´Tis the season to buy luxury (stocks)
Investing in Luxury Goods: A Durable Investment Theme
The luxury goods industry stands as one of the most resilient and profitable sectors globally, generating in excess of $330 billion in annual revenue among the top 100 luxury companies annually. Over the past decade, this sector has consistently performed well, fueled by rising wealth, especially in emerging economies like China. With an elite customer base less susceptible to economic cycles, luxury investments offer strong pricing power, high operating margins, and robust returns on invested capital, even during inflationary pressures or economic uncertainties .
While the growth outlook is promising, key risks include environmental, social, and governance (ESG) concerns and potential volatility in global markets. Despite these risks, leading luxury companies maintain an impressive track record of performance. Below are highlights of four luxury titans—LVMH, Richemont, Ferrari, and Moncler—each contributing uniquely to the sector’s appeal.
LVMH Moët Hennessy Louis Vuitton
As the world’s largest luxury conglomerate, LVMH dominates with diverse operations spanning fashion, cosmetics, and beverages. In 2023, LVMH recorded €86 billion in revenues, benefiting from its expansive portfolio, including brands like Louis Vuitton, Dior, and Bulgari. Since 2020, LVMH has doubled its revenues while tripling EBIT. While cognac sales face headwinds in the U.S., LVMH’s strategy of leveraging pricing power and innovation in core luxury categories keeps it resilient.
LVMH brand overview:
The most significant additions to the LVMH portfolio in recent years include Christian Dior Couture in 2017, Rimowa in 2016, Loro Piana in 2013 in Fashion and Leather Goods, and Bulgari in 2011 in Jewellery. The company averages 5 acquisitions per year.
With a projected positive return - over the next 12 months LVMH could be trading at EUR 750 - and robust dividends, LVMH remains a cornerstone for luxury investors.
Financial Analysis of LVMH Moët Hennessy Louis Vuitton
Overview
LVMH, the world’s largest luxury conglomerate, operates across diverse segments, including Fashion & Leather Goods, Wines & Spirits, Watches & Jewelry, Perfumes & Cosmetics, and Selective Retailing. Its strategic acquisitions, global brand portfolio, and pricing power make it a cornerstone of the luxury goods sector.
Key Financial Metrics (2024 Estimates)
• Revenue: €83.7 billion (-2.9% YoY)
• EBIT: €20.3 billion (-10.9% YoY)
• Net Income: €13.5 billion (-11.3% YoY)
• EPS: €26.94 (-12.2% YoY)
• Net Debt/EBITDA: 0.9x (Strong position)
• Dividend Yield: 2.2%
Segment Analysis
1. Fashion & Leather Goods
• Dominates revenue and EBIT contributions (50%+ of EBIT).
• 2024 revenue: €40.6 billion, EBIT: €15.2 billion.
• Growth is challenged by slowing demand in key markets, though high pricing power ensures profitability .
2. Selective Retailing
• Significant recovery post-pandemic.
• 2024 revenue: €17.9 billion.
• EBIT: €1.4 billion, driven by Sephora’s continued expansion .
3. Watches & Jewelry
• 2024 revenue: €10.3 billion (-5.7% YoY).
• Faces regional disparities; Cartier and Van Cleef & Arpels lead growth within Richemont .
4. Wines & Spirits
• Challenges due to sluggish U.S. Cognac demand and competition from tequila.
• 2024 revenue: €5.9 billion, EBIT: €1.6 billion (-22.6% YoY) .
5. Perfumes & Cosmetics
• Steady growth; supported by Dior and Guerlain.
• 2024 revenue: €8.4 billion .
Valuation Metrics
• P/E (2024E): 21.6x, aligned with industry averages.
• Dividend Payout Ratio: 48.2%, reflecting sustainable cash flow.
• EV/EBITDA: 12.1x, indicating reasonable valuation compared to historical levels.
Growth Drivers
1. Market Expansion
• Growth in Asia (excluding China) and North America supports revenue diversification.
• Expansion of retail footprints (Sephora) and e-commerce initiatives .
2. Innovation and Sustainability
• Investment in digital transformation and ESG initiatives aligns with evolving consumer preferences.
• Focus on circular luxury and transparency .
3. Brand Power
• Iconic brands like Louis Vuitton and Dior provide a durable competitive advantage.
