Just how many Louis Vuitton monogrammed handbags does the world need? A whole lot, it seems. Strong demand at the label best 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 having 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 that this luxury party that began in the second 50 % of 2016 continues to be completely swing. But you will find good 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 inside the economy took their toll. There has undoubtedly been an element of catching up following the hiatus, which super-charged spending might commence to wane as 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 exists a further risk to Chinese demand if trade tensions with all the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is really a French company, it’s hard to find out these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment among the nation’s consumers, making them less inclined to be on a high-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents an important risk towards the industry.
But there are more regions to be concerned about. Although the U.S. has become another bright spot, stock exchange volatility this coming year is going to do little to encourage the sensation of prosperity that’s crucial for confidence to spend 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 prices are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for just one, the group’s Gucci label still has lot choosing it, even though it’s already enjoyed 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 have the ability to retain its lead. Given its scale, with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry better than most. Which also causes it to be well evtyxi to pick off weaker rivals if the bling binge finally comes to an end.