Dissecting LVMH's Dynamic Presence in Luxury
Dissecting LVMH's Dynamic Presence in Luxury
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In today's report, we're delving into LVMH, a company that has piqued the interest of our subscribers since April. Since then, the price has seen a decline of around 21%, making this analysis particularly timely and relevant.
Report Contents:
Key Facts
Business Overview
Management
Industry
Financial Analysis
Competitive Advantages, Opportunities and Risks
Valuation
Conclusion
1. Key Facts
Description: LVMH Moët Hennessy - Louis Vuitton (“LVMH”, “Company”), with ticker symbol $MC, is the leading French conglomerate specializing in luxury goods. The diverse portfolio of LVMH encompasses a range of exquisite products, including Fashion & Leather Goods, Wines & Spirits, Perfumes & Cosmetics, Watches & Jewelry, and Selective Retailing.
Key Financials: Over the period FY13 to trailing twelve months (“TTM”) Q2 FY23, the Company depicted a revenue Compound Annual Growth Rate (“CAGR”) of 11.9% and operating income CAGR of 14.8%, reaching a TTM revenue of c. €84.7 billion and operating income of €22.4 billion (margin of 26.4%). LVMH has cash and cash equivalents of €6.1 billion compared to total debt and lease liabilities of €27.3 billion.
Price & Market Cap (as of 21th November 2023): Its market cap is €351.6B with a 52-week low of €655 and a 52-week high of €905, whereas it currently trades at €704.1.
Valuation: LVMH trades at a TTM EV/EBITDA of 13.5x (4 Year average of 16.5x) and a TTM EV/Sales of 4.5x (4 Year average of 5.4x).
2. Business Overview
a. LVMH’s past and present
LVMH was founded in 1987, when Henry Racamier of Louis Vuitton and Alain Chevalier of Moët Hennessy joined forces to form a successful partnership, bringing expertise from the champagne, cognac, and leather goods industries. However, the true architect of the conglomerate's current identity is Bernard Arnault. Bernard entered the luxury industry in 1984, by buying Boussac, a near-bankrupt company that held a notable asset—Christian Dior.
In a pivotal move in 1989, Bernard Arnault controversially secured a controlling stake in LVMH, subsequently assuming the roles of Chairman and CEO, positions he has held since then. For an in-depth exploration of the details surrounding this takeover, we recommend listening to Acquired’s podcast episode on LVMH. Bernard’s ambition was to create a luxury powerhouse, or a company with multiple distinguished and established brand names, something relatively unheard of in the luxury industry.
When Bernard Arnault first purchased LVMH, the Company was made up of a handful of brands compared to today’s 75 prestigious ‘Houses’ or ‘Maisons’. Presently, the Arnault family group maintains a 48.2% stake in LVMH, with 63.9% of the voting rights under family control.
Source: LVMH 2023 Snapshot presentation
Central to LVMH's mission is an unwavering commitment to luxury. According to Vincent Bastien,
“The luxury strategy aims at creating the highest brand value and pricing power by leveraging all intangible elements of singularity- i.e. time, heritage, country of origin, craftsmanship, man-made, small series, prestigious clients, etc.”
While Bernard also emphasizes that “A star brand is timeless, modern, fast growing, and highly profitable.”
Reconciling the above definitions with the brand value of Louis Vuitton (#1) and Dior (#5) demonstrates that LVMH's management excels in creating these unique elements of singularity that luxury consumers highly desire.
Brand value of the leading 10 most valuable luxury brands worldwide in 2022 (in million U.S. dollars)
Source: Statista
LVMH was formed just 36 years ago, but the brands’ roots span across multiple centuries, serving as a testament to the enduring legacy within LVMH’s portfolio. Notable examples include Château d’Yquem which was founded in 1593, Moët & Chandon in 1743, Hennessy in 1765, Tiffany & Co in 1837 and Louis Vuitton in 1854.
LVMH also invests in newer Maisons, with 6 of its brands being established in the last 10 years. An example of success is Fenty Beauty which was launched in 2017 in collaboration with Rihanna. Within a year of its inception, Fenty Beauty achieved an estimated $550 million in sales while in LVMH’s 2022 annual report, it was mentioned that Fenty Beauty doubled its revenue in 2022. Additionally, in an analyst call in April 2023 it was indicated that the brand is growing strong with sales up 50% on the U.S. market, making it one of the leading makeup brands in the United States and in France. While these newer brands may not significantly impact LVMH's results in the short term, they indicate the conglomerate's approach to staying at the forefront of the luxury market.
Acquisitions
LVMH's remarkable brand portfolio expansion has predominantly been orchestrated through strategic acquisitions, a testament to Bernard Arnault's adept negotiations and keen ability to identify opportunities. For a comprehensive analysis of LVMH's acquisition history, we recommend referring to Quatr’s article “The Luxury Empire: LVMH's Most Notable Acquisitions Since Inception”.
