The Paris 2024 Olympic Games are nearly here. Did you know LVMH is the biggest sponsor of the Olympic and Paralympic Games?
Several LVMH brands will have specific roles during the Games. Jewelry brand Chaumet will design the gold, silver, and bronze medals. Beauty retailer Sephora will be a partner for the Olympic torch relay. Louis Vuitton will design the trunks to house the Olympic torch and medals. Moët Hennessy will supply fine wines, champagnes, and cognacs to hospitality guests. Other LVMH brands such as Berluti and Christian Dior will participate in some fashion—pun intended.
Should we expect a big boost in terms of sales or margins for any of the brands? LVMH’s CFO Jean-Jacques Guiony expects the impact to be “quite neutral” and not a major boost to the business, based on previous Olympic campaigns in Beijing and London. Nonetheless, we think the Olympics will allow LVMH to showcase its heritage and excellence in creativity, craftmanship, and luxury.
LVMH recently reported that its first-quarter organic sales growth—which strips out the impact of currency fluctuations—rose 3% to 20.69 billion euros. LVMH’s fashion and leather goods division—which accounts for almost half of total sales and three-quarters of operating profits—delivered organic sales growth of 2%. The rise largely reflected pricing increases and strong performances from mega-brands like Louis Vuitton and Christian Dior. The organic sales growth achieved in the first quarter puts the average five-year growth rate at 10% for LVMH and 16% for the fashion and leather goods division.
Revenue grew across other divisions, including perfumes and cosmetics (+7% organic) and selective retailing (+11% organic). But the wine and spirits division saw a revenue decline (-12% organic) because of softer demand and de-stocking in the U.S. and China. On a positive note, LVMH said that overall consumption was flat, and the business is stabilizing for the first time in 18 months. The watches and jewelry division saw a slight revenue decline (-2% organic), primarily due to a broad-based normalization in the luxury watch industry. This was offset by strong results at Bulgari and Tiffany in jewelry.
Sephora—which is part of the selective retailing division—is performing remarkably well with a fast-growing store network and worldwide market share gains. Sephora’s main U.S. competitor Ulta Beauty had warned of a “broad-based” slowdown across all categories in the U.S. beauty industry—but LVMH does not currently see signs of a slowdown or in the coming quarters. In our view, Ulta Beauty is experiencing intensifying competition and market share losses to Sephora and other retailers.
At the World Retail Congress in Paris, Sephora’s CEO Guillaume Motte said that Sephora grew twice to six times faster than the prestige beauty market in most geographies. LVMH does not break out its performance results for any of its 75 plus brands, but Motte did reveal that Sephora is growing by more than 27% in North America and high double-digits in Europe (+28%), Southeast Asia (+27%), Latin America (+43%), and the Middle East (+28%). Sephora is a great asset with 160 million loyal customers and a network of over 3,000 stores globally (opening 200 stores per year).[1] About half of the brands sold by Sephora are exclusive to them—some of which are LVMH-owned. We think Sephora is on track to reach its target of 20 billion euros in sales in five years, up from an estimated 13 billion euros in 2023.[2]
Overall, we think LVMH had strong results that indicate the wealthier clientele is continuing to buy premium luxury products. Industry experts had anticipated weakening fashion trends at LVMH because of sales and profit warnings at luxury rivals Kering (owner of Gucci) and Burberry. We believe the issues at Kering and Burberry are more company-specific with signs of weakening brand desirability (i.e., Gucci’s brand aesthetic has become increasingly less appealing to the luxury consumer). Kering and Burberry remain turnaround stories in our view. This is not the case at premium luxury fashion brands like Hermès, Brunello Cucinelli, and LVMH’s stable of fashion brands.
LVMH has been remarkably resilient. The group’s brands are both diverse and highly desirable. We expect that LVMH will continue to grow and gain market share worldwide.
[1] Inside Retail. April 18, 2024. Sephora CEO Guillaume Motte shares his four ingredients for success. [LINK]
[2] Business of Fashion. January 22, 2024. Sephora Greater China Head Steps Down. [LINK]
Marnoa Private Wealth Counsel Ltd. (“Marnoa”) is a Portfolio Manager and Exempt Market Dealer registered in the provinces of Ontario, Quebec, British Columbia, Manitoba, Alberta, and Nova Scotia.
Marnoa Private Wealth Counsel Ltd. is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. The information contained herein is provided for informational and educational purposes only and should not be construed as investment, legal, tax, or accounting advice, nor as an offer or solicitation to buy or sell any security, or a recommendation. The firm or its clients may or may not hold positions mentioned.
Opinions expressed are current as of the date of publication and are subject to change without notice. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Readers should consult their own professional advisers before making any investment decisions.
This content is directed to persons in those jurisdictions in which Marnoa is registered to provide investment advice. It is not intended to reflect the reader’s personal needs and circumstances and hence is not a solicitation for advisory services. Any information or description of services provided herein is effective on the date of publication only, and Marnoa does not undertake to advise the reader of any changes.
