Over the past year, many sectors collapsed as inflation, rising interest rates, and other macro headwinds drove investors from higher-growth stocks toward more recession-resistant plays. One safe haven has been the luxury goods sector, since affluent consumers are generally better insulated from economic downturns than their lower-income and middle-class counterparts.
LVMH (LVMUY -0.11%) and Richemont (CFRH.F 1.13%) are two of the bellwethers of that resilient industry. LVMH's European shares have declined just 3% this year, while Richemont's shares have pulled back by about 16%. Both stocks easily outpaced the bear market declines across the major indexes. Should investors buy either of these luxury stocks today?
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The key differences between LVMH and Richemont
Paris-based LVMH is the world's largest luxury company. It owns 75 brands across five categories -- wines & spirits, fashion & leather, perfumes & cosmetics, watches & jewelry, and selective retailing -- and its top brands include Louis Vuitton, Dior, Loewe, Fendi, Tiffany, Bulgari, and Sephora. LVMH generated 49% of its revenue from its fashion and leather goods segment in the first nine months of 2022. The rest was split between its selective retailing (18%), watches & jewelry (13%), perfumes & cosmetics (10%), and wines & spirits (9%) divisions.
Richemont, which is based in Bellevue, Switzerland, is significantly smaller than LVMH. It owns 26 core brands, including Cartier, Chloé, Dunhill, Jaeger-LeCoultre, Montblanc, Piaget, and Van Cleef & Arpels. It generated 87% of its revenue from its jewelry (66%) and watch (21%) brands in the first half of fiscal 2023 (which ended on Sept. 30). The remaining 13% came from its fashion and accessories brands, watch components, real estate investments, and other minor businesses.
Therefore, LVMH is a well-rounded pick for investors who want exposure to a broader range of luxury markets. Richemont might be a better fit for investors who want to focus on the high-end jewelry and Swiss watch markets.
Which company is growing faster?
LVMH and Richemont both struggled throughout the pandemic as brick-and-mortar stores shut down and global travel and tourism ground to a halt. However, both companies recovered quickly as those headwinds waned.
LVMH's revenue declined 17% in 2020. All five of its core businesses suffered top-line declines, but its specialty retail business fared the worst as it shut down its Sephora and duty free stores. Its net profit plunged 34%.
But in 2021, LVMH's revenue and net profit increased 20% and 68%, respectively, driven by the accelerating growth of its fashion & leather goods and watches & jewelry segments. In the first nine months of 2022, its revenue rose another 20% year over year as it generated double-digit growth across all five of its business divisions.
LVMH's growth in China remains sluggish amid the region's draconian zero-COVID restrictions, but it largely offset that slowdown with its robust sales growth across the United States, Europe, and Japan. Analysts expect its revenue and net profit to rise 23% and 22%, respectively, for the full year.
Richemont's revenue declined 8% in fiscal 2021 (which ended in March 2021), but its core jewelry and watch businesses recovered quickly (particularly in China) in the second half of the year. Its net profit increased 38%, but that growth was mainly driven by one-time benefits instead of its operating profit (which fell 3% for the year).
In fiscal 2022, Richemont's revenue and net profit surged 46% and 61%, respectively, driven by high double-digit sales growth across all of its business segments and regions. Its revenue rose another 24% year over year in the first half of fiscal 2023, as its strong growth in Europe and the Americas offset its pandemic-induced slowdown in China. However,
Richemont booked a net loss during that period after it sold its stake in the Italian online fashion retailer YNAP to Farfetch. Excluding that divestment, its net profit from continuing operations still grew 40%.
Analysts expect Richemont's revenue to rise just 2% for the full year as its growth decelerates against tough comparisons to its post-pandemic recovery. But they still expect its profit from continuing operations to increase a whopping 75%.
The valuations and verdict
Both of these luxury stocks are still reasonably valued relative to their growth rates. LVMH and Richemont trade at 24 and 17 times next year's earnings, respectively. Richemont might initially seem cheaper, but it's historically grown at a slower clip than LVMH if we exclude its impressive post-pandemic recovery. LVMH is also better diversified than Richemont, and it also offers investors plenty of exposure to high-end jewelry and watches with Tiffany, Bulgari, and Tag Heuer.
LVMH and Richemont should both remain stable investments in this ongoing bear market. But if I had to choose one over the other right now, I'd stick with LVMH for its superior scale, diversification, and more consistent growth.
