LVMH Moet Hennessy Louis Vuitton SE

PAR:MC

Earnings Call Transcript 2022-Q4

[Bernard Arnault, Chairman and CEO]

Good evening. I'm delighted to be with you again. I think, it's two years now, Mr. Guiony, that we were not present, were perhaps on Zoom. Perhaps that meant that I didn't have to work. That was all well and good. But at least I'm very pleased to be with you this evening to announce, I want to say once again, at the risk of tiring you, record results for the group LVMH. You saw the chart that was published. We achieved just over €79 billion in revenue, just over €21 billion for profit from recurring operations and increased 23%, net income above €14 billion, free cash flow just over €10 billion. So, financial performance that’s quite remarkable. Really the consequence of the great work put in by the teams in the various Maisons in terms of the quality, the desirability of our products and our presence throughout the world that is both dynamic and outstanding and has allowed us during these difficult years marked by the economic crisis, in part, and above all by the health crisis to increase our market share. As I say on several occasions, in difficult times in terms of the macro economy or political difficulties, LVMH is gaining market share and making progress and this has been the case since 2019.

Organic growth is very significant. The reported growth at most of our brands is -- also in each of our divisions. We have creativity and innovation that allows us to be in the situation where we are with these earnings. And I'd like first of all to discuss the most important activity of the group, Fashion & Leather Goods, notably Louis Vuitton. In the release, when we go through a major milestone, we never go the figures of Louis Vuitton. It’s a major milestone, so, we give it. It's a case this time for the first time. We said this when we crossed the €10 billion mark, Louis Vuitton has exceeded €20 billion in terms of revenue. And in this regard, I'd like to salute the outstanding performance of his -- Chief Executive, who will now take other functions. Michael Burke and for 10 years has been heading up Louis Vuitton and carrying it to this level, exceptional level whilst preserving its desirability with innovations and wonderful boutiques, and stores and creations that surprise worldwide. The most recent, I'm sure you've seen it because we can see it in Paris on the Champs-Élysées, the Kusama, the range of products that we produced with Kusama. And she in fact visited the Tokyo store. One of the greatest current artists came to visit the works and to face her robotized image that you can find in the displays of our store in the Place Vendôme. So, it's a creativity that enhances the brand's desirability. And that's what guides our teams above all, it's the desirability, be it for our Fashion & Leather Goods activities or for all the other activities of the group.

Let's also mention in Fashion & Leather Goods a great milestone. And I think at the last meeting where we were physically present, we mentioned this because Hedi Slimane had just joined the Maison with Celine. And we sat as a goal midterm to top the €2 billion revenue mark. And as it's an important milestone, I could confirm that we have crossed that milestone, which is very interesting and bodes well for the future for this iconic brand whose desirability, attraction to young people, to young women in particular, is now spreading to perfumes and fashion goods with the tremendous success.

Before going into greater detail of all this, and Jean-Jacques Guiony will go into the details of the figures. I would like to stress what I view as most important, extremely important for the group that is now leading group in Europe, and its various markets that it's economic and social footprint. Because I very often note with surprise but in France you can be readily surprised. People aren't always familiar with the economy, and we can be criticized and we are criticized by people who don't really know the subject that they're discussing. I would like to demonstrate here that this magnificent group that has spectacular results is also a group that has a great economic and social footprint for France. In 2022, we recruited worldwide close to 40,000 young people in France. In France alone, we recruited over 15,000 people, makes the group the leading recruiter in France in 2022. LVMH invested over 200 million for the training of its employees. In France, a job created by LVMH generates four in -- with our partners or suppliers.

So, we carry some 160,000 people in France who work directly or indirectly for LVMH. The group has worked on its building new workshops and it stores over 5 million -- in over 500 stores and 100 craftsmanship manufacturing sites are in France. LVMH opens every year many manufacturing facilities, notably for Louis Vuitton in France and we need, the group -- because we generate profits, we pay a lot of tax. We pay €5 billion in corporate tax in -- throughout the world, half in France, whereas 80%, close on 90% of our products are sold abroad.

Over €1 billion invested in France every year on average over the past years, the total tax footprint, well -- when we -- the total corporation, tax, taxes and social benefits of LVMH is of over €4.5 billion a year. Let me add that, because our head of Human Resources informed me that was an important point. And I would agree with that that the salaries of the group's employees are amongst the most competitive in the various sectors of activity. Most of our employees furthermore benefit from profit sharing with a total, for the group of €400 million a year.

A word on the -- our commitment as regards the environment. LVMH has been recognized for its leadership in terms of transparency and performance regarding the protection of the climate, forests and water by the Carbon Disclosure Project, the CDP, which is a not for profit global organization LVMH, one of the two companies to be ranked AAA, 15,000 companies, and I believe we’re the only one to have achieved that in our business sector. I wanted to say that because this is even equally important, perhaps even more important than the figures that we're discussing today.

