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LVMH - revenue growth slows amid economic uncertainty

LVMH's organic revenue rose 14% to €62.2bn in the first nine months of the year.

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LVMH's organic revenue rose 14% to €62.2bn in the first nine months of the year. That marks a slowdown compared to the 17% growth seen in the first and sector quarters. The biggest division, Fashion & Leather Goods saw revenue rise 16% to €30.9bn, reflecting a strong performance from leading brands including Louis Vuitton.

All other business areas saw growth, apart from Wines & Spirits which lapped tough comparative periods, and Hennessy demand moderated partly because of the economic environment. Watches & Jewelry was the slowest grower, while strong demand for Sephora products meant Selective Retailing revenue rose 26%.

LVMH said it had confidence in achieving growth but acknowledged the uncertain economic environment.

The shares fell 6.2% following the announcement.

View the latest LVMH share price and how to deal

Our view

LVMH's organic revenue growth slowed from 17% to 9% in the third quarter. Part of that's from the Wines & Spirits business, as tough comparisons with last year aren't flattering for growth. But there are also rumblings of people reining in spending in response to the tough economic conditions - fewer bottles of higher-end booze, including Hennessy, being plucked off the shelf.

But a slowdown in one division of a conglomerate this size does not a crisis make.

LVMH's biggest division, Fashion & Leather Goods, has seen year-to-date revenue up 16%, with last quarter posting 9% growth. This comes down to LVMH's biggest superpower. Brands. Louis Vuitton and Christian Dior are status symbols. The group's mega-wealthy customer base is able to weather an economic downturn better than some. Spending, although not fully immune, is more reliable when things take a turn for the worst.

And higher item price points are supported by what we view as genuine creative and marketing superiority at LVMH. We're not alone in thinking LVMH has a best-in-class stable of labels. Being able to charge more means LVMH's operating margins are healthy too, which has also dripped down into free cash flow, ultimately underpinning the group's current ability to pay dividends. However no dividend is ever guaranteed.

Adept management is a serious asset too. The group's CEO Bernard Arnault, is the group's largest shareholder, which probably explains the focus on long-term success.

No investment comes without risks and we think it's prudent to remember there would be knocks to the valuation if LVMH ever put a foot wrong when it comes to its creative reputation. That's not to say this will ever happen, but it can never be fully ruled out.

Debt's worth keeping an eye on. The root cause of the balance sheet stretch was the acquisition of jewellery giant Tiffany, and debt reduction is likely to be a focus for now.

Shorter-term demand needs to be watched too. Chinese consumers aren't necessarily poised to prop up earnings as they have done in the past, with slower economic growth and an underwhelming tapering of post-pandemic activity, rather than the rocket to the moon some were hoping for. European and American consumers have also started to normalise their spend which leaves a gap to be traversed. Heading into Christmas, these are trends that will need to be closely monitored.

We think LVMH could thrive over the long term and provide a compounding opportunity thanks to its unrivalled stable of brands. But keep in mind the group's valuation is relatively demanding these days, and there could be some bumps along the way as the demand picture shakes out.

LVMH key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 disclosure for more information.

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Article history
Published: 11th October 2023