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 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 given 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 in the second half of 2016 remains completely swing. But there are reasons to be aware. First, a lot of the demand that fuelled LVMH’s growth comes from China.
The country’s consumers are back following a crackdown on extravagance as well as a slowdown in the economy took their toll. There has undoubtedly been an part of catching up after the hiatus, and that super-charged spending might commence 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 is 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 view that these particular issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment among the nation’s consumers, making them less inclined to go on a high-end shopping spree. Given they account for about forty percent of luxury goods groups’ sales, according to analysts at HSBC, this represents a significant risk towards the industry.
But there are other regions to concern yourself with. Though the U.S. has been another bright spot, stock market volatility this season is going to do little to encourage the sense of prosperity that’s crucial for confidence to enjoy on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations throughout the sector are the highest in 12 years, but this is 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 in case 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 still 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 a pure luxury player.
LVMH should nevertheless have the ability to retain its lead. Given its scale, along with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry better than most. Which makes it well evtyxi to pick off weaker rivals if the bling binge finally involves an end.