Why Does Louis Vuitton Like a Weaker Euro?

• Second Half of 2014—Euro Weakness: By September 30, 2014, the euro hit about $1.26, and it ended 2014 at $1.21.⁶ Because of the euro’s decline, there was no currency impact on LVMH’s third-quarter revenues and a +2% currency impact on its fourth-quarter revenues.

While the cumulative currency impact on LVMH’s revenue of more than 30 billion euros was -2%,⁷ this is very different from the -5% impact seen in the first quarter of 2014. It’s also worth noting that on February 3, 2015—the day these results were made public—the euro was at $1.15,⁸ and with Mario Draghi’s blockbuster plan for quantitative easing, it’s tough to make a case for significant euro strengthening going forward.

Weaker Euro Not Only Tailwind for LVMH

While we’re particularly interested in LVMH’s example as a firm helped by a weakening euro, Mr. Arnault’s mention of the oil price decline is also worth noting. In a speech, Bill Dudley, the president of the New York Federal Reserve Bank, said that a $20-per-barrel decline in global oil prices results in an income transfer of about $670 billion per year from oil producers to oil consumers.⁹ Put another way, if the decline in Brent oil from its approximately $115 high in 2014 (June 19, 2014) to its level of about $55 on February 3, 2015—a drop of $60 per barrel—persisted for one year, oil consumers would have an additional $2 trillion or so that they didn’t need to spend on oil.¹⁰

Maybe some of that admittedly hypothetical amount would be spent on the aspirational luxury goods of LVMH.

¹As of 12/31/14, LVMH was the 12th largest holding in the WisdomTree Europe Hedged Equity Index at 2.8%.
²Nadya Masidlover, “LVMH Optimistic About 2013, Except for Euro,” The Wall Street Journal, 1/31/13.
³Refers to the euro reaching a level of $1.39 on 5/6/14, the recent peak of its appreciation against the U.S. dollar.
⁴LVMH Q4 2014 Earnings Call, Bloomberg transcript, 2/3/15.
⁵Source: Bloomberg, with levels of the euro as of specified dates.
⁶Source: Bloomberg, with levels of the euro as of specified dates.
⁷Source: 2014 Annual Results, LVMH Moet Hennessy Louis Vuitton, 2/3/15.
⁸Source: Bloomberg, with level of the euro as of specified date.
⁹Source: William C. Dudley, “The 2015 Economic Outlook and the Implications for Monetary Policy,” Federal Reserve Bank of New York, 12/1/14.
¹⁰Levels of oil prices refer specifically to Brent oil with Bloomberg as source for specified dates. The $2 trillion comes from multiplying Dudley’s income transfer statement of $670 billion per year by three to coincide with the $60 drop in the price of Brent oil ($20 times three). The statement is hypothetical in nature and meant for illustrative purposes.