Luxuriate in LVMH's diversity

Paris and New York listed LVMH caught our attention last month when it reported better than expected third-quarter results, where revenue for each category beat consensus broker expectations with the exception of wines and spirits (although this category still grew 7 per cent on an organic basis). Perfumes and cosmetics was the strongest performer, with sales up 8 per cent on an underlying basis and the performance of the group's most profitable division, fashion and leather goods, also impressed.

The company has been experiencing good demand across the US and most of Europe, although sales have been slower in France due to terrorist attacks deterring tourist-shopper visits. But most significant for investors from the third-quarter update was a marked improvement in sales from Asia excluding Japan, which accounted for 27 per cent of revenue last year. Following a flat first half, sales in the region rose by a tenth in the three months to the end of September. Similarly, the performance of wines and spirits in China is starting to improve following the destocking of distributors in 2015. This helped push organic revenue at the group level up 5 per cent for the first nine months of the financial year.

There's another important reason for backing LVMH during the current period of heightened economic uncertainty: the diversity offered by its conglomerate structure. Not only does LVMH run the gamut in terms of brand names - just a few of which we've already mentioned - but the categories these brands span gives the company a degree of protection against overreliance on the popularity of one category with its customers.

Overall, the business spans five divisions, including wines & spirits (13 per cent of 2015 group revenue and 20 per cent of operating profit), fashion & leather goods (34 per cent of revenue and 52 per cent of profit), perfumes & cosmetics (13 per cent of revenue and 8 per cent of profit), watches & jewellery (9 per cent of revenue and 6 per cent of profit) and selective retailing (31 per cent of revenue and 14 per cent of profit). Specialist retailing includes chains such as make-up giant Sephora and Parisian destination department stores such as Le Bon Marché Rive Gauche and La Grande Epicerie de Paris.

LVMH is helping spur growth with canny brand management and selective acquisitions. For example, the fashion & leather goods business recently decided to dispose of Donna Karan, but then acquired a majority stake in German luggage maker Rimowa, the latter of which should complete in January 2017. Rather than always offload brands, it seems management is keen to reinvent some of its names to keep the labels relevant with a younger clientele. Good examples include Marc Jacobs (which it's rumoured might be floated as a separate entity imitating close rival Michael Kors (US:KORS) and Louis Vuitton, where a series of new product launches have breathed life back into the houses.

The company has been trying to mitigate sharp movements in global currencies this year, amounting to sa 1 per cent dent to third-quarter revenue. We don't see this as too tough a challenge given the level of organic growth during the period and, should currency values reverse, it seems LVMH might benefit anyway. Only time will tell the ultimate impact on demand from the group's international clientele, but recent trading is encouraging.