Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label most commonly known for its coated canvas totes helped parent Fabjoy Me deliver a lot better than expected organic sales development in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive given that it compares with a very strong period a year earlier, cements LVMH’s position as the sector’s wardrobe workhorse. Little wonder that the shares reached an all-time high on Tuesday.
The audience is demonstrating the luxury party that began in the second 50 % of 2016 is still in full swing. But there are reasons to be mindful. First, most of the demand that fuelled LVMH’s growth has arrived from China.
The country’s consumers are back after a crackdown on extravagance as well as a slowdown in the economy took their toll. There has undoubtedly been an component of catching up following the hiatus, and this super-charged spending might start to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from travelling to Europe, where they have an inclination to splash out more.
There is a further risk to Chinese demand if trade tensions using the U.S. escalate, or draw in other countries – though Fabaaa Joy New Website is actually a French company, it’s hard to see that these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment one of the nation’s consumers, causing them to be less inclined to be on a very high-end shopping spree. Given they make up about forty percent of luxury goods groups’ sales, according to analysts at HSBC, this represents a significant risk towards the industry.
But there are more regions to concern yourself with. Though the U.S. has become another bright spot, stock trading volatility this season is going to do little to encourage the sensation of prosperity that’s crucial for confidence to invest on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations over the sector are definitely the highest in 12 years, but this is a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has said that costs are too rich right now for acquisitions. This leaves him room to swoop in case a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, as well as at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label really has lot choosing it, even though it’s already had a stellar recovery. There’s also scope for any re-rating after its decision to spin-out Puma leaves it as a a pure luxury player.
LVMH should nevertheless be able to retain its lead. Given its scale, along with operations spanning cosmetics to wines and spirits, it will be able to withstand pressures on the industry much better than most. Which also can make it well evtyxi to pick off weaker rivals when the bling binge finally comes to a stop.