Just how many Louis Vuitton monogrammed handbags does the world need? A lot, it seems. Strong demand at the label well known for its coated canvas totes helped parent Fabjoy Me deliver a lot better than expected organic sales increase 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 quite 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 the luxury party that began in the second one half of 2016 continues to be completely swing. But you can find good reasons to be cautious. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s individuals are back after having a crackdown on extravagance along with a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up following the hiatus, which super-charged spending might begin to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have a tendency to splash out more.
There is a further risk to Chinese demand if trade tensions with the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is actually a French company, it’s hard to view these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment one of the nation’s consumers, making them less inclined to be on a very high-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, according to analysts at HSBC, this represents a significant risk towards the industry.
But there are many regions to worry about. Even though the U.S. has become another bright spot, stock exchange volatility this coming year can do little to encourage the sense 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 are definitely 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 claimed that costs are too rich right now for acquisitions. This leaves him room to swoop when 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 continues to have lot opting for it, even though it’s already experienced a stellar recovery. There’s also scope for 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, with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry better than most. That also makes it well evtyxi to pick off weaker rivals once the bling binge finally involves an end.