Moving now across the various business groups, say excellent performance for Wines & Spirits. Champagne delivered an excellent year with a considerable increase in its sales, facing a supply problem. It's very difficult in certain countries, notably in the U.S. to find Dom Pérignon for this year. We've fully integrated Armand de Brignac that we own together with Jay-Z, the famous U.S. star and it works very well. We're -- doubled our forecasts when we made the investment. The acquisition of the Joseph Phelps Vineyards in the Napa Valley, that augurs well for the future. Cognacs, Hennessy is up with a strategy aimed at increasing its price, very dynamic strategy, the U.S. were somewhat impacted earlier in the year through logistic constraints, but the partnership of Hennessy has been strengthened with the NBA and strong progress of our whiskies, Glenmorangie and Ardbeg. Ardbeg viewed today as possibly the finest whiskey in the world. And we sold a cask of Ardbeg that -- actually the equivalent of 144 -- this cask was sold at a world record of €19 million and quality was vintage dating back to 1975.

Moving to Perfumes and Cosmetics, great success of perfume. The Dior perfume in particular with Sauvage is a leader in perfume sales. Sauvage, great perfume, the world's leading men's or women's fragrance, we launched lesson than 10 years ago, achieving remarkable success, driven -- buoyed by the image of Johnny Depp, you've probably seen the ads that's working very well. At Dior perfume, we now have a nose that joined us recently, because when we recovered the house, Francis Kurkdjian. We asked Francis to also become the perfume creator and he accepted that and with great talent, we have many plans for the future. Of course, the other, the Rouge Dior, Prestige, Crème, L’Or de Vie is growing very well, ditto for the other brands. What can I -- yes, we've acquired a small brand that is really quite interesting that I urge you to take a look at because we have several stores in Paris, one of the [indiscernible] Buly. It's a very small brand, not a lot of revenue, but set for a great future. It's already growing quite remarkably, notably in Japan.

Fashion & Leather Goods, I've discussed that. Everything is growing very dynamically. We have a team of excellent creators, be it at Dior, Louis Vuitton, with Nicolas Ghesquiere; Dior with Maria Grazia Chiuri, Celine, I've mentioned; Loewe, Jonathan Anderson. Our overriding objective is to make these brands increasingly desirable. And the desirability of the brands when we compare it to that of our peers is improving steadily. And therein lies the success. The results that will be presented in the moment and I'm sure you'll have questions is a consequence of all that. It's not at all an objective. That's not where I spend most of my time, because the desirability, its improvement leads, of course, with the quality of the products, the creativity in stores, leads to a certain consequence, which is increased sales and better profitability. But it's a consequence. On Selective Retailing now, which is -- we have the watches too.

On the Watches and Jewelry also a very good year. Tiffany for the first time will exceed the €1 billion in profit, profit from recurring op. We were barely at half that when we acquired the business. Everyone said to me, why are you buying this business at that price? It's far too much. Well, if today the business were to be listed, well, you never know. But I mean, it wasn't perhaps managed in the most dynamic way, I won't dwell on that at the time. But if it were listed today, probably worth twice as much. Don’t know what Alexandre thinks about that. But the group, the shareholders, I hope there are shareholders here, not just commentators. It's a very good investment, continues to work very successfully. I'm not going to plug for Bulgari. The Patek Philippe that everyone's clamoring for, I get requests every week, for -- to agree to sell Patek Philippe watches. The problem is that they sold -- I mean, the market price was about $40,000 when it was sold. When a model was sold at an auction, it generated almost 10 times as much. So, very strong demand, a whole string of products arrive, products that are currently being launched.

And we also have High Jewelry collections that are doing very well with the leaders in high jewelry worldwide. We've just bought a collection of a pink diamonds in an Australian mine that is shutting down, a fantastic collection, worth a certain price, but I think it's almost pre-sold, et cetera.

And of course, the high point of this year for Bvlgari will be the opening of the flagship on 5th Avenue on the corner of 57th. But as we're already doing over €200 million in the provisional store, and I think we're going to double even more the annual sales in this new store, which will be wonderful. I've seen it -- I don’t know if it's going to be open on time. You never know. The United States are less precise than the Japanese are when it comes to construction. So, Bvlgari is going very well. It's a company’s brand that we've owned for longer that's expanding very well.

TAG Heuer watch brand also developing. While all these brands are profitable, very profitable, some -- Hublot just had a great ad boots with the soccer World Cup. Every time, a new player came on the pitch, Hublot was up on screen. Chaumet great success. Fred, for the first time, wonderful exhibition in Paris. And I hope, it will be able to continue it and travel throughout the world. And Zenith developing fine new products. I don't think. I've forgotten anything.

