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 much 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 considering the fact 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 group is demonstrating the luxury party that began inside the second half of 2016 is still entirely swing. But you will find reasons to be cautious. First, much of the demand that fuelled LVMH’s growth comes from China.
The country’s individuals are back after having a crackdown on extravagance as well as a slowdown in the economy took their toll. There has undoubtedly been an part of catching up following the hiatus, and that super-charged spending might commence to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have an inclination to splash out more.
You will find a further risk to Chinese demand if trade tensions with the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is a French company, it’s hard to view that these particular issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, making them less inclined to go on a high-end shopping spree. Given they account for about forty percent of luxury goods groups’ sales, based on analysts at HSBC, this represents a substantial risk to the industry.
But there are more regions to concern yourself with. Though the U.S. continues to be another bright spot, stock market volatility this year will do little to encourage the feeling 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 across the sector are 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 prices are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades on 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 to get a re-rating after its decision to spin-out Puma leaves it as a a pure luxury player.
LVMH should nevertheless have the ability to retain its lead. Given its scale, and with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry a lot better than most. Which also can make it well evtyxi to pick off weaker rivals when the bling binge finally comes to a stop.