Challenges
1. Macroeconomic Headwinds
• Geopolitical risks, slowing global luxury demand, and inflationary pressures .
2. Regional Dependencies
• Slower recovery in China impacts overall growth trajectory .
3. Wines & Spirits Segment
• Continued underperformance, especially in the U.S., poses risks .
Profitability and Returns
• ROIC: Declines from 26.1% in 2023 to 22% in 2024, indicating reduced efficiency amid economic challenges.
• Gross Margin: 68.1% in 2024, showcasing strong pricing power but slightly lower than prior years.
• EBIT Margin: 24.3%, reflecting disciplined cost management despite slowing growth .
Strategic Outlook
LVMH remains a robust investment, driven by its diversified portfolio, pricing power, and strong financial position. The company’s focus on innovation, sustainability, and brand equity positions it for long-term growth.
Richemont
Specializing in fine jewelry and watches, Richemont owns legendary brands such as Cartier and Van Cleef & Arpels. In H1 2025, Richemont’s Jewelry Maisons division delivered strong 4% organic sales growth, underscoring its leading position in timeless hard luxury categories . Despite regional challenges in China, Richemont continues to innovate and expand its footprint, offering stable dividends and an appealing valuation at 19x forward earnings. The company has grown revenues by 57% since 2021 and tripled EBIT in the same period.
Financial Analysis of Richemont
Overview
Compagnie Financière Richemont S.A. is a dominant player in the hard luxury sector, excelling in fine jewelry and watches. The Jewellery Maisons division, led by Cartier and Van Cleef & Arpels, contributes over 90% of the company’s EBIT, while other segments include Specialist Watchmakers and Montblanc. Richemont’s broad global footprint and high margins underscore its strong competitive positioning.
Key Financial Metrics (2024 Estimates)
• Revenue: €20.88 billion (+1.3% YoY)
• EBIT: €4.58 billion (-5.7% YoY)
• Net Income: €3.79 billion (-0.9% YoY)
• EPS: €6.48 (-3.3% YoY)
• Dividend Yield: 2.6%
• Net Debt/EBITDA: -0.8x (Net cash position)
Segment Analysis
1. Jewellery Maisons
• Contributes over 50% of sales and 90% of EBIT.
• Organic sales grew 4% YoY in Q2 2024, with EBIT margins holding strong at 32.9%.
• Resilient demand across Europe and the Americas offsets weakness in APAC .
2. Specialist Watchmakers
• Organic sales declined 19% YoY in Q2 2024 due to lower discretionary spending in China and Japan.
• EBIT margins compressed to 9.7%, well below expectations .
3. Other Businesses
• Includes Montblanc and online distributors like Yoox Net-a-Porter.
• Margins remain a challenge, with the segment reporting negative EBIT (-3.9%) .
Valuation Metrics
• P/E (2024E): 19.4x, reflecting a moderate premium to peers in the hard luxury segment.
• Dividend Payout Ratio: 50.6%, indicating a balanced approach to reinvestment and shareholder returns.
• EV/EBITDA (2024E): 11.1x, showcasing fair valuation given its strong market position.
Profitability
• Gross Margin: 67.7%, down 40 bps YoY due to higher raw material costs.
• EBIT Margin: 21.9%, reflecting operational pressures in non-jewelry segments.
• ROIC: 26.9%, maintaining strong returns but reflecting slight efficiency declines amid macroeconomic challenges .
Growth Drivers
1. Strong Performance of Jewelry
• The high-margin Jewelry Maisons division anchors Richemont’s profitability and resilience.
• Product innovation and increased penetration among male consumers are driving growth.
2. Regional Diversification
• Europe (+6%) and the Americas (+12%) remain growth markets, while APAC (-18%) poses challenges due to Chinese macroeconomic headwinds.
3. Cash-Rich Position
• Net cash of €4.9 billion allows for strategic acquisitions, dividends, and share buybacks .
Challenges
1. China Weakness
• Sales in APAC, driven largely by China, have declined due to slower economic recovery and reduced discretionary spending .
2. Pressure in Watchmaking
• Underperformance in the Specialist Watchmakers division highlights demand volatility in luxury timepieces.
3. Margin Compression
• Rising raw material costs and operational inefficiencies in smaller divisions weigh on overall profitability.
