Due to popular demand, I'm taking another look at Hermès and LVMH this week. It’s been a while since we covered them. Shawn pitched LVMH in July of last year, and I pitched Hermès in February.

At the time, Hermès traded at almost 50x earnings. And as much as I like the idea of owning true, and I mean true(!), luxury, I couldn't, in good conscience, pay that. And it turned out to be the right call. Hermès has fallen 40% since, and from its February 2025 high, the stock has lost more than half its value.

LVMH's decline has been more of a rollercoaster. The stock peaked back in 2023 and, with plenty of ups and downs in between, is now down close to 60% from there.

So two of the world's best luxury houses are at multi-year lows. Seems like a good time to take another look!

— Daniel

Since it’s been a while, let me start with a quick background on why these two luxury houses are considered the best of the best.

Hermès started in 1837 as a workshop in Paris making horse harnesses. That sounds odd for a fashion brand, but it’s actually a classic luxury origin story: a company becomes exceptional at one narrow craft, builds a reputation among the people who can afford the best, and only much later expands into the mainstream. Rolex had a similar path, with watches for extreme athletes. Moncler used to build gear for mountaineers. And Prada revolutionized products using military-grade nylon, originally made for tents and parachutes.

Thierry Hermès was obsessed with making the best harnesses in Europe, and his customers were European nobility. So from day one, Hermès sold to the top.

But eventually, Hermès faced its first major crisis – the automobile. Harnesses went from a mass-market product to a niche one almost overnight, and it was Thierry’s grandson, Émile-Maurice, who took the leather know-how and applied it to bags, luggage, and clothing. The rest is history.

Today, the family's sixth generation runs the company, but the quality and sourcing have remained the same throughout nearly two centuries. Every bag is made in France by a single artisan, start to finish. It takes 18 months of training before someone is allowed to make a bag, and five years to be considered a master. Even the family heirs spend a decade in production before they are considered for a management role.

Hermès is also the company most associated with “gating.” If you walk into a store without a purchase history, you won’t have access to signature products like a Kelly or Birkin Bag. You start with scarves, a belt, maybe a watch, and over time, if the store likes you, you might get a call that a bag has arrived. By then, you’ve probably spent multiples of the bag’s price on other Hermès products.

That’s the core of Hermès’ exclusivity. It turns every signature bag into a reward for loyalty, creating a relationship between brand and customer rather than making it a normal transaction. Most importantly, it keeps the wrong brand ambassadors out and gives the brand control over its image.

There’s a saying that you must be able to see a moat in the financial statements. You can definitely see Hermès’ moat. Not only in its outstanding margins, but also when you compare its store count to revenue. Its store count actually declined from 311 to about 294 over the last decade. For almost any other retailer, that would be a red flag. But Hermès more than doubled its revenue over the same period. How do they do that?

Well, you don’t need stores on every corner, because for the big purchases, they call you and you come to them. You actually don’t want a store on every corner, because that’s how you overexpose a brand. In the original newsletter, I estimated that Hermès generates something like €60,000 to €80,000 per square meter of store space, more than Apple. That’s only possible because of the high-ticket sales.

LVMH is similar in some ways but different in many more. The conglomerate was created in 1987 through the merger of Louis Vuitton with Moët Hennessy, the champagne and cognac group. But the brands themselves are much older and come with some uncopyable history.

Louis Vuitton made luggage for Napoleon III's wife, and Moët served champagne to Napoleon before his campaigns. It doesn’t get much more iconic than that.

But the empire we know as LVMH today was built by Bernard Arnault. He came from a construction family in northern France and had no connection to fashion. He tells the story of a New York taxi driver who didn't know the French president's name but knew the brand Dior. This was his lightbulb moment about the global power of French luxury.

A few years later, he bought a bankrupt, nationalized textile group that happened to own Christian Dior, sold off everything except Dior, and then used that stake to launch a leveraged buyout of LVMH, which had just been formed. He joined as an ally of the Louis Vuitton side, switched sides, and by 1989 was chairman. Now you know why they call him “the wolf in cashmere.”

