have the organic growth. We have a growth. It's probably one of the last time I will report on this number, but you can probably try to figure it out from the various numbers you had in the past. So I will get into some details. So we were around 8%, 9% published growth in dollar terms at Tiffany in the first quarter of the year. It's not exactly their old first quarter because we have -- they were reporting at end of January, and we do report end of December. So there is in there, probably, a positive currency impact, but we are not in a position yet due to the systems being integrated to really evaluate the impact of currencies. It's probably some effect there. I will comment further in July when we have a better understanding of the numbers.

[Antoine Belge, Research Analyst]

Just maybe -- so with regards to Tiffany, so nothing to worry in terms of the potential margin dilution? And there's no brand inflation and other [ phase ] capacity constraints because maybe, especially in France, where production might have been hampered by social distancing and things like that.

[Jean-Jacques Guiony]

We manage, particularly as far as Vuitton is concerned, where we own a very large share of the production facilities, we manage to -- we manage that pretty well. I think not only we manage -- and we have been managing flexibility much better over the last 10 years than we used in the past. So we have this ability to produce more when it is needed and less when it is the opposite. But at the same time, we're able to deal with -- in a fairly efficient manner with the constraints coming from the pandemic without taking obviously any risk for our people. But this has not been a serious issue as you can figure out from the numbers in the second half of the year, last year and in the first quarter of the year this year.

[Operator]

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

[Edouard Aubin, Head of Luxury Goods]

So 3 questions, I guess, for me as well. The first one is on geographies. If you look at the U.S., if I'm not mistaken, it was one of your -- the main sequential acceleration on an underlying basis, and I guess, 2-year basis. If you could please provide a little bit more color by division for the U.S. And related to that, are you seeing a change in terms of the -- and I guess I'm mostly asking for Vuitton and Fashion & Leather Goods, in terms of the profile of the customers you have there today versus what they might have been a year ago? Are you more successful, for example, with more aspirational customers? So that's question number one. Question number two is on the marketing spend for Fashion & Leather Goods. So I guess in order to avoid the risk of trivialization or ubiquity, luxury brands have to grow desirability ahead of sales. So should we expect a further step-up from you in terms of spend behind the brand on advertising, pop-ups, more shows and so on? And I guess I'm talking more in percentage than in absolute. So are we going to see this roughly the same level on a percentage basis this year and the coming years than you were spending pre-pandemic on marketing? And then, lastly, on, again, Fashion & Leather Goods, and I know it's very early days in markets like the U.S., but are you seeing any negative impact from reopening of markets on luxury sales? And the reason obviously I'm asking the question is about the risk about the wallet shift in favor of more experiences such as restaurants versus spending on goods. Again, I know it's early days, but I'd be curious to have your take on this.

[Jean-Jacques Guiony]

Thank you, Edouard. So by division in the U.S., we had very strong numbers in Wine & Spirits. We benefited there from a brilliant Cognac market as it's been the case for quite some time. So nothing new there. Nothing new in terms also of capacity constraints. We could certainly sell more if we had more bottles, but the volume growth for Cognac in the first quarter in the U.S. was around 15%. So it's organic growth of something a bit more than that with price increases. So it's quite a stunning number, and we are already very happy with that. Champagne did well too, for 2 reasons. Inventories were pretty low at the end of last year. So there was inventory replenishment. But on top of that, depletions happen to be extremely strong in the first half of the year. So we don't get carried away with those numbers. There were price increases at the end of the quarter. So we know that there is a tendency on both distributors and retailers to restock ahead of the price increase. So we need a little bit of hindsight to look at these numbers. But anyway, there are good numbers in Champagne in the U.S. So that's the first comment. Second comment is Fashion & Leather when we had -- where we had very, very good numbers. And otherwise, the other divisions are, on average, around -- I'm talking about comparison between first quarter 2021 to 2019, obviously -- was more or less at the same level as what we had 2 years ago. So really strong advances from Wine & Spirit and Fashion & Leather. And the rest is around the same level as what we had 2 years ago. Second question on marketing spend, well, there is quantity and quality. That's the key difficulty in your question. You can invest less and invest better and invest more and not so well. So we think we have to combine the 2. The short answer to your question is that I don't expect a big surge in volumes or in percentage of sales in terms of marketing spend. I mean the question as we've seen during the pandemic is not how much you spend, but how you spend. And we had a tremendous impact, particularly at Vuitton and Dior with some events. The environment was reasonably easy because nobody was talking at the time, and we are more or less the only one. Yet, it's something worth remembering. And really, the quality of what we do is almost as important, if not more important than the quantity of the investment. So I don't expect a big upsurge in -- on a secular basis. I mean I'm not talking obviously about the comparison with 2020. When things normalize, we'll obviously have an increase in marketing spend, but there is no particular reason why they should be much higher in volumes and percentage terms with what they were prior to 2020. And finally, your question on, basically, it's impact of normalization, what happens when people have other opportunities to spend their money than just shopping, which is basically what we've seen in -- for quite some months. Well, again, the short answer, as you suggested, is that we don't really know. It's a bit early. It's welcome anyway. I mean staying in a situation where restaurants, hotels, cinemas, theaters, whatever, are closed is not a good thing for people and, therefore, not for the business. So we'll probably be in a better position to comment on that hopefully I would say, in 3 months' time.

