Someone once said, "I've been poor and I've been rich. Rich is better!" It's not so much that the rich are immune from the effects of inflation, higher energy costs, and rising interest rates, but rather they just tend to be the last to feel the impact.
Which may be why LVMH Moet Hennessy Louis Vuitton (LVMUY -0.17%) could be a great stock to buy now. The world's largest luxury brand is riding through this economic rough patch in fine style as the affluent continue to spend through the global malaise.
This is a company with a well-diversified portfolio of brands. There are some 75 "houses" holding 60 different brands across wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and what it calls selective retailing. And LVMH is only getting stronger and taking market share from its rivals, while its stock is running well ahead of the S&P 500.
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A quality earnings report
The fourth quarter was one of remarkable performance for the luxury-goods maker. Every single segment of its operations saw robust organic growth allowing full-year revenue to reach 79.2 billion euros (about $86.2 billion) and profit from recurring operations to hit 21.1 billion euros, both up 23% from the year ago period.
While LVMH's segment revenue doesn't often rise by double-digit rates, they all managed to do so in the fourth quarter, and some performed significantly better than others. In particular, the fashion and leather division experienced 20% revenue growth, with organic growth representing half of that, on the strength of both Dior and Louis Vuitton, with the latter surpassing 20 billion euros in revenue for the first time ever.
Yet brands Fendi, Loro Piana, Loewe, and Marc Jacobs also reached record levels of revenue and earnings.
The significant growth Louis Vuitton is achieving is causing LVMH to open more manufacturing sites every year for the brand in France, where it already has 110 manufacturing facilities and workshops.
The rich continue to spend
LVMH has been a star performer over the past five years, growing from 46.8 billion euros (about $51 billion) in 2018 to this past year's record performance, even while being forced to recover from the brutal slowdown in 2020 brought on by the coronavirus pandemic.
Management has just as rosy an outlook for 2023. The company said in a statement that it is "confident in its ability to continue the growth observed in 2022," with Chairman and CEO Bernard Arnault telling analysts that after seeing the results so far for January, "if it continues as it is, it'll be an excellent year."
There's good reason to be hopeful. The Financial Times notes that although aspirational luxury consumers are reducing spending in the U.S., the uber-wealthy, or the top 2% of global consumers who account for 40% of all luxury spending, continue to open their fine-grain leather wallets even as luxury goods manufacturers raise prices.
Even as prices have risen 20% or more over the past few years on Chanel and Louis Vuitton products, Citi analyst Thomas Chauvet believes they could jump another 15% this year because the falling value of the euro makes luxury goods cheaper.
Other analysts are a little more cautious, though, seeing growth again in 2023, but at a slower rate of just 6% to 8%. Even so, between now and 2030, luxury goods sales are forecast to surge 60% higher as well-heeled consumers in India, Mexico, South Korea, and Southeast Asia increase in number.
Image source: Getty Images.
China is a huge catalyst for luxury
Even so, the luxury market today is not the same as it was back during the financial-markets crisis of 2009. The consumer base has grown to 400 million people, while the luxury brands themselves have fine-tuned their access to their ultra-wealthy clientele, making the companies much more resilient in a downturn than they once were.
As head of the world's biggest luxury house, Arnault also sees China's reopening as a portent of even better growth to come. He says that even if the casinos of Macao aren't humming with gamblers, LVMH's stores in the city are open and people are buying.
Now, sales haven't returned to their pre-pandemic levels -- CFO Jean-Jacques Guiony estimates they are still down about 40% -- but the start to the new year is encouraging, and LVMH is looking to the back half of 2023 for when growth will pick up the pace.
Indeed, analysts expect Chinese consumers to represent 40% of the global luxury market by 2030, with Bain & Co. believing that China will be "a fundamental growth driver in the long term."
A luxury stock without a luxurious price
LVMH seems to have worked out whatever hiccups it's encountered over the past year, and with its target demographic still spending and China's economy reopening, the luxury-goods retailer looks well positioned to capitalize on greater spending on its goods.
The stock also looks reasonably valued at 21 times estimated earnings, and with a decent forward dividend yield of 1.6%, LVMH looks to be a solid stock to buy.
