EUR 850.00 For Business Accounts Only

Morningstar | Strong Luxury Brands Across Product Categories Position LVMH Well for Resilient Growth

We believe that a portfolio of strong leading brands in several luxury niches grants LVMH a wide moat and should allow it to generate economic profits well into the future.In fashion and leather goods (over half of the company’s profits), LVMH’s brand intangible assets are backed by the 100-plus-year-old globally recognized Louis Vuitton brand, with long product cycles and fully controlled distribution, as well as several smaller but still iconic brands, including Fendi and Loro Piana. In wines and spirits (16% of profits), LVMH benefits from strong market share and brand recognition in conspicuous market niches. LVMH’s brands are entrenched in distributors’ supply chains and enjoy bargaining power with suppliers thanks to their size. Long production cycles and high need for inventory in Champagnes and cognacs, as well as supply limitation due to land availability, create barriers for new entrants. In the rest of the business, LVMH Group has a smaller presence, but still has several strong brands, such as Dior and Guerlain in perfumes and Bulgari in branded jewellery.LVMH brands have a good growth record, having taken market share from competitors in most industries of operation while keeping profitability solid (9% organic growth since 2010, compared with 6% for the luxury industry).While we consider LVMH’s portfolio to be strong, it has been costly to assemble, resulting in capital tied up in goodwill and intangible assets, pressuring capital returns, which at 9%-11% are just marginally above the 8.6% cost of capital.We expect LVMH to continue generating organic growth of over 5% in the medium term, driven by increasing wealth and incomes globally, and to enjoy higher growth for its smaller portfolio brands. We believe revenue growth to be lower than 9% historically, given the maturity of the group’s biggest brand and more moderate growth in China. We expect margins to improve to just over 21% from 21% currently, driven by less cost-intensive growth for Louis Vuitton, profitability ramp-up for newly acquired brands, and some operating leverage in other divisions.