We are maintaining our fair value estimate for wide-moat LVMH MC as we incorporate weakening revenue and reduce our forecasts for 2024 sales and profits. Shares are fairly valued at current levels after falling a third since their 2023 peaks, and losing 7% on Oct. 16 after the Q3 results.
• Fair Value Estimate: EUR 650
• Morningstar Rating: 3 stars
• Economic Moat: Wide
In the third quarter, the demand backdrop changed for the worse sequentially, specifically in LVMH’s biggest and most profitable fashion and leather goods division, which recorded a decline in revenue of 5% organically versus 1% growth in the first half.
Weaker Chinese consumer demand was the main culprit as sales to Chinese consumers globally were down by a midsingle digit in the third quarter compared with a high-single-digit increase in the first half. Sales to Europeans and Americans improved slightly in the quarter, but not sufficiently to offset the decline in sales to Chinese consumers. Louis Vuitton performed slightly better and Dior slightly worse than the division’s numbers. We believe LVMH’s weaker sales are a negative read-across for luxury peers that report later.
LVMH Brands and Consumer Spending
The decline was driven mainly by volumes with the mix stable and prices up slightly. The company defended its strategy of mix and price increases since 2019 and doesn’t foresee significant expansion of entry-priced offerings to re-engage aspirational consumers. Product innovation and continued marketing investments, but at a lower pace compared with the past few years, were touted as areas that were going to be used to improve performance. We believe LVMH has some flexibility and discretion around marketing investments compared with peers, given that it’s the top spender and its brands are mostly top of consumers’ minds.
Sales growth for other divisions remained tepid, with little change from prior quarters (weaker demand from Chinese consumers in jewelry and watch brands started earlier this year). Overall, organic sales for the group were down 3% in the quarter.
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