He tried the same playbook with Gucci and Hermès, quietly accumulating over 20% through shell companies and swaps before the Hermès family locked their shares into a holding structure and the courts stepped in. For a while, Hermès stock barely traded because Arnault owned most of the float. Fortunately, if I may say so, the plan failed, and Hermès remains a thriving, family-managed business.

Over the next three decades, Arnault bought Céline, Givenchy, Sephora, Fendi, Bulgari, TAG Heuer, Tiffany, Loro Piana, Rimowa, and dozens more. Today, LVMH has 75 brands across five segments: Fashion & Leather Goods, Wines & Spirits, Perfumes & Cosmetics, Watches & Jewelry, and Selective Retailing, which is mostly Sephora.

Before LVMH, luxury conglomerates didn’t exist. But there are advantages to this model. LVMH can pour marketing budgets into a smaller brand, put it next to Louis Vuitton in the best retail locations in the world, and share supply chains and talent. That’s how the whole is worth more than the parts. At least in theory.

But to me, and yes, this is personal, a stand-alone luxury brand feels different. When I spend thousands on a bag (which, I should say, I have never done), I don’t want to feel like the company is optimizing synergies rather than quality. Arnault is known for being obsessive about quality, but customers of several acquired brands report slipping quality and rising prices. Price increases are part of the luxury game, but they land differently when the acquired brand used to serve customers who never saw themselves as luxury buyers in the first place.

Besides that, the LVMH portfolio is less diversified than it first appears. Fashion & Leather Goods is 47% of revenue and about 72% of profit. Louis Vuitton alone accounts for about half the group's profit.

The most important difference between the two is who they sell to. When I buy a luxury stock, I want true luxury, not a premium retail brand. It may sound a bit snobbish, but a good number of brands in the LVMH portfolio are premium, not true luxury.

Hermès sells to the top 1%, people spending more than €50,000 a year on luxury. That’s a tiny group of a few million people worldwide, but they account for about a quarter of all luxury spending, and that spending has grown 8 to 9% a year for a decade. Hermès lets aspirational buyers in only at the entry level, scarves and accessories, and protects its bags.

LVMH sells to far more aspirational buyers. The person with a good job, not yet wealthy, who saves up for one Louis Vuitton bag every couple of years. That buyer grew to roughly half of the luxury market, and it’s exactly how LVMH became the world’s largest luxury company. The downside is that this customer is cyclical. They stop buying when the economy turns, and as a group, they grow much more slowly than the top 1%.

Aspirational buyers also “scare off” the top. If you see an LVMH bag everywhere you go – I’m exaggerating, but only a little – it stops being special. I got into this with Shawn on a recent YouTube livestream, after a debate about Ferrari.

What Ferrari, Hermès, and LVMH ultimately have is a brand and a reputation. LVMH’s diversification means a single brand can die without hurting the group much (unless it’s Louis Vuitton). But brands that sell to aspirational buyers and reach large parts of the market are also the ones most likely to die.

Shawn listed some luxury brands that lost their status over the last two decades: Hugo Boss, Gucci, Michael Kors, Balenciaga. I wouldn’t call any of them true luxury, and I’d like to think that isn’t hindsight making a fool of me. Every one of them was overweight in aspirational buyers, and some never sold to the top 1% at all.

A good part of LVMH’s portfolio looks like that. Hermès plays in a different league. It isn’t as strict as Brunello Cucinelli, which barely lets aspirational buyers in at all, but it has opened only the starter categories to them.

So why spend so much time on the difference in customers? Well, it explains how I expect the two to handle the current luxury market.

The personal luxury market peaked at €369 billion in 2023 and has shrunk every year since. And the revenue number probably understates what happened. The industry had about 400 million customers in 2022 and 330 to 340 million in 2025. I’ll let you guess which customer left. The aspirational buyer.

Part of that is macro, and we’ll get to it. But luxury brands also used the inflation years to raise prices aggressively. A Louis Vuitton bag that cost $1,500 in 2019 costs $2,500 today. The customer didn’t get 60% richer, though. And the problem for luxury is that it can’t discount its way back in.

