Just how many Louis Vuitton monogrammed handbags does the world need? A lot, 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 increase in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive considering 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 there are good reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth comes from China.
The country’s individuals are back following a crackdown on extravagance as well as a slowdown inside the economy took their toll. There has undoubtedly been an element of catching up after the hiatus, which super-charged spending might start to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they have an inclination to splash out more.
You will find 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 really a French company, it’s hard to find out that these particular issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment among the nation’s consumers, which makes them less inclined to go on a higher-end shopping spree. Given they make up about 40 percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents a substantial risk to the industry.
But there are other regions to worry about. Although the U.S. has been another bright spot, stock exchange volatility this year is going to do little to encourage the feeling 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 stated that prices are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, and also at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label continues to have lot going for 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 capacity to retain its lead. Given its scale, with operations spanning cosmetics to wines and spirits, it will be able to withstand pressures on the industry better than most. Which also can make it well evtyxi to pick off weaker rivals when the bling binge finally involves a conclusion.