Heightened Regulation And Rising Tariffs Will Undercut Luxury Value

Key Takeaways

• Regulatory risks, rising costs, and shifting societal attitudes threaten LVMH's pricing power, market size, and future revenue prospects.
  
• Heavy reliance on China and expansive investments risk brand dilution, margin compression, and long-term earnings pressure.
  
• Diversified growth, brand innovation, and disciplined investment are strengthening LVMH's resilience, positioning it for sustained margin expansion and profit stability despite global market headwinds.

Catalysts

Operates as a luxury goods company worldwide.

• The luxury industry is increasingly vulnerable to regulatory intervention and rising protectionism, with looming threats of new luxury taxes, higher import duties, and region-specific tariffs in France, China, and other key markets. These measures could significantly limit demand for LVMH's products and erode its pricing power, resulting in weaker revenue growth over the long term.
  
• Shifting societal pressures around wealth inequality and conspicuous consumption may reshape high-end consumer preferences. As the affluent become more discreet, and regulators eye the sector for additional taxation, LVMH faces ongoing risk of shrinking its total addressable market for luxury goods, limiting both topline expansion and future gross margins.
  
• An overreliance on Chinese consumers persists at a time when China faces structural economic slowdowns and a prolonged crisis in its property sector. Extended weakness in Mainland China and ongoing currency volatility threaten sustained negative impacts on key revenue streams and amplify revenue volatility.
  
• Despite heavy investments in flagship retail, hospitality, and aggressive portfolio expansion, LVMH risks diluting the exclusivity central to its core brands. This brand dilution, combined with rapidly rising operating expenses and marketing budgets, could compress net margins and reduce return on invested capital, especially if revenue fails to accelerate meaningfully.
  
• LVMH's current strategy requires continued large-scale capital deployment to maintain its market leadership as industry digitalization and consumer expectations evolve. If management cannot contain escalating costs tied to sustainability initiatives, talent retention, and digital transformation, structural margin headwinds may persist, ultimately putting future earnings growth at long-term risk.

LVMH Moët Hennessy - Louis Vuitton Société Européenne Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on LVMH Moët Hennessy - Louis Vuitton Société Européenne compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming LVMH Moët Hennessy - Louis Vuitton Société Européenne's revenue will decrease by 0.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 14.8% today to 14.3% in 3 years time.
• The bearish analysts expect earnings to reach €12.4 billion (and earnings per share of €25.04) by about July 2028, down from €12.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, up from 19.1x today. This future PE is greater than the current PE for the GB Luxury industry at 21.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

LVMH Moët Hennessy - Louis Vuitton Société Européenne Future Earnings Per Share Growth

Risks

• Despite headwinds in Asia and unfavorable currency conditions affecting some divisions, LVMH demonstrated resilience with stable organic revenue growth and increasing double-digit growth in key brands like Louis Vuitton and Tiffany early in 2025, suggesting earnings could recover and grow with geographic and segmental diversification.
  
• The continued investment in flagship stores, exclusive pop-ups, luxury hospitality (Cheval Blanc, Bulgari Hotels), and iconic global event sponsorships (Formula One, Olympics) is enhancing brand desirability and securing customer engagement, likely supporting higher revenue per client and long-term margin expansion.
  
• Robust performance from major brands such as Sephora, Loro Piana, Dior, and strong innovation in fragrances, jewelry, and experiential retail indicate LVMH's brand portfolio can adapt and thrive, which could buoy both group-wide revenue and net profit even in periods of macro uncertainty.
  
• Ongoing recovery initiatives in Wines & Spirits and targeted geographic strategies, especially in the United States where tax and regulatory environments are improving, present upside levers for sales and margin improvement should consumer sentiment and demand continue to rebound.
  
• Active cost management and pricing discipline, along with disciplined capital investment (as indicated by stable dividend and reduced net debt), position LVMH for long-term financial resilience, potentially supporting free cash flow and net margins in the face of cyclical volatility.

Valuation

• The assumed bearish price target for LVMH Moët Hennessy - Louis Vuitton Société Européenne is €460.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of LVMH Moët Hennessy - Louis Vuitton Société Européenne's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €720.0, and the most bearish reporting a price target of just €460.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €86.7 billion, earnings will come to €12.4 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 8.1%.
• Given the current share price of €479.95, the bearish analyst price target of €460.0 is 4.3% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.