[Operator]

Next question is from Mr. Thomas Chauvet from Citi.

[Thomas Vincent Chauvet, Research Analyst]

I have 3 questions, please. The first one on the online growth in Fashion & Leather. Could you try to give maybe some qualitative comments on how it's evolved in Q1 as you start to anniversary maybe tougher comps? Was it above the 52% growth in the division? And how would you expect e-commerce trends to evolve now that consumers may be more used to stay at home and shop at home? Secondly on DFS. You resized the cost base of DFS last year in light of the significant falling in traffic. With the situation not improving on international travel, is there a need for more structural cost removal at DFS or maybe some sort of strategic thinking about, I don't know, maybe certain concession to be abandoned or not renewed? And thirdly on China and recent political and social media backlash here, obviously very significant exposure to Greater China. It's mostly through retail and wholesale operations, not so much sourcing. But can you comment on whether you feel any of your major brands may be at risk of some government social media backlash that have impacted some fashion, sporting goods or brands or even Burberry and whether this had an impact on your distribution network, particularly on platforms in the last few weeks?

[Jean-Jacques Guiony]

Thank you, Thomas. It seems to me that you want qualitative comments on online growth, but basically, what you want is quantitative comments, which I will not provide. I mean the anniversary of tougher comps is a fact of life. I was forecasting the share of online to decrease on a group-wide basis, and particularly in Fashion & Leather when things normalize. It's not happening as much -- well, it's not happening at all, to be frank, not as much as I expected. We'll see. I mean one quarter is probably a bit over a short period of time to really assess the consequences. The only thing I would comment is that I don't feel that people are just willing to stay at home and shop just from home. I mean the -- as we've discussed many times, the experience you get from a screen or from a store is entirely different, and we do believe that nothing replaces the store visit. We can just improve it with visit on the website before. So it's a research online, purchase off-line or it's taking appointments, checking the availability of the product, you name it. But we don't view online as being a new channel. We think it just reinforces the quality of the experience people have when they come to stores, and we will not change our mind there. Second question on DFS. Yes, we have resized the cost base. Is there further cost cutting to come? I don't think so. I mean although DFS is very active in making sure that they can provide as much cost relief as they can, they will probably benefit this year from rent reliefs that were actually negotiated last year and took some months, if not quarters, to agree upon. So there will be some further impact in 2021, which is not necessarily permanent cost cutting, but it's welcome in the current environment. With regards to concessions that could be abandoned, I mean, obviously, I will not comment. Everything is -- I mean, all options are on the table. Obviously, when you lose money on a given business, we have to discuss with the concession owner what is the best course of action going forward.Your last question on China, I mean, that's the -- a little bit the talk of the day. I mean I've never seen a big threat in being successful in a given country. So everybody is talking about China being an issue. As far as I'm concerned, it's more an opportunity than anything else. We are very happy with the business we do there, and we believe that it's a complex country like any other business, I would say. And we are not particularly worried that something very bad could happen there.

[Operator]

Our next question is from Mr. Oliver Chen from Cowen.

