The Wolf in a Cashmere Coat Buys - and So Do We: LVMH

What this means for us as investors: Even in the conservative scenario – market growth at the lower end, no margin recovery, and a multiple close to today's low – the result is a clearly positive return. The real value driver lies in a return to organic growth in Fashion & Leather Goods: Because a large proportion of costs are fixed, any recovery would have a disproportionately positive impact on profits. The Arnault family bought shares at an average price of EUR 550 in 2025 – today, we can invest at a significantly lower price than the group's best-informed shareholder.

Conclusion

LVMH is the rare case of a global market leader whose shares are available at an attractive price precisely when its business model is demonstrating its resilience. A portfolio of brands with histories spanning almost three centuries in some cases, an operating margin of 22% during a downturn, over EUR 14 billion in free cash flow, and a balance sheet capable of weathering any storm.

At the helm is an entrepreneur who, more than 40 years ago, extracted the foundation for the world's largest luxury goods group from the bankruptcy of a textile company and has since demonstrated that he can not only acquire brands, but also develop them. His family has increased its stake to over 50% during the period of weakness, sending an unmistakable signal. The unresolved questions – succession, China, price fatigue – are real. But the current share price already reflects a considerable degree of these concerns. A business model of this quality at a P/E ratio of around 18x appears to us to offer an attractive entry point for a long-term investment.

Figure 1: The Five Divisions of LVMH, Financial Year 2025; Source: LVMH Universal Registration Document 2025

While the stock market is writing off luxury, the man who knows luxury best is buying more. Shares of LVMH Moët Hennessy Louis Vuitton SE have lost more than half their value since their all-time high in 2023. Bernard Arnault has taken advantage of this weakness to increase his stake, and since February 2026, he has owned more than half of the group for the first time.

The reason for his confidence: LVMH is the world's largest luxury goods group – with over 75 brands, from Louis Vuitton and Dior to Tiffany, around 6,280 stores and EUR 80.8 billion in revenue. Even during the downturn following the boom years of 2021–2023, the group earns 22 cents in operating profit for every euro of revenue and generates over EUR 14 billion in free cash flow in 2025. The family is buying quality at a bargain price – and we can do the same, today at an even significantly lower price.

75 world-renowned brands – with LVMH, we invest in luxury, not in a trend!

Why am I writing about LVMH? LVMH is the benchmark of the luxury industry: a portfolio of brands built over generations that cannot be replicated with any budget in the world, an operating margin of 22% even during a downturn, over EUR 14 billion in free cash flow, and an owning family that invests its wealth in its own company. The current period of weakness – declining profits since 2023, concerns about China and succession – has pushed the valuation down to a P/E ratio of around 18x, well below previous years. For long-term investors, I see a global market leader with substance at a price that already reflects considerable scepticism.

The Product: Desirability Across Five Divisions

LVMH sells things that nobody needs – but that millions of people desire. The business model is more straightforward than its shop windows might suggest: the brands design their own products, manufacture a large proportion of them in their own ateliers, vineyards and workshops, and sell them primarily through their own stores. The group provides capital, prime locations, purchasing power and talent – while the brands retain their creative freedom.

Arnault described this principle as early as 2001 in the Harvard Business Review: artists and designers should work completely free from commercial constraints – but once a creation enters production, strict discipline takes over. Creative chaos in the atelier, industrial precision in the factory.

Figure 2: The Key Milestones of the LVMH Group

Four brands illustrate what we are talking about in concrete terms:

Louis Vuitton – the trunk that could be stacked. In 1854, trunk maker Louis Vuitton opened his business in Paris. His innovation: a flat, waterproof travel trunk, while competitors made trunks with rounded lids to allow rainwater to run off – which meant they could not be stacked. Success soon attracted imitators. The family responded with striped canvas (1876), the Damier pattern (1888), an unpickable lock (1886) and finally, in 1896, the LV monogram – explicitly designed to protect against counterfeiting. The irony of history: it became one of the most copied patterns in the fashion world. Today, Louis Vuitton is by far the group's largest profit contributor.

