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LVMH: Buy The Dividend Cut


  • The uncertain macro outlook leads to LVMH initiating cuts to the dividend, capex plans, and operating costs.
  • However, green shoots of a recovery have emerged in China, which posted a 50% YoY top-line growth in Fashion & Leather.
  • LVMH has a best-in-class brand portfolio and a robust balance sheet, which positions it well to weather a downcycle.
  • I see a return to a double-digit earnings growth path post-COVID; therefore, I would accumulate LVMH shares on the dip.

A review of LVMH's (OTCPK:LVMHF) Q1 results left me relatively bullish on the stock. Not only is China showing green shoots of a demand recovery (Fashion & Leather sales rose 50% YoY in the first two weeks of April), but the company's financial strength and aspirational brand positioning should allow it to navigate the COVID-19 crisis relatively well. With consumer appetite still very much intact, I believe LVMH is an ideal play on both a medium-term recovery and the longer-term secular growth story in the luxury sector. To be clear, the stock does not appear cheap relative to near-term earnings but taking a medium-term view, I see LVMH returning to a double-digit growth path, driving EPS above €20/share over the medium-term.

Louis Vuitton and Dior Outperform Through Challenging Times

LVMH's headline numbers were somewhat misleading. Though LVMH posted a 17% organic decline, which was admittedly toward the lower end of the initial -10 to -20% guidance range, the key fashion & leather (F&L) goods division recorded a much lower 10% decline through the worst of the crisis in mainland China.

Source: Investor Presentation

I would also point out that LVMH's F&LG 1Q organic sales of -10% compares favorably to Burberry at -30%, Kering at -15%, and Ferragamo at down 31%. Looking ahead, LVMH's outperformance looks set to widen as management disclosed +50% sales growth in China in early April. This highlights LVMH's ability to maintain wallet share even through a crisis, with the rise likely reflecting the pent-up demand of the Chinese consumer. From the call:

So in April, in the large brands, we've seen very high growth rates in Mainland China, obviously. But we've seen very substantial growth rates, sometimes in excess of 50%. So it really shows the appetite of Chinese people after 2 months of lockdown to come back to stores and come

This article was written by

Analyst with a keen interest in the global markets, always sifting through company filings in search of compelling opportunities. Approach is heavily centered on the notion that one needs to be non-consensus right in making investment decisions. A keen follower of value investing legends such as Peter Cundill, Seth Klarman, and more recently, Rupal Bhansali.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (9)

Paperone75 profile picture
At the moment I prefer Burberry but I watch LVMH closely.
Isnt it LVMUY
Paperone75 profile picture
yes, it's the same... in the OTC market every company has two stocks, the one with Y and the one with F, there are small differences between them.
BM Cashflow Detective profile picture
A fantastic company with a premium price. Simply too expensive. All good news is already priced in. I also don't like the French withholding tax regulation. Definitely not a purchase option for me at the current price.
Long LVMH - THE luxury company
This company´s management is very special because it is more or less about family business.
As long as this company thinks about a long term performance, it should be fine.

Also all children of Monsieur Bernard Arnault seem to be very proactive at management and competitive (hard and soft skilled)
TOP company for 35 years
georgefelix75 profile picture
Yes but at <$65 not here.
#BballCrazy profile picture
WHat are your thoughts on $HESAY?
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