LVMH Moet Hennessy Vuitton SE (MC) Euro.30 (Crest Depository Interest)
HL comment (13 October 2021)
Organic revenue rose 40% to €44.2bn in the first nine months of the year. Compared to 2019, sales are up 11%. For the third quarter specifically, organic revenue rose 20%, compared to 84% growth in Q2.
Looking ahead, LVMH said: "within the context of a gradual exit from the health crisis, the Group is confident in the continuation of the current growth". .
The shares were unmoved following the announcement.
Sales have slowed in the third quarter - but growth is still impressive and, crucially, keeping pace with analyst expectations.
Social events are filling up calendars once more, but the world is far from back to normal. LVMH make the kind of clothes that are made to be seen, which makes sales progress in the current environment all the more impressive.
Therein lies its power. Brands, like Christian Dior, TAG Heuer watches and Hennessy cognac are status symbols, and revenue is much stickier than for traditional retailers. It also helps that LVMH's mega-wealthy customer base means it's able to weather an economic downturn better than some. Spending should be more reliable if things take a turn for the worst.
Having high-net worth individuals as your core demographic also means the sky-high ticket prices simply don't put customers off. Those higher price tags and more stable demand mean strong margins.
Adept management is a serious asset too. The group has Bernard Arnault, CEO for the best part of five decades, to thank. He is also the group's largest shareholder, his family owns 47.5% of the shares, which probably explains the focus on long-term success.
That's not to say LVMH is home and dry. The group relies heavily on international travel, both in airports and among tourists splashing the cash while abroad. It's unclear when this side of trading is expected to normalise, but it's likely to act as a drag for some time.
Debt is also a source of concern, and that's before counting the €14bn+ the group owes in store leases. The root cause of the balance sheet stretch was the acquisition of jewellery giant Tiffany. The deal seems to be bearing fruit, but we need a longer run of positive numbers before giving a firmer opinion. Either way debt reduction is likely to be a focus in the short term.
Overall, we have faith in LVMH's unrivalled stable of brands and more resilient customer base. We think LVMH can thrive over the long-term. But we would be remiss not to mention the valuation, which is some way above the ten year average.
LVMH key facts
- Price/Earnings ratio: 28.2
- 10 year average Price/Earnings ratio: 21.1
- Prospective dividend yield (next 12 months): 1.4%
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.
Nine month trading details
The biggest division, Fashion & Leather Goods saw organic revenue rise 57%, or 28% compared to pre-pandemic levels, to €21.3bn, with Christian Dior and Louis Vuitton being stand out performers. For the third quarter, organic revenue was up 24%.
Selective Retailing recorded revenue of €7.8bn, reflecting 15% growth in the third quarter and 13% for the year-to-date. Compared to pre-pandemic levels, sales are still down 23% overall. Sephora performed well, as did online sales, but duty free specialist DFS continues to struggle.
Watches & Jewellery saw revenues rise in the third quarter, but at a significantly slower rate than Q2. For the year-to-date revenues are up 49% at €6.2bn. Non-organic performance was helped greatly by the consolidation of recently acquired Tiffany's, which delivered a "remarkable performance" in the US.
Perfumes & Cosmeticsboosted sales by 30% over the nine months to €4.7bn, while Wines & Spirits were up 30% to €4.3bn. These divisions are running behind 2% and up 10% on 2019 respectively.
LVMH also highlighted that the US and Asia are seeing double digit growth.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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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