Overview of TIP852: Hermès and LVMH Stock — Time to Buy Luxury?
In this episode of The Investor’s Podcast, Daniel Mahncke and Shawn O’Malley revisit two of the world’s most admired luxury companies — Hermès and LVMH — after both stocks have fallen to historically attractive valuation levels. The hosts argue that the luxury sector is under pressure from weaker aspirational consumer spending, a slowdown in China, currency headwinds, and regional disruptions in the Middle East. While both businesses remain exceptional, the discussion centers on whether today’s prices offer enough margin of safety to justify buying.
Key Themes and Main Takeaways
Luxury is no longer “non-cyclical”
The hosts challenge the idea that luxury brands are immune to macro weakness. Luxury demand is split between:
- Top-tier wealthy buyers who are still spending
- Aspirational buyers who are much more sensitive to income, savings, and confidence
That second group has weakened materially since 2022–2024, and that has hit the broader market.
Aspirational buyers matter more than many investors realize
Aspirational buyers:
- Spend less than about €5,000 per year on luxury
- Make up a large share of the luxury market by value
- Were a major driver of the post-pandemic boom
- Are now the first cohort to be priced out by aggressive luxury price increases
The hosts note that many luxury brands raised prices sharply from 2019 to 2023, which protected margins in the short term but hurt accessibility and future volume.
China is the biggest structural pressure point
China’s slowdown is a central reason the luxury cycle has turned:
- Chinese consumers once accounted for roughly one-third of global luxury spending
- That share has now fallen to under 20%
- Luxury spending has been hit by falling property values, weaker consumer confidence, and policy-related caution among the wealthy
The hosts contrast this with the 2013–2016 China slowdown, when policy pressure mattered more than the economy itself. Today, the problem is deeper because it is also tied to real economic pain.
Hermès vs. LVMH: What Makes Them Different?
Hermès: more concentrated, more exclusive
Hermès is portrayed as the stronger long-term luxury franchise because it is:
- A single brand, not a conglomerate
- Much more concentrated in bags and leather goods
- More focused on the top end of the luxury market
- Better at maintaining exclusivity through scarcity, waitlists, and “gating”
The hosts highlight Hermès’ disciplined strategy:
- Keep supply below demand
- Limit access to key products like the Birkin and Kelly
- Use lower-tier items to build purchase history
- Protect the brand from overexposure
LVMH: broader, but more exposed to aspirational demand
LVMH is far more diversified across brands and categories, but that breadth is also a weakness in a downturn because:
- A larger share of the business depends on fashion and leather goods
- Those categories are heavily exposed to aspirational buyers
- The group is more vulnerable to softness in fashion, alcohol, and lower-margin retail
The hosts emphasize that LVMH may look diversified, but in practice:
- Fashion and leather goods drive nearly half of revenue
- They generate roughly three-quarters of profit
Segment-by-Segment Industry Trends
Fashion and leather goods
This is the core profit engine for LVMH, but it is under pressure:
- Seven straight quarters of negative organic growth
- Margin compression from the low-40% range to the mid-30s
- Fewer aspirational customers able to afford entry-level luxury
Jewelry and watches
One of the brighter areas in luxury:
- Jewelry is outperforming fashion
- Richemont is highlighted as a strong performer because of its focus on jewelry and high-end watches
- Gold and silver price increases may have boosted the “investment” appeal of jewelry
Wine and spirits
LVMH’s spirits business, especially Hennessy/Cognac, is struggling:
- U.S. alcohol consumption is declining
- Gen Z and millennials are drinking less
- Tequila has become the new status spirit, displacing Cognac
- The division has been hurt by inventory buildup, price hikes, and weaker demand in China and the U.S.
Ultra-luxury brands
Brands such as Brunello Cucinelli are presented as more resilient because they sell almost exclusively to the top-tier wealth cohort, avoiding the aspirational buyer problem that affects larger brands.
Regional Breakdown: Where Demand Is Weak and Strong
China: the biggest problem
China remains the key risk:
- Weak property market and falling home prices have made households feel poorer
- Consumers are saving more and spending less
- Luxury spending has slowed dramatically, especially among middle- and upper-middle-class buyers
Middle East: uncertain, but important
The Gulf region had been expected to offset China’s weakness, but:
- Tourism disruption and geopolitical uncertainty have slowed luxury sales
- Demand from Gulf customers in Europe has also softened
- This region is likely to matter more if China continues to underperform
United States: the current bright spot
The U.S. is carrying much of the industry:
- Strong equity markets and AI-driven wealth creation support luxury demand
- High-income consumers remain resilient
- Tariff concerns have eased somewhat, and brands have generally passed costs through
Currency headwinds
A major issue for both companies is the stronger euro:
- Most sales are outside the eurozone
- Costs are largely in euros
- This creates a major reported revenue and profit drag
Valuation and Investment View
Hermès
The base case used in the episode assumes:
- ~7% to 8% revenue CAGR through the end of the decade
- Continued margin resilience
- Strong dividend growth
At around €1,300 per share in the model, expected return is roughly 12%–13%.
At the time of the episode, the stock was around €1,400, making it less compelling but still high quality.
LVMH
The base case assumes:
- ~3% to 4% revenue CAGR
- Modest margin recovery
- A fair value around €350 per share
The expected return is roughly 11%, which is below the hosts’ 12% hurdle rate.
Final stance
- Hermès is preferred as the superior business and better long-term compounding story
- LVMH is seen as more cyclical and more exposed to aspirational buyers
- Neither is considered a clear buy today, despite the attractive pullback
Notable Insights and Quotes
Bernard Arnault quote
“In business, I think the most important thing is to position yourself for the long term and not to be impatient.”
The hosts use this quote to underline their conclusion: these are great businesses, but not yet compelling enough at current prices.
Bottom Line
The episode’s central conclusion is that the luxury sector is still fundamentally strong, but macro pressure, China’s slowdown, pricing fatigue, and weaker aspirational demand have made the current setup less attractive than it once was. Hermès remains the stronger long-term business, while LVMH offers more diversification but also more exposure to the parts of luxury under the most pressure.
Their takeaway: both stocks are high-quality, but they would prefer to wait for an even better entry point before buying.