Selective Retailing. Well, here Sephora is really firing on all cylinders. Record profits and sales, very well managed company, very present in the United States. The year '23 is off to a great start in the U.S., fantastic scores. I think, they’re now ahead of the market. It's far and away, the lead is distribution brand of Perfumes and Cosmetics. And well, DFS slightly more challenging, airport, sales airports have been deserted up till now. So, of course, it's difficult to remain out in front with an uptick in sales. But there are green shoots there in China. Macau has started again. I mean, we're not invested in casinos, let me reassure you. But in our stores in Macau, business is back, the Chinese are buying. Le Bon Marché is small but good sales, good level of sales very well managed, very creative. Mr. Wagner is there, but well done, bravo for the latest creative with hit pans. I mean, it's amazing. It's absolutely wonderful.

So, the word about the outlook, the goal for 2023, which is to continue at the risk of tiring you, continue to improve the group's leadership, and we plan to increase our lead across market segments and to continue with the same strategy with teams that are changing. You see that we made a few changing changes in the group teams. So, as to advance things I mentioned earlier, the head of Louis Vuitton, who, after a wonderful success, will work with me directly.

On other issues, Pietro Beccari, who's moving from Dior to Vuitton, where he was previously, after a great success with Dior, will move to Louis Vuitton. Delphine was at Dior for 10 years and then 10 years at Vuitton, is now back at Dior with a great creative team, an extraordinary creative director.

So for 2023, I'm quite confident. I think that 2023, if the early part of the year is confirmed, if the opening up of China is confirmed, it's a bit short, but -- January, but a very strong start. We'll see. We can't guarantee it's going to continue like that. We can't guarantee that something might not happen. We hadn't expected the Ukraine problem two years ago. If it continues as it is, it'll be an excellent year. We'll be able to continue to develop our investments, gain market share, because even when the situation is somewhat more challenging, is going to happen, from one month to next, we continue to invest, whereas some of our peers may have tighter financial constraints, they stop investing or they invest less. And so, things are more difficult afterwards. We continue to invest and for the time it's been quite successful for us during the difficult times when we weathered the health crisis. That's all I wish to say at this stage and then will come back later to take your questions, if I haven't forgotten anything. Very good.

Thank you, Mr. Guiony over to you.

[Jean-Jacques Guiony, CFO]

Thank you. Good evening, everyone. It is my pleasure to introduce the figures for the year 2022. As Mr. Arnault just said, revenue was close to €80 billion, profit from recurring operations €21 billion, cash flow €10 billion and net income about €14 billion and market value about up 14%. Well, that's not the purpose of tonight that these are all record high numbers and this was an outstanding year.

Let's get into the details starting with revenue. Revenue in euro was up 23%, 17% in organic growth, I'll give you the details by territory. No scope effect this year, unlike last year and the currency effect was positive to the tune of 6%, essentially, because of the U.S. dollar and the Chinese renminbi, we’re up to about €80 billion in revenue, €80 billion.

If you look at the geographical areas, there's been something of an upset. The main country remains the United States with the 27% of the total revenue. Asia is a runner up. Asia last year was 35% but now it's down to 30%. You might ask why? I'll tell you. Europe is doing well, about 24%. So, you have a balance between the U.S., Europe and -- and Europe. Japan remains stable at 17%.

Let's look at the various regions. Starting with the U.S. The United States was up 15% and year-on-year we've been on double digit growth and for the past 10 years. 2022 is no exception. Looking at the numbers, we get the feeling that growth was slowed down over the year because the growth rates were down. However, there are two aspects. One, overall general aspect is the basis of comparison for 2022 in H1 was an easy one because there was so many shops closed in Europe and the U.S. So, growth rates were easy to achieve -- easier in H2 than in H1. But, the second aspect is that in the U.S., you also found that the U.S. dollar had been high in the second half of the year and that generated tourism towards the Europe because they were -- the tourists took advantage of the high dollar to make purchases in Europe. So, while there was less growth in the U.S., you will find this on the right hand side and Europe. In Europe, of course, you have this basis of comparison in H2 which was exacerbated but you may remember that everything was closed down till April in 2021. And the growth rates remained sustained in the last two quarters including in Q4.

Regarding Japan, Japan had a slow recovery from COVID but it sort of woke up and now dramatic growth, constant growth to the tune of about 30% in Q1. And then, Asia, Asia as a whole is a complicated region. It’s both volatile and a contrasted picture. Q2 and Q4 reflected the situations of lockdown in China, lockdown in Q2, and the specific situation in December and Q4, and we've -- as Mr. Arnault referred to. And then Q1 and Q3 were more regular quarters, but there was pressure because of the lockdown overall. So Asia was stable, but the overall growth being 20%, that's why Asia's share came down from 35% to 30%.