[Oliver Chen, MD & Senior Equity Research Analyst]

As you continue to innovate digitally, how do you think about e-concession relative to 24S and relative to just wholesale and online wholesalers? I would love your view on strategy and thoughts there. Also, congrats on Kohl's. Regarding Kohl's, how might the assortment differ in a Kohl's, Sephora versus others? And do you feel like cosmetics is on better footing relative to skincare? And lastly, in the U.S., just would love your thoughts if the stimulus had impact in terms of demand and inventory management. And geographically, was it broad-based strength?

[Jean-Jacques Guiony]

Thank you, Oliver. How we feel about e-concession, if you compare that to wholesale, which is in your question, obviously, much better. I mean we don't do -- we try not to do wholesale in or less as little as we can, particularly in Fashion & Leather, in the physical world. So obviously, when it comes to the digital one, we don't intend to do what we don't do elsewhere. So at least in -- e-concession allow us to control prices, allow us to control discounts, is a much better proposition from the digital platform. This being said, and we've discussed that many times, we lack the same knowledge of clients -- of data clients that we would get in a normal store. So this is the reason why we've been going into e-concession with a pretty cautious approach as we don't think it would be wise to just send all this data to the digital platform without getting access to it. And for brands like Dior or Vuitton, it has been a nonstarter. There are no one single e-concession agreement. And up and until they get access to -- full access to data, they won't go there. Secondly on Kohl's and Sephora, so what about the assortment, I don't have very precise numbers. But typically, Sephora would have 10,000 SKUs, so different items. I think we are talking about in between 35% and 45% of this amount in a Kohl's format, which is much smaller, obviously, than in shop-in-shops, which much smaller than typical Sephora in the U.S. So we would show more best sellers in the -- we would treat Dior this way given the less square meters available. Our cosmetics is doing better in the U.S. It's not obvious. I mean the cosmetic business is still suffering badly, even compared with -- well, compared to last year, it's okay. But compared to 2 years ago, it's still well below skincare, is doing better. Finally, your question on stimulus impact, well, that's -- there is no such thing as a survey telling us that we benefited up to a certain level from the amount of money that was made available to the households, particularly in the U.S. We've seen some businesses like Wine & Spirit, for instance, which we think benefited a little bit from that. But I think the big impact of the stimulus was to avoid the whole country being sort of frozen as it would have been the case if such stimulus have not been distributed.So it's not the impact itself of the money that was distributed. It's a psychological impact of we will be there for you. So you can continue to do shopping. And I think we benefited from that like the rest of the economy, not necessarily with the direct link of the amount of money that was distributed, which was converted into actual purchases into our brands.

[Oliver Chen, MD & Senior Equity Research Analyst]

And was -- very helpful. Was the U.S. pretty broadly strong? Or any color on volatility or geographic? And lastly, just longer term, your physical stores are very important. So e-comm penetration over time. What's your view on how that may evolve as you continue to invest a lot in the physical experience as well?

[Jean-Jacques Guiony]

Well, we are strong believers in stores, as you recalled, because we think we cannot replicate the customers' experience on screen or on the website the same way as we have it in the stores. And we think that web should -- digital should help or complement the physical experience more than anything else. So this being said, I mean, there is nothing wrong with a certain level of web penetration. It used to be, on average, 5%, 6%, 7%. It went up significantly last year. As I said, although I was wrong for Q1, it will probably go down with things normalizing this year and next year. And we'll see whether the -- where it stays once things are back to normal. If we end up with web penetration, which will vary anyway between categories of products being around 10%, I mean, that would be absolutely fine. I mean that doesn't put into jeopardy all the investments we have done in the physical stores, and at the same time, allow people that don't want to shop into stores for whatever reason. The main reason being that they are too far away from physical stores to shop online, which is absolutely fine with us. So there is nothing wrong with that. As far as your first question on geographic discrepancies in the U.S., not really, although you should bear in mind that we do the bulk of our business in the Northeast, in Florida and California. But as far as these 3 regions are concerned, things were pretty consistent from one to another.

[Operator]

Our next question is from Mr. Rogerio Fujimori from Stifel.

