In the midst of a challenging market, many investors are seeking safe havens to weather economic uncertainties. The luxury goods sector has proven resilient in this regard, as affluent consumers tend to be less affected by economic downturns. Two notable players in this sector are LVMH (LVMUY) and Richemont (CFRH.F), both of which have outperformed major market indexes. This article explores the key differences between these luxury conglomerates and their growth trajectories.
LVMH, headquartered in Paris, stands as the world’s largest luxury company, boasting a portfolio of 75 brands across various categories, including wines & spirits, fashion & leather, perfumes & cosmetics, watches & jewelry, and selective retailing. Some of its renowned brands include Louis Vuitton, Dior, Loewe, Fendi, Tiffany, Bulgari, and Sephora. In the first nine months of 2022, LVMH derived 49% of its revenue from its fashion and leather goods segment, with the remainder allocated to selective retailing (18%), watches & jewelry (13%), perfumes & cosmetics (10%), and wines & spirits (9%).
Richemont, based in Bellevue, Switzerland, is smaller in comparison, owning 26 core brands, including Cartier, Chloé, Dunhill, Jaeger-LeCoultre, Montblanc, Piaget, and Van Cleef & Arpels. The majority of its revenue, 87%, comes from jewelry (66%) and watch (21%) brands, while the remaining 13% originates from its fashion and accessories brands, watch components, real estate investments, and other minor businesses.
Consequently, LVMH is an appealing choice for investors seeking exposure to a wider spectrum of luxury markets, whereas Richemont may better suit those interested in the high-end jewelry and Swiss watch markets.
Assessing Growth Rates
Both LVMH and Richemont faced challenges during the pandemic, experiencing revenue declines. LVMH’s revenue fell by 17% in 2020, with all core businesses affected. However, in 2021, LVMH rebounded with a 20% revenue increase, driven by robust growth in its fashion & leather goods and watches & jewelry segments. In the first nine months of 2022, LVMH reported another 20% year-over-year revenue growth, supported by double-digit growth across all business divisions.
Richemont’s fiscal 2021 saw an 8% decline in revenue, with the jewelry and watch businesses making a recovery, particularly in China, during the second half of the year. In fiscal 2022, Richemont experienced substantial growth, with revenue and net profit surging by 46% and 61%, respectively. The first half of fiscal 2023 continued this trend, with a 24% increase in revenue. However, Richemont reported a net loss during that period due to the sale of its stake in the Italian online fashion retailer YNAP to Farfetch. Excluding this divestment, the net profit from continuing operations still grew by 40%.
Analysts anticipate a 2% increase in Richemont’s revenue for the full year, reflecting a deceleration in growth compared to the post-pandemic recovery period. However, they expect a substantial 75% increase in profit from continuing operations.
Valuation and Verdict
Both LVMH and Richemont are reasonably valued concerning their growth rates, trading at 24 and 17 times next year’s earnings, respectively. While Richemont may appear cheaper initially, LVMH has historically exhibited more consistent growth, especially when excluding its impressive post-pandemic recovery. Additionally, LVMH offers a broader diversification and exposure to high-end jewelry and watches with brands like Tiffany, Bulgari, and Tag Heuer.
In summary, both LVMH and Richemont represent stable investments in the current bear market. However, if a choice between the two must be made, LVMH stands out due to its superior scale, diversification, and more consistent growth.
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