If you look at the various business lines, it's pretty easy to tell. All business lines are enjoying double digit growth. That's not -- that -- it doesn't happen that often. A special mention for Fashion & Leather Goods, not -- well, still double digit, 20%. And it’s mostly Dior and Vuitton, but all the other brands did well. And I'm not going to go through the whole list. And then, special mention for Selective Retailing up 17%, organically, which after a number of challenging years is now generating high growth and in absolute numbers, also very high in numbers.

Looking at the business lines on a quarterly basis. So, this is a bit more complicated. But, let's look at the bottom line. You can see overall growth on a quarterly basis for the group as a whole. We find that it looks like growth over the year slowed down, well still. So, Q4 at 9%, it's still 14% in euro term, so it's not bad at all. This is an apparent slowdown and without looking in -- well going back to ancient times. But if you look at the numbers compared with 2019, and that's the last year that didn't have too many upsets because of COVID. We find that on all quarters consistently, we are looking at 33% growth in Q1, Q2, Q3, Q4, maybe 1 is 32% of 33%, but still growing about 30%, 33% compared to 2019 in spite of the huge drop in 2021. And for some businesses like Fashion & Leather Goods, we're talking 70% growth driven mostly by Dior, Louis Vuitton and the other brands. But the striking thing is that quarter-on-quarter, there's stable and sustained growth. So, if you look -- if you think it's a slowdown, closer look would -- reveals that -- reveal that it's a bit more subtle than that.

Looking at the income state, income state, and I won't -- go through the first line, sales -- revenue up 23%. We already mentioned this. Gross margin, similar grow at 68.4%. That's pretty good. Charges overall were up 18%, 24% including the currency effects. And, of course, our profit from recurring operations were up 23%. So, the profit margin is stable at 26.6%.

So last year, during the -- well, when we saw this margin, 26.6%, up 5% compared to 2019 last year prior to COVID, we were asked whether we could keep these levels for the year 2022. Well, now you have it. We were able to keep these levels in 2022.

Now, I know you're going to ask this. So I will answer this already. This profit margin, 26.6%, there was some increase in H1 and a slight decline in H2, compared to last year. But all in all, we’re still stable at 26.6%. We did not commit to keeping the same profit levels in all quarters, in all -- all over the world. But overall, yes, we were able to do this because with the decision was made in H2 to keep our marketing budget up 30% to the previous year, even though we knew we would not enjoy the same growth in revenue because of this comparison basis I mentioned earlier on. But also, we did not fully expect that sharp decline in China in December. But in spite of this strategic decision -- I mean, of course, we're not going to do this every quarter. But in spite of the decision to keep an ambitious marketing budgets, overall, we were able to keep these margin levels.

Other operating income and expenses, €54 million, it's not very significant. The financial line, I will give you more details later. Net profit is stable. We stand at about 26% corporate income tax, about the same as last year talking about €5.4 billion in taxes even though they say that big companies don't pay taxes. And all in all the group share of net profit is €14.1 billion, up 17%, a record level.

So, above the profit from recruiting operations, there was significant growth in Wines & Spirits ever since we've commented these results. I don't think this is an outstanding year in Wines & Spirits. Fashion & Leather Goods, another good year, up 22%. In Perfumes and Cosmetics, it's more challenging situations because we deliberately decided to contain or indeed delete all parallel channels and travel retail around the world, so as to preserve the brand capital. This is a costly decision. This is offset by local, dynamic local markets in Europe and the U.S., but overall this drove down profitability. Even though it comes at a cost, it was the right decision. Over time that will keep our brands attractive.

Another mention -- special mention for Selective Retailing, you can see that profit is up almost 50%. This is not just because of DFS, because DFS in spite of its efforts met major challenges last year. So, this is mostly due to Sephora. And Sephora’s year was truly outstanding and that was well noted. So, we're looking up 23% in profit from recurring operations.

And last slide about that variation highlights the currency effect. The scope didn't make much difference. Currency effect brought in almost €1 billion, which is significant, but nonetheless most of the growth is attributable to organic growth, which accounts for almost 25. [Ph]

So, let's look at the cost. Well, if you look at the cost of net financial debt, the interest mostly. Until '21, well, we had financial income. And now we have financial expenses when we have debt. We’re paying €17 million compared to the overall debt. We're looking at a reasonable rate of 0.2%. Interest on lease liabilities, as you know, this is the way the debt was converted in IFRS 16, meaning that part of the rents, they're lumped in a line which way it has nothing to do. Fortunately, it's stable from one year to the next. The cost of hedging has increased, well, because individual hedge strategies have increased, but also the budgets that need to be hedged are higher. But of course, when the group has -- enjoys growth, well, then the budgets also that need to be hedged grow as well.

