A closer look: LVMH Moet Hennessy Louis Vuitton (LVMUY)

Wednesday, Sep 14th 2022

Commentary

A deep dive on LVMH

Holding Name: LVMH Moet Hennessy Louis Vuitton (LVMUY)

Strategy: Offshore

Percent weighting of strategy: ~7.3%


TLDR: Despite a challenging macroeconomic environment, LVMH continues to impress on revenues and operating income. With a visionary CEO at the helm, the consumer discretionary pullback is an opportunity for the luxury goods giant to charge forward and take market share. 

Business overview: LVMH is the world’s leading luxury goods producer and distributor, owning 75 prestigious brands built over the course of several decades. The company’s five primary segments include: fashion and leather goods, watches and jewelry, wines and spirits, perfumes and cosmetics, and selective retailing. Higher-profile brands include Louis Vuitton, Tiffany & Co.,Tag Heuer, Hennessy, Moet & Chandon, Sephora, among others.

Led by visionary CEO Bernard Arnault, LVMH’s unwavering commitment towards executing its long-term strategic vision while operating a decentralized business structure have proven effective in shaping LVMH’s unique value proposition relative to peers. As a result, this business model/strategy has not only helped strengthen LVMH’s brand value/client base, but also propelled LVMH to becoming the industry standard with regards to operational efficiency, M&A integration, and superior execution.

Why we own it: LVMH’s veteran management team, high-quality business model, and brand value are key pillars underpinning our investment thesis /characterization of LVMH as a high-quality compounder. Further, we believe that LVMH’s strong capital advantage relative to peers remains underappreciated amidst decelerating economic growth conditions, which we believe will translate to outsized market share gains/margin expansion relative to estimates. As such, LVMH remains well positioned to deliver industry-leading growth over the next 12-18 months with upside optionality on the back of continued economic reopening in China  

What’s the latest: Against the backdrop of challenging macroeconomic headwinds and tough comps, LVMH delivered impressive earnings results that surpassed consensus with Revenue/Operating Income +28% and +34% YoY, respectively, on the back of double-digit organic growth across every segment. LVMH’s prudent capital allocation was on display with strategic investments made toward lowering costs, diversifying operations, and improving capital structure flexibility. Despite elevated uncertainty, Mgmt tone was positive with Arnault highlighting robust demand momentum continuing into Q3 as well as the company’s strong pricing power advantages being utilized to mitigate inflationary pressures.

After the strong quarter providing evidence of our thesis tracking well, we remain positive on LVMH’s future outlook for several reasons including:  LVMH’s structurally higher margin profile, the company’s favorable positioning amidst China reopening tailwinds, and its robust free cash flow generation to fund future M&A. Combined, these drivers should enable LVMH to deliver double-digit revenue/eps growth over the next 3-5 years along with higher consensus estimates/price targets. 

Sign posts moving forward:  Moving forward our team will be closely followingconsumer trends from China and trade impacts that may impact top-line growth over a short time horizon. We’ll also be tracking margin sustainability/future expansion potential and pricing dynamics among industry peers.


The content contained in this material is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, solicitation of an offer, or investment advice.

Disclosure

As of this writing, LVMUY was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.

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