[Rogerio Fujimori, Analyst]

Jean-Jacques, Chris, congratulations. Two questions. First on jewelry. Could you just talk a little bit about the underlying performance by price points for Bvlgari and Tiffany? And i.e., any color on performance for high jewelry versus the mid-price or the entry level lines in Q1? And what have you seen in terms of interesting trends around Chinese New Year or Valentine's Day in Q1? And the second question is just about the selling surface plans for LV and Dior. Based on your project pipeline, what should we expect in terms of change in retail square meters for these 2 brands this year?

[Jean-Jacques Guiony]

Thank you, Rogerio. I take the opportunity of your question in jewelry to make clear that the number I mentioned on Tiffany was a 2 years growth. It was 2020 Q1 compared to 2019 Q1. It was not 1 year. It was 2 years. So your question on jewelry, what I can say there is that high jewelry was not too good in Q1 2021 even compared to 2020. I mean numbers were not great, which is understandable in my view in the context. But anyway, numbers were not too great. We did well. Both brands did reasonably well. I mean Bvlgari was, in retail, pretty close to double-digit growth, particularly if we take out the negative impact from high jewelry. So Bvlgari did well, and I mentioned the numbers as well for Tiffany.In terms of price points, it's hard to differentiate between the various price points in the -- in all the brands. As far as Tiffany is concerned, to be frank, I don't have the numbers. So I cannot comment. But as far as Bvlgari is concerned, I mean, our main families of products did very well. [ Guerlain ], which is considered as the entry price, did well, but Serpenti as well where we had some launches. So it's really hard to say that it was more entry price than the middle range. It went reasonably well across the board. So I have to be frank, I really have a little bit of a hard time answering your question in a precise way. Your second question on selling surface, we have had in the first quarter a limited increase in space. As you can understand, we get -- or we've postponed, which is probably more accurate, we've postponed a lot of projects last year to protect cash flow. And this project will -- depending on the assessment we have for the year, will probably be reinitiated in the course of 2021, but it will be not enough time for them to be live by -- before the end of the year. It will probably be 2022 impact. So you can expect, as we had in 2020 for the main brands, fairly stable selling space. Same thing in 2021 and 2020 compared to 2019 and probably some increase in 2022 with all the postponed projects being reignited and becoming live in the next year.

[Operator]

Next question is from Mr. Thierry Cota from Societe Generale.

[Thierry Cota, Equity Analyst]

Three questions for me. First, follow up on beverages. You've mentioned price increases in March, I guess, as usual. Can you confirm that they are, as in the past, low single digit in Wines & Spirits? And secondly, you mentioned low inventories in Cognac in the U.S. I was wondering if you could update us on the Cognac inventory days in the U.S. at the end of the quarter. Secondly, we've had large-scale store closures at least in Europe in Q1. Do you have any idea of the percentage average of store closure in Fashion & Leather Goods and in the Retailing division over the quarter and where we stood at the beginning of 2Q? And lastly, a broader question. Well, I understand that the core focus is on Q1 sales, but can you tell us whether the OpEx control that we saw very much in action last year and notably in the second semester, has that continued in H1 or not? And in fact, I'm naturally pointing to the margins we could imagine for H1.

[Jean-Jacques Guiony]

Thank you, Thierry. Yes, I can ascertain that the price increase is low single digit. I mean as always, 2.5%, 3% in -- implemented mostly end of March. We would therefore the impact on restocking that I mentioned, which happened in the U.S. Cognac base in the U.S. is I think it's 25. So we are at a pretty low level. It went down throughout 2020, and we've not been able to replenish it significantly in Q1, which is a good problem to have. But anyway, given the strength in the demand and the strength in depletions, we were able to -- we were not able to increase this level.Store closure in Europe, it's complicated. I know why you're asking the question because it would be easier for you if you get the average store closure in order to figure out what the impact of lower level of store closures could be in the following quarters. Unfortunately, it's not a data that I have. What I can tell you is that it's mainly impacting, obviously, Europe and some -- the large European countries. At the end of March, for instance, in Fashion & Leather, most of the stores were -- early April, most of the stores were closed in France, Germany, Italy, Spain and, to a lesser extent, in the United Kingdom. So we had most of our Fashion & Leather stores being closed.As far as Sephora is concerned, throughout the quarter, because it started earlier, we had on average about 50% of the stores in Europe being closed because the stores were below the limit threshold, particularly in France, but they were belonging to shopping malls sometimes that were above the 10,000 square meter threshold that was requiring them to close. So there was, on average, about 50%, but it's probably the only brand for which I have an average closure rate. Otherwise, I mean, for the other brands in Q1, there were not so many closures, a little bit in the U.K., a little bit in Germany here and there, but not on a global basis. Same thing in Italy. So it's pretty difficult to figure out what was the impact in Q1. It was limited in Fashion & Leather. Anyway, it's going to be probably a bit tougher in Q2 with the impact of closures or shutdowns in France, in particular.