The companies that kept performing are the ones selling strictly to the top 1% and the ones overweight in jewelry. Jewelry holds up remarkably well in times like these, especially after what gold and silver prices did over the last two years.

Richemont, which is mostly Cartier and Van Cleef, grew 20% in the June quarter. Brunello Cucinelli, where a T-shirt can cost $1,000, grew 13%. And Hermès at least kept growth positive, against tougher comps than anyone else in the industry.

LVMH, on the other hand, has now had two straight years of declining sales. That’s a historical outlier. Even after the '08 financial crisis, LVMH saw only one year of flat sales. But in the years since, it went on the offensive with aspirational buyers to win volume. It worked phenomenally, and LVMH became the world’s largest luxury group. The downside is times like these.

China used to be the poster child of luxury growth. From 2017 to 2021, the luxury market in mainland China tripled. Chinese consumers accounted for a third of global luxury spending before the pandemic, and every brand built its store network around them.

But since the Evergrande blowup, the picture has changed. Chinese households kept most of their wealth in real estate, and with home prices down about 40% since 2021, the Chinese middle class feels a lot poorer than it did a few years ago. Savings rates are above 30%, and the economy has been mildly deflationary for nearly three years. As Hermès CEO Axel Dumas put it on a recent call, luxury purchases aren’t driven by GDP. They’re driven by the property and stock markets. For the Gulf states, you might add oil prices to that list.

On top of that, carrying a Birkin around while the country is in a rough patch isn’t exactly popular. And this summer, the government launched a campaign to tax offshore wealth, making the rich noticeably more careful about being seen spending. Even Hermès, which has never had a down quarter in China, is dangerously close.

The last time policy hit the Chinese luxury buyer was the anti-corruption campaign in 2013. The market went flat for about five years, then a new generation of millennials arrived, without the same stigma about luxury, and it grew more than 25% a year from 2016 to 2019. This time there's no obvious next cohort, and the property collapse is a more severe economic problem.

The consensus is that home prices fall another 4% this year and stabilize in 2027. Property downturns across countries have typically lasted five to six years, and China’s began in 2021, so by that measure it’s late in the cycle. I wouldn’t put much weight on estimates of when growth returns, though.

What’s clearly visible is the same pattern we mentioned before – aspirational buyers are struggling far more. The top 1% can still buy, and I’d be surprised if they aren’t the first to start spending more meaningfully again.

One thing I did ask myself is whether Hermès’ softness in China may also reflect Chinese consumers shifting toward their own brands. As I mentioned to Shawn on the show, I came across a brand called Laopu Gold a few months ago, nicknamed the “Hermès of gold,” selling jewelry with traditional Chinese motifs. Of course, this isn't a competitor since they only sell jewelry, but it combined two observations. Jewelry held up through the downturn, and consumers want local brands.

But I don’t think that’s what’s hurting Hermès. Domestic brands winning in jewelry and premium fashion are primarily competing for the aspirational buyer, not the top 1%. The top 1% in every country, and especially in China, are global citizens. They seem to be as interested in global luxury houses as ever, even if they now buy more local luxury alongside them.

When we talk about macro headwinds for luxury, we also need to quickly address the Gulf and the Euro. The war in the Gulf closed the stores in Dubai in March and, more importantly, kept Gulf customers out of Paris, London, and Milan, where they’re among the highest-spending tourists. Hermès’ sales in France fell 3% in the first quarter for that reason alone. But it should be a “short-term” problem. Oil is at $100+, so it’s safe to say nobody in the Gulf got poorer.

And then there's the euro, which matters when you judge these businesses' underlying health. About 80% of Hermès’ sales are outside the eurozone, while almost all of its costs are in France. That’s why Hermès grew 6% at constant currency in the first half but only 1.6% in euros, and why LVMH’s reported sales fell 3% while the underlying business grew 2%. Both are doing better than the headlines suggest.

This is the interesting question. If the brands aren’t the problem, then knowing where we are in the cycle tells us whether Hermès and LVMH are trading at fair value or at a bargain price.

