Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, 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 growth in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive given that it compares with 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 audience is demonstrating the luxury party that began in the second half of 2016 continues to be completely swing. But you can find reasons to be mindful. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s individuals are back following a crackdown on extravagance along with a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up right after the hiatus, and this super-charged spending might begin to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they have a tendency to splash out more.
There exists a further risk to Chinese demand if trade tensions with the U.S. escalate, or draw in other countries – though Fabaaa Joy New Website is really a French company, it’s hard to see these issues can’t touch it. The spat could produce 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 forty percent of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk to the industry.
But there are more regions to worry about. Though the U.S. has been another bright spot, stock trading volatility this season is going to do little to let the sensation 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 throughout 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 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 enjoyed a stellar recovery. There’s also scope to get a re-rating after its decision to spin-out Puma leaves it as being a pure luxury player.
LVMH should nevertheless be able 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 much better than most. Which also causes it to be well evtyxi to pick off weaker rivals once the bling binge finally involves a stop.