[Thierry Cota, Equity Analyst]

Oh, so actually, at this point, you would think that the Q2 impact could be worse than what you had in Q1, for the Fashion & Leather Goods?

[Jean-Jacques Guiony]

I'd tell you, end of July. If you allow me, at the end of July. But I don't know my crystal ball doesn't tell me much as we speak. Your third question on OpEx control, I mean, you would probably be surprised if I was telling you that we are releasing OpEx and we are spending like mad. Obviously, we are still controlling OpEx in a serious way. Bear in mind that last year, we benefited from one-offs, particularly with regards to rent reliefs, that may not be as important as they were -- that will probably not be as important as they were in H1 last year. Although, as I mentioned, I mean, we will benefit from some deferred rent relief actually applied to 2020, but that will be paid in 2021 and that we were not bold enough to account in 2020. So there will be some delayed benefit from that but not in a very significant way. I'm sure you'll be asking the question again in July. So I will probably answer that it was not entirely significant. But anyway, from -- for DFS, for instance, it will have some impact. But cost control is still on the agenda, believe me.

[Operator]

Next question is from Mr. Luca Solca from Bernstein.

[Luca Giuseppe Solca, Research Analyst]

Yes. I had a first question on spend per capita and number of customers that you saw over the pandemic period and in this quarter in your major businesses. Are you seeing anything noteworthy in terms of expansion of the customer base on the back of savings on essentials or any other change, especially if you look at the European or the American consumer base? Then maybe a second question about your setup in Hainan. Are you distributing directly in that location or are you going through some kind of JV and wholesale agreement? I see that you specify your partner in Hainan. So I was interested to understand how it works. And then last but not least, we've seen in the media that a number of brands have been suffering from the pandemic very significantly and are opening up to potential M&A. I think Armani was quoted saying that they are not looking at independence as a must-have. [indiscernible] was reporting about [indiscernible] being for sale. I wonder whether you see this as a potential opportunity to cherry-pick assets. And what is your logic and criteria for M&A knowing that you must have a lot of fish to fry integrating Tiffany at this point?

[Jean-Jacques Guiony]

