- LVMH
EUROPEAN EQUITIES
LVMH, “2026 will not be easy…”
- ‘2026 will not be easy,’ warns Bernard Arnault, striking a cautious tone during the presentation of the group’s annual results, which contrasts sharply with the reassuring message about commercial momentum that he ventured to give in early 2025. The market reacted negatively to the fourth-quarter results and the lack of detail on trends at the start of the year (due in particular to the calendar effect of the Chinese New Year comparing to 2025), with the share price falling nearly 8% on the announcement. However, the organic growth reported for Q4, +1% (the second consecutive positive quarter after five of negative organic growth), exceeded the consensus forecast of -0.3%, but in fact disappointed in terms of its mix.
- By category, the first notable point is that demand in the flagship Fashion & Leather Goods division remains down 3% (excluding FX): although the sell-side consensus was expecting a 3.2% decline, investors were still hoping for a rebound after a 2% decline in Q3. Other disappointments include the sharp deterioration in Wines and Spirits (-9% vs. consensus -1.5%), confirming the latest press rumours of a double-digit decline in Cognac, and, to a lesser extent, the decline in Perfumes and Cosmetics (-1% vs. consensus +2.8%). On the other hand, as with Richemont, Watches & Jewellery (+8% vs. consensus at 0%, driven by Bvlgari and Tiffany, whose ongoing store transformation and move upmarket are beginning to bear fruit) and Selective Retailing (+7% vs. +3.9% expected, thanks to Sephora and its high exposure in the United States) significantly outperformed. In terms of customer base, investors’ attention is clearly focused on Chinese cluster in Fashion & Leather Goods, which stabilized compared to Q3 but remains under pressure (down a few points year-on-year), as announced by Richemont. American consumers, meanwhile, are the only cluster to slow down in Q4, but on a demanding basis, while European consumers are fairly stable and Japanese consumers are recovering in Q4 (from -13% to -5%).
- Another key finding in this publication, or rather a confirmation, is the Group’smanagerial excellence, which has a strong grasp of controllable factors, namely its costs and working capital requirements. Operating expenses, debt and free cash flow were all better than expected, enabling the group to deliver an operating margin of 21.3% in the second half of 2025 (+60 bp year-on-year), exceeding expectations (19.9%). The fact that the market did not welcome this operating performance reminds us that the key to the group’s stock market performance remains the momentum of demand, with the necessary return of aspirational consumers, particularly in China. Furthermore, we believe that any further improvement in profitability in Fashion & Leather Goods also depends on an acceleration in growth, which is necessary to offset the headwinds associated with customs tariffs and currencies: the impact of exchange rates, which cost nearly 3% of revenue in 2025, including 6% in Q4 alone with an estimated impact on operating profit of €1 billion, will remain negative in 2026.
- From a stock market perspective, 2025 was the second year of underperformance for the luxury sector, but there was a clear turnaround in the second half of the year with a return of appetite for more cyclical stocks such as LVMH. Nevertheless, at 23x 2026 earnings, it seems to us that the market is already pricing in a normalization of demand for LVMH that is not yet evident and will require a clear acceleration in Fashion & Leather Goods, which should be helped by creative renewal, particularly at Dior, and an impactful retail strategy at Louis Vuitton.
