Louis Louis Louis shoes, Louis Louis Louis belt/company presentation LVMH
Since my girlfriend wanted to reflect her enthusiasm for Louis Vuitton in her portfolio as well, I took a look at the LVMH Group a few months ago and was surprised to discover what an incredibly strong stock it is to place a bet on the luxury segment. I took this as an opportunity to introduce you to the market leader in the luxury sector and to discuss how LVMH manages to continue to grow at an above-average rate despite the fact that the global loss of purchasing power is creating problems in large parts of the economy.
Outline
- History
- Brands
- Key figures and forecast
- Why LVMH can handle inflation better than other companies
- Sources
History
On August 4, 1821, a boy named Louis Vuitton was born in Anchay, Jura, France. At the age of 14, he took a two-year trade apprenticeship in his hometown. At 16, Louis Vuitton began an apprenticeship with a Parisian trunk and luggage manufacturer and worked there for 17 years. In 1854, at the age of 33, he opened his own store called Louis Vuitton Malletier, where he sold high-quality, flat suitcases, which were particularly suitable for the modern means of transportation by rail and ship due to their shape and light weight. This gave birth to the company that is known today as Louis Vuitton. In the further course, should I speak of the brand Louis Vuitton, I will use the abbreviation "LV".
5 years later, the first LV factory opened in a Parisian suburb, where 20 employees produced modern suitcases made of coated, water-repellent and durable material, with the frame structure consisting of a wood and metal construction. Today, this factory has 150 employees who produce the highest quality items from the LV range.
In 1867, LV participated in the Exposition Universelle de Paris, the World's Fair in Paris. In 1885, LV opened a store in London, the first store outside of France. A year later Louis Vuitton, together with his son Georges developed a luggage lock, which was considered innovative for the time and is still used today. LV introduced the brand's current recognizable feature, the checkered Damier pattern, on its waterproof linen fabric in 1888. In 1892, Louis Vuitton died at the age of 71.
His son, Georges Vuitton, took over the company and within a year expanded the product line to include hinged wardrobe trunks, multifunctional and convertible suitcases for expeditions, cabin trunks for ship passengers, suitcase-like hat boxes and suitcases with removable interior dividers. Custom-made cases were also sold. I think the suitcase for the explorer Pierre Savorgnan de Brazza stands out here, as it could be converted into a bed.
The brand's current signet, in which the L and V are superimposed (see picture), was designed by Georges Vuitton in 1896. In the coming years, LV included more and more different types of bags in its range. In 1932 came with the model Noé the first LV women's handbag was launched on the market. Georges Vuitton died in 1936 and as with his father, the son took over the company.
Gaston-Louis Vuitton, in the second name you can guess the admiration that Georges had for his father, continued to expand the range. Purses, wallets and more handbags were added to the range, while the demand for large overseas suitcases in Europe dwindled. Gaston-Louis Vuitton died in 1970 and his grandson Patrick-Louis Vuitton, who still runs the custom department today, took over the company at the age of 20 until Henry Racamier took over in 1977, at the request of the Vuitton family. This was the starting signal for a worldwide expansion and the transition of LV as a player in the luxury niche market to the luxury mass market.
Henry Racamier was also the person in charge at LV when the LVMH Group was created in 1987, when the Louis Vuitton and Moët Hennessy companies merged to avoid being bought out by other competitors. In turn, the LVMH Group began to take over companies completely, by a majority or proportionally, until they built a luxury industry empire.
Brands
The 75 brands that fall under the house of LVMH are divided into 7 segments.