Christian Dior – from bankruptcy to growth engine. Founded in 1946, financed by textile magnate Marcel Boussac – the very group Arnault took over in 1984. In the first half of 2026, Arnault explicitly cited the first collections by new creative director Jonathan Anderson as drivers of accelerating growth.

Moët Hennessy – a 280-year head start. Moët & Chandon was founded in Épernay in 1743, and Hennessy in 1765 by Richard Hennessy, an Irish officer in the service of Louis XV. By 1860, one in every four bottles of cognac sold worldwide carried the Hennessy label. To this day, a tasting committee meets every morning at 11 a.m. to assess the quality of the eaux-de-vie – a ritual that no competitor can buy with money.

Tiffany & Co. – the newest star. Acquired in 2021 for USD 15.8 billion, LVMH has repositioned the iconic New York jeweller: the Watches & Jewelry division's margin rose from around 9% (2020) to 14.4% (2025). In the second quarter of 2026, the division grew by 11% – significantly faster than the group as a whole.

What this means for us as investors: With LVMH, we are not buying a single brand, but a portfolio of icons across five divisions and all regions of the world. At its heart is Fashion & Leather Goods: 74% of operating profit at a 35% margin. What matters to us: this margin has increased from 28% in 2015 to 35% – across a full cycle, including the pandemic. That is pricing power in action. And all without concentration risk.

The History: 280 Years of Craftsmanship, 40 Years of Arnault

LVMH is a young group, but its brands are not. The group was formed in 1987 through the merger of Moët Hennessy and Louis Vuitton – two family businesses seeking to protect themselves against hostile takeovers. Ironically, the very man whom Louis Vuitton chairman Henry Racamier brought in as an ally would take control of the company two years later.

Figure 3: Competitor Comparison; Sources: Latest Annual Reports of the Respective Companies

Bernard Arnault: From Construction Entrepreneur to the “Wolf in a Cashmere Coat”

Bernard Arnault was born in Roubaix in 1949, studied at the École Polytechnique – France’s elite engineering school – and joined his father’s construction company, Ferret-Savinel, in 1971. From 1978 to 1984, he served as its president and convinced his father to sell the industrial construction business and focus on property development. He spent the early 1980s in the United States.

In 1984, he learned that the French government was looking for a buyer for the insolvent textile group Boussac Saint-Frères – diapers, fabrics, department stores and one jewel among them: Christian Dior. With around USD 15 million in family money and the backing of investment bank Lazard Frères, he seized the opportunity. What followed was a radical restructuring: Arnault sold and reorganised almost everything, but retained Dior and the Parisian department store Le Bon Marché. The Parisian press gave him the nickname “Terminator” for his actions.

His next coup followed a few years later. Called in as an ally of Henry Racamier in the power struggle over the newly merged LVMH, Arnault systematically bought more shares. By January 1989, he held 43.5% of the capital and 35% of the voting rights – and took control of the group. Since then, he has been known in France as “le loup en cachemire”, the wolf in a cashmere coat.

“A star brand is timeless, modern, fast-growing and highly profitable. Mastering this paradox is very difficult and rare – fortunately.” – Bernard Arnault, Harvard Business Review, October 2001 (paraphrased translation)

Skin in the Game: Buying More When Others Are Selling

For us as investors, what matters is this: Arnault is not a hired manager, but an owner. Through a holding company (Financière Agache), the family controls 50.01% of the capital and 65.94% of the voting rights. At the presentation of the annual results in January 2026, Arnault announced that the family would cross the 50% threshold at the beginning of the year – and on 19 February 2026, it did exactly that, financed through purchases on the stock exchange.

