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LVMH – a record year but growth slows

LVMH has reported a record year but the rate of growth is slowing. Lead Equity Analyst Sophie Lund-Yates shares the latest.
LVMH - double digit growth in most divisions

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LVMH’s full year revenue rose 9%, 13% on an organic basis, to €86.2bn, with fourth quarter growth of 10%. That marks a slowdown from the first half of the year, led by weaker macroeconomic conditions.

All divisions apart from Wines & Spirits saw organic growth, including the largest business, Fashion & Leather Goods, where Louis Vuitton and Christian Dior were stand-out performers. The group saw double-digit organic revenue growth in Europe, Japan and the rest of Asia.

Profit from recurring operations rose 8% to €22.8bn. A sharp increase in operating investments meant operating free cash flow fell 20% to €8.1bn.

LVMH acknowledged the tough economic backdrop, but remains confident in the strength of its brands. A dividend of €13 per share was announced.

The shares rose 8.7% following the announcement.

Our view

LVMH's organic revenue growth is continuing to slow.

Some of this stems from unflattering comparisons with last year in the Wines & Spirits business, but there are also some broader challenges in the division. Tough economic conditions mean even some luxury shoppers are controlling their budgets a bit more.

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

LVMH's biggest division, Fashion & Leather Goods, has continued to post robust growth, despite the pace of sales increases coming off the boil. 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 worse.

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.

We think LVMH could thrive over the long term and provide a compounding opportunity thanks to its unrivalled stable of brands. The valuation isn’t as demanding as it has been which suggests not all these strengths are currently priced in. Please remember there are no guarantees and all share prices can go down as well as up.

LVMH Key facts

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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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 26th January 2024