Strategic Outlook
Richemont’s strategic focus on its high-margin Jewelry Maisons division and disciplined financial management position it well for long-term growth. However, near-term headwinds in China and lower watch sales could limit upside potential. Its cash-rich balance sheet and premium valuation support investor confidence, making it a stable pick for those seeking exposure to the luxury segment.
Ferrari
Ferrari is a beacon of exclusivity and performance, even within the luxury goods space. Known for its elite automobiles, Ferrari has increasingly focused on personalization and innovation, including its first fully electric model slated for release in 2025 . Its 2023 EBIT margin of 27.1% highlights its exceptional profitability. The company commands pricing power like no other Automotive. Ferrari’s shares trade at a premium, but its focus on high-net-worth clients and organic growth make it a compelling investment. Ferrari is a poster example for executing on what Michael Porter would refer to as a “Differentiated Focus” strategy, narrow target market and high degree of differentiated. Ferrari has grown revenues 85% since 2020 and EBIT 2.5x.
Financial Analysis of Ferrari N.V.
Overview
Ferrari N.V. represents the epitome of luxury in the automotive world, focusing on high-performance sports cars with a brand synonymous with exclusivity and cutting-edge engineering. The company also maintains strong ties to its Formula 1 heritage, which reinforces its image as a leader in performance and innovation.
Key Financial Metrics (2024 Estimates)
• Revenue: €6.59 billion (+10.4% YoY)
• EBIT: €1.83 billion (+13% YoY)
• Net Income: €1.44 billion (+14.9% YoY)
• EPS: €7.98 (+15.7% YoY)
• Dividend Yield: 0.7%
• Net Debt/EBITDA: 0.5x, reflecting strong leverage management
Segment Analysis
1. Cars and Spare Parts
• Dominates the business, with over 70% of revenues.
• High personalization rates drive premium pricing and profitability.
• Average wait times for flagship models remain at 7–12 months due to supply chain optimization .
2. Engines
• Includes sales of Ferrari engines to Maserati, contributing a smaller portion of revenue.
• Focus on innovation, including the transition to hybrid and electric models.
3. Sponsorship and Commercial
• Revenue from partnerships and brand licensing.
• Supported by Ferrari’s Formula 1 presence, driving global brand recognition.
4. Electrification Transition
• First electric Ferrari to launch in 2025, with a projected price above $535,000. Dealer surveys suggest strong demand, particularly in environmentally conscious markets like the U.S. .
Valuation Metrics
• P/E (2024E): 50.8x, indicating a premium valuation for exclusivity and growth.
• Dividend Payout Ratio: 34.9%, ensuring stable distributions while maintaining reinvestment capacity.
• EV/EBITDA (2024E): 28.8x, higher than the automotive industry average, reflecting its luxury positioning.
Profitability
• Gross Margin: 49.8%, showcasing robust pricing power.
• EBITDA Margin: 38.4%, highlighting operational efficiency.
• ROIC (EBIT): 40%, indicating excellent capital allocation.
Growth Drivers
1. Product Diversification
• Launch of hybrid and electric vehicles expands Ferrari’s customer base.
• Continued focus on personalization, accounting for ~20% of sales in Q3 2024 .
2. Global Expansion
• Strong presence in North America, Europe, and Asia.
• Limited dependency on China, which mitigates risks from regional macroeconomic pressures.
3. Brand Extension
• Increased spending on brand-related licensing and lifestyle products.
• Leveraging its Formula 1 legacy for marketing and sponsorship growth.
Challenges
1. Supply Chain and Production
• Disruptions due to ERP system upgrades affected Q3 2024 shipments.
• Long lead times for flagship models may deter some customers .
2. High Valuation
• Premium valuation multiples leave less room for error in execution.
• Competitive threats from other luxury automakers entering the EV market.
3. Electrification Risks
• Ensuring the new electric vehicle maintains Ferrari’s brand ethos, especially in driving dynamics and engine sound, remains a challenge.
Strategic Outlook
Ferrari’s robust financial health, high-margin operations, and strategic focus on innovation position it as a premium investment in the luxury automotive sector. The upcoming launch of its first EV is expected to attract a new cohort of environmentally conscious buyers while retaining existing loyal customers.
Moncler
Famed for its high-end outerwear, Moncler offers an intriguing mix of style and functionality. Despite flat sales growth in Q3 2024, Moncler’s resilience stems from its strong brand positioning and growth in Asian markets. With EBIT margins consistently near 30%, Moncler stands out for its cost management and ability to command premium pricing. The group operates the brands Moncler and Stone Island.