Equally remarkable is what Arnault pays himself: His total compensation in 2025 amounted to EUR 7.86 million, with the variable component capped at the previous year's level at his own request – and unchanged since 2023. For the head of Europe's largest consumer goods group, that is moderate. The real alignment of interests comes through ownership: With a dividend of EUR 13 per share, the family receives around EUR 3.2 billion per year – meaning it earns money precisely when all shareholders do.

Succession – and a Response with Humour

Arnault is 77. The CEO age limit has been raised to 85, and all five of his children work within the group: Delphine Arnault heads Christian Dior Couture, Antoine has been a member of the Executive Committee since February 2026, and four of the five children sit on the Board of Directors. Through the family holding company (Financière Agache), the children's stakes have been pooled for 30 years (from 2022) – a safeguard against fragmentation of the inheritance.

How Arnault deals with speculation became clear in July 2026: Le Monde published a six-part series about his empire, including alleged rivalries among his children. Arnault responded with a three-page open letter entitled “Merci” – his very first post on the platform “X”. In the real world, he wrote, his children run brands, build teams, make decisions and – sacrilege of sacrileges – speak to each other on the phone on Sundays. He concluded by assuring readers that he would continue solving Le Monde's crossword puzzles, which, unlike the rest, were truly excellent.

What this means for us as investors: We see an entrepreneur who has demonstrated for almost 40 years that he can not only acquire brands, but also develop them – from Dior and Tiffany to Loro Piana. His family invests more of its own money when the market has doubts, and earns its returns through dividends rather than salaries. Succession remains the open question – but it has been structurally prepared, and the next generation already manages key brands today.

The Market: Normalisation After the Boom

According to the annual study by Bain & Company and Altagamma, the global market for personal luxury goods – fashion, leather goods, jewellery, watches and cosmetics – amounted to around EUR 358 billion in 2025 (2024: EUR 364 billion). Adjusted for currency effects, this represented stagnation. Including experiences such as luxury hotels, cruises and fine dining, consumers worldwide spent around EUR 1.44 trillion on luxury.

The years 2021 to 2023 were exceptional: pent-up demand following the pandemic, well-filled savings accounts and substantial price increases drove revenues and margins to record levels. The downside: According to Bain, the number of luxury customers has declined from around 400 million (2022) to approximately 340 million (2025). In particular, “aspirational” buyers at the lower end of the luxury market have pulled back – Bain speaks of the end of the era of continuous price increases. Very wealthy customers, on the other hand, continue to buy.

The long-term drivers, however, remain intact:

• Growing wealth: Bain and other consulting firms consider annual growth of 4–6% realistic; the personal luxury goods market is expected to grow to EUR 525–625 billion by 2035.

• New regions: Latin America, India, Southeast Asia and Africa are expected to generate more than 50 million new upper-middle-class luxury consumers combined by 2030.

• Jewellery as a growth category: According to Bain, jewellery grew by 4–6% in 2025, while leather goods and shoes declined by 5–7% – a tailwind for Tiffany and Bvlgari.

• Consolidation: Large groups are gaining ground against smaller brands as prime locations, advertising and talent become increasingly expensive.

To put this into perspective: LVMH's Fashion & Leather Goods division alone accounts for around one-tenth of the entire personal luxury goods market (own calculation).

What this means for us as investors: We see the current downturn as a normalisation following an exceptional boom, not a structural break. The market remains above its 2022 level, and the long-term drivers – growing wealth and new customer groups – continue to have an impact. In a period of consolidation, the largest player wins: Those who can afford prime locations, advertising budgets and creative talent extend their lead precisely when smaller brands are forced to cut costs.

Competition: Diversification Beats a Single Brand

The main competitors are Hermès, Chanel (privately owned), Richemont and Kering, as well as Prada in certain segments, L’Oréal and Estée Lauder in cosmetics, and Diageo and Pernod Ricard in spirits. The comparison illustrates the wide range within the industry:

Figure 6: Long-term share price performance of LVMH SE; sourced from www.tickr.com

Hermès is the luxury house with the highest margins in the world – but it is a house built around a single brand. Kering shows what happens when one brand struggles: Gucci recently accounted for around 40% of group revenue and declined by 25% in the first half of 2025, while the group's margin halved. LVMH, by contrast, is the only group that covers all five major luxury segments.

