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What's Next for LVMH: Growth undeterred by slow-down

Publication Date: 03 Feb 2020 - By Manika Premsingh By Manika P.

Equity Fundamental Equity Global Consumer Discretionary


2019 was a good year for LVMH. Both its revenues and profits grew by 15%. It also made the biggest acquisition in the luxury industry yet, buying out the well-known jeweller Tiffany & Co for USD16.2 bn. It also completed the acquisition of the British hotel group, Belmond, underlining its intent to expand the hospitality business. Yet, in its outlook for 2020 it says that it’s only ‘Cautiously confident’. Its cryptic in explaining why however, restricting its remarks to the ‘uncertain geopolitical context’. 

China challenges 

It is not hard to read into the statement, though. Asia ex-Japan is LVMH’s biggest market, accounting for 30% of its revenues. Presumably, much of this comes from the fast-growing Chinese market. However, 2020 has started with the unexpected challenge brought on by the Coronavirus, which is estimated to have taken over 300 lives and infected 14,000 people so far. To limit the spread of the virus, activity is restricted across the country and affected travel to and from China. Depending on how long the situation lasts, it could impact business in the country significantly.  

This is a double-whammy for LVMH, which was already likely to see some slowing down in Chinese demand in 2020. It increased prices last year in China to bring them at par with other markets. Besides this, the Chinese economy is slowing down in any case. From 6.6% in 2018, its growth is expected to taper to 5.8% by 2021. Consumer discretionary demand, like that of luxury goods, is liable to take a hit during such times as consumers become more conscious of their purchases.  

Hong Kong woes continue 

This only adds to the ongoing difficulties faced by luxury businesses across the spectrum due to the conflict in Hong Kong. The territory accounts for 5-10% of global luxury sales, and since the protests started last year, there has been a dramatic drop in business. LVMH has maintained that it has managed to grow its Asia business ‘despite the difficult environment in Hong Kong in the second half of 2019’. But in all likelihood, this particular geo-political difficulty has not fully run its course yet. Apparently LVMH is going to close down its store in Hong Kong. There is no information available yet on whether its planning to open another one elsewhere in the city.  

Europe-US trade wars 

It is also facing challenges in another big market – the US. Here too, a come off in growth could impact LVMH’s sales. US economic growth already slowed down from 2.9% in 2018 to 2.3% in 2019 and its expected to decline further to 2% in 2020. But that is not all. The US is planning to impose tariffs to the tune of 100% on European wines, after already having increased them to 25% last year.  

In so far as LVMH’s Wines & Spirits business accounts for only around 10% of its revenues, a hit to this segment may not impact the overall business in a significant way. However, it needs to be seen as yet another hit to revenue at a time when there is already weakness in its largest (Asian) market. It is also worth mentioning that even though the segment is only the relatively small in terms of revenue, following Fashion and Leather Goods, Selective Retailing, and Perfumes and Cosmetics; and only contributes more than Watches and Jewelry, it has a proportionately larger share of profits. It contributes 15% to total profits, which is second only to the bulk of earnings generated by Fashion and Leather goods.  

Moreover, the US market is significant for the business, accounting for over 33% of the share. The impact on the producer of champagne, Moet and Chandon, the outcome of the tariff hikes might not be a major hit on the business, but it could have a non-trivial impact. 

Slowdown in the fourth quarter  

The challenges faced across geographies and segment are already beginning to show up for LVMH in its results. The full year growth numbers are quite strong, but they obscure weakening performance in the last quarter of 2019. Organic revenue grew by 8% during the quarter, the slowest in the year, compared to 10% for the year as a whole. In each of the remaining three quarters, growth was at least 11%. And it is a broad-based slow down across segments.  

Expanding through acquisitions 

The Watches & Jewelry segment performed particularly poorly, along with Selective Retailing, with organic growth of just 1% over the same quarter of 2018. The segment is also the smallest in revenue terms for the brand. But for both these reasons, the Tiffany acquisition represents an opportunity for LVMH. According to Stacey Widlitz, leading retail expert and an advisor at ReachX “The bigger foray into Watches & Jewelry is a planned one for LVMH, because it is a growing market and there is potential for LVMH to grow its footprint in it.  The Tiffany acquisition also allows for it to gain a bigger share in the US luxury goods market.”.  

While Tiffany had been trying to pivot in terms of its products to increase its appeal for the new consumer, the takeover by LVMH may well be the medicine that the doctor ordered. LVMH has been able to breathe life back into the sagging business for Bulgari, among other brands, and it could also do the same for Tiffany. Specifically, its marketing sets it apart. “The word on the ground is that LVMH is able to do a fantastic job of communicating to the young consumer. In other words, it has a playbook for success, which Tiffany did not have”, adds Widlitz.  

This segment in particular could be well worth watching out for, and not just because of the Tiffany acquisition. LVMH is clear in its objective of growing it. In its latest financial report, it says “Against a backdrop of persistent geopolitical uncertainties, the Watches and Jewelry business group will maintain its ambition of gaining market share and its rigorously targeted investments.”.  

Growing the hospitality business 

But it is not just the Watches and Jewelry segment that LVMH has spotted opportunity in. It is also growing its hospitality business. The latest development in this regard is the opening of a restaurant at its store in Osaka in Japan. A number of other luxury brands have launched restaurants, including Tiffany, which opened the Blue Box Café in New York in 2017. Others that have done so include Ralph Lauren, which runs restaurants across locations like Chicago, London, New York and Paris.  

This announcement comes over a year after LVMH first said it was acquiring Belmond, which was earlier known as Orient Express Hotels. The company which runs luxury trains and own hotels was bought for USD 3.2bn in December 2018 and is expected to add around USD 600 mn to LVMH’s revenues. At present, LVMH’s hospitality business is covered under ‘Other activities and eliminations’, which, presumably because of the ‘eliminations’ is a drain on its overall revenue.  

Despite its financial non-existence in hospitality, LVMH is no stranger to the business. It owns Cheval Blanc Maisons and also the Bulgari Hotels. Making further inroads into hospitality, the group also intends to increase the presence of the Cheval Blanc hotels, by opening a new one in Mayfair in the heart of London. In a venture that is expected to cost £500 mn, the group seems to be clearly betting on the future of luxury hospitality. According to management consultants Bain & Company, the segment grew EUR 190bn in 2018, at a rate of 5%. So far, though, LVMH has a very limited presence in the segment.  

Rising dividends 

It remains to be seen how the group’s foray into hospitality fares. But for now, despite the fact that it says its ‘cautiously confident’ in its outlook, its latest dividend announcement suggests that it is in fact decidedly so. The company has increased its dividend per share by 13% to EUR 6.8, in continuation with its annual increase in dividends over the past few years. That it has happened in the past is unsurprising, given that LVMH’s earning per share has been rising every year, showing an average growth rate of over 10%. Analysts estimate that it will continue to do so in the near future as well.  

Fashion and Leather goods drive growth 

Going by the performance of LVMH’s performance in its biggest revenue segment – Fashion and Leather Goods, it is not hard to see why. Despite challenges in some of its most important geographies, the segment grew by 20% last year in revenue terms, driven by good performance for Louis Vuitton and Christian Dior. In fact, it maintained its growth even in an otherwise lack luster fourth quarter, growing by 15%, the same rate as that seen in the first quarter. This is a positive sign, in that it accounts for over 50% of the company’s revenues and over 63% of the profits.  

Continued growth in this segment, despite challenges across its major markets as well as in other key segments, Fashion and Leather Goods’ continued performance may well have bolstered the group’s confidence. Its outlook for 2020 is a stark improvement from the last time it spoke about it at the time its 9 months’ financial results. It had said that “In a growth environment since the beginning of the year, albeit marked by an uncertain geopolitical context, LVMH will continue to be vigilant.”.  


In sum, the overall backdrop is a mix of both uncertainty and slow-down. At the same time, it need not prove to be catastrophic for LVMH. On the contrary, 2020 at least could well be another year of growth for LVMH. While its mainstays, notably Fashion and Leather goods business will support the growth its growing forays into Watches and Jewelry as well as Luxury Hospitality could be the drivers going forward into the 2020s and beyond. But that story will unfold only overtime.  


I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Manika P.


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