LVMH hit by the cognac crisis and the champagne slump

A Sharp Decline, But Not a Crisis

LVMH, the luxury conglomerate known for its prestigious brands like Louis Vuitton, Dior, and Moët & Chandon, has seen its stock fall 44% from its peak over the last two years. While this sharp decline might alarm some investors, it’s important to understand that this drop is widely viewed as a normalization following the extraordinary boom in luxury spending after the pandemic. Between March 2020 and April 2023, LVMH’s stock tripled, delivering an annualized return of 46%. A correction was bound to come—and it has.

Now, the annualized return over the past five years sits at a still-impressive 12.5%. From this lens, the correction feels more like a reversion to the mean than a sign of long-term decline. And for many investors, this opens up a timely opportunity.

Downward Revisions, But Expectations Are Low

Since mid-2023, analysts have reduced revenue estimates for LVMH by roughly 20%. Margins have also come down slightly. Unsurprisingly, this contributed to the share price slide. But perhaps the market has overreacted, as often happens when sentiment sours.

Over the past eight quarters, LVMH missed revenue expectations six times, mostly in the low to mid-single-digit range. After such a string of disappointments, expectations are now low, and that could set the stage for potential upside if results even modestly exceed forecasts.

Recent Financial Woes: More About the Industry

Let’s take a look at the most recent numbers. LVMH’s Q1 2025 results revealed a double-digit sales decline in Asia, the company’s most critical market. Europe was the only region showing growth, at a modest 2%. The Fashion & Leather Goods segment, the crown jewel of LVMH, saw a 5% drop in sales. Wines & Spirits performed even worse, though this segment represents only 6% of total revenue.

While these declines are concerning, they are not unique to LVMH. The entire luxury industry is experiencing turbulence, from weakened demand in China to shifting global consumption trends. Importantly, LVMH’s leadership frames the current climate as a return to pre-pandemic conditions—not a structural downturn.

Could U.S. Boycotts Benefit LVMH?

An intriguing angle is the growing movement to boycott American brands in international markets due to rising geopolitical tensions. Although companies like Nike and LVMH serve somewhat different consumer bases, there’s more overlap than you might think. According to McKinsey, Aspirational Luxury Consumers (ALCs)—middle-income shoppers who stretch to buy luxury—make up 50% of the luxury market value. These consumers could potentially redirect spending from U.S. labels to European brands like LVMH.

While speculative, this dynamic could redirect consumer dollars—or euros, yuan, and yen—away from American brands and into the hands of European fashion houses.

Profitability Remains Solid Despite Headwinds

Yes, profitability has dipped, but the decline must be kept in perspective. Pre-pandemic operating margins for LVMH were around 20%. After COVID, those margins jumped to 26%, fueled by surging demand. Currently, margins sit at 23%—still above long-term averages and nowhere near alarming territory.

The company’s return on capital and other efficiency metrics have also declined slightly, but not catastrophically. This further supports the argument that LVMH is experiencing normalization, not a crisis.

A Discounted Valuation

Perhaps the most compelling reason to look at LVMH right now is its valuation. The stock trades at an adjusted price-to-earnings (P/E) ratio of 19, well below its 20-year average of 22. Compared to its French peers like Hermès (P/E of 54) and Kering, and even U.S. brands like Nike, LVMH is now the least expensive relative to its own historical valuation.

Hermès has overtaken LVMH in market cap, but that is largely driven by faster recent growth—not necessarily long-term fundamentals. Meanwhile, LVMH remains a leader in brand strength, global presence, and diversification.

Free Cash Flow and Cost of Capital: A Favorable Spread

To dig deeper into valuation, let’s compare LVMH’s free cash flow yield and earnings yield to its cost of capital.

• Earnings yield: With a P/E of 19, LVMH has an earnings yield of 5.3%.
• Cost of equity: Estimated at 8.4%, implying a required residual growth rate of just 3.1%.
• Free cash flow yield: Currently at 5.4% based on FY2024’s €14 billion in free cash flow.
• Weighted average cost of capital (WACC): Estimated at 7.6%, implying a residual growth requirement of just 2.1%.

In both cases, the gap between returns and capital cost is modest—a positive sign for investors. These numbers suggest that the market is pricing in low future growth, making the stock attractive if LVMH merely delivers moderate results.

Why LVMH Looks Like a Buy

Here’s a summary of why this might be a smart time to build or expand a position in LVMH:

1. Sentiment is Low

With several disappointing quarters behind it, investor expectations are now very low—creating more room for positive surprises.

2. Valuation is Attractive

Relative to history and competitors, LVMH is trading at a discount. Even conservative growth assumptions justify the current price.

3. Industry Challenges Are Not Unique

The luxury sector as a whole is under pressure, but LVMH’s long-term fundamentals remain solid.

4. Structural Shifts Could Benefit LVMH

Changing consumer preferences and global trade tensions might nudge spending toward European brands like LVMH.

Final Thoughts

LVMH may not be at the thrilling highs of 2021, but that might be a good thing for smart investors. With normalized margins, low expectations, and discounted valuation, the company presents a compelling case for a long-term international investment.