Here, we aim to highlight the management's prowess in negotiation, selection, and integration of companies, using the largest acquisition of LVMH in the last decade as an example. The revised price for Tiffany & Co. at $15.8 billion resulted in savings of $425 million for shareholders. Although the multiples paid at the time seemed expensive (implied EV/EBITDA stood at 18.5x and P/E at 30x), LVMH successfully increased operating profitability from $733 million in 2019 (approximately €643 million) to over €1 billion by 2022, a remarkable surge of +55%. Currently, Tiffany's market share in the US stands at around 42%.
b. Segments
LVMH’s houses are broken down into six different sectors, namely: Wines and spirits with 25 houses, Fashion and Leather Goods with 14, Perfumes and Cosmetics with 15, Watches and Jewellery with 8, Selective Retailing with 6 and Other Activities with 6. Fashion and Leather goods segment is at the core of LVMH, as for 2022, it accounted for roughly 49% (€38.6B) of total revenues and 75% of the profits, recording an operating margin of 41%.
Source: Stratosphere.io (use coupon code STOCKOPINE for a 25% discount), StockOpine analysis
Source: Stratosphere.io (use coupon code STOCKOPINE for a 25% discount), StockOpine analysis
The brands that fall under these six categories, are some of the most established and world-renowned brands. Some examples include;
Louis Vuitton, which ranked the world’s most valuable luxury brand for the 18th consecutive year in the Kantar BrandZ Most Valuable Global Brands, and number one in multiple lists regarding the most famous and valuable clothing / fashion brands worldwide. Kantar assigns a brand value of $124.8 billion to Louis Vuitton, which approximates 35% of LVMH’s total market capitalization. Louis Vuitton’s revenue for 2022 is estimated to be over €20B (25% of LVMH’s revenue and 52% of the Fashion and Leather segment).
Dior has ranked number one in a 2023 survey for the ‘Most popular luxury brands online’, with Louis Vuitton ranking fourth and Tiffany ranking eighth. Dior was also ranked fifth in the Kantar BrandZ Most Valuable Global Brands with an assigned brand value of $11.4 billion.
TAG Heuer is tied with Omega and Rolex as the ‘Best Watch Brands Overall’ according to a 2023 Forbes publication, yet, only Rolex makes it to the Kantar’s Top 10 most valuable luxury brands.
Tiffany & Co which was acquired in 2021 for $15.8 billion also made it in the Kantar BrandZ Most Valuable Global Brands, ranked 8th with an assigned brand value of $6.1 billion.
Hennessey, the most recognizable cognac brand in the world, also ranked as the most valuable non-Chinese spirit brand according to Statista with a brand value of $6.3 billion.
Moët & Chandon and Dom Pérignon which rank as #1 and #5 respectively, on the list of the most valuable Champagne brands.
Wines and Spirits
Source: Stratosphere.io (use coupon code STOCKOPINE for a 25% discount), StockOpine analysis
LVMH owns well-known and prestigious spirit brands, including Ruinart, Moët & Chandon, Dom Pérignon in Champagne and wines, and Hennessy, Glenmorangie, Ardbeg and Belvedere in Cognac and spirits.
LVMH’s Wines and Spirits segment is the smallest in terms of revenue, representing 9% of total revenues, but second to Fashion and Leather in terms of profits. For FY22, the segment generated €7.1 billion in sales of which €3.5 billion were Champagne and Wines and €3.6 billion were Cognac and spirits. The segment generated an operating margin of 30.4% in 2022, and a 10-year revenue CAGR of 5.6%, while organic revenue growth averaged at 6.2% over the same period.
Although volume growth exhibited a more moderate pace (averaged at 3.2% across key product categories) compared to revenue growth, this highlights the strength of the Company's brand portfolio, as it enabled the gradual increase in prices over time, aligning with the premiumization trends witnessed in the Total Beverage Alcohol industry over the last few years.
Despite the challenges posed by the pandemic in FY20, the Wines and Spirits segment showcased resilience, with demand rebounding post-pandemic. Moving into FY23, the segment faced headwinds, experiencing a 7% decline in organic revenue for the first nine months, primarily attributed to weak demand and retail inventory destocking in US (Cognac and spirits organic revenue declined by 14% for the first nine months). Nevertheless, it's crucial to acknowledge the tough comparisons after the robust growth observed in FY22.
Fashion and Leather Goods
Source: Stratosphere.io (use coupon code STOCKOPINE for a 25% discount), StockOpine analysis
Fashion and Leather Goods is LVMH’s bread and butter, representing not only its largest and most profitable segment but also its fastest-growing one.