J.P. Morgan: LVMH Q2 Sales Show Gentle Recovery, Maintain Neutral Rating

Overview

J.P. Morgan released the LVMH 2026 Q2 and H1 earnings preview report. The report adjusted forecasts based on recent industry data, geopolitical developments, and exchange rate fluctuations (assuming EUR/USD at 1.145 in Q3). Overall, the institution kept fundamental assumptions for LVMH unchanged, raising profit forecasts by 1% solely due to currency factors. The report believes that with lower comparison bases and continued improvement in brands such as Dior, LVMH's sales trend is stabilizing, but this is insufficient to drive stock price re-rating in the short term, hence maintaining a "neutral" rating.

Core views

Sales Side: Expected Group overall organic sales for Q2 2026 to grow 2% year-on-year, reported sales 19.3 billion euros (-1% YoY). This growth rate showed sequential improvement compared to Q1's -2%. Main drivers come from 400 basis points lower comparison bases and continued improvement from Dior (Dior) new series listings, partially offsetting negative impact of weak demand in Middle East (projected Middle East sales decline 2%, widening from -1% in Q1). Segment Performance: Fashion & Leather Goods (F&LG) department expected to achieve 1% organic growth (excluding FX), where Dior (Dior) sales expected flat in Q2 (Q1 was mid-single digit decline), drag from older series gradually fading. Watches & Jewellery (Watches & Jewellery) department performing strongly, expected Q2 organic growth 8%, benefiting from good momentum of Bulgari (Bulgari) and Tiffany (Tiffany) and some pricing measures. Wines & Spirits (W&S) department expected Q2 decline 4%, mainly affected by timing factor reversal for Cognac (expected decline 7%), H1 sales roughly flat. Selective Retailing department organic growth 3%, but reported sales declined 5% affected by DFS Greater China consolidation adjustment. Perfumes & Cosmetics department excluding FX expected flat. Profit Side: Expected 2026 H1 underlying EBIT 8.5 billion euros, down 6% YoY; EBIT margin down 50 bps YoY to 22.1%. Profit pressure mainly from operational deleveraging and FX headwinds. Among them, F&LG department EBIT margin expected down 100 bps to 33.7%, dragged by approx 60-70 bps FX headwinds, causing this department H1 EBIT down 8% to 6.1 billion euros. In other departments, Wines & Spirits margin continues to decline, Selective Retailing and Watches & Jewelry margins improve.

Analysis framework

The institution adopts a bottom-up summation approach for earnings breakdown. First, it adjusts organic growth rates for each business department by tracking recent industry data and geopolitical dynamics, combined with updated exchange rate assumptions (EUR/USD 1.145). Second, it focuses on analyzing the impact of core brand (such as Dior) product cycles and new-to-old series replacement on sales, as well as macro consumption performance differences across different regions (such as Japan, Middle East, US). Finally, it derives changes in EBIT margin for each department combined with operating leverage effects and exchange rate fluctuations, thereby arriving at group-wide profit forecasts. For valuation, it uses Sum-of-the-Parts (SOTP) combined with DCF model for cross-verification.

Methodology notes

• Valuation methodsSOTP Segment Valuation

  SOTP Segment Valuation

  Valuing different business segments of a company (such as fashion, wines, jewelry, etc.) separately using suitable valuation multiples (such as EV/EBIT or EV/Sales) and summing them up, suitable for diversified large groups, can more accurately reflect the value of each segment.

• Valuation methodsDCF Cash Flow Discounting

  DCF Cash Flow Discounting

  Assessing a company's intrinsic value by forecasting future free cash flows and discounting them back to present value. The research report uses medium-term growth rate 5%, terminal growth rate 3.5%, and Weighted Average Cost of Capital (WACC) 9% as key assumptions, used to support SOTP valuation results.

• Industry Analysis FrameworksVolume-price decomposition

  Volume-Price Decomposition

  When analyzing sales growth, distinguish the contribution of volume growth and price increases (price hikes). The research report mentions that Watches & Jewelry growth benefited partly from "pricing measures", i.e., driving revenue growth through price hikes, which is a common analytical dimension in the luxury goods industry.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LVMH (LVMH.PA)

  Directly Covered Target

  Strengths

  Core brand Dior (Dior) sales stabilizing and recovering; Watches & Jewellery business (Bulgari, Tiffany) growing strongly; Possesses strong brand portfolio and pricing power.

  Weaknesses

  Wines & Spirits business continues to be weak; Demand in Middle East region declines widening; Operational deleveraging and FX headwinds compress margins.

  Comparison

  Compared to peers, LVMH holds leading position in Fashion & Leather, but faces common challenges of weak macro consumption environment.

  Risks

  Deteriorating macro economy; Exchange rate fluctuations; Negative impact from major M&A.

Key data

• Q2 Group Organic Sales Growth Forecast+2%Improving on -2% in Q1, mainly due to base effect and Dior recovery
• Q2 F&LG Organic Sales Growth Forecast+1%Dior (Dior) sales expected flat, offsetting Middle East region -2% drag
• Q2 Watches & Jewelry Organic Sales Growth Forecast+8%Good momentum from Bulgari and Tiffany, plus price hike contribution
• H1 EBIT Margin Forecast22.1%Down 50 bps YoY, affected by operating deleveraging and FX headwinds
• 2026 EPS Forecast Adjustment+1%Slightly raised due to update of exchange rate assumptions, fundamental assumptions unchanged
• Target Price€580.00Based on SOTP valuation, corresponding to 2027 expected multiples

Impact & implications

The research report believes that LVMH is currently in a trend stabilization phase, especially with core brand Dior (Dior) sales returning to stability or slight growth, providing certain support for stock prices. However, due to overall growth still being moderate and built on a lower comparison base, the market lacks powerful catalysts to drive significant stock price re-rating. Therefore, the institution maintains a neutral rating, believing the current stock price reasonably reflects fundamentals, with limited upside potential. For investors, attention needs to be paid to the continued performance of Dior in subsequent quarters and the recovery situation of demand in the Middle East region.

Risks

• Significant slowdown in sales of high-margin Louis Vuitton (Louis Vuitton) and broader leather goods categories
• Deteriorating macro economic environment, including poor US market performance
• Appreciation of Euro against USD, RMB, or JPY
• Negative impact brought by major M&A activities
• Impact of normalization process lower than expected
• Consumers becoming more picky and flowing to top brands
• Leather goods innovation pushes brands to exit downturn cycle faster than peers (if not occurring constitutes risk)
• Chinese consumer recovery faster than expected (if not occurring constitutes risk)
• FX fluctuation risk

What to watch

• Continued stability and growth of Dior (Dior) sales
• Recovery progress of demand in Middle East region
• Actual sales performance after 'bonus' normalization in Japanese market
• Destocking progress of Wines & Spirits department (especially Cognac)
• Exchange rate trends of Euro against USD, RMB, and JPY