• Fair
Value
Estimate:
€670.00
• Morningstar
Rating:
2
stars
•
Morningstar Economic
Moat
Rating:
Wide
•
Morningstar Uncertainty
Rating:
Medium
Morningstar’s
Takeaways
from
LVMH’s
Q1
Earnings
LVMH
is
still
trading
at
26x
trailing
earnings,
with
growth
slowing
to
single
digits
(albeit
Q1
is
the
most
difficult
from
comparison
base
perspective)
and
possible
margin
pressure
(high
growth
in
low
margin
segments-
Cosmetics
and
Selective
Retailing).
As
we
expected,
the
Chinese
cluster
remains
a
bright
spot
with
10%
growth
globally
in
Fashion
and
Leather
(this
should
be
a
good
read
across
to
Richemont
and
Swatch,
which
are
most
exposed
to
Chinese
cluster).
Both
aspirational
and
wealthy
consumers
are
increasing
spending,
unlike
in
the
West
where
aspirational
consumers
remain
under
pressure
(also
in
line
with
our
expectations).
Big
brands
tend
to
outperform
in
downturns,
so
an
LVMH
slowdown
would
be
exacerbated
in
smaller
brands
especially
those
struggling
with
turnarounds
(e.g.
Ferragamo,
Burberry).
This
is
likely
already
reflected
in
consensus.
The
fashion
and
leather
division
growth
of
2%
is
driven
by
pricing
(and
still
below
inflation),
but
pricing
is
not
expected
to
contribute
much
to
performance
near-term.
We
see
better
value
in
Richemont
(wide
moat,
high
exposure
to
Chinese
clientele),
Swatch
(high
exposure
to
Chinese
clientele,
lower
drag
from
low-end
brands,
attractive
valuation),
and
Kering
(a
long-term
story
of
brand
turnaround,
possibility
to
buy
attractively
on
a
weakness).
LVMH
Stock
Remains
Overvalued
We
are
maintaining
our
fair
value
estimate
of
€670
for
wide-moat
LVMH
as
the
company
reported
an
expected
slowdown
in
growth
trends
in
the
first
quarter.
We
view
shares
as
modestly
overvalued
at
current
levels.
Sales
for
the
group
increased
3%
in
local
currencies
(and
were
down
with
a
4%
currency
headwind).
Sales
for
its
most
profitable
and
largest
division,
fashion
and
leather
goods,
came
at
2%.
Sales
were
stronger
than
Kering’s
around
10%
down,
as
announced
in
a
profit
warning
earlier
this
month,
but
they
still
show
marked
deceleration
from
high-single-digit
growth
over
the
past
two
quarters.
This
isn’t
a
surprise
given
the
very
difficult
comparison
base
from
last
year,
which
showed
17%
growth
for
the
group
and
18%
for
fashion
and
leather
goods.
The
comparison
base
gets
easier
in
the
second
half
of
the
year.
In
line
with
our
expectations,
the
weakening
of
demand
was
driven
by
developed
market
consumers
–
less
affluent,
aspirational
consumers
were
particularly
hit,
with
sales
to
Europeans,
Americans,
and
Japanese
in
fashion
and
leather
goods
slightly
negative,
continuing
from
trends
started
in
the
third
quarter
last
year.
In
line
with
our
expectations,
Chinese
demand
was
a
bright
spot,
with
sales
to
Chinese
nationals
up
about
10%
and
more
spending
abroad.
We
have
previously
argued
that
Chinese
demand
has
pent-up
upside
potential,
while
demand
from
Western
consumers
should
come
off
its
post-pandemic
highs.
Interestingly,
management
mentioned
strong
demand
from
aspirational
and
wealthy
Chinese
consumers.
Revenue
growth
for
fashion
and
leather
goods
was
price-driven,
with
mix
and
volumes
largely
offsetting
each
other.
Overall,
management
doesn’t
expect
price
to
be
a
major
driver
of
performance
in
the
near
future.
In
segments,
wines
and
spirits
was
the
weakest,
down
12%
organically.
Perfumes
and
cosmetics
performed
strongly,
up
7%,
and
so
did
selective
retailing,
with
a
strong
performance
from
Sephora,
up
11%.
Watches
and
Jewelry
division
growth
was
subdued,
with
better
performance
from
Bulgari,
which
has
higher
exposure
to
Chinese
clientele.
Still,
a
weaker
Tiffany
was
dragged
down
by
a
weak
performance
from
the
American
aspirational
consumer.
Lower
margin
divisions
grew
stronger,
which
should
have
a
negative
impact
on
the
group’s
profitability.
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