Well, you're -- thank you, Luca. The last question, you made the question and the answer a little bit. I mean we have a lot of fish to fry, and integrating Tiffany is very important for us, and we don't want to dilute our efforts by going on to new ventures that could make our life complicated and make us, from a management viewpoint, less efficient. I mean it's really the #1 priority. It's a big acquisition for us. We are obviously putting -- it's a challenge for us, particularly at a time when integrating a company where most of the people like it is the case everywhere else are working from home. I mean this is a challenge, and we think we have to devote all our resources there. So we don't want to dilute such resources to other acquisitions. The other question, spend per capita and a number of customers, it's a very difficult question because what we've seen is a few trends. The first one is a drop in traffic. It's not really your comment, but we've seen a drop in traffic everywhere. I mean, conversely, conversion rates have increased significantly because the business is not so bad after all, but we do more or less the same business with way less traffic. So that's something important that we've seen. In terms of number of customers, it's not -- the question of -- so much the question of how many, but more who did we see? I mean we used to have -- I'm stating the obvious. You know that perfectly well, but we used to have a large penetration into the touristic category, which is I think of the past as we speak, it will certainly come back. But the tourists, particularly in Europe and in some Asian countries, are gone. So the real question here is about the number of customers that we get on a local basis because we've seen all these stores disappearing, which we counted as in our per capita spending and all these things. They have all been repatriated to the home country, and we have a substitution with locals, which is not in some countries like in Europe a one-to-one substitution. But anyway, we get a big surge in local client base in Europe, which is, I think, a very good signal, not sufficient to offset the fact that the tourists are gone. But anyway, we see that. In terms of spending pattern, they are not exactly the same, more frequent purchase. So the spending per capita or the -- when they go to store, they spend less than the tourists, which have sometimes only a lifetime opportunity to buy into European brands in Europe, so they spend more than what the locals spend because they have the opportunity to come back in the store whenever they want, including the day after. So it's a different behavior. But anyway, it has to be put in the context of big shakeup in the way the -- our clients approach the business, which is much more on a national basis than on a touristic -- on an onshore basis than on an offshore basis as it was in the past. So it created some disruptions, which we think are easily manageable and positive long term. Finally, your question on setup in Hainan. As you know, Hainan is -- in order to do business in Hainan, you need a Duty Free license. Some licenses were awarded mostly, if not entirely, but I think it was entirely to Chinese companies. We are tying up -- DFS is starting up with Shenzhen Duty Free for a big project in Haikou that opened a few months ago, which is off to a good start like the rest of Hainan, which is doing well. But as far as the brands are concerned, they cannot go direct, at least for the time being. And they have the choice between wholesale, which is limited to some brands, mostly the cosmetic brands, and shop-in-shop as it's been the case with any department store. So the business model there is not any different from a Shilla, Lotte DFS business model where you have a combination of shop-in-shop and wholesale activities. So that's where we are in Hainan.

[Operator]

Next question is from Mr. Piral Dadhania from RBC.

[Piral Dadhania, Director of Premium Brands]

I just wanted to come back on Wines & Spirits. The commentary has been very positive on the call, especially around U.S. inventory levels and Champagne restocking. But in the press release, you make a comment saying it continues to be an uncertain environment. I was just wondering if you could provide any further color around where you see potential headwinds or challenges in the coming quarters for that division. And then just a follow-up on the rent relief. Could you just remind us perhaps on what the magnitude of the rent relief OpEx saving was in the first half of last year just as we think about the margin structure for this year? And finally, on Fashion & Leather, is there any significant call out in terms of performance by product category that's noteworthy for LV and Dior in particular?

[Jean-Jacques Guiony]

Thank you. What we feel about the uncertainty in the environment, I'm not so sure I have to elaborate too much on this. I mean environment seems to be reasonably uncertain as we speak. That's what we meant. I mean there is nothing special. We are not pointing out a specific risk there. It's just that the global environment calls for caution, and we don't know where we are heading for. So that's all. As far as the rent relief reminder, I will not remind you because I never tell you. So we never mentioned the amount of the rent relief. We want to avoid shortcuts into what will happen this year in terms of cost increase because at the same time, we got rent reliefs last year. We got a 17% drop in Q1 and a 38% drop, if I'm not mistaken, in Q2 for the global sales of the group. So we think the 2 are going together, and it's not worth isolating rent reliefs, which is a function of the very specific environment that we had last year.And finally, your question on Fashion & Leather, any particular insight by product category at Vuitton and Dior. I would say, I looked at this, it's quite homogeneous. I would say, handbags, ready-to-wear, shoes particularly for the 2 brands are doing well with more or less the same type of growth rate. I'm not saying there are some -- there are not some differences. There are some, but nothing really worth mentioning. These 3 categories are extremely consistent in terms of growth, and we are pretty happy about that.

[Operator]

Next question is from Mr. Erwan Rambourg from HSBC.

[Erwan Rambourg, Global Co]

And well done on the wording of the release. I thought a good quarter was a nice euphemism, so well done. So I'll stick to 3 as it seems to be tradition. Going back to Tiffany, I'm just wondering if you can share with us after a few weeks of overseeing the brand, if you see any easy changes, any tougher changes than you had anticipated. We saw a few price hikes. I don't know if it's limited to silver products or a few hike prices more broadly for that brand. So that's the first question. Second question around your European footprint because Europe is seemingly taking longer to get out of this COVID mess than we would have thought maybe 2, 3 months ago. And I'm just wondering if long-haul flights take a longer while to come back. Does that change your view on what your European footprint should be?And then, thirdly, sorry to come back on LV and Dior, but given the explosive growth you've had, growing in the 50s, and I think you mentioned price hikes accounting for 4% to 7% of the growth, is there a case to be made that you might be underpriced and that you might have the latitude to actually hike up prices a lot more significantly in the next 18 months?