What LVMH does better than its competitors:

• Economies of scale that customers do not see: With around 6,200 stores, LVMH is the industry's most important partner for landlords of prime locations, media companies and shopping centres – securing the best retail spaces on better terms.

• Talent magnet: No other group can offer creative directors, craftspeople and managers so many career paths across so many brands.

• Financial strength for acquisitions: Tiffany, Loro Piana and Dior Couture were not only acquired but further developed under LVMH's leadership.

• Decentralised creativity, centralised discipline: The brands manage themselves, while the group controls capital and costs.

Even during the downturn in 2025, when Fashion & Leather Goods' operating profit fell by more than EUR 2 billion to EUR 13.2 billion, the group's operating margin remained at 22% – a level most consumer goods companies can only dream of, even in good years.

What this means for us as investors: LVMH's competitive moat consists of brands with histories spanning more than 150 years in some cases, prime locations on the world's most expensive shopping streets, and a scale that provides bargaining power with landlords, media companies and talent. This cannot be replicated overnight, not even with billions. Diversification across five divisions protects against the concentration risk that Kering is currently experiencing.

Financial Performance

The ten-year track record is impressive: Revenue more than doubled from EUR 37.6 billion (2016) to EUR 80.8 billion (2025), while earnings per share rose from EUR 7.11 (2015) to EUR 21.85 (2025) – a threefold increase. The dividend grew from EUR 3.55 to EUR 13.00 over the same period.

Figure 4: Revenue, operating profit (EBIT) and net profit in EUR million, dividend per share in EUR; Source: LVMH Annual Reports 2016–2025. * For 2019, a dividend of EUR 6.80 was proposed; it was reduced to EUR 4.80 at the beginning of the pandemic.

Three points stand out to us. First, not a single loss-making year – not even in 2020, when revenue fell by 17% due to the pandemic. Even in the worst year, the operating margin did not fall below 18.6%. Second, at 22%, the margin is now structurally above its pre-boom level (2016: 18.7%). Third, cash generation. In 2025, LVMH generated around EUR 14 billion in free operating cash flow. This funded approximately EUR 6.5 billion in dividends, net share buybacks of around EUR 1.6 billion and debt reduction.

The balance sheet is correspondingly solid: Net debt of EUR 6.9 billion represents just 9.9% of equity, supplemented by EUR 10.8 billion in unused credit facilities. Return on invested capital has consistently ranged between approximately 19% and 23% over the past ten years (own calculation).

The decline since 2023 is primarily explained by the cost structure: stores, advertising and personnel costs continue even when revenue falls. Distribution costs account for 37% of revenue. This negative operating leverage works in both directions – when growth returns, margins increase disproportionately.

And this is precisely where 2026 is showing the first signs: In the first half of the year, LVMH generated revenue of EUR 38.6 billion, with organic growth of +2%. In the second quarter, growth accelerated to +3% (+4% excluding the Middle East conflict). The operating margin rose to 22.5%, while profit remained stable at EUR 5.7 billion. Even the recently weak Wines & Spirits division recorded organic growth of 5%, with operating profit increasing by 11%.

“LVMH has demonstrated its resilience and the effectiveness of its strategy. The acceleration in the second quarter is particularly attributable to the success of Jonathan Anderson's first designs for Christian Dior, the remarkable performance of the new Louis Vuitton stores in Beijing and Seoul, and the iconic collections of Tiffany and Bvlgari.”