Financial Analysis of Moncler S.p.A.
Overview
Moncler S.p.A. specializes in high-end outerwear, commanding a premium market position with a strong brand equity. The company has expanded its portfolio with the acquisition of Stone Island, broadening its appeal across different consumer segments. Despite headwinds in 2024, Moncler remains a leader in profitability and brand-driven pricing power within the luxury sector.
Key Financial Metrics (2024 Estimates)
• Revenue: €2.998 billion (+0.5% YoY)
• EBIT: €867 million (-3.0% YoY)
• Net Income: €596 million (-2.6% YoY)
• EPS: €2.18 (-2.9% YoY)
• Dividend Yield: 2.1%
• Net Debt/EBITDA: -0.3x (net cash position)
Segment Analysis
1. Moncler Brand
• Dominates group revenues with ~75% from outerwear.
• Q3 2024 retail sales: flat YoY, with weaknesses in EMEA (-3%) and Americas (-6%) offset by growth in China (+4%).
• EBIT margin: 28.9% in FY24E, reflecting the brand’s pricing resilience and operational efficiency.
2. Stone Island
• Q3 2024 sales: €104 million, flat YoY.
• Positioned as a casual luxury brand, driving diversification within Moncler’s portfolio.
Valuation Metrics
• P/E (2024E): 24.3x, indicating a premium for brand strength and future growth potential.
• EV/EBITDA (2024E): 11.8x, reasonable within the luxury peer group.
• Dividend Payout Ratio: 49.6%, showcasing balanced reinvestment and shareholder returns.
Profitability
• Gross Margin: 78.3%, one of the highest in the luxury sector.
• EBITDA Margin: 39.0%, slightly lower than prior years due to softer sales in key markets.
• ROIC: 27.9%, reflecting strong returns despite a challenging operating environment.
Growth Drivers
1. Geographic Expansion
• China remains a key driver, contributing to growth in Q3 2024 despite a soft mainland market.
• Expansion in other Asian regions and continued store rollouts in underserved luxury markets .
2. Product Innovation
• Three new Genius collections launched in Q4 2024, aiming to reinvigorate consumer interest and capture younger demographics.
3. Digital and Direct-to-Consumer Focus
• Digital channels and mono-brand retail stores drive higher-margin sales and enhance customer engagement.
Challenges
1. Macroeconomic Risks
• Persistent slowdowns in EMEA and Americas regions.
• Inflationary pressures and weaker consumer confidence impacting discretionary spending .
2. Heavy Dependence on Outerwear
• Lack of diversification beyond outerwear poses risks if consumer preferences shift significantly.
3. Brand Reliance
• Slower growth in the Stone Island segment highlights challenges in leveraging new acquisitions .
Strategic Outlook
Moncler’s focus on innovation, digital transformation, and geographic expansion positions it as a leader in luxury outerwear. While growth in 2024 has been subdued, the company’s strong cash position and disciplined cost management ensure resilience. The Genius collections and Stone Island’s broader adoption remain pivotal for long-term success.
The Case for Luxury Investment
The luxury sector’s unique blend of scarcity, brand equity, and cultural value positions it as a defensive and growth-oriented investment. As high-net-worth individuals continue to prioritize experiential and high-value purchases, leading luxury companies are well-placed to thrive. From LVMH’s global dominance to Ferrari’s niche exclusivity, these brands illustrate the enduring appeal of luxury investments.
Investors seeking long-term gains should consider integrating luxury equities into their portfolios for both stability and potential upside during uncertain times. I am long LVMH and Ferrari, and believe they have a long runway ahead.
Select list of other companies in Luxury:
Kering
Hermes
Porsche
Capri
Aston Martin
Chantiers Beneteau
Brunello Cucinello
Sanlorenzo
Ermenegildo Zegna
Salvatore Ferragamo
Prada
Canada Goose
With that, thanks for reading, I really appreciate the interest. Below are links to a few other items that you might find interesting.
Other readings:
Twitter thread on LVMH from 2021: https://x.com/KontraInvest/status/1404785886852792322
Acquired Podcast about LVMH: https://www.acquired.fm/episodes/lvmh
Mastering Luxury: The Bernard Arnault Chronicles: https://amzn.to/4g8oke8