And then, if you look at our investment of financial -- portfolio of financial investment, we had in 2021 a €500 million increase in value and now we had a decline of €200 million, so it looks like a lot of money. But in economic terms, it is not that significant. And overall the portfolio has enjoyed capital gains, even though the capital gains are down €200 million compared to the previous year.

If you look at the balance sheet, there's no major changes because there were no acquisitions. We have a bit more inventory and the variation of that is also contained. But a few words about cash flow. Cash flow is always a complicated topic. You may remember that back in 2021 we had high cash flow levels, but that was to do with nonrecurring effects, especially as we emerged from the crisis, we paid relatively little tax because in cash flow statements you have the tax installments, which were based on the previous year, where the previous year, the numbers were rather low. And this year, we have more in tax installments. You have variation in inventory. Last year, we were running out of inventory, so we -- the stocks came down. But this year, it was the other way around. We had large inventory, but December was challenging in China, and so we had a surplus of inventory. So, last year's levels -- last year, we had a favorable effect; this year, it's unfavorable.

Regarding the operating profit, you have to remember that we sold some property in the U.S. and that -- we had this exceptional increase in cash. And this year we have acquired more property, including this building. And so, we have a nonrecurring -- about €1 billion in nonrecurring capital expenditures. So you can't really compare 2022 and 2021. Nonetheless, we have more than €10 billion in cash flow -- in free cash flow.

Debt itself remains stable. We have about €10 billion in cash flow, €6.7 billion in dividends. It's not just dividends, there's also taxes plus dividends paid out to minority interests, in particular Moët Hennessy, €1 billion in property acquisition, Joseph Phelps being the main one, but also, we bought back €1.6 billion worth of shares, and that's a way of regulating the debt level. In view of the high level of interest rates, we don't propose to have -- well, we don't -- we want to keep the debt under control. And right now, it remains at an acceptable level. Dividends, up 20% and net income was up 17%. So, we decided to keep it simple. We rounded it up to €12. We've already had an interim dividend of €7, and so -- a €5 interim dividend and the balance will be paid and decided at the next AGM.

[Bernard Arnault, Chairman and CEO]

Well, ladies and gentlemen, if you have any questions, we’re available to take those, if you'd be so kind as to state your affiliation when you ask your question.

[Antoine Belge, Exane BNP Paribas]

Yes. Antoine Belge from BNP Paribas Exane. Three questions. First of all, could you say a word about the outlook, the prospects, reopening of China? Do you think that the prevailing enthusiasm is indeed justified, you see challenges -- I mean, in our stores in 2022, the revenue levels are higher than without Chinese tourists. How are you going to maintain the customer experience Europeans with a lot more traffic?

My second question is the Vuitton brand, you were so kind as to give us its revenue, perhaps even little more '21, '22 over three years. It represented an increase of some €8 billion to €9 billion. So a question perhaps on the law of great numbers to grow €5 billion, that's €1 billion. That's more than a lot of brands in the sector. How to maintain the exclusivity of the brand? I'm sure the same question was put to you, no doubt, 15 years ago when you talked the €5 billion mark. Third question, last year, you set up a company that the management company with a family control that was at risk. Could you perhaps tell us a bit more about this management partnership company?

[Bernard Arnault, Chairman and CEO]

Well, China, it's actually difficult to predict what's going to happen. What we can say about China is China needs economic growth. It's no secret. I think everyone would agree on that. China for its people, for the success of the country needs economic growth. The growth had slowed. I'm quite confident that the Chinese leadership being very astute. They will no doubt and almost certainly use the time to reboot Chinese growth. That's the case. In fact, it started in January. We have every reason to confident indeed optimistic on the Chinese market. In Macau, where Chinese can now travel to, the change is quite spectacular. The stores are full. It's really come back very strong pace.

So, are they going to travel? I mean, you're afraid of they coming to France, when will they travel? I mean, estimates would be as of the summer, if they resume their travels and they'll head for the countries that attract them and probably come to France. We have for that the possibility of receiving them. We have various stores, different size stores and increasingly, we have stores that are reserved for the customers who require greater individuality of high quality and we've managed -- although the brand does indeed attract hugely, we've managed to improve the desirability. That’s our key criterion, the brand desirability every quarter, and that desirability in a way suffers from the size of the company. Will it become exclusive? Is it not too big? I mean, I've heard since I was appointed CEO of LVMH. It was back in 1989, 13th of January. And one of my close friends, who was a leading Belgian financier said, but are you really sure that you want to start this business to buy? Because I was offered Vuitton products. And they're so -- spread so widely that I didn't want it. Are you sure? And Vuitton in euros less -- generated less than €500 in revenue. So don't be overly impressed by size. What counts above all is quality today, products selling incredibly well. While it's been difficult to find, if today, if you want a yellow Kusama bag in the -- on the Champs-Élysées, well, it's quite simply out of stock, and I'm not at all worried about that.

And what was the other? And the limited partnership, well, that's for the lawyers. I am not a lawyer. They recommended that I set up this limited partner. It's strong. It's very much in fashion. Hermes did that this limited partnership? Why don't you do one? It doesn't really -- it's really nothing at all.

I wanted to talk to you about the organization because we changed the organization of the group quite a bit earlier. I didn't mention Selective Retailing with Chris de Lapuente, who's running that in a masterly fashion with the success of Sephora, which is really quite extraordinary. They get -- we bought that at, how much, Tony? I think, we acquired it for 100 million, right, give or -- I don't know how much it would be worth. Today generates significant -- very significant profits. I won't give you the number, but let's say, very highly significant. So it's a great company. We've just reorganized. I mentioned Tiffany earlier. We've just reorganized the Watches and Jewelry with Stéphane Bianchi, who is with us this evening, who runs all these businesses. They're all profitable today.

All our watch businesses, jewelry business was already profitable. And Frédéric, who is constantly producing new watches, I've got a TAG Heuer watch, I’m worrying one. It's quite wonderful. It's a diversity and at the same time, we learn a lot on the -- about the technology of the product at Vuitton. I mean, they produce extraordinary watches, watches that are quite spectacular and that enhance the desirability of the brand.

[Edouard Aubin, Morgan Stanley]

Hello. My name is Edouard Aubin from Morgan Stanley. You mentioned recent changes. One significant one is change of management in Vuitton of your flagship brands. Can you tell us what we can expect to come out of these changes in Selective Retailing? Sephora had a very, very good year. Can you expect a digital pure player emerging in the western world, like Tim Hall [ph] selling Prestige brands franchises, and that contain the growth of Sephora in China. Is that something that could be a challenge for Sephora?

And a question for Mr. Guiony about the profit margin in H2. You gave us clear explanations on Fashion & Leather Goods and the impact on Selective Retailing margin was down in H2 compared to H2 of last year, whereas according to your explanation -- well, your explanations don't apply to Selective Retailing. So, can you is more about the decline in profit margin from one year to the next whereas growth was rather sustained in Selective Retailing?

[Bernard Arnault, Chairman and CEO]

Well, in a large company, as in any human organization one needs to evolve. It's not a good thing to keep a form of organization that leads to a routine mindset. And in the group, apart from I, who've been here for quite a long time, but we follow the business from afar. But I think we need to push innovation that the executives after a certain while give them time to prove their quality to succeed, but they must use their management skills by changing. Mustn't get used to things. But of course, we need duration. I mean, it's not like in a government where change every two years or even more. Here, it's the opposite. It's really just that they're just flitting from one job to another. But to wait that a number of new ideas injected brought to the table that they're supported by individual experience. You'll have noted that the heads that we've appointed to the two major businesses are very experienced to wait for strategic continuity with a possibly a different managerial approach, a focus placed on quality, creativity of products, emphasis placed more on communication, store, design, et cetera, but fundamentally the same strategy.

Sephora U.S., well, I was already -- someone said to me five years ago, be careful, be very prudent, Sephora in the U.S. is on the threat from Amazon. That's what we were told. Okay? But it's never worked so well. I think that there's a return to physical stores and the experience in a physical store will always be extraordinary as to compared to an online purchase. So to sell products, be it luxury products or cosmetics, solely on internet, I don't really believe in the potential for direct head-to-head competition of that sort of thing. What's interesting in selling by internet, I mean lipsticks, perfumes, creams, et cetera, is a service when you try the cream when you come to Sephora to test the product after you want to renew it, you go on the separate site and you buy it. But discover the product on Amazon in the midst of a whole other utilitarian products, I mean, it doesn't really make you fantasize, I'm not saying it doesn't work, but most of the selected brands are not represented. So I'm not really worried.

[Jean-Jacques Guiony, CFO]

Regarding the last question, profit margins was slightly down in Selective Retailing, 0.9% in H2. The explanation is DFS, because DFS had 2 very different half years. The first H1 was not outstanding but it was all right. But H2 was a challenging half year because, of course, the local circumstances and the fact that Macau was knocked down starting in July, no Chinese visitors and so no sales in Macau from July to December. And as Mr. Arnault pointed out, now things back in business. Macau is one of the few places where the COVID test is not compulsory for Chinese nationals. But, H2 was challenging compared to 2021 where Macau was open. Hong Kong, no big difference with Macau. Of course, when it's closed down suddenly, well, that of course, made things difficult.

