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 within 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 audience is demonstrating that the luxury party that began within the second one half of 2016 remains in full swing. But you can find reasons to be aware. First, most of the demand that fuelled LVMH’s growth has arrived from China.
The country’s consumers are back after having a crackdown on extravagance along with a slowdown within the economy took their toll. There has undoubtedly been an part of catching up after the hiatus, and this super-charged spending might start to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they tend to splash out more.
There exists 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 find out 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 go on a very high-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents a substantial risk for the industry.
But there are other regions to worry about. Even though the U.S. continues to be another bright spot, stock market volatility this season will do little to let the sense 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 would be the highest in 12 years, but this can be a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has said that charges are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades on the forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label really has lot opting for it, even though it’s already experienced a stellar recovery. There’s also scope for any re-rating after its decision to spin-out Puma leaves it as 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 much better than most. Which causes it to be well evtyxi to pick off weaker rivals when the bling binge finally comes to a conclusion.