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LVMH - record year for revenue and profit

Sophie Lund-Yates, Equity Analyst | 29 January 2020 | A A A
LVMH - record year for revenue and profit

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LVMH Moet Hennessy Vuitton SE Euro.30

Sell: 631.00 | Buy: 631.50 | Change 6.10 (0.98%)
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2019 was a record year for LVMH in terms of both revenues and profits. Revenue rose 10% to EUR53.7bn in 2019, ignoring the impact of exchange rates. That reflects sales growth across all divisions, with Europe, USA and Asia performing well.

Operating margins reached 21.4%, helping underlying operating profit rise 15% to EUR11.5bn.

The full year dividend is set to rise 13% to EUR6.80 per share, with a final dividend of EUR4.60.

The shares rose 1.9% following the announcement.

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Our View

With great brands comes great power. And that's something LVMH knows all about.

LVMH is home to brands ranging from Louis Vuitton and Christian Dior to Moet and Hennessy. The wide variety of brands means LVMH can milk every part of the luxury cycle, as one struggles, another will do well. And the ultra-wealthy customer base of these brands results in a reliable revenue stream too. These customers aren't as sensitive to economic blips or downturns as your more average shopper, meaning they'll still show up to boutiques even if others are tightening the purse strings.

The latest big-name to join the line-up is Tiffany & Co, having agreed to buy the famous blue-box maker for EUR14.7bn. The deal would boost LVMH's exposure to the US Jewellery market, a fast growing area to which LVMH is arguably underexposed. The group has a long and fruitful track record of optimising premium brands, so there's reason for excitement here despite it costing a pretty penny.

Fortunately the group has deep pockets. A killer portfolio of brands allows the group to attach formidable price tags to its products. That keeps margins and cash generation healthy, giving LVMH more financial flexibility than less premium rivals. Despite the looming Tiffany bill LVMH has still hiked the dividend.

In terms of geography, Asia is LVMH's most important region for future growth. New wealth and a fast growing market is set to help boost the multi-billion dollar luxury industry over the next few years, so it's good news that headwinds caused by US - China trade tensions look to be easing. It's a particular relief to see unrest in Hong Kong is being more than offset by other Asian markets. These are dynamic situations though, and any major changes for the worse wouldn't be good news.

All that glitz, glamour and success comes at a price too. The shares change hands for 25 times expected earnings, which is some way above the longer term average.

Investors should bear the steep entry price in mind as LVMH continues to strut its stuff. CEO Bernard Arnault has been a safe pair of hands over the last three decades and his strategy has paid off, but as he would no doubt tell you the luxury goods business doesn't stand still for long.

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Full year trading details (constant currency)

Fashion & Leather Goods, the group's largest division, achieved revenue growth of 17%, reaching EUR22.2bn. That reflects a particularly good performance from Louis Vuitton. Underlying operating profit rose 24% and now stands at EUR7.3bn.

The Selective Retailing division saw profits rise 1% to EUR1.4bn. Revenue of EUR14.8bn represents growth of 5%, driven by strong trading from Sephora and positive trends in Asia and the Middle East.

In Wines & Spirits, price improvements in Champagne and rapid growth in China, helped by the timing of Chinese New Year, saw sales rise 6% to EUR5.6bn. Profit was also up 6%, at EUR1.7bn. Hennessey cognac became the world's leading premium spirits brand during the period.

Watches & Jewelry revenue rose 3% to EUR4.4bn, while profits were up 5% reaching EUR736m. LVMH said Bvlgari continued to perform very well, increasing its market share. During 2019 the division also agreed to acquire Tiffany & Co.

Perfume & Cosmetics profits ticked up 1% to EUR683m, reflecting a 9% increase in sales.

Improved profitability helped free cash flow reach EUR6.2bn, compared to EUR5.5bn in 2018. Net debt now stands at EUR6.2bn, up 13% year-on-year.

Bernard Arnault, CEO said: "in a buoyant environment that remains uncertain in 2020, we continue to be vigilant and focused on our objectives for progress."

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.