[Jean-Jacques Guiony]

Thank you, Erwan. Interesting question, your last one. I will start with the first one. So on Tiffany, basically, you're asking us whether it's tougher than anticipated. The answer is no. As far as the brand is concerned, we are -- we were convinced that it was a very, very strong brand and nothing in what we've discovered there makes us change our mind. I mean it's a very strong brand. The potential is tremendous, and we have no doubt whatsoever on this particular front. With regards to what has to be done in terms of executing the appropriate strategy, we are not surprised either. I mean we said that the big issue of Tiffany was that their timing with the stock market was not appropriate, and they couldn't have -- the stock market was not giving them the time to develop the strategy that was needed to develop the brand. Basically, what we are talking is about years and not quarters, and it will take years to do what we want to do with this brand from a distribution, merchandising and marketing viewpoint. We know that there is a lot to be done within the next years, and we'll do it. It's not going to take less or more time because we don't know exactly how much it will take. It's a lot of work. We are committed to doing it. We are very hopeful that with the strength of the brand, we can achieve our objectives, and we will report them as they unfold. That's basically what we've done with Bvlgari, and we intend to apply exactly the same strategy for Tiffany. Not the same brand strategy, the same behavior or the same plan, let's put it that way, for Tiffany. As far as the European footprint is concerned, just one number. The business is down only 20% or it's down 20%, only, I don't know, but it's down 18% compared to 2019. So basically, in order to justify footprint reduction, let's put it that way, that would mean the admittance that there is no way we can bridge this gap with 2019 in the foreseeable future. And the answer is obviously not the case. I mean we expect to bridge this gap with the locals and with the return of the tourists in a reasonable time frame. I mean I don't know whether it's going to take 3 quarters or 2 years, but it's going to take what it takes, but it doesn't justify to write-off investment and sometimes to give up some retail positions that we think have some value just because the business is only 80% of what it used to be. So we don't intend -- doesn't mean that we will not adjust, but we don't intend to lower the footprint in Europe in any way. We will adjust. We will close. We will open as we always do, but that's it. Is LV and Dior underpriced? Well, I don't know. Because the question you're asking is about price elasticity. I mean the price elasticity in luxury is an unanswered question for as long as luxury exists. So it's difficult to know when you increase prices, whether the -- there will be some reaction in terms of volumes. So if you take this as an assumption, you can increase prices as much as you want, where -- and at the end of the day, usually, there is a problem.So it's -- prices have to be handled with care. Sometimes, we have no choice. I mean, particularly in times when currencies are falling, we have to increase prices to protect our margins. It is not the case as we speak. I mean although we have a little bit of a negative impact from currencies, we are not talking about the sort of secular drop in currencies as we had in the first part of the year 2000. So we don't feel there is a particular necessity to increase prices. If it comes, we will do it. In the meantime, we will push prices up when we have to. We try to reflect inflation into our prices. We could be tactical. And sometimes when a product is very much high -- very high in demand, we would push prices up, but we don't consider ourselves as being underpriced, and this doesn't call for particular action on our side.

[Erwan Rambourg, Global Co]

Okay. I was just asking because you jacked up the prices on Vuitton last year after years of not moving them, and it didn't seem to affect your volumes much, if at all. Just a follow-up on price hikes at Tiffany because we saw some price hikes on silver products, but I don't know if it's limited to just the silver product.

[Jean-Jacques Guiony]

It was limited to the -- to some, not all of them, to some silver products.

[Operator]

Next question is from Madame Aurélie Husson-Dumoutier from Kepler Cheuvreux.

[Aurélie Husson-Dumoutier]

I have 2 questions, please, on Fashion & Leather. The first one is on the supply chain. What did you put in place to cope with such high volumes that we are seeing in Q1 and also in Q4? And is the level of inventory sufficient enough as we are entering a quarter that is supposed to see a strong catch-up versus last year?And my second question is on the growth. Could you -- of the Chinese consumers. Could you share with us, if not the figures, at least some indication?

