Goodbye DFS, hello Sephora: LVMH's major strategic shift — an analysis of the 2025 financial year

LVMH closes the 2025 financial year with a clear-sighted assessment. Following the post-pandemic euphoria, Bernard Arnault's group reported revenue of 80.8 billion euros, a 5 percent decline on a reported basis.

While this headline decline is largely exacerbated by currency volatility, particularly the weakness of the dollar and yen against the euro, organic performance proved more resilient with a slight 1 percent decrease on a like-for-like basis and at constant exchange rates. Recurring operating profit followed this trend, standing at 17.7 billion euros, down 9 percent.

Profitability affected by currency exchange rates

Recurring operating profit, a key indicator of actual performance, was hit hard by currency volatility, with a negative impact of 1.06 billion euros. This phenomenon, combined with the slight erosion of organic sales, explains the compression of the operating margin, now set at 22 percent compared to 26.5 percent two years earlier. This decline illustrates a “squeeze effect” where the fixed costs of a network of over 6,200 stores weigh on a less dynamic revenue base, forcing the group to manage its investments more rigorously.

Fashion and leather goods facing Asian slowdown

The group's central pillar, the Fashion and Leather Goods division, has not been spared by this cyclical change, with sales down 8 percent on a reported basis. Although the operating margin remains at a remarkable 35 percent, the division's profit dropped by 13 percent. This performance reflects the fragility of the Asia region (excluding Japan), whose share of the global mix has fallen from 31 percent to 26 percent in two years. While the resilience of Loro Piana helps to limit the damage, the slowdown in consumption in mainland China calls for a reassessment of the reliance on this volume market for houses like Louis Vuitton or Dior.

Persistent fragility of wines and spirits

The Wines and Spirits sector is the most immediate area of concern, with operating profit collapsing by 25 percent over the year. Beyond customs tensions over Cognac in the US and China, the group is facing a profound societal shift. Global wine consumption has fallen to its lowest level since 1996, recording a 2.6 percent decline in 2023 alone, according to the International Organisation of Vine and Wine.

Faced with this underlying trend, marked by a relative lack of interest in red wines and the rise of “no-alcohol” or more casual lifestyles, LVMH must reinvent its consumption moments. The decline in Champagne volumes, falling below 61 million bottles, shows that even the prestige segment is no longer completely disconnected from public health realities. The challenge for the group is now to support this sobriety with a radical move upmarket and diversification into spirits that are in line with new consumer habits and evolving tastes.

Selective retailing: DFS paradox and rise of Sephora

In contrast to this trend, Selective Retailing has established itself as the main driver of dynamism with a 28 percent jump in its recurring operating profit. This performance is based on a two-pronged strategy.

On the one hand, Sephora confirms its status as a sustainable growth engine. By attracting a younger clientele through exclusive launches such as the Rhode brand, the retailer is gaining market share and improving its margins thanks to an effective omnichannel strategy.

On the other hand, the division has certainly benefited from a drastic “rationalisation” policy of operations at DFS, its duty-free business. This vigorous cost-cutting, often carried out to clean up a balance sheet before a sale, allowed the group to present optimised profitability indicators just before concluding the agreement to sell DFS's assets in Greater China in January 2026. By divesting the Gallerias in Hong Kong and Macao, LVMH is marking the end of a travel retail model that was too exposed to geopolitical risks, in order to refocus on the jewel that is Sephora.

Balance sheet management that preserves future

Despite these challenges, LVMH's financial structure remains exceptionally solid. Operating free cash flow exceeds 11 billion euros, an increase of 8 percent, which guarantees the group complete strategic autonomy. The net debt ratio, reduced to 9.9 percent of equity, reflects prudent management that preserves the capacity to invest in future acquisitions. Maintaining a proposed dividend of 13 euros confirms the group's desire to stabilise investor confidence, even at the cost of a more linear return.

In conclusion, LVMH is entering a transition phase where profitability per square metre now takes precedence over geographical expansion. The group is focusing on hyper-exclusivity to justify high prices, while purging its portfolio of the most volatile activities. The 2026 financial year, marked by the deployment of new creative directions at Celine and Givenchy, will serve as a barometer to measure the world leader's ability to renew the desirability of its brands in a fragmented economic landscape.

Note: The analysis is based on consolidated data as of December 31, 2025. The announced dividend remains subject to the approval of the Annual General Meeting scheduled for April 23, 2026.

This article was translated to English using an AI tool.

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