Wine and Spirits:
Champagne: Moët & Chandon, Ruinart, Mercier, Dom Pérignon, Veuve Clicquot, Krug
(In the following I will only mention the number of brands, unless they are particularly well-known brands, which I would like to mention by name)
Cognac: Hennessy
Gin: 1
Rum: 2
Vodka: 2
Wine: 10
Whisky: 2
Fashion and leather goods:
Louis Vuitton, Givenchy, Fendi, Edun, Dior & 11 more
Perfume & Cosmetics:
Perfume:
Bvlgari perfumes, Christian Dior perfumes, Givenchy perfumes & 4 more
Cosmetics:
Make Up For Ever, Bvlgari Cosmetiques & 3 more
Watches and jewelry:
Watches:
TAG Heuer, Zenith, Hublot & 1 more
Jewelry and watches:
Bulgari, Tiffany & 3 more
Retail:
Duty Free Shoppers & 4 others
Media:
1 financial newspaper, 1 weekly magazine, 1 daily newspaper, 1 radio station & EuroArts Music International.
Other activities:
Including yachts, online magazines, art, hotels & cruises (Belmond).
This set of strong brands is why I personally think LVMH is very well positioned in terms of the luxury segment. Please note that I am not calling for securities trading in these company introductions. This is not investment advice, quite the opposite. These company presentations are deliberately written without an assessment to buy, sell or anything else from me. My intention is only to introduce you to companies that I find interesting.
Key figures and forecast
LVMH Group has a market capitalization of €328.3 billion and over 175,000 employees.
Sales in 2021 of 64.2€ billion
Profit in 2021 of 12€ billion (This results in a P/E ratio of 27.35)
Operating margin in 2021 of 26.7%
Reports a current dividend of 1.82
The LVMH Group's sales are broken down geographically as follows:
32% Asia (ex Japan)
27% USA
15% Europe (ex France)
12% Others
7% France
7% Japan
By the end of June 2022, the LVMH Group owned 5,582 stores worldwide
The year 2021 went exorbitantly well for the luxury sector, but 2022 and the challenges it brings should surely have a negative impact on LVMH's balance sheet, or should it? Without knowing all the intra-group details, I would like to briefly touch on this.
Sales through June 30, 2022, the first half of the year, were €36.729 billion. We remember, the revenue in total 2021 was 64.2€ billion. What can we do with this information? We can't compare one half of a year with a whole business year. Moreover, we don't know how the second half of 2022 will develop. However, we do know how it did in 2021.
The revenue of the first half of 2021 was €28.665 billion. So we know that the first half of 2021 generated about 44% of the total annual revenue, and thus the other half was responsible for about 56% of the total annual revenue. That's probably due to the traditionally strong December. So let's now assume that the €36.728 billion in revenue from the first half of 2022 accounts for 44% of total revenue, with the remaining 56% to follow by the end of the year. Then total revenue this year would be €83.472 billion. This would represent a 30% growth in sales in 2022, and profits would also grow by 24% if projected according to the same scheme. Now, if you compare that to the 43% revenue growth and 127% profit growth from last year, you might think that LVMH is having trouble with this year's situation. However, that would be a fallacy.
As you've no doubt picked up, pretty much everything that could halfway present a business model was doing well in 2021 due to stimulus checks and zero interest rate policy. All stock prices, cryptocurrencies, and tangible assets rose relentlessly in value. Since luxury goods also benefited from this trend, a direct comparison of the incredibly good year 2021 and the current one would not be suitable to get a fully comprehensive picture. If we include data from before this crazy time, it is striking what strong figures LVMH can write this year.
Growth over the last few years:
2017 to 2018 = 9% sales growth , 19% profit growth
2018 to 2019 = 14% sales growth, 11% profit growth
2019 to 2020 = -16% sales growth, -36% profit growth
On the one hand, it is noticeable that LVMH has suffered massively from the Corona measures in 2020. On the other hand, however, it must be noted that 30% revenue growth and 24% profit growth would represent above-average figures. So LVMH apparently has no problem with inflation and is generating higher profits than ever before. How can this be?
Why LVMH is better at dealing with inflation than other companies
Customer loyalty:
If we look at profit from returning customers of the LVMH Group and forecast it using the same scheme as for sales, we can guess that 35% more profit will be generated from regular customers in 2022 than in 2021. So LVMH manages to generate steadily more profit from customers who regularly buy LVMH Group products. This may be due to the well-known brand names that customers want to see on their clothes or accessories, the good service, a positive buying experience and/or the fact that products such as alcohol, perfume or cosmetics are consumed and have to be bought again.
