Author’s note: Since both companies discussed in this article only report EUR numbers, all numbers will refer to EUR.

Delving Into LVMH’s Operations

I’ve previously waxed lyrical about Hermès Paris (OTCPK:OTCPK:HESAY)(OTCPK:OTCPK:HESAF), it being the undisputed leader in the luxury goods sector and among the finest companies I’ve had the pleasure to know. In these discussions, I’ve made numerous references to its peers, including LVMH (OTCPK:LVMUY)(OTCPK:LVMHF).

This article will be dedicated to LVMH and its parent holding company Christian Dior SE (OTCPK:CHDRF)(OTCPK:CHDRY). The goals of this article are to:

• Provide a brief business overview of the conglomerates’ operations.
• Show the interconnection between Christian Dior SE, LVMH, and the Arnault family, and its implications.
• Discuss the reasons why LVMH is a high-quality business.
• Assess and compare the attractiveness of both companies.

The Multifaceted LVMH

This section will focus on LVMH, the “operating” company, while Christian Dior SE is merely the “holding” company. However, it’s important to note that LVMH also operates as a holding company, owning various subsidiaries for its different brands, with Bernard Arnault holding the reins as the controlling shareholder, possessing more than 50% of LVMH’s voting rights. The influence of Bernard Arnault and the Arnault family bears significant weight for LVMH.

LVMH operates across five main reporting segments:

• Wines & Spirits (Moët & Chandon, Dom Pérignon, Hennessy, Krug).
• Fashion and Leather (Louis Vuitton, Christian Dior, Fendi, Celine).
• Perfumes and Cosmetics (Christian Dior, Guerlain, Givenchy).
• Watches and Jewelry (Tiffany, Bulgari, Tag Heuer, Hublot).
• Selective Retailing (Mainly Sephora).

I’ve included some of the most renowned brands to illustrate LVMH’s diversification. LVMH refers to its segments and brands as “Maisons” (French for “Houses”), underscoring exclusivity, a cherished attribute for LVMH and its Chairman and CEO Bernard Arnault, especially in the luxury goods sector.

Before delving into the nitty-gritty of the holding structure, I’ll present a few easily digestible slides from the FY23 results presentation. The following slide depicts LVMH’s well-diversified revenue composition, with the main markets being Asia (38% of sales) and the U.S./Europe (25% each):

The Fashion & Leather Goods segment dominates (comprising nearly 50% of annual sales), followed by Selective Retailing (predominantly the retail chain Sephora) and Watches & Jewelry:

I’ll refrain from delving into the sales growth numbers at this point; I’ll shed light on this in a subsequent section of this article.

Lastly, the following chart illustrates the operating profit for the different segments:

The chart unequivocally portrays the sheer profitability of the Fashion & Leather Goods segment, contributing nearly 75% to the operating profits, while Selective Retailing, as expected for pure retail operations, is a low-margin pursuit.

LVMH’s Ethos

It’s essential to delve into a topic that often gets overlooked in financial analysis: a company’s culture. I’ve noticed that many high-quality companies, albeit not all, tend to share their success with all stakeholders. This is a subject that Bernard Arnault frequently underscores during the Year-End earnings calls he attends. Here are a few noteworthy excerpts from his recent FY earnings calls:

So this family that welcomes the main members of the group when one enters LVMH, one enters a family. Considered like a family. We do things. We approved the Board today an employee share ownership plan that was submitted to me, and we’re going to launch that during the course of the year once it’s been tabled at the AGM.

Source: Bernard Arnault – FY23 Earnings Call.

LVMH will approve an employee share ownership plan at the upcoming shareholder meeting. This initiative will tether the employees to LVMH’s success, allowing them to partake in the group’s triumphs. Aligning the employees with himself (as a major shareholder) and the shareholders is commendable and deserving of accolades.

I would like to demonstrate here that this magnificent group that has spectacular results is also a group that has a great economic and social footprint for France. In 2022, we recruited worldwide close to 40,000 young people in France. In France alone, we recruited over 15,000 people, making the group the leading recruiter in France in 2022. LVMH invested over 200 million for the training of its employees. In France, a job created by LVMH generates four in — with our partners or suppliers.

So, we carry some 160,000 people in France who work directly or indirectly for LVMH.

Source: Bernard Arnault – FY22 Earnings Call.

LVMH generates considerable employment opportunities worldwide, particularly in France, where most of the manufacturing activities are concentrated.

The group has worked on its building new workshops and it stores over 5 million — in over 500 stores and 100 craftsmanship manufacturing sites are in France. LVMH opens every year many manufacturing facilities, notably for Louis Vuitton in France and we need, the group — because we generate profits, we pay a lot of tax. We pay €5 billion in