[Luca Solca, Bernstein]

Good evening. Luca Solca from Bernstein. I have -- there are a number of significant factors in a sudden recovery in Chinese demand, but American demand seemed to be slowing down. I mean, are there signs in the U.S. that there's a slowdown there? I mean, there's talk about that, recession and whatnot. But looking at a 7% growth in Q4, it seems pretty good. So is there a slowdown or not? Question number two, about steps that you might consider to address the return of Chinese tourists in Europe. We've thought about this. But, could a price increase in Europe be a way to maintain the high-quality experience in the stores for local customers? In other words, not to have too many Chinese visitors. And the last point I saw representatives of the Arnault family sitting in the front row. Mr. Arnault, are you already thinking of your succession? And then, what would be the criteria considered to who would follow in your first steps?

[Jean-Jacques Guiony, CFO]

Okay. The last question I will not take. That will be for Mr. Arnault himself to answer. In America, 7% is less than the average growth rate of the Europe, which is 15%. So Q4 was not quite as dramatic. And part of the explanation, it was that American tourists decided to buy in Europe rather than in America. And in fact, when you look at purchases from the American customers, we are enjoying double-digit growth, and that's the case in -- as well. But in the U.S. itself, it's true that the numbers are not quite as high because a lot of business is done in Europe instead. And that was true already in Q3 and of course, in Q4 as well.

Regarding the situation in the U.S., if you look at Sephora, the best quarter of the year was Q4. And Sephora is a good indicator of the rest of the luxury industry. And the comment about American demand is that -- well, Sephora is sort of the budget line and they are enjoying a very high growth. So, we're not concerned or not particularly concerned, even if the numbers are slightly down in Q4 compared to the beginning of the year.

[Bernard Arnault, Chairman and CEO]

Well, I've already answered about the return of the Chinese. No worries about the quality of the relationship with our customers. If you take, for example, the Vuitton store on the Champs-Élysées, what will happen is that the line outside will probably lengthen. But inside, there will still be the number of people who still get the same level of service. And if the line is too long outside, maybe they won't. You may have noticed that since the winter, we serve hot chocolate -- delicious hot chocolate prepared by Yannick Alléno, all those standing in line to get into the Vuitton store.

Last question, see that I was -- friend with Roger Federer and a great fan of tennis. He probably wants me to play a bit more tennis. And the last time I played with Roger Federer, I think I won one point in a single set, and maybe I could do a bit better than that. And that would indeed delight me. But as to succession, you may also have noticed that the retirement age is very much in vogue, has been extended.

[Louise Singlehurst, Goldman Sachs]

From Goldman Sachs. Thank you for taking my questions. And I apologize, it's in English, first up. If I could just ask two questions, if I may. Mr. Arnault, you kindly shared the revenue number as we head earlier for Vuitton. I wonder, is there anything that you can help us understand or the observations about the customer base? Given the sheer size of the brand, obviously, there's a huge number of new customers coming through the doors every year. But, can you help us think about that dynamic with the loyal and the existing customer? Is there a shift over the last few years towards a bigger slice of the revenue pool coming from that existing customer base? And then, my second question, Jean-Jacques, if I may. Given obviously, presumably, you have your budget discussions with the entire teams at the end of the year, presumably, there's been quite a change in mood since the beginning of the year and the reopening of China. But, I wondered if you can help us think about that process and whether you're enabling maybe a little bit more investment on new projects. I'm sure you get plenty that come across your desk. Thank you.

[Jean-Jacques Guiony, CFO]

All right. Well, I'll give you the answer. It's a bit early to -- early days to decide on the budget outlook. The past few weeks gave us reason to believe that what we had in China at the end of the year was a sudden drop, but now we are back to normal. Well, it's a bit early days again because this -- we are right in the midst of the Chinese New Year, so it's difficult to see any trends during that holiday season. So, we don't know for sure, but we're not changing our short-term plans. We'll wait and see to see how things develop. Of course, it will be difficult for Chinese nationals to go out of the country. There is not much by way of air travel, complicated situations with Korea and Japan. Air travel is an issue in Europe and in other countries. Well, Macau is opening up again. But -- well, the 40-hour COVID test does mean that there are some limits to travel. But still, things are changing on the right track, but a bit early days to change our position for the year as a whole.

