Thread by @HighStreet_AM

1/ Here is our deep dive on luxury goods behemoth #LVMH.

Let’s dive in! 👇👇

2/ Company Overview

Home to 75 distinguished brands, LVMH is a $365bn giant in the luxury goods market.

5 business segments:
▪️Fashion & Leather Goods: ~49% of revenue
▪️Selective Retailing: ~18%
▪️Watches & Jewellery: ~14%
▪️Wines & Spirits: ~10%
▪️Perfumes & Cosmetics: ~9%

3/ Company Overview (cont.)

Geographically diversified, with

🌏 35% Asia (ex Japan)
🇺🇸 26% US
🇪🇺 15% Europe (ex. France)
🗺️ 11% RoW
🇯🇵 7% Japan
🇫🇷 6% France

4/ Revenue Prospects

➡️Despite scale, still growing at double digits; more than competitors Kering/Richemont
➡️Tourism remains key - estimate ~25% of business depends on int. travel
➡️ Hiked prices across all regions to offset supply chain issues and saw little drop in demand

5/ Rev... (cont.)

➡️Disposable income of HNW people increased with less travel in Covid
➡️Digital (14% rev.) slows as physical retail reopens
➡️See jewellery as a big opportunity; active in the M&A space
➡️Strong USD added +8% to rev. '22; can expect limited strength from here

6/ Margin Prospects

Industry leading profit margins (19%), but unlikely to expand from here. Currently controlling costs & investments due to macro uncertainty.

Op. margins:
▪️Fashion & LG: 42%
▪️Select. Retail: 4.5%
▪️Wat. & Jewel: 19%
▪️Wines & Spirit: 31%
▪️Perf. & Cosm: 10%

7/ Balance Sheet

➡️Over €10bn in cash with approx. 9% net debt/mkt cap; debt well covered by CF at 45x
➡️Significant cash balance drives scope for M&A activity or share buybacks
➡️Capital allocation policy prioritises consistent dividend growth first, then M&A, then buybacks

8/ Risks

➡️Tarnished brand - consumers are fickle, and LVMH needs to maintain a level of exclusivity
➡️Fx swings can see regional growth suffer
➡️Cost inflation pressure - energy, labour etc.. (however most goods not overly exposed)
➡️Covid policy could continue to hamper growth

9/ Moat & Competition

➡️Mgmt believe brand = pricing power; LVMH has huge desirability
➡️Luxury goods aren't a proxy for global economy; HNW people are relatively 'recession immune'
➡️Scale - can seize prime locations within physical retail & absorb fixed costs more effectively

10/ Conclusion

Strong business that can create growth at scale with industry leading margins and little balance sheet risk. Luxury goods also adds a defensive element.

#LVMH trades at a premium, and after rising 13% YTD our #HighWay model indicates a 5yr return of +7% annually

11/ That wraps up our review of #LVMH.

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