LVMH’s diversified portfolio of luxury brands is Recession Armor

Key points

  • From Luis Vuitton bags to Sephora cosmetics boutiques, LVMH has a portfolio of more than 60 high-end and low-end iconic luxury brands that offer financial protection in the event of an economic downturn.
  • While most retailers show declining revenues and profits, LVMH reported double-digit revenue and earnings growth for the first half of 2022
  • COVID restrictions in China hurt business in the first half of 2022, but pent-up demand could support a recovery once lifted
  • The strength of the US dollar supports the demand for LVMH luxury products in the United States

What do Dom Pérignon champagne, Louis Vuitton handbags, FENDI purses, TAG Heuer watches, Tiffany & Co. jewelry and Geurlain perfumes have in common? Yes, they are luxury brands, but they are also owned by a global luxury goods company LVMH-Moet Hennessy Louis Vuitton Société Européenne (OTCMKTS: LVMUY). LVMH, based in Paris, France, sells low to high-end luxury branded goods in five categories and more than 60 major fashion brands known as houses. These categories include wines and spirits (26 houses), fashion and leather goods (14 houses), watches and jewelry (8 houses), perfumes and cosmetics (15 houses) and selective distribution (5 houses) including Sephora, DFS and Starboard. Cruise services. The strength of the US dollar strengthens demand for its products in the United States and increases the margins of brands imported in US dollars. While it derives nearly 40% of its revenue from the Asia-Pacific region, including China’s COVID-restricted provinces, its performance has always been relatively strong despite inflationary headwinds. LVMH is a global luxury brand powerhouse that owns both low-end and very high-end brands. This allows it to protect itself during recessions as consumers tighten their purse strings and limit their spending on high-end luxury brands to a notch or two lower.

Massive luxury brand umbrella

The breadth of diversification is what protects LVMH against single brands like Ralph Lauren (NYSE:RL) or multi-brand players like PVH Corp (NYSE:PVH) which owns the Tommy Hilfiger and Calvin Klein brands. Multi-brand companies like Tapestry (NYSE: TPR) which owns Coach, Kate Spade and Stuart Weizmann or Capri Holdings (NASDAQ: CPRI) which owns Versace, Jimmy Choo and Michael Kors offer little diversification and simply cannot compare to the sixty brands held under the aegis of LVMH.

Luxury levels provide armor in times of recession

LVMH is a luxury retailer that spans multiple tiers of luxury brands. It is widely believed that a recession hurts upper- to lower-middle-income consumers as they tighten their spending on discretionary items and luxury brands. Luxury items are best during strong economies. However, the diversity of LVMH’s brands ranging from low to high-end luxury allows it to still capture discretionary spending. For example, consumers of Dom Pérignon champagne may choose to tighten their wallets and downgrade to Veuve Clicquot champagne which often sells for half price but retains excellent quality. Luis Vuitton shoppers can downgrade to Mark Jacobs or Christian Dior. Either way, LVMH still gets the market because of its massive diversification and scale in the luxury goods industry.

LVMH's diversified portfolio of luxury brands is Recession Armor

Here’s what the charts say

Using rifle charts on the weekly and daily time frames allows for an accurate view of the playing field for LVMUY stocks. Rifles’ weekly chart bottomed out at $112.12 Fibonacci level (fib). Stocks rebounded over the week weak market structure (MSL) buy trigger on a breakout at $125.29 as they peaked on the weekly stochastic swing just above the 80 band as stocks rejected downside resistance from the weekly 50-period moving average at $139.10. The weekly stochastic started its full swing towards the 20 band led by the weekly 5-period MA at $120.97 followed by the 15-period MA at $128.67. The weekly 200-period MA sits at the fib of $112.12. The daily rifle chart appeared to be falling, but a spike caused the daily 5-period MA to stall at $119.92 and the 15-period MA to $120.27. The daily Stochastic is still down but stalling at the 40 band to set up a daily make or break pattern. Attractive pullback levels are found at the level of $119.50, $118.02, $116.68, $113.22, $110.59, $108.28 and $105.55.

Go against the tide

On October 11, 2022, LVMH released its first-half 2022 results for the quarter ending June 2022. The company reported 21% year-on-year (YoY) revenue growth at 36.7 billion euros. Operating profit increased 34% year-on-year to 10.2 billion euros with operating margins of 27.9%. Operating free cash flow fell (-24%) to 4 billion euros. Sales of Wines & Spirits increased by 23% to 3.327 billion euros and operating income increased by 23% to 1.154 billion euros, driven by the 16% increase in champagne volumes. Fashion & Leather Goods sales jumped 31% to 18.13 billion and operating profits rose 33% to 7.509 billion euros. Perfumes & Cosmetics saw revenue climb 20% to 3.618 billion euros, but operating profits fell (-1%) to 388 million euros due to COVID restrictions in China. The Watches & Jewelry segment saw its turnover jump by 22% to 4.91 billion euros and its operating profit by 26% to 987 million dollars. Selective Distribution saw its turnover gain 30% to 6.63 billion euros, but its operating profit jumped 181% to 367 million. The Sephora store-in-a-store Kohl’s (NYSE: KSS) partnership added more than 250 additional stores in the first half of 2022. DFS brand performance was impacted by health restrictions in China.

CFO sums up LVMH’s competitive advantages

Jean-Jacques Guiony, CFO of LVMH, summed up their competitive advantages: “Firstly, we enter the second half with strong momentum, in particular the dynamics of demand. Second, our geographic balance and diversification have proven to be major strengths over the past two years. Third, our financial strength provides an unparalleled ability to invest in marketing and sales strategies behind our brains. All this does not mean that we are immune to all external shocks, but it just means that we have the ability to face more adverse conditions and emerge stronger than ever.

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