LVMH case study

I. Presentation of the company

LVMH (LVMH - Moet Hennessy - Louis Vuitton), is a French group. In France and all over the world, it is the leader in the luxury market; this group was created after an amalgamation of the company Moet Hennessy and the Louis Vuitton Company in 1987. This company is headed by Bernard Arnault yet (LVMH was owned at 47.4% by Arnaud group). To quote some figures, today LVMH employed 77000 persons and holds 2423 stores all over the world. The financial analysis of this company will be made later in our work. Nevertheless it is important to note that in 2009 the LVMH turnover amounted to over 17 billion Euros.

The purpose of this corporation is to symbolize the elegance and creativity. Bernard Arnaud said: "Our products, & the cultural values THEY embody, blend tradition and innovation, and kindle dream and fantasy."

Table showing the number of stores by continent:

region Number of store Percentage

Europe (excluding France) 391 26%

North America 346 23%

France 272 18%

Asia (excluding Japan) 256 17%

Japan 214 14%

Other country 47 3%

total 1526 100%

Source ENPC

Like all companies, LVMH have values:

- Be creative and innovate

- Aim for product excellence

- Bolster the image of our brands with passionate

determination

- Act as entrepreneurs

- Strive to be the best in all we do

The company is divided into several sectors, each sectors was divided into a multitude of brands. Today LVMH group has over 50 brands thanks to its growth policy which is aggressive.

Table showing the breakdown by sector:

Sectors Number of store percentage

Fashion & Leather Goods

793 52%

Selective retailing

648 42.5%

Perfumes & Cosmetics

40 2.6%

Watches & Jewelry

40 2.6%

Wines & Spirits

5 0.3%

Total 1526 100%

Source ENPC

Governance

The priority objectives of the Board of Directors, the strategic body of LVMH, are to increase the value of the company and defend its social interest. Its principal missions are to adopt the major strategies of the company and the Group, monitor the implementation of those strategies, verify the fair and accurate presentation of information about the company and the Group, and protect its corporate assets.

http://www.lvmh.com/uploads/assets/Com-fi/Visuels-interieurs/Graphiques/en/Capital_structure_2011.gif

II. Economical context and investment decisions

In 2009, LVMH such as a lot of companies all around the world had to face the crisis. In fact we can notice that the three first quarters had known a significant slowdown in sales. We can see ( annexe ) that for nine first months 2009, the Wines and Spirits, Watches and Jewellery had been the mostly affected by the crisis. They respectly loose 18% and 28% in revenue. On the contrary Fashion and Leather Goods revenues remained stable with an increase of 1%.

But LVMH had a good resistance in front of it. Thanks to the rebond of the activity in the fourth quarter, the sales increased and reached 17, 1 billion Euros. Only Wines and Spirits revenues were not as good as in 2008 but improved the situation by passing from -18% in the 9 months to -6% in the fourth quarter of 2009. Despite the fact that the three others had a positive growth in the fourth quarter in 2009, the annually revenues growth was uncertain: indeed, LVMH had known an decrease of 4% in their annual revenues. The good trend of this fourth quarter is going to endure in 2010. According to M. Bernard Arnault, CEO of LVMH, the quality of the products, the power of the brand image and the reactivity of the organization are the majors assets of LVMH to keep the leadership.

To explain the growth of the revenues we can notice the strong increase of free cash flow: in 2008 it was 1331 million Euros whereas in 2009, it reached 2205 million euros. This increase of growth is explained by different ways. Indeed LVMH is composed of famous brands which did not suffered from the crisis so LVMH wants to consolidate their activities..

First of all, LVMH continues the production of famous and high quality product “Stars Products” which represent the major part of the revenues, for instance in Parfums and Cosmetics there are the very famous “Miss dior cheri” “ Dior skin new, Guerlain. Thanks to the maturity of this large range of famous products, LVMH has less charges and can decrease their cost production, so improves the operational margin is improved and is increased. This margin allows different and several investments.

LVMH develops and widens the target and specifically men market by new lines for instance Damier Graphite. LVMH continues its strong communication strategy with their famous brand: Louis Vuitton, Fendi, Donna Caran, and Marc Jacobs.

But in the other hand, LVMH desires to always innovate and create new high quality products which target a large market. Moreover, LMVH targets some and choose to open different news luxury shops in high potential places such as Macau in China and Las Vegas in the United States of America.

Thanks to this strategy, the free cash flow increased and helped and permitted to pay back the debts .Thus they decrease: 3869 million in 2008 and 2994 million in 2009. Moreover the increase of the cash flow leaded to an increase of the dividends and so LVMH can share out these dividends to the shareholders and underline their satisfaction. That implies that, the gearing reached 20%, so we notice a decrease of 8% compared at in 2008.

In 2010, the beginning of the activity of LVMH has

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