The Art of Slowing Down
090: Bernard Arnault is Having a Very Difficult Day
Bernard Arnault is having a very difficult day today. Hermès has now overtaken LVMH as Europe’s largest luxury company in terms of market cap. This came after LVMH kicked off the Q1 luxury earnings season with a miss that illustrated, yet again, that the sell side is useless and underscores growing cracks in the high-end consumer market. LVMH’s fashion and leather goods division posted a 5% organic sales drop, far worse than the 0.55% decline analysts expected. Some parts of the business fared far worse with Cognac and Spirits experiencing a 17% drop in organic sales. While I generally do not like taking a victory lap, I will point out that if you have been following me for the past year you know that I’ve been right. Additionally, my consistent, long term qualitative analysis and the short trade on LVMH is working out well as the stock is down over 25% since I put on and recommended a short position. As mentioned in several previous pieces, I believe that LVMH’s poor performance is due to many factors with the main one being that many divisions of the company are heavily exposed to the lower end of the luxury spectrum (unlike competitors like Hermès). Let’s dive in and go through interesting highlights of the LVMH earnings call.
On the April 14th call, Rodolphe Ozun stated that LVMH’s Wine & Spirits division delivered 1.3€ billion in revenue for the first quarter of 2025. This represents a 9% decline on an organic basis and 8% decrease on a reported basis after recognizing a positive 1% currency effect (LVMH got lucky here). Importantly, Cognac and Spirits recorded a 17% decrease in revenue which I believe is important. The company also mentioned that “Champagne and Wines saw a modest decline in volume of Champagne”. The company stated that this was because of unfavorable phasing effects linked to distributors in Europe and the timing of price increases in Japan. I believe this is an oversimplification of a declining product.
I have mentioned in past write ups that global demand for Champagne has been decreasing and there have been a number of well written articles on the topic. In a January 21st, 2025 article in Decanter Martin Green noted that