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LVMH (NASDAQOTH: LVMUY) is the world's largest luxury company. Its sprawling portfolio of 70 brands includes the fashion houses Louis Vuitton, Fendi, Christian Dior, Loewe, and Marc Jacobs; jewelry and watch brands like Bvlgari and Tag Heuer; retailers like Sephora and Le Bon Marché; and wine and spirit brands like Hennessy, Dom Pérignon, and Moët & Chandon. It sells its products at 4,590 stores across 70 countries.
LVMH's stock nearly doubled over the past three years as demand for its luxury products rose in both developed and emerging markets. I think LVMH still has room to run after that multi-year rally, so I recently started a position in the stock. Here are my top five reasons for doing so.
Image source: Louis Vuitton.
1. Stable revenue growth across multiple markets
LVMH's revenue rose 10% to €46.8 billion ($53.1 billion) in 2018. On an organic basis, which excludes acquisitions and divestments, its revenue rose 11%. Here's how its core businesses fared.
| Percentage of revenue (2018) | Year-over-year growth* | |
|---|---|---|
| Fashion & Leather | 39% | 15% |
| Selective Retailing & Other | 28% | 6% |
| Perfumes & Cosmetics | 13% | 14% |
| Wines & Spirits | 11% | 5% |
| Watches & Jewelry | 9% | 12% |
Source: LVMH annual report. *Organic basis.
2. Global growth without the trade war
Its growth was also well-balanced across all four of its main regions. LVMH noted that its sales in China, which are included in its Rest of Asia region, "accelerated" in the fourth quarter of the year.
| Percentage of revenue (2018) | Year-over-year growth* | |
|---|---|---|
| Europe | 29% | 7% |
| United States** | 24% | 8% |
| Japan | 7% | 15% |
| Rest of Asia | 29% | 15% |
Source: LVMH annual report. *Organic basis. **Excludes Hawaii. (Other global regions generated 11% of revenues)
LVMH's growth in China defies the notion that its economic slowdown is impacting the consumption of luxury goods. Tiffany & Co. (NYSE: TIF) also recently reported "double-digit" sales growth in China during the holidays.
LVMH, which is based in Paris, isn't exposed to the ongoing trade war between the US and China. This insulates it from tariffs and retaliatory boycotts of American products.
3. Expanding margins and rising earnings
LVMH's gross margin rose 200 basis points to 67% in 2018 as its operating profit (from recurring operations) expanded 190 basis points to 21.4%. Those figures are significantly higher than Tiffany's gross margin of 63.1% and operating margin of 16.7% in the first nine months of 2018.
Image source: Hennessy.
LVMH keeps expanding its margins for two reasons: It never marks down its items, and its core brands only face a handful of meaningful competitors in the high-end market. LVMH's year-over-year operating margin expansion was also well-balanced across its five core businesses: