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 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 group is demonstrating that this luxury party that began in the second 50 % of 2016 continues to be entirely swing. But you can find top reasons to be mindful. First, much of the demand that fuelled LVMH’s growth comes from China.
The country’s people are back after having a crackdown on extravagance along with a slowdown within the economy took their toll. There has undoubtedly been an component of catching up right after the hiatus, and that super-charged spending might start to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from travelling to Europe, where they have a tendency 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 actually a French company, it’s hard to see that these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment among the nation’s consumers, causing them to be less inclined to go on a very high-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents a substantial risk towards the industry.
But there are more regions to concern yourself with. Even though the U.S. has been another bright spot, stock exchange volatility this season can do little to encourage 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 are 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 in case a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, as well as 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 be able 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 once the bling binge finally comes to a conclusion.