LVMH looks to shrink its luxury empire

0:00Thinking long-term about your investment career? Hear stories, advice, and lessons from seasoned leaders at Capital Group on the Capital Ideas Podcast. Subscribe and start listening today. Published by Capital Client Group, Inc. Good morning from the Financial Times. Today is Thursday, May 7th, and this is your FT News Briefing. American fuel is making its way around the globe, and hedge funds are really enjoying last month's tech stock rally. Plus, luxury conglomerate LVMH is trying to declutter its wardrobe. They own 75 different brands spanning hotels and fashion brands. They own media houses, and they are now sort of making hard decisions about what actually still fits.

0:45I'm Mark Filippino, and here's the news you need to start your day.

0:57The U.S. is exporting more fuel than ever. It sent over 8.2 million barrels of refined fuels overseas every day last week. That includes gasoline, diesel, and jet fuel. And it's a 20 % increase from the same time last year, according to U.S. energy data. It's to make up for the shortages caused by the Iran war. Asia and Europe have been hit especially hard. Everyone's holding their breath as Tehran considers a peace proposal from the U.S., but things are on shaky ground. Israel struck Beirut on Wednesday despite a ceasefire, and the U.S. hit an Iranian ship it says violated Washington's blockade of the country's ports.

1:33Still, the cost of Brent crude dropped below$100 a barrel at one point yesterday in anticipation of peace. The S &P 500 closed about 1.5 % higher.

1:48Hedge funds are sitting pretty right now thanks to a tech stock rally. That's led to hedge funds having their best monthly performance since 2020. I'm joined now by the FT's Kostas Morsalis to learn more. Hi, Kostas. Hi, thanks for having me. Good to have you. So give us a sense of scale here. So it's been a huge rally. We saw some very strong earnings from big AI companies like Alphabet for the first quarter, and they signaled a huge amount of spending, hundreds of billions, on AI infrastructure like chips. and that sent a lot of stocks soaring higher. So Intel more than doubled, AMD went up 74%.

2:26And that has also meant that big blue chip indices like the S &P 500 was up 10%. So it's been a huge rally in one month. And hedge funds have taken advantage. So it's been a very, very strong month. So is this a big switch from earlier in the year? It's definitely a dramatic turnaround. March was a terrible month for hedge funds. One of the worst since the COVID lockdowns, which shut down the world economy in 2020. And I mean, hedge funds were really hit badly by the Iran war, which suddenly revised up inflation expectations and that hit government bonds. The stock market was partly impacted. So it was a brutal month.

3:08So it's a big rebound. So hedge funds performance was really tied to equities in the past month. Is that usually the case? Hedge funds are typically quite correlated to the market, which means they rise in the market, they fall in the market. We reported on some research from BNP Paribas that said that they were the most correlated to the market last year than they've been in over five years. And this is partly mechanical. It's because equity hedge funds tend to be more long biased than short. So they buy stocks more than they bet against them. But in general, the stock market has been very strong, and equity hedge funds have tried to ride that and perform well for their investors.

3:51Is there a lesson hedge funds can learn from this past month's performance? Hedge funds are having a bit of a moment right now. Private equity and private credit have struggled with distributions back to investors. And so hedge funds, which are more liquid, easier access for cash for investors, they've been having a bit of a moment. But back in 2022, when we had a big bear market, a lot of hedge funds which were correlated to the market actually lost a lot of money and investors pulled their money. So I think one of the lessons that investors should take from this is that hedge funds are quite correlated to markets and they need to be quite careful in how they invest in them.

4:28Because what we've found is that when markets suffer, it's not just your equity portfolio, your bond portfolio, hedge funds can also suffer as well. Costas Marsalis covers hedge funds for the FT. Thanks, Kostas. Thank you.

4:48Samsung workers want a bigger cut of the chip makers' ballooning AI profits. The South Korean company is beefing with its staff. Labor unions are threatening to strike if Samsung doesn't increase wages and bonuses. If their demands are not met, unions say they'll stage an 18-day walkout later this month. To give you a sense of how well the company is doing, Samsung's stock hit a record high yesterday, and its net profit last quarter is up more than five times what it was a year ago. And a big part of its success is that memory chips are a huge deal right now. Supply is tight, and a strike at Samsung could disrupt global supply chains.

5:25It could also potentially hit South Korea's economy. The country's central bank says that about half of first quarter GDP growth was because of chip making.

5:40LVMH is looking to slim down a bit. The world's top luxury goods conglomerate is looking to sell even more of its brands, like Marc Jacobs and its stake in Rihanna's Fenty Beauty. It's the first time that LVMH is selling more than it's buying. The FT's Adrienne Classe covers the crossroads of money and luxury in Paris. She's here to tell us more. Hi, Adrienne. Hi, Marc. Thanks for having me. Good to have you. So what's been going on at LVMH? Well, the company is looking at selling some of its businesses that are not really in the center of what they do, which is sell luxury goods such as handbags and fashion like Dior and Louis Vuitton all around the world.

6:19And they're looking at some of their brands and assets that have not been doing quite so well or just are not as core to the business and seeing if there might be people interested in buying them. And why is the company doing this? It seems like it has acquired a lot of new businesses in the last 40 years. Yeah. So, I mean, LVMH was built through acquisition by Bernard Arnault. It's a billionaire CEO who built this whole thing from the ground up, essentially. What's changed now is that the environment for luxury and the luxury industry in general has been pretty challenging for the past few years.

6:53So pretty much since 2023, a huge boom in demand for handbags and champagne and whatever else that you can think of, shoes, fashion, went into reverse. And it has not really picked up since then. That, I think, is the framework through which LVMH is looking at what it owns, which is a lot. They own 75 different brands spanning hotels and fashion brands. They own media houses, and they are now sort of making hard decisions about what actually still fits. Yeah, let's talk about that a little bit. What is it trying to let go of and what is it hanging on to or even acquiring? So LVMH is not looking to sell any of their really big central businesses that drive profits.

7:41One of the things that they've been looking at is selling Marc Jacobs, the fashion brand, which was very, very successful and its design was very successful in the early 2000s and is now not really going anywhere. And they're also looking at things like Fresh and Makeup Forever. So brands that probably aren't as high-end, maybe aren't super stylish right now and that they've owned for a while. Interestingly, they're also looking for a buyer for their stake in Rihanna, the singer, in case you live under a rock, her beauty brand that she founded in which they own almost half. So they're looking for a buyer for that stake.

8:21And that's actually a super valuable assets. So that's estimated to be worth between$1.5 and$2.5 billion. So what does this tell you about the future of large luxury brand conglomerates? Well, I think they're facing a real question that, I mean, maybe saying existential question is too strong, but there is a big question mark hanging over this industry that has grown immensely over the past two decades, and especially in the past five to seven years. You know, luxury used to be this very rarefied world where you were buying high quality products that most people could not access. But now these have been transformed from brands with a few shops in Paris or in Milan into multi-billion dollar sales machines, essentially.

9:09And the question of how big can you get as a luxury brand has been asked many times over the past decades. And each time it's been proven wrong and these brands have continued to grow. But I think it bears, you know, thinking about again, because at some point, do shoppers get disillusioned and sort of the trick mirror of an exclusive product that's also available to everyone starts to fall away a bit. That's the FT's Adrienne Classa in Paris, who maybe thinks I don't know who Rihanna is. Thanks, Adrienne. Thank you so much. You can read more on all these stories for free when you click the links on our show notes.

9:46This has been your daily FT News briefing. Check back tomorrow for the latest business news.

10:30We'll be right back.

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