LVMH MC will announce its results for the first half of 2025 on July 24 after the close of trading on the Paris Bourse. As the world’s largest luxury goods group in terms of sales (84.7 billion euros in 2024), investors will be paying close attention to the indications its executives give on the health of American, Chinese and European consumers, where its sales are most significant.
They will be all the more closely watched as the luxury goods group’s share price is strongly underperforming the Morningstar Global Luxury Goods index, which has lost 7% since the start of the year, compared with a 22% decline for LVMH.
Morningstar key indicators for LVMH MC
Analyst: Jelena Sokolova, CFA
- Fair Value Estimate: EUR 620.00
- Morningstar Uncertainty Rating: Medium
- Price/Fair Value: 0.77
- Morningstar Rating: ★★★★
- Economic Moat: Wide
What Will Be in Focus When LVMH Announces Half-Year Results?
- Morningstar equity analyst Jelena Sokolova “expects first-quarter trends to continue overall into the second quarter, with no recovery or slowdown for these luxury players.” In the first quarter of 2025, Group sales fell by 3% at constant exchange rates year-on-year, including -5% for the Fashion & Leather Goods division and -9% for the Wines & Spirits division.
- Regarding quarterly results, “LVMH’s margins are expected to remain under pressure, as the two most profitable divisions, Fashion & Leather Goods and Wines & Sports, are the hardest hit in terms of sales,” explains Sokolova. “This should have a negative effect on margin, combined with operational leverage on fixed costs,” she adds.
- According to the Factset consensus, first-half sales are expected to come in at 39.89 billion euros, down 3% organically year-on-year.
- The luxury group is expected to report operating income before non-recurring items of €9 billion, compared with €10.65 billion in the first half of 2024.
- Net income is expected to reach 5.9 billion euros (7.3 billion euros a year earlier).
- Investors will be paying particular attention to the commercial momentum of the Fashion & Leather Goods division (48% of sales in 2024 and 78% of the Group’s operating income recurring), with uncertainties linked to the impact of the trade war and currency trends, particularly the fall in the US dollar: “we see risks to growth in the second quarter of 2025 linked to general macroeconomic uncertainty regarding tariffs, which weighs on consumer confidence, and to a difficult basis of comparison for Chinese/American purchases abroad due to the depreciation of the RMB/USD against the EUR,” Santander analysts point out in a note dated June 3.
- The health of the Chinese consumer, one of the most important for the luxury group and the industry, will be reflected in particular in cross-border sales. In recent quarters, LVMH’s sales have been more dynamic in Japan, where the flow of Chinese tourists is significant, than in mainland China. The evolution of consumer habits in and outside China will continue to be monitored by the stock market.
- In Wines & Spirits, trade tensions between Europe, the United States and China weighed on demand for champagne and cognac. With Hennessy, LVMH is home to the world’s leading cognac brand in terms of volume, and its fate is very much linked to the global uncertainty created by the Trump administration’s trade war with the rest of the world.
Fair Value Estimate
At the end of April, we reduced our estimate of LVMH’s fair value to €620 per share from €650, and we are slightly lowering our sales and earnings forecasts for 2025 to take account of a more difficult macroeconomic context. In the longer term, we expect the leather goods division to grow by 6%, with an average margin of 40% (39.9% in 2022 and a historical level close to 30%). We believe that Louis Vuitton will continue to outperform the industry in sales growth, between 5% and 10%, thanks to the brand’s global appeal and pricing power, while the other fashion and leather goods brands should grow, benefiting from the resources of the LVMH Group.
Competitive Moat
We believe that LVMH benefits from a wide moat thanks to its brand-related intangible assets. We assess the power of luxury brands by looking at their pricing power, product awareness, the investment value of their products and their control over distribution.
LVMH’s pricing power is difficult to assess on the basis of gross margin, as it is a conglomerate of different businesses with different margin profiles.
However, we believe that gross margins for the Fashion & Leather Goods division are extremely high, given the division’s operating margins of 40% (at the top end of the range compared with its peers).
Louis Vuitton’s operating margin has historically been around 40%, thanks to its pricing and size (it is the leading luxury leather goods brand in terms of sales, with over 20 billion euros in sales), and should now be closer to 50%. Proof of its pricing power, Louis Vuitton raised prices in 2009 and 2020 to counter declining footfall. The company has been rather aggressive on pricing since 2020, which has not led to a drop in volumes.
Pricing power is also evident in the fact that growth has recently been driven by sales mix, meaning that consumers are willing to buy ever more expensive items from the brand. We consider that LVMH’s fashion and leather goods division benefits from a particularly strong pricing policy.
As the leading luxury leather goods brand in terms of sales, benefiting from very high brand awareness (86% in the US according to Statista for LV and 90% for Dior), high prices and high brand visibility on its products, Louis Vuitton is a perfect vector for social status.
Financial Strength
We believe that LVMH is a financially solid company, with net debt representing around 1 times EBITDA.
We believe that LVMH’s financial structure is appropriate, given the diversity of its businesses and the large proportion of recurring business linked to consumer products, which are more dependent on demand from existing customers and less sensitive to economic conditions.
We expect the conversion of operating cash flow to remain solid, and operating cash flow, in excess of 10 billion euros a year, to be sufficient to meet future obligations and finance expansion. We expect capital expenditure to represent 5-6% of sales, a level broadly in line with that of the last ten years, and to be devoted to expanding younger brands, renovating sites and increasing production capacity.
Risk and Uncertainty
We give LVMH a Morningstar uncertainty rating of “average”.
The luxury goods sector is driven by economic growth and wealth creation. Any structural slowdown in economic growth represents a risk for companies such as LVMH.
Recent growth for the Louis Vuitton brand has been spectacular (doubling sales between 2018 and 2022, from around €10 billion to around €20 billion) and faster than its historical pace, thanks to a favorable cyclical environment for demand, brand investments, pricing and strong brand momentum. The slowdown in global demand for luxury goods and an unfavorable cycle in the fashion sector could further limit the brand’s growth in an increasingly difficult comparative context.
While the company’s overall track record in mergers and acquisitions is fairly positive, we believe there is a risk of cost overruns or poor target selection. Acquisitions can also lead the Group into less protected and more competitive sectors.
A large proportion of production and administration costs are denominated in euros, while almost 80% of sales are invoiced in other currencies. In addition, the global transparency of prices made possible by the Internet has made it more difficult to adjust prices to currency fluctuations. While LVMH has always been able to pass on currency-related cost increases to consumers, this could prove more difficult in a context of slowing demand.
Morningstar, 2025 - The information contained herein is for educational purposes and is provided for information purposes ONLY. It is not intended to and should not be construed as an invitation or encouragement to buy or sell any security mentioned herein. All comments are the opinion of the author and should not be considered as a personalized recommendation. The information in this document should not be relied upon as the sole source for making an investment decision. Please contact a financial advisor or a financial professional before making any investment decision.