Pricing power:
Of course, the LVMH Group has competitors. However, none of these companies produce items with the LVMH Group brand names. If a customer wants the Louis Vuitton logo on their clothing, they can do so exclusively by purchasing a Louis Vuitton branded product. Brand ambassadors, trends or the pursuit of social recognition, create in some people the need to wear a certain brand name in public. The price to satisfy this need is determined by LVMH and its associated companies. Price increases can thus be enforced more easily.
Wealthy/above-average earning customers
Price increases are also easier to implement because many customers, especially if they buy regularly, belong to a segment of the population that earns above-average incomes. While customers of other companies who are not in the luxury sector can experience problems due to inflation and may think twice about whether they can still afford certain products, LVMH customers must be prepared to spend a comparatively large amount of money anyway in order to achieve LVMH customer status.
Example: a food manufacturer has to raise its prices to respond to increased production costs. Now it may be that regular customers who do not earn above-average incomes will reach for a cheaper alternative or even forego consumption of a particular product altogether because they have to contend with rising ancillary costs as well as a loss of purchasing power that is taking up an increasingly significant percentage of their income. The proportion of customers who react in this way can be anywhere between 0 and 100 percent for a food manufacturer.
Now, when I think of LVMH customers spending several hundred euros on a T-shirt, several thousand on a bag, or significantly more on cruises, watches, yachts, or hotels, I assume that these people do not come under such financial pressure when utility costs increase or they have to spend more on their consumption. Accordingly, I would assume that LVMH loses a much smaller percentage of customers to inflation than potentially an ordinary food manufacturer would.
It can be surmised that LVMH customers, due to their potentially higher wealth, do not suffer as much from inflation as the average person and therefore have sufficient capacity to purchase luxury goods.
Diversification
LVMH specializes in the luxury sector, but is highly diversified within it, with 75 brands and 7 different segments. If you want to live in luxury, you can find just about anything to make your life luxurious at LVMH, with the exception of sports cars. The different brands are not in contradiction, but in harmony. Someone who likes to read a financial newspaper or an online magazine may also like to drink champagne, wine or other alcohol, preferably on a yacht or a cruise that stops at a resort where the person chooses his new perfume scents, matching the watch or jewelry, in a luxury hotel (By the way, this is how I imagine the life of @JuliusVonSylt imagine). A person wearing LV can also wear Dior, Givenchy or Fendi. Fashion trends that move from one LVMH brand to another are not a problem in the overall balance. Because of this breadth of offerings, the LVMH Group is not a player in the luxury segment, but THE player in the luxury segment. Groups can usually feed off this market leadership.
It seems to be a mixture of the positive characteristics of the luxury segment, the good performance of the companies, the global awareness/popularity of the brands and the broad-based market leadership that enables LVMH to continue to grow above average in 2022. Perhaps LVMH will even make more revenue due to inflationary increases in the prices of its products than it would without inflation. In addition, LVMH products become more exclusive when the general purchasing power decreases and are thus an even greater status symbol, which could further justify higher prices.
Sources
*1: https://whoswho.de/bio/louis-vuitton.html
*2: https://de.wikipedia.org/wiki/Louis_Vuitton#Geschichte
*3: https://turbologo.com/de/blog/louis-vuitton-logo/
*4: https://de.wikipedia.org/wiki/LVMH#Geschichte
*5: https://www.lvmh.com/investors/
*6: https://r.lvmh-static.com/uploads/2022/07/lvmh_interim-financial-report-2022.pdf
*7: https://www.lvmh.com/houses/
*8: https://r.lvmh-static.com/uploads/2021/01/documents-financiers-2020_va_v2.pdf
*9: https://r.lvmh-static.com/uploads/2019/12/lvmh_documents-financiers_2019-va.pdf
