Wall Street Luxury for the Common Investor

Posted: Feb 21, 2012 12:01 AM

With the recent publicity about the “Occupy Movement” and their highlighting the income disparity between the 99% and the 1%, I thought investors might be interested in learning a companies doing very well selling to the 1%. 

The company is LVMH Moet Hennessy Louis Vuitton.  Although based in Paris their shares trade on the pink sheets in the US under the symbol LVMUY.PK.  They are the world’s largest luxury goods company and have 60 world class brands.  Their business segments and leading brands are:



Wine & spirits

 Hennessy, Moet & Chandon, Dom Perignon

Leather goods and accessories

 Louis Vuitton, Fendi, Hermes

Watches & Jewelry

 TAG Heuer, Bulgari, De Beers

Specialty Retailing

 duty free products to cruise lines, Le Bon Marche

Le Bon Marche was founded in 1848 and is the oldest department store in the world. As a historical reference Napoleon’s nephew was Emperor of France when this store opened in Paris.  These are top drawer brands with global name recognition.  This is very good and LVMH is clearly a great company, but should you buy the stock?

They reported sales of 23 billion euro’s and net income of 5.3 billion for 2011.  Their gross profit margin is 65%, a phenomenal rate and compares to Merck’s 64%.  Their net income grew 22% last year and the net margin was 22% which is extremely high.  They generated free cash flow of 3 billion euro’s.  The importance of this is their business in not capital intensive so the cash flow can be used to pay down debt, make acquisitions (they acquired 125 year old jeweler Bulgari last year) and increase dividends.  Revenue grew 16% last year but the shares are selling at a P/E of 15.

They see the emerging growth countries in Asia as especially strong opportunities.  Macau, Vietnam and China offer a great potential since local consumer income is growing quickly and the company has relatively low exposure. 

The 2008 market crash punished the stock but it has come back strong over the last three years.  The all time high share price was $40 in 2008 and is now trading about $33.