– Bernard Arnault, LVMH Half-Year Results Announcement, 27 July 2026 (paraphrased translation)

What this means for us as investors: The figures show a group that remains highly profitable even during a downturn and generates more cash than its reported earnings. The solid balance sheet makes it possible to pay dividends, buy back shares and repay debt simultaneously – without sacrificing investment in stores and brands. The return to organic growth in the first half of 2026 is an initial sign that the bottom may have been reached; however, this has not yet been confirmed.

The Risks

Despite all its strengths, a critical assessment is essential. We see the following risks:

• Price fatigue: Following the substantial price increases of 2021–2023, entry-level luxury customers have pulled back. The gross margin declined from 68.8% (2023) to 66.2% (2025). How far Louis Vuitton and Dior can continue to exercise their pricing power is one of the key questions.

• Concentration in Fashion & Leather Goods: The division contributes 74% of operating profit. If Louis Vuitton or Dior lose their desirability, the group is directly affected. The smaller divisions were unable to offset this in 2025: The Wines & Spirits margin has fallen from 29.6% in 2015 to 19.0%, while DFS recorded impairment charges.

• China, tariffs, the Middle East and the euro: Demand from Chinese customers remains weak, tariffs weigh on US business and cognac exports, and the Middle East conflict cost approximately one percentage point of growth in the second quarter of 2026. The strong euro reduced operating profit by EUR 1.1 billion in 2025. In September 2026, several research firms – including Bernstein, RBC and Jefferies – lowered their expectations; the share price had lost around one-third of its value since the beginning of the year.

• Succession and governance: Arnault is 77 and holds both the Chairman and CEO positions; no successor has been named. The family controls two-thirds of the voting rights through a pyramid holding structure – minority shareholders therefore have correspondingly little influence. The increase in the CEO age limit to 85 attracted criticism from some institutional investors.

• Reputation and legal matters: In Italy, suppliers of Dior (2024/25) and Loro Piana (2025) were placed under judicial supervision due to labour exploitation. Additional issues include the lawsuit brought by Hermès heir Nicolas Puech and the conviction of former LVMH adviser Bernard Squarcini (2025; Arnault himself was not charged).

These risks are real, but manageable for a group with such brand strength, a solid balance sheet and its ownership structure. They are reflected in our deliberately conservative valuation assumptions.

Valuation Scenarios 2030 – Our Own Estimates

As always, our assumptions are deliberately conservative. The reasons:

• Growth: Scenario 1 assumes annual revenue growth of 4.0% – the lower end of Bain's expected market growth of 4–6%. LVMH would not need to gain market share to achieve this. Scenario 2 assumes 7% per year, slightly faster than the market, but clearly below its own annual growth of approximately 8.5% between 2015 and 2025 (including acquisitions).

• Margin: The net profit margin was 17.6% in 2023, 14.8% in 2024 and 13.5% in 2025. At 13.0%, Scenario 1 assumes a level even below the current low point – corresponding to the level seen in 2018/2019, when the operating margin of 21.4% was similar to today's. Scenario 2 assumes 15.0%, representing only a partial recovery, well below the levels recorded in 2021–2023.

• Valuation: The exit multiple of 19x in Scenario 1 is close to the current P/E ratio of around 18x; the 22x in Scenario 2 is below the 2016–2025 average of approximately 24x. We conservatively assume a dividend yield of 3.0%, compared with the current yield of around 3.3%.

Figure 5: Basis of the valuation scenarios: Market capitalisation of approximately EUR 195 billion (share price approx. EUR 390, as of 30 September 2026; 497.7 million shares); base revenue 2025: EUR 80.8 billion; growth horizon of 5 years (2025–2030); OHP's own estimates.

This article does not constitute a buy recommendation or investment advice.

Contact

+423 399 49 90

info@ohp.li

Im Mühleholz 3, 9490 Vaduz, Liechtenstein

Ott, Hagen & Partner AG

Legal Notice

Terms and Conditions

Privacy Policy

Participation Policy

Sustainability

Imprint

© Copyright Ott, Hagen & Partner AG 2026. All rights reserved.