Shares of French luxury goods kingpin LVMH (LVMUY) (or Moët Hennessy Louis Vuitton) are under a bit of pressure of late, now down around 15% from their all-time high hit back in July. That said, the high-end retailer has been remarkably resilient, even in the face of headwinds hitting consumer wallets.
The consumer has faced pressure throughout the year, but not all corners of the discretionary goods scene have felt the pain evenly. Some, like LVMH, have seemed mostly immune to the macro and inflationary pressures weighing on the average consumer's spending ability.
Though the mid-market consumer may have tightened their purse strings in response to economic turbulence, it's likely that holders of the high-end handbags offered by Louis Vuitton have less of a need to tighten, given wealthier consumers don't necessarily feel the same economic rumbles as your average consumer.
Though affluent customers are likely to continue to splurge on their favorite goods from Dior, Tiffany, Louis Vuitton, or Hennessy even as macro headwinds worsen, it's noteworthy that LVMH doesn't just make its money from consumers who are the richest of the rich. In fact, the record earnings generated last year are thanks in large part to the rise in the appetite for luxury goods from what you could view as the middle class.
“Aspirational Consumer” Leads LVMH Stock to Impressive Heights
The "aspirational customer" (or customers that make less than $100,000 annually), as LVMH calls them, played a considerable run in the stock's incredible 2022 surge. The so-called "revenge spending" trend after COVID may have led such consumers toward the highest end of discretionary products.
Right now, LVMH's managers say that this consumer “is suffering” - and demand for status symbols could stand to suffer among the upper middle-class consumers, who may continue to lose their taste for pricy Dior fragrances or Louis Vuitton handbags as stubbornly high interest rates and inflation remain top of mind.
Of course, LVMH also has extremely wealthy customers that will continue to scoop up its products. To this class of consumers, it certainly does seem like no recession is too great to postpone any high-end purchase. For the rich, it could be argued that LVMH provides status symbol goods that may be viewed more as a consumer staple than a discretionary item.
In any case, LVMH is still a discretionary firm that could give back a big chunk of the gains it collected in the years since the COVID-induced stock market crash of 2020.
Time to Buy the Dip in LVMUY?
So, should investors view the latest correction in shares of LVMUY (the over-the-counter shares) as a buying opportunity to play continued resilience in the high-end consumer? Or is the stock's latest dip just the start of a sustained move to lower levels?
Ideally, it'd be nice if LVMH stock were to reach the lows of last year at around $113 and change per share. Though a mild recession and a challenged "aspirational customer" could drag shares back to such levels, I do see a pretty strong level of support in the low-to-mid $160 range.
Technically speaking, LVMH looks like a worthy pick up. However, there are considerable risks at these valuations.
In fairness, shares are certainly less expensive than the goods LVMH sells. At the time of writing, LVMUY goes for just north of 24 times trailing price-to-earnings (P/E). That's not at all a high price to pay for the French owner of some of the most fashionable brands on the planet.
Though you could get a U.S. luxury stock for cheaper, I think it's tough to stack up against the likes of a French firm like LVMH. It takes many decades to build a brand affinity to the level of a Louis Vuitton. I'd argue it's impossible for any new firm to match the status provided by the likes of an LV. The same goes for Dior and Tiffany.
The Bottom Line on LVMH Stock
Though LVMH's wealthiest customers will likely keep buying even if a recession rears its ugly head, I expect aspirational consumers could be a potential sore spot going into 2024. While upscale brands and bling may be a high-status staple for the extremely wealthy, it's still a discretionary product for everyone else.
In that regard, I think it will be tough for LVMH to break out of its current funk if we are destined for a recession. Either way, it appears that the “average” American luxury shopper has already had their fill.
On the date of publication, Joey Frenette did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