[Bernard Arnault, Chairman and CEO]

You were asking about the customer base at Vuitton. First of all, I don't think we'll have that many tourists from China before the second half of the year. It's going to take some time, as Jean-Jacques is saying, to return to a more dynamic level. And Vuitton customers are, for the most part, loyal customers who come back. And so, we have -- we're used to in order to serve our loyal and our usual customers and also new customers to treat them well, but it's very separate. And I'm not at all worried. And if there are lots of people, and we're used to receiving a great many people, well, we favor service to the customer. And if customers don't wait, well, long enough, well, too bad, they may -- they'll come back later. But we really favor customer service. I’m not at all worried. One final question perhaps.

[Natasha Brilliant, Credit Suisse]

It's Natasha Brilliant from Credit Suisse also in English, I'm afraid. Three questions on China. I accept we're not going to get for January. But could you just give us a bit more color? Are you seeing sort of normalized levels of footfall come back in the key cities, or is it still much lower, but you're seeing decent spend per customer? Just a bit more color on some of the trends that you're seeing there. And second question is just on margins in China, if there's any big differences versus Europe and the U.S.? And so, how we should think about profitability as China reopens? And then last question is how you expect the balance of spend from Chinese consumers to fall? Do you expect a greater proportion to stay domestically kind of in the longer term? And what your thinking is around Hainan? Whether you're still sort of reluctant to operate there? And could that hamper growth if more spend stays within China? Those are my two questions.

[Jean-Jacques Guiony, CFO]

On the first question regarding traffic in China per structure, well, of course, we are not to the levels of 2019. We're still a long way from that. But in January, we were, what, minus 85% in December. But even in January, where things are better, we're still -- far cry, what is it? What we've done to -- maybe 40% below the 2019 levels. On profit margins in China, well, you have -- it depends on the year. Last year was not a very good year of profit margins in China because, as you know, there was some disruption, especially in Q3 and Q4. So of course, that drove margins down. So we don't have the revenue, but we have the cost, the profit margins are down compared to 2021, which was an outstanding year for profit margins because suddenly, there was a recovered -- well, demand in China, went back to Mainland China. Then, of course, in '21, things were very positive. And now, it's the other way around. So margins are down.

Regarding the breakdown between tourists buying and local domestic buying, it's difficult to work out exactly. But in absolute numbers before -- well, it used to be that tourist represented a certain share of business abroad. It would take a long time to get back to the levels of before. I mean, now 90% of the demand is in China itself. So now part of that demand will move out offshore when the markets reopen, but it will be a long time before the percentages change. And also, the Chinese market is bigger now than in 2019. There are more customers now than they were in 2019. All the numbers are up. So, for the proportions to change significantly to have much more offshore proportionally will take a while.

[Bernard Arnault, Chairman and CEO]

All the more so that we're refusing and we're fighting against so-called parallel exports. A number of our peers need to generate revenue and don't hesitate sell through resellers who buy abroad products and then sell them on at discounted prices in China, but we avoid that. Absolutely ditto for cosmetics, the sale, products that we see offered by certain competitor through -- I mean it's quite fascinating to see the duty-free stores, where there's nobody because their airports are empty or at least were empty, were generating huge sales, huge revenues. Why? Because the products never arrive on the stand. They went straight from the inventory, the reserve of the seller to the professional seller who sold them on a discount in China. I mean, for your image, there is nothing better. It's dreadful. One last question.

[Unidentified Analyst]

Not a financial question, but there is one of the major developments in the luxury industry is secondhand products. What's your take Mr. Arnault on this development, the fact that people are taking an interest in secondhand items is -- does -- is LVMH at all interested in taking part in this?

[Bernard Arnault, Chairman and CEO]

We're focusing on firsthand. We haven't reached -- yet reached the second or indeed the third. So, we haven't really given any thoughts. I mean, I think the potential is such for our brands that the secondhand -- well, that might be of interest, it can perhaps be a kind of a derivative for certain brands, but for the time being, we don't really need it -- we don't really need to intervene or indeed consider. What we're, of course, trying to do is to avoid. And here, we have a major effort with our product tracking to avoid these secondhand items because that's the problem we're facing, sell products of our brands that are fakes. And that happens more than you think and then we see the people who bought these products, secondhand products, but they're not at all secondhand, they're fakes. They come and that -- you have to be very diplomatic to solve that with the people who come to do Dior, to Vuitton, Celine and to explain we're very sorry, madam, but we can’t repair your bag because it's a fake. But we don't go as far to do what Rolex is doing. Because Rolex, in that case, you know what they do. A customer arrives, says, my watch is no longer working, needs to be repaired, very good, madam, sir, we'll take your watch. And if it's a fake watch, they never return it. We could try that. That might be a solution, they keep the watch.

[Bernard Arnault, Chairman and CEO]

Very good. Thank you.