As mentioned, the luxury market peaked in 2023, so we're three years past the top and two years into the contraction. That's already longer than 2009 or 2020, which were one-year dips. The only comparable stretch is the China slowdown from 2013 to 2016, but that had a very different cause.

I think our primary focus should be on China’s real estate situation and the upper-middle-class consumer in Europe and the U.S. The latter will likely take care of itself. The post-pandemic boom pulled demand forward, and the industry then priced out a good chunk of its aspirational buyers. Give it some time without further price increases, and consumers will grow into the new prices.

China is harder. Honestly, anything I could tell you about it wouldn’t be much better than what you’d get from CNBC, and when that’s the case, I’m clearly outside my circle of competence.

I don’t think that matters too much, though. I wanted to figure out whether there’s been structural damage to Hermès or LVMH, and I don’t see that. So they may be an opportunity cost for the next few months, worst case, a few years. But I’m confident they recover.

The real question is whether they’re cheap enough to get comfortable with that uncertainty. After all, Hermès still trades at 30x earnings.

Last time, I barely varied the assumptions across the base, bear, and bull cases. I mainly wanted to show what happens when you buy a stock at 50x earnings and the multiple goes to 40x, or 30x, or lower. That math scared me, and I’m glad it did, because that’s exactly what happened.

This time, I kept the multiple at 30x in all three cases and only changed growth and margins. The multiple could obviously fall further, but a brand like Hermès, in its current state, should be worth that multiple.

In my base case, Hermès grows revenue at about 7.5% a year through 2030: mid-single digits for the next two years, then back toward high single digits as China stabilizes. Margins tick up slightly, as they historically have, and 2027 gets a boost because a temporary French surtax rolls off (at least it’s supposed to). EPS grows close to 10% a year. Add the dividend, and at today's €1,260 you'd expect a return of about 11%. At €1,000 per share, it would be 15% (excluding dividends). That’s when it gets really interesting.

For LVMH, I rebuilt Shawn's model on 2025 actuals with much lower expectations. Revenue grows 3 to 4% a year, Fashion & Leather margins recover a bit, mostly in 2028 to 2030, and at a 21x exit multiple, that's a fair value of about €430 and a buy price around €350. Including the 3% dividend, the expected return from here is about 14%.

So both stocks look fairly cheap by now. LVMH is the cheaper option, but I’m leaning toward Hermès.

LVMH can be a good investment from here, and I'm sure it recovers eventually. But I don't like its position in the luxury market as much. I think brands that sell to the top 1% offer a much better margin of safety and long-term growth outlook.

Hermès kept growing (though slowly) through the worst luxury environment in a long time and kept its 40% margins. But I'm not rushing to buy it at 30x. I know we'll get comments saying that's cheap for Hermès and you have to pay up for quality. But to be fair, we got the same comments at 50x.

We want to buy this company when there's actually blood in the streets. If you've always wanted to own Hermès (or LVMH), I think this is a very reasonable entry. We are just not yet excited enough to sell another position to fund it.

To listen to our discussion of LVMH and Hermès, or for more company Deep Dives, check out our podcast here.

Updates on our Intrinsic Value Portfolio below 👇

To discuss stocks daily with Shawn, Kyle, Daniel, and all Intrinsic Value Mastermind Members, apply here.

“In business, I think the most important thing is to position yourself for the long term and not be too impatient, which I am by nature, and I have to control myself.”

— Bernard Arnault

📺 WATCH: Shawn and my Tier List of the Widest-Moat Businesses

🎧 LISTEN: William’s Interview with Venture-Capital Legend Sir Michael Moritz

📖 READ: Mathieu Martin on “Killing Your Losers”

You can also read our archive of past Intrinsic Value breakdowns, in case you’ve missed any, here — we’ve covered companies ranging from Alphabet to FICO, TransDigm, Perimeter Solutions, PayPal, DoorDash, Crocs, LVMH, Uber, and more!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Apply to join our Intrinsic Value Mastermind Community of investors.

Read our full archive of Intrinsic Value Breakdowns here.

Keep an eye on your inbox for our newsletters on Sundays. If you have any feedback for us, simply respond to this email or message [email protected].