[Jean-Jacques Guiony]

Thank you, Aurélie. Well, What we've put in place in Q4 and Q1 is basically [ not ]. Fortunately, we had the supply chain people, particularly at Vuitton, and they took this question of flexibility very seriously some years ago because it took years to implement. And they have implemented a fairly flexible system. They adopted a 2-shift system instead of one in the past, which enables much quicker and better reaction to swings in volumes, be they positive or negative. We've seen a big negative swing last year and a positive one this year. So all in all, I mean, we have a fairly flexible system, and that enables us to be much more reactive than we were 10 or 15 years ago in terms of volumes. So we don't foresee particular constraints. You have also noticed that we have opened some atelier that came at the worst moment in 2020. But with the benefit of hindsight, it's not that bad after all because with those atelier, we'll be able to meet the increase in demand that we are currently experiencing. So if we had cut all these things last year, it would have been a big mistake. So Vuitton was wise enough not to do that, and we today have additional capacity, which is welcome. So additional capacity and flexibility is basically the name of the game, and we're pretty hopeful that we shouldn't face major disruptions in the course of the year. The growth of Chinese customers is about, on a 2-year basis, obviously. So compared to Q1 2019, it's about -- a bit less than 40%. It's total client base. It's much more than that in China and obviously in Mainland China and way less in offshore markets.

[Operator]

We have one last question from Madame Louise Singlehurst from Goldman Sachs.

[Louise Susan Singlehurst, Managing Director]

I will keep it brief. Just 2 quick follow-up questions, if I may. Just firstly on back to Fashion & Leather because obviously we're trying to understand the phenomenal growth that's come through. And no doubt, we'll understand share as we hear much more from the peers over the next few weeks. But just going back to the level of new customers or recurring customers. Obviously, we're not going to get the answer, but I wonder -- the answer what we're trying to look for is how we should think about customer acquisition costs going forward, if there's more efficiency in the system in an already high-margin business, but thinking about the performance going forward, both from a top line and margin perspective. And I wonder if there's anything by nationality or surprises? You've highlighted, obviously, the strength in the European domestic, which has been key. And then my second question, there's been a few questions about digital and then the clear emphasis on the physical store environment. I'll go for the qualitative question rather than the quantitative, but there's obviously a big management change with Ian Rogers last year. Now you have the Chief Omnichannel Officer, if I remember correctly. Can you just tell us a little bit about the group approach, what that means in practice and whether there is a specific opportunity by brand or whether this is very much a holistic group approach at the moment?

[Jean-Jacques Guiony]

Thank you, Louise. On Fashion & Leather, your question is about we hope there'll be an increase in customer acquisition costs connected with more locals and less tourists. The short answer is I don't know. I mean that's an interesting perspective, I agree. We are mostly using our sales staff to not necessarily acquire new customers but to develop the business we do with existing ones. The new customers are mostly coming from the traditional marketing that we -- as I said before, that we do not intend to increase. So I would be tempted to say that whatever shift we have in the approach to customers, less tourists, more locals, at the end of the day, it should not increase significantly the amount of spending that is behind it. So we are not particularly worried. But to be frank, I mean, it's the first time I get into such a question, so leave me the benefit of thinking about it before making a more educated answer to that question. The second question on digital and what particular strategies we have in mind, I think the title says it all. I mean omnichannel is exactly what we have in mind. We feel that e-commerce is fine for the clients who want to shop e-commerce, but we also feel, as I said already, on that call that digital actually reinforces or strengthen the experience of clients in physical stores. And that's what we want to develop. So it's basically the research online, purchase off-line, as I mentioned, the ability to book an appointment, to check the availability of the product, to get home delivery if the product is not available on the spot. All these things that are provided by omnichannel strategies are the things we want to put the emphasis on in the coming quarters. We have already done a lot of work there. The experience -- the client experience has already been improved significantly as through these various actions that we intend to do more. That's the core of what we have in mind. Thank you, Louise. That was the last question. Thank you very much for attending this call. As I mentioned a few times, I look forward to discussing with you end of July our first quarter, including the full P&L discussion. Thank you. Bye-bye.

[Operator]

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