Memo #1: LVMH, Champagne problems, and Coachella

Champagne fizzed but Cognac did not

Starting the day thinking about LVMH (also, by the way, welcome — some of you will be investors in the Elevation Capital Global Shares Fund, and others will have followed me from BlackBull Research).

Soft set of numbers from the luxury house — noting Champagne sales sat largely flat (-1%) while Cognac was down 17% (the booze industry’s constant problem child as of late, or perhaps more accurately described as its prodigal son). Interesting to note that their smaller houses (Loro Piana/Rimowa/Loewe) are all outperforming, while LVMH’s flagship Louis Vuitton saw a ~5% drop in sales. Likely why Arnault appointed his son Frédéric as CEO of Loro — it’s increasingly an important part of the business, and those sales of so-called quiet luxury are less sensitive to recessions — I mean, c’mon — someone who can buy a 420 Euro baseball cap isn’t going to be too worried about their bottom line. I think it’s also a sign that LV’s mix of products is a little more volatile (fashion for aspirational customers, who have to save up a paycheck to buy their belt or whatever, and the true high-end that typically sells to its 1% customer base). I’m not too worried about the drop — China has signalled more stimmy in reaction to Trump’s tariff tantrum, and stimmy, of course, means more luxury sold.

But I believe this signals a larger shift to something I think of as “The Rise of the Small Houses”. Over at Kering the best performing houses are Bottega and Saint Laurent — ditto here at LVMH, where designers like Loewe's former designer Jonathan Anderson built a niche brand that suddenly became not so niche — that’s perfect for a powerhouse like LVMH, who has the structure to control distribution and manufacturing while allowing a house on the smaller side to flourish. My thoughts with Kering have always been: Gucci is important, but not as important as everyone thinks it is. Ditto with LVMH. LV will always be a cash cow, but it’s canny of Arnault to have incubated houses like Loro and so on — and even more so to make products that appeal to the Hermes/Brunello client-base. For them, money isn’t the issue.

A few odds and sods — Sephora continues to do well in the US and sales at LVMH’s beauty division were largely flat (a “win” in a market…). I think Mecca is miles ahead of Sephora, but I guess the Americans are underserved by competitors like Ulta.

Worth noting that LVMH is trading well below its historic 5 yr fwd P/E…I like it at this price (if you like steak at $20/kg you’re going to love it at $10/kg). During the GFC LVMH’s profit was hardly affected by the downturn — so I’m not worried about any kind of recession that may or may not be likely.

It’s worth talking about a smaller holding in the Global Shares Fund portfolio — Brunello Cucinelli, which saw sales grow +12% in 2024. Remarkable when you think about slowing sales in the rest of the market. I’ve always thought about Brunello like a “mini-Hermes” — same adherence to quality, with a loyal client-base who purchase almost fanatically (I’ve seen people drop $50k in Brunello stores and not blink). And how does Brunello spend his days? Well, like this —

Not a bad way to live!

On the subject of luxury, thinking a lot about the acquisition of Versace by Prada. (Miu Miu sales grew an astonishing +90% in the last year). Versace is the polar opposite of Prada — loud leopard prints, etc. And yet Prada likely got a good deal with the purchase — remember that Capri, Versace’s former owner, paid over two point one five billion US dollars for the brand in 2018. Prada just paid +$1.37bn for Versace — a significant discount to what Capri paid. Capri never really managed to grow the brand. Revenue sat flat. The question now, I guess, is can Prada grow it? And a bigger question — is this the start of a new Italian fashion empire?¹ I did a little TikTok on the whole thing on Friday…

Now to music…

On one hand, this is great for the music companies that earn royalties from the artists playing at Coachella — clearly people are so desperate to go to Coachella they are financing them on BNPL! So if you’re an owner of UMG or WMG or whatever, you’re going to be pretty happy². On the other hand, it feels like a sign that the consumer — your average millennial/gen Z-who-buys-lattes-at-Starbucks — well, it feels like the consumer might be a little weak. Or perhaps a lot weak.

1. Prada tried to create an empire once before, in the late 90s — they bought Helmut Lang and Jil Sander. It didn’t work. But the Prada of then is not the Prada of now.

2. We own both in the Elevation Capital Global Shares Fund.