Hello!

Each earnings season, I will recap every name in the portfolio as well as those at the top of the watchlist, covering an overview of the quarter and what mattered most. I will also include a rough, back-of-the-envelope valuation for each company. This is not intended to be precise, but rather a high-level figure of what I think the business is worth. This helps identify opportunities where there may be a mismatch between price and fair value that surface-level optics might obscure.

As always, all feedback is welcome. Let's dive in.

Disclaimer: This is not financial or investment advice. I'm sharing my personal investment decisions and reasoning for educational and informational purposes. Always do your own research before making any investment decisions.

LVMH is the world's largest luxury conglomerate. Louis Vuitton, Dior, Tiffany, Sephora, Hennessy, Bulgari. The portfolio is unmatched. Shares recently posted its worst first-quarter performance in its history.

Quarter at a Glance

Business Segments (Organic Growth):

Regions (Organic Growth):

What Mattered

1/ The Crown Jewel Is Still Shrinking

Fashion & Leather Goods makes up roughly half of revenue and the vast majority of profits. It declined 2% organically, improving from -3% last quarter. March would have been flat without the Middle East. But 'improving toward zero' is not growth. More importantly, management indicated F&LG needs 3% to 4% organic growth to stabilize margins. Even the flattish ex-Middle East result is well short of that threshold.

American consumers inflected from slightly negative in Q4 to low-to-mid positive. Chinese consumers improved from low-to-mid negative to flattish, with local Chinese spending growing solidly. Neither is running hot, but both inflected in the same quarter. This is a good sign, but the business is working off easier comparisons. And if you look at the bigger picture, within F&LG specifically, flattish Chinese clientele after a good Chinese New Year and easy comps can be considered a mediocre result.

During the earnings call, an analyst asked directly whether Vuitton can sustain growth if middle-income consumers stay weak, pointing to the K-shaped economy. Management leaned on philosophy about competitive advantages and warned against 'collective anxiety.' This was a weak response in my view, and I believe softness in the aspirational consumer remains remains a real headwind.

2/ Middle East Hit Harder Than The Headline

The conflict began in March and cost one point of group organic growth. That sounds manageable until we look at the numbers. Demand dropped 30% to 70% depending on the mall. Middle East is about 6% of group sales but it's a high-margin market. They're cutting activation and animation costs but the fixed cost base stays.

If demand remains deteriorated at ~50% across a full quarter, that scales to roughly three points of group organic growth drag. Management noted some spending eventually repatriates to other geographies, but that takes time, and there's no visibility on when.

3/ Tiffany Is Delivering

Watches & Jewelry was the standout at +7% organic. 60% of Tiffany is now fine jewelry, growing strong double-digit. The icon strategy around HardWear, Knot, and Sixteen Stone is gaining real traction.

4/ Two Quieter Details

Wines & Spirits at +5% looks solid on paper but management said it would not repeat in Q2. Chinese New Year phasing (February this year, January last year), early Easter in Europe, and Japan price increase timing all pulled revenue forward. It will be interesting to see how this segment performs in the next quarter.

Separately, Sephora turned flat in China after being a problem area. A positive signal on execution.

Valuation

LVMH trades at roughly 22x forward earnings, a slight discount to its historical median of 23x. During periods of strong growth, the multiple has expanded to nearly 40x. Consensus expects ~11% earnings CAGR over the next three years. My base case is more conservative: 9% growth over 5 years, decelerating to 7%, with a 20x exit multiple. That puts fair value around €566. Probability-weighting a bear case (€269) at 30%, the base (€566) at 50%, and a bull case (€833) at 20%, the blended fair value lands near €530. Compared to today’s prices, I view LVMH as roughly fairly valued/slightly undervalued.

My Take

The Middle East obviously doesn't help the turnaround story, but let's zoom out further. This business came off 36% organic growth in 2021, 17% in 2022, 13% in 2023, and 1% in 2024. It's cycling through a downturn. The question is whether luxury spending is structurally broken or just taking a breather. I don't believe it's broken, but spending remains isolated and it absolutely needs to accelerate for this thesis to work. Excluding the conflict, the company would have posted +2% organic growth, its best quarter since Q1 2024. If the US accelerates to high single digits and Asia ex-Japan crosses back into double digits, this business re-rates. At current prices and if assumptions hold, the stock is pricing in ~11% annualized returns baked in plus a 3% dividend yield. Obviously, if the luxury sector takes off, then the company is undervalued. That said, I will not be taking a position right now and want to see what picture management paints in the Q2 earnings call. I like the idea of backing Bernard Arnault for a 3-5 year play, though I'd note he does present a key man risk. I’ll be following this one closely.

Hermès is the purest expression of ultra-high-end luxury. Family controlled, vertically integrated, supply-constrained by design. Shares have also been greatly impacted by the conflict in the Middle East.

Quarter at a Glance