A Company Selling To The 1%: Moet Hennessy Louis Vuitton
by George Jarkesy 2.21.12
With the recent publicity about the “Occupy Movement” and its highlighting of the income disparity between the 99% and the 1%, I thought investors might be interested in learning about companies doing very well selling to the 1%.
The company is LVMH Moet Hennessy Louis Vuitton. Although based in Paris the shares trade on the pink sheets in the U.S. under the symbol LVMUY.PK. It is the world’s largest luxury goods company and has 60 world-class brands. The 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 Mar|
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 As a historical reference Napoleon’s nephew was Emperor of France when this store opened in Paris.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?
The company reported sales of 23 billion euro’s and net income of 5.3 billion for 2011. The gross profit margin is 65%, a phenomenal rate that compares with Merck’s (MRK) 64%. Its net income grew 22% last year and the net margin was 22%, which is extremely high. It generated free cash flow of 3 billion euros. The importance of this is the business is not capital intensive so the cash flow can be used to pay down debt, make acquisitions (it 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.
It sees 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 it is now trading about $33.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.