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Just finished reading The House of Arnault. 10 of my favorite highlights: 1. He made a bunch of comments that were very, very detail-oriented. Things that you wouldn’t typically notice, but once you’ve seen tens of thousands of stores over the years, it’s what comes to your mind immediately. 2. Arnault spots any incongruities that might disrupt the aura of opulence he has carefully constructed. Then he reels off texts and emails to his senior executives describing any perceived deficiencies in bullet points of obsessive detail. 3. Arnault has assembled the world’s largest luxury conglomerate and globalized a sector once constrained by the limited ambitions of family-owned European companies encrusted in tradition. 4. Arnault believed that luxury brands could be larger than anyone at the time imagined. 5. "Every morning I have fun when I arrive." 6. He abhors complacency so much. The worst way to start a meeting is to tell him the sale are robust. 7. Dior had three stores and the equivalent of €90 million in sales back then (when Arnault took over). It has 439 stores and had €9.5 billion in sales last year. 8. Arnault is clever enough to realize that when someone is an extremely creative personality you need to give the horse room to run and then back up that talent with strong LVMH management. 9. Last year LVMH spent €2.45 billion on real estate acquisitions. He makes money from his own stores, from leasing space to rivals, and from the appreciation of premium real estate. 10. Arnault recently raised the CEO retirement age at LVMH from 75 to 80. Afterward he got a letter from Warren Buffett telling him he made a mistake by setting the new age limit so low. I made a podcast about this rare Bernard Arnault interview. It is episode 355 of Founders Podcast and it’s waiting for you in your podcast app.

The upcoming Guzman y Gomez IPO will further cement the status of modern day public markets as a Ponzi-esque wealth distribution mechanism for a privileged few and in many ways not much different to online gambling websites.   It is also further proof that, more than ever, 'success' in business today flows from finance sector connections and the ability to hard sell a growth story, without any real consideration for business fundamentals or realities.   For those who haven't been reading the daily media articles - which are all a necessary part of a successful IPO hype machine - the company and its highly conflicted investors and advisors have decided that A$2.2 billion is a reasonable valuation of this business.   This is irrespective of fact that it is struggling to make money and would in fact have gone broke over the past year if it didn't quietly do a pre-IPO raising of A$135 million.   That raising valued the business at A$18 a share or A$1.76 billion, even though it was survival capital, yet somehow the business has increased in value by over 20% in 6 months to now be worth A$2.2 billion.   It's got to the point where I feel stupid, and know I'm being laughed at, when doing financial analysis of these IPOs - as I did for Adore Beauty Group and WeWork - because it just doesn't seem to matter anymore, but here's some comments anyway.   The A$2.2 billion values the business at over 30x forecast FY25 EBITDA, but as The Australian Financial Review notes this is pro forma EBITDA, which basically means their own interpretation of earnings for the purposes of getting their IPO away.   I spent some time reading their prospectus over the weekend, and I'm very thankful for my 25 years of financial analysis experience, as it's really quite tricky seeing the wood for the trees given that they provide multiple views of each financial statement - pro forma and statutory.   It turns out the their pro formas do cool things like shift lease expenses below EBITDA and ignore share based compensation (our old friend), such that a more cynical person could argue that their real FY25 EBITDA multiple is closer to 50x.   And this 2% ROI is a based on EBITDA, not NPAT, which is forecast to be negative for FY24 and only A$6 million on revenue of over $400 million for FY25 - which is better than their FY23 loss of A$2.3 million.   All while the current RBA cash rate is a whopping 4.35%.   But there are so many other things a horrible cynical person could get stuck on, like the fact that the CEO doesn't even want to be in the business anymore and has only returned to do the superyacht IPO sales jig, or the fact that of the $335.1 million raised $135 million will go to existing shareholders and millions more to their advisors.   This means that over 40% of the raising is going directly to existing shareholders at a valuation almost 50% higher than the $15 per share valuation put on the business this week by Morningstar's Johannes Faul...   [Continued in comments...]